Classification
Cases
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
[1961] EWCA Civ 7
Diplock LJ
“Every synallagmatic contract contains in it the seeds of the problems In what event will a party be relieved of his undertaking to do that which he has agreed to do but has not yet done? The contract may itself expressly define some of these events, as in the cancellation clause in a charter-party; but, human prescience being limited, it seldom does so exhaustively and often fails to do so at all. In some classes of contracts such as sale of goods, marine insurance, contracts of affreightment evidenced by bills of lading and those between parties to tills of exchange, Parliament has defined by statute some of the events not provided for expressly in individual contracts of that class; but where an event occurs the occurrence of which neither the parties nor Parliament have expressly stated will discharge one of the parties from further performance of his undertakings it is for the court to determine whether the event has this effect or not.
The test whether an event has this effect or not has been stated in a number of metaphors all of which I think amount to the same things Does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?
This test is applicable whether or not the event occurs as a result of the default of one of the parties to the contract, but the consequences of the event are different in the two cases. Where the event occurs as a result of the default of one party the party in default cannot rely upon it as relieving himself of the performance of any further undertakings on his part and the innocent party, although entitled to, need not treat the event as relieving him of the performance of his own undertakings. This is only a specific application of the fundamental legal and moral rule that a man should not be allowed to take advantage of his own wrong. Where the event occurs as a result of the default of neither party each is relieved of the further performance of his own undertakings and their rights in respect of undertakings previously performed are now regulated by the Law Reform (Frustrated Contracts) Act 1943.
This branch of the common law has reached its present stage by the normal process of historical growth, and the fallacy in Mr. Ashton Roskill’s contention that a different test is applicable when the event occurs as a result of the default of one party from that applicable in cases of frustration where the event occurs as a result of the default of neither party lies, in my view, from a failure to view the cases in their historical context. The problems in what event will a party to a contract be relieved of his undertaking to do that which he has agreed to do but has not yet done? has exercised the English Courts for centuries, probably ever since assumpsit emerged as a form of action distinct from covenant and debt and long before even the earliest cases which we have been invited to examine; but until the rigour of the rule in Paradine v Jane[5] was mitigated in the middle of the last century by the classic judgments of Mr Justice Blackburn in Taylor v Caldwell [6] and Baron Bramwell in Jackson v Union Marine Insurance [7] it was, in general, only events resulting from one party’s failure to perform his contractual obligations that were regarded as capable of relieving the other party from continuing to perform what he had undertaken.
In the earlier cases before the Common Law Procedure Act 1852, the problem tends to be obscured to modern readers by the rules of pleading peculiar to the relevant forms of action-covenant, debt and assumpsit, and the nomenclature adopted in the judgments, which were mainly on demurrer, reflects this. It was early recognised that contractual undertakings were of two different kinds; those collateral to the main purpose of the parties as expressed in the contract and those that were mutually dependent so that the non-performance of an undertaking of this class was an event that excused the other party from the performance of his corresponding undertakings. In the nomenclature of the eighteenth and early nineteenth centuries undertakings of the latter class were called “conditions precedent” and a plaintiff under the rules of pleading had to aver specially in his declaration his performance or readiness and willingness to perform all those contractual undertakings on his part that constituted conditions precedent to the defendant’s undertaking for non-performance of which the action was brought. In the earliest cases such as Pordage v Cole[8] and Thorpe v Thorpe[9] the question whether an undertaking was a condition precedent appears to have turned upon the verbal niceties of the particular phrases used in the written contract and it was not until 1773 that Lord Mansfield, in the case, which is a legal landmark, Boone v Eyre,[10] swept away these arid technicalities. “The distinction”, he said,
“is very clear. Where mutual covenants go to the whole of the consideration on both sides they are mutual conditions, the one precedent to the other. But where they go only to a part, where a breach may be paid for in damages, there the defendant has a remedy on his covenant and shall not plead it as a condition precedent”.
This too was a judgment on demurrer but the principle was the same when the substance of the matter was in issue. Other phrases expressing the same idea were used by other judges in the cases which have already been cited by Lord Justice Sellers, and I would only add to his comments upon them that when it is borne in mind that until the latter half of the nineteenth century the only event that could be relied upon to excuse performance by one party of his undertakings was a default by the other party no importance can be attached to the fact that in occasional cases, and there may be others besides Freeman v. Taylor (1831) 8 Bingham page 124 , the Court has referred to the object or purpose of the party not in default rather than to the object or purpose of the contract, for the relevant object or purpose of the party not in default is that upon which there has been a consensus ad idem of both parties as expressed in the words which they have used in their contract construed in the light of the surrounding circumstances.
The fact that the emphasis in the earlier cases was upon the breach by one party to the contract of his contractual undertakings, for this was the commonest circumstance in which the question arose, tended to obscure the fact that it was really the event resulting from the breach which relieved the other party of further performance of his obligations; but the principle was applied early in the nineteenth century and without analysis to cases where the event relied upon was one brought about by a party to a contract before the time for performance of his undertakings arose but which would make it impossible to perform those obligations when the time to do so did arrive: for example, Short v Stone;[11] Ford v Tiley;[12] Bowdell v Parsons.[13] It was not, however, until Jackson v. Union Marine Insurance (1874) 10 Common Pleas page 125, that it was recognised that it was the happening of the event and not the fact that the event was the result of a breach by one party of his contractual obligations that relieved the other party from further performance of his obligations. “There are the cases”, said Baron Bramwell (at page 147. of the report in 10 Common Pleas)
“which hold that, where the shipowner has not merely broken his contract, but has so broken it that the condition precedent is not performed, the charterer is discharged. Why? Not merely because the contract is broken. If it is not a condition precedent, what matters it whether it is unperformed with or without excuse? Not arriving with due diligence or at a day named is the subject of a cross-action only. But not arriving in time for the voyage contemplated, but at such a time that it is frustrated is not only a breach of contract, but discharges the charterer. And so it should though he has such an excuse that no action lies”.
Once it is appreciated that it is the event and not the fact that the event is a result of a breach of contract which relieves the party not in default of further performance of his obligations two consequences follow. (1) The test whether the event relied upon has this consequence is the same whether the event is the result of the other party’s breach of contract or not, as Mr. Justice Devlin pointed out in Universal Cargo Carriers Corporation v Citati.[14] (2) The question whether an event which is the result of the other party’s breach of contract has this consequence cannot be answered by treating all contractual undertakings as falling into one of two separate categories: “conditions” the breach of which gives rise to an event which relieves the party not in default of further performance of his obligations, and “warranties” the breach of which does not give rise to such an event.
Lawyers tend to speak of this classification as if it were comprehensive, partly for the historical reasons which I have already mentioned and partly “because Parliament itself adopted it in the Sale of Goods Act, 1893, as respects a number of implied terms in contracts for the sale of goods and has in that Act used the expressions “condition” and “warranty” in that meaning. But it is by no means true of contractual undertakings in general at common law.
No doubt there are many simple contractual undertakings, sometimes express but more often because of their very simplicity (“It goes without saying”) to be implied, of which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. And such a stipulation, unless the parties have agreed that breach of it shall not entitle the non-defaulting party to treat the contract as repudiated, is a “condition”. So too there may be other simple contractual undertakings of which it can be predicated that no breach can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and such a stipulation, unless the parties have agreed that breach of it shall entitle the non-defaulting party to treat the contract as repudiated, is a “warranty”.
There are, however, many contractual undertakings of a. more complex character which cannot be categorised as being “conditions” or “warranties” if the late nineteenth century meaning adopted in the Sale of Goods Act, 1893, and used by Lord Justice Bowen in Bensen v Taylor Sons & Co[15] be given to those terms. Of such undertakings all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the • event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a “condition” or a “warranty”. For instance, to take Baron Bramwell’s example in Jackson v. Union Marine Insurance itself (at page 142), breach of an undertaking by a shipowner to sail with all possible dispatch to a named port does not necessarily relieve the charterer of further performance of his obligation under the charter-party, but if the breach is so prolonged that the contemplated voyage is frustrated it does have this effect.
In 1874 when the doctrine of frustration was being foaled by “impossibility of performance” out of “condition precedent” it is not surprising that the explanation given by Baron Bramwell should give full credit to the dam by suggesting that in addition to the express warranty to sail with all possible dispatch there was an implied condition precedent that the ship should arrive at the named port in time for the voyage contemplated. In Jackson v Union Marine Insurance there was no breach of the express warranty; but if there had been, to engraft the implied condition upon the express warranty would have been merely a more complicated way of saying that a breach of a shipowner’s undertaking to sail with all possible dispatch may, but will not necessarily, give rise to an event which will deprive the charterer of substantially the whole benefit which it was intended that he should obtain from the charter. Now that the doctrine of frustration has matured and flourished for nearly a century and the old technicalities of pleading “conditions precedent” are more than a century out of date, it does not clarify, but on the contrary obscures, the modern principle of law where such an event has occurred as a result of a breach of an express stipulation in a contract, to continue to add the now unnecessary colophon “therefore it was an implied condition of the contract that a particular kind of breach of an express warranty should not occur.” The common law evolves not merely by breeding new principles but also, when they are fully grown, by burying their ancestors.
As my “brethren have already pointed out, the shipowner’s undertaking to tender a seaworthy ship has, as a result of numerous decisions as to what can amount to “unseaworthiness”, become one of the most complex of contractual undertakings. It embraces obligations with respect to every part of the hull and machinery, stores and equipment and the crew itself. It can be broken by the presence of trivial defects easily and rapidly remediable as well as by defects which must inevitably result in a total loss of the vessel.
Consequently the problem in this case is, in my view, neither solved nor soluble by debating whether the shipowner’s express or implied undertaking to tender a seaworthy ship is a “condition” or a “warranty”. It is like so many other contractual terms an undertaking one breach of which may give rise to an event which relieves the charterer of further performance of his undertakings if he so elects and another breach of which may not give rise to such an event but entitle him only to monetary compensation in the form of damages. It is, with all deference to Mr. Ashton Roskill’s skilful argument, by no means surprising that among the many hundreds of previous cases about the shipowner’s undertaking to deliver a seaworthy ship there is none where it was found profitable to discuss in the judgments the question whether that undertaking is a “condition” or a “warranty”; for the true answer, as I have already indicated, is that it is neither, but one of that large class of contractual undertakings one breach of which may have the same effect as that ascribed to a breach of “condition” under the Sale of Goods Act and a different breach of which may have only the same effect as that ascribed to a breach of “warranty” under that Act. The cases referred to by Lord Justice Sellers illustrate this and I would only add that in the dictum which he cites from Kish v. Taylor (1912 Appeal Cases page 604, at page 617) it seems to me from the sentence which immediately follows it as from the actual decision in the case and the whole tenor of Lord Atkinson’s speech itself that the word “will” was intended to be “may”.
What the learned judge had to do in the present case as in any other case where one party to a contract relies upon a breach by the other party as giving him a right to elect to rescind the contract, was to look at the events which had occurred as a result of the breach at the time at which the charterers purported to rescind the charter-party and to decide whether the occurrence of those events deprived the charterers of substantially the whole benefit which it was the intention of the parties as expressed in the charter-party that the charterers should obtain from the further performance of their own contractual undertakings.
One turns therefore to the contract, the Baltime 1939 Charter, of which Lord Justice Sellers has already cited the relevant terms. Clause 13, the “due diligence” clause, which exempts the shipowners from responsibility for delay or loss or damage to goods on board due to unseaworthiness unless such delay or loss or damage has been caused by want of due diligence of the owners in making the vessel seaworthy and fitted for the voyage, is in itself sufficient to show that the mere occurrence of the events that the vessel was in some respect unseaworthy when tendered or that such unseaworthiness had caused some delay in performance of the charter-party would not deprive the charterer of the whole benefit which it was the intention of the parties he should obtain from the performance of his obligations under the contract – for he undertakes to continue to perform his obligations notwithstanding the occurrence of such events if they fall short of frustration of the contract and even deprives himself of any remedy in damages unless such events are the consequence of want of due diligence on the part of the shipowner.
The question which the learned judge had to ask himself was, as he rightly decided, whether or not at the date when the charterers purported to rescind the contract, namely 6th June, 1957, or when the shipowners purported to accept such rescission, namely 8th August, 1957, the delay which had already occurred as a result of the incompetence of the engine room staff, and the delay which was likely to occur in repairing the engines of the vessel and the conduct of the shipowners “by that date in taking steps to remedy these two matters, were, when taken together, such as to deprive the charterers of substantially the whole benefit which it was the intention of the parties they should obtain from further use of the vessel under the charter-party.
In my view, in his judgment – on which I would not seek to improve – the learned judge took into account and gave due weight to all the relevant considerations and arrived at the right answer for the right reasons.”
B SAnd N Ltd (BVI) v Micado Shipping Ltd (Malta)
[2000] EWCA Civ 296
Waller LJ
DISCUSSION
39. There was cited to us Bunge Corporation v Tradax Export S.A. [1981] 2 Lloyd’s Rep 1. Mr Hill relied on the passage in the speech of Lord Wilberforce at pp. 5 and 6 and in particular the passage where Lord Wilberforce said:-
“It remains true, as Lord Roskill has pointed out in Cehave N.V. v Bremer Handelsgesellschaft m.b.H., [1975] 2 Lloyd’s Rep. 445; [1976] 1 Q.B. 44, that the Courts should not be too ready to interpret contractual clauses as conditions. And I have myself commended, and continue to commend, the greater flexibility in the law of contracts to which Hong Kong Fir points the way (Reardon Smith Line Ltd. V Hansen-Tangen, [1976] 2 Lloyd’s Rep. 621; [1976] 1 W.L.R. 989 at pp. 627 and 998). But I do not doubt that, in suitable cases, the Courts should not be reluctant, if the intentions of the parties as shown by the contract so indicate, to hold that an obligation has the force of a condition, and that indeed they should usually do so in the case of time clauses in mercantile contracts. To such cases the “gravity of the breach” approach of Hong Kong Fir would be unsuitable. I need only add on this point that the word “expressly” used by Lord Justice Diplock at pp. 494 and 70 of his judgment in Hong Kong Fir should not be read as requiring the actual use of the word “condition”: any term or terms of the contract, which, fairly read, have the effect indicated, are sufficient.”
He relied also on Lord Roskill’s speech from pp. 12-13.
40. Mr Joseph relied on passages in Lord Lowry’s speech at p. 8 and on the passage in Lord Roskill’s speech at p. 15 where he said that :-
“The most important single factor in favour of [the term being a condition in that case] is that until the requirement of the 15 day consecutive notice was fulfilled, the respondents could not nominate . . . . as the loading port.”
He further relied on the famous passage in Bowen LJ’s judgment in Bentsen v Taylor [1893] 2 Q.B. 274 at p. 281 cited by Lord Roskill in Bunge at p. 12:
“There is no way of deciding that question except by looking at the contract in the light of the surrounding circumstances, and then making up one’s mind whether the intention of the parties, as gathered from the instrument itself, will best be carried out by treating the promise as a warranty sounding only in damages, or as a condition precedent by the failure to perform which the other party is relieved of his liability.”
41. Both counsel referred us to the paragraphs in Halsbury’s Laws Vol. 9(1). Mr Joseph placed greater reliance on paragraph 931 headed “Time not generally of the essence” while Mr Hill placed greater reliance on paragraph 932 “Circumstances making time of the essence”.
42. Paragraph 12-040 from Chitty on Contracts 28th Edition seems to me to provide a neat summary of the principles. Having discussed the numerous authorities on the point, including the authorities cited to us, the editors say this:-
“Conclusion. The conclusion to be drawn from these cases is that a term of a contract will be held to be a condition:
(i) if it is expressly so provided by statute;
(ii) if it has been so categorised as the result of previous judicial decision (although it has been said that some of the decisions on this matter are excessively technical and are open to re-examination by the House of Lords)
(iii) if it is so designated in the contract or if the consequences of its breach, that is, the right of the innocent party to treat himself as discharged, are provided for expressly in the contract; or
(iv) if the nature of the contract or the subject-matter or the circumstances of the case lead to the conclusion that the parties must, by necessary implication, have intended that the innocent party would be discharged from further performance of his obligations in the event that the term was not fully and precisely complied with.
Otherwise a term of a contract will be considered to be an intermediate term. Failure to perform such a term will ordinarily entitle the party not in default to treat himself as discharged only if the effect of breach of the term deprives him of substantially the whole benefit which it was intended that he should obtain from the contract.”
43. The problem with clause 46 is that on a strict construction of the language there would appear to be an inconsistency about the situations in which the clause would contemplate that a failure to have or obtain a major’s approval should be considered as of great importance, and indeed of such importance that the Charterers should have a right to cancel.
Dorene Ltd. v. Suedes (Ireland) Ltd.
[1981] IR 312
Costello J. H.C.
Was there a contract?
What was the legal position when the proceedings were instituted? It was suggested on Dorene’s behalf in counsel’s closing submissions (contrary, it should be said, to an earlier written and verbal opinion of Dorene’s leading counsel) that a concluded bargain had been reached between the parties. It was urged that Dorene had not pressed for the rent-free period as required in the letter of the 18th July and that agreement on the commencement date of the lease had been reached. As to the other conditions laid down by Dorene in the letter of 18th July (i.e., the approval of I.D.A. and the approval of Doreen Holdings), it was said that these should be regarded as conditions subsequent in a concluded contract. It is, of course, important to make a distinction between a condition which must be satisfied before any legally binding contract comes into operation (a condition precedent) and a condition which is a part of a legally binding contract which, if not fulfilled, can result in the contract ceasing to be binding (a condition subsequent): see Wylie’s Irish Conveyancing Lawpara. 9.069 at pp. 383-4. Dorene’s counsel suggested that these conditions were conditions subsequent and were analogous to a case in which a purchaser agrees to buy a house “subject to me getting an advance on the property”a condition which did not prevent a binding contract for sale coming into operation in Rooney v. Byrne. 12 He also suggested, as an alternative argument, that in any event the evidence established that these conditions had been waived by Dorene. He said that Dorene could enforce the concluded bargain which the parties had made even though the final terms of the lease had not been agreed, as the Court would itself fix them in default of agreement.
I find myself unable to agree with these propositions. Dorene, as I have said, made an offer to take a lease but made the offer subject to certain conditions which had to be fulfilled before they could be legally bound. The situation was in no way similar to that of a purchaser who agrees to buy a property but safeguards himself by providing that he may avoid the bargain if, for example, he fails to obtain a loan or fails to obtain planning permission. Even if the condition relating to the date of commencement was agreed and the condition relating to the rent-free period tacitly dropped, and even if the conditions relating to grant aid from I.D.A. and main-board approval had been waived (and I will deal in a moment with this point), there still remains an insurmountable obstacle in the way of specific performance proceedings because Suedes had made it abundantly clear that they too wished to keep their options open and because their acceptance of Dorene’s offer was on the basis that Suedes would not be contractually bound to grant a lease until its terms had been finally agreed. This never happened. On the 9th October, 1979, the parties were still in negotiation. Therefore, it seems to me that there was no legally binding agreement to grant a lease when Dorene’s proceedings were launched and, in my opinion, they were instituted without reasonable or probable cause.
Quite a lot of time was taken up at the hearing on the suggestion that Dorene had waived the conditions in their letter of the 18th July relating to I.D.A. approval and main-board approval. As I have already pointed out, even if they had been waived Suedes’ acceptance of the offer was itself a conditional one. But the evidence does not satisfy me that any waiver in fact took place. There is no evidence that Dorene’s board met and decided that they would take a lease from Suedes even if they had not obtained the approval of the holding company and even if they had not obtained a decision from I.D.A. to grant financial assistance. In the absence of a formal board meeting, there is no evidence of any such decision being taken by any director or group of directors. I note that after a consultation which was held on the 11th October Dorene’s solicitor made no attempt to obtain any information from Dorene’s directors on this point and that, in an opinion written after a consultation on the 13th December, counsel wrote with reference to these conditions:”Of course these conditions could have been waived or satisfied before the defendant sought to withdraw but as far as I can see neither of these things happened. In his statement Mr. Harrington does not suggest that he ever withdrew these conditions.” I am satisfied that Dorene’s offer to take a lease remained a conditional one throughout all the negotiations up to the time that Suedes called them off.
O’Connor v. Coady
[2005] 1 ILRM 256, [2004] IESC 54 THE SUPREME COURT
McCracken J
The Nature of the Condition
Both before the learned trial Judge and at the hearing of this appeal there was considerable discussion as to whether the condition relating to planning permission was a condition precedent or a condition subsequent. The distinction may at times be of considerable importance, in that if there is a condition precedent, then no contract comes into existence unless the condition is fulfilled, while if there is a condition subsequent, there is a valid contract in being, but it is not enforceable unless the condition is fulfilled. However, the distinction does not seem to me to be relevant in the present case. The real issue in this case is not whether a contract ever existed, but whether the terms of the contract can be enforced once the time for compliance with the condition has passed.
Effect of the Condition
The important features of this condition are, firstly that it relates to a planning application which was already in existence, secondly there was a fixed period for compliance with the condition and thirdly time was not made of the essence of the contract in relation to that period. The general principles relating to conditional contracts were laid down expressly and succinctly by Lord Jenkins giving the judgment of the Privy Council in Aberfoyle Plantations Ltd v. Cheng [1960] AC 115. After pointing out that the intention of the parties as expressed in the contract ought to be implied from the language used therein was all important, he said at page 124:-
“But, subject to this overriding consideration, their Lordships would adopt as warranted by authority and manifestly reasonable in themselves, the following general principles: (I) Where a conditional contract of sale fixes a date for the completion of the sale, then the condition must be fulfilled by that date; (II) Where a conditional contract of sale fixes no date for completion of the sale, then the condition must be fulfilled within a reasonable time; (III) Where a conditional contract of sale fixes (whether specifically or by reference to the date fixed for completion) the date by which the condition is to be fulfilled, then the date so fixed must be strictly adhered to, and the time allowed is not to be extended by reference to equitable principles.”
While that case did not refer to a planning condition, nevertheless the principles enunciated have since been adopted as being applicable to planning conditions.
The condition in the present case clearly comes within the principles set out at (III) cited above.
In an earlier case, cited in the Aberfoyle Plantations Limited case, somewhat similar views were expressed by Maugham J. In In Re Sandwell Park Colliery Company [1929] 1 CH 277 a contract was subject to what was admittedly clearly a condition precedent, namely the approval of the Court. At page 282 Maugham J stated as a general principle:-
“Courts of equity, in dealing with actions for specific performance relating to land, have been accustomed to give effect to the real intention rather than to the precise words fixing the date for completion. The effect is that a clause fixing the date for completion is equivalent to a clause stating that completion shall be on that date or within a reasonable time thereafter. But there is no ground for a similar construction in the case of a condition upon which the validity of the contract as one of sale depends. The distinction is obvious. In the first case both parties are bound, and a moderate delay in completion is thought not to injure either. In the latter, the very existence of the mutual obligations is dependent on the performance of the condition. The purchasers do not know in the first instance if their purchase money will ever be required. In general, and in the present case, there is no promise or undertaking by the vendor that the condition will be fulfilled. Equity has, I think, never applied its liberal views as to time to such a condition. If a date is mentioned, the condition must be exactly complied with. If a date is not mentioned, the condition must be fulfilled within a reasonable time; there is no difference between the views of law and equity in considering what is a reasonable time, and the uncertain position of the purchaser must be bore in mind.”
While that case concerned a condition precedent and concerned a condition to be performed by the vendor rather than the purchaser, in my view the same principles apply to the present case. Whether this is a condition precedent or a condition subsequent, the existence of the mutual obligations, or their enforcement, is dependant on the performance of the condition. There is no undertaking by the purchaser in this case that the condition will be fulfilled, and the vendor does not know whether he will ever get his money.
The effect of a conditional contract has been considered in several Irish cases since the Aberfoyle Plantations Limited case. In O’Mullane v. Riordan [1978] ILRM 73 McWilliam J implicitly refused to accept that a planning condition was a condition precedent to the coming into operation of a contract, and said at page 77:-
“The fact that a contract is subject to a condition has the effect of making it unenforceable until the condition is fulfilled, but it does not mean that there is no contract at all and the case cited (the Aberfoyle Plantations Ltd case) decided that the purchaser was entitled to recover his deposit under a term in the agreement. A condition contract is one which becomes enforceable provided the condition is fulfilled within the time provided by the contract or, if no time is provided, within a reasonable time.”
Similarly in Maloney v. Elf Investments Ltd (Unreported 7th December 1979) McWilliam J expressly rejected the argument that by analogy with the date fixed for closing, the time fixed in a contract for performance of a condition in relation to planning should be regarded in equity as the date fixed in the contract or a reasonable time thereafter unless time had been made of the essence of the contract. He expressly approved the third proposition in the Aberfoyle Plantations Limited case.
In Sepia Ltd & Anor v. M & P Hanlon Ltd & Anor [1979] ILRM 11 the effect of a planning condition was also considered. The facts of the case were somewhat complicated by the fact that there were two contracts involved, but the first contract contained a special condition which read:-
“(11) The contract is subject to the purchaser obtaining planning permission to develop the property the subject matter of the sale, which permission the purchaser shall apply for and take all proper steps to obtain with all reasonable speed, but nothing herein shall be deemed to effect the provisions of special condition number 8 herein.”
That there was no specific date by which the planning permission was to be complied with but condition 8 expressly made time of the essence of the contract in relation to the completion of the sale. In considering the effect of this, Costello J said at page 24:-
“In the first contract the parties had expressly made time of the essence of the contract when they provided that the sale was to be closed on 1 May 1975. Condition 11 relating to planning permission must be interpreted in the light of the necessity strictly to observe the date set for closing. The result is, in my opinion, that if the plaintiffs had failed to obtain planning permission by 1 May 1975 and if the closing date was not extended by mutual agreement then the defendants were entitled to treat the contract as at an end if the plaintiffs refused to complete: the absence of planning permission would not have excused the non performance by the plaintiffs of the contract.”
This was a case which came within the first proposition in the Aberfoyle Plantations Limited case, and is in accordance with that decision.
Finally, in the Northern Ireland case of McKillop v. McMullen [1979] NI 85 the Aberfoyle Plantation Limited case was expressly approved.
Strangely enough, there does not appear to be any case in which the Aberfoyle Plantations Limited decision was considered by this Court. However, it has been approved and followed in England, Australia and New Zealand. It appears to me to be a correct analysis of the legal position of conditions inserted in a contract which postpone the enforceability of the contract, be they conditions precedent or conditions subsequent. These propositions are clearly particularly applicable to conditions relating to the obtaining of planning permission, and indeed to any condition to where the time required for its performance is uncertain. Particularly in contracts for the sale of land, certainty is important to both parties. I am quite satisfied that the effect of the contract in the present case is that at the expiration of the four month period for obtaining planning permission the condition had not been fulfilled and the time allowed for its fulfilment could not be extended by reference to equitable principles.
The Effect of Non Compliance
Somewhat surprisingly the Appellant has not sought to argue that the contract came to an end immediately on the expiration of the four month period allowed for fulfilment of the condition. Indeed, the wording of the questions in the summons seems to make it clear that the Appellant considers that the failure to comply with the condition rendered the contract voidable rather than void. In my view there is certainly an argument to be made that where there is a fixed date by which there must be completion of a condition, the contract automatically becomes void on the failure to comply with the time limit. However, that is not an argument which this Court has been asked to consider, nor is it one raised on the pleadings, and accordingly, expressly without deciding the point, for the purposes of this decision I am assuming that the contract became voidable.
The letter of 12th September 2002 from the vendor’s solicitors did not opt to avoid the contract in express terms. It did state, rightly or wrongly, the belief and contention of the Appellant’s solicitor at the time that the contract had lapsed “and is at an end”. It offered to enter into negotiations for a new contract and it purported to return the deposit. Perhaps more importantly it was headed “Subject to Contract/ Contract Denied”. In my view this letter in unequivocal terms notified the Respondent solicitor that the Appellant was treating the contract as being at an end. In the absence of any express contractual provision, the rescission of a voidable contract does not have to be in any particular form. What is required is a clear notification that the relevant party is treating the contract as at an end. In my view this letter clearly complies with that requirement.
The only question, therefore, is whether the Appellant’s right to avoid the contract became lost due to the passage of time, either by reason of the Appellant’s delay in taking any action or by reason of the waiver of the condition by the Appellant. There is no doubt that there are many cases of this nature in which a condition inserted for the benefit of one party, in this case the Respondent, can be waived by that party, but that requires some positive act by that party. The fact that the Respondent in the present case continued his planning application and made no attempt to notify the Appellant that he was prepared to complete without the condition being fulfilled, seems to me to make it quite clear that the Respondent always considered that the condition remained. Indeed, the Respondent’s solicitor’s letter of 3rd September, which brought matters to a head, was written on the basis that the condition remained, but was shortly going to be complied with. Accordingly, in my view no question of waiver can arise.
The question of the Appellant’s delay might have been very serious had she done anything to encourage the Respondent to believe that she was not going to enforce the time limit attached to the condition. It could then possibly be argued that the situation amounted to an estoppel. However, there is no suggestion of anything of that nature in the present case. The Appellant simply did nothing until the Respondent notified her solicitor that the planning permission was shortly going to issue. The most that could be said is that her solicitor held the deposit, which of course belonged to the Respondent. On the other hand, the Respondent never requested the return of the deposit, and there is no suggestion that the Appellant personally benefited in any way from it being held by her solicitor. In those circumstances, I do not consider that the delay in any way effected the Appellant’s right to avoid the contract.
Conclusion
In the circumstances of this case I would allow the appeal. I am doing so on the basis that the contract became voidable on the expiration of the four month period for compliance with the planning condition, that the letter of 12th September 2002 constituted a valid rescission of the contract, and that this rescission took place before the planning condition had been fulfilled and in the absence of any waiver on the part of the Respondent.
I would therefore answer the questions in the summons as follows:-
1 The Plaintiff/ Appellant was entitled to rescind the contract dated 31st May following the failure of the Defendant to comply with the special condition on obtaining planning permission by 30th September 2001.
2 The Plaintiff/ Appellant did in fact validly rescind the said contract by the letter of 12th September 2002.
3 Whether the Plaintiff/ Appellant was entitled to regard the said contract as being at an end when the provisions in relation to the obtaining of planning permission within the time limit prescribed were not complied with, was not argued before this Court.
4 In view of the findings at (2) above, the question of whether it was incumbent on the Plaintiff/ Appellant to notify the Defendant/ Respondent that the contract was at an end does not arise.
5 The Plaintiff/ Appellant did not either expressly or by implication do any act or thing as would have indicated to the purchaser that she was waiving the requirement of compliance with the said condition or otherwise indicating that she was treating the said contract as unconditional.
6 The Defendant/ Respondent was not entitled to assume in the absence of the said condition being fulfilled as therein provided that the Plaintiff/ Appellant had waived the said condition or that the contract had otherwise become unconditional or otherwise unenforceable.
Geoghegan J
Returning to the case at hand, the position, as I see it, is that although a helpful book of authorities has been furnished to the court none of the cases are directly in point to the precise questions that arise here. It is important, however, to note that whatever answers may be arrived at by this court to the questions raised in the summons it does not necessarily follow that they can be transported to some other future case in which a planning permission condition or some similar condition is inserted. In every case, as to what is to happen in the event of a condition not being fulfilled is first and foremost a matter for agreement between the parties. The courts will uphold any lawful agreement in this connection. Such agreement may be expressed or implied. If, however, there are no express provisions and if there are no concrete outside circumstances which would raise particular implications there are principles which a court can lay down as applicable in interpreting what the implied agreement of the parties is.
The important principles in this connection were in fact laid down by the Privy Council in Aberfoyle Plantations Limited v.Cheng cited above, principles which in whole or in part have been referred to in Irish cases as well as Australia, New Zealand, Northern Ireland and other English cases. Lord Jenkins (who sat with Lord Denning and the Rt. Hon. L.M.D. de Silva) in giving the advice of the Board laid down the following principles as applicable subject of course to different arrangements having been agreed between the parties.
“(i) Where a conditional contract of sale fixes a date for completion of the sale, then the condition must be fulfilled by that date;
(ii) Where a conditional contract of sale fixes no date for completion of the sale then the condition must be fulfilled within reasonable time;
(iii) Where a conditional contract of sale fixes (whether specifically or by reference to the date fixed for completion) the date by which the condition is to be fulfilled, then the date so fixed must be strictly adhered to and the time allowed is not to be extended by reference to equitable principles.”
The decision of the Privy Council in Aberfoyle has always been controversial but only in one respect. On one interpretation of the opinion delivered by Lord Jenkins (I put it this way because there are hugely varying interpretations as to what he did in fact mean) the condition in that case was treated as a condition precedent in the sense of a condition precedent to the coming into existence of the contract. But as far as I can understand from the case law both in this jurisdiction, in Northern Ireland, in England, in Australia and New Zealand there is no judicial controversy as to the principle that if a time limit is specified in such a condition, then, in the absence of agreement to the contrary it is non-extendable. Not only was this principle accepted by Costello J. in Sepia as referred to above but it was also acknowledged by McWilliam J. in Maloney v. Elf Investments Limited (unreported judgment in the High Court delivered 7th December, 1979). Speaking in the context of waiver of the condition which of course does not apply here, McWilliam J. at p. 8 of the judgment said that he was of opinion that “in the absence of any other authority, that the decision in the Aberfoyle case as to the necessity for exact compliance with the date mentioned in the condition means that there can be no question of waiver after that date has passed.” Again in reliance on Aberfoyle Murray J. in the Northern Ireland case of McKillop v. McMullan [1979] N.I. 85 at 92 appears to endorse the view that where there was a specified completion date and the contract was subject to planning permission that date had to be adhered to for fulfilment of the condition. In this non-controversial respect Aberfoyle has been followed also in judgments delivered in the High Court of Australia in Perri v.Coolangatta Investments Property Limited (1982) 149 CLR 537. In relation to all aspects of this case I have gained considerable assistance from the judgments in that Australian case and I will be returning to them. It is of some passing interest to note that the five judge court comprised three judges all of whom are now former Chief Justices of the High Court of Australia and each of whom delivered written judgments. The court consisted of Gibbs C.J., Stephen, Mason, Wilson and Brennan JJ.
The judgment of Kenny J. in Healy v. Healy (unreported judgment 3rd December, 1973) deals with the question of waiver and is not of any real assistance in this case except that by way of obiter dicta Kenny J. throws out the suggestion that where, as in this case, the closing date is fixed by reference to the grant of the planning permission under the condition and where no planning permission has in fact issued by the date the so called contract without the obligation to comply with the condition might be void for uncertainty. It would seem to me that a court would be slow to come to that conclusion unless it was absolutely compelled to do so. Fortunately the question does not arise to be determined on this Vendor and Purchaser summons.
I am of the view, for the reasons which I have indicated, that once the date mentioned in the condition had passed without the planning permission being available there was an entitlement to bring the contract to an end. I put it that way because I do not accept (and it is clear from the judgment of Carroll J. that counsel for the appellant in the High Court was in agreement on this) that the contract automatically came to an end. It was capable of being brought to an end by notification from one party to the other. I cannot agree with the learned High Court judge that a twenty eight day notice under the contract would have to be served. Indeed the clause in the form of Law Society contract used requiring in certain circumstances a twenty eight day notice is not drafted so as to cover the situation which arose here.
There is no doubt that the condition was not fulfilled within the prescribed time but the question is, did the appellant effectively bring the contract to an end?
It is at this point that it is helpful and relevant to summarise the relevant facts. The relevant condition read as follows:
“The contract herein is subject to the purchaser, his servants or agents obtaining Final Grant of Planning Permission for the residential development applied for by him, his servants or agents on the property at sale herein and after conclusion of all appeals (if any) within 4 months of the date hereof.”
It is that “special condition” which rendered the contract a “conditional contract” an expression to which I will return. A subsequent “special condition” read as follows:
…….
Referring to a passage in a judgment of Isaacs J. in another Australian case Maynard v. Goode (1926) 37 CLR at 540 he agrees with Isaacs J. in pointing out that
“In one sense the stipulation might be a condition precedent to the performance of a particular term of the contract, while in another sense it was a condition subsequent in relation to the whole contract, since the failure of the stipulation would have entitled the vendor to retire from the transaction altogether.”
He goes on to refer to other cases in which it was pointed out the problems of making any relevant distinction between condition precedent and condition subsequent. Mason J. deals with the topic in similar vein in his judgment. He points out that generally speaking the court will tend to favour the construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of the contract. He points out that in most cases it is artificial to say in the face of the details settled upon by the parties that there is no binding contract unless the event in question happens. This view exactly corresponds with the view expressed by McWilliam J. in O’Mullane v. Riordan [1978] I.L.R.M. 73 at 77 where he said the following:
“The price of the land has increased astronomically since May 1972 and it has been argued that, as this contract was subject to a condition (i.e. the obtaining of planning permission) there was no contract until the planning permission had been obtained and that this is the time at which I have to ascertain the value of the land for the purpose of establishing the fairness of the bargain. I was referred in this context to the case of Aberfoyle Plantations Limited v. Kajw Bien Cheng [1960] AC 115. I cannot accept this argument. The fact that a contract is subject to a condition has the effect of making it unenforceable until the condition is fulfilled, but it does not mean that there is no contract at all and the case cited decided that the purchaser was entitled to recover his deposit under a term of the agreement. A conditional contract is one which becomes enforceable provided the condition is fulfilled within the time provided by the contract or if no time is provided within a reasonable time.”
I think that this was the view adopted also by Murray J. in the Northern Ireland case of McKillop cited above notwithstanding the adverse views on that case expressed by the learned High Court judge.
Returning to the Perri case and moving to the judgment of Wilson J. he refers to a passage in the judgment of the well known New Zealand judge, Cooke J., in a case called
Hunt v. Wilson (1978) 2 NZLR 261 at 267 in which that judge said the following:
“I venture to think that the ambiguous labels precedent and subsequent when applied to conditions are seldom of real help in solving issues in this branch of contract law. Certainly they can be positively misleading unless the meaning of what has been said is made specific by explaining to what the condition in question is seen as precedent or subsequent”.
Wilson J. goes on to agree with that view and to point out that the special condition in the Perri case could be described with accuracy as either a condition subsequent to the formation of the contract or is a condition precedent to an obligation in either party to proceed to completion. These views as to the respective meanings of “condition precedent” and “condition subsequent” and as to their frequent overlap were endorsed in the judgment of Brennan J. with which Stephen J. agreed.
In my view, the more helpful terminology is the distinction between a “conditional contract” and an “unconditional contract”. As we all know, by a strange quirk of the law, ordinary terms of an unconditional contract if they are of sufficient importance will themselves be described as “conditions” but that does not mean that the contract is conditional. Normally, a conditional contract will not mean a contract which only comes into existence upon fulfilment of the condition but rather a contract which can only be enforced upon fulfilment of the condition. That is what this contract was.
As I have explained, it has already been conceded that the contract did not automatically lapse upon the breach of condition. Although not all of the views of the judges in the Perri case on this point fully coincided, I think that the case can be read as supporting that concession. But if the contract does not automatically “lapse” to use the terminology contained in the letter from the solicitors for the appellant, how does it come to an end? That is the question which now has to be explored in more detail and on that question also there was no real assistance to be gained from any of the authorities in the book of authorities but I did find assistance from the judgments in the Perri case. Gibbs C.J. in paragraph 10 of his judgment said the following:
“For these reasons I consider that when the time has elapsed for performance of a condition which is not a promissory condition, but a condition precedent to the obligation to complete a contract of sale, either party, if not in default, can elect to treat the contract as at an end if the condition has not been fulfilled or waived and that it is not necessary first to give a notice calling on the party in default to complete the contract or fulfil the condition.”
Later in the same paragraph the same judge says the following:
“Although in Aberfoyle Plantations Limited v. Cheng … an erroneous view may have been taken of the nature of the condition there considered, nevertheless, in my respectful opinion, it was correct to hold that the time fixed by the contract for performance of the condition was not to be extended by reference to equitable principles, …”
But in paragraph 11 the same judge also observes:
“In the view that I have formed, it was then open to the respondent to avoid the contract without first giving any notice limiting a reasonable time for completion. By instituting the proceedings, before the condition had been either fulfilled or waived the respondent sufficiently evidenced its election to avoid the contract.”
I should point out that these views expressed by Gibbs C. J. were in the context of his approving similar views expressed in other Australian cases and in particular the following passage expressed in a case of Gange v. Sullivan (1966) 116 CLR 441:
“Whilst the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition, the authorities cited do show a disposition on the part of the courts to treat non-fulfilment of a condition such as that here under consideration as rendering a contract voidable rather than void in order to forestall a party to a contract from gaining some advantage from his own conduct in securing or contributing to the non-fulfilment of a condition bringing the contract to an end. Accordingly … we are prepared to treat the non-fulfilment of the condition as rendering the contract voidable rather than void.”
Mason J. also makes it clear that, in his view, the time clause would not be self-executing and that the party relying on it would have to rescind. Indeed, that appears to have been the view of all the judges. As there is no authority requiring this court to hold otherwise, I have likewise taken the same view as the Australian courts endorsed in English cases also that non-fulfilment of the condition within the time stipulated renders the contract voidable rather than void. This would seem to me to be especially sensible in the Irish context. I think that two Irish solicitors dealing with each other on a sale would naturally assume that if one was going to treat the contract as at an end because of the breach of the condition he would so inform the other and that it is reasonable to imply such an obligation. This observation is necessarily obiter as the question was not argued in the light of counsel’s concession.
I would allow the appeal. I would answer the questions in the manner suggested by McCracken J. in his judgment.
Hearn v. Collins
[1998] IEHC 187
O’Sullivan J
FUNDAMENTAL BREACH OF CONTRACT
151. I think it is important to clarify the different legal consequences which arise where there have been breaches of an agreement as distinct from fundamental breaches. This matter is dealt with by O’Keeffe J., as he then was, in Carvill -v- Irish Industrial Bank Limited [1968] IR 325 at p.345 as follows:-
“In principle it is difficult to understand how an act can be relied upon to justify dismissal unless it is known at the time of dismissal. It must be conceded that there can be some breaches of contract so fundamental as to show that the contract is entirely repudiated by the party committing them, and that such an act might be relied upon in an action for wrongful dismissal, not as justifying the dismissal, but as supporting a plea that the dismissed servant had himself put an end to the contract. Where the act is not of so fundamental a character but would warrant the dismissal of the servant at the option of the employer, it appears to me to be quite illogical to say that an employer may be heard to say that he dismissed his servant on a ground unknown to him at the actual time of dismissal.”
152. Subsequently in Glover -v- BLN Limited [1973] IR 388 Walsh J. observed (page 426) as follows:-
“Furthermore, as was settled by this Court in Carvill -v- Irish Industrial Bank Limited an employer in defending an action by an employee for wrongful summary dismissal, cannot rely upon misconduct which was not known by the employer at the time of the dismissal. I would add that the misconduct, if known but not in fact used as a ground for dismissal at the time, cannot be relied upon afterwards in an effort to justify the dismissal.”
153. A distinction emerges from these passages between breaches and fundamental breaches.
154. If a fundamental breach comes to light after the dismissal it may still be relied upon by the employer to make a claim not that this subsequently known ground was relied upon as a reason for or otherwise justified the dismissal, but rather that the contract at the time of the dismissal had already been repudiated.
ALLEGATIONS OF FUNDAMENTAL BREACH
THE “NOBBLING” ISSUE
155. In the course of his evidence, Mr Lipton was compelled to contradict or heavily qualify himself on a number of occasions. Even before he gave his evidence questions were raised in relation to it as I indicated in the introduction to my summary of his evidence earlier in this judgment. It might be thought, however, that inaccuracy of recollection on points of detail or even on points of substance are in a different category to the fabrication of a serious allegation that Barry Hearn attempted, on two occasions, to influence him against Stephen Collins in the circumstances described. The nobbling allegation is flatly contradicted by Barry Hearn as a fabrication. Mr Gallagher S.C. for Barry Hearn has submitted that a number of serious questions remain in relation to Ron Lipton’s evidence.
156. Amongst these questions are the fact that there is no explanation for the assertion on the twelfth day of this trial that only one approach was made by Barry Hearn; that the allegation was altered to specify that the second approach was made to Mr Lipton when he was on the way to the ring on the night of the fight prior to the match in order to correct same in response to Barry Hearn’s reaction that an approach made on the way to the ring for the fight proper would have been impossible given the crowd and time constraints; that there was no complaint made by Mr Lipton either to Mr Montano of the WBO or Mel Crystal of the BUI in circumstances where Mr Lipton was aware that Barry Hearn managed Stephen Collins arising out of his phone call with Stephen Collins in April, 1995; that Mr Lipton exhibited an animus against Barry Hearn which was shown by his insistence in repeatedly trying to link Barry Hearn with acts of intimidation in the hotel in Millstreet, despite my prior ruling that no reference should be made to same; that the nobbling allegations were completely at variance with the friendly letter written by Mr Lipton to Barry Hearn shortly after the Millstreet fight; that he described his post Millstreet non-appointment by the WBO as a referee as a punishment by the WBO whom he associated to some extent with Barry Hearn, and finally, apart from the inherent self contradictions, Ron Lipton’s description of the rules committee as chaotic, was in flat contradiction to the evidence of Mel Crystal that it was not.
157. The allegation of nobbling is one of particular gravity. Whilst I accept that the standard of proof required, in relation to this allegation, is proof on the balance of probabilities I consider that the observation of Mr Justice Keane in Masterfoods Limited t/a Mars Ireland -v- HB Ice Cream Limited [1993] ILRM 145 following at page 183 where he says:
“It may well be that that standard should be applied with some degree of flexibility and that the Courts should require allegations of particular gravity to be clearly established in evidence”
is apposite to my consideration of this allegation, although I quite accept, as was made clear by Keane J. in the same context, that this does not mean that a different standard of proof is to be applied.
158. In my view it would be unsafe to accept that Barry Hearn approached Ron Lipton on either one or both of the occasions claimed, because I do not consider that this particularly grave allegation has been clearly established in evidence.
159. I should make it plain that in refusing to accept that this allegation has been clearly made out, I am not rejecting the evidence of Stephen Collins that in the telephone call in April, 1997 Ron Lipton told him of these alleged nobbling approaches. I consider that Stephen Collins generally gave his evidence in a conscientious and truthful fashion and I accept his evidence that in this telephone call, Ron Lipton made these allegations to Stephen Collins against Barry Hearn.
ALLEGATION OF REPUDIATORY BREACH AGAINST STEPHEN COLLINS
183. I will deal with this topic later in my judgment when I come to deal with Stephen collins’ own behaviour.
…….
STEPHEN COLLINS’ OWN BEHAVIOUR
200. I deal now with a submission made on behalf of Barry Hearn that Stephen Collins had himself rendered the management agreement impossible of performance since the 18th March, 1995. He had not gone back to train in Romford since the Millstreet bout, was well nigh impossible to contact despite frequent attempts so to do by Barry Hearn and he acknowledged in cross-examination that he wanted nothing more to do with Barry Hearn after the Millstreet fight and that this remained his attitude in the months of March, April, May and June.
201. It is a matter of common sense, I think, that Stephen Collins cannot complain of a failure on the part of Barry Hearn to provide services for him which he did not want and which he effectively prevented.
202. The submission that Stephen Collins had himself repudiated the agreement must, however, be seen in the light of the following evidence in relation to the attendance by Barry Hearn as Stephen Collins’ manager, at the Purse Bid ceremony in New York on 29th May, 1995 for the Collins/Eubank re-match.
203. Barry Hearn agrees that he went to the purse bid ceremony in New York on the 29th May as manager of Stephen Collins. Furthermore Stephen Collins accepted that if Barry Hearn had been the successful bidder then he would have accepted the promotion of the Eubank rematch under the promotion of Barry Hearn. In this regard, therefore, I hold that Stephen Collins did not make it impossible for Barry Hearn to attend in his capacity as his manager at the purse bid ceremony. I think a distinction has to be drawn, furthermore, between a failure to deliver a service and an active attempt at sabotage. In my view Barry Hearnattempted to undermine the efficacy of the purse bid by attacking the credibility of Frank Warren/Sports Network and this is something which cannot be explained or excused by the argument that Stephen Collins was preventing him generally from carrying out his duties. Plainly Barry Hearn was not prevented from attending on behalf of Stephen Collins at the Purse-Bid ceremony in New York on 29th May. His conduct thereat was a fundamental breach by him amounting to a repudiation of the management agreement, as indeed was the subsequent “Valcarcel” correspondence.
204. I consider that Barry Hearn’s repudiation of the management agreement was accepted by Stephen Collins in his letter of 6th June, 1995. Furthermore I hold that no management services entitling Barry Hearn to a fee were provided after the 18th March, 1995 and specifically that Barry Hearn is not entitled to a fee in connection with the Collins/Eubank re-match for reasons already given.
205. In light of the foregoing I find that the Plaintiffs are not entitled to any relief and I must dismiss their claims.
Photo Production Ltd v Securicor Transport Ltd
[1980] UKHL 2 [1980] AC 827, [1980] 1 All ER 556
Lord Wilberforce
It is first necessary to decide upon the correct approach to a case such as
this where it is sought to invoke an exception or limitation clause in the contract.
The approach of the Master of the Rolls in the Court of Appeal was to consider
first whether the breach was “fundamental”. If so, he said, the court itself
deprives the party of the benefit of an exemption or limitation clause ([1978]
1 W.L.R. 863). The Lords Justices substantially followed him in this argument.
The Master of the Rolls in this was following the earlier decision of the
Court of Appeal, and in particular his own judgment in Harbutt’s “Plasticine”
Ltd. v. Wayne Tank & Pump Co. Ltd. [1970] 1 Q.B. 447. In that case Lord
Denning distinguished two cases (a) the case where as the result of a breach of
contract the innocent party has, and exercises, the right to bring the contract
to an end, (b) the case where the breach automatically brings the contract to
an end, without the innocent party having to make an election whether to
terminate the contract or to continue it. In the first case the Master of the Rolls,
purportedly applying this House’s decision in the Suisse Atlantique case [1967]
1 A.C. 361, but in effect two citations from two of their Lordships’ speeches,
extracted a rule of law that the “termination” of the contract brings it, and with
it the exclusion clause, to an end. The Suisse Atlantique case in his view
“affirms the long line of cases in this court that when one party has been guilty
“of a fundamental breach of the contract . . . and the other side accepts it, so
“that the contract comes to an end . . . then the guilty party cannot rely on an
“exception or limitation clause to escape from his liability for the breach”
(Harbutt’s case p.467). He then applied the same principle to the second case.
My Lords, whatever the intrinsic merit of this doctrine, as to which I shall
have something to say later, it is clear to me that so far from following this
House’s decision in the Suisse Atlantique it is directly opposed to it and that
the whole purpose and tenor of the Suisse Atlantique was to repudiate it.
The lengthy, and perhaps I may say sometimes indigestible speeches of their
Lordships, are correctly summarised in the headnote—holding No. 3—”That
“the question whether an exceptions clause was applicable where there was a
“fundamental breach of contract was one of the true construction of the
“contract”. That there was any rule of law by which exceptions clauses are
eliminated, or deprived of effect, regardless of their terms, was clearly not the
view of Viscount Dilhorne, Lord Hodson, or of myself. The passages invoked
for the contrary view of a rule of law consist only of short extracts from two
of the speeches—on any view a minority. But the case for the doctrine does
not even go so far as that. Lord Reid, in my respectful opinion, and I recognise
that I may not be the best judge of this matter, in his speech read as a whole,
cannot be claimed as a supporter of a rule of law. Indeed he expressly disagreed
with the Master of the Rolls’ observations in two previous cases (Karsales
(Harrow) Ltd. v. Wallis [1956] 1 WLR 936 and U.G.S. Finance Ltd. v. National
Mortgage Bank of Greece [1964] 1 Lloyd’s Rep. 446 in which he had put forward
the “rule of law” doctrine. In order to show how close the disapproved doctrine
is to that sought to be revived in Harbutt’s case I shall quote one passage from
Karsales:
“Notwithstanding earlier cases which might suggest the contrary, it is
“now settled that exempting clauses of this kind, no matter how widely
“they are expressed, only avail the party when he is carrying out his
“contract in its essential respects. He is not allowed to use them as a cover
“for misconduct or indifference or to enable him to turn a blind eye to his
“obligations. They do not avail him when he is guilty of a breach which
“goes to the root of the contract”. (I.c. p.940).
Lord Reid comments as to this that he could not deduce from the authorities
cited in Karsales that the proposition stated in the judgments could be regarded
as in any way “settled law” (p.401).
His conclusion is stated on p.405: “In my view no such rule of law ought to
“be adopted”—adding that there is room for legislative reform.
My Lords, in the light of this, the passage cited by the Master of the Rolls
has to be considered. For convenience I restate it:
“If fundamental breach is established the next question is what effect,
“if any, that has on the applicability of other terms of the contract. This
“question has often arisen with regard to clauses excluding liability, in
“whole or in part, of the party in breach. I do not think that there is
“generally much difficulty where the innocent party has elected to treat
“the breach as a repudiation, bring the contract to an end and sue for
“damages. Then the whole contract has ceased to exist including the
“exclusion clause, and I do not see how that clause can then be used to
“exclude an action for loss which will be suffered by the innocent party
“after it has ceased to exist, such as loss of the profit which would have
“accrued if the contract had run its full term.” (Suisse At/antique [1967]
1 A.C. at p.398.)
It is with the utmost reluctance that, not forgetting the “beams” that may
exist elsewhere, I have to detect here a note of ambiguity or perhaps even of
inconsistency. What is referred to is “loss which will be suffered by the innocent
“party after (the contract) has ceased to exist” and I venture to think that all
that is being said, rather elliptically, relates only to what is to happen in the
future, and is not a proposition as to the immediate consequences caused by
the breach: if it were that would be inconsistent with the full and reasoned
discussion which follows.
It is only because of Lord Reid’s great authority in the law that I have found
it necessary to embark on what in the end may be superfluous analysis. For I
am convinced that, with the possible exception of Lord Upjohn whose critical
passage, when read in full, is somewhat ambiguous, their Lordships, fairly
read, can only be taken to have rejected those suggestions for a rule of law
which had appeared in the Court of Appeal and to have firmly stated that
the question is one of construction, not merely of course of the exclusion clause
alone, but of the whole contract.
Much has been written about the Suisse Atlantique. Each speech has been
subjected to various degrees of analysis and criticism, much of it constructive.
Speaking for myself I am conscious of imperfections of terminology, though
sometimes in good company. But I do not think that I should be conducing
to the clarity of the law by adding to what was already too ample a discussion
a further analysis which in turn would have to be interpreted. I have no second
thoughts as to the main proposition that the question whether, and to what
extent, an exclusion clause is to be applied to a fundamental breach, or a breach
of a fundamental term, or indeed to any breach of contract, is a matter of
construction of the contract. Many difficult questions arise and will continue
to arise in the infinitely varied situations in which contracts come to be breached
—by repudiatory breaches, accepted or not, anticipatory breaches, by breaches
of conditions or of various terms and whether by negligent, or deliberate action
or otherwise. But there are ample resources in the normal rules of contract Law
for dealing with these without the superimposition of a judicially invented rule
of law. I am content to leave the matter there with some supplementary observa-
tions.
1. The doctrine of “fundamental breach” in spite of its imperfections and
doubtful parentage has served a useful purpose. There was a large number of
problems, productive of injustice, in which it was worse than unsatisfactory
to leave exception clauses to operate. Lord Reid referred to these in the Suisse
Atlantique (p.406), pointing out at the same time that the doctrine of fundamental
breach was a dubious specific. But since then Parliament has taken a hand: it
has passed the Unfair Contract Terms Act 1977. This Act applies to consumer
contracts and those based on standard terms and enables exception clauses
to be applied with regard to what is just and reasonable. It is significant that
Parliament refrained from legislating over the whole field of contract. After
this Act, in commercial matters generally, when the parties are not of unequal
bargaining power, and when risks are normally borne by insurance, not only
is the case for judicial intervention undemonstrated, but there is everything to
be said, and this seems to have been Parliament’s intention, for leaving the
parties free to apportion the risks as they think fit and for respecting their
decisions.
At the stage of negotiation as to the consequences of a breach, there is every-
thing to be said for allowing the parties to estimate their respective claims
according to the contractual provisions they have themselves made, rather than
for facing them with a legal complex so uncertain as the doctrine of fundamental
breach must be. What, for example, would have been the position of the respon-
dents’ factory if instead of being destroyed it had been damaged, slightly or
moderately or severely? At what point does the doctrine (with what logical
justification I have not understood) decide, ex post facto, that the breach was
(factually) fundamental before going on to ask whether legally it is to be re-
garded as fundamental? How is the date of “termination” to be fixed? Is it the
date of the incident causing the damage, or the date of the innocent party’s
election, or some other date? All these difficulties arise from the doctrine and
are left unsolved by it.
At the judicial stage there is still more to be said for leaving cases to be
decided straightforwardly on what the parties have bargained for rather than
upon analysis, which becomes progressively more refined, of decisions in other
cases leading to inevitable appeals. The learned judge was able to decide this
case on normal principles of contractual law with minimal citation of authority.
I am sure that most commercial judges have wished to be able to do the same
(cf. Trade & Transport Inc. v. lino Kaiun Kaisha Ltd. [1973] 1 W.L.R. 210,
232 per Kerr J.). In my opinion they can and should.
2. The case of Harbutt must clearly be overruled. It would be enough to
put that upon its radical inconsistency with the Suisse Atlantique. But even if
the matter were res Integra I would find the decision to be based upon un-
satisfactory reasoning as to the “termination” of the contract and the effect of
“termination” on the plaintiffs’ claim for damage. I have, indeed, been unable
to understand how the doctrine can be reconciled with the well accepted prin-
ciple of law, stated by the highest modern authority, that when in the context of
a breach of contract one speaks of “termination”, what is meant is no more than
that the innocent party or, in some cases, both parties, are excused from
further performance. Damages, in such cases, are then claimed under the con-
tract, so what reason in principle can there be for disregarding what the con-
tract itself says about damages—whether it “liquidates” them, or limits them,
or excludes them? These difficulties arise in part from uncertain or inconsistent
terminology. A vast number of expressions are used to describe situations
where a breach has been committed by one party of such a character as to
entitle the other party to refuse further performance: discharge, rescission,
termination, the contract is at an end, or dead, or displaced; clauses cannot
survive, or simply go. I have come to think that some of these difficulties can
be avoided; in particular the use of “rescission”, even if distinguished from
rescission ab initio, as an equivalent for discharge, though justifiable in some
contexts (see Johnson v. Agnew [1979] 1 All E.P. 883) may lead to confusion in
others. To plead for complete uniformity may be to cry for the moon. But what
can and ought to be avoided is to make use of these confusions in order to
produce a concealed and unreasoned legal innovation: to pass, for example,
from saying that a party, victim of a breach of contract, is entitled to refuse
further performance, to saying that he may treat the contract as at an end, or
as rescinded, and to draw from this the proposition, which is not analytical
but one of policy, that all or (arbitrarily) some of the clauses of the contract
lose, automatically, their force, regardless of intention.
If this process is discontinued the way is free to use such words as “discharge”
or “termination” consistently with principles as stated by modern authority
which Harbutt’s case disregards. I venture with apology to relate the classic
passages: In Heyman v. Darwins Ltd. Lord Porter said:
“To say that the contract is rescinded or has come to an end as
“ceased to exist may in individual cases convey the truth with snt
“accuracy, but the fuller expression that the injured party is thereby
“absolved from future performance of his obligations under the contract
“is a more exact description of the position. Strictly speaking, to say that,
“on acceptance of the renunciation of a contract, the contract is rescinded is
“incorrect. In such a case the injured party may accept the renunciation as
“a breach going to the root of the whole of the consideration. By that
“acceptance he is discharged from further performance and may bring an
“action for damages, but the contract itself is not rescinded.” ([1942]
A.C.356, 399)
and similarly Lord Macmillan at p.373: see also Boston Deep Sea Fishing &
Ice Co. Ltd. v. Ansell 39 Ch.D. 339, 361 per Bowen L.J. In Moschi v. Lep Air
Services Ltd. [1973] A.C. 331, 350, my noble and learned friend Lord Diplock
drew a distinction (relevant for that case) between primary obligations under a
contract, which on “rescission” generally come to an end, and secondary
obligations which may then arise. Among the latter he includes an obligation
to pay compensation, i.e., damages. And he states in terms that this latter
obligation “is just as much an obligation arising from the contract as are the
“primary obligations that it replaces”. My noble and learned friend has
developed this line of thought in an enlightening manner in his opinion which
I have now had the benefit of reading.
These passages I believe to state correctly the modern law of contract in the
relevant respects: they demonstrate that the whole foundation of Harbutt’s
case is unsound. A fortiori, in addition to Harbutt’s case there must be over-
ruled the case of Wathes (Western) Ltd. v. Austins (Menswear) Ltd. [1976]
1 Lloyd’s Rep. 14 which sought to apply the doctrine of fundamental breach
to a case where, by election of the innocent party, the contract had not been
terminated, an impossible acrobatic, yet necessarily engendered by the doctrine.
Similarly, Charterhouse v. Tolly [1963] 2 Q.B. 683 must be over-ruled, though
the result might have been reached on construction of the contract.
I must add to this, by way of exception to the decision not to “gloss” the
Suisse Atlantique a brief observation on the deviation cases, since some reliance
has been placed upon them, particularly upon the decision of this House in
Hain Steamship Co. Ltd. v. Tate & Lyle Ltd. [1936] 2 All E.R. 597 (so earlier
than the Suisse Atlantique) in the support of the “Harbutt” doctrine. I suggested
in the Suisse Atlantique that these cases can be regarded as proceeding upon
normal principles applicable to the law of contract generally viz., that it is a
matter of the parties’ intentions whether and to what extent clauses in shipping
contracts can be applied after a deviation, i.e., a departure from the con-
tractually agreed voyage or adventure. It may be preferable that they should
be considered as a body of authority sui generis with special rules derived from
historical and commercial reasons. What on either view they cannot do is to lay
down different rules as to contracts generally from those later stated by this
House in Heyman v. Darwins (I.c.). The ingenious use by Donaldson J. in
Kenyon Son & Craven Ltd. v. Baxter Hoare & Co. Ltd. [1971] 1 W.L.R. 519
of the doctrine of deviation in order to reconcile the Suisse Atlantique with
Harbutt’s case, itself based in part on the use of the doctrine of deviation, illu-
strates the contortions which that case has made necessary and would be
unnecessary if it vanished as an authority.
It is not necessary to review fully the numerous cases in which the doctrine
of fundamental breech has been applied or discussed. Many of these have now
been superseded by the Unfair Contract Terms Act 1977. Others, as decisions,
may be justified as depending upon the construction of the contract (cf.
Levison v. Patent Steam Carpet Cleaning Co. Ltd. [1978] Q.B. 69) in the light of
well known principles such as that stated in Alderslade v. Hendon Laundry
Ltd. [1945] K.B. 189.
In this situation the present case has to be decided. As a preliminary, the nature
of the contract has to be understood. Securicor undertook to provide a service
of periodical visits for a very modest charge which works out at 26p per visit. It
did not agree to provide equipment. It would have no knowledge of the value of
the plaintiffs’ factory: that, and the efficacy of their fire precautions, would be
known to the plaintiffs. In these circumstances nobody could consider it
unreasonable, that as between these two equal parties the risk assumed by
Securicor should be a modest one, and that the respondents should carry the
substantial risk of damage or destruction.
The duty of Securicor was, as stated, to provide a service. There must be
implied an obligation to use due care in selecting their patrolmen, to take care
of the keys and, I would think, to operate the service with due and proper
regard to the safety and security of the premises. The breach of duty com-
mitted by Securicor lay in a failure to discharge this latter obligation. Alterna-
tively it could be put upon a vicarious responsibility for the wrongful act of
Musgrove—viz., starting a fire on the premises: Securicor would be responsible
for this upon the principle stated in Morris v. Martin [1966] 1 Q.B. 716, 739.
This being the breach, does condition 1 apply? It is drafted in strong terms,
“In no circumstances”. . . “any injurious act or default by any employee”.
These words have to be approached with the aid of the cardinal rules of con-
struction that they must be read contra proferentem and that in order to escape
from the consequences of one’s own wrongdoing, or that of one’s servant, clear
words are necessary. I think that these words are clear. The respondents in fact
relied upon them for an argument that since they exempted from negligence
they must be taken as not exempting from the consequence of deliberate acts.
But this is a perversion of the rule that if a clause can cover something other
than negligence, it will not be applied to negligence. Whether, in addition to
negligence, it covers other, e.g., deliberate, acts, remains a matter of construction
requiring, of course, clear words. I am of opinion that it does, and being free to
construe and apply the clause, I must hold that liability is excluded. On this
part of the case I agree with the judge and adopt his reasons for judgment. I
would allow the appeal.
Lord Diplock
my lords,
My noble and learned friend Lord Wilberforce has summarised the facts
which have given rise to this appeal. The contract which falls to be considered
was a contract for the rendering of services by the defendants (“Securicor”) to
the plaintiffs (“the Factory Owners”). It was a contract of indefinite duration
terminable by one month’s notice on either side. It had been in existence for
some two-and-a-half years when the breach that is the subject matter of these
proceedings occurred. It is not disputed that the act of Securicor’s servant,
Musgrove, in starting a fire in the factory which they had undertaken to protect
was a breach of contract by Securicor; and since it was the cause of an event,
the destruction of the factory, that rendered further performance of the contract
impossible it is not an unnatural use of ordinary language to describe it as a
“fundamental breach”.
It was by attaching that label to it that all three members of the Court of
Appeal found themselves able to dispose of Securicor’s defence based on the
exclusion clause restricting its liability for its servants’ torts in terms which
Lord Wilberforce has already set out, by holding that where there had been a
fundamental breach by a party to a contract, there was a rule of law which
prevented him from relying upon any exclusion clause appearing in the contract,
whatever its wording might be.
The Court of Appeal was, I think, bound so to hold by previous decisions of
its own, of which the first was Harbutt’s Plasticine v. Wayne Tank Co. [1970] 1
Q.B. 44. It purported in that case to find support for the rule of law it there laid
down in the reasoning of this House in Suisse Atlantique v. Rotterdamsche Kolen
Centrale [1967] A.C. 361. I agree with Lord Wilberforce’s analysis of the
speeches in Suisse Atlantique, and with his conclusion that this House rejected
the argument that there was any such rule of law. I also agree that Harbutt’s
Plasticine and the subsequent cases in which the so-called “rule of law” was
applied to defeat exclusion clauses should be overruled, though the actual
decisions in some of the later cases might have been justified on the proper
construction of the particular exclusion clause on which the defendant relied.
My Lords, the contract in the instant case was entered into before the passing
of the Unfair Contract Terms Act 1977. So what we are concerned with is the
common law of contract—of which the subject-matter is the legally enforceable
obligations as between the parties to it of which the contract is the source. The
“rule of law” theory which the Court of Appeal has adopted in the last decade
to defeat exclusion clauses is at first sight attractive in the simplicity of its logic.
A fundamental breach is one which entitles the party not in default to elect to
terminate the contract. Upon his doing so the contract comes to an end. The
exclusion clause is part of the contract, so it comes to an end too; the party
in default can no longer rely on it. This reasoning can be extended without undue
strain to cases where the party entitled to elect to terminate the contract does not
become aware of the breach until some time after it occurred; his election to
terminate the contract could not implausibly be treated as exercisable nunc pro
tunc. But even the superficial logic of the reasoning is shattered when it is
applied, as it was in Wathes (Western) Ltd. v. Austins (Menswear) Ltd. [1976]
1 Lloyd’s Rep. 14, to cases where, despite the “fundamental breach”, the party
not in default elects to maintain the contract in being.
The fallacy in the reasoning and what I venture to think is the disarray into
which the common law about breaches of contract has fallen, is due to the use
in many of the leading judgments on this subject of ambiguous or imprecise
expressions without defining the sense in which they are used. I am conscious
that I have myself sometimes been guilty of this when I look back on judgments
I have given in such cases as Hong Kong Fir Shipping Co. Ltd. v. Kawakasi Kisen
Kaisha Ltd. [1962] 2 QB 26; Ward v. Bignall [1967] 1 Q.B. 534; Moschi v. Lep
Air Services [1973] A.C. 331; and in particular Hardwick Game Farm v.
S.A.P.P.A. [1966] 1 W.L.R. 287, when commenting unfavourably on the then
budding doctrine of fundamental breach in a portion of my judgment in the
Court of Appeal that did not subsequently incur the disapproval of this House.
My Lords, it is characteristic of commercial contracts, nearly all of which
to-day are entered into not by natural legal persons, but by fictitious ones, i.e.
companies, that the parties promise to one another that some thing will be done;
for instance, that property and possession of goods will be transferred, that goods
will be carried by ship from one port to another, that a building will be con-
structed in accordance with agreed plans, that services of a particular kind will
be provided. Such a contract is the source of primary legal obligations upon
each party to it to procure that whatever he has promised will be done, is done.
[I leave aside arbitration clauses which do not come into operation until a party
to the contract claims that a primary obligation has not been proved.]
Where what is promised will be done involves the doing of a physical act,
performance of the promise necessitates procuring a natural person to do it; but
the legal relationship between the promisor and the natural person by whom the
act is done, whether it is that of master and servant, or principal and agent, or of
parties to an independent sub-contract, is generally irrelevant. If that person
fails to do it in the manner in which the promisor has promised to procure it to
be done, as, for instance, with reasonable skill and care, the promisor has failed
to fulfil his own primary obligation. This is to be distinguished from “vicarious
liability”—a legal concept which does depend upon the existence of a particular
legal relationship between the natural person by whom a tortious act was done
and the person sought to be made vicariously liable for it. In the interests of
clarity the expression should, in my view, be confined to liability for tort.
A basic principle of the common law of contract, to which there are no excep-
tions that are relevant in the instant case, is that parties to a contract are free to
determine for themselves what primary obligations they will accept. They may
state these in express words in the contract itself and, where they do, the state-
ment is determinative; but in practice a commercial contract never states all the
primary obligations of the parties in full; many are left to be incorporated by
implication of law from the legal nature of the contract into which the parties
are entering. But if the parties wish to reject or modify primary obligations
which would otherwise be so incorporated, they are fully at liberty to do so by
express words.
Leaving aside those comparatively rare cases in which the court is able to
enforce a primary obligation by decreeing specific performance of it, breaches
of primary obligations give rise to substituted or secondary obligations on the
part of the party in default, and, in some cases, may entitle the other party to be
relieved from further performance of his own primary obligations. These
secondary obligations of the contract breaker and any concomitant relief of the
other party from his own primary obligations also arise by implication of law—
generally common law, but sometimes statute, as in the case of codifying
Statutes passed at the turn of the century, notably the Sale of Goods Act 1893.
The contract, however, is just as much the source of secondary obligations as it
is of primary obligations; and like primary obligations that are implied by law,
secondary obligations too can be modified by agreement between the parties,
although, for reasons to be mentioned later, they cannot, in my view, be totally
excluded. In the instant case, the only secondary obligations and concomitant
reliefs that are applicable arise by implication of the common law as modified
by the express words of the contract.
Every failure to perform a primary obligation is a breach of contract. The
secondary obligation on the part of the contract breaker to which it gives rise
by implication of the common law is to pay monetary compensation to the
other party for the loss sustained by him in consequence of the breach; but,
with two exceptions, the primary obligations of both parties so far as they have
not yet been fully performed remain unchanged. This secondary obligation to
pay compensation (damages) for non-performance of primary obligations I will
call the “general secondary obligation”. It applies in the cases of the two
exceptions as well.
The exceptions are:
Where the event resulting from the failure by one party to perform a
primary obligation has the effect of depriving the other party of substantially
the whole benefit which it was the intention of the parties that he should
obtain from the contract, the party not in default may elect to put an end
to all primary obligations of both parties remaining unperformed. (If the
expression “fundamental breach” is to be retained, it should, in the
interests of clarity, be confined to this exception).
Where the contracting parties have agreed, whether by express words or by
implication of law, that any failure by one party to perform a particular
primary obligation (“condition” in the nomenclature of the Sale of Goods
Act 1893), irrespective of the gravity of the event that has in fact resulted
from the breach, shall entitle the other party to elect to put an end to all
primary obligation of both parties remaining unperformed. (In the interests
of clarity, the nomenclature of the Sale of Goods Act 1893, “breach of
“condition” should be reserved for this exception.)
Where such an election is made (a) there is substituted by implication of law
for the primary obligations of the party in default which remain unperformed a
secondary obligation to pay monetary compensation to the other party for the
loss sustained by him in consequence of their non-performance in the future and
(b) the unperformed primary obligations of that other party are discharged. This
secondary obligation is additional to the general secondary obligation; I will
call it “the anticipatory secondary obligation”.
In cases falling within the first exception, fundamental breach, the anticipatory
secondary obligation arises under contracts of all kinds by implication of the
common law, except to the extent that it is excluded or modified by the express
words of the contract. In cases falling within the second exception, breach
of condition, the anticipatory secondary obligation generally arises under
particular kinds of contracts by implication of statute law; though in the case
of “deviation” from the contract voyage under a contract of carriage of goods
by sea it arises by implication of the common law. The anticipatory secondary
obligation in these cases too can be excluded or modified by express words.
When there has been a fundamental breach or breach of condition, the coming
to an end of the primary obligations of both parties to the contract at the election
of the party not in default, is often referred to as the “determination” or
“rescission” of the contract or, as in the Sale of Goods Act 1893 “treating the
“contract as repudiated”. The first two of these expressions, however, are mis-
leading unless it is borne in mind that for the unperformed primary obligations
of the party in default there are substituted by operation of law what I have
called the secondary obligations.
The bringing to an end of all primary obligations under the contract may also
leave the parties in a relationship, typically that of bailor and bailee, in which
they owe to one another by operation of law fresh primary obligations of which
the contract is not the source; but no such relationship is involved in the instant
case.
I have left out of account in this analysis as irrelevant to the instant case an
arbitration or choice of forum clause. This does not come into operation until
a party to the contract claims that a primary obligation of the other party has
not been performed; and its relationship to other obligations of which the
contract is the source was dealt with by this House in Heyman v. Darwins Ltd.
[1942] A.C. 356.
My Lords, an exclusion clause is one which excludes or modifies an obligation,
whether primary, general secondary or anticipatory secondary, that would
otherwise arise under the contract by implication of law. Parties are free to agree
to whatever exclusion or modification of all three types of obligations as they
please within the limits that the agreement must retain the legal characteristics
of a contract; and must not offend against the equitable rule against penalties;
that is to say, it must not impose upon the breaker of a primary obligation a
general second obligation to pay to the other party a sum of money that is
manifestly intended to be in excess of the amount which would fully compensate
the other party for the loss sustained by him in consequence of the breach of the
primary obligation. Since the presumption is that the parties by entering into
the contract intended to accept the implied obligations exclusion clauses are to
be construed strictly and the degree of strictness appropriate to be applied to
their construction may properly depend upon the extent to which they involve
departure from the implied obligations. Since the obligations implied by law in a
commercial contract are those which, by judicial consensus over the years or by
Parliament in passing a statute, have been regarded as obligations which a
reasonable businessman would realise that he was accepting when he entered
into a contract of a particular kind, the court’s view of the reasonableness of any
departure from the implied obligations which would be involved in construing
the express words of an exclusion clause in one sense that they are capable of
bearing rather than another, is a relevant consideration in deciding what mean-
ing the words were intended by the parties to bear. But this does not entitle the
court to reject the exclusion clause, however unreasonable the court itself may
think it is, if the words are clear and fairly susceptible of one meaning only.
My Lords, the reports are full of cases in which what would appear to be very
strained constructions have been placed upon exclusion clauses, mainly in what
to-day would be called consumer contracts and contracts of adhesion. As Lord
Wilberforce has pointed out, any need for this kind of judicial distortion of the
English language has been banished by Parliament’s having made these kinds
of contracts subject to the Unfair Contract Terms Act 1977. In commercial
contracts negotiated between business-men capable of looking after their own
interests and of deciding how risks inherent in the performance of various kinds
of contract can be most economically borne (generally by insurance), it is, in my
view, wrong to place a strained construction upon words in an exclusion clause
which are clear and fairly susceptible of one meaning only even after due
allowance has been made for the presumption in favour of the implied primary
and secondary obligations.
Applying these principles to the instant case; in the absence of the exclusion
clause which Lord Wilberforce has cited, a primary obligation of Securicor under
the contract, which would be implied by law, would be an absolute obligation
to procure that the visits by the night patrol to the factory were conducted by
natural persons who would exercise reasonable skill and care for the safety
of the factory. That primary obligation is modified by the exclusion clause.
Securicor’s obligation to do this is not to be absolute, but is limited to exercising
due diligence in its capacity as employer of the natural persons by whom the
visits are conducted, to procure that those persons shall exercise reasonable
skill and care for the safety of the factory.
For the reasons given by Lord Wilberforce it seems to me that this apportion-
ment of the risk of the factory being damaged or destroyed by the injurious
act of an employee of Securicor while carrying out a visit to the factory is one
which reasonable business-men in the position of Securicor and the Factory
Owners might well think was the most economical. An analogous apportionment
of risk is provided for by the Hague Rules in the case of goods carried by sea
under bills of lading. The risk that a servant of Securicor would damage or
destroy the factory or steal goods from it, despite the exercise of all reasonable
diligence by Securicor to prevent it, is what in the context of maritime law would
be called a “misfortune risk”—something which reasonable diligence of neither
party to the contract can prevent. Either party can insure against it. It is generally
more economical for the person by whom the loss will be directly sustained
to do so rather than that it should be covered by the other party by liability
insurance. This makes it unnecessary to consider whether a later exclusion
clause in the contract which modifies the general secondary obligation implied
by law by placing limits on the amount of damages recoverable for breaches of
primary obligations, would have applied in the instant case.
For the reasons given by Lord Wilberforce and in application of the principles
that I have here stated, I would allow this appeal.
Lord Salmon
MY LORDS,
The contract with which this appeal is concerned is a very simple commercial
contract entered into by two highly experienced business enterprises—the
appellants whom I shall call Securicor and the respondents whom I shall call
Photo Productions.
This appeal turns in my view entirely upon certain words in the contract
which read as follows :—
“Under no circumstances shall [Securicor] be responsible for any injurious
“act or default by any employee of [Securicor] unless such act or default
“could have been foreseen and avoided by the exercise of due diligence on
“the part of [Securicor] as his employer.”
We are not concerned with the Unfair Contract Terms Act 1977 since the
present contract was entered into before that Act was passed. Accordingly, I
prefer to express no view about the effect of that Act as the result of this appeal
depends solely on the common law.
The facts relevant to this case are very short. Indubitably, one of Securicor’s
servants called Musgrove committed an injurious act or default which caused
Photo Productions’ factory to be burned down; and as a result, Photo
Productions’ suffered a loss of £615,000. This disaster occurred when Musgrove
was visiting the factory on patrol one Sunday night and deliberately threw a
lighted match on some cartons lying on the floor of one of the rooms he was
inspecting. Whether Musgrove intended to light only a small fire or to burn
down the factory, and what his motives were for what he did were found by the
learned trial judge to be mysteries which it was impossible to solve.
No-one has suggested that Securicor could have foreseen or avoided by due
diligence the act or default which caused the damage or that Securicor had been
negligent in employing or supervising Musgrove.
The contract between the two parties provided that Securicor should supply a
patrol service at Photo Productions’ factory by four visits a night for seven
nights a week and two visits every Saturday afternoon and four day visits every
Sunday. The contract provided that for this service, Securicor should be paid
£8.15 a week. There can be no doubt that but for the clause in the contract
which I have recited, Securicor would have been liable for the damage which was
caused by their servant, Musgrove, whilst indubitably acting in the course of his
employment: Morris v. Martin [1966] 1 Q.B. 716. To my mind, however, the
words of the clause are so crystal clear that they obviously relieve Securicor from
what would otherwise have been their liability for the damage caused by
Musgrove. Indeed the words of the clause are incapable of any other meaning.
I think that any business man entering into this contract could have had no
doubt as to the real meaning of this clause and would have made his insurance
arrangements accordingly. The cost to Photo Productions for the benefit of the
patrol service provided by Securicor was very modest and probably substantially
less than the reduction of the insurance premiums which Photo Productions
may have enjoyed as a result of obtaining that service.
Clauses which absolve a party to a contract from liability for breaking it are
no doubt unpopular—particularly when they are unfair, which incidentally, in
my view, this clause is not. It is, I think, because of the unpopularity of such
clauses that a so called “rule of law” has been developed in the Court of Appeal
to the effect that what was characterised as “a fundamental breach of contract”,
automatically or with the consent of the innocent party, brings the contract to
an end; and that therefore the contract breaker will then immediately be barred
from relying on any clause in the contract, however clearly worded, which would
otherwise have safeguarded him against being liable inter alia in respect of the
damages caused by the default; see for example Karsales (Harrow) Ltd. v.
Wallis [1956] 1 W.L.R. per Denning L.J. at p.946 and Harbutt’s “Plasticine”
Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Q.B. 447.
I entirely agree with my noble and learned friend Lord Wilberforce’s analysis
of the Suisse Atlantique case which explains why the breach does not bring
the contract to an end and why the so-called “rule of law” upon which Photo
Productions rely is therefore non-existent. This proposition is strongly sup-
ported by the passage recited by Lord Wilberforce in Lord Porter’s speech in
Heyman v. Darwins Ltd. [1942] A.C. 356 at p.399.
Any persons capable of making a contract are free to enter into any contract
they may choose: and providing the contract is not illegal or voidable, it is
binding upon them. It is not denied that the present contract was binding upon
each of the parties to it. In the end, everything depends upon the true con-
struction of the clause in dispute about which I have already expressed my
opinion.
My Lords, I would accordingly allow the appeal.
Lord Keith of Kinkel
MY LORDS,
I agree with the speech of my noble and learned friend Lord Wilberforce,
which I have had the advantage of reading in draft and to which I cannot
usefully add anything.
Accordingly I too would allow the appeal.
Ballasty v Army, Navy and General Assurance Association, Ltd.
High Court of Justice.
King’s Bench Division.
6 June 1916
[1916] 50 I.L.T.R 114
Madden, Pim JJ.
Madden, J.
This is an application on behalf of the defendants for an order that all further proceedings in this action be stayed and the matter in dispute referred to arbitration, the plaintiff and the defendants having by the terms and conditions of the policy of insurance sued upon agreed to refer to arbitration the matter in respect of which this action is commenced. The policy contains an arbitration clause in very wide terms, including all disputes in regard to claims of any kind under the policy. The law is settled since the decision in Scott v. Avory, that a clause of this kind only imposes a condition precedent, compliance with which is antecedent to a right of action arising; therefore, if the present claim were under the policy the defendants would be entitled to carry their motion; but a claim that the policy and contract are not enforceable is a different thing. The ground of the decision in Jureidini’s Case is stated in the head-note, as follows:—“A claim was made for indemnity for the loss of goods by fire under a policy, the conditions of which provided—(1) that if the claim were fraudulent or if the loss were occasioned by the wilful act or with the connivance of the insured all benefit under the policy should be forfeited; and (2) that if any difference arose as to the amount of any loss such difference should, independently of all other questions, be referred to arbitration; and that it should be a condition precedent to any right of action upon the policy that the award of the arbitrator or umpire of the amount of the loss, if disputed, should be first obtained. The insurance company repudiated the claim on the ground of fraud and arson. Held, that the repudiation of the claim on a ground going to the root of the contract precluded the company from pleading the arbitration clause as a bar to an action to enforce the claim.” One condition was that in case of *115 fraud or crime the policy should be forfeited. The question was whether the claim was founded on a crime, and the decision was that as the question sought to be referred to arbitration went to the continued existence of the policy, it could not be referred. The condition here is: “Any material misrepresentation or concealment or omission to state any circumstance or to give any information material to be known for estimating the risk or the rate of premium or in respect of any claim by or on behalf of the insured shall render this policy absolutely void, and all premiums thereon shall be forfeited to the Association.” This is, in substance, the same condition as in Jureidini’s Case. The case arose out of a motor car collision. The case of the company is that an admission of liability was concealed, so as to come within Condition 7. If this is true it renders the policy void. Two letters which have been read render their attitude clear. This is an application to refer to arbitration a question going to the root of the contract. Mr. Battersby endeavoured to distinguish the present case from Jureidini’s Case, but they are indistinguishable. There are other difficulties in the case, but I only say that the intention appears to have been to have a contract governed by English law; difficulties would arise in carrying this out. We base our decision on the question in dispute being one that goes to the root of the contract.
Pim, J.
I concur. We do not decide this case on the ground of the inconvenience of applying the English Act or on the existence of allegations of fraud. Possibly in some cases a question of fraud might be referred to arbitration. Where one party says that the contract is gone and the premium forfeited, he cannot insist on going to arbitration under a contract which he says does not exist.
American Can Co. and others v Stewart
High Court of Justice.
King’s Bench Division.
27 October 1915
[1916] 50 I.L.T.R 132
Palles L.C.B., Kenny J.
The judgment of the Court was delivered by Kenny, J., on October 27, 1915.
Kenny, J., in his judgment, said.—The great merit claimed for the instrument is its simplicity in operation. Counsel have worked the machine in our presence, and, while simplicity may be its leading characteristic in dealing with a decimal system, where no conversion is necessary, the moment one attempts to work it in connection with British currency I think it must occur to the operator that he is dealing with a very complicated design, and, as is admitted in the case, a design that does not ensure accuracy in every case where the conversion tables are applied. And it must be remembered that without the conversion tables no attempt can be made to use the machine for the purpose of addition of British currency so as to bring out a result showing pounds and shillings and pence under 20s. and 12 pence respectively—a state of things that has induced the argument that when the machine or instrument is spoken of it must be taken as the physical thing plus the conversion tables. [His Lordship then proceeded to describe the machine and the method of working it. The machine only provided space for seven figures—three for pounds, and two each for shillings and pence respectively.] In one sense the total shown is in pounds, shillings and pence, inasmuch as the figures might, in the case taken at p. 7 of the Book of Instructions, show 888990, indicating that the tot was £88 89 shillings and 90 pence—a most inconvenient figure for immediate application, and one which would require a final and mental operation to make it effective. It is obvious that if the functions of the machine were now concluded, it would be of no mercantile use when applied to British currency; and consequently a machine method of conversion—as distinct from the operator’s mental or possibly manual act—was designed to meet the difficulty. Tables were designed “to convert in one operation any number of pence and shillings to shillings and pounds” (Book of Instructions, p. 8). This book, at p. 9, purports to give an illustration of the application of these tables. The latter are printed on cardboard, and accompany the instrument, and have to be referred to and used whenever the figure in the shillings column exceeds 19, or when the figure in the pence column exceeds 11. The “one operation” referred to consists in adding to the result that has up to that stage appeared on the dial of the machine a combination of figures, taken from the cardboard conversion table, appropriate to the amounts of shillings and pence appearing on the dial, and so long as the figures taken from the table are appropriate the working of the machine would be successful. The defendant’s case is that while in a vast number of cases the figures are appropriate, there are many cases—his counsel said he could point out at least 1,340—in which they are not, and, consequently, that he did not get what he contracted for, namely, a machine which would *133 in all cases add correctly, and in a single operation convert into British currency. Hood, the plaintiffs’ agent, called on the defendant at his office in Cope Street on March 25, 1914, and having brought a sample machine with him, gave the defendant a demonstration in the working of it, showed him the advertisement of it, a book of instructions, and a conversion table, and told him that although it was a decimal machine it could be and was used for British currency by means of the conversion table, and that the conversion could be effected in one operation. Hood went away for a couple of hours, leaving the machine, Book of Instructions and conversion table with the defendant, and on his return found the defendant working at it. An agreement, in writing, for the purchase by the defendant of 30 of the machines was then come to, and four further agreements were signed appointing the defendant agent for the sale of the machines for the whole of Ireland except Ulster. Hood deposed that conversion could be carried out in one operation in nearly every case, but that in one or two cases a second small operation was necessary; but he admitted that he could not remember having told the defendant that there were any exceptions. Wayne, the plaintiffs’ manager, gave a demonstration of the working of the machine. He took some combination of figures, such as the following: 39s. 15d., and while showing that the proper figure in the conversion table for 15d. was 88, admitted that the figure 80 in the table applicable to 39s. would not produce a correct result, and that the next figure in the table, namely, 160, would have to be used. Again, with the figures £88 79s. 80d., he admitted that if the figure 240, shown in the table for 79s., be used, a wrong answer would be the result. Three other combinations of figures were submitted to him, and he was obliged to admit that in those cases also a second operation was necessary. The defendant received the 30 machines some time between April 30 and May 4, and on testing them seems to have discovered that they were not universally accurate; and on May 4 wrote to the plaintiffs explaining his position, and offering to return the instrument. On May 7 he wrote refusing to accept the machines. Now assuming, as I must, that the machine in several cases produces inaccurate results, is the defendant entitled to repudiate his contract and decline to accept or pay for the machines on the ground that they do not answer the description on which he bought? What he wanted and what was sold to him was a machine that would add currency figures swiftly and accurately, and would in a single operation convert the sum of that addition into its proper component parts of pounds, shillings and pence, and to effect that end he was furnished with an instrument and a cardboard conversion table. No result in conversion could be obtained without a combination of both, and I, therefore, think that when the “machine” is referred to in connection with the process of conversion it must be taken as meaning the instrument plus the conversion table. Accuracy in the working of the machine thus constituted was essential to the defendant, not only in the user in his own establishment but as the plaintiffs’ agent for sale. And the accuracy contracted for was accuracy that would be obtained with the tables on the conversion card. That seems to me to have been the subject-matter of the contract. A machine that in some instances involved more than a single operation for conversion would not have been a very marketable one—I do not think it matters whether that further operation was a mental or a manual one. It is sufficient to say that no such additional operation was contemplated by the plaintiffs or defendant at the date of the contract. The Book of Instructions and conversion table make no reference whatever to the necessity of any process save and except the use of the figures shown in the latter, and which figures have been demonstrated as not being effective in all combinations. The defendant bought on the description of the machine in the Book of Instructions, and in my opinion he did not get what he bargained for, and Gibson, J., was right in so holding. It was argued before us that if there was any cause of action under the circumstances it was one for damages for breach of warranty, inasmuch as the property in the machines passed, it was said, to the defendant. Whether the property passed must depend on whether the plaintiffs supplied the thing contracted for. If they did not, no property passed, and the case seems to be almost as strong as that put by Lord Abinger, C.B., in Chanter v. Hopkins, (1838) 4 M. & W. 399, at p. 404, and approved of by Martin, B., in the Exchequer Chamber, in Azémar v. Casella, (1867) L. R. 2 C. P. 677, at p. 679, where he says that if one offers to buy peas of another and the latter sells him beans it is not a case of warranty, but of non-performance of his contract. I am, therefore, of opinion that the verdict and judgment were right, and that the plaintiffs’ motion should be refused, with costs. I am authorised by the Lord Chief Baron to state that he concurs in this result.