Consideration
Cases
Bret v JS
(1600) Cro Eliz 756
“For as to the first, it is well apportionable; because it being for tabling which he had taken, there ought to be a recompense, although he departed within the year, or that the contractor died within the year. To the second they agreed, that natural affection of itself is not a sufficient consideration to ground an assumpsit; for although it be sufficient to raise an use, yet it is not sufficient to ground an action without an express quid pro quo. But it is here good, because it is not only in consideration of affection, but that her son should afterwards continue at his table, which is good as well for the money due before, as for what should afterwards become due. And as to the third, true it is that, if the contract had been only for the tabling afterwards, then debt would have lain, and not this action; but in regard it is conjoined with another thing for which he could not have an action of debt (as it is here for this £6 13 s 4d) an action upon the case lies for all (as debt with other things may be put into an arbitrament). Wherefore it was adjudged for the plaintiff.”
Carlill v Carbolic Smoke Ball Company
[1892] EWCA Civ 1
The published advertisement read
“£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks, according to the printed directions supplied with each ball.
£1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter.
During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease, and in no ascertained case was the disease contracted by those using the carbolic smoke ball.
One carbolic smoke ball will last a family several months, making it the cheapest remedy in the world at the price, 10s. post free. The ball can be refilled at a cost of 5s. Address: “Carbolic Smoke Ball Company”, 27, Princes Street, Hanover Square, London.”
Lindley LJ
“I will begin by referring to two points which were raised in the Court below. I refer to them simply for the purpose of dismissing them. First, it is said no action will lie upon this contract because it is a policy. You have only to look at the advertisement to dismiss that suggestion. Then it was said that it is a bet. Hawkins, J., came to the conclusion that nobody ever dreamt of a bet, and that the transaction had nothing whatever in common with a bet. I so entirely agree with him that I pass over this contention also as not worth serious attention.
Then, what is left? The first observation I will make is that we are not dealing with any inference of fact. We are dealing with an express promise to pay £100. in certain events. Read the advertisement how you will, and twist it about as you will, here is a distinct promise expressed in language which is perfectly unmistakable —
“£100. reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball.
……
We must first consider whether this was intended to be a promise at all, or whether it was a mere puff which meant nothing. Was it a mere puff? My answer to that question is No, and I base my answer upon this passage: “£1000. is deposited with the Alliance Bank, shewing our sincerity in the matter.” Now, for what was that money deposited or that statement made except to negative the suggestion that this was a mere puff and meant nothing at all? The deposit is called in aid by the advertiser as proof of his sincerity in the matter — that is, the sincerity of his promise to pay this £100. in the event which he has specified. I say this for the purpose of giving point to the observation that we are not inferring a promise; there is the promise, as plain as words can make it.
Then it is contended that it is not binding. In the first place, it is said that it is not made with anybody in particular. Now that point is common to the words of this advertisement and to the words of all other advertisements offering rewards. They are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer. In point of law this advertisement is an offer to pay £100. to anybody who will perform these conditions, and the performance of the conditions is the acceptance of the offer. That rests upon a string of authorities, the earliest of which is Williams v Carwardine,[4] which has been followed by many other decisions upon advertisements offering rewards.
But then it is said, “Supposing that the performance of the conditions is an acceptance of the offer, that acceptance ought to have been notified.” Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified. But is that so in cases of this kind? I apprehend that they are an exception to that rule, or, if not an exception, they are open to the observation that the notification of the acceptance need not precede the performance. This offer is a continuing offer. It was never revoked, and if notice of acceptance is required — which I doubt very much, for I rather think the true view is that which was expressed and explained by Lord Blackburn in the case of Brogden v Metropolitan Ry Co[5] – if notice of acceptance is required, the person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition. If he gets notice of the acceptance before his offer is revoked, that in principle is all you want. I, however, think that the true view, in a case of this kind, is that the person who makes the offer shews by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance apart from notice of the performance.
We, therefore, find here all the elements which are necessary to form a binding contract enforceable in point of law, subject to two observations. First of all it is said that this advertisement is so vague that you cannot really construe it as a promise — that the vagueness of the language shews that a legal promise was never intended or contemplated. The language is vague and uncertain in some respects, and particularly in this, that the £100. is to be paid to any person who contracts the increasing epidemic after having used the balls three times daily for two weeks. It is said, When are they to be used? According to the language of the advertisement no time is fixed, and, construing the offer most strongly against the person who has made it, one might infer that any time was meant. I do not think that was meant, and to hold the contrary would be pushing too far the doctrine of taking language most strongly against the person using it. I do not think that business people or reasonable people would understand the words as meaning that if you took a smoke ball and used it three times daily for two weeks you were to be guaranteed against influenza for the rest of your life, and I think it would be pushing the language of the advertisement too far to construe it as meaning that. But if it does not mean that, what does it mean? It is for the defendants to shew what it does mean; and it strikes me that there are two, and possibly three, reasonable constructions to be put on this advertisement, any one of which will answer the purpose of the plaintiff. Possibly it may be limited to persons catching the “increasing epidemic” (that is, the then prevailing epidemic), or any colds or diseases caused by taking cold, during the prevalence of the increasing epidemic. That is one suggestion; but it does not commend itself to me. Another suggested meaning is that you are warranted free from catching this epidemic, or colds or other diseases caused by taking cold, whilst you are using this remedy after using it for two weeks. If that is the meaning, the plaintiff is right, for she used the remedy for two weeks and went on using it till she got the epidemic. Another meaning, and the one which I rather prefer, is that the reward is offered to any person who contracts the epidemic or other disease within a reasonable time after having used the smoke ball. Then it is asked, What is a reasonable time? It has been suggested that there is no standard of reasonableness; that it depends upon the reasonable time for a germ to develop! I do not feel pressed by that. It strikes me that a reasonable time may be ascertained in a business sense and in a sense satisfactory to a lawyer, in this way; find out from a chemist what the ingredients are; find out from a skilled physician how long the effect of such ingredients on the system could be reasonably expected to endure so as to protect a person from an epidemic or cold, and in that way you will get a standard to be laid before a jury, or a judge without a jury, by which they might exercise their judgment as to what a reasonable time would be. It strikes me, I confess, that the true construction of this advertisement is that £100. will be paid to anybody who uses this smoke ball three times daily for two weeks according to the printed directions, and who gets the influenza or cold or other diseases caused by taking cold within a reasonable time after so using it; and if that is the true construction, it is enough for the plaintiff.
I come now to the last point which I think requires attention — that is, the consideration. It has been argued that this is nudum pactum – that there is no consideration. We must apply to that argument the usual legal tests. Let us see whether there is no advantage to the defendants. It is said that the use of the ball is no advantage to them, and that what benefits them is the sale; and the case is put that a lot of these balls might be stolen, and that it would be no advantage to the defendants if the thief or other people used them. The answer to that, I think, is as follows. It is quite obvious that in the view of the advertisers a use by the public of their remedy, if they can only get the public to have confidence enough to use it, will react and produce a sale which is directly beneficial to them. Therefore, the advertisers get out of the use an advantage which is enough to constitute a consideration.
But there is another view. Does not the person who acts upon this advertisement and accepts the offer put himself to some inconvenience at the request of the defendants? Is it nothing to use this ball three times daily for two weeks according to the directions at the request of the advertiser? Is that to go for nothing? It appears to me that there is a distinct inconvenience, not to say a detriment, to any person who so uses the smoke ball. I am of opinion, therefore, that there is ample consideration for the promise.
We were pressed upon this point with the case of Gerhard v Bates,[6] which was the case of a promoter of companies who had promised the bearers of share warrants that they should have dividends for so many years, and the promise as alleged was held not to shew any consideration. Lord Campbell’s judgment when you come to examine it is open to the explanation, that the real point in that case was that the promise, if any, was to the original bearer and not to the plaintiff, and that as the plaintiff was not suing in the name of the original bearer there was no contract with him. Then Lord Campbell goes on to enforce that view by shewing that there was no consideration shewn for the promise to him. I cannot help thinking that Lord Campbell’s observations would have been very different if the plaintiff in that action had been an original bearer, or if the declaration had gone on to shew what a société anonyme was, and had alleged the promise to have been, not only to the first bearer, but to anybody who should become the bearer. There was no such allegation, and the Court said, in the absence of such allegation, they did not know (judicially, of course) what a société anonyme was, and, therefore, there was no consideration. But in the present case, for the reasons I have given, I cannot see the slightest difficulty in coming to the conclusion that there is consideration.
It appears to me, therefore, that the defendants must perform their promise, and, if they have been so unwary as to expose themselves to a great many actions, so much the worse for them.”
Bowen LJ
“I am of the same opinion. We were asked by the council for the defendants to say that this document was a contract too vague to be enforced.
The first observation which arises is that the document itself is not a contract at all, it is only an offer made to the public. The defendants contend next, that it is an offer the terms of which are too vague to be treated as a definite offer, inasmuch as there is no limit of time fixed for the catching of the influenza, and it cannot be supposed that the advertisers seriously meant to promise to pay money to every person who catches the influenza at any time after the inhaling of the smoke ball. It was urged also, that if you look at this document you will find much vagueness as to the persons with whom the contract was intended to be made — that, in the first place, its terms are wide enough to include persons who may have used the smoke ball before the advertisement was issued; at all events, that it is an offer to the world in general, and, also, that it is unreasonable to suppose it to be a definite offer, because nobody in their senses would contract themselves out of the opportunity of checking the experiment which was going to be made at their own expense. It is also contended that the advertisement is rather in the nature of a puff or a proclamation than a promise or offer intended to mature into a contract when accepted. But the main point seems to be that the vagueness of the document shews that no contract whatever was intended. It seems to me that in order to arrive at a right conclusion we must read this advertisement in its plain meaning, as the public would understand it. It was intended to be issued to the public and to be read by the public. How would an ordinary person reading this document construe it? It was intended unquestionably to have some effect, and I think the effect which it was intended to have, was to make people use the smoke ball, because the suggestions and allegations which it contains are directed immediately to the use of the smoke ball as distinct from the purchase of it. It did not follow that the smoke ball was to be purchased from the defendants directly, or even from agents of theirs directly. The intention was that the circulation of the smoke ball should be promoted, and that the use of it should be increased. The advertisement begins by saying that a reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic after using the ball. It has been said that the words do not apply only to persons who contract the epidemic after the publication of the advertisement, but include persons who had previously contracted the influenza. I cannot so read the advertisement. It is written in colloquial and popular language, and I think that it is equivalent to this:
“100l. will be paid to any person who shall contract the increasing epidemic after having used the carbolic smoke ball three times daily for two weeks.”
And it seems to me that the way in which the public would read it would be this, that if anybody, after the advertisement was published, used three times daily for two weeks the carbolic smoke ball, and then caught cold, he would be entitled to the reward. Then again it was said: “How long is this protection to endure? Is it to go on for ever, or for what limit of time?” I think that there are two constructions of this document, each of which is good sense, and each of which seems to me to satisfy the exigencies of the present action. It may mean that the protection is warranted to last during the epidemic, and it was during the epidemic that the plaintiff contracted the disease. I think, more probably, it means that the smoke ball will be a protection while it is in use. That seems to me the way in which an ordinary person would understand an advertisement about medicine, and about a specific against influenza. It could not be supposed that after you have left off using it you are still to be protected for ever, as if there was to be a stamp set upon your forehead that you were never to catch influenza because you had once used the carbolic smoke ball. I think the immunity is to last during the use of the ball. That is the way in which I should naturally read it, and it seems to me that the subsequent language of the advertisement supports that construction. It says: “During the last epidemic of influenza many thousand carbolic smoke balls were sold, and in no ascertained case was the disease contracted by those using” (not “who had used”) “the carbolic smoke ball,” and it concludes with saying that one smoke ball will last a family several months (which imports that it is to be efficacious while it is being used), and that the ball can be refilled at a cost of 5s. I, therefore, have myself no hesitation in saying that I think, on the construction of this advertisement, the protection was to enure during the time that the carbolic smoke ball was being used. My brother, the Lord Justice who preceded me, thinks that the contract would be sufficiently definite if you were to read it in the sense that the protection was to be warranted during a reasonable period after use. I have some difficulty myself on that point; but it is not necessary for me to consider it further, because the disease here was contracted during the use of the carbolic smoke ball.
Was it intended that the 100l. should, if the conditions were fulfilled, be paid? The advertisement says that 1000l. is lodged at the bank for the purpose. Therefore, it cannot be said that the statement that 100l. would be paid was intended to be a mere puff. I think it was intended to be understood by the public as an offer which was to be acted upon.
But it was said there was no check on the part of the persons who issued the advertisement, and that it would be an insensate thing to promise 100l. to a person who used the smoke ball unless you could check or superintend his manner of using it. The answer to that argument seems to me to be that if a person chooses to make extravagant promises of this kind he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them.
It was also said that the contract is made with all the world — that is, with everybody; and that you cannot contract with everybody. It is not a contract made with all the world. There is the fallacy of the argument. It is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? It is an offer to become liable to any one who, before it is retracted, performs the condition, and, although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. It is not like cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate — offers to receive offers — offers to chaffer, as, I think, some learned judge in one of the cases has said. If this is an offer to be bound, then it is a contract the moment the person fulfils the condition. That seems to me to be sense, and it is also the ground on which all these advertisement cases have been decided during the century; and it cannot be put better than in Willes, J.’s, judgment in Spencer v Harding. “In the advertisement cases,” he says,
“there never was any doubt that the advertisement amounted to a promise to pay the money to the person who first gave information. The difficulty suggested was that it was a contract with all the world. But that, of course, was soon overruled. It was an offer to become liable to any person who before the offer should be retracted should happen to be the person to fulfil the contract, of which the advertisement was an offer or tender. That is not the sort of difficulty which presents itself here. If the circular had gone on, ‘and we undertake to sell to the highest bidder,’ the reward cases would have applied, and there would have been a good contract in respect of the persons.”
As soon as the highest bidder presented himself, says Willes, J., the person who was to hold the vinculum juris on the other side of the contract was ascertained, and it became settled.
Then it was said that there was no notification of the acceptance of the contract. One cannot doubt that, as an ordinary rule of law, an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together. Unless this is done the two minds may be apart, and there is not that consensus which is necessary according to the English law — I say nothing about the laws of other countries — to make a contract. But there is this clear gloss to be made upon that doctrine, that as notification of acceptance is required for the benefit of the person who makes the offer, the person who makes the offer may dispense with notice to himself if he thinks it desirable to do so, and I suppose there can be no doubt that where a person in an offer made by him to another person, expressly or impliedly intimates a particular mode of acceptance as sufficient to make the bargain binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance; and if the person making the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is a sufficient acceptance without notification.
That seems to me to be the principle which lies at the bottom of the acceptance cases, of which two instances are the well-known judgment of Mellish, LJ, in Harris’s Case,[7] and the very instructive judgment of Lord Blackburn in Brogden v Metropolitan Ry Co,[5] in which he appears to me to take exactly the line I have indicated.
Now, if that is the law, how are we to find out whether the person who makes the offer does intimate that notification of acceptance will not be necessary in order to constitute a binding bargain? In many cases you look to the offer itself. In many cases you extract from the character of the transaction that notification is not required, and in the advertisement cases it seems to me to follow as an inference to be drawn from the transaction itself that a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition notification is dispensed with. It seems to me that from the point of view of common sense no other idea could be entertained. If I advertise to the world that my dog is lost, and that anybody who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write me a note saying that they have accepted my proposal? Why, of course, they at once look after the dog, and as soon as they find the dog they have performed the condition. The essence of the transaction is that the dog should be found, and it is not necessary under such circumstances, as it seems to me, that in order to make the contract binding there should be any notification of acceptance. It follows from the nature of the thing that the performance of the condition is sufficient acceptance without the notification of it, and a person who makes an offer in an advertisement of that kind makes an offer which must be read by the light of that common sense reflection. He does, therefore, in his offer impliedly indicate that he does not require notification of the acceptance of the offer.
A further argument for the defendants was that this was a nudum pactum – that there was no consideration for the promise — that taking the influenza was only a condition, and that the using the smoke ball was only a condition, and that there was no consideration at all; in fact, that there was no request, express or implied, to use the smoke ball. Now, I will not enter into an elaborate discussion upon the law as to requests in this kind of contracts. I will simply refer to Victors v Davies[8] and Serjeant Manning’s note to Fisher v Pyne,[9] which everybody ought to read who wishes to embark in this controversy. The short answer, to abstain from academical discussion, is, it seems to me, that there is here a request to use involved in the offer. Then as to the alleged want of consideration. The definition of “consideration” given in Selwyn’s Nisi Prius, 8th ed. p. 47, which is cited and adopted by Tindal CJ, in the case of Laythoarp v Bryant,[10] is this:
“Any act of the plaintiff from which the defendant derives a benefit or advantage, or any labour, detriment, or inconvenience sustained by the plaintiff, provided such act is performed or such inconvenience suffered by the plaintiff, with the consent, either express or implied, of the defendant.”
Can it be said here that if the person who reads this advertisement applies thrice daily, for such time as may seem to him tolerable, the carbolic smoke ball to his nostrils for a whole fortnight, he is doing nothing at all — that it is a mere act which is not to count towards consideration to support a promise (for the law does not require us to measure the adequacy of the consideration). Inconvenience sustained by one party at the request of the other is enough to create a consideration. I think, therefore, that it is consideration enough that the plaintiff took the trouble of using the smoke ball. But I think also that the defendants received a benefit from this user, for the use of the smoke ball was contemplated by the defendants as being indirectly a benefit to them, because the use of the smoke balls would promote their sale.
Then we were pressed with Gerhard v Bates.[6] In Gerhard v Bates, which arose upon demurrer, the point upon which the action failed was that the plaintiff did not allege that the promise was made to the class of which alone the plaintiff was a member, and that therefore there was no privity between the plaintiffs and the defendant. Then Lord Campbell went on to give a second reason. If his first reason was not enough, and the plaintiff and the defendant there had come together as contracting parties and the only question was consideration, it seems to me Lord Campbell’s reasoning would not have been sound. It is only to be supported by reading it as an additional reason for thinking that they had not come into the relation of contracting parties; but, if so, the language was superfluous. The truth is, that if in that case you had found a contract between the parties there would have been no difficulty about consideration; but you could not find such a contract. Here, in the same way, if you once make up your mind that there was a promise made to this lady who is the plaintiff, as one of the public — a promise made to her that if she used the smoke ball three times daily for a fortnight and got the influenza, she should have 100l., it seems to me that her using the smoke ball was sufficient consideration. I cannot picture to myself the view of the law on which the contrary could be held when you have once found who are the contracting parties. If I say to a person, “If you use such and such a medicine for a week I will give you 5l.,” and he uses it, there is ample consideration for the promise.”
Lord Justice AL Smith[edit]
AL Smith LJ
“The first point in this case is, whether the defendants’ advertisement which appeared in the Pall Mall Gazette was an offer which, when accepted and its conditions performed, constituted a promise to pay, assuming there was good consideration to uphold that promise, or whether it was only a puff from which no promise could be implied, or, as put by Mr. Finlay, a mere statement by the defendants of the confidence they entertained in the efficacy of their remedy. Or as I might put it in the words of Lord Campbell in Denton v Great Northern Ry. Co.,[11] whether this advertisement was mere waste paper. That is the first matter to be determined. It seems to me that this advertisement reads as follows:
“100l. reward will be paid by the Carbolic Smoke Ball Company to any person who after having used the ball three times daily for two weeks according to the printed directions supplied with such ball contracts the increasing epidemic influenza, colds, or any diseases caused by taking cold. The ball will last a family several months, and can be refilled at a cost of 5s.”
If I may paraphrase it, it means this: “If you” – that is one of the public as yet not ascertained, but who, as Lindley and Bowen, L.JJ., have pointed out, will be ascertained by the performing the condition — “will hereafter use my smoke ball three times daily for two weeks according to my printed directions, I will pay you 100l. if you contract the influenza within the period mentioned in the advertisement.” Now, is there not a request there? It comes to this: “In consideration of your buying my smoke ball, and then using it as I prescribe, I promise that if you catch the influenza within a certain time I will pay you 100l.” It must not be forgotten that this advertisement states that as security for what is being offered, and as proof of the sincerity of the offer, 1000l. is actually lodged at the bank where with to satisfy any possible demands which might be made in the event of the conditions contained therein being fulfilled and a person catching the epidemic so as to entitle him to the 100l. How can it be said that such a statement as that embodied only a mere expression of confidence in the wares which the defendants had to sell? I cannot read the advertisement in any such way. In my judgment, the advertisement was an offer intended to be acted upon, and when accepted and the conditions performed constituted a binding promise on which an action would lie, assuming there was consideration for that promise. The defendants have contended that it was a promise in honour or an agreement or a contract in honour — whatever that may mean. I understand that if there is no consideration for a promise, it may be a promise in honour, or, as we should call it, a promise without consideration and nudum pactum; but if anything else is meant, I do not understand it. I do not understand what a bargain or a promise or an agreement in honour is unless it is one on which an action cannot be brought because it is nudum pactum, and about nudum pactum I will say a word in a moment.
In my judgment, therefore, this first point fails, and this was an offer intended to be acted upon, and, when acted upon and the conditions performed, constituted a promise to pay.
In the next place, it was said that the promise was too wide, because there is no limit of time within which the person has to catch the epidemic. There are three possible limits of time to this contract. The first is, catching the epidemic during its continuance; the second is, catching the influenza during the time you are using the ball; the third is, catching the influenza within a reasonable time after the expiration of the two weeks during which you have used the ball three times daily. It is not necessary to say which is the correct construction of this contract, for no question arises thereon. Whichever is the true construction, there is sufficient limit of time so as not to make the contract too vague on that account.
Then it was argued, that if the advertisement constituted an offer which might culminate in a contract if it was accepted, and its conditions performed, yet it was not accepted by the plaintiff in the manner contemplated, and that the offer contemplated was such that notice of the acceptance had to be given by the party using the carbolic ball to the defendants before user, so that the defendants might be at liberty to superintend the experiment. All I can say is, that there is no such clause in the advertisement, and that, in my judgment, no such clause can be read into it; and I entirely agree with what has fallen from my Brothers, that this is one of those cases in which a performance of the condition by using these smoke balls for two weeks three times a day is an acceptance of the offer.
It was then said there was no person named in the advertisement with whom any contract was made. That, I suppose, has taken place in every case in which actions on advertisements have been maintained, from the time of Williams v Carwardine,[4] and before that, down to the present day. I have nothing to add to what has been said on that subject, except that a person becomes a persona designata and able to sue, when he performs the conditions mentioned in the advertisement.
Lastly, it was said that there was no consideration, and that it was nudum pactum. There are two considerations here. One is the consideration of the inconvenience of having to use this carbolic smoke ball for two weeks three times a day; and the other more important consideration is the money gain likely to accrue to the defendants by the enhanced sale of the smoke balls, by reason of the plaintiff’s user of them. There is ample consideration to support this promise. I have only to add that as regards the policy and the wagering points, in my judgment, there is nothing in either of them.”
Currie v Misa
(1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554,
Lush J
“A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other…”
Dyer’s case
(1414) 2 Hen. V, fol. 5, pl. 26
Hull J
“ In my opinion, you might have demurred upon him that the obligation is void, inasmuch as the condition is against the common law; and by God, if the plaintiff were here, he should go to prison until he had paid a fine to the King”
Lampleigh v Brathwait
[1615] EWHC KB J17
Assumpsit. London.
Assumpsit and of consideration generally Moo. 866. Mesme. Brownl. 7. 2 Keeb. 666. p. 28.
Anthony Lampleigh brought an assumpsit against Thomas Brathwait and declared, that whereas the defendant had feloniously slain one Patrick Mahume, the defendant after the said felony done, instantly required the plaintiff to labour, and do his endeavour to obtain his pardon from the King: whereupon the plaintiff upon the same request did, by all the means he could and many days labour, do his endeavour to obtain the King’s pardon for the said felony, viz. in riding and journeying at his own charges from London to Roiston, when the King was there, and to London back, and so to and from New-market, to obtain pardon for the defendant for the said felony. Afterwards, scil. etc in consideration of the premisses, the said defendant did promise the said plaintiff to give him 100 pounds, and that he had not etc. to his damage 120 pounds. To this the defendant pleaded non assumpsit, and found for the plaintiff damage one hundred pounds. It was said in arrest of judgment, that the consideration was passed. But the chief objection was, that it doth not appear, that he did any thing towards the obtaining of the pardon, but riding up and down, and nothing done when he came there. And of this opinion was my brother but my self and the other two Judges were of opinion for the plaintiff, and so he had judgment. First, if was agreed, that a meer voluntary curtesie will not have a consideration to uphold an assumpsit. But if that curtesie were moved by a suit or request of the party that gives the assumpsit, it will bind, for the promise, though it follows, yet it is not naked, but couples it self with the suit before, and the merits of the party procured by that suit, which is the difference. Pasch. 10 Eliz. Dyer 272. Hunt and Bates. See Oneley’s case, 19 Eliz. Dyer 355.
Then to the main point it is first clear, that in this case upon the issue non assumpsit, all these points were to be proved by the plaintiff.
1. That the defendant had committed the felony, prout, etc.
2. Then that he requested the plaintiff’s endeavour, prout, etc.
3. That whereupon the defendant made his proof, prout, etc.
4. That thereupon the defendant made his promise, prout, etc.
For wheresoever I build my promise upon a thing done at my request, the execution of the act must pursue the request, for it is like a case of commission for this purpose.
So then the issue found ut supra is a proof that he did his endeavour, according to the request, for else the issue could not have been found, for that is the difference between a promise upon a consideration executed and executory, that in the executed you cannot traverse the consideration by it self, because it is passed and incorporated and coupled with the promise. And if it were not indeed then acted, it is nundum pactum.
But if it be executory, as in consideration, that you shall serve me a year, I will give you ten pounds; here you cannot bring your action ’till the service performed. But if it were a promise on either side executory, it needs not to aver performance, for it is the counter-promise, and not the performance, that makes the consideration; yet it is a promise before, though not binding, and in the action, you shall lay the promise as it was, and make special averment of the service done after.
Now if the service were not done, and yet the promise made, prout, etc the defendant must not traverse the promise, but he must traverse the performance of the service, because they are distinct in fact, though they must concur to the bearing of the action.
Then also note here, that it was neither required, nor promised to obtain the pardon, but to do his endeavour to obtain it, the one was his end, and the other his office.
Now then he hath-laid expressly in general, that he did his endeavour to obtain it, viz. in equitando, etc to obtain. Now then, clearly, the substance of this plea is general, for that answers directly the request, the special assigned is but to inform the Court; and therefore clearly, if upon the trial he could have proved no riding, nor journeying, yet any other effectual endeavour according to the request would have served, and therefore if the consideration had been that he should endeavour in the future, so that he must have laid his endeavour expresly, and had done it as he doth here, and the defendant had not denied the promise, but the endeavour, he must have traversed the endeavour in the general, not the riding, etc in the special; which proves clearly, that is not the substance, and that the other endeavour would serve. This makes it clear, that though particulars ought to be set forth to the Court, and those sufficient, which were not done, which might be cause of demurrer, yet being but matter of form, and the substance in the general, which is here in the issue and verdict, it were cured by the verdict: but the special is also well enough; for all is laid down for the obtaining of the pardon which is within the request; and therefore suppose he had ridden to that purpose, and Brathwait had died, or himself, before he could do any thing else, or that another had obtained the pardon before, or the like yet the promise had holden,
And observe that case 22 E. 4. 40. Condition of an obligation, to shew a sufficient discharge of an annuity, you must plead the certainty of the discharge to the Court; the reason whereof, given by Brion and Choke is, that the plea there contains two parts, one a trial per pais 1 scil. the writing of the discharge, the other by the Court, scil. the sufficiency and validity of it, which the jury could not try, for they agree, that if the condition had been to build a house agreeable to the state of the obligee, because it was a case all proper for the country to try, it might have been pleaded generally, and then it was a demurrer, not an issue, as is here.”
Foakes v Beer
[1884] UKHL 1
EARL OF SELBORNE L.C.:-
My Lords, upon the construction of the agreement of the 21st of December 1876, I cannot differ from the conclusion in which both the Courts below were agreed. If the operative part could properly be controlled by the recitals, I think there would be much reason to say that the only thing contemplated by the recitals was giving time for payment, without any relinquishment, on the part of the judgment creditor, of any portion of the amount recoverable (whether for principal or for interest) under the judgment. But the agreement of the judgment creditor, which follows the recitals, is that she “will not take any proceedings whatever on the judgment,” if a certain condition is fulfilled. What is that condition? Payment of the sum of £150 in every half year, “until the whole of the said sum of £2090 19 s. ” (the aggregate amount of the principal debt and costs, for which judgment had been entered) “shall have been fully paid and satisfied.” A particular “sum” is here mentioned, which does not include the interest then due, or future interest. Whatever was meant to be payable at all, under this agreement, was clearly to be payable by half-yearly instalments of £150 each; any other construction must necessarily make the conditional promise nugatory. But to say that the half-yearly payments were to continue till the whole sum of £2090 19 s. , “and interest thereon,” should have been fully paid and satisfied, would be to introduce very important words into the agreement, which are not there, and of which I cannot say that they are necessarily implied. Although, therefore, I may (as indeed I do) very much doubt whether the effect of the agreement, as a conditional waiver of the interest to which she was by law entitled under the judgment, was really present to the mind of the judgment creditor, still I cannot deny that it might have that effect, if capable of being legally enforced.
But the question remains, whether the agreement is capable of being legally enforced. Not being under seal, it cannot be legally enforced against the respondent, unless she received consideration for it from the appellant, or unless, though without consideration, it operates by way of accord and satisfaction, so as to extinguish the claim for interest. What is the consideration? On the face of the agreement none is expressed, except a present payment of £500, on account and in part of the larger debt then due and payable by law under the judgment. The appellant did not contract to pay the future instalments of £150 each, at the times therein mentioned; much less did he give any new security, in the shape of negotiable paper, or in any other form. The promise de futuro was only that of the respondent, that if the half-yearly payments of £150 each were regularly paid, she would “take no proceedings whatever on the judgment.” No doubt if the appellant had been under no antecedent obligation to pay the whole debt, his fulfilment of the condition might have imported some consideration on his part for that promise. But he was under that antecedent obligation; and payment at those deferred dates, by the forbearance and indulgence of the creditor, of the residue of the principal debt and costs, could not (in my opinion) be a consideration for the relinquishment of interest and discharge of the judgment, unless the payment of the £500, at the time of signing the agreement, was such a consideration. As to accord and satisfaction, in point of fact there could be no complete satisfaction, so long as any future instalment remained payable; and I do not see how any mere payments on account could operate in law as a satisfaction ad interim, conditionally upon other payments being afterwards duly made, unless there was a consideration sufficient to support the agreement while still unexecuted. Nor was anything, in fact, done by the respondent in this case, on the receipt of the last payment, which could be tantamount to an acquittance, if the agreement did not previously bind her.
The question, therefore, is nakedly raised by this appeal, whether your Lordships are now prepared, not only to overrule, as contrary to law, the doctrine stated by Sir Edward Coke to have been laid down by all the judges of the Common Pleas in Pinnel’s Case(1) in 1602, and repeated in his note to Littleton, sect. 344(2), but to treat a prospective agreement, not under seal, for satisfaction of a debt, by a series of payments on account to a total amount less than the whole debt, as binding in law, provided those payments are regularly made; the case not being one of a composition with a common debtor, agreed to, inter se, by several creditors. I prefer so to state the question instead of treating it (as it was put at the Bar) as depending on the authority of the case of Cumber v. Wane(3), decided in 1718. It may well be that distinctions, which in later cases have been held sufficient to exclude the application of that doctrine, existed and were improperly disregarded in Cumber v. Wane(3); and yet that the doctrine itself may be law, rightly recognised in Cumber v. Wane(3), and not really contradicted by any later authorities. And this appears to me to be the true state of the case. The doctrine itself, as laid down by Sir Edward Coke, may have been criticised, as questionable in principle, by some persons whose opinions are entitled to respect, but it has never been judicially overruled; on the contrary I think it has always, since the sixteenth century, been accepted as law. If so, I cannot think that your Lordships would do right, if you were now to reverse, as erroneous, a judgment of the Court of Appeal, proceeding upon a doctrine which has been accepted as part of the law of England for 280 years.
The doctrine, as stated in Pinnel’s Case(1), is “that payment of a lesser sum on the day” (it would of course be the same after the day), “in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the Judges, that by no possibility a lesser sum can be a satisfaction to the plaintiff for a greater sum.” As stated in Coke Littleton, 212 (b), it is, “where the condition is for payment of £20, the obligor or feoffor cannot at the time appointed pay a lesser sum in satisfaction of the whole, because it is apparent that a lesser sum of money cannot be a satisfaction of a greater;” adding (what is beyond controversy), that an acquittance under seal, in full
(1) 5 Rep. 117 a.
(2) Co. Litt. 212 b.
(3) 1 Sm. L. C. 8th ed. 357.
satisfaction of the whole, would (under like circumstances) be valid and binding.
The distinction between the effect of a deed under seal, and that of an agreement by parol, or by writing not under seal, may seem arbitrary, but it is established in our law; nor is it really unreasonable or practically inconvenient that the law should require particular solemnities to give to a gratuitous contract the force of a binding obligation. If the question be (as, in the actual state of the law, I think it is), whether consideration is, or is not, given in a case of this kind, by the debtor who pays down part of the debt presently due from him, for a promise by the creditor to relinquish, after certain further payments on account, the residue of the debt, I cannot say that I think consideration is given, in the sense in which I have always understood that word as used in our law. It might be (and indeed I think it would be) an improvement in our law, if a release or acquittance of the whole debt, on payment of any sum which the creditor might be content to receive by way of accord and satisfaction (though less than the whole), were held to be, generally, binding, though not under seal; nor should I be unwilling to see equal force given to a prospective agreement, like the present, in writing though not under seal; but I think it impossible, without refinements which practically alter the sense of the word, to treat such a release or acquittance as supported by any new consideration proceeding from the debtor. All the authorities subsequent to Cumber v. Wane(1), which were relied upon by the appellant at your Lordships’ Bar (such as Sibree v. Tripp(2), Curlewis v. Clark(3), and Goddard v. O’Brien(4)) have proceeded upon the distinction, that, by giving negotiable paper or otherwise, there had been some new consideration for a new agreement, distinct from mere money payments in or towards discharge of the original liability. I think it unnecessary to go through those cases, or to examine the particular grounds on which each of them was decided. There are no such facts in the case now before your Lordships. What is called “any benefit, or even any legal possibility of benefit,” in Mr. Smith’s notes to Cumber v. Wane(1), is not
(1) 1 Sm. L. C. 8th ed. 366.
(2) 15 M. & W. 23.
(3) 3 Ex. 375.
(4) 9 Q. B. D. 37.
(as I conceive) that sort of benefit which a creditor may derive from getting payment of part of the money due to him from a debtor who might otherwise keep him at arm’s length, or possibly become insolvent, but is some independent benefit, actual or contingent, of a kind which might in law be a good and valuable consideration far any other sort of agreement not under seal.
My conclusion is, that the order appealed from should be affirmed, and the appeal dismissed, with costs, and I so move your Lordships.
Pao On and others v Lau Yiu Long and another (Hong Kong)
[1979] UKPC 17
The Privy Council Lord Scarman
“The First Question
The first question is whether upon its true construction the written guarantee of the 4th May 1973 states a consideration sufficient in law to support the Lays’ promise of indemnity against a fall in value of the Fu Chip shares. The instrument is, so far as relevant, in these terms: —
…..
Thus, on the 4th May 1973 the performance of the main agreement still lay in the future. Performance of these promises was of great importance to the Laus, and it is undeniable that, as the instrument declares, the promises were made to Fu Chip at the request of the Laus. It is equally clear that the instrument also includes a promise by the Paos to the Laus to fulfil their earlier promises given to Fu Chip.
The Board agrees with Mr. Neill’s submission that the consideration expressly stated in the written guarantee is sufficient in law to support the Laus’ promise of indemnity. An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors’ request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance. All three features are present in this case. The promise given to Fu Chip under the main agreement not to sell the shares for a year was at Lau’s request. The parties understood at the time of the main agreement that the restriction on selling must be compensated for by the benefit of a guarantee against a drop in price: and such a guarantee would be legally enforceable. The agreed cancellation of the subsidiary agreement left, as the parties knew, the Paos unprotected in a respect in which at the time of the main agreement all were agreed they should be protected.
Mr. Neill’s submission is based on Lampleigh v. Braithwait (1615) Hobart 105. In that case the judges said at p. 106:
” First, … a meer voluntary curtesie will not have a consideration to uphold an assumpsit. But if that curtesie were moved by a suit or request of the party that gives the assumpsit, it will bind, for the promise, though it follows, yet it is not naked, but couples it self with the suit before, and the merits of the party procured by that suit, which is the difference “.
The modern statement of the law is in the judgment of Bowen LJ. in In Re Cassey’s Patents, Stewart v. Casey [1892] 1 Ch. 104 at pp. 115-116; Bowen LJ. said:
“. . . Even if it were true, as some scientific students of law believe, that a past service cannot support a future promise, you must look at the document and see if the promise cannot receive a proper effect in some other way. Now, the fact of a past service raises an implication that at the time it was rendered it was to be paid for, and, if it was a service which was to be paid for, when you get in the subsequent document a promise to pay, that promise may be treated either as an admission which evidences or as a positive bargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered. So that here for past services there is ample justification for the promise to give the third share . . .”.
Conferring a benefit is, of course, an equivalent to payment: see Chitty on Contracts, 24th ed., I, paragraph 154.
Mr. Leggatt, Q.C., for the respondents, does not dispute the existence of the rule but challenges its application to the facts of this case. He submits that it is not a necessary inference or implication from the terms of the written guarantee that any benefit or protection was to be given to the Paos for their acceptance of the restriction on selling their shares. Their Lordships agree that the mere existence or recital of a prior request is not sufficient in itself to convert what is prima facie past consideration into sufficient consideration in law to support a promise: as they have indicated, it is only the first of three necessary preconditions. As for the second of those preconditions, whether the act done at the request of the promisor raises an implication of promised remuneration or other return is simply one of the construction of the words of the contract in the circumstances of its making. Once it is recognised, as the Board considers it inevitably must be, that the expressed consideration includes a reference to the Paos’ promise not to sell the shares before the 30th April 1974—-a promise to be performed in the future, though given in the past-—it is not possible to treat the Laus’ promise of indemnity as independent of the Paos’ antecedent promise, given at Lau’s request, not to sell. The promise of indemnity was given because at the time of the main agreement the parties intended that Lau should confer upon the Paos the benefit of his protection against a fall in price. When the subsidiary agreement was cancelled, all were well aware that the Paos were still to have the benefit of his protection as consideration for the restriction on selling. It matters not whether the indemnity thus given be regarded as the best evidence of the benefit intended to be conferred in return for the promise not to sell, or as the positive bargain which fixes the benefit on the faith of which the promise was given—though where, as here, the subject is a written contract, the better analysis is probably that of the ” positive bargain”. Their Lordships, therefore, accept the submission that the contract itself states a valid consideration for the promise of indemnity,
This being their Lordships’ conclusion, it is unnecessary to consider Mr. Neill’s further submission (also raised for the first time before the Board) that the option given the Laus, if called upon to fulfil their indemnity, to buy back the shares at $2.50 a share was itself a sufficient consideration for the promise of indemnity. But their Lordships see great force in the contention. The Laus promised to indemnify the plaintiffs if the market price of Fu Chip shares fell below $2.50. However, in the event of the Laus being called on to implement this promise they were given an option to take up the shares themselves at $2.50. This on the face of it imposes on the plaintiffs in the circumstances envisaged an obligation to transfer the shares to the Laus at the price of $2.50 if called on to do so. The concomitant benefit to the Laus could be a real one— for example, if they thought that the market, after a temporary set-back, would recover to a price above $2.50. The fact that the option is stated in the form of a proviso does not preclude it being a contractual term or one under which consideration moves.
The Second Question
There is no doubt—and it was not challenged—that extrinsic evidence is admissible to prove the real consideration where:
(a) no consideration, or a nominal consideration, is expressed in the instrument, or
(b) the expressed consideration is in general terms or ambiguously stated, or
(c) a substantial consideration is stated, but an additional consideration exists.
The additional consideration must not, however, be inconsistent with the terms of the written instrument. Extrinsic evidence is also admissible to prove the illegality of the consideration. In their Lordships’ opinion the law is correctly stated in Halsbury, Laws of England, 4th edition, Volume 12, paragraph 1487.
The extrinsic evidence in this case shows that the consideration for the promise of indemnity, while it included the cancellation of the subsidiary agreement, was primarily the promise given by the Paos to the Laus, to perform their contract with Fu Chip, which included the undertaking not to sell 60% of the shares allotted to them before the 30th April 1974. Thus the real consideration for the indemnity was the promise to perform, or the performance of, the Paos’ pre-existing contractual obligations to Fu Chip. This promise was perfectly consistent with the consideration stated in the guarantee. Indeed, it reinforces it by imposing upon the Paos an obligation now owed to the Laus to do what, at Lau’s request, they had agreed with Fu Chip to do.
Their Lordships do not doubt that a promise to perform, or the performance of, a pre-existing contractual obligation to a third party can be valid consideration. In New Zealand Shipping Co. Ltd. v. Satterthwaite Ltd. (The Eurymedon) [1975] AC 154 the rule and the reason for the rule were stated as follows (p. 168):
” An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration: … the promisee obtains the benefit of a direct obligation …. This proposition is illustrated and supported by Scotson v. Pegg (1861) 6 H & N, 295 which their Lordships consider to be good law “.
Unless, therefore, the guarantee was void as having been made for an illegal consideration or voidable on the ground of economic duress, the extrinsic evidence establishes that it was supported by valid consideration.
Mr. Leggatt for the respondents submits that the consideration is illegal as being against public policy. He submits that to secure a party’s promise by a threat of repudiation of a pre-existing contractual obligation owed to another can be, and in the circumstances of this case was, an abuse of a dominant bargaining position and so contrary to public policy. This, he submits, is so even though economic duress cannot be proved.
This submission found favour with the majority in the Court of Appeal. Their Lordships, however, consider it misconceived. Reliance was placed on the old ” seaman ” cases of Harris v. Watson (1791) Peake 102 and Stilk v. Meyrick (1809) 6 Esp. 129 and 2 Camp. 317. Counsel, also, referred to certain developments in American law, which are to be found described in two leading works, Corbin on Contracts and Williston on Contracts. The relevant passages are Corbin, Vol. I, Chap. 1, and Williston, Chap. 47. Their Lordships would make one general observation on what is revealed by these two distinguished American works. Where some judges speak of public policy, others speak of economic duress. No clear line of distinction between the two concepts emerges as settled in the American law.
In the seaman cases there were only two parties—the seaman and the captain (representing the owner). In Harris v. Watson the captain during the voyage, for which the plaintiff had contracted to serve as a seaman, promised him five guineas over and above his common wages if he would perform some extra work. Lord Kenyon thought that if the seaman’s claim to be paid the five guineas was supported ” it would materially affect the navigation of this kingdom “. He feared the prospect of seamen in times of danger insisting ” on an extra charge on such a promise “, and non-suited the plaintiff. In Stilk v. Meyrick Lord Ellenborough also non-suited the seaman. According to the report in 2 Campbell 317 he said:
” I think Harris v. Watson was rightly decided; but 1 doubt whether the ground of public policy, upon which Lord Kenyon is stated to have proceeded, be the true principle on which the decision is to be supported. Here, I say, the agreement is void for want of consideration “.
Espinasse, who appeared as junior counsel for the unsuccessful plaintiff in the case, reports the case somewhat differently. He reports (p. 130) Lord Ellenborough as saying that
“. . . he recognised the principle of the case of Harris v. Watson as founded on just and proper policy.”
But the report continues—
” when the defendant [sic—but surely the plaintiff is meant?] entered on board the ship, he stipulated to do all the work his situation called upon him to do “.
These cases, explicable as they are upon the basis of an absence of fresh consideration for the captain’s promise, are an unsure foundation for a rule of public policy invalidating contracts where, save for the rule, there would be valid consideration.
When one turns to consider cases where a pre-existing duty imposed by law is alleged to be valid consideration for a promise, one finds cases in which public -policy has been held to invalidate the consideration, A promise to pay a sheriff in consideration of his performing his legal duty, a promise to pay for discharge from illegal arrest, are to be found in the books as promises which the law will not enforce: see the cases cited in footnote 2, paragraph 326, Halsbury, Laws of England, 4th edition, Volume 9. Yet such cases are also explicable upon the ground that a person who promises to perform, or performs, a duty imposed by law provides no consideration. In cases where the discharge of a duty imposed by law has been treated as valid consideration, the courts have usually (but not invariably) found an act over and above, but consistent with, the duty imposed by law: see Williams v. Williams [1957] 1 W.L.R. 148. It must be conceded that different judges have adopted differing approaches to such cases: contrast, for example, Denning L.J. at p. 149 et seq. with the view of the majority in Williams’ case.
But, where the pre-existing obligation is a contractual duty owed to a third party, some other ground of public policy must be relied on to invalidate the consideration (if otherwise legal); the respondents submit that the ground can be extortion by the abuse of a dominant bargaining position to threaten the repudiation of a contractual obligation. It is this application of public policy which Mr. Leggatt submits has been developed in the American cases. Beginning with the general rule that ” neither the performance of duty nor the promise to render a performance already required by duty is a sufficient consideration” the courts have (according to Corbin on Contracts I, paragraph 171) advanced to the view ” that the moral and economic elements in any case that involves the rule should be weighed by the court, and that the fact of pre-existing legal duty should not be in itself decisive “.
The American Law Institute in its Restatement of the law of contracts (para. 84D) has declared that performance (or promise of performance) of a contractual duty owed to a third person is sufficient consideration. This view (which accords with the statement of our law in Satterthwaite’s case supra) appears to be generally accepted but only in cases where there is no suggestion of unfair economic pressure exerted to induce the making of what Corbin (op. cit.) calls ” the return promise “.
Their Lordships’ knowledge of this developing branch of American law is necessarily limited. In their judgment it would be carrying audacity to the point of foolhardiness for them to attempt to extract from the American case law a principle to provide an answer to the question now under consideration. That question, their Lordships repeat, is whether, in a case where duress is not established, public policy may nevertheless invalidate the consideration if there has been a threat to repudiate a pre-existing contractual obligation or an unfair use of a dominating bargaining position.
Their Lordships’ conclusion is that where businessmen are negotiating at arm’s length it is unnecessary for the achievement of justice, and unhelpful in the development of the law, to invoke such a rule of public policy. It would also create unacceptable anomaly. It is unnecessary because justice requires that men. who have negotiated at arm’s length, be held to their bargains unless it can be shown that their consent was vitiated by fraud, mistake or duress. If a promise is induced by coercion of a man’s will, the doctrine of duress suffices to do justice. The party coerced, if he chooses and acts in time, can avoid the contract. If there is no coercion, there can be no reason for avoiding the contract where there is shown to be a real consideration which is otherwise legal.
Such a rule of public policy as is now being considered would be unhelpful because it would render the law uncertain. It would become a question of fact and degree to determine in each case whether there had been, short of duress, an unfair use of a strong bargaining position.
It would create anomaly because, if public policy invalidates the consideration, the effect is to make the contract void. But unless the facts are such as to support a plea of ” non est factum “, which is not suggested in this case, duress does no more than confer upon the victim the opportunity, if taken in time, to avoid the contract. It would be strange if conduct less than duress could render a contract void, whereas duress does no more than render a contract voidable. Indeed, it is the Laus’ case in this appeal that such an anomaly is the correct result. Their case is that the Paos, having lost by cancellation the safeguard of the subsidiary agreement, are without the safeguard of the guarantee because its consideration is contrary to public policy, and that they are debarred from restoration to their position under the subsidiary agreement because the guarantee is void, not voidable. The logical consequence of Mr. Leggatt’s submission is that the safeguard which all were at all times agreed the Paos should have—the safeguard against fall in value of the shares—has been lost by the application of a rule of public policy. The law is not, in their Lordships’ judgment, reduced to countenancing such stark injustice: nor is it necessary, when one bears in mind the protection offered otherwise by the law to one who contracts hi ignorance of what he is doing or under duress. Accordingly, the submission that the additional consideration established by the extrinsic evidence is invalid on the ground of public policy is rejected.
Pillans & Rose v Van Mierop & Hopkins
(1765) 3 Burr 1663
Lord Mansfield
“This is a matter of great consequence to trade and commerce, in every light…
I take it, that the ancient notion about the want of consideration was for the sake of evidence only: for when it is reduced to writing, as in covenants, specialities, bonds, etc, there was no objection to the want of consideration. And the Statute of Frauds proceeded on the same principle. In commercial cases amongst merchants, the want of consideration is not an objection…
If a man agrees that he will do the formal part, the law looks upon it (in the case of acceptance of a bill) as if actually done. It would be very destructive to trade, and to trust in commercial dealing if they could.”
Wilmot J said,
“whether this be an actual acceptance, or an agreement to accept, it ought equally to bind. An agreement to accept a bill “to be drawn in the future” would (as it seems to me) by connection and relation, bind on account of the antecedent relation. And I see no difference between itself being before or after the bill was drawn.”
Pinnel’s Case
[1602] 5 Co. Rep. 1
Sir Edward Coke
“payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the Judges that by no possibility, a lesser sum can be a satisfaction to the plaintiff for a greater sum: but the gift of a horse, hawk, or robe, etc. in satisfaction is good. For it shall be intended that a horse, hawk, or robe, &c. might be more beneficial to the plaintiff than the money.
… he did not plead that he had paid the 5l. 2s. 2d. in full satisfaction (as by the law he ought) but pleaded the payment of part generally; and that the plaintiff accepted it in full satisfaction. And always the manner of the tender and of the payment shall be directed by him who made the tender or payment, and not by him who accepts it. And for this cause judgment was given for the plaintiff.”
Stilk v Myrick
[1809] EWHC KB
Lord Ellenborough’s
“I think Harris v Watson was rightly decided; but I doubt whether the ground of public policy, upon which Lord Kenyon is stated to have proceeded, be the true principle on which the decision is to be supported. Here, I say, the agreement is void for want of consideration. There was no consideration for the ulterior pay promised to the mariners who remained with the ship. Before they sailed from London they had undertaken to do all that they could under all the emergencies of the voyage. They had sold all their services till the voyage should be completed. If they had been at liberty to quit the vessel at Cronstadt, the case would have been quite different; or if the captain had capriciously discharged the two men who were wanting, the others might not have been compellable to take the whole duty upon themselves, and their agreeing to do so might have been a sufficient consideration for the promise of an advance of wages. But the desertion of a part of the crew is to be considered an emergency of the voyage as much as their death; and those who remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safety to her destined port. Therefore, without looking to the policy of this agreement, I think it is void for want of consideration, and that the plaintiff can only recover at the rate of £5 a month.”]
White v Bluett
(1853) 23 LJ Ex 36
Pollock CB
“The plea is clearly bad. By the argument a principle is pressed to an absurdity, as a bubble is blown until it bursts. Looking at the words merely, there is some foundation for the argument, and following the words only, the conclusion may be arrived at. It is said, the son had a right to an equal distribution of his father’s property, and did complain to his father because he had not an equal share, and said to him, I will cease to complain if you will not sue upon this note. Whereupon the father said, If you will promise me not to complain, I will give up the note. If such a plea as this could be supported, the following would be a binding promise: A man might complain that another person used the public highway more than he ought to do, and that other might say, do not complain, and I will give you five pounds. It is ridiculous to suppose that such promises could be binding. So, if the holder of a bill of exchange were suing the acceptor, and the acceptor were to complain that the holder had treated him hardly, or that the bill ought never to have been circulated, and the holder were to say, now, if you will not make any more complaints, I will not sue you, such a promise would be like that now set up. In reality, there was no consideration whatever. The son had no right to complain, for the father might make what distribution of his property he liked; and the son’s abstaining from doing what he had no right to do can be no consideration. ”
Williams v Roffey Bros & Nicholls (Contractors) Ltd
[1989] EWCA Civ
Glidewell LJ
“It is not in my view surprising that a principle enunciated in relation to the rigours of seafaring life during the Napoleonic wars should be subjected during the succeeding 180 years to a process of refinement and limitation in its application to the present day.”
However, the principle had not in fact been subjected to any refinement and the three cases he relied on for this proposition – Ward, Williams v Williams and Pao On – unanimously applied it by finding legal consideration (without which the post-contractual modifications would not have been upheld). Glidewell LJ expanded that this test merely refined the Stilk v Myrick principle further but left it unscathed. This is inaccurate as he held that other practical benefits than those envisaged as the original consideration may per se constitute the requisite good consideration to fulfil the contract (something Stilk v Myrick specifically did not allow). The two cases would until then have been seen as indistinguishable on their facts.[3] or whether he overruled the High Court precedent (later relied on in more senior courts) of Stilk v Myrick.[3]
Russell LJ
“The courts nowadays should be more ready to find [consideration’s] existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal. ”
He noted that Roffey Bros’ employee, Mr Cottrell had felt the original price to be less than reasonable, and there was a further need to replace the ‘haphazard method of payment by a more formalised scheme’ of money per flat. “True it was that the plaintiff did not undertake to do any work additional to that which he had originally undertaken to do but the terms upon which he was to carry out the work were varied and, in my judgment, that variation was supported by consideration which a pragmatic approach to the true relationship between the parties readily demonstrates.”
Chappell & Co Ltd v Nestle Co Ltd
[1959] UKHL 1 [1960] AC 87
Lord Somervell
“The question, then, is whether the three wrappers were part of the con-
sideration or, as Lord Jenkins held, a condition of making the purchase,
like a ticket entitling a member to buy at a co-operative store.
I think they are part of the consideration. They are so described in
the offer. ” They “, the wrappers, ” will help you to get smash-hit record-
” ings”. They are so described in the record itself—” all you have to do
” to get each NEW STARS record is to send three wrappers from Nestlé’s 6d.
” Milk Chocolate bars, together with postal order for 1/6.” This is not
conclusive but, however described, they are, in my view, in law part of
the consideration. It is said that when received the wrappers are of no
value to Nestlé’s. This I would have thought irrelevant. A contracting
party can stipulate for what consideration he chooses. A peppercorn does
not cease to be good consideration if it is established that the promisee
does not like pepper and will throw away the corn. As the whole object
of selling the record, if it was a sale, was to increase the sales of chocolate,
it seems to me wrong not to treat the stipulated evidence of such sales as
part of the consideration. For these reasons I would allow the appeal.
O’Keefe v. Ryanair Holdings plc [2002] IEHC 154
Kelly J
“The contention made by the defendant both in its pleadings and submissions is that there was no contract in existence between the plaintiff and the defendant. Rather it is said that the defendant conferred a gift on the plaintiff. Insofar as the terms of that gift are concerned the defendant appears to be in some considerable doubt. Five different alternatives are set forth in the defence and on the closing day of the trial leave was sought and granted even to amend those.
A gift is defined in the Concise Oxford Dictionary (seventh edition) as a “voluntary transference of property without compensation”.
In the present case I am quite satisfied that on any reasonable view of what occurred in this case the entitlement given to the plaintiff to avail herself of free tickets on the defendant’s flights was not gratuitous. The only basis upon which the defendant had any interest in the plaintiff arose from her agreement to participate in the public relations exercise which was undertaken by it. Had she not so consented she would have had no entitlement to participate in the proposal which was put to her. The whole object of the exercise was to generate publicity for the defendant and the plaintiffs active participation was required in that. She gave her consent and it was on that basis that the entitlements in question were made available to her.
I am quite satisfied therefore, that there is no question of a gift being involved here. The defendant had a veryclear idea as to what it wanted from the plaintiff and it got it.
It is trite law that in order for there to be a valid contract there must be agreement between the parties, consideration for such agreement and an intention to create legal relations.
In my view there was agreement between the parties that in consideration of the plaintiff consenting to participate in the publicity sought by the defendant she would be eligible for nomination as its millionth passenger. Should she be so nominated she was to cooperate in the publicity being generated for the defendant’s benefit. In return she was to be entitled to unlimited travel on Ryanair routes for herself and a nominated person for the remainder of her natural life.
Under the doctrine of consideration a promise has no contractual force unless some value has been given for it. The court is not concerned with the adequacy of value. (Haigh v Brooks [1839] 10 A & E 309; Wild vTucker [1914] 3 K.B. 36; Midland Bank v Green [1981] AC 513). The consideration to support a contract must however be real, that is to say capable of estimation in terms of value. It must be of some value in the eye of the law. (Thomas v Thomas [1842] 2 Q.B. 851). Certainly, the participation of the plaintiff in the publicity generated on the day in question was regarded as being of value by the defendant and I see no reason why the law should not regard it as likewise being of value. The surrender by the plaintiff of her anonymity and privacy and her active participation in the generation of the publicity that was created on the day in question in my viewamounted to a real consideration and sufficient to support a valid contract.
Insofar as an intention to create legal relations was concerned it was never seriously suggested that such was absent on the defendant’s part. The onus of proving that there was no such intention is on the party who asserts that no legal effect is intended, and the onus is a heavy one (see Edwards -v- Skyways Limited 1964 1 WLR 349). As I have already noted there was no real effort to make such a case here apart from the suggestion that what was involved on the part of the defendant was a gift. Indeed, it would have been difficult to make such a case because it seems to me that there was much about the conduct of the parties here which demonstrated the existence of a contractual animus. The obtaining of the consent of the plaintiff, the furnishing to her of the large ticket setting forth her entitlements, the subsequent furnishing of the written contract reiterating the terms of the arrangement are all indicative of a lack of intention on the part of the defendant to negative the creation of a legal relationship.
I am therefore satisfied that an enforceable contract was made between the plaintiff and the defendant. I am likewise satisfied that the plaintiff carried out her side of the bargain in full and to the complete satisfaction of the defendant. The next question which arises is as to whether or not the defendant breached its obligations to the plaintiff.”
Commodity Broking Company Ltd. v. Meehan [1985] IR 12
Barron J.
“ The final issue is whether there is any consideration for the defendant’s promise. The consideration relied upon by the plaintiff is that it forbore to sue the company. In the Alliance Bank Limited v. Broom (1864) 2 Dr. and Sm. 289 the defendant who was a customer of the plaintiff bank was asked to give security for money which he owed to the bank. He agreed to hypothecate certain goods in favour of the bank. When he failed to do so, the bank sought to enforce his promise, which he pleaded was given without consideration. He failed in this plea. It was held that he had by implication asked the bank to forbear and that he had received a sufficient degree of forbearance to amount to consideration for his promise. The Vice-Chancellor Sir. D.R.T. Kindersley said at p. 292:
“It appears to me that, when the plaintiffs demanded payment of their debt, and, in consequence of that application the defendant agreed to give certain security, although there was no promise on the part of the plaintiffs to abstain for any certain time from suing for the debt, the effect was, that the plaintiffs did in effect give, and the defendant received, the benefit of some degree of forbearance; not, indeed, for any definite time, but, at all events, some extent of forebearance. If, on the application for security being made, the defendant had refused to give any security at all, the consequence certainly would have been that the creditor would have demanded payment of the debt, and have taken steps to enforce it. It is very true that, at any time after the promise, the creditor might have insisted on payment of his debt, and have brought an action; but the circumstances necessarily involve the benefit to the debtor of a certain amount of forbearance, which he would not have derived if he had not made the agreement.”
In Miles v. New Zealand Alford Estate Company (1886) 32 Ch. D 266 a director and shareholder had sold certain property to the company. At a general meeting, several shareholders complained that the company had overpaid for the property . To still such criticisms, it was agreed that the company should pay a minimum dividend and that in any year in which it was not earned the vendor would make up the difference. He was subsequently sued on this agreement and it was contended that forbearance by the company to bring proceedings in relation to the sale was a sufficient consideration to make the agreement binding. Cotton L.J. at p. 283 in considering the proofs to establish consideration said:
“Now, what I understand to be the law is this, that if there is in fact a serious claim honestly made, the abandonment of the claim is a good “consideration” for a contract; and if that is the law, what we really have to now consider is whether in the present case there is any evidence on which the Court ought to find that there was a serious claim in fact made, and whether a contract to abandon that claim was the consideration for this letter of guarantee.”
Having considered the evidence he said at p. 285:
“The conclusion at which I have arrived is, that there is no evidence on which we ought to rely that there was in fact a claim intended to be made against Grant (the vendor), and, in my opinion, on the evidence before us, we ought not to arrive at the conclusion that there was ever intended to be any contract by the company, much less that there was in fact any contract binding the company that that claim should not be prosecuted, and should be given up.”
Fry L.J. accepted the same test and took the view that there was no intention by the company to abandon its claim. At p. 300 he said:
“I think the true result of the evidence is to show that there was an expectation in the mind of Mr. Grant that if he gave this document no proceedings would be taken against him, that there was an expectation in the minds of many of those who were present, if they got this dividend they would take no proceedings; but it appears to me it is not right or competent for the Court to turn an expectation into a contract, and that is what I think we should do if we gave effect to this as a valid contract.”
Bowen L.J. dissented. He regarded consideration as being any forbearance to sue as a result of the express or implied request of the promissor. He regarded the decision of the trial judge “as finding that proceedings had been threatened, that Mr. Grant knew that they had been threatened, that he gave the guarantee in order to put an end to them, and that the proceedings were dropped in consequence of his giving that undertaking.”He regarded this as a finding that there has been consideration and in doing so he expressly followed Alliance Bank Ltd. v. Broom (1886) 2 Dr. & Sm. 289. The majority view that there should be an actual agreement to abandon threatened proceedings before there can be good consideration was not followed in later cases.
On similar facts, Alliance Bank v. Broom (1886) 2 Dr. & Sm. 289 was approved by the House of Lords in Fullerton v. Provincial Bank of Ireland [1903] A.C. 309. In the same case, the judgment of Bowen L.J. in Miles v.New Zealand Alford Estate Company (1886) 32 Ch. D. 266 was cited with approval by Lord Davey at p. 316.
In Combe v. Combe [1955] 1 All E.R. 767 the court had to consider whether there was consideration for a promise by a husband to pay permanent maintenance to his wife upon the dissolution of their marriage. The wife was not paid and after several years sued on the promise. It was held that there was no consideration since she had been entitled at all times to apply to the court for maintenance and such right would have been unaffected by her husband’s promise. Accordingly there had been no request to forbear. At p. 771 Denning L.J. said:
“I cannot find any evidence of any intention by the husband that the wife should forbear from applying to the Court for maintenance, or, in other words, any request by the husband, express or implied, that the wife should so forbear. Her forbearance was not intended by him, nor was it done at his request. It was, therefore, no consideration.”
In the same case Asquith L.J. said at p. 774:
“Finally, I do not think an actual forbearance, as opposed to an agreement to forbear to approach the Court, is a good consideration unless it proceeds from a request, express or implied, on the part of the promissor. If not moved by such a request, the forbearance is not in respect of the promise.”
In my view, these cases establish that the better view is that where a request express or implied to forbear from bringing proceedings induces such forbearance this amounts to good consideration. It is not necessary as the majority decided in Miles v. New Zealand Alford Estate Company (1886) 32 Ch. D. 266 that there should be an actual agreement not to sue.
The reality of the present case is that when the company was unable to meet its calls the plaintiff took steps to protect itself. So far as the plaintiff was concerned, the company was almost certainly unable to pay. Accordingly, every effort was made to ensure that a promise could be obtained from the defendant that he would pay instead. In the course of events, I can find no implied request by the defendant not to sue the company nor clearly any express request. Nor can I find that the defendant’s promise to pay influenced the plaintiff’s decision not to sue the company. The plaintiff did not deliberately refrain from suing the company. Had it seemed to it a sensible course to adopt, it would have done so. Its reason for not doing so was not the defendant’s promise to pay, but the realisation that it would be a fruitless exercise. If it had been deliberately misled by the defendant, either as to the solvency of the company or into not suing the company by reason of the payments made, the matter might have been otherwise. But there is no evidence to suggest any such calculated conduct on the part of the defendant nor is such a case made. Reluctantly I must hold that no consideration was given for the defendant’s promise.
In the circumstances the plaintiff’s claim must be dismissed.
Lombard & Ulster Banking -v- Mercedes- Benze Finance Ltd
[2006] IEHC 168 (11 January 2006)
JUDGMENT delivered the 11th day of January, 2006 by Mr. Justice John MacMenamin
1. It might well have been thought in this era of mediation and alternative dispute resolution that an action between two substantial finance houses regarding the financing of a hire purchase transaction of three rather elderly second hand Mercedes tractor truck units would be more redolent of litigation of another era; the more so when the sum originally at stake was just in excess of the lower end of the High Court money jurisdiction. The fallacy of such a presumption is demonstrated by the instant case which was fought out with tenacity and vigour over three days in the High Court. The reasons therefor emerge in the course of this judgment. Put simply, each side firmly believed in the moral and legal correctness of their actions. (For ease of reference in this judgment Mercedes-Benz Finance Ltd will (save in the next paragraph) be hereafter be referred to as ‘the defendant’).
2. On one view, the relevant events in issue can be measured in a two month time-span. In or about August 1998 Vincent Hughes, the second named defendant (who is no longer concerned in these proceedings), approached the plaintiffs and stated that he wished to buy three second hand Mercedes trucks from the first named defendant in England and wished to obtain finance of STG £40,000 for this transaction. In the ordinary way the structure of the finance would be a series of three hire purchase agreements, one in respect of each of the three trucks.
3. The contract was made between the plaintiff and the defendant. The transaction was handled in the plaintiff company by Aidan Carolan. At the time of this transaction he was a Manager of the plaintiff company in its Cavan branch. He is now Area Manager in the same branch. He testified that in August 1998 he received a telephone call from a salesperson in Westwood Garage in Strokestown to the effect that the second named defendant was minded to purchase one single new Scania truck from that garage. Mr. Carolan went to meet Mr. Hughes. The nature of this transaction was to be a hire purchase agreement. It is unnecessary to deal any further with this transaction as it did not proceed.
4. Mr. Carolan testified that he personally had no previous experience of dealing with Mr. Hughes. Mr. Hughes had however engaged in transactions with Lake Leasing who are an associated company of the plaintiff. While the latter company carry on their own leasing business, Lombard and Ulster Finance collect funds on their behalf by way of direct debit. The plaintiffs do not share the same information and databanks as Lake Leasing.
5. A short period later Mr. Carolan received a further telephone call from a sales executive of Lombard and Ulster in Sligo. That executive was Gareth Heavey. Mr. Heavey informed Mr. Carolan that Mr. Hughes was then purchasing three second hand Mercedes trucks from Mercedes in England and that this information had come to him through Lake Leasing. Lake themselves were not in the business of financing trucks. Their main business related to the financing of cars. Mr. Carolan’s understanding was that Lombard and Ulster would be dealing with Mercedes Benz Sales. He contacted Mr. Hughes and asked him about his intentions. He was informed that Mr. Hughes was purchasing three trucks from Mercedes Benz. As Mr. Carolan was going through Carrick-on-Shannon (where Mr. Hughes lives) he stated that he would call to see him. At that meeting Mr. Carolan was told that Mr. Hughes was purchasing three trucks for a total value of approximately STG £62,000 and that he required finance of STG £40,000 from the plaintiffs and that he wished to pay the deposit.
6. Mr. Carolan knew no more about the trucks at that stage. He put the proposal forward to his head office and the arrangement was approved in principle.
7. The next step in the transaction was to seek a pro forma invoice from the defendant. Mr. Carolan contacted a Mr. Kevin Segar in that company. He told Mr. Segar that Mr. Hughes was purchasing three trucks from the defendant and that he wished to obtain an invoice. The plaintiff was going to finance the purchase. Mr. Segar indicated that he would arrange for a draft invoice which he did. Mr. Carolan testified that he informed Mr. Segar that the plaintiffs were to finance STG £40,000. The total consideration for the three trucks was STG £62,667.56. In error Mr. Segar sent an invoice to Mr. Carolan dated 11th September for the sum of £64,667.56. It will be seen therefore that the error was in the sum of an additional sum of STG £2,000.
8. To avoid further confusion Mr. Carolan laid out a draft invoice as the plaintiffs would require it. He forwarded this to a Stuart Lowther in the defendant company to make up the invoice. Mr. Carolan stated that he was not surprised to find that the seller of the trucks was Mercedes Benz Finance Ltd (a UK Company) rather than Mercedes Benz Sales Ltd. This was attributable to the fact that the plaintiffs financed trucks and various pieces of equipment which might have been repossessed by finance companies such as the defendant. Equally the defendant could wish to sell contract hire vehicles which had been repossessed. Such a transaction therefore, even from the defendant which is a United Kingdom registered company would not be uncommon. Ultimately, on 14th September an invoice emanated from the defendants. The only distinction which can be seen on the face of the draft as opposed to the actual sales invoice of 14th September was the sequence in which the trucks were dealt with, and some lack of definition to the valuation figures which were attributable to each of the three trucks. Mr. Hughes signed the hire purchase contract on the requisite form for the transaction on 15th September. Mr. Carolan contacted a sales support person in the plaintiffs Dublin office to carry out a credit bureau check, known as an ‘ICB check’ to ascertain whether the goods were the subject of any hire purchase or loan agreement. Nothing adverse was disclosed. Thereafter Mr. Carolan instructed the plaintiff’s head office to carry out the credit transfer of STG £40,000 to the defendant company.
9. No information was disclosed to the plaintiff, nor did any discussions take place between Mr. Carolan and the defendant as to the provenance or whereabouts of the trucks. Mr. Carolan said that he proceeded on the basis that they were in the possession of the defendants, and in storage in England.
10. The sales invoice relating to the three trucks from the defendants contained a number of terms which are of importance. The first of these was: “no warranty given or implied”. The second: “any distance recorded on the above vehicle cannot be guaranteed in any way”. The third: “as seen and approved by Mr. V. Hughes”. Finally it was stipulated: “all goods remain the property of the vendor until cleared or received in full”. The total consideration of STG £62,667.56 was set out. Below that there was recited: “less cash deposit due from Mr. Hughes STG £22,667.56”, leaving a balance due of STG £40,000.
11. On its face then, this is a relatively straightforward hire purchase transaction conducted perhaps rather too speedily and certainly informally.
In order to obtain a fuller picture one must then turn to the history of the tractor truck units. Each of them had previously been registered in Northern Ireland. The oldest was previously registered OJI5287. It chassis number was WDB65592. It was the subject matter of a hire purchase agreement made between Mercedes-Benz Finance Ltd and Agnew Commercials, a Northern Ireland concern on 30th March, 1996. The cash price paid for the vehicle was STG £23,500. This was financed as to an initial payment of STG £5,000 by way of deposit and further finance to a total sum of STG £18,500 payable for 36 months at the sum of STG £606.65.
This vehicle was subsequently re-registered in this jurisdiction as 91 LM 674. The second vehicle was originally registered RJI4221. It too, had been the subject matter of a hire purchase agreement between the first named defendant and Agnew Commercials. This purchase was effected on 23rd October, 1996. The total cash price was £36,013.74, financed as to an initial deposit payment of STG £15,363.75 and additional finance of £20,650 repayable over 36 months at £684.24. The chassis number of this vehicle was WDB65593.
The third vehicle was registered MIL9639 in Northern Ireland. It was subsequently re-registered 96 LM 828. It chassis number was WDB655912. It had been the subject matter of a hire purchase agreement made between Mercedes-Benz Finance Ltd and Agnew Commercials for a total cash price of £69,795 structured as to an initial payment on deposit of £20,395 and financed as to a total sum of £49,400 payable over 60 months at £656.05 per month.
But the hire purchase agreements of each of these three vehicles had been terminated on the 18th June, 1998 by reason of failure on the part of the customer to effect repayments as stipulated. The first vehicle had been repossessed on 21st July, 1998. The second and third vehicles mentioned were still in the possession of the customer and remained so until the 6th July, 1999 and 9th April, 1999 respectively. However Mr. Carolan did not know (a) that the previous customer who had entered into this hire purchase agreement with Mercedes-Benz Finance Ltd was none other than Mr. Vincent Hughes. Mr. Carolan was not informed or aware that only one of the vehicles had been repossessed, and the other two remained in Mr. Hughes possession, and continued to be so for another year. Additionally Mr. Carolan states that he was entirely unaware that the transaction that he had entered into was a refinancing of an existing deal rather than a straightforward series of hire purchase transactions.
Mr. Carolan testified that ten days later he heard from a Mr. Ralph who was one of the credit controllers in the defendant company. Mr. Ralph telephoned Mr. Carolan to indicate that the deposit from Vincent Hughes had not been paid. Mr. Ralph then informed Mr. Carolan that the trucks in question had, at the time of the transaction in issue actually been on hire purchase from the defendant company by Mr. Vincent Hughes. Mr. Carolan was taken aback by this information as he said the plaintiffs would not re-finance goods for anybody, whether in the Republic of Ireland or from England. He testified that he said to Mr. Ralph that he was surprised that the defendants had the trucks “on finance” with Mr. Hughes. No discussion took place at that stage as to who had possession of the trucks. After this telephone call Mr. Carolan in turn contacted Mr. Hughes in order to persuade him to furnish the deposit to the defendant. In response to a query as to why Mr. Carolan felt it was his responsibility to contact Mr. Hughes rather than that of the defendant company, Mr. Carolan said that he did so in order to expedite the transaction. On a number of subsequent occasions in the year 1998 and 1999 Mr. Carolan contacted Mr. Hughes in an effort to persuade him to complete the deal.
12. On 26th November, 1998 the plaintiffs received a letter from the defendants in which it was asserted that three trucks were the property of Mercedes Benz Finance Limited and calling upon the plaintiffs to ensure that the totality of the payment of the transaction i.e. the STG £62,667.56 was payable.
13. Mr. Carolan denied that there was any overlap of information between the plaintiff and Lake Leasing. Consequently any information which might have been available to the latter company about transactions which they had entered into previously with Mr. Hughes would not have been available to the plaintiff. Further, when Mr. Hughes spoke to Mr. Carolan in early September he stated that he was buying the trucks from Mercedes. Mr. Carolan said that the only checks customarily carried out in this jurisdiction were those known as the ‘ICB’ check i.e. those carried out under the aegis of the Irish Credit Bureau. This is of some relevance in that the trucks in question were previously registered in the United Kingdom. Lombard and Ulster did not carry out a credit check in that jurisdiction prior to the hire purchase transaction until the 15th or 16th September at which point it emerged that the vehicles in question were registered with the defendant company. Mr. Carolan was insistent that if he had known that what was in issue was a refinancing transaction the plaintiffs would never have considered engaging in it at all. Furthermore he insisted that the contract that he entered into on behalf of the plaintiff was purely for the sum of STG £40,000 and was in no way as surety or guarantor for the totality of the purchase price of the three trucks. He stated that any arrangement made regarding the repayment of the STG £22,000 deposit was between Mr. Hughes and the defendant company.
14. Not the least unusual aspect of the transaction is that apparently, on the 30th September, the plaintiff credited Mr. Hughes account with a deposit on the transaction of IR £26,465.33. Mr. Carolan stated that he thought that that sum must be there for tax purposes so that when Mr. Hughes was carrying out his audited accounts he would be shown that this was part of the transaction which he had effected, and that he would be taking a capital allowance write off of 20% against his accounts from moneys having been paid out on a hire purchase agreement.
Mr. Carolan also said that he was unfamiliar with any credit check agencies known as Experian or Ecuifax which provide information on UK vehicles. They were not used by his company in Ireland.
15. One issue which arose which was never completely clarified was whether, on the 15th or 16th September the plaintiff contacted Mr. Segar in Mercedes Benz with a view to obtaining “clearance” either on Mr. Hughes and/or on the vehicles, and whether as he said, Mr. Segar refused point blank to give any such clearance unless the totality of the debt in question was paid. It was further suggested that this Lombard and Ulster representative, who was unidentified, ultimately was dissatisfied with Mr. Segar’s response, and was put through to Ms. Kaye McDougall of the defendant company. Neither any representative from the plaintiff nor Ms. McDougall gave evidence.
A number of direct debits were presented to Mr. Hughes’ bank in the month of October and November 1998 and went unpaid. Mr. Carolan stated however that the question of dealing with such matters would be for the collection department in Dublin.
16. Between November and March 1999 both Mr. Carolan and a Brian Carey, also senior official of the plaintiff, visited Mr. Hughes on a number of occasions seeking to persuade him to pay the deposit. . An elapse of time between November and the following April of 1999 occurred prior to any response emanating from the plaintiff. However this was considered unremarkable. Mr. Carolan specifically denied that any conversation had taken place between himself and Mr. Segar of the defendant wherein it was suggested that the transaction was for the refinancing of trucks on behalf of Mr. Hughes.
17. Second to testify on behalf of the plaintiff was Mr. Brian Carey, currently head of regulatory risk and compliance with the plaintiff company. He was formerly collections manager. Having reiterated the evidence as to the relationship between the plaintiff company and Lake Finance he stated that his understanding of the invoice in question was that having paid the sum of £40,000 the plaintiff company had acquitted itself of its responsibilities in the transactions. The core of the problem, as far as he was concerned was that Mr. Hughes had failed to pay his deposit to the dealer. He did not however consider that this matter was of direct consequence to the plaintiff in terms of the trucks. He was satisfied that having paid the invoice amount in full (referring to the sum of £40,000), the invoice made clear there was an amount due from Mr. Hughes which he said in the normal course would have been the responsibility of the defendant to collect. In January 1999 he had it in mind to commence proceedings by way of injunctive relief against Mr. Hughes. He was not concerned about the assertion of the claim made by the defendant company in their letter of 26th November, 1998 in that the defendant company had received the STG £40,000, had failed to collect the deposit, and at that stage he assumed that they had released possession of the goods without receiving their deposit. Ultimately therefore he considered that the problem lay with the defendant. In the light of the previously good relationship between the plaintiff and the defendant company he had suggested to Mr. Carolan that he might go to Mr. Hughes and see what he could do in order to see that Mr. Hughes fulfilled his side of the bargain. Mr. Carey added that the plaintiff company subsequently adopted a procedure of profiling accounts which gave further of information regarding the conduct and performance of each account with finance companies on a monthly basis. However in 1998 the breadth of information which is now obtainable was not available to the plaintiff. While ‘ICB’ and other checks were available in this jurisdiction such checks did not cover transactions in Northern Ireland, nor do they cover transactions in the United Kingdom. Mr. Carey testified that because Mr. Hughes had an Irish address he did not consider that it was either reasonable or necessary to carry out checks either in Northern Ireland or in England. No information was available to the plaintiff company to indicate that the plaintiff had a previous history of transacting business in Northern Ireland. This was so despite the fact that in a number of previous transactions with (reflected in discovered documents) Mr. Hughes apparently had furnished an address of his company at 25 Crumlin Park, Crumlin, Co. Antrim. Neither Mr. Carey nor anybody else within the plaintiff company had notice of Mr. Hughes having transacted business in Northern Ireland. He accepted that not alone had the plaintiff been misled by Mr. Hughes in relation to the nature of the transaction, but also it was profoundly mistaken in the view on which it had proceeded that the defendant company was actually in possession of the trucks at the time that the invoice was paid, and they would not have released the trucks until they received the deposit. Referring to a plaintiffs record of 17th September, 1998 known as a “document log” which stated
“Terms of acceptance: Aidan Carolan.
Booking Reference No: 1391
Rate: 0.8565
Transferred by financial control.
Deposit paid to Mercedes.”
He stated that this conveyed to him that it was Mr. Carolan’s belief, and that of the plaintiff that the deposit had been paid. When asked why he did not seek thereafter to repossess the trucks, he responded that he considered that Mr. Hughes had the financial capacity to carry out repayments, that he was present in the jurisdiction and appeared to have a substantial house and car on which he was apparently carrying out payments. He had no reason to believe that he would not ultimately pay the deposit on the trucks.
19. The Defence Evidence
First to testify on behalf of the defendant was Mr. Raj Rajagoupal who was then an account controller. He said that the first contact that he had with Mr. Hughes was when he attended at the defendants offices in England seeking to induce them to reinstate the contracts which had by then been terminated. These discussions took place in the summer of 1998, but prior to any involvement of the plaintiff. Mr. Hughes discussed with Mr. Hughes methods of payment which he might adopt and how he was going to resolve each of the contracts. As soon as soon as the contract was terminated, no further direct debits were accepted through their bank system. However this would not prevent a customer sending in payments in the form of a cheque or paying into a bank. Any funds received after the termination of a contract would be put towards the account. After termination the truck was normally sold at auction in an effort to seek to mitigate the customers loss. The witness informed Mr. Hughes that the contracts had been terminated and that the defendants were actively seeking to repossess the vehicles. Each of the contracts relating to each of the trucks was terminated on 8th June, 1998. Prior to that date, in April 1998 he had considered the repossession of the trucks and had ordered keys for that purpose. He was in contact with repossession agents, named Anglo Irish Professional Repossession. This contact commenced on 20th April, 1998 where a Mr. Murphy of that firm indicated to the defendants that he had identified the trucks and could seize them if this was desired.
20. With regard to the 1991 truck the witness accepted that Mr. Hughes paid the payments promptly for six months after 30th March, 1996 with Mercedes Benz Finance. The latter two trucks, that is the 1993 and 1996 truck were both purchased on 23rd October, 1996. Mr. Rajagoupal testified that when a customer is two payments ‘down’ in relation to any one truck the contract is terminated. The 1991 truck was seized on 21st July, 1998. At the time of seizure it was accepted that the customer immediately became liable to pay all outstanding instalments. He quoted Mr. Hughes a settlement figure of £6,384.89 on the 1991 truck. This was made up of £5,384.89 for arrears and £1,000 added on for the cost of repossession.
It seems clear this total sum of £6,384.89 was paid by Mr. Hughes to the defendant on or about 7th August, 1998 by way of bank draft. Despite the fact that the outstanding sums on the 1991 truck were repaid, the defendant retained possession of that truck. It was ultimately sold on 16th January, 1999 at Garryduff Auctions in Northern Ireland for the sum of STG £4,935. Mr. Rajagoupal contended that despite the fact of £6,384.89 had been paid by Mr. Hughes in August 1998 it was still the property of the defendant. He stated that what was set out in the invoice of 14th September, 1998 were not truck sale prices but settlement figures. He accepted that the implication of the reservation of title clauses was that the defendants owned each of the three trucks. After the date of termination he accepted Mercedes Benz had a money claim against Mr. Hughes and also had ownership of the trucks entitling them to sell the trucks for a fair price. He further accepted that when the defendants received the STG £40,000 the plaintiffs appear to have thought they were buying the trucks. In the course of cross examination by Mr. Senan Allen S.C. on behalf of the plaintiff the following exchange took place from question 136, day three onwards:-
“Q: So when you got the £40,000 it was plainly you could infer, that Lombard thought they were buying the trucks?
A: An assumption could be made on that basis, yes.
Q: No other assumption could be made I suggest to you?
A: You’ve got to understand here in this instance we were not party to any agreement between Mr. Hughes and Lombard, we were completely an innocent party. We had three trucks to sell. The three trucks owed us a certain amount of money. All we wanted to do was sell the trucks and get the money in.
Q: You are not prepared to sell them for £40,000?
A: We certainly would not be able to sell them for £40,000.
Q: Lombard was not prepared to pay any more than £40,000?
A: Then nothing would have happened Sir, we would not have passed title on the trucks at all.
Q: Exactly, so you give them their money back?
A: That is a decision which has to be made by the manager of the department at the end of the day.
Further at question 143:-
Q: If you pay money for something and do not get it, do you not get your money back?
A: Well, it’s a decision which is not made by me, but by somebody senior above me who decides that.”
The witness did not accept that the transaction between the plaintiff and the defendant resembled in all relevant particulars the earlier transactions which the defendant itself had carried out with Agnew Commercials again subject to retention of title clauses. Mr. Rajagoupal was unable satisfactorily to explain the full nature of the transaction relating to the 1991 truck, especially having regard to payment of the outstanding sum thereon as on 7th August, 1998. Nor was he in a position to explain why the cash deposit, stated to be due in the invoice of 14th September, of £22,667.56, made no allowance for the payment by Mr. Hughes on 7th August, of the sum of £6,384.89.
A further incongruity which appeared is that, in a memo from Kaye MacDougall of 17th September, 1998, relating to “chaps receipts” (a form of inter finance house bank payment) and sent by email, the sum of £40,000 received by the defendants from the plaintiff on 16th September was allocated to two accounts. The first of these was stated to be account no 9126885298. The second account was numbered 9146732700. The first of these account numbers was, curiously, the invoice number for the entirety of the three trucks as set out in the invoice of 14th September, 1998. The latter invoice number would appear to relate only to the 1991 truck which had been the subject matter of apparently full repayment made in August, 1998. Mr. Rajagoupal, having been on holiday was not in a position to deal with the manner in which the defendants chose to treat the £40,000 paid by the plaintiffs. The relevant witness on this issue would appear to have been Ms. MacDougal, who did not testify.
21. Mr. Kevin Segar also testified on behalf of the defendant company. At the time he was passenger car asset controller. However, in the absence of others on holidays he also had to involve himself in commercial vehicles transactions. On 11th September he was contacted by Mr. Hughes stating that he had managed to obtain finance from the plaintiffs and requesting that he produce an invoice based on a copy which would be sent over to him reciting the three vehicles, their chassis numbers, engine numbers and registration numbers in accordance with the template invoice to be sent by the plaintiffs. Mr. Segar accepted that the draft invoice sent over on 11th September, 1998, was incorrect. The corrected invoice was sent out on 14th September. On the following day he received a telephone call from a person whom he believed to be called Carolyn from the plaintiff company requesting clearance in the vehicles. To this he responded that he could not possibly give clearance, that the defendants had not received all the monies due on this account and therefore they would not be passing “clearance” or giving letters of “clearance”. The witness stated that the reaction of the representative from Lombard & Ulster was “fairly muted”, and that she then wanted to speak to a supervisor at which point she was passed over to Kaye MacDougall who was in a different part of the office. When the £40,000 came in from the plaintiffs he was surprised to see it arrive before the deposit came in. He did not accept that the first right of appropriation of a debt was that of the customer. The defendants’ policy would be to appropriate the funds across all three transactions. Mr. Ralph was not disposed to accept that there was any analogy which might be drawn between the transactions which the defendant company effected with Agnew Commercial Motors in 1996. He was of the view that what was in question here was a refinancing deal rather than a simple hire purchase transaction. Mr. Ralph was insistent on the proposition that in order for the plaintiffs to obtain full title to the three trucks a total sum on foot of the contract must be paid. However, he denied that the sum of £40,000 which had been paid by the plaintiff had, been effectively treated as a deposit. At question 403 on day three he was asked by counsel for the plaintiffs in reference to the deposit:-
“Q: When the £22,000 failed to materialise you forfeited the £40,000?
A: In my view they paid £40,000 which is what the invoice that is requested from Lombard to raise, they paid and they kept their first part of the bargain in paying us the £40,000. The rest of the balance was due.
Q: What did they get from (sic) the £40,000?
A: I can’t comment. They had a contact with Mr. Hughes which they wrote on the same day that I sent the fax or that the fax was sent over on 14th. They already had a hire purchase agreement with Mr. Hughes and they had three payments from Mr. Hughes as it turned out.
Q: That was later. Never mind about that. How can they hire the goods to Mr. Hughes if they do not own them?
A: On the documentation that they started on 14th, they’d already signed Mr. Hughes up. It was already entered into agreement surely before they sent us the money”.
In Mr. Ralph’s view the plaintiffs were engaging in a refinancing agreement which had nothing to do with straight forward hire purchase. In hindsight he considered that the plaintiff and the defendant did not have the same understanding as to the nature of the transaction at all.
22. Third to testify on behalf of the defendant company was David Ralph, again an employee of the defendant at the time. He stated that his recollection, was at a time that he could not remember, he had contact with the plaintiffs. The plaintiffs sought details as to Mr. Hughes history as a customer. In response to this the witness stated he indicated that the plaintiffs might want to carry out sufficient checks on Mr. Hughes to establish his credit worthiness. However, he did not say that his conversation went outside the standard industry norm that anyone would say to anyone else. He considered that Mr. Hughes was a very “slippery sort of character” with an unfortunate and chequered history with the defendant company. He confirmed having written the letter of 26th November demanding payment of the total sum of £62,667.56. He left the defendant company on 25th January, 1999. The witness was unable to account for the fact that the deposit stipulated in the contract of £22,667.56 did not apparently take into account the sum paid on 7th August, 1998, by Mr. Hughes of £6,384.89, which was a settlement on the 1991 truck.
23. When the witness was asked as to the meaning of his letter of 26th November, he accepted that it meant that in his view the plaintiffs were liable to pay the balance of the total sum outstanding that is that they were liable for the additional sum of £22,667.56. He contended it was a refinancing agreement.
I am unclear as to how this testimony could completely be reconciled with the description on the invoice of 14th September, 1998, as being a “Sales Invoice”.
At question 616 Day 3 the witness was asked whether, in his view, the payment of the sum of STG £6,384 would have entitled Mr. Hughes to the ownership of the 1991 truck. His response was-
“I must be honest, on the face of it, yes, it would look that way.”
24. Consideration
The central case put forward (with much panache) by Mr. Michael Byrne S.C. on behalf of the defendants was that the plaintiffs took on the risk as to whether or not Mr. Hughes would pay the deposit. Further, that at all stages as owners the defendants were entitled to assert the reservation of title clause and that the defendants remained owners of the vehicles. The position did not alter by virtue of the fact that the plaintiffs “took on the risk of Mr. Hughes”. The defendants did not owe any greater duty of disclosure as a consequence of this position. Mr. Byrne further submitted that if the plaintiffs failed to carry out sufficient checks in relation to the credit worthiness of Mr. Hughes that was a matter for them. There was no need to imply terms into the contract unless to give business efficacy thereto. Here there was a straight forward invoice contract between two finance houses containing a retention of title clause clear on its face which, states that if all monies were not paid no title passed. Why then Mr. Byrne asked rhetorically did the plaintiffs not respond to the letter of 26th November? Why did Mr. Carolan resort to Mr. Hughes, on occasion in the company of Mr. Carey, seeking to induce him to pay up the deposit? Counsel further submitted that even if there was a breach of a condition precedent, or a lack of consensus ad idem there was approbation or adoption of the contract by the conduct of the plaintiff in November or thereafter. The arrangement entered into between the plaintiff and Mr. Hughes was one collateral to the contract in issue in these proceedings regarding the payment. Regarding the payment of £6,384 in August, 1998, counsel submitted that such payment, although undoubtedly intended to discharge the indebtedness relating to the 1991 truck, did not have that effect. It was a matter for the defendants to allocate that payment along with other payments in discharge of the general indebtedness owed on foot of the three trucks.
In his succinct submission on behalf of the plaintiff, Mr. Senan Allen S.C. submitted that, on any objective basis, what was in contemplation between the parties was sale of three trucks. The prices for such vehicles were set out in the sales invoice. In its substance and execution the transaction entered into between the plaintiff and the defendant was not different from those entered into by the defendant with Agnew Commercials who supplied the vehicles to the defendant in 1996. Mr. Allen pointed to the acceptance by Mr. Rajagoupal that the payment of a deposit was a matter between the dealer and the customer, not a matter for the finance house. He submitted that whether the transaction was a finance or refinancing transaction, the title to ownership of the trucks by the plaintiff was a condition precedent. Absent the fulfilment of any such condition there could have been no contract. Here the defendants did not have possession of two of the trucks. This was not disclosed. Mr. Allen S.C. rejected any contention to the effect that the mention of the “deposit” sum of £22,667.56 in the invoice meant that the plaintiffs already had possession thereof. On its face it clearly meant that it was the contractual duty of Mr. Hughes to pay the deposit. Mr. Allen specifically pointed out that there was evidence from the defendants side that they were surprised to see the sum of £40,000 arriving from the plaintiffs in the absence of the payment of the deposit. Counsel pointed to what he contended were three fundamental difficulties in relation to the case advanced by the defendant.
These were:
(a) the status of the payment of the £40,000 in the absence of the deposit
(b) the mistaken belief on the part of the plaintiff that the defendant had possession of all three trucks it was purporting to sell
(c) the fact that the defendant did not at the time own the 1991 truck by reason of the payment of £6,384, which consisted not only of the redemption figure but also seizure costs. The failure to respond to the letter of 26th November was not a relevant or material consideration in the interpretation of the contract. As of the 14th September, 1998 the defendant had two trucks (or possibly three) and their personal claim against Mr. Hughes. As of 15th September they had the same trucks, the same liabilities against Mr. Hughes, but in addition the sum of £40,000 received from the plaintiff which was unlawfully appropriated by the defendant as a deposit between all three trucks.
In relation to the three trucks Mr. Allen pointed to the fact that the defendants found themselves in a position where it was they who had by dint of resale made additional profits of STG £3,800 in relation to the 1991 truck; £5,924 the 1993 truck, and STG £10,331 the 1996 truck. It was inconsistent for the defendants to assert continuing ownership over the trucks on the one hand and on the other to assert that they are entitled to retain the sum of £40,000 paid over to them by the plaintiffs.
26. The Law
Where one contracting party has not received any part of that contracted for there has been a total failure of consideration. Here ‘consideration’ acquires a narrower meaning than that imputed for the purpose of determining whether a contract has been formed. In Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Limited [1943] A.C. 32 Lord Simon summarised the legal position thus:
“In the law relating to the formation of contract the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi contractual right to recover money on that ground, it is generally speaking not the promise which is referred to but the performance of the promise.”
27. Thus if there is defective performance by one contracting party in circumstances entitling the other party to rescind the contract (for example breach of an express or implied condition) the injured party may pursue whatever contractual remedies are available, or elect instead to claim restitution. If, however, there has not been a total failure of consideration, the quasi contractual remedy will not be available. If the defendant has a valid defence in contract to the plaintiffs action the plaintiff may not have any financial remedy at all. If a plaintiff receives some tangible benefit it does not follow that a court will be constrained to hold that there was no total failure of consideration. (See the leading English on this issue, Rowland v. Divall [1923].
The Irish case of Chartered Trust Ireland Limited v. Healy and Commins (Barron J. Unreported, High Court, 10 December, 1995) equally illustrates this point. In that case the first named defendant hired a truck on hire purchase terms. The transaction was financed by the plaintiff finance company. It later transpired that the truck was illegally brought into the State and was not in fact the vehicle it was represented to be. Barron J. held that the contract was null and void and awarded the first named defendant the return of all moneys paid by way of hire purchase instalments and all other payments made in pursuance of the agreement. The fact that Healy had used the truck for over a year did not mean that he had received any part of the consideration; in contracts of sale title to the property and in hire purchase cases the option to purchase are seen are the consideration.
28. Similar considerations informed the decision of the Supreme Court in the case of United Dominions Trust (Ireland) Limited v. Shannon Caravans Limited [1976] IR 225. In that case a third party wished to obtain approximately £3,300 in order to pay for a mobile caravan which he had bought and which had been delivered to him. The third party approached a junior employee of the plaintiff, a hire purchase company, and the employees suggested that the defendant, a dealer in caravans should purport to sell the mobile caravan to the plaintiff for £3,300 and that the third party should then purport to purchase the caravan from the plaintiff under a hire purchase agreement between the plaintiff and the third party. The scheme was put into operation and the plaintiff paid the defendant £3,300 as the purchase price of the caravan and then executed a hire purchase agreement with the third party. The defendant who did not profit by the transaction immediately paid £3,300 to the third party. When the third party had paid the plaintiff 8 of the 36 monthly instalments under the hire purchase agreement the third party became insolvent and the plaintiff’s senior executive became aware of the true facts. The plaintiff’s junior employee was the only employee of the plaintiff who knew of the scheme. He was not authorised to accept hire purchase business for the plaintiff and the plaintiff’s executive officer who authorised the payment of £3,300 by the plaintiff and the execution of the hire purchase agreement was not then aware of the true facts. In an action in the High Court for money paid to the defendant for consideration which it wholly failed the plaintiff recovered judgment for £3,300 less the amount of the hire purchase instalments received from the third party. It was held by the Supreme Court (O’Higgins C.J., Henchy J. and Griffin J.) in disallowing the appeal:
1. That as the plaintiff’s junior employee was privy to an act of deceit against the plaintiff the knowledge that the employee could not be imputed to the plaintiff
2. There had been a total failure of the consideration for the sum of £3,300.
In the course of his judgment (at p. 232) Griffin J. relied on Rowland v. Divall [1923] 2 KB 500 and quoted Lord Justice Atkin at p. 506 of the report to this effect
“It seems to me that in this case there has been a total failure of consideration, that is to say the buyer has not got any part of that for which he paid the purchase money. He paid the money in order that he might get the property, and he has not got it. It is true that the seller delivered to him the de facto possession but the seller had not got the right to possession and consequently could not give it to the property … There can be no sale at all of goods which the seller has no right to sell. The whole object of a sale is to transfer property from one person to another … can it make any difference that the buyer had used the car before he found out that there was a breach of the condition? To my mind it makes no difference at all. The buyer accepted the car in the representation of the seller that he had a right to sell it, and in as much as the seller had no such right he is not entitled to say that the buyer has enjoyed a benefit under the contract. In fact the buyer has not received any part of that which he contracted to receive, namely the property and right to possession – and that being so there has been a total failure of consideration.
30. The principles thus set out so clearly by Irish authority and otherwise are applicable in the instant case. Here I find the plaintiffs were entitled to assume that the defendants were owners of each of the three trucks. I do not accept on the facts as found that the defendants were the rightful owners of the 1991 truck.
The plaintiffs were entitled to assume that the defendants had the three trucks in their possession. As it transpired the only truck in their possession that was the 1991 truck to which they had no title. The other two trucks were actually held in the possession of Mr. Vincent Hughes. Those two trucks were later repossessed only on the 18th June, 1998.
There is yet a further paradox in the position adopted by the defendant. It is entirely unclear, having regard to the circumstances, as to why the sum of £6,384.89 was not deducted from the sum of £22,667.56 identified as being the ‘deposit’ payable.
I further accept that the plaintiffs were unaware of the fact that the trucks in question had been previously purchased by the defendants in March and October 1996 from Agnew Commercials in Northern Ireland.
In common with the authorities cited there must be a strong suggestion, and I will put it no further, that there were intentional failures of disclosure which may well be tantamount to deceit on the part of Mr. Hughes in relation to the transaction as a whole.
While it may have been that the plaintiffs could have taken further steps to check Mr. Hughes history this in my view does not affect the fundamental legal issue which arises in this case: that is the clear failure of disclosure of material facts, and further breach of material conditions as identified. For the reasons set out above I consider this is a contract where the consideration has wholly failed. The plaintiffs are entitled to recession thereof.
Even if I am wrong on this finding it seems to me that the contract made between the plaintiff and the defendant is one where the background history of the relationship between Vincent Hughes and the defendant should have been disclosed by Mercedes-Benz Finance. Even if the defendants were correct in their argument, the plaintiffs were effectively placed in the position of a surety on behalf of Mr. Hughes. In the circumstances therefore the defendants were in possession of particular information which made the risk to which the plaintiffs were exposed an unusual one or a risk materially different in nature to that which the plaintiff would normally expect. In Levitt v. Barclays Bank [1995] 2 All E.R. p. 615 a contract was set aside where the plaintiff who had put up treasury stock as security, was not told of arrangements between the debtor and the bank whereby the security would be used to repay the loan. Here, the defendants were in possession of particular information regarding Mr. Hughes’s credit record, the previous transactions in relation to the trucks, the fact that two of them were in Mr. Hughes’s possession that only the third had been repossessed from him which truck was lawfully the property of Mr. Hughes. All of these facts should, in the circumstances, have been disclosed in the making of this agreement.
Alternatively even a court were to hold that if the contract was conditional, it is clear that a condition precedent was the payment of the sum due by way of deposit (CF Lowis v. Wilson [1949] I.R. 347]. This condition was unfulfilled.
In either instance it seems to me the plaintiffs are entitled to rescind the contract.
On the basis of these findings I consider that the plaintiff is entitled to recession of the contract. I will hear counsel on the issue of damages and costs.
O’Keefe v. Ryanair Holdings plc
[2002] IEHC 154 (19 June 2002)
JUDGMENT of Mr. Justice Kelly delivered the 19th day of June. 2002.
Introduction
The Plaintiff claims damages for breach of contract. The defendant denies that it ever had any contract with the plaintiff. Rather, it alleges that this litigation is about a gift made to the plaintiff and the claim is therefore unsustainable.
In her statement of claim the plaintiff alleges that on the 20th October, 1988 she entered into a contract with the defendant under which it offered her the opportunity to be selected as its one millionth passenger. In consideration of this the plaintiff agreed to offer her services for publicity to the defendant should she be selected, Furthermore she agreed to forego her constitutional right to privacy. She alleges that it was a term of that contract that if she was successful she would be entitled to free travel for herself and a nominated person on any route operated by the defendant for the rest of her life.
In its defence the defendant admits that on the date in question it made an offer to the plaintiff when she was the one millionth passenger travelling with it but denies that she was contracted to provide publicity services or to give up her constitutional right to privacy. The defendant alleges that the offer was in the nature of a gift but is remarkably unsure of its terms. It puts forward no fewer than five different alternative terms governing the gift. It furthermore contends that if the court concludes that there was a contract as between the plaintiff and the defendant that it was not in breach of such contract.
It is necessary to look at the facts as adduced in evidence in order to make sense of these competing claims.
The Plaintiff
In 1988 the plaintiff was 21 years of age and working as a secretary in London. In October of that year she returned to Ireland to attend her grandmother’s funeral. She planned to go back to London by air on the 20th October, 1988. In order to do so she purchased a ticket from the defendant for a direct flight from Dublin to London on that day.
On the 20th October, 1988 she presented herself at the check-in desk at Dublin airport so as to be able to board the flight. It is the events which took place on that occasion which constitute the genesis of these proceedings.
The Events at Check-in
When the plaintiff presented herself at the check-in desk the defendant’s representative enquired of her as to whether she was aware of the fact that she might be the one millionth passenger flying with the airline. She was told that she might be that passenger and was asked if she would be prepared to participate in publicity in such event. She indicated that she would be so prepared and was given a badge which was placed on her lapel. This badge contained the defendant’s logo and the legend “1 in a million”.
The plaintiff moved on into the duty free area where she was approached some little time later by a representative from the defendant. She was told that the name of the millionth passenger was about to be called.
A short time later the then chief executive of the defendant Mr P.J. McGoldrick announced the plaintiffs name as the one millionth passenger. As such the defendant represented to her that she would have unlimited travel for herself and her nominee for the remainder of her life.
The whole event was designed to and did in fact attract enormous publicity. It was on radio and television news bulletins that evening and night. There was publicity in the national newspapers. The event itself had an accompanying champagne reception; a band was present as was the well known street character known as the “Diceman”. A video of the whole affair was taken and was put in evidence.
As the plaintiff herself said she thought she was getting involved in a publicity stunt whereby the millionth passenger would receive, in return for publicity, unlimited free flights for life. She agreed to and did in fact fully participate and comply with all of the requirements of the defendant in that regard.
Her belief as to what she was involved in is in my view borne out by the evidence of the present chief executive (Mr O’Leary) of the defendant. In October, 1988 he was the chief financial officer of the defendant and was aware of what was going on. In the course of his evidence he made it quite clear that “the purpose of the thing was to generate some publicity for Ryanair”. The whole affair was carefully stage managed by the defendant. It appears to have had little enough to do with whether or not the plaintiff was actually the millionth passenger travelling. In fact it is most unlikely the plaintiff was in reality the one millionth passenger.
As the chief executive said, the defendant knew that at some stage during the particular week in October, 1988 the defendant would carry its millionth passenger. The marketing men were keen to generate publicity for that event. So they picked out a passenger on a day of the week that was quiet i.e. midweek when they could be guaranteed to get photographers to Dublin airport. Furthermore, it is clear from the evidence of Mr O’Leary that if a passenger at check-in had indicated that they would not become involved in publicity they would not have been picked as the supposed millionth passenger at all.
Later Events
Having been chosen by the defendant the plaintiff was given a giant sized replica of an airline ticket which bore the legend “Passenger ticket and baggage check for our millionair passenger. Valid for free air travel for life”. The figure 1,000,000 is contained in the top right hand corner.
Some weeks after the event the plaintiff received a written communication from the defendant. It took the form of a letter from the defendant’s commercial director to which there was attached an agreement. The plaintiff recollects that this agreement set out how the arrangement was to work for herself and her nominee. She read through it and showed it to her father and it seemed quite a straightforward document. She recalled that one of the stipulations was that she was obliged to nominate somebody to be her travelling companion. At that stage she was only 21 and was unmarried. She felt that she could not nominate somebody for the rest of her life so she contacted the marketing manager an Ann O’Callaghan by phone and explained her difficulty to her. She made an arrangement with Ms O’Callaghan who was very understanding of her situation and indicated that the defendant would be prepared to consider allowing her to nominate on a year by year basis. The plaintiff left the written contract with Ms O’Callaghan so as to enable the necessary amendments to be contract was ever furnished.
Notwithstanding that however, it is quite clear that the arrangement as between the plaintiff and the defendant worked smoothly for many years up to 1997.
1988 to 1997
During these years the plaintiff utilised her entitlement with the defendant without difficulty. Her use of the free travel facility was on any view modest. During most years she took three or four flights and certainly never exceeded five. In one year she used the entitlement as little as once. Despite the lack of documents the arrangement worked well.
Typically, the plaintiff would telephone the marketing department of the defendant, identify herself and notify them of the booking that she required. She did this about two weeks before flying. There was usually a designated person whom she would contact. Having phoned through her reservation she would receive either a fax or a telephone call giving her a reservation number. Armed with that she would then attend at Dublin airport on the day of the flight and would be issued with the tickets. She never experienced any hitch in this arrangement save on one occasion in 1994 when she had to deal with a new official who did not know her. That official pointed out that she had no documentation about the plaintiff on file. The plaintiff faxed through the official press clippings concerning the events of October, 1988 and no further problem was encountered.
In October, 1997 events which are at the root of this litigation occurred. There is a serious conflict of testimony in respect of a number of them and it will be necessary for me to resolve that conflict.
15th October 1997
The plaintiff contends that on this date she followed her normal practise and telephoned her contact person in Ryanair who was known to her as Emer. This lady is in fact Emer Purcell who gave evidence in this trial. The plaintiff says that she asked Ms Purcell to reserve two seats to Edinburgh departing on the 31st October, 1997 and returning on the 2nd November. The defendant only flew to Glasgow so the plaintiff and her husband were going to travel on from there to Edinburgh.
The plaintiff says that she had a conversation with Ms Purcell. Ms Purcell checked while she was on the phone for availability of flights. They discussed the various times and flight options that best suited the travel arrangements because the plaintiff was taking time off work to make this trip. Ms Purcell confirmed that seats were available and took the booking. The booking was concluded as normal and Ms Purcell said that she would fax through the reservation and booking number within a couple of days. On the plaintiffs version of events that did not occur and resulted in her telephoning the defendant on the 28th October to ask for the booking number.
The defendants contend that no such reservation was made on the 15th October and that the first that they knew of the plaintiffs desire to make this journey occurred a few days before flight when they were contacted at the end of October.
There is a conflict of evidence between the plaintiff and Ms Purcell concerning this alleged arrangement of the 15th October, 1997.
Insofar as that conflict is concerned I have come to the conclusion that the plaintiffs version of events is correct and Ms Purcell’s is not. I have come to that conclusion for a number of reasons. First, I think it highly unlikely that the plaintiff would have left the making of this booking to the last minute as the defendant suggests. She was at this time six months pregnant and believed it to be the last time that she would be able to fly to see for her and her husband concerning this visit. She was also taking time off work. In such circumstances I think it most unlikely that the attempt to book the flight was left to the last minute as was suggested. Secondly, the plaintiff was quite clear in her recollection and steadfast in her testimony concerning this event. That was not the case with Ms Purcell. Cross-examination of the plaintiff was conducted on the basis that Ms Purcell had no recollection of this event. At one stage in her testimony that was the expression she herself used. At other places in her testimony she denied that the event occurred. There is a world of difference between an event not taking place and a person not having a recollection of it. The plaintiffs testimony was, unlike that of Ms Purcell, unwavering.
Furthermore, having had the opportunity of seeing both the plaintiff and Ms Purcell, observing their demeanour and having an opportunity of assessing them I prefer the evidence of the plaintiff. In addition, when the plaintiff encountered difficulties with the defendant at the end of October she committed her recollection to writing in a contemporaneous note. That clearly records the events of 15th October. No such records were kept or produced by the defendant.
The normal practise for the plaintiff was to make her travel arrangements about a fortnight in advance and I see no reason why she would have departed from that arrangement in the present case. In fact, there was every reason why she should adhere to it given her pregnant condition, and the family arrangements that fell to be made.
I find as a fact that the plaintiff did make the arrangement with Ms Purcell on the 15th October, 1997. For whatever reason that arrangement was not followed through by the defendant and the plaintiff was not notified of her booking or reservation number. This brings me to the next event.
28TH/29TH October, 1997
On the 28th October the plaintiff, in the absence of a reservation or booking number, telephoned Ryanair in order to speak to Ms Purcell. Ms Purcell was not available so the plaintiff left a message. On the following day another member of the defendant’s staff called Sharon telephoned the plaintiff. She said that she had been asked by Ms Purcell to fax through the plaintiffs reference but she was unable to do so. So Sharon telephoned the plaintiff and asked for the flight numbers and the dates and times. These were given. The plaintiff was told that she would be faxed a booking reference. That did not happen. At this stage the plaintiff was getting anxious as there was only a few days to go before travel. She telephoned that afternoon. She spoke once again to Sharon, who told her that there were no seats left on the original flights and that no booking had been made. The plaintiff enquired as the availability of seats on other flights on the chosen dates and was told that there were such seats available. She asked Sharon to book these but was told that that could not be done because Sharon did not have authority to do so. She did however, say that she would try to hold these seats. Sharon said that on the following day namely the 30th October when Emer and her boss Mr Tim Jeans were back in the office they would deal with the matter. This was the first time that the plaintiff had ever heard of Mr Jeans.
30th October. 1997
At 9.30 am on the 30th October, 1997 the plaintiff again telephoned the defendant. She spoke to Ms Purcell (with whom of course, she had been dealing over a number of years). She transferred her to Mr Jeans, the marketing director. Having introduced himself Mr Jeans enquired if she had anything in writing from Ryanair and she told him that she did not. She explained however, that she had been availing of her entitlement for the previous nine years without any problems and without having anything in writing. She did tell him however, that she had the video tape and press clippings of the events of October, 1988. She informed him that the video tape demonstrated the then chief executive telling her that she had won unlimited free flights on any Ryanair flights for the rest of her life.
When making this request of the plaintiff Mr Jeans was fully aware of the fact from Ms Purcell that the plaintiff had indeed for years beforehand availed herself of flights on foot of this entitlement.
Notwithstanding this however, he told her that in the absence of a written contract between her and the defendant limits would be imposed on her entitlement. There is a conflict of evidence between the plaintiff and Mr Jeans as to the extent of that limitation. The plaintiff is clear in her recollection and in her contemporaneous note that she was told that she would be limited to one flight per year. Mr Jeans says that his recollection is that he told her she would be limited to one flight per month. Unfortunately for Mr Jeans his contemporaneous note does not support his testimony. It records that he told her that her limit would be one flight per year. Having had an opportunity to assess both the plaintiff and Mr Jeans in the witness box I have no hesitation in resolving this conflict in favour of the plaintiff. I find as a fact that Mr Jeans informed her that she would be limited to one flight per year in the absence of a written contract.
This information was, as the plaintiff said, “a bolt out of the blue”. She told him that she thought that it was unacceptable and felt that the defendant could not randomly change the details of the contract as it suited it.
Insofar as there is any conflict between the plaintiff and Mr Jeans as to the discussion which took place concerning her flight for the next day, I likewise resolve that conflict in favour of the plaintiff. I find that the conversation between herself and Mr Jeans ended with him indicating to her that somebody would telephone her in that regard. At this stage I am satisfied that Mr Jeans was aware of the fact that there were a number of seats available on the flights which were sought but they were what was known to Ryanair as S-class seats. That is they were the most expensive seats and the airline was not prepared to make them available to the plaintiff.
I accept the plaintiffs evidence that as nobody had telephoned her by 10.30 am she again called the defendant and was assured that Ms Purcell would telephone her back. That did not happen and the plaintiff telephoned again at 11.30 am. Once more, she was told that either Ms Purcell or Mr Jeans would telephone her. That did not happen either.
At 12.30 pm the plaintiff telephoned again. In the meantime she had telephoned Ryanair reservations and was told that there were seats available on the relevant flights.
Again, I accept the plaintiffs version of events as to what occurred when she made this 12.30 pm phone call. She spoke to Mr Jeans who indicated to her that there were no seats available the following day to Prestwick. She told him that that was not so. His response was that the issue had now gone to the managing director of the defendant and that he had dictated that there were to be no more flights to be given until the matter had been clarified. Insofar as there is any conflict between the testimony of the plaintiff and Mr Jeans in this regard I accept the plaintiffs version of events as being the more probably correct and I find as a fact that the conversation which I have just recounted did in fact take place.
The plaintiffs next port of call was to telephone the chief executive of the defendant Mr O’Leary. She spoke to him on the telephone. Again, there is a conflict of testimony between what the plaintiff said occurred on this occasion and the evidence given by Mr O’Leary.
On Mr O’Leary’s own evidence Mr Jeans had spoken to him a number of times on the morning of the 30th October prior to the plaintiff making contact with him. He knew that there were seats available on the flights sought by the plaintiff but they were not in the cheapest class. His version of events is that the plaintiff had had this fact already explained to her and that he told her that in order for her to obtain those flights the company needed to receive reasonable notice in advance and making a call the day before one wanted to travel was not reasonable notice. He said that the plaintiff did not tell him that she had already done so two weeks beforehand. He described the plaintiffs allegation of hostility on his part as “nonsense”. He said the company’s position was quite clear. There was no availability on the cheaper seats on the flights to Prestwick that weekend and consequently Ryanair would not be offering her free seats on the basis that she was simply calling up the day before. He denied that he raised his voice to her. He made it clear that she was not going to get free flights the following day and the phone call he says, concluded on the basis of her undertaking to write in to him the following week.
The plaintiffs version of events is dramatically different. She says that he was extremely hostile to her from the start. He asked her who did she think she was, phoning up demanding flights. He said that flight sought was unavailable and therefore she could not travel. She said that she told him there was an earlier flight available but he said that the seats were at a higher rate and she was not entitled to them. She suggested that she was being very badly treated by the defendant and that it was trying to put the onus on her to prove the legitimacy of her prize whereas the fact that it had nothing on file was its fault. Mr O’Leary responded that it was her problem. She says that he told her not to phone anyone in Ryanair again and to send in the tape and that he would look into it. She asked him not to bully her and found it difficult to make herself heard.
Having had the opportunity of observing the demeanour of the plaintiff and Mr O’Leary throughout their testimony I am quite satisfied that the plaintiffs account of the telephone conversation in question has about it the ring of truth and is an accurate account of what occurred. It is supported by her own contemporaneous note whereas the defendant did not attempt to adduce any note of the conversation in question. I found the plaintiff a more persuasive witness than Mr O’Leary and I therefore find as a fact that the version of events given by the plaintiff is what occurred. I reject Mr O’Leary’s assertion that he was not hostile or aggressive or bullying towards the plaintiff. I find that he was.
The net effect of all of this was that the plaintiff was now left without her entitlement to travel and furthermore, future entitlements were in doubt, certainly insofar as they might exceed one trip per year.
Subsequent Events
On the 6th November, 1997 the plaintiff wrote to Mr O’Leary enclosing the video tape and the press clippings relating to her entitlements. In her letter she pointed out that the then managing director of the defendant stated quite clearly that she was entitled to unlimited travel on any Ryanair flight for life for herself and a friend. The letter went on to point out that she was unable to make the trip to Glasgow Prestwick on the preceding Friday and that this had caused her and her family great inconvenience.
This letter was responded to by Mr Jeans by letter of the 17th December, 1997. His letter set out details of how the defendant proposed to operate the plaintiffs by now admitted entitlement to concessionary free travel on Ryanair services from the 1st January, 1998 onwards. The terms that were proffered were as follows:
“1. Travel on Ryanair services is for Miss Jane O’Keeffe and one other nominated person. Travel will be available to these two named individuals only, and both individuals must be travelling together, (please revert with the name of your nominated companion).
2. Travel is available on Ryanair services only. No travel can be made on other carrier’s flights, including any “code share” flights that
Ryanair may operate in future, in cooperation with other carriers.
3. Travel can be made on Ryanair services up to a maximum of one return flight per annum (i.e. up to twelve flights per annum), (sic) and
entitlement cannot be carried forward.
4. Requests must be made in writing two weeks prior to departure to Ryanair’s sales department at the above address. These are subject to
the availability of ‘H” class seats at the time of booking. Should the designation of ‘H” class alter in future, then travel will be available
where the lowest published fare class is available.
5. Your entitlement to travel is not transferable, and has no alternative cash value.
6. On your death, the entitlement of the other nominated individual will cease also.
7. You agree to be available for PR and promotional activity for Ryanair.
I would appreciate your confirming acceptance of the enclosed conditions by signing both copies of the enclosed letter and return these to me. One will then be countersigned by Ryanair and return (sic) to you for your records. I trust that by having a proper system in place, we can avoid any misunderstanding in future, and we look forward to welcoming you on board our services for many year sin (sic) the future.”
A number of features of this letter caused concern to the plaintiff. First, she read paragraph (1) as meaning that both herself and her nominated companion had to travel together for either to get free travel. She knew that her nominated companion would not be able to travel without her but she thought that she should be able to travel without the companion. Secondly, the proposition in paragraph (3) was clearly a nonsense. On the one hand it was offering one return flight per annum and in the same sentence spoke of up to twelve flights per annum. That was obviously an error. Thirdly, the reference to “H” class seats was a mystery to her. She did not know what that was all about and had never heard of it beforehand. The only other time during her many years of dealing with Ryanair where classes of seats were mentioned was in her dealings with the defendant on the 30th October when she was told by Mr O’Leary of seats at a higher rate being the only ones available on the flights in question.
The plaintiff did not know how many seats were normally available on a flight at the lowest published fare. She had never been told of this situation prior to the letter of the 17th December, 1997.
She contacted the defendant and arranged to meet Mr Jeans. She did so.
They had an amicable conversation concerning these points of worry. He undertook to clarify these matters and said that he would issue her with a new letter. In the course of her conversation he accepted that she would not have to travel with her nominated companion and that point (1) in the letter was incorrect. He also accepted that point (3) was incorrect and that she would be limited to twelve flights per annum. He also undertook that he would clarify the designation of “H” class seats. She was not satisfied with the explanation which he gave her verbally in that regard.
After this meeting she decided to take legal advice on the question and thereafter correspondence took place between solicitors.
In the course of the correspondence it was arranged that she would be able to take a Ryanair flight and she went to Rimini on that single occasion. Apart from that flight she has not availed herself of the facility further and the matter has resulted in the present litigation.
Was there a Contract?
The contention made by the defendant both in its pleadings and submissions is that there was no contract in existence between the plaintiff and the defendant. Rather it is said that the defendant conferred a gift on the plaintiff. Insofar as the terms of that gift are concerned the defendant appears to be in some considerable doubt. Five different alternatives are set forth in the defence and on the closing day of the trial leave was sought and granted even to amend those.
A gift is defined in the Concise Oxford Dictionary (seventh edition) as a “voluntary transference of property without compensation”.
In the present case I am quite satisfied that on any reasonable view of what occurred in this case the entitlement given to the plaintiff to avail herself of free tickets on the defendant’s flights was not gratuitous. The only basis upon which the defendant had any interest in the plaintiff arose from her agreement to participate in the public relations exercise which was undertaken by it. Had she not so consented she would have had no entitlement to participate in the proposal which was put to her. The whole object of the exercise was to generate publicity for the defendant and the plaintiffs active participation was required in that. She gave her consent and it was on that basis that the entitlements in question were made available to her.
I am quite satisfied therefore, that there is no question of a gift being involved here. The defendant had a very clear idea as to what it wanted from the plaintiff and it got it.
It is trite law that in order for there to be a valid contract there must be agreement between the parties, consideration for such agreement and an intention to create legal relations.
In my view there was agreement between the parties that in consideration of the plaintiff consenting to participate in the publicity sought by the defendant she would be eligible for nomination as its millionth passenger. Should she be so nominated she was to cooperate in the publicity being generated for the defendant’s benefit. In return she was to be entitled to unlimited travel on Ryanair routes for herself and a nominated person for the remainder of her natural life.
Under the doctrine of consideration a promise has no contractual force unless some value has been given for it. The court is not concerned with the adequacy of value. (Haigh v Brooks [1839] 10 A & E 309; Wild v Tucker [1914] 3 K.B. 36; Midland Bank v Green [1981] AC 513). The consideration to support a contract must however be real, that is to say capable of estimation in terms of value. It must be of some value in the eye of the law. (Thomas v Thomas [1842] 2 Q.B. 851). Certainly, the participation of the plaintiff in the publicity generated on the day in question was regarded as being of value by the defendant and I see no reason why the law should not regard it as likewise being of value. The surrender by the plaintiff of her anonymity and privacy and her active participation in the generation of the publicity that was created on the day in question in my view amounted to a real consideration and sufficient to support a valid contract.
Insofar as an intention to create legal relations was concerned it was never seriously suggested that such was absent on the defendant’s part. The onus of proving that there was no such intention is on the party who asserts that no legal effect is intended, and the onus is a heavy one (see Edwards -v- Skyways Limited 1964 1 WLR 349). As I have already noted there was no real effort to make such a case here apart from the suggestion that what was involved on the part of the defendant was a gift. Indeed, it would have been difficult to make such a case because it seems to me that there was much about the conduct of the parties here which demonstrated the existence of a contractual animus. The obtaining of the consent of the plaintiff, the furnishing to her of the large ticket setting forth her entitlements, the subsequent furnishing of the written contract reiterating the terms of the arrangement are all indicative of a lack of intention on the part of the defendant to negative the creation of a legal relationship.
I am therefore satisfied that an enforceable contract was made between the plaintiff and the defendant. I am likewise satisfied that the plaintiff carried out her side of the bargain in full and to the complete satisfaction of the defendant. The next question which arises is as to whether or not the defendant breached its obligations to the plaintiff.
Was there a breach?
The evidence satisfies me that until 1997 the arrangement between the plaintiff and the defendant operated smoothly and without a hitch. I have already found as a fact that the plaintiff followed her usual routine and attempted to make a booking approximately two weeks before the date upon which she intended to fly. In the event this was not honoured. The dishonour of those arrangements occurred at a time when there was seating capacity available to take her and her husband to Glasgow Prestwick and back on the days sought. But because those seats were not the cheapest available they were not provided for her. It was never a term of the arrangement made between the plaintiff and the defendant that she should be restricted to seats of a particular class on the aircraft.
In her attempts to have the matter rectified the plaintiffs position disimproved. The defendant refused not merely to honour the arrangement which she had made with it for that particular weekend, but indicated in unequivocal terms that thenceforth, her entitlement would be limited to a single flight per annum. In the letter of the 17th December, 1997 this was altered to twelve flights per annum albeit in a slipshod and not very impressive manner. New terms were also sought to be introduced in that letter such as confining her entitlement to “H” class seats and requiring her to be available for further promotional activity for the defendant.
This refusal to grant to the plaintiff her entitlements continued throughout this litigation and it was not until the third day of the hearing that it was finally acknowledged by Mr O’Leary that this attempt to limit her to twelve flights per annum was wrong, ought not to have been made and that no such restriction was applicable.
I am quite satisfied therefore, that the defendant has been in breach of its contractual obligations to the plaintiff and has persisted in denying her her proper entitlements up to and including the third day of the trial.
I should at this stage mention an event which occurred whilst the plaintiff was in the witness box under cross-examination. Shortly before the trial resumed on its second day she was presented with an open letter from the defendant. It offered to settle the proceedings on the basis that the plaintiff and a nominated companion would have free flights on all Ryanair flights, subject to availability, this dependent upon the notification period given by the plaintiff, but on the understanding that if there were seats on a flight at the date of the plaintiffs booking that she would be entitled to them. It offered compensation for the harm done to date and also agreed to pay her costs.
She rejected this offer which, as I say was put to her a very short time before her cross-examination resumed and which quite clearly caused her even more anxiety than she was already suffering as a result of the ordeal of litigation. She rejected the offer because as she said and I quote
“I don’t trust Ryanair anymore. I feel that if they had lived up to their initial promise to me I wouldn’t be sitting here today. I also feel that I would feel very awkward having to ring up and ask for flights given all that’s taken place, given the fact that everybody will know now who I am now, and know what has happened. And I just feel that still it’s also slightly ambiguous. It doesn’t mention “H” class, for example, or any class. It says ‘dependent on notification’, dependent on whether there are seats on a flight, ‘subject to availability’. All of the same things that have caused me concern and has led to us being here. As I say, it’s an issue of trust with me now. And I, that’s why I feel that I think I’m not sure that Ryanair would live up to the obligation based on what my experience of Ryanair is and how they have treated me to date”.
It appears to me that that reaction on the part of the plaintiff could not be described as unreasonable having regard to all that had taken place up to then.
I am therefore satisfied that the defendants are guilty of a breach of contract and that the plaintiff has a remedy in respect of it.
Damages
The plaintiff is entitled to damages for breach of her contract. She is entitled to damages for her inability to utilise the entitlement from the date of the breach in 1997 to date. She is also entitled to the capital value of her entitlement into the future. I will deal with each of these heads of damage separately.
Loss to Date
The plaintiffs use of her entitlement has on any view of it been modest. Her family circumstances at present with two young children aged four and two respectively mean that she is not in a position to make any more extensive use of the facility than has been the case to date. Accordingly, I conclude that I ought to fix the number of journeys which she is, likely to have made since 1997 to date as four per annum. That would be four round trips for herself and one other person.
I have had substantial evidence argument and debate over the value to be attributed to each of these trips. The plaintiffs actuary went into the defendant’s website, extracted a range of prices which were available for one-way flights and averaged them out as being €112 per flight. The defendants say that is not the appropriate way of approaching the matter and they have put in evidence returns which they have made to the United States regulatory authorities. Those returns demonstrate that the average passenger fare is of an altogether lower figure namely of the order of €55 – €60 per one way trip. But these are averages and do not necessarily reflect the actual loss.
For the purposes of the loss to date I think it reasonable to assume an average fare of €150 per round trip (€75 per flight one way) giving a loss of €600 per annum to the plaintiff for herself and a further €600 in respect of her nominated companion. That amounts to a total loss of €1,200 per annum for the last five years giving a loss of €6,000 to date.
In addition, following Jarvis -v- Swan Tours (1973 1 All ER 71), I think she is also entitled to be compensated for the disappointment, frustration and upset that was suffered by her in respect of the holiday weekend in October of 1997 arising from the unpleasant and shabby treatment which she suffered on that occasion. I will therefore award an additional €1,500 to deal with that. That gives an award of €7,500 for loss to date.
The Future
The first task which I must undertake is to make what I believe to be a reasonable assessment of the number of trips that are likely to be taken by the plaintiff and her nominated companion over the remainder of her life. I think it likely that the plaintiffs use will continue at the rate of four per annum until her children become older. I have little doubt but that at that stage, as she said herself, her use will increase and I think as a matter of probability, substantially. In addition the routes being flown by the defendant are continually increasing and that is likely to be the case in future. Weekend trips to close locations will increase as will holidays to places further afield. If, as she hopes, she purchases a premises abroad then even greater use will be made of the entitlement. As she gets into old age use of it will decrease. Taking one thing with another therefore, I have come to the conclusion that an allowance often trips per annum would not in the circumstances be unreasonable.
I accept the defendant’s evidence that in recent times airline prices have tended to reduce and that that is likely to continue for some time into the future. I do not accept that a stage will be reached where the cost will be zero and the defendant will be making its money solely from ancillary services.
I have already indicated how the plaintiffs actuary acquired his average of €112 per flight (one way). The defendant adduced evidence of returns which it has made to its United States regulatory authorities of the average passenger fare over the years. These figures are on the basis of a one way trip and over the past eleven years demonstrate an average fare of as little as €48.38 to as much as €60.09. Those figures are of course averages and therefore may not necessarily represent the actual loss which the plaintiff would be likely to incur in any one year. In the circumstances it seems to me to be not unreasonable to take a figure of €60 per one way trip as being the appropriate sum on which to make the calculation. The round trip would therefore be €120 and that of course must be doubled to take account of the loss of the trip of the plaintiffs companion. That gives an annual loss of €2,400 which then has to be capitalised.
I have had evidence from actuaries on both sides giving me the benefit of their views of capital value on different figures and having regard to the tax status of the plaintiff. Their evidence does not of course take into account unforeseen possibilities concerning both the plaintiff and the defendant. I must make allowance for them as best I can (Reddy v Bates). I hold that inflation will apply to future ticket prices and whilst therefore there will be a reduction in net cost, inflation will to some extent offset that. In these circumstances I have come to the conclusion having regard to all of the evidence that the appropriate sum to be awarded to the plaintiff in respect of future loss is the sum of €60,000.
To that must be added the €7,500 for loss to date giving a grand total of €67,500.
There will be judgment accordingly.
ACC Bank PLC -v- Kelly & Anor
JUDGMENT of Mr. Justice Clarke delivered the 10th January, 2011
1. Introduction
1.1 In October, 2006 the plaintiff (“ACC”) lent €2,105,000.00 to the defendants (respectively “the Kellys”, “Mr. Kelly”, and “Mrs. Kelly”). ACC now sues for the return of the balance which is said to remain outstanding on that loan which, on ACC’s case, as of the time of the trial of these proceedings, amounted to €1,951,070.32. The case has a number of unusual features to which it will be necessary to turn in due course but also has, as its basic background, a set of facts with which the courts are all too familiar in the current climate.
1.2 Both of the Kellys were school teachers for many years. However, over the last decade or so Mr. Kelly became involved in auctioneering and during the course of recent years the Kellys built up a significant portfolio of buy-to-rent properties. It would appear that, as of 2008, the Kellys owned in excess of thirty such properties which were financed both by the borrowings from ACC to which I have referred and from more extensive borrowings with Ulster Bank. The total indebtedness seems to have amounted to a sum well in excess of €7,000,000.00.
1.3 Against that background, it is hardly surprising that the buy-to-rent business has run into difficulties in recent times.
1.4 There is no doubt that from an early stage some arrears had built up on the ACC loan such that, by October, 2007, the accumulated arrears on the loan was in excess of €20,000.00. Starting from around that time discussions took place between ACC, on the one hand, and initially Mr. Kelly and subsequently both of the Kellys, on the other hand. By August, 2008 the arrears had reached a figure in excess of €80,000.00 and more significant discussions began to take place. The main issue which arises in these proceedings concerns the question of what, if anything, was agreed in the course of those discussions.
1.5 In substance, the case made by the Kellys is that, on the basis of the original loan terms and additional agreements which are said to have been reached in the course of the discussions to which I have referred, ACC was not legally entitled to demand payment of the entire loan and that the current balance, while owing, is not now due. Furthermore, the Kellys argue that there remains in place a long term financing arrangement which they are entitled to avail of. As indicated earlier, there are some unusual features to this case which are at least in part caused by the fact that the Kellys were litigants in person at the trial before me. In those circumstances, it seems to me to be appropriate to start by referring to the procedural history of this case insofar as it is relevant to the issues which I now have to decide.
2. The Procedural History
2.1 The proceedings were commenced by summary summons on the 18th December, 2009. An application to have the proceedings admitted to the Commercial List was acceded to by Finlay Geoghegan J. by order of the 15th March, 2010. By the same order it was directed that a hearing of ACC’s claim for summary judgment be heard on the 14th April, 2010. At that stage, Mrs. Kelly was represented by solicitor and counsel while Mr. Kelly appeared in person. By order of the 14th April, Kelly J. adjourned the proceedings for plenary hearing and gave directions for the exchange of pleadings, the seeking of discovery and the like. When that process had concluded, the matter came back before the court (Kelly J.) on the 19th July when the 14th December was fixed as the commencement date of the hearing of the action and various directions concerning the delivery of witness statements and legal submissions were given. Mr. Kelly failed to comply with his obligations under that order to file a witness statement in the time specified. On that basis, ACC brought a motion on the 1st November seeking to have Mr. Kelly’s defence struck out or, alternatively, an order that Mr. Kelly not be entitled to call any evidence. Rather than make either of the orders sought, Kelly J. made an “unless” order which provided that Mr. Kelly would be precluded from tendering evidence at the trial unless he were to deliver witness statements by Wednesday 10th November, 2010. No such witness statements were delivered either within that time scale or at all. The position is, therefore, that the order of Kelly J. became operative as of the 10th November.
2.2 In that context, it does need to be noted that Mr. Kelly did raise, at the close of ACC’s case, the question of whether he would be permitted to give evidence. It seemed to me that that was far too late a stage in the process to permit Mr. Kelly to revisit the question of whether he should be permitted to give evidence. It must be recalled that Mr. Kelly did not seek to appeal the order of Kelly J.. Neither did Mr. Kelly seek to go back before Kelly J. and invite the court to vary or alter the existing order. If there was any good reason why Mr. Kelly should not be subject to the order excluding him from giving evidence, then that would have been the proper course of action to adopt. Likewise, no suggestion was made at the beginning of the case to the effect that Mr. Kelly wished to invite the court in some way to depart from the order of Kelly J..
2.3 There was a significant discussion at the commencement of the proceedings as to the way in which the case would be conducted and, during that discussion, it was made clear to Mr. Kelly that there was an order in place preventing him from giving evidence. He did not demur from that suggestion at that stage. Likewise, it is clear that ACC had operated on the basis, not unreasonably, that Mr. Kelly would not be giving evidence and that it was only necessary for ACC, so far as the facts of the case were concerned, to deal with the matters set out in Mrs. Kelly’s witness statement (for a witness statement from Mrs. Kelly herself was the only witness statement tendered on her behalf). It would have been a major injustice, when ACC had concluded its evidence on the uncontested assumption that Mr. Kelly would not be giving evidence, to have permitted Mr. Kelly to then give evidence without having filed a witness statement, and in circumstances where he would almost certainly have given evidence in relation to matters on which ACC witnesses would have wished to comment. As this is an aspect of the case which will have echoes in other questions which arose in the course of the hearing, I think it is appropriate at this stage to set out the principles to be applied by the court in circumstances where it is faced with a litigant in person.
2.4 A most helpful summary of the issues and principles which arise in that context is to be found in an article by Evan Bell (a Master of the Queen’s Bench and Matrimonial Divisions of the Court of Judicature for Northern Ireland) in 2010 Judicial Studies Institute Journal No.1. Under the heading “the principles to be applied” the following is stated:-
“The primary principle applied by Judges in cases involving self represented litigants is the principle of fairness. Fairness is the touchstone which enables justice to be done to all parties. A judge in proceedings involving a self represented litigant must balance the duty of fairness to that litigant with the rights of the other party and with the need for as speedy and efficient judicial determination as is feasible. Achieving this balance is one of the most difficult challenges a judge can face. While a trial judge’s overarching responsibility is to ensure that the hearing is fair, it is not unfair to hold a self represented litigant to his choice to represent himself. A litigant who undertakes to do so in matters of complexity must assume the responsibility of being ready to proceed when his case is listed. If he embarks upon the hearing of his case, he is representing to the court that he understands the subject matter sufficiently to be able to proceed. Although it may later become patently obvious that he is not, litigants who choose to represent themselves must accept the consequences of their choice. While the court will take into account the litigant’s lack of experience and training, implicit in the decision to represent himself is the willingness to accept the consequences that may flow from that lack. Indeed, to hold to the contrary would mean that any party could derail proceedings by dismissing his representatives.
It is the courts duty to minimise the self represented litigant’s disadvantage as far as possible, so as to fulfil its task to do justice between the parties. However, the court should not confer upon a personal litigant a positive advantage over his represented opponent nor is it the position that the party with the greater expertise must be disadvantaged to the point at which they have the same expertise effectively as the other party. That would be a perversion of what is required, which is a fair and equal opportunity to each party to present its case.”
2.5 I fully agree with the views expressed in that passage which cites as authority the cases of Director of Child and Family Services (Man) v. J.A. [2006] M.B.C.A. 44 (Can LII), Wagg v. Canada (F.C.A.) [2004] 1 F.C. 206, R. v. Broadhead [2006] EWCA Crim 3062, Hussey v. Dillon & Ors (Unreported, High Court, Costello J., 23rd June, 1995) and Rajski v. Scitec Corporation PTY Ltd (New South Wales, Court of Appeal, Unreported, Samuels J.A., 16th June, 1986).
2.6 No represented party who had failed to file witness statements in time, had been subject to an unless order of the type made by Kelly J. in this case, had failed either to appeal that order or seek to have it reviewed, and had allowed the case to proceed to the end of the presentation of his opponent’s evidence, could remotely expect to then be allowed to give evidence. Nor, having allowed the case to proceed that far, could any such represented party have even a remote chance of suggesting that the proceedings should then be derailed by allowing a belated filing of a witness statement necessitating a significant adjournment to allow the proceedings to commence again when his opponent had had the opportunity to consider that witness statement and, certainly so far as the facts of this case are concerned, assemble witnesses who might have been necessary to deal with it. Mr. Kelly cannot expect to gain an advantage because he is a litigant in person. To have allowed him to do what he wanted would have been to give him an advantage which no represented litigant could even remotely hope to obtain and for those reasons I decline to allow him to give evidence.
2.7 I appreciate that the passage quoted from Master Bell makes reference from time to time to a person who “chooses” to self represent. It may well be that in many cases the party concerned has no real choice in the matter for they may not be able to afford legal representation. That may well be a factor to take into account in deciding precisely how to deal with difficult situations which may arise in the course of a trial. However, whether a person represents themselves of choice or of necessity does not alter the overriding requirement that the conduct of the trial must be fair to both sides, and that the fact that a person is, for whatever reason, unrepresented cannot be allowed to operate as an unfairness to the represented party.
2.8 It is next necessary to turn to the position of Mrs. Kelly. It would appear that, due to financial difficulties, Mrs. Kelly was unable to retain the services of the lawyers who had prepared the case on her behalf. I understand that those lawyers were allowed come off record in the run up to the trial and that Kelly J. declined to permit an adjournment of the proceedings thereafter. At the start of the hearing Mrs. Kelly presented a lengthy document which she asked to have treated as her defence in substitution for the document which had been filed by her lawyers. For reasons which I set out in an ex-tempore ruling given on that occasion, I did not make the order sought by Mrs. Kelly but did allow two aspects of that document to be considered as part of her case. The principal case made in the formal defence filed on behalf of Mrs. Kelly was that an arrangement or agreement had been reached between the Kellys and ACC in the course of the meetings to which I have referred, the substance of which was that, provided certain steps were taken by the Kellys, ACC would not seek to call in the loan. It will be necessary to refer in more detail to that case in due course. In its written submissions ACC made the case that even if, contrary to its evidence, any such agreement or arrangement was entered into, same could not be a legally enforceable contract because, it was said, it was not supported by any consideration given by the Kellys to ACC. In the course of the proposed amended defence which Mrs. Kelly proffered, an alternative basis for maintaining the enforceability of any such arrangements was set out, being a claim in promissory estoppel. While in the ordinary way I would have been reluctant to allow a defendant to make such an alteration at the last minute, it seemed to me that, having regard to the fact that Mrs. Kelly was a litigant in person , that the factual basis for her plea of promissory estoppel was not significantly different from the factual basis that was already on the table as a result of the defence filed, and the fact that it did not seem to me that ACC would have any difficult in putting forward whatever legal arguments it wished to on the topic, I decided to allow the defence to be amended by including in it a reference to the promissory estoppel argument.
2.9 Much of the remainder of the relevant document consisted of a recitation of facts relating to dealings between the Kellys and ACC. It did not seem to me that the matters set out in that aspect of the document consisted, in reality, of matter that should be included in a defence as such but rather amounted to material that should more properly be included in a witness statement. Neither did it seem to me that the relevant material went significantly beyond the bounds of what was already “in the case” as a result of the documents filed. In those circumstances I indicted that I would be prepared to treat that aspect of the relevant document as a supplementary witness statement which did not go beyond a reasonable and acceptable elaboration of the matters which were contained in Mrs. Kelly’s original witness statement.
2.10 Finally, it should be noted that Mrs. Kelly did seek, in that document, to raise a further legal question being a contention that the original bank loan was procured by undue influence. The factual basis for that contention seemed to be an assertion that Mrs. Kelly did not fully understand, and did not have properly explained to her, material terms in ACC’s facility letter. It would have been difficult, in any event, to see how such facts could constitute undue influence on the part of ACC. In addition, it was obvious that allowing a claim for undue influence to be made would have required a significant adjournment for ACC would undoubtedly have been entitled to detailed particulars of the allegation and to a further witness statement of any evidence to be tendered in support of same. ACC would then itself have to have filed additional witness statements, almost certainly from witnesses not otherwise intended to be called, for it was clear that those witnesses whom ACC intended to, and did in fact, call were those persons who were involved not in the original setting up of the loan arrangement, but rather in dealing with the loan once it became problematical. For like reasons to those which I have already addressed in respect of Mr. Kelly’s suggestion that he might be allowed to give evidence, it did not seem to me that it would be fair in all the circumstances to allow an entirely new and separate element to be introduced into the defence at such a late stage particularly when there seemed little real basis for the claim.
2.11 Therefore, the case proceeded on the basis of the defence originally filed in person by Mr. Kelly but with Mr. Kelly not permitted to give evidence. Mrs. Kelly’s defence was amended to allow the plea of promissory estoppel and she was allowed to give evidence in accordance with both her original witness statement and much of the factual material contained in her proposed amended defence.
2.12 Against that background it is necessary to turn to the issues.
3. The Issues
3.1 As noted earlier, the central issue in the proceedings was as to whether an agreement or arrangement had been entered into at one or other of a series of meetings between the Kellys and ACC, the substance of which was that, provided the Kellys took certain steps designed to improve the position of the loan in question, ACC would not call in that loan. As originally pleaded in Mrs. Kelly’s defence, that claim was based on contract. For the reasons just addressed, the defence was also permitted to proceed on the basis of promissory estoppel.
3.2 A second aspect of the arrangements said to have been entered into between the parties in the course of those meetings was also an issue of some substance. As will become clear when dealing with the facts, the Kellys sold two of the properties over which ACC had security. At that stage a question arose as to how the net proceeds of sale would be dealt with. At the relevant time it was clear that the properties as a whole were not generating a sufficient net rent to cover the interest anticipated to be due on the loan and that this situation would continue after the properties concerned had been sold. There is no doubt but that the Kellys put forward a suggestion that some of the net proceeds would be, as it were, ring fenced to provide a fund out of which any continuing shortfall thus arising could be met. The Kellys asserted that ACC had agreed to this proposition but ACC strongly contested that allegation.
3.3 In addition to those central issues, some other questions arose in the course of the hearing on which it is necessary for me to rule. They were as follows:-
(a) In his defence, Mr. Kelly put forward an accusation that ACC had wrongfully put in place a receiver over the properties and that the actions of the receiver were also wrongful;
(b) Mr. Kelly also raised questions concerning the proper execution of the mortgage deed; and
(c) The Kellys contested the way in which ACC had added surcharge interest to their account.
3.4 Against the background of those issues, it is next necessary to turn to the facts. While there are a number of areas on which there is a conflict of evidence, it is possible to give a broad description of the dealings between the parties which is not controversial. I therefore turn to the facts.
4. The Facts
4.1 The loan agreement between the parties is dated the 6th October, 2006 and provides for the advance by ACC to the Kellys of the sum of €2,105,000. The stated purpose of the loan was to allow the Kellys to purchase two additional residential properties as investments and also to refinance borrowings which the Kellys had in respect of six other investment properties. The specified interest rate was 1.5% above EURIBOR. The loan facility is stated to be “repayable on demand”. It is stated in addition that:-
“Until demand is made or the loan facility (principle and interest) is repaid in full, repayments by the borrower of principle and interest shall be by monthly instalments by direct debit commencing one month from the due date of drawdown of the loan facility.”
4.2 The same term provided that the first 36 months should be interest only but that thereafter principal and interest was to be repayable.
4.3 Security for the borrowings was stated to include a first legal mortgage and charge in favour of ACC over each of the eight properties in respect of which monies had been advanced. It is not disputed but that the relevant monies were drawn down and, subject to the execution point referred to, that the relevant security was put in place. In that context it was drawn to my attention by Mr. Kelly that the copies of the relevant mortgage and charge documents which were available in court did not appear to have been executed by ACC although same were undoubtedly signed and sealed both by Mr. and Mrs. Kelly. This a point to which I will return in due course.
4.4 There is no doubt but that significant arrears began to develop from quite an early stage on the loan facility. As indicated earlier by August 2008, the sum in arrears was in excess of €80,000.00. That sum needs to be seen in the context of the fact that the then current interest payments were just over €11,000.00 per month so that the arrears were significant by any measure. In assessing the level of arrears it also needs to be taken into account that the loan was, at that stage, interest only.
4.5 In October, 2007 a meeting had been arranged between an Aidan Cawley of ACC and Mr. Kelly to discuss the arrears which then stood at just over €20,000.00. Mrs. Kelly made, in the course of the hearing, some complaint about the fact that, at the initial stages of engagement by ACC in respect of the arrears, contact had been made solely with Mr. Kelly. There is no doubt that that is so. In that context it should be noted that the loans were at all times with both Mr. and Mrs. Kelly and it would have been totally inappropriate for ACC to seek to enter into any arrangement in respect of the loans without involving Mrs. Kelly. However, in reality, nothing of substance appears to have occurred at those earlier meetings which were not attended by Mrs. Kelly. In addition, it should be noted that, from quite an early stage (although not the beginning), correspondence from ACC was addressed to both Mr. and Mrs. Kelly at their home address. It would appear that Mrs. Kelly contends that she did not see that correspondence. Whatever may be the truth of that matter, it does not seem to me that ACC can be blamed where it addresses correspondence jointly to a married couple at their home address, if it should transpire that the correspondence was not brought to the attention of both parties unless, perhaps, ACC were aware that there were difficulties which might reasonably lead to the view that correspondence was not being shared. There is no evidence to suggest that ACC should have had any such concerns.
4.6 In any event, by the time matters came to a head in the middle of 2008, Mrs. Kelly was fully involved. The case was, from an internal ACC perspective, sent forward to its Special Asset Management Department in late July or early August 2008. A series of meetings followed the first of which occurred on the 12th August and was attended by Mr. Cawley and Mr. Darren Cranston for ACC. There are significant differences between the parties as to what actually occurred at those meetings although there is no doubt that there was, at least in general terms, a discussion about how the problem with the loan arrears should be addressed, the need for the Kellys to provide additional financial information and the need to sell at least some of the properties which were the subject of the ACC loan. The position in respect of the loan at that time (August 2008) should be recorded. The arrears had then grown to €83,456.00. The current interest payment was €11,241.00 per month so that the arrears represented between seven and eight months interest. The loan remained interest only at that stage. In addition, and on the basis of figures given by the Kellys to Mr. Cranston, who was the official from the Special Management Agency who had carriage of their case, it appears that the total rental income on each of the eight properties which were the subject of the ACC loan was €8,250.00 per month from which it was suggested that a sum equivalent to 8% might be deducted to fund management costs leaving a net expected lodgement to the loan account of €7,590.00 per month. There was, therefore, a shortfall of €3,651.00 between the interest payment and what was anticipated to be the net rental income. It does appear that the Kellys had some proposals about other business projects which they hoped might provide additional funds to help meet that shortfall. However, none of those proposals appear to have been particularly concrete at the time when discussions commenced. There was, therefore, a significant problem with the loan. It had built up significant arrears and continued to operate on the basis that there were insufficient funds even to meet interest. There was, at a minimum, no immediate basis on which that shortfall could be bridged. Against that background, it is hardly surprising that the question of a disposal of at least of some of the properties was discussed. On ACC’s case, nothing specific was decided at that original meeting although it is agreed that a discussion took place as to the sale of a number of properties.
4.7 It should be noted that the Kellys had prepared what was described as a restructuring plan prior to that first meeting on the 12th August. At para. 4 of that plan, under the title “Sale of Properties”, the Kellys noted that they would reduce the size of the portfolio through the sale of less viable and more saleable properties. The relevant paragraph continues with the statement that the Kellys “will continue to reduce our debts in this manner and to ensure a continuous stream of income on these accounts until such a time as our other business interests can adequately subsidise the borrowing or the terms of the loan can be renegotiated”.
4.8 That document certainly conveys a proposal that properties will continue to be sold until such a time as there was sufficient alternative income to make up any shortfall between the net rent being received and the interest payments which were required to be made. It should also be noted that, at that time, it was broadly the view of all concerned that the value of the properties was roughly the same as the outstanding debt. For example, on the basis of figures given by the Kellys at the initial meeting on the 12th August, a total suggested acceptance price on the eight properties concerned (which was the asking price less 15%) came to €2.176m while the total debt was €2.184m. A further meeting took place on 22nd August. It will be necessary to return to these August meetings again in due course.
4.9 It would appear that two of the eight properties were then put on the market being a property known as 35 Cedarfield and a property known as 4 The Park. By the 21st November, when a further meeting took place, it seemed that a sale was progressing in respect of 35 Cedarfield but a sale in respect of 4 The Park had only been agreed in the week prior to the relevant meeting. During this period, a number of issues seem to have arisen between ACC and the Kellys.
4.10 First, as has been pointed out, there was undoubtedly an acceptance by the Kellys at the August meetings that certain financial information would have to be given to ACC. ACC complained that that information either had not been provided, was being provided late or was incomplete when it was provided.
4.11 Second, ACC made complaint that the amount of net rent which was being received fell significantly short at what had been anticipated at the August meetings. It will be recalled that, having made allowance for an 8% management cost, a sum of the order of €7,500.00 per month was anticipated to become available as net rent. While the amounts which came in varied from time to time (and while the Kellys in evidence gave an account as to where any shortfall might have gone – an issue to which it would be necessary to return) there can be no doubt that the net rent actually paid to ACC during this period fell significantly short of what had been anticipated at the August meetings.
4.12 In addition, there were disputes between the parties as to whether vacant possession of any properties to be offered for a sale should be obtained. From the Kellys’ perspective, the obtaining of vacant possession obviously meant that there was less rent available to service the loan. From ACC’s point of view, the properties would be more easily sold with vacant possession. Both sides gave evidence as to what was said to them by the auctioneer, appointed by the Kellys, who had carriage of the sales in question. However, as neither side chose to call the relevant witness any such evidence was merely evidence of what was said and cannot be evidence of the truth of the matters communicated. It should, however, be recorded that the fact that the auctioneer concerned seems to have given an account to ACC of his advice to the Kellys which differs from what Mrs. Kelly says was, in fact, that advice (and what the Kellys undoubtedly told ACC was the advice) was a significant point of distrust at the time. I should, at this point, comment that, in the course of the hearing, Mrs. Kelly made an accusation that the auctioneer in question might have deliberately misinformed ACC as to the advice he had given to the Kellys. In circumstances where no evidence had been put forward in any of the witness statements filed which could remotely have justified such a conclusion, it was, in my view, a most improper suggestion to make in circumstances where the person concerned was, to Mrs. Kelly’s knowledge, not there to defend himself. I have, in those circumstances, refrained from naming the auctioneer in this judgment.
4.13 There seems little doubt but that at the meeting of the 21st November, a proposal was put forward which was to the effect that a fund should be created from the net proceeds of sale of the two properties which were in the course of sale which could then be used to meet any shortfall between interest payments and net rental income. As this is a matter of some dispute, it is a question to which I will have to return.
4.14 By early 2009, ACC continued to have concerns about the way in which things were going. Mr. Cranston wrote on the 15th January to the Kellys outlining his continuing concerns that the sales of the relevant properties had not closed, that the full net rent was not being received by ACC, that the properties were not being vacated and that the level of arrears was increasing. A subsequent meeting took place on the 22nd January where, amongst other things, a discussion took place about why the full net rent was not being received. An explanation was given that a significant sum of money had to be spent on refurbishing a property. In addition, at that meeting, a letter dated the 22nd January was handed over by the Kellys to ACC in response to Mr. Cranston’s letter of the 15th January. On at least one reading of that letter, it appears to confirm that an auctioneer had been appointed to sell all of the properties although it should be said that the Kellys contest that reading of the letter. It may well be that the letter is ambiguous and conveys a different impression to a reasonable reader than that which was intended.
4.15 At this stage, it is also necessary to note that the solicitors who acted on behalf of the Kellys in the sale of the two properties to which I have referred (O’Sullivan & Partners) were recommended to them by ACC. It must again be noted that accusations of conflict of interest were quite freely made by Mr. Kelly in the course of the hearing against that firm. However, it is absolutely clear from the contemporaneous written record that the genesis of the retention by the Kellys of O’Sullivan & Partners came from a request made by the Kellys (in fact, by email of the 23rd October, 2008, sent by a son of the Kellys who attended some of the meetings with them and who corresponded with ACC on their behalf) to ACC to recommend a firm of solicitors in circumstances where it was stated that the Kellys were not entirely happy with the service which they had received from their previous solicitors. All that ACC did was to comply with the request from the Kellys to suggest the names of some firms of solicitors who might be acceptable. In those circumstances, to suggest that there was a conflict of interest was wholly untenable.
4.16 In passing, and as this is the second occasion on which I have had to comment on accusations made in the course of the hearing, it is important that I note that court proceedings are conducted on the basis of absolutely privilege. What is said in open court can be reported quite properly by the media without any fear of being sued for defamation. There are important public policy reasons why that should be so. However, with the advantage of absolute privilege comes obligations on the part of those who become involved in court proceedings. The conduct of proceedings under absolute privilege should not and cannot be permitted to be abused. As I pointed out during the hearing, if a professional lawyer, whether solicitor or counsel, had made the sort of accusations which I have identified and which were made by both of the Kellys, in circumstances where there was no evidential basis for the accusations concerned, where persons against whom the accusations were being made were not there to defend themselves and where, at least in the main, the accusations had not even been pleaded and also having regard to the seriousness of the accusations, there can be little doubt but that such an action on the part of a professional lawyer would have amounted to significant misconduct worthy of consideration by the relevant professional body. While it is, of course, important to take significant regard of the fact that the Kellys are not trained in the court process, it nonetheless is, in my view, a matter of legitimate and significant criticism that they were both prepared to make serious accusations without any evidential basis against people who were not in court to defend themselves and where there was no reasonable expectation that those persons would have an opportunity to so defend themselves.
4.17 In any event, the sales ultimately closed and the net proceeds were, in May, applied first in clearing the arrears to date and then in reducing the principal sum owing. However, before that, on the 16th April, Mr. Cranston wrote to the Kellys informing them of ACC’s decision to call in the loan. In evidence Mr. Cranston indicated that his reason for making a recommendation to ACC’s credit committee (who had ultimate control in respect of these matters) to take that course of action was because of what he considered to be the continued failure on the part of the Kellys to deal adequately with the loan, and also because he had become aware of a judgment against Mr. Kelly attaching to one of the properties. In the context of attempting to close the sale of one of the properties, it became clear that there was a judgment registered as a judgment mortgage which ACC had, in substance, to clear in order to allow the relevant sale to go through. On the 12th May, O’Sullivan & Partners sent a cheque for €414,055.38 to ACC which was used to clear the arrears which were then at €128,871.58 and further to reduce the principal sum to €1,811,036.86. A further letter of demand for the new balance outstanding was made on the 20th May (by which stage the sum had grown to €1,831,824.18) and thereafter Simon Coyle of Mazars was appointed as receiver by deed of appointment dated the 28th May, 2009. I propose dealing with events subsequent to the appointment of the receiver when dealing with Mr. Kelly’s claims in the respect of both the appointment of and conduct by the receiver.
4.18 It will be seen that there are two significant conflicts of evidence between the parties arising out of that broad course of dealing. The first concerns whether there was an agreement between the parties that, in the event that the Kellys took certain specified actions, ACC would not call in the loan. The second concerns the alleged agreement by ACC to create a fund from which any shortfall between net rental income and interest could be met. For reasons which I hope will be come apparent I propose dealing with the second of those issues first.
5. The Contingency Fund
5.1 As indicated earlier, there is no dispute but that Mrs. Kelly put forward such a proposal at the meeting of the 21st November, 2008. It is also clear that O’Sullivan & Partners put forward a similar proposal on the Kellys’ behalf by letter of the 16th February, 2009. However, it is equally clear that ACC did not accept that proposal and that O’Sullivan & Partners ultimately accepted ACC’s view that the monies should be paid to discharge firstly the arrears with the balance being used to reduce the principal sum. That such an agreement was reached between O’Sullivan & Partners, on behalf of the Kellys, and ACC is evidenced by a letter from ACC to O’Sullivan & Partners of the 20th February, 2009. It is, therefore, clear that there was no agreement to create a contingency fund to meet any shortfall between net rent and interest.
5.2 In the course of the hearing I invited Mrs. Kelly to indicate what evidence there might be to suggest that ACC had agreed to the creation of such a fund. Mrs. Kelly did not give evidence that ACC had agreed to this matter at the meeting of the 21st November, 2008. Indeed, if there had been an agreement at that meeting, it would have been surprising if Mrs. Kelly had not instructed O’Sullivan & Partners that there was already in place an agreement to that effect which would have led to an entirely different line of correspondence when the matter was raised by O’Sullivan & Partners in the lead up to the closing of the sales. Mrs. Kelly indicated that there was “an email” from O’Sullivan & Partners which, in her view, indicated that ACC had agreed to the arrangement. However, she was unable to produce any such email. In addition, no reference to any such email was made in the documents disclosed by her under oath as part of the discovery process. If there was such an email, it is surprising in the extreme that it would not have been referred to in discovery or even if an omission had been made in that regard, that it was not available in court given the importance attached to the issue by the Kellys. In any event, even if something had been said by O’Sullivan & Partners to the Kellys, same would not amount to evidence of agreement by ACC to such a course of action unless the person from O’Sullivan & Partners were called to give evidence that ACC actually agreed to the course of action proposed. There was, of course, no such evidence.
5.3 On this point the evidence is overwhelming. The Kellys sought, but were refused, the facility to create a contingency fund. All of the contemporaneous documentation is consistent with that fact. There is just no evidence (let alone insufficient evidence) for the contention which is put forward on behalf of the Kellys that ACC agreed to such a suggestion.
5.4 That conclusion leads to an obvious further question. Mrs. Kelly maintained in evidence that there was such an agreement. She persisted in that point of view despite having all of the contemporaneous documents drawn to her attention and despite her inability to point to any evidence to the contrary. In the course of an entirely legitimate cross examination of Mrs. Kelly by counsel on behalf of ACC, it was put to her that her account of these matters (and indeed other matters) could not be believed. Mrs. Kelly, despite having made many serious accusations against others herself, took significant umbrage at that suggestion. However, on balance I have come to the view that Mrs. Kelly was not deliberately misleading the court when she indicated that she believed that ACC had agreed to create a contingency fund. However, it is absolutely clear on the evidence that ACC did not so agree. The only reasonable conclusion to draw is that Mrs. Kelly has come to believe something which did not, in fact, happen. I am afraid that this has to be put down to wishful thinking. It would have been a nice thing from the Kellys point of view if such a contingency fund could have been created. The situation that pertained at the relevant time needs to be analysed. Two properties had been sold. ACC’s security was, therefore, being reduced from eight properties to six properties. However, there was not a proportionate reduction in the principal sum owing. This was partly due to the fact that there were significant arrears which had to be cleared first. It was also due to the fact that the properties had not achieved as good a sale price as might have been anticipated the previous August. There is no suggestion that the properties were in any way sold at an under value. It is just that the market was worsening. However, the overall position was that there were now to be only six properties generating rent thus significantly reducing the net rental income that might be anticipated while the principal sum would only be reduced by a much smaller percentage. It was clear that there would continue to be a significant shortfall between net rent and interest against which the Kellys had no additional income to put up. Without a contingency fund, there was a real risk that arrears would begin to build up again quickly and significantly.
5.5 However, from ACC’s point of view allowing a contingency fund to be created would mean that ACC would, in effect, be advancing more money (by foregoing its entitlement to have that money paid against principal) to pay off interest on its own loan. In circumstances where the number of properties over which it held security was being reduced that would not seem to make sense from ACC’s point of view.
5.6 Having had the opportunity to review all the evidence, I have come to the view that Mrs. Kelly has persuaded herself, contrary to all the evidence, that ACC did agree to that proposal. It is, in effect, as I have said, wishful thinking. I do not accept that she deliberately told untruths in her evidence. However, I do accept that her evidence is significantly at variance with what actually happened. As indicated, I put that down to her having persuaded herself, through wishful thinking, that things happened when they did not in fact happen and when all of the contemporaneous records indicate the opposite. It seems to me that that finding has some relevance to the other issue which is as to whether an agreement was reached in August, 2008 to the effect that ACC would not, provided certain steps were taken by the Kellys, exercise any right which it might have to call in the loan. I turn to that issue.
6. The Alleged August Agreement
6.1 As will be recalled there were two meetings in August 2008. The evidence give by ACC’s witnesses was clear and was to the effect that no concluded agreement was reached at either or both of those meetings. Rather it was said that there was a general discussion on how the undoubted problem concerning arrears on the Kelly’s loan would be addressed. It was accepted by each of the relevant bank witnesses that amongst the matters under discussion was the possibility that some of the properties would be put up for sale. Indeed that possibility was first broached by the Kellys in the restructuring plan document to which I have already referred. Likewise, it was accepted by the ACC officials present that there had been a discussion about the available net rent to be paid to meet interest accruing. In some of the contemporaneous records and correspondence there is reference to the Kellys “agreeing” to pay what was anticipated to be the rent less an 8% management charge. However, it does not seem to me that any agreement to pay that sum could, certainly of itself, amount to a contract or binding agreement. The Kellys were already obliged to pay the full interest on the loan. By agreeing to pay over the net rent, the Kellys were doing no more than agreeing to do what they were already obliged to do.
6.2 In addition, it is clear that ACC requested and the Kellys agreed to provide additional financial information. Again, such an arrangement is hardly surprising in the context of a situation where a borrower is in significant and increasing arrears and where it is in the interest of all concerned to see how that matter might be addressed. Likewise, I have no doubt that it was in the interest of both ACC and the Kellys to explore whether the problems with the loan arrears could be addressed without ACC taking any form of enforcement action. There is no doubt but that, from the perspective of a financial institution, the taking of enforcement action carries with it a cost. Apart from the costs of enforcement which the financial institution may itself have to bear both in time and in money there are also many circumstances in which the financial return from matters such as the sale of property is likely to be less on foot of a forced sale when compared with a voluntary action on the part of the borrower.
6.3 In cross examination, Mrs. Kelly was pressed to be specific about both when the alleged agreement was reached and the precise terms of it. After some hesitation, Mrs. Kelly ultimately indicated that it was her evidence that an agreement was reached at the first of the August meetings being that of the 12th. It seems to me to be highly improbable that this could be the case. A short number of days after that meeting (on the 14th) Mr. Cranston wrote to the Kellys. The whole tenor of that letter is completely inconsistent with the suggestion that any form agreement had been reached. The first substantive paragraph seeks detailed further information under seven separate bullet points. The next two paragraphs refer to a discussion about putting a number of properties for sale so as to reduce the debt burden to a manageable level but Mr. Cranston goes on to state “if this is your preferred option I would need details of the properties…along with asking price and details of any capitals gains tax…”.
6.4 In addition, one of the matters on which further information was required was as to how the shortfall between the interest payment and the net rent was to be bridged.
6.5 That letter is wholly inconsistent with any agreement having been reached on the 12th, indeed it points in the opposite direction. If the Kellys or either of them had really believed that they had an agreement in place at that time, it is most surprising that they did not reply to that letter making at least some reference to the fact that, rather than matters being subject to discussion, further information being required and the like, there was actually an agreement in place. No such response was sent. Immediately prior to the second meeting, an email was sent by a son of the Kellys (Diarmuid Kelly) on the 21st August to Mr. Cranston referring to progress on some of the information which had been sought and also indicating that the arrears were to be cleared through sale of properties. The only correspondence which immediately followed that meeting related to the setting up of an account which was designed to facilitate the payment of monies in respect of net rent to ACC. There is no contemporaneous record on either side of the meeting itself.
6.6 Having considered all of the evidence, I have come to the view that, on the balance of probabilities, no agreement was reached at either of the August meetings (or at any other time) whereby ACC agreed that it would not enforce its entitlements under the letter of loan sanction provided that certain steps were taken by the Kellys. In my view, what occurred was that there was a discussion on various ways in which the Kellys might be able to improve their situation in respect of their loan. It was, after all, the Kellys who proposed selling property in the restructuring plan. In my view, ACC accepted that it would go along with the attempts of the Kellys to regularise matters by allowing the properties to be sold, by assessing the additional financial information which was anticipated, and by seeing how things developed. There was, at that stage, a prospect of the Kellys having potentially some other sources of funds, at least some time in the future, to meet any shortfall between interest and net rent. Clearly, if that shortfall could be reduced by the sale of some of the properties (particularly if they were well chosen) and if some such additional income could arise, it might be possible to bridge the gap.
6.7 I have no doubt but that the relevant ACC officials gave the impression that, provided that that gap could be bridged, it was unlikely that ACC would take any precipitated action. There is, however, a significant difference between a general discussion about how arrears might be addressed, on the one hand, and a concrete binding agreement to the effect that ACC could not call in the loan provided certain steps were taken, on the other hand. For one thing, in order for there to be a binding contract between the parties, at least all important terms would need to be clear, and agreed. While the properties were to be sold, there is no suggestion that any particular level of reduction in debt was thereby to be achieved. As pointed out earlier, the fact that it took a lot longer to close sales on the two properties in question coupled with the fact that those properties did not achieve the price that might have been hoped for in respect of them led to a lesser reduction in the liabilities than might have been expected. On the basis of the acceptance prices given at the meeting on the 12th August, the combined anticipated sale price of the two properties in question was €481,000 which might have been expected to generate net proceeds of perhaps €460,000 or almost €50,000 more than was ultimately achieved. As noted earlier, no blame can be attached in respect of that shortfall but it nonetheless was there. Likewise, the arrears had grown during the period between the August meetings and the ultimate receipt by ACC of the net proceeds of sale by a figure of over €45,000. The net position after the sales of the properties was, therefore, not far short of €100,000 worse than might have been expected the previous August.
6.8 It seems highly improbable that ACC would have committed itself to waiving any entitlement of enforcement which it might have had without at a minimum agreeing on the scale of reduction which was to be achieved by property disposal. There is no such suggestion that any such term was even discussed.
6.9 Likewise, it is difficult to see how the sale of the properties concerned was likely to provide a complete answer to the shortfall. Unless the so called contingency fund were set up then, even from the more benign perspective of the previous August, it was clear that there was likely to be something of a shortfall even after the properties had been sold. Arrears would then immediately begin to build up again. There is no suggestion in Mrs. Kelly’s evidence that the question of the creation of a contingency fund was discussed back in August. How then was the sale of the properties to provide a complete answer to the problems with the loan as of August 2008. It again seems highly improbable that ACC would have agreed to an arrangement to forego its right of enforcement without there having been an agreement reached on precisely how the loan was going to be serviced after the arrears had been cleared by the sale of the properties.
6.10 Indeed, Mrs. Kelly seemed to me to have significant difficulty in identifying, with any precision, the terms of the alleged agreement. For example, it is clear that there was an acceptance at the August meetings that the Kellys would lodge net rent of €7,590.00 per month. It there was an agreement, was this a term of it? It seems highly improbable that ACC would have entered into a binding agreement without imposing such a term. If there was such a term then the Kellys were in clear breach of it. In that contest it matters not why some of the net rent was not received by ACC. If the contract required the Kellys to lodge the net rent then it would have been a breach of contract not to have done so without ACC’s prior agreement. I am not satisfied that ACC gave such agreement. Indeed, all of the correspondence points in the opposite direction.
6.11 For all of these reasons and having regard to all of the evidence which I have carefully considered, I have come to the view that there was no agreement reached at the August meetings of the type suggested by the Kellys. There was, I am satisfied, an acceptance on the part of ACC that the Kellys would be given an opportunity to see if things could be remedied on the understanding that if they were remedied in a satisfactory way, it was highly unlikely that ACC would want to go through with any form of enforcement. There was no agreement to vary the contract of such. There was an understanding that the Kellys would be given an opportunity to see if they could put their house right and there was an implicit acceptance on the part of ACC that no immediate action would be taken so as to afford the Kellys such an opportunity. To the extent that Mrs. Kelly gave evidence that there was such an agreement I have concluded that this, again, can be put down to wishful thinking.
6.12 Against the background of those findings of fact it is next necessary to turn to the legal position.
7. The Legal Consequences
7.1 The starting point for any consideration of whether the Kellys owe the sum claimed by ACC must be a consideration of whether ACC was entitled to call in the loan as it purported to do on the 16th April, 2009 by means of Mr. Cranston’s letter to the Kellys.
7.2 The loan was expressed to be payable on demand. Mrs. Kelly indicated in evidence, and both of the Kellys argued, that they were unaware that the loan was a demand facility. The loan is, however, clear in its terms. It says that it is repayable on demand and that the terms concerning payment of interest only for a period and interest and principal over an extended period are stated to be what is to happen in the absence of a demand. This is not exceptionally technical language. The ordinary meaning of the term demand in English is that a person insists on something happening. The ordinary meaning of a loan being repayable on demand is that a person who gives the loan is entitled to demand repayment. The terminology used in describing the other repayment terms is again clear. Those terms only applied where there is no demand. It is by no means unusual for commercial property lending facilities to be payable on demand.
7.3 I am not satisfied that any person taking the trouble to read the clause in question could have any difficulty in understanding what it meant. Even if someone had such difficulty then it is encumbent on such a person to take advice. It must be remembered that these are not consumer transactions. The Kellys were involved in quite a significant business and had borrowings in excess of €7m. This was, therefore, a commercial banking transaction. Many people in such circumstances do take professional advice whether from accountants of lawyers. There is no obligation, of course, so to do. But someone who signs commercial banking documents without taking advice on them runs a risk which they must accept. They will be bound by the terms which they sign up to.
7.4 Of course if a bank or its officials actively mislead someone as to what the terms mean then matters may be different. If the written terms of a bank facility letter do not correspond with what was discussed between the parties in the sense that something different was agreed or where the financial institution concerned misrepresents the meaning of the agreement then the situation may again be different. It is, however, no defence on the part of someone who has decided, for whatever reason, to sign a commercial banking document for that person to later turn around and say they did not understand what they were signing.
7.5 If the person does not have an opportunity to properly read the document then they should insist on such an opportunity and should not sign the document until they have been given an adequate opportunity to read it. If they sign it without adequately reading it then they must accept the consequences. If having read it there are terms or provisions which they do not properly understand then again they should not sign it unless and until they have taken advice. If they do sign a document whose terms they do not fully understand without taking advice then again they must accept the consequences. By signing a commercial banking arrangement, a borrower agrees to be bound by the terms of that arrangement and if the borrower has not taken the trouble to adequately read the document or be adequately informed as to its meaning then the borrower must accept the consequences of having signed a commercially binding agreement in those circumstances. After all, those are the terms on which the borrower gets the money. The borrower has taken the money. The borrower cannot then turn around and say that the terms were not properly understood unless the relevant financial institution has been guilty of legal wrongdoing in the way in which the contract came to be signed such as by misrepresenting its contents or the like.
7.6 To say that other financial institutions might have lent money on different terms is not an answer. If the terms matter then the borrower should compare the terms on offer from the financial institution concerned with those on offer from any other financial institution and if they be different and the difference cannot be negotiated out of the way and if it be important to the borrower, then the loan should not be taken. It is not open to a borrower to disregard the terms and then complain about them later when they do not suit. The time to see that they suit is before signing the contract.
7.7 I have no doubt, therefore, that this agreement was a demand facility, which, at least at the level of principle, entitles ACC to demand payment at anytime. There is, in my view, a possible legal issue as to whether a financial institution, having the benefit of a demand facility, is entitled for no reason at all to call in the loan in question. Certainly that seems to be what the normal meaning of the words used imports. However, it may be possible to argue that a financial institution needs at least some reason in order to call in the loan (at least in cases where the relevant facility contemplates a term arrangement) even though it may not be a reason which amounts to a breach of a term of the relevant facility. Indeed, one of ACC’s witnesses indicated that he felt that a bank might have some difficulty in justifying exercising the demand nature of a facility unless there was some good reason. However, for reasons which I hope will become apparent, it does not seem to me to be necessary to resolve that legal issue in this case.
7.8 Given my finding of fact that there was no binding agreement in place or clear understanding between the Kellys and ACC to the effect that ACC would not call in the loan then it seems to me that ACC had more than ample reason to call in the loan on the 12th April, 2009. The loan remained, at that time, in significant arrears even though there was a real prospect that the arrears would be cleared by the sale of the two properties, the closing of which was then anticipated to be imminent. However, the progress of matters since the previous August has been a long way short of satisfactory. Whatever may be the merits or the reasons given by the Kellys for the net rent paid into ACC not living up to what had been anticipated the previous August, the fact is that there was a very significant shortfall. There is no doubt but that the provision of the financial information referred to at the August meetings had been extremely slow and had been, at least in one significant aspect, inaccurate when first presented. It remained clear that there was likely to be a continuing shortfall between net rent and interest after the sale of the properties had gone through so that there was no long term solution on the table. In addition, on any view, the three year principal repayment holiday was coming to an end with less than a year to run so that the shortfall was going to increase by reason of the absence of any additional income to make repayments of principal. Furthermore, it was clear that the market had continued to worsen and that the properties no longer provided anything remotely like full cover for the loan. Some of those factors were the fault of the Kellys, some were not but overall the position which ACC faced in April 2009 was significantly worse than might have been anticipated as being the case at that time of the meetings in August 2008. Even if it be the correct interpretation of the law that ACC would have needed a reason to call in the loan in April 2009, then I am satisfied that it had such a reason. In those circumstances, it is not necessary to consider whether, as a matter of law, any such reason was required.
7.9 So far as the case in promissory estoppel is concerned, I have already indicated that I am not satisfied that any concluded arrangement (even if it be short of a contract) had been come to between the parties such as could have grounded a case in promissory estoppel. The factual basis for promissory estoppel does not, therefore, arise.
7.10 Likewise, as I am satisfied that no agreement was reached, the question as to whether any agreement might not have amounted to a contract by virtue of the absence of consideration does not arise. However, I should note that I agree with the submissions made by counsel for ACC that an agreement, whereby the only thing being agreed to on one side is a forbearance to exercise its legal rights without obtaining anything else in return, cannot amount to a contract, although such an arrangement might give rise to a promissory estoppel if the other factual requirements for a promissory estoppel were found to exist. A number of cases (Cooke and Others against Wright (1861) 1 B&S 559, Re Montgomery, a Bankrupt (1876) I.R. 10 Eq. 479, and Fullerton v. Provincial Bank of Ireland [1903] A.C. 309) were referred to by the Kellys in the course of argument as authority for the proposition that forbearance can amount to consideration. That is, of course, the case. However, forbearance is consideration given by the person forbearing, it is not consideration given to that person. In other words, where someone agrees to forebear in return for getting something else, then a binding contract exists, so that if the person does forebear they can insist on getting their side of the bargain and have whatever was promised (for example, extra security) delivered. However, none of those cases are authority for the proposition that someone who gives nothing can enforce a forbearance agreed by the other side.
7.11 For all of those reasons, I am satisfied at the level of principle that ACC was entitled to call in the full principal sum as of the 12th April, 2009, and that, subject to the other matters that arise, ACC is now entitled to recover the sum claimed. I now turn to those other matters.
8. The Surcharge
8.1 The facility letter in this case makes express reference to ACC’s general conditions. ACC’s general conditions at the relevant time were proved in evidence. If a borrower signs a facility letter which makes clear that that facility letter is subject to the general terms and conditions of the bank in question, then the borrower is bound by those general terms and conditions as much as by what is actually contained in the facility letter itself subject only to questions of misrepresentation or the like which I have already analysed. The relevant general conditions provide that a 6% surcharge is to be added to the interest on the loan in respect of any sums overdue. There is no doubt but that, from May 2009, ACC has added 6% to the full account outstanding. ACC’s basis for doing this is that it is said that ACC was entitled to call in the loan and that once it had called it in and it had not been paid then the entire sum was overdue. It seems to me that this is a correct analysis of the situation. If ACC had not been entitled to call in the loan in April or May of 2009, then it follows that surcharge interest could only have been added to that portion of the interest on the loan which had not been paid. However, for the reasons which I have already analysed, in my view, ACC was entitled to call in the loan in April 2009 and at anytime thereafter the entire sum due was in arrears for it was due and owing immediately to ACC and had not been paid. In my view, therefore, the amount claimed by ACC is properly calculated. It is next necessary to turn to the issues arising in respect of the receiver.
9. The Receiver
9.1 Mr. Kelly argued that ACC was not entitled to put in a receiver without an order of the court. It is clear from the mortgage documentation in this case that ACC has an entitlement to put in a receiver in the event of a breach of the loan agreement. For the reasons already analysed, it is clear that there was such a breach by reason of, not least, the failure on the part of the Kellys to pay the entire sum due when it was properly demanded in April 2009. Therefore, the entitlement of ACC to put in a receiver under the terms of the mortgage is clear.
9.2 Mr. Kelly went on to argue that the receiver was precluded from seeking to go into possession of any of the properties by reason of the provisions of the Land and Conveyancing Law Reform Act 2009 (the “2009 Act”). Chapter 3, Part 10 of the 2009 Act provides for obligations, powers and rights of mortgagees. There is no doubt but that s. 97, which is part of that Chapter, precludes a mortgagee from taking possession without a court order save in the case of consent. There may well be a question as to whether s. 97 precludes a receiver from going into possession assuming the receiver to have been validly appointed. However, that question does not arise in this case for s. 96 of the 2009 Act is clear in its terms. Section 96(1)(a) specifies that the powers and rights of a mortgagee under all of the remaining sections of Chapter 3 (including s. 97) apply to “any mortgage created by deed after the commencement of this Chapter”. The 2009 Act did not come into force until the end of that year. The 2009 Act, therefore, significantly post-dated the mortgage in this case. Therefore, s. 97 had no application to the mortgage in this case. On that fact being pointed to him, Mr. Kelly sought to refer to the Bill which ultimately became the 2009 Act when enacted. However, the Bill is not, of course, law – it is merely a proposal until it is passed by the Oireachtas and signed into law by the President. Likewise, Mr. Kelly sought to place reliance on unspecified provisions of previous conveyancing law such as the Victorian Conveyancing Acts. However, it is clear that there was no equivalent to s. 97(1) in any of that legislation.
9.3 The legal position is clear. There was no barrier to a mortgagee going into possession under a mortgage provided that the necessary conditions to allow for such possession (in almost all cases a breach of the mortgage terms) had occurred, without a court order, until the passage of the 2009 Act. That Act is not retrospective and does not apply to mortgages then already in existence. Therefore, there would be no barrier to ACC going into possession of the properties, the subject of the mortgage in this case, without a court order. Even if, therefore, the section can be construed as affecting the right of a receiver to go into possession where that receiver is appointed by a mortgagee, no barrier would exist to a receiver going into possession on the facts of this case.
9.4 Likewise, I am not satisfied that the fact that there was no evidence of ACC having executed the mortgage deed is of any relevance. I am more than satisfied on the evidence that both of the Kellys executed the mortgage deed. As the appointment of the receiver against the Kellys is an action taken as against them, it is only necessary that they have signed and executed the deed in order for it to be enforceable against them.
9.5 In addition, I am satisfied that the receiver was properly appointed in accordance with the terms of the mortgage deed.
9.6 In all those circumstances, I am satisfied that there is no basis for Mr. Kelly’s contentions to the effect that there was any invalidity in the appointment of the receiver or in the entitlement, at the level of principal, of the receiver to seek to go into possession of the properties in the sense of taking over the collection of rents and, where tenancies had come to an end, going into psychical possession.
9.7 Insofar as Mr. Kelly makes accusation in his defence that actions taken by or on behalf of the receiver, post the appointment of the receiver, were improper then there is just no evidence before the court of any such action.
9.8 While the various contentions made by Mr. Kelly in respect of the receiver were included in a document entitled defence, they are, perhaps, more appropriately treated as a counterclaim. Given Mr. Kelly’s position as a litigant in person, no point could legitimately have been raised in respect of that aspect of the pleading. However, even treating those accusations as amounting to a counterclaim, it is clear that any such counterclaim would need to be dismissed for there is no basis either for the contention that the receiver was invalidly or improperly appointed or that anything that was done by the receiver post appointment was inconsistent with the entitlements of the receiver.
10. Conclusions
10.1 It follows that the various defences put forward to the claim by ACC must fail. No agreement was reached whereby ACC accepted that it would not enforce its loan if certain properties were sold. Rather, ACC accepted that it would go along with proposals by the Kellys to see if things could improve. There was no agreement that some of the net proceeds of sale would be ring-fenced as a contingency fund. By the time ACC called in the loan in April 2009, there was ample reason for the calling in of the loan if such reason be required. The surcharge interest was properly charged under the terms of the facility. There was nothing inappropriate in the appointment of the receiver and no evidence of any inappropriate action on the part of the receiver.
10.2 In the circumstances, it seems to me that ACC is entitled to judgment for the full sum claimed. I will invite counsel to give me an up-to-date figure for inclusion in today’s order.
ACC Loan Management DAC -v- O’Toole
[2017] IECA 316 (06 December 2017)
Finlay Geoghegan J., Peart J., Whelan J.
Judgment by:
Peart J.
Status:
Approved
Result:
Appeal Allowed
THE COURT OF APPEAL
Neutral Citation Number: [2017] IECA 316
Record Number: 2015 494
Finlay Geoghegan J.
Peart J.
Whelan J.
JUDGMENT OF MR. JUSTICE MICHAEL PEART DELIVERED ON THE 6TH DAY OF DECEMBER 2017
1. By order of the High Court (Binchy J.) made on the 6th July 2015 the plaintiff (“ACC” or “the bank””) was granted summary judgment against the defendant on foot of its notice of motion issued pursuant to O. 37 of the Rules of the Superior Courts.
2. At the hearing of that motion in the High Court the defendant had sought to have the bank’s motion adjourned to full plenary hearing on the basis that in his replying affidavit he had raised one or more potential defences to the bank’s claim which met the necessary threshold of arguability as set forth in judgments such as that of Hardiman J. in Aer Rianta v. Ryanair Ltd [2001] 4 IR 607, and that of McKechnie J. in Harrisrange Limited v. Duncan [2003] 4 IR 1, to name but two, and which, he submitted, required oral evidence to be heard for a fair determination.
3. The test for having a summary judgment claim adjourned to a plenary hearing is by now well-known. It can be summarised as being that the defendant must establish on affidavit a bona fide and arguable defence, which is based on credible evidence, and which is not mere assertion. As stated by Hardiman J. in Aer Rianta v. Ryanair Ltd it must be “very clear” that the defendant has no defence. In her judgment in Danske Bank v. Quinn [2016] IECA 96, Irvine J. stated the following with which I respectfully agree:
“15. There is no dispute between the parties as to the principles to be applied by the court on an application for summary judgment. To the forefront of the court’s mind must be the test laid down by Hardiman J. in Aer Rianta v. Ryanair Limited [2001] 4 IR 607 where he described the test in the following terms:-
‘In my view the fundamental question to be posed on an application such as this remains: is it “very clear” that the defendant has no case? Is there either no issue to be tried or only issues which are simple and easily determined? Do the defendants’ affidavits failed to disclose even an arguable defence?’
16. Of importance also, in the context of the legal issues raised by the defendants on this appeal is the decision of Clarke J. in McGrath v. O’Driscoll [2007] 1 ILRM 203, where he stated, in the context of a summary judgment application:-
‘So far as questions of law or construction are concerned the court can, on a motion for summary judgment, resolve such questions (including, where appropriate, questions of the construction of documents),but should only do so where the issues which arise are relatively straightforward and where there is no risk of an injustice being done by determining those questions within the somewhat limited framework of a motion for summary judgment.”
A short factual background
4. By its facility letter dated the 3rd May 2002 ACC had made a loan offer to a company named John O’Toole Construction Co. Limited, of which the defendant is a director, in the form of an overdraft facility up to the sum of €100,000 on certain terms and conditions, which was repayable on demand and no later than 1st May 2003. One of those conditions was that the defendant would execute a personal guarantee and indemnity for the loan to the company, and he executed such a guarantee and indemnity on the 3rd May 2002. The loan facility was accepted by the company on the 31st May 2002.
5. The security conditions for the loan were the following:
(i) a company covenant;
(ii) The personal guarantee of John O’Toole and the defendant supported by a first legal mortgage and charge over certain lands at Leagaun, Moycullen, Co. Galway in the ownership of the defendant;
(iii) An assignment over deposit monies in the sum of €48,000.
6. The company in due course defaulted on the loan, and by letter of demand dated the 1st April 2005 ACC called upon the company to pay all sums due and owing as of that date, namely the sum of €130,283.26. At the same time it wrote also to the defendant, as guarantor, to inform him of the company’s default, and threatened to take action against him, inter alia on foot of the guarantee and indemnity, in the event that the sum claimed to be due and owing was not discharged.
7. Despite having sent these letters of demand on the 1st April 2005, these proceedings by way of summary summons were not issued until the 4th January 2013. Solicitors acting for the defendant entered an appearance thereto on the 13th May 2013. The bank’s notice of motion seeking liberty to enter summary judgment for the amount claimed to be due and owing was issued on the 13th January 2014 with a return date for the 6th February 2014. This motion for judgment was grounded upon the affidavit of Gerard Ryan sworn on the 7th January 2014, wherein he stated inter alia that as of the date of swearing thereof the amount due and owing to the bank, inclusive of interest was €261,305.20.
8. In his replying affidavit sworn on the 3rd February 2014 the defendant referred to one of the conditions specified in the loan facility, namely the assignment over certain cash deposits of €48,000, and stated that in view of these deposits his exposure as guarantor was limited to a sum of €52,000 plus interest for a twelve month period. He stated also that the bank had failed to explain what had happened to these deposit monies. In addition to that question, the defendant stated that the bank had failed to explain its delay in bringing these proceedings, and that the bank’s claim was statute barred given that the company’s default occurred on the 1st May 2003.
9. The bank filed a second affidavit by way of response, being that of Pamela Murphy sworn on the 26th June 2014. In relation to the cash deposits, this affidavit explained that the bank had exercised its right of set-off in respect of these monies (€46,286) on the 5th September 2011, and had applied them in reduction of the amount due by the company. However, this affidavit went on to state that it had made an error in the calculation of interest due as claimed in the summary summons, by not taking account of the set-off when making that interest calculation, and sought to amend its claim for judgment to a lower sum of €182,705.21.
10. That affidavit of Pamela Murphy also denied that the bank’s claim was statute barred, and made the point that the guarantee and indemnity dated the 3rd May 2002 was executed by the defendant under seal. It does not go further by stating that because it is an instrument executed under seal a 12 year limitation period applies to the bank’s claim on foot of it, but clearly that was the point that the bank was making in regard to the claim by the defendant that its claim was statute barred.
11. Prior to the hearing of the bank’s motion for judgment in the High Court ultimately on the 25th May 2015, the defendant’s solicitor wrote to the bank’s solicitor outlining the two issues being relied upon by the defendant for the purpose of seeking a plenary hearing.
12. The first such issue was that while the guarantee was stated to be “Signed Sealed and Delivered” [emphasis provided] by the defendant on the date of its execution, the document bore no seal, and was therefore a document in reality that was not under seal. Neither did the document appear to have a seal on it. In its second affidavit the bank had referred to the document as being an instrument under seal. The significance of this issue is that if the document is an instrument executed under seal a limitation period for the commencement of these proceedings of twelve years applies and they are not statute barred. On the other hand, if it is a document not executed under seal, a limitation period of six years applies, and arguably these proceedings are statute barred. So, the seal issue is not a mere technical point. Section 11(5)(a) of the Statute of Limitations Act, 1957 provides:-
“11.(5) The following actions shall not be brought after the expiration of twelve years from the date on which the cause of action accrued:-
(a) an action upon an instrument under seal, other than an action upon an instrument under seal to recover:–
(i) arrears of a rent charge or of a conventional rent, or
(ii) any principal sum of money secured by a mortgage or other charge, or
(iii) arrears of interest in respect of any sun of money secured by a mortgage or other charge, or
(iv) arrears of an annuity charged on personal property.”
13. The second issue relied upon by the defendant is the question of the set-off of the deposit monies referred to in the loan facility letter, and the date by which such set-off ought to have occurred. The defendant contends that the bank ought to have effected the set-off on the date by which the company’s overdraft was required to be paid off, namely the 1st May 2003, or at the latest either the date on which it made a demand for the payment of the monies namely the 1st April 2005, or at the latest the following day being the date on which the company went into liquidation. The defendant contends that if the set-off had been effected by any of these dates, the claim for interest by the bank would have been significantly reduced. In these circumstances the defendant argued that the bank was not entitled to the full sum for interest being claimed.
14. The trial judge heard submissions from counsel for the bank, and from the defendant’s solicitor, his counsel not being available on the date in question. Having heard these submissions and having considered the affidavit evidence he concluded that the defendant had not established a bona fide arguable defence to the bank’s claim, and granted summary judgment.
15. On the issue of the seal or the lack of it on the guarantee and indemnity, the trial judge stated:-
“Based on the case law opened to the Court by counsel for the plaintiff I am satisfied that a seal in the sense of a physical seal or indentation is not required in order to constitute the guarantee an instrument under seal. If nothing else, the document is adequate to estop the guarantor from asserting that he did not seal the guarantee. I am also satisfied that the guarantee is in its terms a deed although it does not use the word “deed”.”
16. The trial judge went on to conclude that the proceedings were not therefore statute barred.
17. As for the issue related to the date on which the set-off of the deposit was applied to the monies owing by the company, the trial judge stated in his view the facility letter was simply referring to deposit monies that were intended to be placed on deposit, rather than stating that monies in that amount (€48,000) had already been placed on deposit. He stated also that he was satisfied that due credit had been given for the monies on deposit and that no replying affidavit had been filed by the defendant to cast doubt upon the figures calculated by the bank as being due and owing by the defendant.
18. On this appeal the defendant has urged that the issue of whether the absence of an actual seal on the guarantee and indemnity document, combined with the defendant’s averment that he did not seal the document when executing the document, renders it an instrument not executed under seal, or whether the mere fact that the document is stated on its face to be been “Signed Sealed and Delivered” means that it is deemed to be an instrument under seal for the purpose of s. 11(5)(a) of the Act of 1957 regardless of the absence of actual sealing by the guarantor, is something which has not as yet been the subject of a judgment in this jurisdiction. It has been submitted that insofar as there have been some decided cases on the point not only in the United Kingdom, but farther afield from Australia, and Canada, these are not authoritative in this jurisdiction, and in any event do not make the position clear. Insofar as these proceedings are still at an interlocutory stage, it would not be appropriate for me to express any view on the authorities that have been opened to this Court on the point. That should await a full hearing at first instance.
19. The issue raised is a question of law to be determined. It is a point of considerable importance to the defendant because its answer will determine whether or not the bank’s claim under the guarantee is statute barred. There is little doubt that the trial judge did not have the benefit of as extensive submissions on the point as have been made to this Court on appeal. It is an issue that in my mind would benefit from a determination at a full hearing, rather than one that can be fairly disposed of on a motion for judgment.
20. The authorities make clear that a defendant ought not to be shut out from raising a defence to a claim for summary judgment unless, to use the words of Hardiman J. in Aer Rianta v. Ryanair Limited “it is very clear that the defendant has no case”. Where the issue sought to be argued by way of defence is an issue of law, and the state of the law on the issue in this jurisdiction has not been finally decided and is not therefore clear, I am not satisfied that in respect of this issue that it is clear that the defendant has no case, and would allow the appeal on this ground and direct a plenary hearing.
21. I would also take a different view from the trial judge in relation to the defence to the claim for a significant part of the claim for interest that is based on what the defendant claims to be a needless delay by the bank in effecting a set-off of the deposit monies against the sum due by the company. Clearly if these deposits should have been offset against the liability of the company at an earlier date than September 2011 – for example on the date on which the overdraft was required to be discharged, namely 1st May 2003, or the date on which the bank sent its letter of demand, namely the 1st April 2005, or the following day when the company went into liquidation, the defendant as guarantor would not have been exposed to a claim against him for interest on that sum of €48,000 approx between such earlier date and the actual set-off date in September 2011. In my view the fair determination of that question may reasonably depend on findings of fact to be made following the giving of oral evidence by the bank as to the reasons for any delay in effecting the set-off. It is not clear that the defendant has no defence based on that argument.
22. For all these reasons I would allow the appeal and direct that the matter be adjourned to plenary hearing with a condition that the defendant be permitted to defend on two arguable grounds namely (1) that the guarantee is not an “instrument under seal” within the meaning of s. 11(5)(a) of the Statute of Limitations Act 1957, and (2) that ACC ought to have set off the deposit held on a date or dates earlier than 5th September 2011, and with appropriate directions as to pleadings to be delivered for that purpose.