Contract Formation
Cases
Thornton v Shoe Lane Parking Ltd
[1970] EWCA Civ 2 [1971] RTR 79, [1971] 2 WLR 585, [1971] 1 LLR 289, [1971] 1 Lloyd’s Rep 289, [1970] EWCA Civ 2, [1971] 2 QB 163, [1971] 1 All ER 686
THE MASTER OF THE ROLLS:
In 1964 Mr. Thornton, who was a free-lance trumpeter of the highest quality, had an engagement with the B.B.C. at Farringdon Hall. He drove to the City in his motorcar and went to park it at a multi-storey automatic car park. It had only been open a few months. He had never gone there before. There was a notice on the outside headed “Shoe Lane Parking”. It gave the parking charges: “5/” for two hours: 7/6d. for three hours”, and so forth; and at the bottoms “All cars parked at owner’s risk”. Mr. Thornton drove up to the entrance. There was not a man in attendance. There was a traffic light which showed red. As he drove in and got to the appropriate place, the traffic light turned green and a ticket was pushed out from the machine. Mr. Thornton took it. He drove on into the garage. The motorcar was taken up by mechanical means to a floor above. Mr. Thornton left it there and went off to keep his appointment with the B.B.C. Three hours later Mr. Thornton came back. He went to the office and paid the charge for the time the car was there. His car was brought down from the upper floor. He went to put his belongings into the boot of the car. But unfortunately there was an accident. Mr. Thornton was severely injured. The Judge has found it was half his own fault, but half the fault of the Shoe Lane Parking Ltd. The Judge awarded him £3,637.6s.lld.
On this appeal the garage company do not contest the Judge’s findings about the accident. They acknowledge that they were at fault, but they claim that they are protected by some exempting conditions. They rely on the ticket which was issued to Mr. Thornton by the machine. They say that it was a contractual document and that it incorporated a condition which exempts them from liability to him. The ticket was headed “Shoe Lane Parking”. Just below there was a “box” in which was automatically recorded the time when the car went into the garage. There was a notice alongside: “Please present this ticket to cashier to claim your car”. Just below the time, there was some small print in the left hand corner which said: “This ticket is issued subject to the conditions of issue as displayed on the premises”. That is all.
Mr. Thornton says he looked at the ticket to see the time on it, and put it in his pocket. He could see there was printing on the ticket, but he did not read it. He only read the time. He did not read the words which said that the ticket was issued subject to the conditions as displayed on the premises.
If Mr. Thornton had read those words on the ticket and had looked round the premises to see where the conditions were displayed, he would have had to have driven his car on into the garage and walked round. Then he would have found, on a pillar opposite the ticket machine, a set of printed conditions in a panel. He would also have found, in the paying office (to be visited when coming back for the car) two more panels containing the printed conditions. If he had the time to read the conditions — It would take him a very considerable time — he would read this.
“CONDITIONS: The following are the conditions upon which alone motor vehicles are accepted for parking:
1. The customer agrees to pay the charges of Shoe Lane Parking Developments Limited”, and so on.
2. The Customer is deemed to be fully insured at all times against all risks (including, without prejudice to the generality of the foregoing, fire, damage and theft, whether due to the negligence of others or not) and the Company shall not be responsible or liable for any loss or misdelivery of or damage of whatever kind to the Customer’s motor vehicle, or any articles carried therein or thereon or of or to any accessories carried thereon or therein or injury to the Customer or any other person occurring; when the Customer’s motor vehicle is in the Parking Building howsoever that loss, misdelivery, damage or injury shall be caused; and it is agreed and understood that the Customer’s motor vehicle is parked and permitted by the Company to be parked in the Parking Building in accordance with this Licence entirely at the Customer’s risk.”
There is a lot more. I have only read about one-tenth of the conditions. The important thing to notice is that the Company seeks by this condition to exempt themselves from liability, not only to damage to the car, but also for injury to the customer howsoever caused. The condition talks about insurance. It is well known that the customer is usually insured against damage to the car. But he is not insured against damage to himself. If the condition is incorporated into the contract of parking, it means that Mr. Thornton will be unable to recover any damages for his personal injuries which were caused by the negligence of the company.
We have been referred to the ticket cases of former times from Parker v. The South Eastern Railway Co. (1877 2 C.P.D. 4l6) to McCutcheon v. MacBrayne Ltd. (1964 1 WLR 125). They were concerned with railways, steamships and cloakrooms where booking clerks issued tickets to customers who took them away without reading them. In those cases the issue of the ticket was regarded as an offer by the company. If the customer took it and retained it without objection, his act was regarded as an acceptance of the offer: see Watkins v. Rymill (1883) 10 Q.B.D. at page 188; Thompson v. L.M.S., (1930) 1 K.B. at page 47. These cases were based on the theory that the customer, on being handed the ticket, could refuse it and decline to enter into a contract on those terms. He could ask for his money back. That theory was, of course, a fiction. No customer in a thousand ever read the conditions. If he had stopped to do so, he would have missed the train or the boat.
None of those cases has any application to a ticket which is issued by an automatic machine. The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved. He is committed beyond recall. He was committed at the very moment when he put his money into the machine. The contract was concluded at that time. It can be translated into offer and acceptance in this way: the offer is made when the proprietor of the machine holds it out as being ready to receive the money. The acceptance takes place when the customer puts his money into the slot. The terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice before-hand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late. The contract has already been made: see Olley v. Maryborough Court (1949 1 K.B. 532). The ticket is no more than a voucher or receipt for the money that has been paid (as in the deckchair case, Chapelton v. Barry U.D.C. …1940 1 K.B. 532), on terms which have been offered and accepted before the ticket is issued.
In the present case the offer was contained in the notice at the entrance giving the charges for garaging and saying “at owner’s risk”, i.e. at the risk of the owner so far as damage to the car was concerned. The offer was accepted when Mr. Thornton drove up to the entrance and, by the movement of his car, turned the light from red to green, and the ticket was thrust at him. The contract was then concluded, and it could not be altered by any words printed on the ticket itself. In particular, it could not be altered so as to exempt the company from liability for personal injury due to their negligence.
Assuming, however, that an automatic machine is a booking clerk in disguise — so that the old fashioned ticket cases still apply to it. We then have to go back to the three questions put by Lord Justice Mellish in Parker v. The South Eastern Railway Co. (1877) 2 C.P.D. at page 423, subject to this qualification: Lord Justice Mellish used the word “conditions’ in the plural, whereas it would be more apt to use the word “condition” in the singular, as indeed the Lord Justice himself did on the next page. After all, the only condition that matters for this purpose is the exempting condition. It is no use telling the customer that the ticket is issued subject to some “conditions” or other, without mores for he may reasonably regard “conditions” in general as merely regulatory, and not as taking away his rights, unless the exempting condition is drawn specifically to his attention. (Alternatively, if the plural “conditions” is used, it would be better prefaced with the word “exempting”, because the exempting conditions are the only conditions that matter for this purpose.) Telescoping the three questions, they come to this: the customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it.
Mr. Machin admitted here that the company did not do what was reasonably sufficient to give Mr. Thornton notice of the exempting condition. That admission was properly made. I do not pause to inquire whether the exempting condition is void for unreasonableness. All I say is that it is so wide and so destructive of rights that the Court should not hold any man bound by it unless it is drawn to his attention in the most explicit way. It is an instance of what I had in mind in Spurling v. Bradshaw . 1956, 1 W.L.R. at page 466. In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.
But, although reasonable notice of it was not given, Mr. Machin said that this case came within the second question propounded by Lord Justice Mellish, namely that Mr. Thornton “knew or believed that the writing contained conditions”. There was no finding to that effect. The burden was on the company to prove it, and they did not do so. Certainly there was no evidence that Mr. Thornton knew of this exempting condition. He is not, therefore, bound by it.
Mr. Machin relied on a case in this Court last year -Mendelsshon v. Normand Ltd. (1970 1 K.B. 177). Mr. Mendelssohn parked his car in the Cumberland Garage at Marble Arch, and was given a ticket which contained an exempting condition. There was no discussion as to whether the condition formed part of the contract. It was conceded that it did. That is shown by the report in the Law Reports at page 180. Yet the garage company were not entitled to rely on the exempting condition for the reasons there given.
That case does not touch the present, where the whole question is whether the exempting condition formed part of the contract. I do not think it did. Mr. Thornton did not know of the condition, and the company did not do what was reasonably sufficient to give him notice of it.
I do not think the garage company can escape liability by reason of the exemption condition. I would, therefore, dismiss the appeal.
LORD JUSTICE MEGAW: For myself, I would reserve a final view on. the question at what precise moment of time the contract was concluded.
In relation to the main arguments that have been put before us, I would refer to the opening paragraph of the speech of Lord Dunedin in Hood v. Anchor Line 1918 A.C. at page 846:
“My Lords, this is a class of case in which of citing of authorities there is no end, and yet it is, I think, quite possible to say ‘Hear the conclusion of the whole matter.’ The case of Parker v. South Eastern Ry. Co.. which has been approved in every case since its date, really stereotyped the question which the tribunal, be it jury or judge, must put to itself when such a question arises.”
I shall come back to the question as it was formulated by Lord Dunedin.
That case was a ticket case. It related to a ticket for a trans-Atlantic voyage taken by Mr. Hood, which contained on its face conditions limiting liability. The company issuing the ticket had taken great care both on the ticket itself and on the accompanying documents to call attention to the limiting conditions. An accident happened when the ship was sunk off the coast of Ireland. Mr. Hood suffered serious injury. His contract was held to be subject to the limiting conditions. It was accepted that the shipping company had been unable to prove that Mr. Hood had actually read, or was aware of, any of the warnings that the shipping company had tried to convey to him as to the limiting conditions. In that case Lord Finlay, Lord Chancellor, giving the leading judgment, said, in relation to Parker v. South Eastern Railway Co. and Richardson. Spence & Co.’s case:-
“The second and third of these cases” — that is the two cases I have just mentioned — “show that if it is found that the company did what was reasonably sufficient to give notice of conditions printed on the back of a ticket the person taking the ticket would be bound by such conditions.”
That was Lord Finlay’s view of the effect of that decision. Viscount Haldane said: “I agree that the appellant here” — that was Mr. Hood —
“was entitled to ask that all that was reasonably necessary as matter of ordinary practice should have been done to bring to his notice the fact that the contract tendered to him when he paid his passage money excluded the right which the general law would give him, unless the contract did exclude it, to full damage if he was injured by the negligence of those who contracted to carry him on their steamer. Whether all that was reasonably necessary to give him this notice was done is, however, a question of fact, in answering which the tribunal must look at all the circumstances and the situation of the parties.”
And as to Parker v. South Eastern Railway Co.. Viscount Haldane said:
“In Parker v. South Eastern Ry. Co. the only question was whether the question had been properly put to the jury.”
The essence of the decision in Parker v. South Eastern Railway Co. was expressed by Lord Hodson in McCutcheon v. David MacBrane Ltd. (1964 1 WLR 125) at page 129. He said:
“That case, affirmed in Hood v. Anchor Line (Henderson Brothers) Ltd.. established that the appropriate questions for the jury in a ticket case were:
(1) Did the passenger know that there was printing on the railway ticket?
(2) Did he know that the ticket contained or referred to conditions? and
(3) Did the railway company do what was reasonable in the way of notifying prospective passengers of the existence of conditions and where their terms might be considered?”
Now take those questions in relation to the present case. First, did the passenger know that there was printing on the railway ticket? Mr. Justice Mocatta has answered that question, being a question of fact, with the answer Yes. Therefore one moves on to the second question: did he know that the ticket contained or referred to conditions? Mr. Justice Mocatta made no express finding on that point. In my view there is the clearest implication from the way in which he stated and dealt with the third question that his finding on the second question was to answer it No. But even if I should be wrong in that view of the implication of the judgment, it would not do the defendants any good; because the onus is on them to establish the existence of this term in the contract, and they have not got the necessary finding, express or by implication, of an affirmative answer to the second question. Mr. Machin has gallantly striven to suggest that the learned Judge’s finding of fact, that Mr. Thornton, the plaintiff, did not read the words on the ticket referring to the conditions, was a wrong finding. But the learned Judge saw and heard the witnesses, and I see no reason whatever to challenge or doubt his conclusion of fact on that matter.
So I come to the third of the three questions. That question, if I may return to the speech of Lord Dunedin in Hood v. Anchor Line, was posed by him in this way;
“Accordingly it is in each case a question of circumstance whether the sort of restriction that is expressed in any writing (which, of course, includes printed matter) is a thing that is usual, and whether, being usual, it has been fairly brought before the notice of the accepting party.”
That, though it is more fully stated by Lord Dunedin, is essentially the same question, I think, as was formulated by Lord Justice Mellish in Parker’s case at the very end of his judgment, where he said that the question which ought to have been left to the jury was: whether the railway company did what was reasonably sufficient to give the plaintiff notice of the condition. (I emphasise the use by Lord Justice Mellish of the definite article and of the word “condition” in the singular.) I agree with my Lord, the Master of the Rolls, that the question here is of the particular condition on which the defendants seek to rely, and not of the conditions in general.
When the conditions sought to be attached all constitute, in Lord Dunedin’s words “the sort of restriction …. that is usual”, it may not be necessary for a defendant to prove more than that the intention to attach some conditions has been fairly brought to the notice of the other party. But at least where the particular condition relied on involves a sort of restriction that is not shown to be usual in that class of contract, a defendant must show that his intention to attach an unusual condition of that particular nature was fairly brought to the notice of the other party. How much is required as being, in the words of Lord Justice Mellish, “reasonably sufficient to give the plaintiff notice of the condition”, depends upon the nature of the restrictive condition.
In the present case what has to be sought in answer to the third question is whether the defendant company did what was reasonable fairly to bring to the notice of the plaintiff, at or before the time when the contract was made, the existence of this particular condition. This condition is that part of the clause — a few words embedded in a lengthy clause — which my Lord has read, by which, in the midst of provisions as to damage to property, the defendants sought to exempt themselves from liability for any personal injury suffered by the customer while he was on their premises. Be it noted that such a condition is one which involves the abrogation of the right given to a person such as the plaintiff by statute, the Occupiers Liability Act of 1957. True, it is open under that statute for the occupier of property by a contractual term to exclude that liability. In my view, however, before it can be said that a condition of that sort, restrictive of statutory rights, has been fairly brought to the notice of a party to a contract there must be some clear indication which would lead an ordinary sensible person to realise, at or before the time of making the contract, that a term of that sort, relating to personal injury, was sought to be included. I certainly would not accept that the position has been reached today in which it is to be assumed as a matter of general knowledge, custom, practice, or whatever is the phrase that is chosen to describe it, that when one is invited to go upon the property of another for such purposes as garaging a car, a contractual term is normally included that if one suffers any injury on those premises as a result of negligence on the part of the occupiers of the premises they shall not be liable.
Even if I were wrong in the view that I take that the third question has to be posed in relation to this particular term, it would still not avail the defendants here. In my view the learned Judge was wholly right on the evidence in the conclusion which he reached that the defendants have not taken proper or adequate steps fairly to bring to the notice of the plaintiff at or before the time when the contract was made that any special conditions were sought to be imposed.
I think it is a highly relevant factor in considering whether proper steps were taken fairly to bring that matter to the notice of the plaintiff that the first attempt to bring to his notice the intended inclusion of those conditions was at a time when as a matter of hard reality it would have been practically impossible for him to withdraw from his intended entry upon the premises for the purpose of leaving his car there. It does not take much imagination to picture the indignation of the defendants if their potential customers, having taken their tickets and observed the reference therein to contractual conditions which, they said, could be seen in notices on the premises, were one after the other to get out of their cars, leaving the cars blocking the entrances to the garage, in order to search for, find and peruse the notices! Yet unless the defendants genuinely intended the potential customers should do just that, it would be fiction, if not farce, to treat those customers as persons who have been given a fair opportunity, before the contracts are made, of discovering the conditions by which they are to be bound.
I agree that this appeal should be dismissed.
Sir GORDON WILLMER; I have reached the same conclusion, and there is very little for me to add. It seems to me that the really distinguishing feature of this case is the fact that the ticket on which reliance is placed was issued out of an automatic machine. I think it is right to say – at any rate, it is the fact so far as the cases that have been called to our attention are concerned – that in all the previous so-called “ticket cases” the ticket has been proffered by a human hand, and there has always been at least the notional opportunity for the customer to say – if he did not like the conditions – “I do not like your conditions: I will not have this ticket.” But in the case of a ticket which is proffered by an automatic machine, there is something quite irrevocable about the process. There can be no locus poenitentiae. I do not propose to say any more upon the difficult question which has been raised as to the precise moment when a contract was concluded in this case; but at least it seems to me that any attempt to introduce conditions after the irrevocable step has been taken of causing the machine to operate must be doomed to failure. It may be that those who operate garages of this nature, as well as those who install other types of automatic machines, should give their attention to this problem. But it seems to me that the learned Judge below was on the right track when he said, towards the end of his judgment, that in this sort of case, if you do desire to impose upon your customers stringent conditions such as these, the least you can do is to post a prominent notice at the entrance to the premises, warning your customers that there are conditions which will apply. So far as the rest of the case is concerned, I agree with what has been said by my Lords and do not wish to add anything further.
Appeal dismissed with costs.
Ryanair Ltd -v- Billigfluege.de GMBH
[2010] IEHC 47
Mr. Justice Michael Hanna dated the 26th day of February, 2010
On Friday the 12th day of February, 2010 I informed the parties that I was finding for the Plaintiff who is the Respondent in the motion relating to a preliminary jurisdictional issue brought by the Defendant. I said I would give my detailed reasons later and I now do so. These proceedings were heard in tandem with related proceedings bearing Record No. 7960P/2009 and entitled Ryanair Limited v. Ticket Point Reisebüro GmbH. In both sets of proceedings, the defendants brought an application to have the plaintiff’s proceedings dismissed for want of jurisdiction by virtue of the provisions of Regulation 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (“the Brussels Regulation”) as transposed into Irish law by the European Communities (Civil and Commercial Judgments) Regulations, S.I. No. 52 of 2002. It is with that application which this judgment is concerned.
The defendants rely on Article 2 of the Brussels Regulation which provides that a defendant should be sued in its own domicile. The defendants in these proceedings are German based and say that they should be sued in Germany, not in Ireland. The plaintiff claims that while the general rule is that a defendant should be sued in their domicile, a number of exceptions to that general rule exist and in this regard the plaintiff seeks to rely on Articles 5(1), 5(3) and 23.
The only issue I have to determine at this juncture therefore is whether or not this Court has jurisdiction to hear these proceedings pursuant to the Brussels Regulation.
The Plaintiff’s Claim
The plaintiff claims the service offered by the defendants, whereby they run a price comparison website allowing users of their site to compare prices for flights, breaches the plaintiff’s website’s Terms of Use, trademark, copyright and database rights in that it takes information from the plaintiff’s site, an activity known as “screen-scraping”, and provides that information to its users for a fee. All of this is done without the permission of the plaintiff and, according to the plaintiff, in breach of its website’s Terms of Use.
One of the issues which may ultimately fall to be determined by this Court if the plaintiff overcomes the initial hurdle of defeating the defendant’s jurisdiction application, is whether or not the plaintiff’s website’s Terms of Use constitute a valid and legally binding contract which was entered into by the defendant’s through their use of the said website. The plaintiff says, however, that in order to determine the jurisdiction issue, it is not necessary for the Court to adjudicate upon the validity of the Terms of Use but rather it shall be sufficient if the Court is satisfied as to the existence of a valid exclusive jurisdiction clause set out within that document. The plaintiff in this regard relies upon paragraph 7 of the Terms of Use which provides that the courts of Ireland are to have exclusive jurisdiction in respect of any dispute.
The Defendants’ Case
The defendants claims that there is no contract in existence between the parties and that the plaintiff’s Terms of Use lack contractual effect because they were never agreed or consented to by the defendants.
The defendants say the plaintiff’s website’s Terms of Use cannot form the basis of a contract because all of the traditional features of a legally binding contract are absent such as the date on which it may be said that a contract was entered into between the parties and the absence of any consideration. They say that as there is no legally enforceable contract in place between the parties to these proceedings, the plaintiff cannot rely on Article 23(1) of the Brussels Regulation to confer jurisdiction on this Court because of the absence of an agreement.
The Brussels Regulation
Article 23 of the Brussels Regulation provides:
“If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.” (Emphasis added)
If Ryanair’s website’s Terms of Use can be said to be an “agreement”, then the parties are in a legal relationship and the dispute that has arisen from the use of Ryanair’s website falls to be governed by the exclusive jurisdiction clause contained within that agreement.
The Case-law
In Ryanair Ltd. v. Bravofly and Travelfusion Ltd. [2009] IEHC 41, the second named defendant brought an application to dismiss the proceedings against it for want of jurisdiction under the Brussels Regulation. Travelfusion was based in the UK and the relevant jurisdiction clause in Ryanair’s website’s Terms of Use at that time specified the UK Courts as having exclusive jurisdiction over any disputes arising as a result of the breach of those terms. Travelfusion therefore sought to have the Irish proceedings against it dismissed for want of jurisdiction in favour of the UK courts pursuant to the exclusive jurisdiction clause set out in Ryanair’s Terms of Use. Ryanair have since changed their Terms of Use to nominate Ireland as the appropriate jurisdiction in the event of a dispute. In Bravofly, it was argued successfully by Travelfusion that a choice of jurisdiction clause must be upheld and given effect to even though one party may be challenging the validity of the entire contract including the validity of the jurisdiction clause. Ironically, in an attempt to defeat Travelfusion’s jurisdiction application, it was Ryanair who put forward an argument in that case that the requirements of Article 23 had to be strictly construed, in particular with regard to whether there was a consensus between the parties in relation to the clause, an argument which is now being advanced by their opponents in these proceedings. Clarke J. held that there was sufficient consensus as to the exclusive jurisdiction clause and granted Travelfusion’s application to have those proceedings against it dismissed for want of jurisdiction.
In Estas Salotti v. Rua [1976] ECR 1831 , the European Court of Justice held, at para. 7 of the judgment, that Article 23:
“… imposes upon the Court before which the matter is brought the duty of examining first , whether the clause conferring jurisdiction upon it was in fact the subject of a consensus between the parties which must be clearly and precisely demonstrated.”
Again, in Benincasa v. Dentalkit [1997] ECR I-3767 , the European Court of Justice explained, at paras. 28 and 29, that Article 23 should be interpreted strictly, since the purpose of the Article is to designate, clearly and precisely, a court in a Contracting State which is to have exclusive jurisdiction in accordance with the consensus between the parties. The Benincasa decision is of particular significance to the issue before the Court here as in that case, the ECJ had to consider whether the courts of a Member State specified in a jurisdiction clause can have exclusive jurisdiction, pursuant to what was then Article 17 and is now Article 23, where there was a dispute as to the validity of the agreement setting out that clause. The ECJ found that a distinction must be drawn between a jurisdiction clause and the substantive provisions of the contract in which it is incorporated and that a validly concluded jurisdiction clause remains valid despite either party seeking a declaration that the contract which contains the clause is void. Hence, while the defendants in this case dispute the existence of a valid contract and indeed say that there was never any agreement entered into by the parties, the jurisdiction clause is severable and distinct from the agreement in terms of validity and capable of surviving independently of it. The Court therefore must pay special attention to the exclusive jurisdiction clause in the plaintiff’s website’s Terms of Use, notwithstanding the fact that the defendants dispute that document’s validity. In Bravofly, Clarke J. also quoted from the decision of the ECJ in Soc.Trasporti Castelletti Spedizioni Internazionali SA v. Hugo Trumpy SpA [1999] ECR I-1597, where at paras. 48 to 51, it was stated:
“As the court has repeatedly stated, it is in keeping with the spirit of certainty, which constitutes on of the aims of the Convention that the national court seised should be able readily to decide whether it has jurisdiction on the basis of the rules of the Convention, without having to consider the substance of the case.”
In addition to the case law of the European Court of Justice, the Court also has regard to a number of American authorities referred to by the plaintiff on the issue of exclusive jurisdiction clauses in website terms of use or terms and conditions. Given the dearth of case law on this issue in this jurisdiction, the Court has found the jurisprudence of the U.S. courts useful. In Decker v. Circus Circus Hotel 49 F. Supp. 2. d 743, the plaintiffs brought a personal injury action against the defendants in the State of New Jersey arising out of an accident which occurred in Nevada. The plaintiffs entered into the relevant contract with the defendant via the defendant’s internet website. Judge Walls of the United States District Court in the District of New Jersey deemed the jurisdiction clause contained in the contract entered into over the internet was enforceable and the matter was transferred to Nevada.
In Caspi v. Microsoft Corporation 323 N.J. Super. 118, 732 A.2d 528, the Superior Court of New Jersey, Appellate Division, was asked to determine the validity of an exclusive jurisdiction clause contained in an online subscriber agreement of Microsoft. The clause stated that proceedings were to be heard in the State of Washington. Before subscribing to Microsoft’s online service a user was required to click “I Accept”. Registration could only occur after this. The Court took the view that the ordinary contract law principles ought to apply and the fact that the contract was entered through the medium of the internet made no difference. The exclusive jurisdiction clause was therefore deemed enforceable.
In Specht v. Netscape 306 F.3d 17, Judge Sotomayor of the United States Court of Appeals (as she then was) held that it was more likely than not that a user of the website in question would not scroll down the webpage sufficiently enough to see the software licence terms which were placed below the download button they would have to press in order to download the product they were looking for. In other words, the terms in question were not readily identifiable or sufficiently visible to the users of the website and were placed in such a position on the webpage that a user may never see or look at them before the transaction was completed by the clicking on the download button. In Specht, the Court addressed the issue of having knowledge of and therefore being bound by terms of use. The Court referred to the manner in which traditional contracts are formed and then provided a useful analysis of contracts formed over the internet as follows, at p. 16:
“These principles apply equally to the emergent world of online product delivery, pop-up screens, hyperlinked pages, clickwrap licensing, scrollable documents, and urgent admonitions to ‘Download now!’”
And at p. 20, Judge Sotomayor said:
“Reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility.”
Here, Ryanair argue that the terms were clearly visible to all visitors to and users of their website. They say that in carrying out the screen-scraping activity, the defendants were making use of the website for their own commercial advantage and as such that use constitutes an unambiguous manifestation of assent to its terms.
In Forrest v. Verizon Communications Inc. 805 A.2d 1007, the District Court of Columbia commented, at p. 6, that:
“A contract is no less a contract simply because it is entered into via a computer”
In Register.com Inc. v. Verio Inc. 356 F.3d. 393, a decision of the United States Court of Appeals, Second Circuit, the plaintiff company provided an internet domain search facility. A person who conducted a search for a domain name would receive a reply together with a statement of terms providing that the information only be used for lawful purposes. It was claimed that the defendants breached these terms. The court was of the view that it is not necessary to click “I Accept” in order to manifest acceptance of an offer. Rather, in keeping with traditional contract principles, conduct in the form of making repeated searches in the knowledge of the existence of the terms of use bound the offeree to the terms.
Do the Terms of Use constitute an Agreement for the purpose of Article 23 of the Brussels Convention?
In order to find that Article 23 applies, the Court must first be satisfied as to the existence of a contract between the parties and the existence of a contract is strenuously denied by the defendants who argue that the Terms of Use on Ryanair’s website lack contractual force because they are nothing more than a set of unilaterally imposed conditions which they never agreed to. I find this argument unconvincing. By way of analogy, if I enter a shop and see an item on sale for €10, the fact that I never agreed to the €10 price tag or the fact that the shop owner unilaterally imposed that price without consulting me about it does not mean that I am not bound to pay that price if I go to the counter and seek to buy the product. In today’s market, given the change in economic conditions, it may very well be that we have a return to a system of haggling but as matters stand, the defendant’s argument that one cannot impose certain unilateral terms is not an accurate description of the law on contract as I understand it. It will often be the case that one party will set out certain terms, such as not using information on a website for commercial purposes without the owner’s consent, and if another party wishes to flout those terms, they cannot then say that because the term was unilaterally imposed, it had no legal effect. That seems to me to be what the defendants in this case have been attempting to argue.
The defendants claim that they never consented to the Terms of Use or entered into any agreement with the plaintiff. The plaintiff says this is not the case and that at all material times its Terms of Use governed its relationship with the defendants. As regards whether or not the Terms of Use were binding on the defendant, it is a well established general principle of law that parties to a contract cannot be bound by terms which they have not had an opportunity of reading prior to making the contract. That is not to say that a party will not be bound because they have not read the terms – they will only escape being bound if they can show they were not afforded a reasonable opportunity to read the term in question before entering into the contract. In Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd. [1989] QB 433 it was held that where a condition is particularly onerous or unusual, the party seeking to enforce it must show that that condition was fairly brought to the notice of the other party. As per Dillon L.J., at p. 439:
“… if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party.”
Similarly, in Thornton v. Shoe Lane [1971] 2 WLR 585, a case involving an exclusion of liability clause and a ticket issued by an automatic machine in a car park, Lord Denning M.R. made the following observations, at p. 588:
“The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved. He is committed beyond recall. He was committed at the very moment when he put his money into the machine. The contract was concluded at that time. It can be translated into offer and acceptance in this way: the offer is made when the proprietor of the machine holds it out as being ready to receive the money. The acceptance takes place when the customer puts his money into the slot. The terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice before-hand, but not otherwise.”
In Thornton, the House of Lords held that the defendant’s had not taken sufficient steps to ensure that the notice containing the exclusion of liability clause was brought to the attention of customers of the car-park before they purchased their tickets and in those circumstances that the clause was invalid and of no effect. Here, the exclusive jurisdiction clause was contained in the Terms of Use on the plaintiff’s website, highlighted by way of a hyperlink. In such circumstances, the Terms of Use on Ryanair’s website were “fairly brought to the attention of the other party”. It seems that the Terms of Use were clearly accessible by way of a hyperlink which was at all times clearly visible to users of the plaintiff’s site. The Terms were not hidden in an awkward part of the screen or in any way concealed or difficult to find. The inclusion by Ryanair of their website terms of use via a hyperlink that the website user is required to view and assent to results in the user entering into what is known as “a click-wrap agreement” with Ryanair. The plaintiff referred to the U.S. cases of Caspi v. Microsoft Network 323 NJ Super. 118; 732 A. 2d 528 (New Jersey Appellate Division, 1999) and Specht v. Netscape & AOL 306 f. 3d 17 in this regard. In addition to claiming that the terms of use lacked contractual effect, the defendants also argued that regardless of the validity of the terms, they did not “use” the plaintiff’s website, the customer did. In this regard, while the defendants may not be the actual customer or person who will sit on the seat in the plane, they are commercial entities who nonetheless engage with the plaintiff’s website for the purpose of gleaning or “scraping” information from it for onward transmission to their own customers. To claim that that activity is not “use” of the plaintiff’s website by the defendants is an exercise in semantics and an unconvincing argument.
In resolving this issue of the validity of the plaintiff’s Terms of Use, the Court has had regard to the traditional contract principles of offer, acceptance and consideration and has asked itself what was the consideration provided in the instant case? The defendants claim there was no consideration, or, for that matter, no acceptance.
Consideration must be provided by the party who seeks to enforce the contract. Here, Ryanair are seeking to enforce their Terms of Use. Ryanair, therefore, must satisfy the Court that they have provided the defendant with consideration. It seems to me that the plaintiff, through their website, offer information for use, subject at all times to their Terms of Use policy, to the users of their website, including the defendants. Although the defendants deny that they use the plaintiff’s website and claim that it is the customer or the consumer who does so, it again seems to be that the defendants accept the offer of information made by the plaintiff when they systematically access the Ryanair website though the screen-scraping mechanism. In my view, the provision of information as to flights and prices of flights by Ryanair on their site, subject at all times to their Terms and Conditions, constitutes a sufficient act of consideration for the purposes of making the contract legally binding.
I therefore find for the plaintiffs on the issue of whether or not a legally binding contract exists in this case, being convinced for the reasons set out above that the Terms of Use constitute a contractual document entered into by the parties and in respect of which consideration was provided by the plaintiff in the making available of the information for use by the defendant.
Is the exclusive jurisdiction clause binding?
As the Terms of Use have contractual effect, it follows from that the exclusive jurisdiction clause contained therein is also binding. In Bravofly, referred to above, Clarke J. made the following helpful observations with regards to exclusive jurisdiction clauses:
“.. it is said a contract in which a jurisdiction clause is located may be held to be voidable or otherwise unenforceable but not the jurisdiction agreement within it. The principles in Benincasa were applied by Laffoy J. in Minister for Agriculture v. Alte Leipziger [1998] IEHC 45, as the fundamental principles which must guide a court in determining issues in relation to jurisdiction clauses under the Brussels Regulation.”
I would therefore find for the plaintiff on this point also.
Was there an assent to jurisdiction?
The plaintiff argued that they do not need to show the existence of a valid agreement at this stage and that once they can show an assent to jurisdiction, then the exclusive jurisdiction clause will have effect. Again, I find for the plaintiff on this point. The defendants used the plaintiff’s website. They access the site and screen-scraping activity is routinely carried out. The information gleaned therefrom is used for a commercial purpose as a result of which the defendant makes a profit or earns a fee. By using the site in this way, the defendants must be taken to have assented to the plaintiff’s website’s Terms of Use. In this case, we are dealing with commercial entities and the existence and effect of the website’s Terms of Use are clear and unambiguous. If you use the site, you agree not to breach its terms and if you do so, the exclusive jurisdiction clause set out in the Terms of Use make is clear that Ireland is the appropriate jurisdiction for the purposes of litigating any disputes that may arise as a result.
Conclusion
The exclusive jurisdiction clause contained in the plaintiff’s website’s Terms of Use was binding on the defendants in circumstances where those Terms were at all times available for inspection by the defendants as users of or visitors to the website, the plaintiff having taken appropriate steps to ensure that the Terms were brought to the user’s attention through their inclusion on the website via a clearly visible Hyperlink. As I have found that the Terms of Use formed a legally binding agreement for the purposes of Article 23 of the Brussels Convention and as the exclusive jurisdiction clause contained therein was at all times available for inspection by the defendants, I would dismiss the application for an order dismissing the plaintiff’s claim for want
Surrey (UK) Ltd v Mazandaran Wood & Paper Industries [
2014] EWHC 3165 (Comm) Mr Justice Eder:
Introduction
This is an application by the defendant (“MWPI”) to set aside the order of Flaux J dated 4 July 2013 granting the claimant (“Surrey”) leave to serve these proceedings out of the jurisdiction and other related relief.
As set out in its Points of Claim, Surrey advances certain claims in relation to contracts allegedly entered into between Surrey (as seller) and MWPI (as buyer) for the sale and shipment from Russia, China and Chile to Iran of wood products (i.e. woodchips, logs and wood pulp) for the manufacture of paper at MWPI’s paper mill in Sari, northern Iran. In particular, as set out in the Particulars of Claim, Surrey claims (i) monies allegedly due in the sum of approximately €105,000 and (ii) damages in respect of alleged repudiatory breaches by MWPI totalling approximately €880,000. In addition, Surrey claims a very large sum by way of interest and also costs. The total claims amount to approximately €3,300,000. MWPI denies any liability to pay the sums claimed inter alia on the basis that (i) Surrey was not party to any contract and therefore does not have title to sue; (ii) there are no sums due or outstanding; and (iii) MWPI was entitled to cancel the orders because the material delivered was not of the agreed specification (and indeed that some of it, for which it paid, was never delivered to Iran at all).
The original application for permission to serve out of the jurisdiction was supported by the first witness statement of Ms Caroline Buchan, a direct public access barrister acting on behalf of Surrey (“Buchan 1”). As set out in that statement, Surrey sought to rely upon three main grounds (“gateways”) in support of the application for permission to serve out viz (i) contract(s) made within the jurisdiction: CPR 6BPD para 3.1(6)(a); (ii) contract(s) governed by English law: CPR 6BPD para 3.1(6)(c); and (iii) breach committed within the jurisdiction: CPR 6BPD para 3.1(7). In the course of the present hearing, Mr Sinai on behalf of Surrey abandoned reliance upon this last “gateway”. In addition, I should mention that although Mr Sinai initially raised an argument that MWPI had submitted to the jurisdiction, this point was also abandoned in the course of the present hearing.
MWPI now seeks to set aside the order of Flaux J on the following grounds:
i) Surrey breached its duty to be full and frank in the presentation of its ex parte application for permission to serve out;
ii) Surrey failed to serve the proceedings validly pursuant to CPR Part 6 and/or as a matter of Iranian law;
iii) Surrey lacks title to sue because the contract(s) was/were concluded between MWPI and Mr Afkhami (a.k.a. “James Wilson”) under the trading style “Lignum”, without any mention ever having been made of Surrey; and
iv) in any event, the English Court:
a) does not have jurisdiction to hear Surrey’s claims; or
b) should not exercise any jurisdiction it may have because Surrey (which bears the burden) cannot show that England is clearly or distinctly the appropriate forum (because Iran is).
MWPI’s application was issued on 28 October 2013 and was supported by a statement of Mr Kamran Mohseni Yekta, who is the Commercial Deputy Managing Director of MPWI and Professor Amir Hosseinabadi, a former judge in Iran and an expert on Iranian law. Thereafter the parties have exchanged a very considerable amount of factual evidence and also evidence on Iranian law.
In this mass of evidence, there is much in dispute which cannot be resolved on this application. For present purposes, it suffices to note that Surrey is a company incorporated in England and Wales on 31 July 2002. It was dormant until June 2004, during which time its sole director was Mr Ali (Alex) Afkhami. He was born in Iran and is of Iranian nationality although it is said that he is the holder of a UK passport. He is married to Ms Tracy McCarthy, now Surrey’s sole director. In correspondence with MWPI at the material times, Mr Afkhami used the pseudonym “James Wilson”. Mr Pillow submitted that the role played by Mr Afkhami is central to the issues of contract negotiation and formation and that, as far as MWPI was concerned, he was to all intents and purposes the face of “Lignum” in their dealings together. Surrey asserts that Mr Yekta knew that “James Wilson” was Mr Afkhami; but this is denied by Mr Yekta. MWPI also asserts that Ms McCarthy corresponded for Lignum with MWPI under the pseudonym “Jane Allen”, never revealing that she was (as is the case) the sole director of Surrey.
According to the evidence, it appears that Surrey was struck off the company register and dissolved in 2011 but restored shortly afterwards. Its registered office is now in Upper Richmond Road in London although it is MWPI’s case that this is no more than a “mailbox” or “brass plate” above a shop in that road; that, at the time, whilst that address was given on Lignum’s notepaper and emails etc., Surrey’s registered office was an apparently residential address in Farnborough; that the other UK addresses associated with it in the evidence are similarly just mailboxes in shops on other London high streets; that although Surrey asserts that “Lignum” is its “registered” trading name, its “registration” with a commercial provider of business services is of no legal status or significance; and that in any case this “registration” was not communicated to or known of by MWPI.
MWPI is a private company incorporated in Iran which has since 1997 run a paper mill in Sari, in northern Iran, producing a variety of paper products using two industrial paper machines. Its turnover is above US$50 million p.a. According to Mr Yekta, it regularly concludes international supply contracts; and it has not previously been subject to any international court proceedings nor held to have been in default of any of its payment obligations.
What appears to be uncontroversial is that in the course of 2008-2009, Mr Afkami (or his alter ego Mr Wilson) trading using the style “Lignum” entered into one or more contract(s) with MWPI, pursuant to which MWPI placed orders to purchase from “Lignum” viz (i) 12,000mt of woodchips (the “Woodchip Order”), to be procured from a supplier in Singapore/China and shipped to MWPI in Iran; (ii) 25,000m³ of logs (the “Logs Order”), to be procured from a supplier in Russia and shipped to MWPI in Iran; and (iii) in substitution for the Logs Order, 5,500mt of unbleached softwood Kraft wood pulp (the “Pulp Order”), to be procured from a supplier in Chile and shipped to MWPI in Iran. Although Surrey’s pleaded case appears to be that there were three separate contracts, Ms McCarthy’s own evidence is that the second and third orders (for logs and pulp respectively) “were essentially repeat orders or a continuation of the existing contractual relationship”. On MWPI’s side, it is said that there was a single “framework” contract whose essential elements were agreed in telephone calls between Mr Afkhami and Mr Yekta whilst they were both in Iran in late 2007 or early 2008 and that even if further details needed to be worked out at a later stage, they were sufficient to conclude a contract: see e.g. Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601. There was some debate about the true nature of the contract(s) – in particular whether they were properly characterised as CFR contract(s). However, I did not understand Mr Sinai to dispute that the contract(s) involved at least certain obligations with regard to physical delivery of the goods in Iran; and, for present purposes, this point does not appear to be crucial.
In any event, it appears to be largely common ground that seven shipments of woodchips (totalling just 2,054mt) and one shipment of pulp (2,000mt) were indeed delivered to Iran and paid for by MWPI against Lignum’s invoices. Two further shipments of woodchips (supposed to total 1,100mt) were paid for by MWPI (following Lignum’s presentation of a bill of lading consigned to MWPI’s order and confirmation that they had been despatched and were en route) but were never in fact delivered to MWPI. The documents show that following delivery of certain of these shipments, MWPI raised various complaints with regard to quality and, on that basis, made certain deductions. Subsequently, MWPI refused to accept certain further shipments and, in effect, cancelled the outstanding shipments. In broad summary, that is the background to the present disputes.
Against that background, I turn to consider the main issues which arise on the present application – although it is convenient to address them in a slightly different order to that set out above.
Title to sue
In summary, Mr Pillow on behalf of MWPI submitted that MWPI never entered into any contracts with Surrey. This issue is potentially relevant for two reasons. First, it is relevant to the first “gateway” relied upon by Surrey i.e. if Surrey never entered any contracts with MWPI, then it cannot show any relevant contract having been “made” by Surrey. Second, it is relevant to the question as to whether Surrey has established a serious issue to be tried. These two aspects overlap. In any event, as to this issue, it is common ground that in order for Surrey to succeed on this application, the burden lies on it to show that it has a “good arguable case”; that this connotes more than a serious issue to be tried or a real prospect of success, but not as much as balance of probabilities; and that, in other words, Surrey must show that it has the “better argument” that it was the contracting party with MWPI.
On behalf of Surrey, Mr Sinai submitted that there could be no doubt that “in practice”, the contracting party with MWPI was indeed Surrey since it had registered Lignum as a trading name, processed the orders, paid suppliers, arranged delivery, received payments into its bank accounts and included its sales in the company’s statutory accounts for the year end 2009; and Surrey’s accounts for 2012 and 2013 state that it continues to pursue a claim against the client for lost revenue and breach of contract. Further, Mr Sinai relied on the evidence of Ms Buchan and Ms McCarthy that in November 2008, Surrey sent to MWPI its printed standard terms and conditions (“T&Cs”) which referred specifically to Surrey. In addition, Mr Sinai submitted that Mr Yekta’s own evidence makes plain that he negotiated the contracts with Mr Afkhami in the latter’s capacity as representative and “owner” of a limited liability family company controlled by Mr Afkhami and his wife, Ms McCarthy; that such evidence leaves no room for arguing that he (Mr Yekta) was misled into believing that he was contracting with Mr Afkhami personally; that in circumstances where MWPI’s own evidence is that all the contractual terms were agreed orally during telephone conversations, the conflict in the evidence cannot be resolved on a summary paper application; that MWPI’s case that it did not contract with Surrey needs to be tested at trial; and that the highly divergent evidence must be resolved by oral evidence.
As to these submissions, I readily accept that the Court should not seek to resolve disputed issues of fact on this application. However, as Mr Sinai accepted, the burden remains on Surrey to show, at the very least, that it has the “better argument”. Here, Mr Pillow submitted that Surrey failed to satisfy that burden. In support of such submission, Mr Pillow relied, in particular, on the following points:
i) The question is ultimately an objective one: see the Court of Appeal’s decision in Muneer Hamid (t/a Hamid Properties) v Francis Bradshaw Partnership [2013] EWCA Civ 470, in which Jackson LJ set out the principles as follows (at §57):
“…ii) In determining the identity of the contracting party, the court’s approach is objective, not subjective. The question is what a reasonable person, furnished with the relevant information, would conclude. The private thoughts of the protagonists concerning who was contracting with whom are irrelevant and inadmissible.
…
iv)Where the issue is whether a party signed a document as principal or as agent for someone else, there is no automatic relaxation of the parol evidence rule. The person who signed is the contracting party unless (a) the document makes clear that he signed as agent for a sufficiently identified principal or as the officer of a sufficiently identified company, or (b) extrinsic evidence establishes that both parties knew he was signing as agent or company officer….”
ii) The name “Surrey (UK) Limited” – or even any less complete or accurate version of it – appears nowhere in any of the documents admittedly sent and received between the parties, at least prior to Ms Buchan’s involvement in the dispute in January 2013, long after the contract(s) had been formed and come to an end. If Surrey were in truth the contracting party as it now claims, both it and its director, Ms McCarthy, have committed a series of criminal offences under sections 349 and 351 of the Companies Acts 1985 and sections 83 and 84 of the Companies Act 2006 by failing to give its name and relevant particulars on its commercial documents, website etc.
iii) In any event, neither Surrey’s own evidence nor the contemporaneous documents begin to prove to the requisite standard that Surrey, the English limited company, was MWPI’s contracting counterparty (or indeed that Mr Afkhami, whether in his own name or as Mr Wilson, was authorised to act for that company, e.g. when ‘signing’ letters or invoices). Instead Lignum’s contemporaneous documents are on notepaper headed simply “Lignum” or in emails with signatures referring to “Lignum” or “Lignum Group”, in each case bearing the address of Unit 260, 210 Upper Richmond Road, SW15 (which was not Surrey’s registered address at the material times). Although some of the pro-forma invoices (but not the first) purport to come from Mr “Wilson” of “Lignum Company”, the commercial invoices simply refer to and are signed on behalf of “Lignum”; and there is no mention of anyone being a “director” of any entity until August 2010, when Ms McCarthy referred to herself as a director (albeit of “Lignum”) when sending a summary of the claim to MWPI.
iv) Particularly notable in this regard are the following factors:
a) First, nowhere was it said in Buchan 1 when, how, or by whom MWPI was told of the existence of Surrey, or that it was the party that MWPI was being invited to contract with – and despite having now served lengthy evidence from Ms McCarthy (and Mr Afkhami’s statements), it is still not said by Surrey that its existence, or the fact that Mr Afkhami/Wilson was supposedly acting for it, was told to MWPI.
b) Second, on Surrey’s own evidence, its existence and name appeared for the first time in the T&Cs, claimed to have been sent to MWPI in November 2008. This is hotly disputed by MWPI; but, in any event, Mr Pillow submitted that, even on Surrey’s own case, the main contract(s) were made earlier than this date.
c) Third, even the first letter before action, written by Lignum’s then English solicitors, M. Taher & Co., identified “Lignum” as their client and made no reference to Surrey. It was only in the first letter from Ms Buchan, dated 9 January 2013, that it was asserted that Surrey was the claimant.
d) Fourth, Surrey was struck-off and dissolved in November 2011 when, the Court is now told, it had a multi-million € claim against MWPI. This is hardly consistent with a belief at that time that Surrey had really been the contracting party.
e) Fifth, Surrey’s contemporaneous statutory accounts do not include any reference to moneys being owed under the contracts now sued upon (the amount stated to be owed to the company by its debtors is far lower, and remains virtually static throughout); and the explanation given by Ms McCarthy is inadequate.
Although Mr Sinai appeared at one stage of the argument to accept that the test was an objective one, he submitted that the decision of the Court of Appeal in Hamid was distinguishable; that there was sufficient in the evidence before the Court to show that Surrey had the “better argument” that both as a matter of objective intention and authority, Mr Afkhami was not acting personally but acting on behalf of a limited company; that “Lignum” was obviously a trading name for Surrey; that Surrey was therefore properly to be regarded as the contracting party; and that, at the very least, the relevant test was satisfied even if Surrey had never been mentioned as such during the relevant period and regardless of the T&Cs.
As to these submissions, I do not consider that Mr Sinai gains much, if any, assistance by the evidence submitted on behalf of Surrey that the T&Cs referring to Surrey were sent to MWPI in November 2008. In particular, it is important to note that the T&Cs as allegedly sent to MWPI at that time refer to Surrey’s “registered office” as being at 210 Upper Richmond Road. However, the company records show that that was not Surrey’s registered office at that time and that it was only much later i.e. on 17 June 2010 that this address became the registered office of Surrey. This is inconsistent with the T&Cs having been sent to MWPI in November 2008. Further, although the consignment note of the package sent to MWPI in November 2008 specifically identifies certain documents, it does not refer to any T&Cs. All of this strongly undermines the evidence submitted on behalf of Surrey. Although, of course, I cannot determine this issue on this application, it seems to me that, at the very least, Surrey falls far short of showing that it has the “better argument” with regard to the T&Cs.
If that is right and in the light of Hamid and the fact (as was common ground) that there was never any reference to Surrey which “crossed the line”, the conclusion I have reached is that Surrey has failed to show the “better argument” that it was a contracting party. This conclusion is fatal to Surrey’s position on this application. However, in the event I am wrong, I turn to consider the other issues.
Contract(s) made within the jurisdiction
I confess that I found this part of Surrey’s case particularly difficult to understand.
In essence, Mr Sinai submitted that the contract(s) relied upon were all “made” in England because that is the place where “acceptance” was received by Surrey. In that context, he relied upon the decision of the Court of Appeal held in Entores Ltd v Miles Far East Corp [1955] 2 QB 327 (CA) that where a contract is made by instantaneous communication (such as by telephone, fax or e-mail), the contract is complete only when the acceptance is received by the offeror. The decision was approved by the House of Lords in Brinkibon v Stahag Stahl und Stahlwarenhandels GmbH [1983] 2 A.C. 34. For present purposes, Mr Pillow was prepared to accept that this principle applied to the communications in the present case.
Relying upon this principle, Mr Sinai then carried out a detailed analysis of the various “instantaneous communications” in the present case. Mr Pillow submitted that such analysis was, in significant part, inconsistent with the original Points of Claim and the Part 18 Replies served by Surrey. Be that as it may, as set out in his skeleton argument, Mr Sinai submitted that the contractual relationship between the parties commenced with the order for woodchips; that Surrey as offeror sent its pro-forma invoice of 1 April 2008 which expressly stated that it looked forward to receiving MWPI’s favourable reply; that MWPI communicated its “acceptance” by fax and e-mail inter alia on 17 April 2008, 11, 16, 23 and 24 June 2008, 6 September 2008 and 19 October 2008; and that “acceptance” of the contracts for the supply of logs and pulp were also communicated to Surrey in London respectively on 29 October 2008 and 11, 12 and 15 December 2009. This analysis was further expanded by Mr Sinai in the course of his oral submissions. However, even ignoring for present purposes that none of these communications was on their face with Surrey and the evidence submitted on behalf of MWPI, I do not consider that this analysis ultimately assists Mr Sinai. I do not propose to set out in detail the exercise carried out by Mr Sinai. For present purposes, it is sufficient to state that although certain of the communications relied upon by Mr Sinai were indeed received in England, none of such communications can, in my view, properly be regarded as an “acceptance” in any legal sense. At best, such communications were either “invitations to treat” or “counter-offers”. It is fair to say that in some instances it is not entirely clear to me exactly how, when or where the contract(s) were ultimately “made”. However, I am unpersuaded that Surrey has the “better argument” that any of the instantaneous communications received in England and relied upon by Mr Sinai constituted an “acceptance” of any contract. It follows that, in my view, Surrey has failed to establish that it has the “better argument” that any of the contracts relied upon in these proceedings were “made” in England.
Contract(s) governed by English law
In support of this “gateway”, Mr Sinai relied upon two main arguments.
First, Mr Sinai submitted that the contract(s) were expressly governed by English law by virtue of the T&Cs. It is right that the T&Cs expressly provide for English law. However, for the reasons stated above, Surrey has failed to show that it has the “better argument” that the T&Cs were incorporated in the contract(s).
Second, Mr Sinai relied upon Article 4 of the Rome Convention 1980, implemented in the UK by the Contracts (Applicable Law) Act 1990. In particular, Mr Sinai, submitted, in summary, as follows:
i) In the absence of choice, Article 4 in effect provides in material part that the contract shall be governed by the law of the country with which it is most closely connected; that it is presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a corporate body, its central administration. However, if the contract is entered into in the course of that party’s trade or profession, that country shall be the country in which the principal place of business is situated.
ii) The policy behind the rule was explained in the Report on the Convention prepared by Professors Giuliano and Lagarde and is set out in Dicey, Morris & Collins on The Conflict of Laws, 14th Edition (“Dicey”) para 32-113. The characteristic performance is not the obligation to pay, but the service for which payment is made (Dicey, para 32-116). In international sale of goods, the Claimant as supplier performs the obligation which is characteristic of the contract; this is reflected in Rule 213 of Dicey (paras 33-112 & 33-113). At the time when the contract was concluded, Surrey’s registered office, central administration and principal place of business were in the UK.
iii) This presumption can be displaced if the circumstances as a whole indicate that the contract is more closely connected with another country. As explained in Dicey (32-125), the circumstances must clearly show the existence of connecting factors with another country. In particular, as stated by the Court of Appeal in Samcrete Egypt Engineers and Contractors SAE v Land Rover Exports Ltd [2002] CLC 533 [45], the presumption should only be disregarded in circumstances which clearly demonstrated the existence of connecting factors which justified disregarding the presumption.
iv) In the present case, Surrey performed the contract in the UK where it has its place of business. It is important to note that the obligations to take delivery of the goods or to pay are not presumed to be characteristic of sale of goods contracts. To displace the presumption on the basis thereof, without more, would defeat the policy of the Convention set out in statute. In any event, it is common ground that the agreed place of payment was in the UK.
Mr Pillow disputed these submissions on two main grounds.
First, Mr Pillow submitted that Surrey has only a ‘brass plate’ presence here and that its real management was located wherever Mr Afkhami and his laptop or Blackberry happened to be at any particular moment. Mr Pillow may be right in that submission. However, for present purposes, I propose to assume in favour of Surrey that its central administration is in England. It follows that for present purposes I accept that the effect of Article 4.2 is to create a presumption that the contracts in question here are most closely connected with England.
Second, Mr Pillow submitted that, in any event, the presumption does not apply by virtue of Article 4.5 which provides, in effect, that the presumption in Article 4.2 shall be “…disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.” In particular, Mr Pillow submitted that the contract(s) here were more closely connected with Iran for the following reasons:
i) The real substance of the contracts – which had been negotiated between Iranians (Yekta/Afkhami) – consisted in the sale and shipment of goods from Russia, China or Chile in each case for delivery to Bandar Abbas in Iran. This has nothing to do with England at all.
ii) As set out in Fawcett, Harris and Bridge, International Sale of Goods in the Conflicts of Laws (OUP, 2005) (“Fawcett”) – at §4.124:
“….[U]nder the Rome Convention when it comes to determining the applicable law in the absence of choice by the parties, the place of delivery is the most important factor…”
This point is repeated at §13.129 at footnote 293 in particular in the context of the situation where the obligations of the parties are to be performed in different states, citing Benaim v Debono [1924] AQC 514 and NV Handel Maatschappij J Smits v English Exporters (London) Limited [1955] 2 Lloyd’s Rep 317.
iii) Equally, if (as is sometimes said) the essence of CFR sales such as those in the present case is the tendering of the shipping documents for payment, then this would also unequivocally point to Iran because there can be no doubt that Lignum’s obligation was to tender the documents to MWPI in Iran.
iv) On the other hand, the only connections to England are technical and insubstantial, such as the place of incorporation of Surrey, its brass plate mailboxes, and its bank account.
v) This case is therefore comparable to Definitely Maybe (Touring) Ltd v Marek Lieberg Konzertagentur GmbH [2001] 1 WLR 1745, in which the claimant was the party who effected characteristic performance and was located in England, raising the presumption of English law in Article 4(2); but the real performance (a concert by the band represented by the claimant) was to occur in Germany, and the only connections with England were the location of the claimant and the place of payment. The “centre of gravity” of the case was held to be in Germany, to which the contract was therefore most closely connected.
These submissions were hotly disputed by Mr Sinai. In particular, Mr Sinai submitted that the views expressed in Fawcett were based on the old common law and gave insufficient weight to the basic presumption under Article 4.2. It is fair to say that no modern authority is cited by the editors of Fawcett to support the views there expressed; and I readily accept Mr Sinai’s submission that in accordance with the approach stated by the Court of Appeal in Samcrete, the presumption should only be disregarded in circumstances which clearly demonstrate the existence of connecting factors which justify disregarding the presumption. Further, it seems to me inappropriate to lay down any general rules: each case must turn on its own facts. However, having regard to the circumstances of the present case viewed as a whole as referred to above, it is my conclusion that these contracts are more closely connected with Iran than with England. It follows that in the particular circumstances of the present case, the conclusion I have reached is that in accordance with Article 4.5, the presumption in Article 4.2 is to be disregarded and that pursuant to Article 4.1, the contracts are not governed by English law but by the law of Iran. For the avoidance of doubt, I have reached this conclusion as a matter of English law applying the Rome Convention. Whether or not the courts of Iran would reach the same view, I do not know. However, both Mr Sinai and Mr Pillow agreed that this was not relevant.
For these reasons, it is my conclusion that Surrey does not bring itself within this gateway.
Given that I have also rejected the only other gateway now relied upon by Surrey, it follows that I would set aside the original order granting permission to serve out. However, if I am wrong, I go on to consider the related questions of forum conveniens and discretion.
Forum Conveniens/Discretion
In this context, the applicable principles were agreed viz the over-arching principle was that stated in Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460, 475-478, namely:
“… to identify the forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice … The burden of proof rests on the [claimant] to persuade the court that England is the appropriate forum for the trial of the action, but he has to show that this is clearly so.”
Thus, if the Court is not satisfied at the end of the day that England is clearly the appropriate forum, then permission to serve out must be refused or set aside: see VTB Capital plc v Nutritek International Corpn [2013] 2 AC 337 at [18] and CPR 6.37(3).
In support of Surrey’s case that England is clearly the appropriate forum, Mr Sinai relied in particular upon the following factors as set out in his skeleton argument and elaborated in his oral submissions:
i) England is Surrey’s domicile, the place where Surrey was contacted and orders placed, where the contracts were concluded and performed by Surrey, and where payment was made by MWPI.
ii) All the contractual documentation as well as the contemporaneous communications between the parties are in English and are located in England. All the relevant employees of MWPI speak English and wrote to Surrey at the time in English. Their witness statements served as part of this application have not been translated. If the case is tried in Iran, all of the correspondence and contractual materials will have to be translated into Farsi from its original language. The amount of contractual and contemporaneous documentation placed before the Court at this interlocutory hearing gives an indication of the amount of translations which will have to be produced.
iii) According to the evidence of MWPI’s own expert, there is a chance that English law is applicable to the contract under Iranian conflict rules and will have to be proven by way of expert evidence. There are therefore real prospects that the Iranian Courts will have to resolve complicated questions of English law relating to sale of goods law, formation of contracts etc., including statutory and common law rules with which as a civil system they are not familiar. It is also not clear how much experience of commercial law the relevant Iranian courts have; Surrey’s evidence is that MWPI’s mill is located in a small rural coastal area historically concerned with fishing and agriculture. It is obviously preferable for English law to be applied by an English Judge.
iv) Surrey and its officers will also lose two juridical advantages presented to them by the English system if the case is stayed in favour of Iran:
a) First, MWPI’s expert accepts that the cost of issuing the claim in Iran is 2% of the claimed amount. This is a substantial figure which does not have to be paid in England and this right will be lost by Surrey. The Court may refuse to stay the English proceedings if the same costs advantages are not available in the foreign forum (for example where costs are not awarded on a realistic basis: The Vishva Ajay [1989] 2 Lloyd’s Rep. 558);
b) Second, MWPI has stated that it intends to pursue personal claims against Surrey’s officers as part of any Iranian proceedings. Given that the United Kingdom has no international treaty on jurisdiction and the enforcement of judgments, Surrey’s officers have a common law right not to submit to the jurisdiction of the Iranian Courts. This right will be lost if Surrey’s officers are subjected to the jurisdiction of the Iranian Courts as part of proceedings pursued by Surrey.
v) According to Mr Yekta, MWPI is the largest manufacturer of paper from pulp in the Middle East and its annual turnover since 1997 has consistently been above USD 50m. Unlike Surrey (which, I was told has no or only limited assets), MWPI therefore has very significant resources which can be deployed for the purposes of conducting litigation in this country, which is the place where it chose to place orders. There is no evidence suggesting that MWPI’s witnesses are unable to travel to England for the trial, and in any event this Court can make reasonable adjustments such as obtaining evidence via video link.
vi) There are no good reasons why this case cannot be tried in England, or alternatively is better tried in Iran. MWPI’s response evidence seeks to strengthen this limb of its application with reference to the alleged breach in providing defective goods and the need to obtain evidence from 6 witnesses. However it is not said why evidence is required from these witnesses and what they intend to say. On the contrary, the evidence of Mr Mehdi Yousefian is that he has been able to compile evidence from contemporaneous results and reports prepared by these persons. Mr Yousefian is a former Production Manager and at the relevant time, he was the Managing Director of Industrial Affairs. There is no reason to believe that Mr Yousefian (who has served an untranslated witness statement) lacks personal knowledge of the issues and cannot give all the relevant evidence including matters reported to him by persons under his supervision.
vii) Furthermore, MWPI processed all the goods in its mills. The only available evidence is the alleged contemporaneous notes and reports prepared by MWPI itself. It is not explained (and is difficult to see) what useful further oral evidence 6 other junior employees can give about events that occurred 6 years ago. The fact that all the goods have been processed is an important point. MWPI’s case in respect of the defective goods, and any counterclaim that it wishes to pursue, will have to be tried (whether in Iran or in the UK) solely on the basis of the available documents/results and expert’s reports. Importantly, these results have already been translated by MWPI and served as part of its response evidence. The only other person who might have some peripheral evidence to given in respect of the array of issues raised by MWPI is the third party called Mr Ali Ghamsari. However he appears to have had no involvement with the substantive issues, other than acting as an introducer. MWPI does not state that any evidence will be required from Mr Ghamsari. In fact, Mr Yekta’s own evidence is that Ghamsari does not want to give evidence. There is also nothing to suggest that Mr Ghamsari cannot attend an English trial.
viii) MWPI’s expert on Iranian law appears to accept that the pace of litigation in Iran is hampered by a substantial number of court holidays, some of which are unannounced. Surrey’s expert also states that delaying tactics through dilatory measures is a feature of Iranian litigation, and this is not expressly rejected by Professor Hosseinabadi. Indeed, given that he does not appear to have as much current experience of day to day litigation, he is not in a position to contradict the evidence of Surrey’s expert. The Court may refuse to grant a stay if there is substantial evidence indicating that trial in the foreign forum may be delayed for many years: The Vishva Ajay [1989] 2 Lloyd’s Rep. 558.
ix) On all accounts, MWPI is a major player in Iran with a large market share in its field and powerful shareholders. The Court is being asked to refuse jurisdiction, notwithstanding that it has been properly seized by an English supplier, in favour of a country which has strained relations with the international community, a legal system with which this country is not very familiar, has no international agreement on civil litigation with the UK and no current diplomatic relations.
I should deal with this last point first in particular because it proceeds on a premise which, in my view, is fundamentally false viz it is quite wrong to say that this Court is being asked to refuse jurisdiction when the jurisdiction of this Court has been properly seized. On the contrary, the question currently before the Court is whether or not it should exercise jurisdiction over a foreign party; and, consistent with the Spiliada, this Court will only exercise such jurisdiction if England is clearly the appropriate forum for the trial of the action.
I should also deal at the outset of considering this part of Mr Sinai’s case with the suggestion that a trial in Iran would be unfair for a variety of reasons. I readily accept that this is a potentially relevant factor: see the discussion in Dicey paras 12-040 to 12-041 and the cases there cited. However, there is no independent evidence to support such suggestion; and, in my view, such evidence as there is falls far short from what would be necessary, even in general terms, to give this any real weight. As to the evidence concerning delays in the judicial system in Iran including alleged excessive “holidays”, it seems to me that such evidence is, at best, tenuous. Sad as it may seem, any system of justice inevitably involves some delays. It is perhaps noteworthy and certainly regrettable that this hearing concerning jurisdiction took place over a year after the original Claim Form was issued. On the material available, it is quite impossible to carry out a proper comparison of the likely overall timescale of court proceedings.
As to the two alleged “juridical advantages”, the points relied upon by Mr Sinai are, in my view, of little weight in the particular circumstances of the present case. With regard to the 2% initial fee, it is not clear to me whether this applies to the principal amount (in which case the fee would be the equivalent of approximately €20,000 or (say) £18,000) or the total amount including interest (in which case the fee would be the equivalent of approximately €75,000 or (say) £65,000). Although such size of fee would not be required on issuance of any claim in England, Mr Pillow submitted that it was not unusual. In any event, on the assumption that this constitutes a juridical advantage, it is difficult, if not impossible, to evaluate its significance without having regard to other matters e.g. other legal costs to the end of proceedings and whether or not Surrey would have to put up security for costs. If these proceedings were fought out in England, I would think that the legal costs that Surrey would incur would be substantially higher than these figures. The evidence as to the comparable costs in Iran was disputed.
With regard to the point that if Surrey submitted to the courts in Iran, MWPI may pursue personal claims in Iran against Surrey’s officers, Mr Pillow made plain that if the present proceedings were to continue in England, MWPI would similarly pursue personal claims against Surrey’s officers. On that basis, it seems to me that this point has little weight either way.
Turning then to the other specific points relied upon by Mr Sinai and at the risk of repetition, it is important to bear in mind that the essential task is to identify the forum in which the case can be suitably tried for the interests of all parties and for the ends of justice; and, in that context, I would repeat what I said in Mujur Bakat Sdn Bhd v Uni Asia General Insurance Berhad, Mujur 1 [2011] EWHC 643 (Comm), at para 9 viz that in considering whether or not England is the most appropriate forum, it is necessary to have in mind the overall shape of any trial and, in particular what are, or what are at least likely to be, the issues between the parties and which will ultimately be required to be determined at any trial.
Thus, the mere fact that Surrey is incorporated in England is, in my view, of little, if any significance. In any event, whatever significance it may have is, in effect, cancelled out by the fact that MWPI is domiciled in Iran.
Here, it seems to me plain that the main issues that will arise in any trial will be the quality of the goods supplied to MWPI and the losses and other consequences resulting therefrom including (i) diminution in value and (ii) the problems allegedly caused to MWPI’s production processes. As submitted by Mr Sinai, it is right that these matters are summarised by Mr Yousefian in his statement for the purposes of the present application. However, contrary to the underlying thrust of Mr Sinai’s submission, I do not accept that it is realistic to suppose that this is the full extent of the evidence that MWPI would wish to adduce at trial. On the contrary, although Mr Yousefian was, at the relevant time, the Deputy Managing Director for Industrial Affairs, it is his evidence that the persons whom MWPI would wish to testify at any trial in relation to the quality of the woodchips are the 6 individuals he identifies in paragraph 4 of his statement – all of whom, I should say, appear not to be “juniors” but rather to have been employed by MWPI for a considerable period. In my view, that seems unexceptionable. As Mr Yousefian also states, although these individuals speak “some English”, they would testify in Farsi. In addition, although Mr Yousefian summarises the results of certain “tests” with regard to the quality of the goods delivered in Iran, he makes plain that these are extracted from contemporaneous reports. It is not clear how extensive such documentation might be; and I accept that Mr Yousefian does not say specifically whether such documentation is in English or Farsi. However, quite apart from the documents relating to quality inspections, it is plain that the matters addressed by Mr Yousefian in paragraphs 23-32 of his statement would give rise to potentially difficult factual issues concerning MWPI’s production processes in one or more of its factories in Iran. I accept, of course, that this Court has very considerable experience of dealing with issues of this kind. However, in my view, it is quite impossible to say that England is the appropriate forum for the determination of such issues in this case – still less that it is “clearly” the appropriate forum.
On Surrey’s side, I accept that issues in any trial will include questions relating to title to sue and contract formation which I have already addressed above; and, in that context, I accept that Surrey may wish to call some evidence from Mr Afkhami and Ms McCarthy. However, I am very doubtful as to what, if any, evidence any of Surrey’s witnesses might give with regard to the main issues summarised above relating to quality and alleged production losses by MWPI. In particular, it does not appear that Ms McCarthy (or any other witness on Surrey’s side) would be able to give any direct evidence with regard to the quality of the goods on delivery in Iran – although Mr Sinai submitted that she would, at the very least, be able to give evidence with regard to this topic based on what she was told by Surrey’s suppliers. Mr Sinai said that Ms McCarthy could perhaps give evidence as to what Surrey were being told by MWPI at the time – although it would seem that the contemporaneous exchanges will speak for themselves. In any event, it seems to me that whatever preference or convenience there may be in Surrey’s witnesses giving their evidence in English in this Court is outweighed (or at least balanced) by the preference or convenience of MWPI’s witnesses giving their evidence in Farsi in Iran. Equally, it seems to me that any cost of having to translate documents into Farsi if the trial takes place in Iran has to be balanced against the cost of having to translate MWPI’s documents into English if the trial takes place here.
I accept that where English law governs the contract and issues may arise which involve any novel, complex or undecided issue of English law, this would be a significant factor pointing in favour of England as the appropriate forum. However, as stated above, I am not persuaded that Surrey has the “better argument” that English law applies. In any event, apart possibly from title to sue, the main issues are unlikely to give rise to any novel or complex issue of law – so whatever chance there may be that English law might be held to apply is, in my judgment, of rather lesser significance than might otherwise be the case.
Standing back and looking at all these points together, it is my conclusion that Surrey has failed to show that England is clearly the appropriate forum; and, if I am wrong on “gateways”, I would have set aside the order granting permission to serve out for this reason.
Breach of duty to be full and frank
As set out above, Mr Pillow submitted that the order of Flaux J should be set aside because Surrey breached its duty to be full and frank in the presentation of its without notice application for permission to serve out. In particular, Mr Pillow submitted that Buchan 1 failed to mention and occasionally positively misrepresented a litany of material matters relevant to the question of title to sue, to the dispute’s many substantial connections to Iran and to whether Surrey had a good arguable case, or much the better argument, on the various jurisdictional gateways. In his skeleton argument, Mr Pillow listed, by way of example, no less than 21 instances of such conduct. In the event, I do not consider that it is necessary to consider each of these complaints in detail. For present purposes, it is sufficient to say that, in my view, most of such criticisms are valid. In particular, it seems to me that Buchan 1 was seriously deficient in a number of significant respects most notably (i) the failure properly to deal with the question of title to sue; (ii) the assertion that the shipments made prior to the receipt of the T&Cs were only “trial shipments” with the actual contracts then being “… made in England … in accordance with the [Surrey’s T&Cs] which had been delivered on 2nd November 2008 …”; (iii) the failure to disclose that the only contemporaneous “evidence” of the T&Cs being communicated to MWPI omits to list the T&Cs as being contained in the relevant package of documents and that, otherwise, Surrey was never identified as a contracting party or otherwise referred to at all during the relevant period; and (iv) the failure to explain fairly and properly the complaints raised by MWPI with regard to the quality of the goods delivered and the issues relating thereto in any trial which were highly relevant in considering whether England was clearly the appropriate forum and, therefore, the exercise of the Court’s discretion.
It is convenient to take this opportunity of reminding all parties and their representatives involved in litigation in this Court of the paramount importance of complying with the duty to be full and frank in all without notice applications. It important not merely for the efficient conduct of business but also to enable the Court properly to fulfil its overriding function and duty of doing justice.
Mr Sinai submitted that the complaints made by Mr Pillow were unjustified but that, if there had been any failure to comply with the duty of full and frank disclosure, he apologised to the Court. However, it is my conclusion that the deficiencies in Buchan 1 are so serious as to justify the original order being set aside for that reason alone. I accept, of course, that in certain cases the Court may nevertheless allow the original order to stand or make a new order granting permission to serve out. However, it is unnecessary to consider either of those possible options here because I have already concluded that the order should be set aside for one or more of the reasons already stated above.
In the course of argument, Mr Pillow invited me to conclude that the deficiencies in Buchan 1 were deliberate in the sense that they were deliberately intended to mislead the Court. However, I am not persuaded that it would be appropriate to express any concluded view in that regard; and I say nothing more on that point.
Invalid service
As stated above, Mr Pillow raised a point that the proceedings had never been validly served in Iran. In the event, this point has fallen away and it is unnecessary to say anything more about it.
Conclusion
For these reasons, it is my conclusion that the Court should refuse to grant permission to serve these proceedings out of the jurisdiction and that therefore the order of Flaux J must be set aside. Counsel are accordingly requested to seek to agree an order including costs and any other consequential matters. Failing agreement, I will deal with any outstanding issues.
Midasplayer.Com Ltd v Watkins
2006] EWHC 1551 (Ch)
HIS HONOUR JUDGE NORRIS QC:
Midasplayer.com Limited operates an online Internet skilled gaming site. It uses the vehicles of King.com and Midasplayer.com. The games in which registered players participate are games of skill. They do not involve gambling. According to the evidence King.com is the largest skilled gaming site hosting some 50 million games every month. The structure of the business is such that a visitor can visit any King.com game site and play the game for free without having to become a member. But if a participant wishes to win prize money then that participant must register as a member and can then open an account. This is credited as soon as the participant is registered and can be topped up by debits from the participants’ credit or debit cards to provide the prize money for the separate tournaments in which the registered member participates as a gamer.
When a visitor accesses the King.com site the visitor is provided with a set of terms and conditions. Clause 1 of the terms and conditions is in these terms so far as material:
“By registering for the King.com Service, you agree to the terms of this Agreement, and you re-affirm that agreement every time you use it. Visitors to the King.com Service who do not register to become a Member … similarly affirm that they are bound by this Agreement each time they access the King.com Service.”
Accordingly, a visitor has the status of a licensee who is permitted access to the site on the terms stated in the terms and conditions. A member is contractually bound to King.com to observe the terms and conditions in order to become entitled to the prize money payable under the games supervised by King.com.
Paragraph 2 of the terms and conditions sets out the nature of the service provided. It is in these terms:
“The King.com Service provides its Member with the ability to play the games we provide here and to participate in tournaments with other Members. Our games are, in fact, games of pure skill; there is no chance element to them. Thus, when participating in a tournament with other Members, it is your speed and skill in playing the game that is assessed against other Members, and the winner will be the Member who, through skill and judgment, scores the most points in the relevant game.”
Paragraph 9 of the terms and conditions provides:
“Members may not use unfair methods on the King.com Service. Any technique which facilities a Member to deploy anything other than pure skill in the conduct of a game is unfair for these purposes. Such techniques may include, but are not limited to, … the use of program codes or commands or any adapted hardware or software to assist play … Further, Members may not conduct themselves in such a way as to produce a disruption or malfunction of the King.com Service.”
The defendant, John Watkins, became a registered member of King.com in August 2005. He came to the attention of the claimant because he appeared to use a credit card that was not issued in his registered participant name. It has become apparent that the reason for this is that the defendant is bankrupt. In the course of events arising out of investigation of the defendant’s participation in the claimant’s games it came to the attention of King.com that the defendant had been promoting the sale of cheater software or cheater programs.
The defendant operates a website known as “King.com Cheater.” On it he advertises three applications, (for three games on the King.com site) and boasts that with these little applications he has won over £500 and rising on Midas Miner alone. He states:
“The programs work by playing the games for you. They can not be detected as they pretend to be your keyboard & mouse.”
He offers these cheater programs to purchasers for £20 for 30 days’ use and boasts “I made £350 in my first week”.
As the website indicates the cheater software simulates mouse clicks in the targeted game window, just like a real human participant would but with greatly advanced speed and precision. The result is that the cheater program generates considerably higher scores than a human user could achieve. This enables the owner of the cheater program to win more tournaments and, therefore, to win more money.
It is the evidence of the claimant, to which there has been no challenge, that the presence of such cheater software on an Internet game site lowers the reputation of the gaming site because no player will want to play skill games for money against a program which is designed to maximize the score of an opponent using processor chips. The active and open promotion of the cheating programs has meant that undoubtedly many current and potential members of the game site have become aware of the existence of cheater programs. This has the consequence of lowering the reputation of King.com and of damaging or threatening its relations with its partner companies through which 85% of its growing business is introduced. The position is summarized in the witness statement of Toby Rowland, the chief operating officer of the claimant, in these terms:
“Reputationally and financially, the prospect of extended cheating in the games would be disastrous for the Claimant.”
In these circumstances the claimant commenced proceedings against the defendant within a matter of days of discovering his activities. On 17th March 2006 it obtained a without notice order from Mann J, the return date for which was 24th March. The order restrained the defendant from using or distributing any software information or technique, the purpose of which was to cheat the claimant’s online computer games or computer entertainment systems.
The concept of cheating embodied in the order was that cheating meant facilitating a user to deploy anything other than pure skill in the conduct of any game or in any other way to circumvent the rules or electronic architecture of the games with a view to gaining an advantage or winning money. Other ancillary relief was also granted. This without notice injunction was continued by Peter Smith J on 24th March 2006.
The application now before me is for summary judgment in lieu of a trial of the action. By Part 24 summary judgment may be given if the court is of the view that a defendant has no real prospect of successfully defending the claim and that there is no other compelling reason why the case should be disposed of at trial; but the court can only give summary judgment after a defendant has filed an acknowledgment of service or a defence unless the court gives permission.
Prior to the service of an acknowledgement or defence the usual regime covering the disposal of the action is the default judgment regime. In the instant case the claimant does not wish to use the administrative machinery of a default judgment for, essentially, two reasons. First, it requires a public vindication of its right to maintain the integrity of its gaming site. Secondly, it takes the view, correctly in my judgment, that this is not a defendant who simply ignores the court. To his credit the defendant has engaged in the process of litigation by responding in some degree to the claimant and not simply ignoring its claim. It would be wrong to treat the defendant as having no interest in the outcome of the claim, so that it can be disposed of administratively rather than in exercise of a judicial power and wrong to penalize him simply for having failed to file an acknowledgment of service. Accordingly, I intend to give permission for a Part 24 claim to be pursued, notwithstanding that no acknowledgment of service has been filed.
That said, the defendant has not participated in the hearing before me and has not attended. He sent an e-mail to the claimant on Friday in these terms:
“Hi, I don’t have the time or money to come on the 12th (same position as on previous occasions), if this can be done on the phone then that’s be grand.
I’ve still absolutely no idea how your client expects to be able to get any cash from me.”
The defendant accordingly has notice of the hearing and has not attended by his own choice. No application was made for a telephone hearing (and there are in any event some inconveniences in conducting telephone hearings with litigants in person). None the less, I have ensured that in the course of this hearing my attention has been drawn to everything that Mr. Watkins has filed with the court or has responded with in answer to the evidence served upon him, and I am grateful for the care which has been taken in drawing these matters to my attention so that I may properly bear them in mind in exercising my discretion.
In my judgment, this is a plain case on three heads. First, the claimant submits that there is an undoubted breach of contract between itself and Mr. Watkins. Mr. Watkins is a registered participant contractually bound by all of the terms and conditions including in particular clause 9. He himself, according to the terms of his website, has used a technique which facilitated him deploying something other than pure skill in the conduct of a game. That constituted unfair conduct and is a breach of clause 9.
Secondly, the claimant says that Mr. Watkins has induced a breach of contract in other site users by offering for sale cheat software. They rely on the provisions of clause 1 of the Terms and Conditions in relation to visitors who are licensed for access for the purpose of practice games and the terms of clause 9 in the case of registered users contractually bound by the terms and conditions. The submission made is that by offering cheat software Mr. Watkins induces a breach of contract either in relation to the terms of access of licence users or the terms contractually binding on registered members. I agree.
The third head of claim is that Mr. Watkins has been guilty of unlawful interference with the claimant’s business. The interference is the distortion of the “fair play” rule which lies at the heart of the gaming site. The consequence of the interference is that which I have summarized from Mr. Rowland’s witness statement, namely that the proliferation of cheating destroys the reputation of the site and has an immediate financial impact. It diverts winnings properly payable to those who use their skill to those who cheat.
This interference with the business of the claimant is unlawful because Mr. Watkins is bound by the terms of the contract which he entered when he became a registered participant and, as was conveniently stated by Nourse LJ in Kuwait Oil and Tanker Co. SAK v. Al-Bader [2000] 2 All ER (Comm) 271 in a passage at page 319, “unlawful means” may be both tortious and criminal or both tortious and a breach of contract or all three. Accordingly, a breach of contract is capable of constituting unlawful interference. (Other causes of action were included in the particulars of claim, but they were not, and in my judgment rightly not, pressed on an application for summary judgment.)
These three claims are well founded in law and are supported by evidence which Mr. Watkins has not challenged. I do not consider that there is any reasonable prospect that if afforded the opportunity of a trial Mr. Watkins could challenge these conclusions. I cannot see that anything that he has so far said discloses a real prospect of a successful defence. The material that he has generated on the contrary establishes the claimant’s case on the three heads indicated.
First, in a witness statement which he made on 21st March following Mann J’s order he disclosed the following matters.
a) in paragraph 7, he stated that his Midas cheater software was very basic and that it employed no special methods to hide itself from the claimant’s security software.
b) he disclosed that he was licensing his cheater software for use by third parties and that his charging structure was not on what he described as “per cheat basis”.
c) he explained that the mode of operation of his cheat software does not make the cheat any harder to detect than a cheat that does not have the features of a license key and server authentication.
d) he made plain that a purchaser of his licensed cheat software “is only able to use one cheat at a time”.
e) he asserted a belief that the claimant had not tried to use the technical resources at its disposal to attempt detection of his cheater software.
f) he disclosed that he had been working on cheat software for other games on the claimant’s website but that the claimant had started to employ anti cheat methods which had slowed his developments down.
It seems to me plain that such evidence is an acknowledgment both that he himself is in breach of contract by his admitted conduct and that he has no answer to any case that he has been inducing a breach of contract in others. The nearest he came to raising a point which cannot be dismissed as fanciful was in paragraph 5. There he pointed out that new members were not required to register their agreement to terms and conditions until such time as they wished to participate in prize money games. In my judgment this does not disclose an issue which has a real prospect of success. Every person seeking access to the King.com site is only afforded access on the footing that they observe the terms and conditions even if they do not become registered participants.
The second category of material generated by Mr. Watkins is the website. As I have indicated this website confirms rather than undermines the claimant’s case. It discloses that in breach of the specific terms of clause 9 of the terms and conditions Mr. Watkins is using something other than pure skill to participate in the game, namely by using a program that pretends to be a player’s keyboard and mouse. Further, it acknowledges that he himself has used this to participate in games and to win prize money which it is implicit he would not have won had he not used the program, (that is why he said “I made £350 in my first week” and “with these little applications I have won over £500 and rising on Midas Miner”).
The third category of material that has been produced by Mr. Watkins is his participation in a forum conducted on the Nochex site which he uses to market his games. These disclose that in that forum Mr. Watkins reminds forum members of the availability of his cheat programs, that the cheat programs can be left running overnight to enable the number of games to be increased and that the participation is effectively automatic and that the programs are manifestly game cheats which enable people to recover daily jackpots greater than they would otherwise achieve.
Taking into account all of the material which was produced by Mr. Watkins and has been drawn to my attention in the context of this application, I reach the view that he has no defence to the claimant’s case which has any real prospect of success.
That, therefore, brings me to the relief to which the claimant is entitled. He seeks a perpetual injunction. Injunctive relief is a discretionary matter. The forum to which I have just referred indicates that the prize money that potential users of the cheat software will obtain is relatively small. The website indicated total winnings of £500 and of £350 by Mr. Watkins. The forum traffic indicates that Mr. Watkins had won jackpots of up to £67 and he was promoting games in which there were jackpots of £27 and £31 and that the winnings per play could be £4.25.
Mr. Shankland fairly drew to my attention the fact that these sums are small. He also drew my specific attention to the passage in Mr. Watkins’ witness statement which said:
“I believe that it would be a better approach for the Claimant to prevent their games from being so easily cheated and issue injunctions against everyone that creates basic cheats. I am willing to come to an agreement regarding this; however, I believe that an injunction is excessive and not best practice.”
In my judgment the fact that individual winnings from particular cheats may not be themselves sizeable is not an indicator against granting an injunction. Very often an injunction is the only proper remedy when financial consequences are relatively small. The claimant faces the difficulty that it does not at present know the full extent of the utilization of the defendant’s cheat software. It therefore does not know how many jackpots of whatever size are reaching the wrong designation.
It is important that it should control the integrity and honesty of its gaming site and an injunction is the only effective vehicle for conferring on it the necessary power. I shall, therefore, grant injunctive relief in the form of the draft minute which has been placed before me, but subject to three areas requiring further consideration.
First, the present injunctions relate to software, to businesses and to websites, the purpose of which is to cheat “the claimant’s online computer games or computer entertainment systems.” I think it would be prudent if these were more precisely defined than the present order contemplates.
Secondly, one limb of the injunction seeks to restrain the defendant from committing any act or omitting to do anything, the purpose or effect of which is to interfere unlawfully or to allow any person to interfere with claimant’s trade or business. As drawn, that limb of the injunctive relief seems to me imprecise and to expose the defendant to the risk of unwitting non-compliance.
Thirdly, the injunction sought to retrain the defendant from directly or indirectly informing anyone of the content of the evidence, save for the purpose of obtaining legal advice. Again, as drawn, that seems to me to be too wide and I require in its place for there to be reference to a redacted volume of evidence to which the defendant is free to refer, but to the redacted parts of which he is forbidden to refer. I will deal with that matter without a further hearing in chambers if a redacted volume of evidence can be placed before me.
Subject to those observations I will grant the relief sought.
JUDGE NORRIS: Mr. Shankland, given the relief, are you going to proceed by doing a revised minute of order and lodging it for me to have a look at?
MR. SHANKLAND: I will do so, my Lord, yes.
My Lord, I ask also for my costs to be assessed if not agreed. I would have asked your Lordship to do a summary assessment but we have not been able to get a schedule to Mr. Watkins and, therefore, I simply ask for assessed if not agreed, my Lord.
Spreadex Ltd v Cochrane [2012] EWHC 1290 (Comm)
His Honour Judge Pelling QC:
Introduction
This is an appeal from the Judgment of District Judge Harrison given on 9th November 2005, by which he gave summary judgment to the Respondent (JPF) in the sum of £24,985.53 and ordered the Appellant (Mr Mehta) to pay the costs of the claim which were summarily assessed in the sum of £1080.00. Permission to appeal was given by His Honour Judge Holman on 20th February 2006.
JPF is a Portuguese company that supplies bedding products. It supplied such products in July 2002 to Bedcare (UK) Limited (Bedcare) a company of which Mr Mehta was a director. Bedcare failed to pay for the products it had received and ultimately it was wound up on JPF’s Petition by an Order made on 7th March 2005.
The relevant history begins with the presentation of a winding up petition by JPF on 12th January 2005. On 20th February 2005, Mr Mehta asked a member of his staff to send an e mail to JPF’s solicitors in the following terms:
“… I would be grateful if you could kindly consider the following. If the hearing of the Petition can be adjourned for a period of 7 days subject to the following:
(a) A Personal Guarantee to be given in the amount of £25,000 in favour of your client – together with a list of my personal assets provided to you by my solicitor
(b) A repayment schedule to be redrawn over a period of six months with a payment of £5000.00 drawn from my personal funds to be made before the adjourned hearing.
I am also prepared to give a company undertaking not to sell market or dispose of any company assets without prior consent from your client pending the signing of the Personal Guarantee …”
The e mail was not signed by Mr Mehta but is described in the header as having come from Nelmehta@aol.com. This e mail address appears on other e mails sent to JPF’s solicitors by Mr Mehta, which have been signed by him.
The evidence in support of the application for summary judgment was given by Ms Albaster in a witness statement dated 21st June 2005. Ms Albaster is a clerk employed by JPF’s solicitors. At Paragraph 7 of her statement, she says that when she received the e mail referred to above, she telephoned Mr Mehta, accepted his proposal and agreed to adjourn the hearing of the Petition which in the event was adjourned for a period of 14 days. Ms Albaster continues:
“Although I sent the Defendant an agreement to cover the instalment payments and Personal Guarantee, I heard nothing further from him, he never returned the documents and he did not pay the £5,000 which had been promised from his personal funds.”
Mr Mehta’s statement in answer to the application is dated 12th July 2005. Aside from a suggestion that the debt owed by Bedcare was £14,715.00, Mr Mehta sets out his case as to the claim against him in Paragraphs 4-6 of his statement. In essence, he says the claim against him should fail because JPF has failed to produce any signed agreement or Personal Guarantee and that the only maintainable claim that JPF has is against Bedcare.
Mr Mehta appeared in person before me as he did before the District Judge. In the course of his initial submissions he told me that the e mail had been sent with his authority by one of his staff who he later identified as a Ms Durkin. Later, in the course of his reply submissions, Mr Mehta told me that the sender name that appears in the e mail had been typed by his employee Ms Durkin without his authority. There was no evidence to support such a contention (or to explain how, technically, it could be right) and the application by Mr Mehta to adduce such evidence was strongly resisted by Mr Aslett who appears for the Respondent. For reasons that I gave at the conclusion of the hearing, I dismissed that application. In summary, there was no satisfactory explanation as to why the evidence had not been adduced at a much earlier stage. The evidence in support of the application for summary judgment and in particular Paragraph 7 of Ms Albaster’s statement made clear that the application was based on the contention that the e mail I have referred to in Paragraph 3 above constituted the guarantee and in any event it was or ought to have been entirely clear to Mr Mehta as to how JPF’s case was being put at the latest by the time when the District Judge gave judgment. It is also fair to say that Mr Mehta had accepted that he had authorised the sending of the e mail in the form it was sent until a very late stage in his reply submissions. In those circumstances, it seemed to me that the application to adduce further evidence ought to fail.
The Issue Concerning The Amount Owed by Bedcare
Ms Albaster’s evidence is that Mr Mehta had agreed the sum due from Bedcare as being £24,709.33. This is clearly evidenced by the run of e mails at pages 21-26 of the Bundle. No evidence has been produced by Mr Mehta to support his contention that the true sum owed by the company is less than £24,709.33 or to explain why, if this was the case, he had agreed to the figure advanced by JPF’s solicitors. This point is not mentioned by Mr Mehta in his Grounds of Appeal at Section 7 of the Appeal Notice. In those circumstances, it is not open to him to argue this point on the appeal. However, even if I am wrong on that point, for the reasons set out earlier in this paragraph, I am satisfied that on the evidence before the District Judge he was correct to conclude that Mr Mehta has no reasonable prospect of success on this issue.
The Issues In The Appeal
The only issue of substance that was considered by the District Judge concerned the assertion by Mr Mehta that there was no guarantee signed by Mr Mehta. The District Judge concluded that the e mail I have referred to in paragraph 3 above was sufficient to satisfy the requirements of the Statute of Frauds. He said that “The e mail document in itself is the guarantee”. He concluded that the presence of Mr Mehta’s e mail address on the copy of the e mail received by JPF’s solicitors constituted a sufficient signature for the purposes of Section 4 of the Statute of Frauds and he entered judgment accordingly.
Section 4 of the Statute of Frauds provides that “no action shall be brought … whereby to charge the defendant upon any special promise to answer for the debt default or miscarriage of another person … unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.”. It follows that:
1. The agreement in question must be in writing or, if the agreement is made orally, there must be a memorandum or note evidencing the oral agreement; and
2. The agreement or memorandum must be signed by either
9.2.1. The guarantor , or
9.2.2. Someone authorised by the guarantor to sign the agreement or memorandum on his behalf.
The effect of a non compliance with Section 4 is that the contract is unenforceable.
There were thus two issues that were argued at the hearing of the appeal namely:
10.1. whether the e mail constituted a sufficient note or memorandum of the alleged agreement for the purposes of Section 4; and
10.2. Assuming the e mail was a sufficient note or memorandum, whether it was sufficiently signed by or on behalf of Mr Mehta, it being contended on behalf of JPF that the presence of the e mail address on the copy of the e mail received by JPF’s solicitors was a sufficient signature for these purposes.
Was The E Mail A Sufficient Note Or Memorandum?
The e mail relied on contains an offer. That this is so is apparent from the opening words of the operative part which starts with the words ” …I would be grateful if you could kindly consider the following. If the hearing of the Petition can be adjourned … subject to the following …” . It is also apparent from the fact that the e mail contemplates that formal documents will be entered into by the use of the phrase “… pending the signing of the Personal Guarantee”. It is clear from the evidence of Ms Albaster that it was regarded as such – see the part of Paragraph 7 of her witness statement referred to in Paragraph 4 above.
As a matter of first impression, such a document ought not to be sufficient to constitute a memorandum for Section 4 purposes. I say this because what has to be signed under Section 4 is ” … the agreement upon which such action shall be brought or some memorandum or note thereof …”. As Cave J said in Evans v. Hoare [1892] 1 QB 593 the effect of these words is that ” … there must be a memorandum of a contract, not merely a memorandum of a proposal …”. However, that is not the way the law appears to have developed. I was referred to the current edition of The Law of Contract by Sir Guenter Treitel. At page 184 he says “… an offer signed by one party and orally accepted by the other … ha[s] been held sufficient”. That this is the current state of English law is acknowledged (in relation to the old law under Section 40 of the Law of Property Act 1925) in Paragraph 4-027 of Chitty On Contract (29th Ed., Volume 1), where however it is described as “exceptional”.
Four cases are cited by Chitty in support. Of those, only Lever v. Koffler [1901] Ch 543 was cited to me by Mr Aslett. That case was concerned with an offer in writing by the Defendant to sell two parcels of real property on alternative bases, where one of the alternatives was accepted both orally and by letter by the Plaintiff. In that case, there were two grounds on which it was submitted that Section 4 was not satisfied – first that the reply letter did not define which alternative was being accepted and secondly that the letter from the Defendant did not sufficiently set out the terms of the agreement. The first point failed as a matter of construction and the latter argument was rejected by reference to an earlier judgment of the House of Lords (Hussey v. Horne-Payne 4 App.Cas. 311) in which it had been concluded that an exchange of letters which together constituted a binding agreement would satisfy the requirements of Section 4 as it then applied to contracts for the sale of land. Neither Lever v. Koffler nor Hussey v. Horne-Payne addresses the issue of written offers orally accepted and neither considers the position in relation to guarantees. However, there is a high level of commonality between the treatment of contracts for the sale of land and guarantees under Section 4 as it stood when those cases were decided and so I am not persuaded that this last point assists Mr Mehta.
The position in relation to written offers accepted orally was considered in the latest of the cases cited by Sir Guenter and in Chitty – Parker v. Clark [1960] 1 WLR 286. That case concerned a written offer that was accepted in writing by a letter that was lost. Although it was recognised that oral evidence of the written acceptance might provide an answer, the case was argued on the basis that the written offer was a sufficient memorandum – see the Judgment at 295. The argument that the statute required a concluded agreement to be existing when the memorandum was signed was rejected by Devlin J as he then was. He held that a written offer is capable of being a memorandum providing the language shows an intention to contract as opposed to being a mere statement of expectation. Devlin J relied on two earlier authorities, neither of which was cited to me. I have not been able to obtain copies of either in the time available to me. However, each is referred to in Chitty at footnote 126 to Paragraph 4-027. They are Smith v. Neale (1857) 2 CB(NS) 67 at 88 and Reuss v. Picksley (1866) LR 1 Ex. 342.
Cave J’s observation which I have referred to in Paragraph 12 above was not cited to Devlin J. Although it would appear that Cave J made the observation he did without the citation to him of Smith v. Neale (1857) 2 CB(NS) 67 at 88, Reuss v. Picksley (1866) LR 1 Ex. 342 was cited to him – see the argument in Evans v. Hoare (ante) at Page 595.
Given that nothing has been formally cited to me other than Lever v. Koffler, identifying some generally applicable principle is not easy. The purpose of the statute of frauds is to protect people from being held liable on informal communications because they may be made without sufficient consideration or expressed ambiguously or because such a communication might be fraudulently alleged against the party to be charged. That being so, the logic underlying the authorities I have referred to would appear to be that where (as in this case) there is an offer in writing made by the party to be bound which contains the essential terms of what is offered and the party to be bound accepts that his offer has been accepted unconditionally, albeit orally, there is a sufficient note or memorandum to satisfy Section 4. I say nothing about the position where there is a dispute as to whether or not the written offer has been accepted orally. Such a situation does not arise on this appeal. In the result, subject to the signature issue to which I turn below, I conclude that the e mail referred to in Paragraph 3 above is capable of being a sufficient note or memorandum for the purpose of Section 4 because it is in writing, and it is not disputed by Mr Metha that the offer was accepted orally on behalf of JPF as described by Ms Albaster in Paragraph 7 of her witness statement.
It is true to say that the e mail contemplates the preparation of formal documentation in relation to the guarantee. No argument was advanced by Mr Mehta to the effect that this qualification precluded the e mail from being a note or memorandum for Section 4 purposes. I have considered it only because he appears in person. An agreement to do something which is expressed to be subject to the execution of formal documentation will usually be regarded as incomplete until the formal documentation has been settled and signed – see by way of example Winn v. Bull (1877) 7 Ch.D 29. However, I do not see that this rule would prevent an offer qualified in this manner from being a Section 4 note or memorandum if Devin J’s reasoning in Parker v. Clark (ante) is correct. If it is not, then the document would not be a Section 4 note or memorandum irrespective of the Winn principle.
The Signature Issue
The e mail referred to in Paragraph 3 above is not signed by anyone in a conventional sense. Mr Mehta’s name or initials do not appear at the end of the e mail or, indeed, anywhere else in the body of the e mail. Inevitably, therefore, JPF must contend that the presence of the e mail address at the top of the e mail constitutes a signature sufficient to satisfy the requirements of Section 4.
As is well known to anyone who uses e mail on a regular basis, what is relied upon is not inserted by the sender of the e mail in any active sense. It is inserted automatically. My knowledge of the technicalities of e mail is not sufficiently detailed to enable me to know whether it is inserted by the ISP with whom the sender or the recipient has his e mail account. However, I accept Mr Aslett’s submission that as a matter of obvious inference, if it is inserted by the latter it can only be from information supplied by the former. Mr Mehta suggested that the address was inserted by his employee. I do not see how this could be so and certainly Mr Mehta was not able to give me a coherent explanation of how that might be so. It is possible that Mr Mehta’s employee was authorised to use Mr Mehta’s e mail account remotely but, even if that is so, I do not see how that can impact on any of the issues I have to resolve since it is not in dispute that the e mail was sent on the instructions of Mr Mehta and the method by which the sender address came to be inserted would not be affected even if that was the position.
It is submitted on behalf of JPF that the appearance of the sender’s address at the top of the document constitutes a signature either by the sender or by “… some other person thereunto by him lawfully authorised …” because it is well known to all users of e mail that the recipient of the e mail will always be told the e mail address of the e mail account from which the e mail is sent in the form it appears on the e mail referred to in Paragraph 3 above. That being so, it is submitted that by authorising an agent to send an e mail using the sender’s e mail account, to a third party the sender knows that his her or its e mail address will appear on the recipient’s copy and that is sufficient for it to be held to be a signature for the purposes of Section 4.
It was submitted by Mr Aslett that intention was irrelevant – all that was required was a document that constituted a sufficient memorandum (which, as I have held, the e mail was) and the signature somewhere on the note or memorandum of either the person to be bound or his duly authorised agent. In support of this contention, Mr Aslett relied on the decision of the House of Lords in Elpis Maritime Company Limited v. Marti Chartering Company Limited [1991] 3 WLR 330. The facts of that case were very different to the facts of this case. There was no dispute in that case that the party to be charged had signed the document. The dispute in that case concerned whether or not the fact that the party to be bound signed the relevant document as agent made any difference given that there was a clause within the document that purported to create a guarantee by the party purporting to sign only as agent. It had been contended that if such was the case then the fact the agreement contained a clause under which the signing party personally agreed to guarantee certain obligations was not relevant. It was this last argument that was rejected by the House of Lords by reference to In re Hoyle [1893] 1 Ch 84 in which A.L.Smith LJ said: “The question is not what is the intention of the person signing the memorandum but is one of fact, vis is there a note or memorandum of the promise signed by the party to be charged?”. It is because this is so that in other cases the courts have accepted letters to third parties, instructions to telegraph companies signed by the sender, and affidavits in unconnected actions as being a sufficient memorandum providing they are signed by the parties to be bound. It was this that led the House of Lords to conclude that it was irrelevant in what capacity or with what intention the document there being considered was signed.
In my judgment, the issue that arises in this case is not the issue that the House of Lords considered in Elpis Maritime. Here the issue is not with what intention or with what capacity did Mr Mehta or his employee sign the relevant document – rather the issue is whether it has been signed at all.
What is relied upon is an e mail address. It is the e mail equivalent of a fax or telex number. It is well known that the recipient of a fax will usually receive a copy that has the name and/or number of the sender automatically printed at the top together with a transmission time. Can it sensibly be suggested that the automatically generated name and fax number of the sender of a fax on a faxed document that is otherwise a Section 4 note or memorandum would constitute a signature for these purposes? If Mr Aslett is right then the answer depends solely upon whether the sender (or the sender’s principal where the sender was an agent) knew that the number or address would appear on the recipient’s copy.
Mr Aslet, relies on Evans v. Hoare (ante) in support of this argument. The issue in that case was whether the Defendant was bound by the relevant document. The evidence in that case established that the relevant document had been drawn up by a duly authorised agent of the Defendants. The document was in the form of a letter from the Plaintiff and the words “Messrs Hoare, Marr & Co, 26,29 Budge Row, London EC” appeared after the Plaintiff’s address at the head of the letter. The question was whether these words constituted a signature of “… some person …thereunto lawfully authorised …” by the Defendants. It was argued on behalf of the Plaintiff in that case that the appearance of the Defendant’s name in the letter tendered to the Plaintiff for signature on behalf of the Defendant was sufficiently signed on behalf of the Defendant because the Defendant’s name had been “… written … with the defendant’s authority, with the intention of designating the party to be charged, and for the purpose of making a contract which should be binding on the Plaintiff” – see Pages 594-5 of the reported argument.
It was this argument that succeeded. Cave J, said:
“I am of opinion that the principle to be derived from the decisions is this. In the first place, there must be a memorandum of a contract, not merely a memorandum of a proposal; and secondly, there must be in the memorandum, somewhere or other, the name of the party to be charged, signed by him or by his authorized agent. Whether the name occurs in the body of the memorandum, or at the beginning, or at the end, if it is intended for a signature there is a memorandum of the agreement within the meaning of the statute.” [Emphasis supplied]
As was emphasised by Cave J, the appearance of the name of the party to be bound must be “intended for a signature”. It is noteworthy that that this case was cited to the House of Lords in Elpis Maritime but was not disapproved by Lord Brandon. I do not think it can be said (and, in any event, there is no evidence) that either Mr Mehta’s employee or the ISP either sending or receiving the e mail intended Mr Mehta’s e mail address to be a signature in the sense identified above.
There are dicta that support the approach of Cave J in Caton v. Caton (1867) LR 2 HL 127. In that case, the House was concerned with a document that started by referring to “the under mentioned parties” and then referred to the parties in question by name in relation to various promises. Neither party signed the document and the question was whether the document constituted a sufficient note or memorandum signed by the parties to be bound within Section 4. The House of Lords held that it was not. In arriving at this conclusion, Lord Chelmsford C said at 139-40:
“The cases on this point … establish that the mere circumstances of the name of a party being written by himself in the body of a memorandum of agreement will not of itself constitute a signature. It must be inserted in the writing in such a manner as to have the effect of “authenticating the instrument” or “so as to govern the whole instrument”… The name of the party, and its application to the whole of the instrument, can alone satisfy the requisites of a signature.
Lord Westbury said (Page 143) that what is alleged to constitute the signature must
” … be so placed as to show that it was intended to relate and refer to, and that in fact it does relate and refer to, every part of the instrument. … It must govern every part of the instrument. It must shew that every part of the instrument emanates from the individual so signing, and that the signature was intended to have that effect. It follows that if a signature be found in an instrument incidentally only, or having relation and reference only to a portion of the instrument, the signature cannot have legal effect and force which it must have in order to comply with the statute, and to give authenticity to the whole of the memorandum. [Emphasis supplied]
In the light of the dicta cited above, it seems to me that a party can sign a document for the purposes of Section 4 by using his full name or his last name prefixed by some or all of his initials or using his initials, and possibly by using a pseudonym or a combination of letters and numbers (as can happen for example with a Lloyds slip scratch), providing always that whatever was used was inserted into the document in order to give, and with the intention of giving, authenticity to it. Its inclusion must have been intended as a signature for these purposes. I agree with Mr Aslett’s analysis in Paragraph 4 of his supplementary written submissions that in Caton the names were included in the document under consideration to describe intended performance. I also accept his submission in Paragraph 6 of his supplementary written submissions that the meaning of “incidental” in this context means “… where the signature or name just happens to appear somewhere”.
I do not accept his submissions that Godwin v. Francis (1870) LR 5 CP 295 or McBlain v. Cross (1871) 25 LT 804 have relevance to the issue I have to decide. Godwin plainly involved a Section 9 note or memorandum in the form of instructions to a telegraph company signed by the party to be charged on whose behalf the telegram concerned was sent. Bovill CJ then proceeded to consider the position in the event that this was wrong and concluded that “… the mere telegram written out and signed in the way indicated by the telegram clerk, if done with the authority of the vendors, would have been a sufficient signature”. This is not this case – no name or signature or any sort appears in the body of the e mail. McBlaim takes the issue no further because the telegram in that case stated that it came from the sender and did so with his express authority. That is not this case.
I have no doubt that if a party creates and sends an electronically created document then he will be treated as having signed it to the same extent that he would in law be treated as having signed a hard copy of the same document. The fact that the document is created electronically as opposed to as a hard copy can make no difference. However, that is not the issue in this case. Here the issue is whether the automatic insertion of a person’s e mail address after the document has been transmitted by either the sending and/or receiving ISP constitutes a signature for the purposes of Section 4.
In my judgment the inclusion of an e mail address in such circumstances is a clear example of the inclusion of a name which is incidental in the sense identified by Lord Westbury in the absence of evidence of a contrary intention. Its appearance divorced from the main body of the text of the message emphasises this to be so. Absent evidence to the contrary, in my view it is not possible to hold that the automatic insertion of an e mail address is, to use Cave J’s language, “… intended for a signature…”. To conclude that the automatic insertion of an e mail address in the circumstances I have described constituted a signature for the purposes of Section 4 would I think undermine or potentially undermine what I understand to be the Act’s purpose, would be contrary to the underlying principle to be derived from the cases to which I have referred and would have widespread and wholly unintended legal and commercial effects. In those circumstances, I conclude that the e mail referred to in Paragraph 3 above did not bear a signature sufficient to satisfy the requirements of Section 4.
Before leaving this issue I ought to mention the Electronic Communications Act 2000. This Act empowers the appropriate Minister to issue statutory instruments in order to modify any other stature or statutory instrument in order to facilitate electronic communications. My understanding is that this Act was enacted in order to give effect to the EU Directive on E Commerce (2000/31/EC). No relevant statutory instrument made under this Act has been drawn to my attention. It is noteworthy that the Law Commission’s view in relation to this Directive is that no significant changes are necessary in relation to statutes that require signatures because whether those requirements have been satisfied can be tested in a functional way by asking whether the conduct of the would be signatory indicates an authenticating intention to a reasonable person. This approach is consistent with what I have said so far in this Judgment. Thus, as I have already said, if a party or a party’s agent sending an e mail types his or her or his or her principal’s name to the extent required or permitted by existing case law in the body of an e mail, then in my view that would be a sufficient signature for the purposes of Section 4. However that is not this case.
Conclusion
In those circumstances, whilst I conclude that the e mail referred to in Paragraph 3 above is in principle capable of being a Section 4 note or memorandum notwithstanding that it contains an offer and thus came into existence before not after the contract which it is said to memorialise, it does not bear the signature within the meaning of Section 4 of the Statute of Frauds of either Mr Mehta or his duly authorized agent. Accordingly, I allow the appeal and dismiss the application for summary judgment on the guarantee point.
There then remains the question of whether or not there should be judgment against Mr Mehta for £5,000 being the alternative claim made against him by JPF. The District Judge made no alternative findings about this claim because he concluded that the £5,000 fell within the sum that he concluded had been guaranteed by Mr Mehta. However, there was no Respondent’s Notice served or filed on behalf of JPF in relation to this issue. It was accepted by Mr Aslett that there would have to be such a Notice if this issue was to be disposed of on the hearing of this appeal and for that reason accepts that this issue will have to be dealt with either by fresh application to the District Judge or left to trial. In those circumstances I say no more about it.
I will now hear the parties on whether and if so what directions ought to be given pursuant to CPR 24.6.
Spreadex Ltd v Cochrane
[2012] EWHC 1290 (Comm)
he claimant is a spread betting bookmaker, offering to accept bets on movements in the prices of, among other things, stocks, shares, and commoditiesand their associated indexes, and authorised and regulated for that purpose by the Financial Services Authority. Though it is possible to place and close out trades with the claimant by telephone, much of that activity takes place on line through the claimant’s interactive web-site.
On 21 October 2010 the defendant visited that site. After seeking brief details of his employment, gross income, and savings, and whether he was a propertyowner, it asked him to specify a password, a memorable question and answer, and a bank account number. Finally, it instructed him to:
“Click on “View” to read our US based policy, Client Declaration, Customer Agreement, Risk Warning Notice and Order Execution Policy. Once read and understood, please click on “Agree” to signify your agreement to the terms.
It then added:
Please call us on 0800 …. if you have any questions.
Thank you for taking the time to complete the application.”
This was followed by a “button” marked “Submit”.
Having complied with the various requests and pressed the indicated buttons, the defendant would -as I was told – have been able to trade immediately, though in the event he did not do so until 9 November 2010. After a few initial trades he moved mainly to contracts in silver and gold, and an occasional foray into crude oil, with a significant number of trades each month. He appears tohave had considerable success and by the beginning of May 2011 had built up a credit balance of more than ,60,000.
On 2 May 2011 he went on line in the morning. It was a Bank holiday and as he told the court in his witness statement he was in the house of his girlfriend together with her and her young son, whom I will refer to shortly as C. As he made his trades, he explained it to C as a kind of guessing game. At about 2.15 p.m., were he made his last trade, leaving only two trades open, a matching buyand a sell in gold with a loss of about £9,000. He then left the house to drive his car to a garage for servicing and thereafter to spend the afternoon with a male friend. In the event, because the friend was not feeling well, he stayed two days in his house, during which time – as the friend has confirmed – he did not use a computer. When he picked up his car and recharged his mobile telephone, he found a message from the claimant asking him to ring. On doing so, he was told that his account was by almost ,50,000: almost immediately he instructed the claimant to close out all his open positions. Returning to his girlfriend’s house and going on line he found that there had been numerous trades in his absence, not only in gold and silver but also in crude oil. His girl friend said that hiscomputer had been used by C, and C told him that he had been playing games on it.
The defendant promptly explained to the claimant by telephone and email whathe said had happened. The claimant’s complaints department, responding on 23 May 2011, rejected his entreaties and insisted on immediate payment, indicatingonly that he could within six months ask the Financial Services Ombudsman todecide the dispute. Within one day however the claimant had started the present action.
The claimant seeks summary judgment on its claim, contending that the defendant has no arguable defence. In doing so, it concedes for the purpose of the present application that the court must accept the accuracy of the defendant’s account of the events of 2 to 4 May 2012, and of the supportingevidence of three other witnesses (not including C), and that the claimant cannotestablish that any of the trades after 2.15 p.m. on 2 May 2011 were made either bythe defendant himself or by any other person actually or ostensibly authorised by him to place them.
Indeed, it is the claimant’s case that any such questions are irrelevant to its right of recovery. This is said to be the result of its standard conditions contained in the Customer Agreement to which the defendant had assented by his click online on 21 October 2010.
For this purpose the claimant relies primarily[1] on Clause 10 of the Customer Agreement, which, having indicated that the customer can conduct his trading via the claimant’s online trading platform at www.spreadex.com, states in sub-clause (3) that
“Your password must be declared, together with your account number, when you wish to access your account. You will be deemed to have authorised all tradingunder your account number…”
Counsel for the claimant suggested that the second sentence would only apply where a password had been declared. Had this been intended, however, one would expect it to be stated expressly. Though unclearly articulated, Counsel’s argument appeared to suggest that the second sentence was conditional on the first sentence. This cannot however be so, since the first sentence addresses a situation where the customer himself is intending to trade and there can therefore be no lack of actual authorisation.
The essential issue in this case is whether Clause 10(3) can be invoked by the claimant to replace the lack of actual or ostensible authority which for the purpose of the hearing before me I am required to assume. It involves two linked sub-questions. It is the claimant’s contention that they can be determined by the court without the need for a trial. Consistently, it accepts that it is also open to the court on the present hearing to determine them against the claimant, and through its counsel expressly waived the need for a formal cross-application by the defendant for summary judgment.
Firstly, Clause 10(3) can only assist the claimant if is binding upon the customer because it forms part of a contract. That necessitates the identification of the contract on which the claimant relies. In its application, the claimant simply referred to the Customer Agreement, though in argument its counsel accepted that the matter required a much more precise focus.
Secondly, since the defendant in the present case is plainly a consumer within themeaning of the Unfair Terms in Consumer Contracts Regulations, 1999 (“UTCCR”) and Clause 10(3) was not individually negotiated, I have to determine whether it is “unfair” and therefore not binding on the defendant (see regulation 8(1)). That involves an assessment as to whether
“contrary to the requirement of good faith, it causes a significant imbalance inthe parties’ rights and obligations, to the detriment of the consumer.” (reg. 5(1).
Consideration of this question necessarily presupposes that the claimant has established the existence of a contract containing Clause 10(3) and that the rights and obligations of the parties under it have been identified.
In very large part the document entitled “Customer Agreement” does no more than set out the terms which will form part of each individual contract which willbe later created if and when the customer makes an offer for a particular trade and the claimant accepts it. In the present case however one is concerned not with the terms of a particular trade (or a number of them) but with whether a contract for such a trade ever came into existence. Clause 10(3) can therefore beof no assistance to the claimant unless it is shown to form part of some binding contract which pre-exists the individual trades on which the claimant contends that the defendant is liable.
In seeking to identify such a pre-existing contract counsel for the claimant faced significant difficulties. In particular he was unable to point to any promise or commitment by the claimant which might form part of such a contract and provide the consideration necessary to make it legally binding. Unsurprisingly, counsel for the claimant did not suggest that it had an obligation to enter into any trade, and indeed Clause 29(1) explicitly states that:
“We have the right at our absolute discretion to refuse to accept part or all of any bet.”
Counsel submitted that the necessary contractual consideration could be found in the grant of access to the on-line platform, but this submission ignored Clause10(15) which provides that:
“We reserve the right to reduce or remove altogether our online service at any time.”
The same would apply more generally to the maintenance of an account in the name of the customer (including the provision of an account number and the registration of a password), since under Clause 29(2):
“We reserve the right to close or suspend your account at any time.”
The consideration necessary to support a contract can of course be found inconduct alone, even if not required by a contractual obligation, if it is a benefit provided or a detriment suffered. That test is, however, in my view not satisfied by arrangements which merely facilitate the making by the two parties of ad hoc contracts in the form of the individual trades. The provision of an on-line interactive platform is in effect simply a more modern equivalent of the expressed readiness of a potential contracting party (also covered in the Consumer Agreement) to enter into contracts by receiving and responding orallyto telephone calls.
Accordingly, the claimant has failed to establish the existence of any legal contract to host and give binding effect to Clause 10(3) so as to supplant the need for the individual trades to be concluded or authorised by the defendant.
Even if the provision of the on-line platform were, as the claimant submits, to be treated as consideration for the claimant’s suggested contract, its argument faces further problems under the UTCCR. Most fundamentally, regulation 5(1) is concerned with the balance between rights and obligations. And, under the claimant’s suggested pre-trade contract it would assume no obligations and, correlatively, the customer would have no rights. By contrast, under Clause 10(3) the customer would be made liable for any trade on the account not made or authorised by him. The result is in my view, and most clearly, a significant imbalance in the parties’ rights and obligations.
There remains the further question whether that imbalance is “contrary to good faith”. For this purpose the court is required by regulation 6(1) to take into account “the nature of the goods or services for which the contract was concluded” and to refer “to all the circumstances attending the conclusion of the contract and to all the other terms of the contract …” A self-reminder is here appropriate that the relevant “services” to which the claimant’s suggested contract would relate are the trading platform through which the individual trading contracts are made, not the services provided under those contracts if they come into being.
Importantly, the Regulations do not operate by precluding reliance on the contractual term in cases where it would be unfair to do so. Their prescription is absolute and binary: the term is either unfair, and hence unenforceable, or not. Its unfairness must therefore be judged by reference to all situations in which it might potentially be applicable.
It appears to me in practice improbable that trades would be made by a hacker, since there would be no benefit to him unless on later closure the trade turned out favourably and he was able to divert payment of the profit to some other bank account than that nominated by the customer. Other scenarios are however more easily conceivable. One such, and reflected in what the defendant says occurred here, is a case where a child succeeds without the customer’s authorisation in accessing the account. It is arguable that some element of protection for the claimant may be consistent with fairness for the purpose of the judgment to be made under the UTCCR. A more appealing case might have been advanced if, for example, the clause had sought to fix the customer with liability for an unauthorised trade by a third party only if is facilitated by the negligence of the customer, even perhaps with a reversed burden of proof requiring him to establish the contrary. Whether or not such a clause would have passed muster as “fair” under the UTCCR is a hypothetical question which it would be inappropriate for me to seek to determine, and on which I should not be treated as expressing any view. I am however clear that without at least such limitations the inclusion of the second sentence of Clause 10(3) undoubtedly resulted not only in a significant imbalance in the parties’ rights and obligations but one which viewed overall is unfair within the meaning of the UTCCR.
A further, and compounding, factor to be taken into account is the manner in which the clause was incorporated into any contract (if there was one). As I described earlier, the potential customer was told that four documents, includingthe Customer Agreement, could be viewed elsewhere on-line by clicking “View”. Many, one might suspect most, would have passed up on that invitation and proceeded directly to click on “Agree”, even though it was suggested that they should do so only when they had read and understood the documents. Even if, exceptionally, the defendant in fact chose to look at the documents, he would have been faced in the Customer Agreement alone with 49 pages containing the same number of closely printed and complex paragraphs. It would have come close to a miracle if he had read the second sentence of Clause 10(3), let alone appreciated its purport or implications, and it would have been quite irrational for the claimant to assume that he had[2]. This was an entirely inadequate way to seek to make the customer liable for any potential trades which he did not authorise, and is a further factor rendering the second sentence of Clause 10(3) anunfair term.
The claimant sought in the alternative to rely on Clause 13(5) of the Customer Agreement, which forms part of a Clause headed “Communications” and reads:
“You acknowledge and agree that any communication transmitted by you or on your behalf is made at your risk and you authorise us to rely and act on, and treat as fully authorised and binding upon you, any communication (whether or not inwriting) that we reasonably believe to have been made or transmitted by you or on your behalf by any agent or intermediary whom we reasonably believe to have been duly authorised by you. You acknowledge that we will rely on your account number and/or password to identify you and agree that you will not disclose these details to any person who is not duly authorised by you. If you suspect that your account number and/or password has been learnt or may be used by any other person then you must notify us immediately.”
The word “communication” is not the most natural description for the making of a trade via an online platform. Trading online is also specifically covered, and at length, by Clause 10, with the question of authority being addressed in Clause 10(3). And, unlike Clause 10(3), Clause 13(5) is expressly qualified by the need for reasonable belief: parallel applicability of the two clauses would therefore lead to contradictory tests. I do not therefore consider that Clause 13 – and in particular Clause 13(5) – is applicable to a trade effected through the online platform. Counsel for the claimant sought to circumvent this problem bysuggesting that once Clause 10(3) had been “knocked out” by the UTCCR, Clause 13(5) could be interpreted free of Clause 10(3)’s competing existence. This is fallacious. The UTCCR does not remove a term from a contract: it onlyspecifies that it is not effective.
If that were wrong and Clause 13(5) were applicable to on-line trading, it would be necessary to address the question of reasonable belief in that context. The second sentence suggests that it would be reasonable for the claimant to treat as authorised any communication accompanied by either the account number or the password. This was also the sense of the claimant’s submissions, subject to the caveat that there might be some extraneous feature – such as an unusual number of failed prior attempts to log-on or oddities in the pattern of trading – which could render the belief unreasonable. So interpreted, Clause 13(5) would in its application be (if at all) only slightly more favourable to the customer than Clause 10(3). The difference would not lead me to alter the conclusions in paragraphs 17 to 21 above.
In consequence, I refuse to order the summary judgment sought by the claimant. I will also make a declaration to the effect that the claimant cannot recover save in respect of any trades which it shows to have been effected by (a) the defendant or (b) any other person acting with the actual or ostensible authority of the defendant. In doing so, I must not be taken as accepting that a claim advanced on that basis is encompassed within the proceedings as presently formulated. It may therefore be that in the absence of a suitable amendment, if permitted by a future order of the court, the action would fall to be dismissed.
Note 1 It has an alternative argument based on another clause, which I will consider later. [Back]
Note 2 In most cases, the limited time spent on the on-line application would in any event probably preclude any serious perusal of the documents. [Back]
Hedqvist (Judgment)
[2015] EUECJ C-264/14 [2015] BVC 34, [2015] STI 3240, EU:C:2015:718, [2015] EUECJ C-264/14, [2016] STC 372, ECLI:EU:C:2015:718
In Case C-264/14,
REQUEST for a preliminary ruling under Article 267 TFEU, from the Högsta förvaltningsdomstolen (Supreme Administrative Court, Sweden), made by decision of 27 May 2014, received at the Court on 2 June 2014, in the proceedings
Skatteverket
v
David Hedqvist,
class=”C19Centre”>THE COURT (Fifth Chamber),
composed of T. von Danwitz, President of the Fourth Chamber, acting as President of the Fifth Chamber, D. Šváby, A. Rosas (Rapporteur), E. Juhász and C. Vajda, Judges,
Advocate General: J. Kokott,
Registrar: C. Strömholm, Administrator,
having regard to the written procedure and further to the hearing on 17 June 2015,
after considering the observations submitted on behalf of:
– the Skatteverket, by M. Loeb, acting as legal adviser,
– Hedqvist, by A. Erasmie, advokat, and F. Berndt, jur. kand.,
– the Swedish Government, by A. Falk and E. Karlsson, acting as Agents,
– the German Government, by T. Henze and K. Petersen, acting as Agents,
– the Estonian Government, by K. Kraavi-Käerdi, acting as Agent,
– the European Commission, by L. Lozano Palacios, M. Owsiany-Hornung, K. Simonsson and J. Enegren, acting as Agents,
after hearing the Opinion of the Advocate General at the sitting on 16 July 2015,
gives the following
Judgment
1 This request for a preliminary ruling relates to the interpretation of Articles 2(1) and 135(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, ‘the VAT Directive’).
2 The request has been made in proceedings between the Skatteverket (Swedish tax authority) and Mr Hedqvist concerning a preliminary decision given by the Swedish Revenue Law Commission (Skatterättsnämnden) on whether transactions to exchange a traditional currency for the ‘Bitcoin’ virtual currency or vice versa, which Mr Hedqvist wished to perform through a company, were subject to value added tax (‘VAT’).
Legal context
EU law
3 Article 2 of the VAT Directive provides:
‘1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
…
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
…’
4 Article 14(1) of that directive provides:
‘“Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.’
5 Article 24(1) of that directive is worded as follows:
‘“Supply of services” shall mean any transaction which does not constitute a supply of goods.’
6 Article 135 of the VAT Directive provides:
‘(1) Member States shall exempt the following transactions:
…
(d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;
(e) transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest;
(f) transactions, including negotiation but not management or safekeeping, in shares, interests in companies or associations, debentures and other securities, but excluding documents establishing title to goods, and the rights or securities referred to in Article 15(2);
…’
Swedish law
7 Under Chapter 1 of the Law (1994:200) on VAT, (mervärdesskattelagen (1994:200), ‘the Law on VAT’), Paragraph 1 provides that VAT is to be paid to the State on supplies within national territory of taxable goods or services effected by a taxable person acting as such.
8 Under Chapter 3 of that law, Paragraph 23(1) provides that bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or which are of numismatic interest, are exempt from VAT.
9 Also under Chapter 3, Paragraph 9 provides that supplies of banking and financial services and transactions involving securities and similar transactions are exempt from tax. Banking and financial services do not include notarial activity, collection of invoices or administrative services relating to factoring or the leasing of storage facilities.
The dispute in the main proceedings and the questions referred for a preliminary ruling
10 Mr Hedqvist wishes to provide, through a company, services consisting of the exchange of traditional currency for the ‘bitcoin’ virtual currency and vice versa.
11 According to the order for reference the ‘bitcoin’ virtual currency is used, principally, for payments made between private individuals via the internet and in certain online shops that accept the currency. The virtual currency does not have a single issuer and instead is created directly in a network by a special algorithm. The system for the ‘bitcoin’ virtual currency allows anonymous ownership and the transfer of ‘bitcoin’ amounts within the network by users who have ‘bitcoin’ addresses. A ‘bitcoin’ address may be compared to a bank account number.
12 Referring to a 2012 report by the European Central Bank on virtual currencies, the referring court states that a virtual currency can be defined as a type of unregulated, digital money, which is issued and controlled by its developers and accepted by members of a specific virtual community. The ‘bitcoin’ virtual currency is one of the virtual currency schemes with ‘bidirectional flow’, which users can purchase and sell on the basis of an exchange rate. Such virtual currencies are analogous to other convertible currencies as regards their use in the real world. They allow both real and virtual goods and services to be purchased. Virtual currencies differ from electronic money, as defined in Directive 2009/110/EC of the European Parliament and the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC (OJ 2009 L 267, p. 7), in so far as, unlike that money, for virtual currencies the funds are not expressed in traditional accounting units, such as in euro, but in virtual accounting units, such as the ‘bitcoin’.
13 The referring court states that the transactions envisaged by Mr Hedqvist would be carried out electronically via the company’s website. That company would purchase units of the ‘bitcoin’ virtual currency directly from private individuals and companies, or from an international exchange site. The company would then resell the units on such an exchange site, or store them. Mr Hedqvist’s company would also sell such units to private individuals or to companies that place an order on its website. In a situation where the client has accepted the price in Swedish Crowns offered by Mr Hedqvist’s company and a payment has been received, the sold units of the ‘bitcoin’ virtual currency would be sent automatically to the ‘bitcoin’ address indicated. The ‘bitcoin’ virtual currency units sold by the company would either be those that it would purchase directly on the exchange site after the client had placed his order, or those that the company already had in stock. The price proposed by the company to clients would be based on the current price on a particular exchange site, to which a certain percentage would be added. The difference between the purchase price and the sale price would constitute Mr Hedqvist’s company’s earnings. The company would not charge any other fees.
14 The transactions that Mr Hedqvist intends to carry out are thus limited to the purchase and sale of ‘bitcoin’ virtual currency units in exchange for traditional currencies, such as the Swedish crown, or vice versa. It is not apparent from the order for reference that those transactions would include payments made using ‘bitcoin’.
15 Before starting to carry out such transactions, Mr Hedqvist requested a preliminary decision from the Revenue Law Commission in order to establish whether VAT must be paid on the purchase and sale of ‘bitcoin’ virtual currency units.
16 In a decision of 14 October 2013, the Revenue Law Commission found, on the basis of the judgment in First National Bank of Chicago (C-172/96, EU:C:1998:354), that Mr Hedqvist would be supplying an exchange service effected for consideration. The Revenue Law Commission held, however, that the exchange service was covered by the exemption under Chapter 3, Paragraph 9, of the Law on VAT.
17 According to the Revenue Law Commission, the ‘bitcoin’ virtual currency is a means of payment used in a similar way to legal means of payment. Furthermore, the term ‘legal tender’ referred to in Article 135(1)(e) of the VAT Directive is used in order to restrict the scope of the exemption as regards bank notes and coins. It follows, according to the Revenue Law Commission, that that term must be taken to mean that it relates only to bank notes and coins and not to currencies. That interpretation is also consistent with the objective of the exemptions laid down in Article 135(1)(b) to (g) of the VAT Directive, namely to avoid the difficulties involved in making financial services subject to VAT.
18 The Skatteverket appealed against the Revenue Law Commission’s decision to the Högsta förvaltningsdomstolen (Supreme Administrative Court) arguing that the service to which Mr Hedqvist’s request refers is not covered by the exemption under Chapter 3, Paragraph 9, of the Law on VAT.
19 Mr Hedqvist submits that the appeal by the Skatteverket should be dismissed and the preliminary decision by the Revenue Law Commission should be confirmed.
20 The referring court considers that it can be inferred from the judgment in First National Bank of Chicago (C-172/96, EU:C:1998:354) that transactions to exchange a virtual currency for a traditional currency and vice versa, in return for payment of a sum equal to the difference between the purchase price paid by the operator and the sale price obtained by him, constitutes the provision of services for consideration. In such a case, the question arises whether the transactions are covered by one of the exemptions for financial services laid down in Article 135(1) of the VAT Directive, more specifically, those set out in points (d) to (f) of that provision.
21 Having doubts as to whether one of those exemptions applies to such transactions, the Högsta förvaltningsdomstolen (Supreme Administrative Court) decided to stay the proceedings and refer the following questions to the Court of Justice for a preliminary ruling:
‘1. Is Article 2(1) of the VAT Directive to be interpreted as meaning that transactions in the form of what has been described as the exchange of virtual currency for traditional currency and vice versa, which is effected for consideration added by the supplier when the exchange rates are determined, constitute the supply of a service effected for consideration?
2. If so, must Article 135(1) [of that directive] be interpreted as meaning that the abovementioned exchange transactions are tax exempt?’
The questions referred
The first question
22 By its first question, the referring court asks, in essence, whether Article 2(1)(c) of the VAT Directive must be interpreted as meaning that transactions such as those at issue in the main proceedings, which consist of the exchange of traditional currency for units of the ‘bitcoin’ virtual currency and vice versa, in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, constitutes the supply of services for consideration within the meaning of that article.
23 Article 2(1) of the VAT Directive provides that the supply of goods and services for consideration within the territory of a Member State by a taxable person acting as such is to be subject to VAT.
24 It must be held, first, that the ‘bitcoin’ virtual currency with bidirectional flow, which will be exchanged for traditional currencies in the context of exchange transactions, cannot be characterised as ‘tangible property’ within the meaning of Article 14 of the VAT Directive, given that, as the Advocate General has observed in point 17 of her Opinion, that virtual currency has no purpose other than to be a means of payment.
25 The same is true for traditional currencies, since it involves money which is legal tender (see, to that effect, judgment in First National Bank of Chicago, C-172/96, EU:C:1998:354, paragraph 25).
26 Consequently, the transactions at issue in the main proceedings, which consist of the exchange of different means of payment, do not fall within the concept of the ‘supply of goods’, laid down in Article 14 of the directive. In those circumstances, those transactions constitute the supply of services, within the meaning of Article 24 of the VAT Directive.
27 As regards, in the second place, the supply of services for consideration, it must be recalled that a supply of services is effected ‘for consideration’ within the meaning of Article 2(1)(c) of the VAT Directive, and is therefore subject to VAT, only if there is a direct link between the services supplied and the consideration received by the taxable person (judgments in Loyalty Management UK and Baxi Group, C-53/09 and C-55/09, EU:C:2010:590, paragraph 51 and the case-law cited, and Serebryannay vek, C-283/12, EU:C:2013:599, paragraph 37). Such a direct link is established if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration given in return for the service supplied to the recipient (judgment in Le Rayon d’Or, C-151/13, EU:C:2014:185, paragraph 29 and the case-law cited).
28 In the case in the main proceedings, it is clear from the material in the case file submitted to the Court that there would be a synallagmatic legal relationship between Mr Hedqvist’s company and the other party to the contract in which the parties to the transaction would agree, reciprocally, to transfer amounts of a certain currency and receive the corresponding value in a virtual currency with bidirectional flow, or vice versa. It is also clear that Mr Hedqvist’s company would be remunerated for supplying the service by a consideration equal to the margin that it would include in the calculation of the exchange rate at which it would be willing to sell and purchase the currencies concerned.
29 The Court has already held that it is irrelevant, for the purposes of determining whether a supply of services is effected for consideration, that the remuneration does not take the form of a payment of a commission or specific fees (judgment in First National Bank of Chicago, C-172/96, EU:C:1998:354, paragraph 33).
30 Having regard to the foregoing considerations, it must be held that transactions such as those at issue in the main proceedings, constitute the supply of services for a consideration that has a direct link with the service provided, that is to say, the supply of services for consideration within the meaning of Article 2(1)(c) of the VAT Directive.
31 Consequently, the answer to the first question is that Article 2(1)(c) of the VAT Directive must be interpreted as meaning that transactions such as those at issue in the main proceedings, which consist of the exchange of traditional currency for units of the ‘bitcoin’ virtual currency and vice versa, in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, constitute the supply of services for consideration within the meaning of that article.
The second question
32 By its second question, the referring court asks, in essence, whether Article 135(1)(d) to (f) of the VAT Directive must be interpreted as meaning that the supply of services such as those at issue in the main proceedings, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, are exempt from VAT.
33 As a preliminary point, it should be borne in mind that, in accordance with the Court’s case-law, the exemptions laid down in Article 135(1) of the VAT Directive constitute independent concepts of EU law whose purpose is to avoid divergences in the application of the VAT system as between one Member State and another (see, inter alia, judgments of Skandinaviska Enskilda Banken, C-540/09, EU:C:2011:137, paragraph 19 and the case-law cited, and DTZ Zadelhoff, C-259/11, EU:C:2012:423, paragraph 19).
34 It is also established case-law that the terms used to specify those exemptions are to be interpreted strictly, since they constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person (judgments in Ludwig, C-453/05, EU:C:2007:369, paragraph 21, and DTZ Zadelhoff, C-259/11, EU:C:2012:423, paragraph 20).
35 Nevertheless, the interpretation of those terms must be consistent with the objectives pursued by the exemptions laid down in Article 135(1) of the VAT Directive and comply with the requirements of the principle of fiscal neutrality inherent in the common system of VAT. Thus, the requirement of strict interpretation does not mean that the terms used to specify the exemptions referred to in Article 135(1) must be construed in such a way as to deprive the exemptions of their effect (see, inter alia, judgments in Don Bosco Onroerend Goed, C-461/08, EU:C:2009:722, paragraph 25; DTZ Zadelhoff, C-259/11, EU:C:2012:423, paragraph 21; and J.J. Komen en Zonen Beheer Heerhugowaard, C-326/11, EU:C:2012:461, paragraph 20).
36 In that regard, it is clear from the Court’s case-law that the purpose of the exemptions laid down in Article 135(1)(d) to (f) of the VAT Directive is, inter alia, to alleviate the difficulties connected with determining the taxable amount and the amount of VAT deductible (see, inter alia, judgment in Velvet & Steel Immobilien, C-455/05, EU:C:2007:232, paragraph 24, and the Order in Tiercé Ladbroke, C-231/07 and C-232/07, EU:C:2008:275, paragraph 24).
37 Moreover, the transactions exempt from VAT under those provisions are, by their nature, financial transactions even though they do not necessarily have to be carried out by banks or financial institutions (see judgments in Velvet & Steel Immobilien, C-455/05, EU:C:2007:232, paragraphs 21 and 22 and the case-law cited, and Granton Advertising, C-461/12, EU:C:2014:1745, paragraph 29).
38 As regards, in the first place, the exemptions laid down in Article 135(1)(d) of the VAT Directive, it should be recalled that, according to that provision, Member States are to exempt transactions involving, inter alia, ‘deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments’.
39 The transactions exempted under that provision are thus defined according to the nature of the services provided. In order to be regarded as exempt transactions the services in question must, viewed broadly, form a distinct whole, fulfilling the specific, essential functions of a service described in that provision (see judgment in Axa UK, C-175/09, EU:C:2010:646, paragraphs 26 and 27 and the case-law cited).
40 It is clear from the wording of Article 135(1)(d) of the VAT Directive, read in the light of the judgment in Granton Advertising (C-461/12, EU:C:2014:1745, paragraphs 37 and 38), that the transactions referred to in that provision concern services or instruments that operate as a way of transferring money.
41 Furthermore, as the Advocate General observed in points 51 and 52 of her Opinion, that provision does not cover transactions that involve money itself, which are the object of a specific provision, namely Article 135(1)(e) of the VAT Directive.
42 The ‘bitcoin’ virtual currency, being a contractual means of payment, cannot be regarded as a current account or a deposit account, a payment or a transfer. Moreover, unlike a debt, cheques and other negotiable instruments referred to in Article 135(1)(d) of the VAT Directive, the ‘bitcoin’ virtual currency is a direct means of payment between the operators that accept it.
43 Therefore, transactions such as those in the main proceedings do not fall within the scope of the exemptions provided for under that provision.
44 As regards, in the second place, the exemptions laid down in Article 135(1)(e) of the VAT Directive, that provision provides that Member States are to exempt transactions involving, inter alia, ‘currency [and] bank notes and coins used as legal tender’.
45 In that regard, it must be recalled that the concepts used in that provision must be interpreted and applied uniformly in the light of the versions in all the languages of the European Union (see, to that effect, judgments in Velvet & Steel Immobilien, C-455/05, EU:C:2007:232, paragraph 16 and the case-law cited, and Commission v Spain, C-189/11, EU:C:2013:587, paragraph 56).
46 As the Advocate General observes at points 31 to 34 of her Opinion, the various language versions of Article 135(1)(e) of the VAT Directive do not allow it to be determined without ambiguity whether that provision applies only to transactions involving traditional currencies or whether, on the contrary, it is also intended to cover transactions involving another currency.
47 Where there are linguistic differences, the scope of the expression in question cannot be determined on the basis of an interpretation which is exclusively textual. That expression must therefore be interpreted in the light of the context in which it is used and of the aims and scheme of the VAT Directive (see judgments in Velvet & Steel Immobilien, C-455/05, EU:C:2007:232, paragraph 20 and the case-law cited, and Commission v Spain, C-189/11, EU:C:2013:587, paragraph 56).
48 As is recalled in paragraphs 36 and 37 of this judgment, the exemptions laid down by Article 135(1)(e) of the VAT Directive are intended to alleviate the difficulties connected with determining the taxable amount and the amount of VAT deductible which arise in the context of the taxation of financial transactions.
49 Transactions involving non-traditional currencies, that is to say, currencies other than those that are legal tender in one or more countries, in so far as those currencies have been accepted by the parties to a transaction as an alternative to legal tender and have no purpose other than to be a means of payment, are financial transactions.
50 Furthermore, as Mr Hedqvist submitted, in essence, at the hearing, in the case of exchange transactions in particular, the difficulties connected with determining the taxable amount and the amount of VAT deductible may be the same, whether it is a case of the exchange of traditional currencies, normally entirely exempt under Article 135(1)(e) of the VAT Directive, or the exchange of such currencies for virtual currencies with bi-directional flow, which — without being legal tender — are a means of payment accepted by the parties to a transaction, and vice versa.
51 It therefore follows from the context and the aims of Article 135(1)(e) that to interpret that provision as including only transactions involving traditional currencies would deprive it of part of its effect.
52 In the case in the main proceedings, it is common ground that the ‘bitcoin’ virtual currency has no other purpose than to be a means of payment and that it is accepted for that purpose by certain operators.
53 Consequently, it must be held that Article 135(1)(e) of the VAT Directive also covers the supply of services such as those at issue in the main proceedings, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients.
54 As regards, finally, the exemptions laid down in Article 135(1)(f) of the VAT Directive, it suffices to recall that that provision covers, inter alia, transactions in ‘shares, interests in companies or associations, debentures and other securities’, namely securities conferring a property right over legal persons and ‘other securities’ that have to be regarded as being comparable in nature to the other securities specifically mentioned in that provision (judgment in Granton Advertising, C-461/12, EU:C:2014:1745, paragraph 27).
55 It is common ground that the ‘bitcoin’ virtual currency is neither a security conferring a property right nor a security of a comparable nature.
56 Therefore the transactions at issue in the main proceedings do not fall within the scope of the exemptions laid down in Article 135(1)(f) of the VAT Directive.
57 Having regard to the foregoing considerations, the answer to the second question is that:
– Article 135(1)(e) of the VAT Directive must be interpreted as meaning that the supply of services such as those at issue in the main proceedings, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, are transactions exempt from VAT, within the meaning of that provision;
– Article 135(1)(d) and (f) of the VAT Directive must be interpreted as meaning that such a supply of services does not fall within the scope of application of those provisions.
Costs
58 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Fifth Chamber) hereby rules:
1. Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that transactions such as those at issue in the main proceedings, which consist of the exchange of traditional currency for units of the ‘bitcoin’ virtual currency and vice versa, in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, constitute the supply of services for consideration within the meaning of that article.
2. Article 135(1)(e) of Directive 2006/112 must be interpreted as meaning that the supply of services such as those at issue in the main proceedings, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, are transactions exempt from VAT, within the meaning of that provision.
Article 135(1)(d) and (f) of Directive 2006/112 must be interpreted as meaning that such a supply of services does not fall within the scope of application of those provisions.
[Signatures]
* Language of the case: Swedish.