Damages Limits
Cases
Hadley v Baxendale
[1854] EWHC J70
Alderson B
Now we think the proper rule in such a case as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case, and of this advantage it would be very unjust to deprive them. Now the above principles are those by which we think the jury ought to be guided in estimating the damages arising out of any breach of contract…
But it is obvious that, in the great multitude of cases of millers sending off broken shafts to third persons by a carrier under ordinary circumstances, such consequences would not, in all probability, have occurred, and these special circumstances were here never communicated by the plaintiffs to the defendants. It follows, therefore, that the loss of profits here cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made this contract.”
Robinson v Harman
(1848) 1 Ex Rep 850, 154 ER 363
Parke B
“ the rule of the common law is, that where a party sustains loss by reason of a breach of contract, he is, so far as money can do it to be placed in the same situation, with respect to damages, as if the contract had been performed.
……
The rule must be discharged. The defendant contracted to grant a good and valid lease, and the learned judge was right in rejecting evidence which would go to alter the contract admitted by the plea.
The next question is, what damages is the plaintiff entitled to recover? The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed. The case of Flureau v Thornhill qualified that rule of the common law. It was there held, that contracts for the sale of real estate are merely on condition that the vendor has a good title; so that, when a person contracts to sell real property, there is an implied understanding that, if he fail to make a good title, the only damages recoverable are the expenses which the vendee may be put to in investigating the title. The present case comes within the rule of the common law, and I am unable to distinguish it from Hopkins v Grazebrook.
”
Alderson B
“ I am of the same opinion. The damages have been assessed according to the general rule of law, that where a person makes a contract and breaks it, he must pay the whole damage sustained. Upon that general rule an exception was engrafted by the case of Flureau v Thornhill, and upon that exception the case of Hopkins v Grazebrook engrafted another exception. This case comes within the latter, by which the old common-law rule has been restored. Therefore the defendant, having undertaken to grant a valid lease, not having any colour of title, must pay the loss which the plaintiff has sustained by not having that for which he contracted. ”
British Westinghouse v Underground Electric Railways Co of London Ltd
[1912] AC 673
Viscount Haldane LC
“ The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming in respect of any part of the damage which is due to his neglect to take such steps. ”
The duty to mitigate is not to ‘take any step which a reasonable and prudent man would not ordinarily take in the course of his business.’ Only reasonable steps.
Victoria Laundry (Windsor) v Newman Industries
[1949] 2 KB 528
Asquith LJ
‘1: It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed: (Sally Wertheim v..Chicoutimi Pulp Company [1911] AC 301. This purpose, if relentlessly pursued, would provide him with a complete indemnity for loss de facto resulting from a particular breach, however improbable, however unpredictable. This, in contract at least, is recognised as too harsh a rule : hence,
2: In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach,
3: What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach.’ and
‘But to this knowledge, which a contract breaker is assumed to possess whether he actually possesses it or not [under the first rule] there may have to be added in a particular case knowledge which he actually possesses of special circumstances outside the ‘ordinary course of things’ of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the ‘second rule’ so as to make additional loss recoverable’.
Transfield Shipping Inc v Mercator Shipping Inc
[2008] UKHL 48 2008] 3 WLR 345, [2008] 4 All ER 159, [2009] AC 61, [2009] 1 AC 61, [2008] 2 All ER (Comm) 753
Lord Hoffmann
The question of principle has been extensively discussed in the literature. Recent articles by Adam Kramer (“An Agreement-Centred Approach to Remoteness and Contract Damages”) in Cohen and McKendrick (ed), Comparative Remedies for Breach of Contract (2004) pp 249-286 Andrew Tettenborn (“Hadley v Baxendale Foreseeability: a Principle Beyond its Sell-by Date”) in (2007) 23 Journal of Contract Law 120-147) and Andrew Robertson (“The basis of the remoteness rule in contract”) (2008) 28 Legal Studies 172-196) are particularly illuminating. They show that there is a good deal of support in the authorities and academic writings for the proposition that the extent of a party’s liability for damages is founded upon the interpretation of the particular contract; not upon the interpretation of any particular language in the contract, but (as in the case of an implied term) upon the interpretation of the contract as a whole, construed in its commercial setting. Professor Robertson considers this approach somewhat artificial, since there is seldom any helpful evidence about the extent of the risks the particular parties would have thought they were accepting. I agree that cases of departure from the ordinary foreseeability rule based on individual circumstances will be unusual, but limitations on the extent of liability in particular types of contract arising out of general expectations in certain markets, such as banking and shipping, are likely to be more common. There is, I think, an analogy with the distinction which Lord Cross of Chelsea drew in Liverpool City Council v Irwin [1977] AC 239, 257-258 between terms implied into all contracts of a certain type and the implication of a term into a particular contract.
It seems to me logical to found liability for damages upon the intention of the parties (objectively ascertained) because all contractual liability is voluntarily undertaken. It must be in principle wrong to hold someone liable for risks for which the people entering into such a contract in their particular market, would not reasonably be considered to have undertaken.
The view which the parties take of the responsibilities and risks they are undertaking will determine the other terms of the contract and in particular the price is paid. Anyone asked to assume a large and unpredictable risk will require some premium in exchange. A rule of law which imposes liability upon a party for a risk which he reasonably thought was excluded gives the other party something for nothing. And as Willes J said in British Columbia Saw Mill Co Ltd v Nettleship (1868) LR 3 CP 499, 508:
“I am disposed to take the narrow view, that one of two contracting parties ought not to be allowed to obtain an advantage which he has not paid for.”
In their submissions to the House, the owners said that the “starting point” was that damages were designed to put the innocent party, so far as it is possible, in the position as if the contract had been performed: see Robinson v Harman (1848) 1 Exch 850, 855. However, in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd (sub nom South Australia Asset Management Corpn v York Montague Ltd) [1997] AC 191, 211, I said (with the concurrence of the other members of the House):
“I think that this was the wrong place to begin. Before one can consider the principle on which one should calculate the damages to which a plaintiff is entitled as compensation for loss, it is necessary to decide for what kind of loss he is entitled to compensation. A correct description of the loss for which the valuer is liable must precede any consideration of the measure of damages.”
In other words, one must first decide whether the loss for which compensation is sought is of a “kind” or “type” for which the contract-breaker ought fairly to be taken to have accepted responsibility. In the South Australia case the question was whether a valuer, who had (in breach of an implied term to exercise reasonable care and skill) negligently advised his client bank that property which it proposed to take as security for a loan was worth a good deal more than its actual market value, should be liable not only for losses attributable to the deficient security but also for further losses attributable to a fall in the property market. The House decided that he should not be liable for this kind of loss:
“In the case of an implied contractual duty, the nature and extent of the liability is defined by the term which the law implies. As in the case of any implied term, the process is one of construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer: neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking.” (p 212)
What is true of an implied contractual duty (to take reasonable care in the valuation) is equally true of an express contractual duty (to redeliver the ship on the appointed day). In both cases, the consequences for which the contracting party will be liable are those which “the law regards as best giving effect to the express obligations assumed” and “[not] extending them so as to impose on the [contracting party] a liability greater than he could reasonably have thought he was undertaking”.
The effect of the South Australia case was to exclude from liability the damages attributable to a fall in the property market notwithstanding that those losses were foreseeable in the sense of being “not unlikely” (property values go down as well as up) and had been caused by the negligent valuation in the sense that, but for the valuation, the bank would not have lent at all and there was no evidence to show that it would have lost its money in some other way. It was excluded on the ground that it was outside the scope of the liability which the parties would reasonably have considered that the valuer was undertaking.
That seems to me in accordance with the careful way in which Robert Goff J stated the principle in Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA (The Pegase) [1981] Lloyd’s Rep 175, 183, where the emphasis is upon what a reasonable person would have considered to be the extent of his responsibility:
“The test appears to be: have the facts in question come to the defendant’s knowledge in such circumstances that a reasonable person in the shoes of the defendant would, if he had considered the matter at the time of making the contract, have contemplated that, in the event of a breach by him, such facts were to be taken into account when considering his responsibility for loss suffered by the plaintiff as a result of such breach.”
A similar approach was taken by the Court of Appeal in Mulvenna v Royal Bank of Scotland plc [2003] EWCA Civ 1112, mentioned by Professor Robertson in the article to which I have referred. This was an application to strike out a claim for damages for the loss of profits which the claimant said he would have made if the bank had complied with its agreement to provide him with funds for a property development. The Court of Appeal held that even on the assumption that the bank knew of the purpose for which the funds were required and that it was foreseeable that he would suffer loss of profit if he did not receive them, the damages were not recoverable. Sir Anthony Evans said:
“The authorities to which we were referred…demonstrate that the concept of reasonable foreseeability is not a complete guide to the circumstances in which damages are recoverable as a matter of law. Even if the loss was reasonably foreseeable as a consequence of the breach of duty in question (or of contract, for the same principles apply), it may nevertheless be regarded as ‘too remote a consequence’ or as not a consequence at all, and the damages claim is disallowed. In effect, the chain of consequences is cut off as a matter of law, either because it is regarded as unreasonable to impose liability for that consequence of the breach (The Pegase [1981] 1 Lloyd’s Rep 175 Robert Goff J), or because the scope of the duty is limited so as to exclude it (Banque Bruxelles SA v. Eagle Star [1997] AC 191), or because as a matter of commonsense the breach cannot be said to have caused the loss, although it may have provided the opportunity for it to occur…”
By way of explanation for why in such a case liability for lost profits is excluded, Professor Robertson (at p 183) offers what seem to me to be some plausible reasons:
“It may be considered unjust that the bank should be held liable for the loss of profits simply because the bank knew of the proposed development at the time the refinancing agreement was made. The imposition of such a burden on the bank may be considered unjust because it is inconsistent with commercial practice for a bank to accept such a risk in a transaction of this type, or because the quantum of the liability is disproportionate to the scale of the transaction or the benefit the bank stood to receive.”
It is generally accepted that a contracting party will be liable for damages for losses which are unforeseeably large, if loss of that type or kind fell within one or other of the rules in Hadley v Baxendale: see, for example, Staughton J in Transworld Oil Ltd v North Bay Shipping Corpn (The Rio Claro) [1987] Lloyd’s Rep 173, 175 and Jackson v Royal Bank of Scotland plc [2005] 1 WLR 377. That is generally an inclusive principle: if losses of that type are foreseeable, damages will include compensation for those losses, however large. But the South Australia and Mulvenna cases shows that it may also be an exclusive principle and that a party may not be liable for foreseeable losses because they are not of the type or kind for which he can be treated as having assumed responsibility.
What is the basis for deciding whether loss is of the same type or a different type? It is not a question of Platonist metaphysics. The distinction must rest upon some principle of the law of contract. In my opinion, the only rational basis for the distinction is that it reflects what would have reasonable have been regarded by the contracting party as significant for the purposes of the risk he was undertaking. In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, where the plaintiffs claimed for loss of the profits from their laundry business because of late delivery of a boiler, the Court of Appeal did not regard “loss of profits from the laundry business” as a single type of loss. They distinguished (at p 543) losses from “particularly lucrative dyeing contracts” as a different type of loss which would only be recoverable if the defendant had sufficient knowledge of them to make it reasonable to attribute to him acceptance of liability for such losses. The vendor of the boilers would have regarded the profits on these contracts as a different and higher form of risk than the general risk of loss of profits by the laundry.
If, therefore, one considers what these parties, contracting against the background of market expectations found by the arbitrators, would reasonably have considered the extent of the liability they were undertaking, I think it is clear that they would have considered losses arising from the loss of the following fixture a type or kind of loss for which the charterer was not assuming responsibility. Such a risk would be completely unquantifiable, because although the parties would regard it as likely that the owners would at some time during the currency of the charter enter into a forward fixture, they would have no idea when that would be done or what its length or other terms would be. If it was clear to the owners that the last voyage was bound to overrun and put the following fixture at risk, it was open to them to refuse to undertake it. What this shows is that the purpose of the provision for timely redelivery in the charterparty is to enable the ship to be at the full disposal of the owner from the redelivery date. If the charterer’s orders will defeat this right, the owner may reject them. If the orders are accepted and the last voyage overruns, the owner is entitled to be paid for the overrun at the market rate. All this will be known to both parties. It does not require any knowledge of the owner’s arrangements for the next charter. That is regarded by the market is being, as the saying goes, res inter alios acta.
The findings of the majority arbitrators shows that they considered their decision to be contrary to what would have been the expectations of the parties, but dictated by the rules in Hadley v Baxendale as explained in The Heron II [1969] 1 AC 350. But in my opinion these rules are not so inflexible; they are intended to give effect to the presumed intentions of the parties and not to contradict them.
The owners submit that the question of whether the damage is too remote is a question of fact on which the arbitrators have found in their favour. It is true that the question of whether the damage was foreseeable is a question of fact: see Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196. But the question of whether a given type of loss is one for which a party assumed contractual responsibility involves the interpretation of the contract as a whole against its commercial background, and this, like all questions of interpretation, is a question of law.
The owners say that the parties are entirely at liberty to insert an express term excluding consequential loss if they want to do so. Some standard forms of charter do. I suppose it can be said of many disputes over interpretation, especially over implied terms, that the parties could have used express words or at any rate expressed themselves more clearly than they have done. But, as I have indicated, the implication of a term as a matter of construction of the contract as a whole in its commercial context and the implication of the limits of damages liability seem to me to involve the application of essentially the same techniques of interpretation. In both cases, the court is engaged in construing the agreement to reflect the liabilities which the parties may reasonably be expected to have assumed and paid for. It cannot decline this task on the ground that the parties could have spared it the trouble by using clearer language. In my opinion, the findings of the arbitrators and the commercial background to the agreement are sufficient to make it clear that the charterer cannot reasonably be regarded as having assumed the risk of the owner’s loss of profit on the following charter. I would therefore allow the appeal.
LORD HOPE OF CRAIGHEAD
The plaintiff has relied on two matters for the purpose of aggravating the damages to which he is entitled. In the first place, he said that the bank manager not only refused him the money to which he was entitled, but refused it contemptuously, and with contumely. Indeed, I have no doubt that the plaintiff was very badly treated indeed by the bank. In the second place, he urged that by reason of the first refusal he was subjected to great humiliation in raising money to pay his workmen. He had to pawn some of his personal belongings to raise part of the money, and he had to borrow part of it from a friend. These matters were greatly pressed upon us, and they evoke much sympathy with the plaintiff, but they are not matters which can be considered as elements of damages. It is very clearly settled, both in this country and in England, and affirmed in many cases, that in actions for breach of contract damages may not be given for such matters as disappointment of mind, humiliation, vexation, or the like, nor may exemplary or vindictive damages be awarded. See Breen v. Cooper (1); Hamlin v.Great Northern Railway (2); Addis v. Gramophone Co., Ltd. (3). I am not now, of course, referring to the three recognised anomaliesactions for breaches of promise of marriage, actions for dishonouring traders’ cheques, and a special class of actions for failure by a vendor to make title.
In the case of a breach of a simple contract to pay money, the law in this country, settled by a long line of authorities, is that the measure of damages is a reasonable compensation for non-performance of the contract, and that the amount of such compensation is to be arrived at by allowing interest on the money (which may vary in amount). See Fletcher v. Tayleur (4); British Columbia Sawmill Co. v. Nettleship (5); Prehn v. Royal Bank of Liverpool (6); Wallis v. Smith (7); In re English Bank of the River Plate, ex parte Bank of Brazil (8); South African Territories v. Wallington (9); Parker v. Dickie (10).
Irish Telephone Rentals v. I.C.S. Building Society [1992] 2 IR 525
Costello J. H.C.
Complaints about the system were made verbally to the plaintiff by Mr. Nolan the defendant’s general manager. He complained about the system at a meeting in December, 1985, and at six meetings in 1986. A letter written in May, 1987, requiring information about the amount payable under clause 11 should the defendant terminate the contract was written because of dissatisfaction with the system. This dissatisfaction deepened and towards the end of 1987 an expert consultant was called in to advise the defendant. As a result, specifications for a new system were prepared and tenders sought. When the plaintiff’s tender was not accepted the letter of the 23rd May, 1988, was written terminating the contract. I am satisfied that this decision did not result from a desire to avoid contractual obligations which the defendant found to be onerous but because of defects in the system which were found to be insupportable.
In reaching the conclusion that the problems which the defendant encountered were caused by the defects which I have outlined I have not lost sight of other possible causes. I have heard the evidence of the telephone operators who were employed by the defendant at the relevant time. They were both experienced telephonists and the delays were not caused by their inadequacies. There are now two operators and a full-time receptionist employed by the defendant. But this is because of the expansion in the defendant’s business which has occurred since 1988. Prior to, and at the time of the termination of the contract the telephonist acted as a receptionist. But there is a record of the level of daily calls received by the defendant at the date of termination and these could have been adequately handled had the system not been defective. The problems the defendant encountered were not the fault of the Telecom Eireann lines or of an inadequate number of lines for incoming calls at that time. I have had evidence that the Mitel System with cradle-tapping internal ‘phones has been installed elsewhere and works well. There are, however, several possible explanations as to why the system worked well elsewhere but not on the defendant’s premises. For example, the calibration on the cradle-tapping system in other premises might have been different or the requirements for transferring internal calls might have been on a lower level, so that the fact of the system working well elsewhere does not vitiate the conclusions which, on the balance of probabilities, I have arrived at on the evidence in this case.
That evidence satisfies me that by 1988 the delays experienced by outside callers were of a serious nature. As a result the installations hired by the defendants did not provide a telephone communications system which would enable persons wishing to communicate by telephone with the defendant to have their calls answered within a time which would be acceptable to a reasonable caller. The system, in my judgment, was by that time not fit for the purpose for which it was being hired.
….Clause 11 provides as follows:
“If the subscriber” (that is, the defendant) “shall repudiate this contract and the company” (that is, the plaintiff) “shall accept such repudiation so as to terminate this contract the company may thereupon remove the installation and the subscriber shall pay to the company all payments then accrued and also a sum equal to the present value on a five per cent basis of the remaining rentals that would have been payable under this contract if not so terminated less an allowance of twenty-five per cent to cover the estimated cost of maintainence and value of recovered material. The said sums shall be payable as liquidated damages it being an agreed estimate of the loss the company would suffer.”
I have the following comments to make on this clause.
(1) The estimate of the plaintiff’s loss arising from premature termination is based on the gross rents outstanding for the unexpired term of the contract. However, the clause accepts, and correctly accepts, that the plaintiff is not entitled to the full amount of these rents. It also accepts that whatever may be the figure for the agreed loss which the plaintiff may suffer that figure should be discounted because instead of receiving the balance of the rents in installments over the years an accelerated payment of the rent will be made to the plaintiff. The discount in clause 11 is 5 per cent. Whilst the defendant readily accepts the principle of discounting it is urged that the sum estimated for the plaintiff’s loss should be discounted at a higher rate.
(2) The figure for the gross rent is to be reduced, according to clause 11, by a further 25 per cent of the discounted rent because (a) the plaintiff will have been saved maintainence costs during the unexpired term and (b) an allowance should be given for the value of the installations recovered. The plaintiff’s evidence is that the 25 per cent deduction was calculated by allowing a figure of 5 per cent of the discounted gross rent as the percentage attributable to maintainence charges and 20 per cent of the discounted gross rent as the percentage attributable to the value of the returned installations.
(3) It will be observed that the formula is based on a deduction from the gross amount of the outstanding rent of a sum equivalent to 28.75% of the gross rent (25% of 5% of the gross rents) in respect of the estimated cost of maintainence and the estimated value of the recovered installations. The clause was attempting to make an estimate of what the plaintiff would lose by the contract’s premature termination. As the correct measure of the plaintiff’s loss on premature termination at any point of time during the life of the contract is the profit it would have earned in the outstanding period of the contract’s life the formula in clause 11 can only be correct if it produces a figure which approximates to that profit. It follows, therefore that this clause can be shown to be a correct estimate of the plaintiff’s loss if in every case of premature termination the profit thereby lost is 71.25% of the gross rental then outstanding.
(4) Clause 11 is a standard clause. All the plaintiff’s hiring contracts contain this estimate of the loss suffered on each of the plaintiff’s contracts should they be prematurely terminated. The defendant has submitted that the sum calculated in accordance with the condition does not represent a genuine pre-estimate of the actual loss which the plaintiff sustained as a result of the wrongful repudiation of the hiring agreement but is a penalty clause which the court should not enforce. The courts have evolved various rules for considering whether a stipulated sum is a penalty or a genuine pre-estimate. That which is relevant to the present case is that stated by Lord Dunedin in Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd. [1915] A.C. 79 at p. 87:
“It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.”
The application of this principle is to be seen in the majority decision of the Court of Appeal in England in Robophone Facilities Ltd. v. Blank [1966] 1 W.L.R. 1428 in which the court considered a contract for the hiring of a telephone-answering machine for a seven year period which was repudiated before the hiring began. The hiring agreement contained a clause which made provision in the event of premature termination for the payment of agreed liquidated damages equal to fifty per cent of the total of the rentals due. In deciding that the sum of fifty per cent was a genuine pre-estimate of loss and not a penalty Lord Diplock examined what would be recoverable by way of damages assessed on common law principles and concluded that because 50 per cent of the gross rent would not produce a figure which was “extravagantly greater”than those damages the clause was enforceable.
Before considering in greater detail the operation in this case of clause 11 I should give some more detail of how the plaintiff’s claim is made up.
The plaintiff has calculated that there were 9 full years of the agreement to run from the date of termination. The annual rent at that time (which had been increased over the years pursuant to the rent revision clause) was then £1,438.16. This annual rent was discounted over a nine year period by 5 per cent giving a discounted figure of £10,222.15. There was added to this one quarter’s rent unpaid in 1988 (that is, £359.51) giving a total of £10,581.69. A figure of 25% of this sum was then calculated, that is a sum of £2,645.42. This was deducted from the sum of £10,581.69 giving a figure of £7,936.27. It is to be noted that the gross rent for the unexpired nine year period of the hiring was £13,043.62 according to these calculations.
I have come to the conclusion that the formula contained in clause 11 does not produce a liquidated sum that can properly be regarded as a genuine pre-estimate made at the date of the contract of the loss which the plaintiff would suffer should the contract be prematurely determined and that it is in reality a penalty and therefore unenforceable. My reasons are as follows:
(a) In estimating the plaintiffs loss clause 11 correctly allows a deduction from the gross rents of the sums saved in maintainence charges. But the evidence establishes that the 5 per cent figure is an estimate not of all the maintainence charges which would have been incurred had the contract run its course but only an estimate of the cost of materials used in maintainence and expenses such as daily allowance, petrol and the travelling expenses of maintainence staff. The wages of the maintainence staff are excluded. Support for this approach is claimed by the plaintiff from an unreported judgment of the High Court in England (the transcript of which was made available) in Telephone Rentals Ltd. (the plaintiff’s English parent company) v. Photophone Ltd. delivered the 8th February, 1957.
I do not think that this approach is correct and, with respect, I cannot follow that judgment to which I was referred. In estimating the loss which the plaintiff would suffer the draftsman of clause 11 should have attempted to estimate the net profit which the plaintiff would have earned had the contract been performed. This net profit should have been calculated by deducting the actual total costs of maintainence and not only a proportion of those costs. It seems to me that this error produces an estimate very much in excess of the plaintiffs actual loss and cannot be regarded as a genuine pre-estimate of that loss.
(b) The clause makes no allowance for other deductions which in my judgment should have been made from the gross rent figure. The evidence establishes that when originally fixing the rent under the contract the plaintiff took into account not only the likely maintainence charges but also finance charges, administrative costs and engineering costs. Any genuine calculation of the actual loss likely to be suffered from premature termination should make an allowance for these charges as otherwise the plaintiff would receive more than the profit it would have made had the contract run its course. As I will show later it would have been a simple enough matter to estimate what that profit would have been. But by only deducting maintainence charges (and only a portion of such charges at that) the clause seriously overestimates the profit which the plaintiff would have made on the hiring.
(c) Part of the twenty-five per cent deduction is based on an estimate of the value of the materials obtained at the date of premature termination. The evidence established that the clause was based on the assumption that this value would be twenty per cent of the discounted gross rents. This, in my view, is an entirely arbitrary figure and cannot be regarded as a genuine pre-estimate of the value of the recovered installations. It is to be borne in mind that the hiring was to last for twelve years and that there was a rent variation clause. Perhaps by a coincidence 20 per cent of the discounted rent might at some point during that period approximate to the depreciated value of the installations. But this would be mere coincidence; there is no real connection between the figures produced by these calculations. The facts of this case illustrate the point. Twenty per cent of the discounted rent at the date of termination of the broadcasting contracts was £2,116. But in fact the installations when returned were valueless. Twenty per cent of the discounted value of the outstanding rents under the telephone contracts was £16,789. In fact their value was only £7,500 (only the switchboard being marketable). It seems to me that the relationship between discounted value of outstanding rents due at any point of time during the contract and the then value of the installations at that point of time is so tenuous that an estimate of the plaintiff’s loss based on this connection cannot be a genuine one.
(d) The result of the operation of the formula is to award a liquidated sum equal to 71.25 per cent of the gross rent, less five per cent for accelerated payment. This predicates a net profit of 71.25 per cent had the contract not been terminated. This is quite an enormous not profit. Whilst the onus is on the party who alleges that a clause in a contract is a penalty and not a genuine pre-estimate of the loss which would be suffered by premature termination I think the onus is discharged once the clause in question is based on the assumption that this is an estimate of the profit the plaintiff lost. The plaintiff is engaged in the business of letting goods on hire. Its turnover in its profit and loss account would therefore (apart from an occasional and small sum received for goods recovered prematurely and sold) represent its annual rents received under all its contracts. Its profit and loss account would show the net profit (after deducting all maintainence charges administrative and financial charges and depreciation). This would indicate the average net profit on each of its hiring contracts. If clause 11 (which is a standard clause in all its contracts) is a correct estimate of the net profit made on each of its hiring contracts this would mean that the net profit figure in its profit and loss account would be about 71.25 per cent of its turnover.
The plaintiff has not produced its profit and loss account and so I do not know what it shows. But I am entitled to apply the knowledge of financial affairs which is available to every reader of the daily press from which companies’ net profits as a percentage of their turnover is shown for an extensive range of different classes of businesses. These, of course, vary widely. In the retail trade a net profit of ten per cent of turnover is an average figure. In some manufacturing companies it may be considerably less or considerably more. A net profit of seventy one per cent of turnover would be a staggeringly large one in any business and in the absence of proof that this is what the plaintiff earned I am driven to the conclusion that the estimate of loss contained in clause 11 is not a genuine pre-estimate but is a penalty.
I cannot therefore allow the plaintiff’s claim based on clause 11 and must assess damages based on the actual loss I think the plaintiff suffered.
The plaintiff recovered back the equipment let under the contracts but was unable to re-let or sell them. The plaintiff’s damages will therefore be an estimate of the profit lost on the transaction, appropriately discounted for accelerated payment. The gross rent which would have been received for the nine year balance of the contract was £13,043.62 (assuming no increase, in the rent, an assumption the plaintiff has made in its calculations). I have been given no information as to what the plaintiff’s average net profit is, but bearing in mind that the evidence establishes that the plaintiff’s business is a competitive one (which would oblige them to keep their hiring charges at a reasonable competitive level) and that the plaintiff is a long established firm (which would give it the benefit of a considerable good-will) I would consider it probable that a net profit of twenty per cent of gross rents is what the plaintiff would have earned on average. There is nothing to suggest that there are any special circumstances which would justify an award for breach of this particular contract on a basis higher than average net profit and so the plaintiff’s loss of profit for the last nine years of this transaction is £2,608.72 (20% of £13,043.62). I have very little evidence to help me on how this sum should be discounted and I will, in the absence of evidence, accept the five per cent figure contained in clause 11. This means that there should be a deduction of £130.47, giving an award for the loss the plaintiff has suffered for this period of £2,478.29. To this is to be added the loss in relation to one quarter of the 1988 rent, namely, £359.51. Twenty per cent of this sum, discounted by five per cent is £68.04. This gives a total figure for damages of £2,546.69. The plaintiff is entitled to an award of this sum.
I have assessed damages in the light of the facts established in this case. I do not think that I am required to assess them on the different basis which the facts established in In re Ranks (Ireland) Ltd. (In liquidation) [1989] I.R. 1 required.
Transfield Shipping Inc v Mercator Shipping Inc
[2008] UKHL 48 [2008] 2 Lloyd’s Rep 275, [2009] 1 AC 61, [2008] 3 WLR 345, [2008] 4 All ER 159, [2008] Bus LR 1395, [2009] AC 61, [2008] UKHL 48, [2008] 2 CLC 1, [2008] 2 All ER (Comm) 753
Lord Hoffman
The arbitrators, by a majority, found for the owners. They said that the loss on the new fixture fell within the first rule in Hadley v Baxendale (1854) 9 Exch 341, 354 as arising “naturally, ie according to the usual course of things, from such breach of contract itself”. It fell within that rule because it was damage “of a kind which the [charterer], when he made the contract, ought to have realised was not unlikely to result from a breach of contract [by delay in redelivery]”: see Lord Reid in C Czarnikow Ltd v Koufos (The Heron II) [1969] 1 AC 350, 382-383. The dissenting arbitrator did not deny that a charterer would have known that the owners would very likely enter into a following fixture during the course of the charter and that late delivery might cause them to lose it. But he said that a reasonable man in the position of the charterers would not have understood that he was assuming liability for the risk of the type of loss in question. The general understanding in the shipping market was that liability was restricted to the difference between the market rate and the charter rate for the overrun period and “any departure from this rule [is] likely to give rise to a real risk of serious commercial uncertainty which the industry as a whole would regard as undesirable.”
The majority arbitrators, in their turn, did not deny that the general understanding in the industry was that liability was so limited. They said (at para 17):
“The charterers submitted that if they had asked their lawyers or their Club what damages they would be liable for if the vessel was redelivered late, the answer would have been that they would be liable for the difference between the market rate and the charter rate for the period of the late delivery. We agree that lawyers would have given such an answer”.
But the majority said that this was irrelevant. A broker “in a commercial situation” would have said that the “not unlikely” results arising from late delivery would include missing dates for a subsequent fixture, a dry docking or the sale of the vessel. Therefore, as a matter of law, damages for loss of these types was recoverable. The understanding of shipping lawyers was wrong.
On appeal from the arbitrators, Christopher Clarke J [2007] 1 Lloyd’s Rep 19 and the Court of Appeal (Ward, Tuckey and Rix LJJ) [2007] 2 Lloyd’s Rep 555 upheld the majority decision. The case therefore raises a fundamental point of principle in the law of contractual damages: is the rule that a party may recover losses which were foreseeable (“not unlikely”) an external rule of law, imposed upon the parties to every contract in default of express provision to the contrary, or is it a prima facie assumption about what the parties may be taken to have intended, no doubt applicable in the great majority of cases but capable of rebuttal in cases in which the context, surrounding circumstances or general understanding in the relevant market shows that a party would not reasonably have been regarded as assuming responsibility for such losses?
Before I come to this point of principle, I should say something about the authorities upon which the understanding of shipping lawyers was based. There is no case in which the question now in issue has been raised. But that in itself may be significant. This cannot have been the first time that freight rates have been volatile. There must have been previous cases in which late redelivery caused the loss of a profitable following fixture. But there is no reported case in which such a claim has been made. Instead, there has been a uniform series of dicta over many years in which judges have said or assumed that the damages for late delivery are the difference between the charter rate and the market rate: see for examples Lord Denning MR in Alma Shipping Corpn of Monrovia v Mantovani (The Dione) [1975] 1 Lloyd’s Rep 115, 117-118; Lord Denning MR in Arta Shipping Co Ltd v Thai Europe Tapioca Service Ltd (The Johnny) [1977] 2 Lloyd’s Rep 1, 2; Bingham LJ in Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (The Peonia) [1991] 1 Lloyd’s Rep 100, 118. Textbooks have said the same: see Scrutton on Charterparties 20th ed (1996), pp 348-349; Wilford and others Time Charters 5th ed (2003), at para 4.20. Nowhere is there a suggestion of even a theoretical possibility of damages for the loss of a following fixture.
The question of principle has been extensively discussed in the literature. Recent articles by Adam Kramer (“An Agreement-Centred Approach to Remoteness and Contract Damages”) in Cohen and McKendrick (ed), Comparative Remedies for Breach of Contract (2004) pp 249-286 Andrew Tettenborn (“Hadley v Baxendale Foreseeability: a Principle Beyond its Sell-by Date”) in (2007) 23 Journal of Contract Law 120-147) and Andrew Robertson (“The basis of the remoteness rule in contract”) (2008) 28 Legal Studies 172-196) are particularly illuminating. They show that there is a good deal of support in the authorities and academic writings for the proposition that the extent of a party’s liability for damages is founded upon the interpretation of the particular contract; not upon the interpretation of any particular language in the contract, but (as in the case of an implied term) upon the interpretation of the contract as a whole, construed in its commercial setting. Professor Robertson considers this approach somewhat artificial, since there is seldom any helpful evidence about the extent of the risks the particular parties would have thought they were accepting. I agree that cases of departure from the ordinary foreseeability rule based on individual circumstances will be unusual, but limitations on the extent of liability in particular types of contract arising out of general expectations in certain markets, such as banking and shipping, are likely to be more common. There is, I think, an analogy with the distinction which Lord Cross of Chelsea drew in Liverpool City Council v Irwin [1977] AC 239, 257-258 between terms implied into all contracts of a certain type and the implication of a term into a particular contract.
It seems to me logical to found liability for damages upon the intention of the parties (objectively ascertained) because all contractual liability is voluntarily undertaken. It must be in principle wrong to hold someone liable for risks for which the people entering into such a contract in their particular market, would not reasonably be considered to have undertaken.
The view which the parties take of the responsibilities and risks they are undertaking will determine the other terms of the contract and in particular the price is paid. Anyone asked to assume a large and unpredictable risk will require some premium in exchange. A rule of law which imposes liability upon a party for a risk which he reasonably thought was excluded gives the other party something for nothing. And as Willes J said in British Columbia Saw Mill Co Ltd v Nettleship (1868) LR 3 CP 499, 508:
“I am disposed to take the narrow view, that one of two contracting parties ought not to be allowed to obtain an advantage which he has not paid for.”
In their submissions to the House, the owners said that the “starting point” was that damages were designed to put the innocent party, so far as it is possible, in the position as if the contract had been performed: see Robinson v Harman (1848) 1 Exch 850, 855. However, in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd (sub nom South Australia Asset Management Corpn v York Montague Ltd) [1997] AC 191, 211, I said (with the concurrence of the other members of the House):
“I think that this was the wrong place to begin. Before one can consider the principle on which one should calculate the damages to which a plaintiff is entitled as compensation for loss, it is necessary to decide for what kind of loss he is entitled to compensation. A correct description of the loss for which the valuer is liable must precede any consideration of the measure of damages.”
In other words, one must first decide whether the loss for which compensation is sought is of a “kind” or “type” for which the contract-breaker ought fairly to be taken to have accepted responsibility. In the South Australia case the question was whether a valuer, who had (in breach of an implied term to exercise reasonable care and skill) negligently advised his client bank that property which it proposed to take as security for a loan was worth a good deal more than its actual market value, should be liable not only for losses attributable to the deficient security but also for further losses attributable to a fall in the property market. The House decided that he should not be liable for this kind of loss:
“In the case of an implied contractual duty, the nature and extent of the liability is defined by the term which the law implies. As in the case of any implied term, the process is one of construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer: neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking.” (p 212)
What is true of an implied contractual duty (to take reasonable care in the valuation) is equally true of an express contractual duty (to redeliver the ship on the appointed day). In both cases, the consequences for which the contracting party will be liable are those which “the law regards as best giving effect to the express obligations assumed” and “[not] extending them so as to impose on the [contracting party] a liability greater than he could reasonably have thought he was undertaking”.
The effect of the South Australia case was to exclude from liability the damages attributable to a fall in the property market notwithstanding that those losses were foreseeable in the sense of being “not unlikely” (property values go down as well as up) and had been caused by the negligent valuation in the sense that, but for the valuation, the bank would not have lent at all and there was no evidence to show that it would have lost its money in some other way. It was excluded on the ground that it was outside the scope of the liability which the parties would reasonably have considered that the valuer was undertaking.
That seems to me in accordance with the careful way in which Robert Goff J stated the principle in Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA (The Pegase) [1981] Lloyd’s Rep 175, 183, where the emphasis is upon what a reasonable person would have considered to be the extent of his responsibility:
“The test appears to be: have the facts in question come to the defendant’s knowledge in such circumstances that a reasonable person in the shoes of the defendant would, if he had considered the matter at the time of making the contract, have contemplated that, in the event of a breach by him, such facts were to be taken into account when considering his responsibility for loss suffered by the plaintiff as a result of such breach.”
A similar approach was taken by the Court of Appeal in Mulvenna v Royal Bank of Scotland plc [2003] EWCA Civ 1112, mentioned by Professor Robertson in the article to which I have referred. This was an application to strike out a claim for damages for the loss of profits which the claimant said he would have made if the bank had complied with its agreement to provide him with funds for a property development. The Court of Appeal held that even on the assumption that the bank knew of the purpose for which the funds were required and that it was foreseeable that he would suffer loss of profit if he did not receive them, the damages were not recoverable. Sir Anthony Evans said:
“The authorities to which we were referred…demonstrate that the concept of reasonable foreseeability is not a complete guide to the circumstances in which damages are recoverable as a matter of law. Even if the loss was reasonably foreseeable as a consequence of the breach of duty in question (or of contract, for the same principles apply), it may nevertheless be regarded as ‘too remote a consequence’ or as not a consequence at all, and the damages claim is disallowed. In effect, the chain of consequences is cut off as a matter of law, either because it is regarded as unreasonable to impose liability for that consequence of the breach (The Pegase [1981] 1 Lloyd’s Rep 175 Robert Goff J), or because the scope of the duty is limited so as to exclude it (Banque Bruxelles SA v. Eagle Star [1997] AC 191), or because as a matter of commonsense the breach cannot be said to have caused the loss, although it may have provided the opportunity for it to occur…”
By way of explanation for why in such a case liability for lost profits is excluded, Professor Robertson (at p 183) offers what seem to me to be some plausible reasons:
“It may be considered unjust that the bank should be held liable for the loss of profits simply because the bank knew of the proposed development at the time the refinancing agreement was made. The imposition of such a burden on the bank may be considered unjust because it is inconsistent with commercial practice for a bank to accept such a risk in a transaction of this type, or because the quantum of the liability is disproportionate to the scale of the transaction or the benefit the bank stood to receive.”
It is generally accepted that a contracting party will be liable for damages for losses which are unforeseeably large, if loss of that type or kind fell within one or other of the rules in Hadley v Baxendale: see, for example, Staughton J in Transworld Oil Ltd v North Bay Shipping Corpn (The Rio Claro) [1987] Lloyd’s Rep 173, 175 and Jackson v Royal Bank of Scotland plc [2005] 1 WLR 377. That is generally an inclusive principle: if losses of that type are foreseeable, damages will include compensation for those losses, however large. But the South Australia and Mulvenna cases shows that it may also be an exclusive principle and that a party may not be liable for foreseeable losses because they are not of the type or kind for which he can be treated as having assumed responsibility.
What is the basis for deciding whether loss is of the same type or a different type? It is not a question of Platonist metaphysics. The distinction must rest upon some principle of the law of contract. In my opinion, the only rational basis for the distinction is that it reflects what would have reasonable have been regarded by the contracting party as significant for the purposes of the risk he was undertaking. In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, where the plaintiffs claimed for loss of the profits from their laundry business because of late delivery of a boiler, the Court of Appeal did not regard “loss of profits from the laundry business” as a single type of loss. They distinguished (at p 543) losses from “particularly lucrative dyeing contracts” as a different type of loss which would only be recoverable if the defendant had sufficient knowledge of them to make it reasonable to attribute to him acceptance of liability for such losses. The vendor of the boilers would have regarded the profits on these contracts as a different and higher form of risk than the general risk of loss of profits by the laundry.
If, therefore, one considers what these parties, contracting against the background of market expectations found by the arbitrators, would reasonably have considered the extent of the liability they were undertaking, I think it is clear that they would have considered losses arising from the loss of the following fixture a type or kind of loss for which the charterer was not assuming responsibility. Such a risk would be completely unquantifiable, because although the parties would regard it as likely that the owners would at some time during the currency of the charter enter into a forward fixture, they would have no idea when that would be done or what its length or other terms would be. If it was clear to the owners that the last voyage was bound to overrun and put the following fixture at risk, it was open to them to refuse to undertake it. What this shows is that the purpose of the provision for timely redelivery in the charterparty is to enable the ship to be at the full disposal of the owner from the redelivery date. If the charterer’s orders will defeat this right, the owner may reject them. If the orders are accepted and the last voyage overruns, the owner is entitled to be paid for the overrun at the market rate. All this will be known to both parties. It does not require any knowledge of the owner’s arrangements for the next charter. That is regarded by the market is being, as the saying goes, res inter alios acta.
The findings of the majority arbitrators shows that they considered their decision to be contrary to what would have been the expectations of the parties, but dictated by the rules in Hadley v Baxendale as explained in The Heron II [1969] 1 AC 350. But in my opinion these rules are not so inflexible; they are intended to give effect to the presumed intentions of the parties and not to contradict them.
The owners submit that the question of whether the damage is too remote is a question of fact on which the arbitrators have found in their favour. It is true that the question of whether the damage was foreseeable is a question of fact: see Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196. But the question of whether a given type of loss is one for which a party assumed contractual responsibility involves the interpretation of the contract as a whole against its commercial background, and this, like all questions of interpretation, is a question of law.
The owners say that the parties are entirely at liberty to insert an express term excluding consequential loss if they want to do so. Some standard forms of charter do. I suppose it can be said of many disputes over interpretation, especially over implied terms, that the parties could have used express words or at any rate expressed themselves more clearly than they have done. But, as I have indicated, the implication of a term as a matter of construction of the contract as a whole in its commercial context and the implication of the limits of damages liability seem to me to involve the application of essentially the same techniques of interpretation. In both cases, the court is engaged in construing the agreement to reflect the liabilities which the parties may reasonably be expected to have assumed and paid for. It cannot decline this task on the ground that the parties could have spared it the trouble by using clearer language. In my opinion, the findings of the arbitrators and the commercial background to the agreement are sufficient to make it clear that the charterer cannot reasonably be regarded as having assumed the risk of the owner’s loss of profit on the following charter. I would therefore allow the appeal.
Lord Rodger
Today, as for more than 150 years, the starting-point for determining the measure of damages for breach of contract is the judgment of Alderson B in Hadley v Baxendale (1854) 9 Exch 341. The story is well known. The plaintiff owners of a flour mill in Gloucester arranged for the defendant common carriers (the firm of Pickfords) to take their broken mill shaft to a firm in Greenwich which was to use it as a pattern to produce a new shaft. Unknown to the defendants – as the court held – the plaintiffs had no other shaft and so could not operate their mill until they got the new one. In breach of contract, the defendants delayed in transporting the broken shaft. The plaintiffs sued the defendants for the profits which they lost from being unable to operate their mill during the period of delay. The Court of Exchequer held that they could not recover the loss of profits.
Frequently only one sentence from the judgment of Alderson B is quoted as enshrining the principle with which the case is synonymous. But it is preferable to have regard to slightly more of what Alderson B said, at pp 354-355:
“Now we think the proper rule in such a case as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i e, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case, and of this advantage it would be very unjust to deprive them. Now the above principles are those by which we think the jury ought to be guided in estimating the damages arising out of any breach of contract.”
It was by referring back to the language of the third sentence in this passage that Alderson B went on to hold, at p 356, that, in the circumstances, the defendants were not liable for the loss of profits:
“But it is obvious that, in the great multitude of cases of millers sending off broken shafts to third persons by a carrier under ordinary circumstances, such consequences would not, in all probability, have occurred, and these special circumstances were here never communicated by the plaintiffs to the defendants. It follows, therefore, that the loss of profits here cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made this contract.”
The entire passage containing the applicable principles was quoted with approval by Viscount Sankey LC in Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452, 474-475. In Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196, 221, Lord Wright identified the distinction drawn by Alderson B as being “between damages arising naturally (which means in the normal course of things), and cases where there were special and extraordinary circumstances beyond the reasonable prevision of the parties…” Like Lord Hodson in C Czarnikow Ltd v Koufos (The Heron II) [1969] 1 AC 350, 411A-C, I find guidance in Alderson B’s use of the expression “in the great multitude of cases”. In the words of Lord Hodson, it indicates
“that the damages recoverable for breach of contract are such as flow naturally in most cases from the breach, whether under ordinary circumstances or from special circumstances due to the knowledge either in the possession of or communicated to the defendants. This expression throws light on the whole field of damages for breach of contract and points to a different approach from that taken in tort cases.”
The same idea is, of course, to be found, more compactly, in other well-known statements by celebrated commercial judges. For example, in Horne v Midland Railway Co (1872) LR 7 CP 583, 590, Willes J said that, in contract, “damages are to be limited to those that are the natural and ordinary consequences” of the breach, while in Cory v Thames Ironworks Co (1868) LR 3 QB 181, 190, Blackburn J said that the measure of damages is “what might be reasonably expected in the ordinary course of things to flow from the non-fulfilment of the contract, not more than that …”
In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, 539-540, Asquith LJ explained that “Everyone, as a reasonable person, is taken to know the ‘ordinary course of things’ and consequently what loss is liable to result from a breach of contract in that ordinary course.” He went on to say that, for loss to be recoverable, the defendant did not need to foresee that a breach must necessarily result in that loss: “It is in enough if he could foresee it was likely so to result. It is indeed enough, to borrow from the language of Lord du Parcq in the [Monarch Steamship] case, at p 158, if the loss (or some factor without which it would not have occurred) is a ‘serious possibility’ or a ‘real danger.’ For short, we have used the word ‘liable’ to result.”
As Lord Reid pointed out in The Heron II [1969] 1 AC 350, 389E-G, by referring to foreseeability, Asquith LJ cannot have been intending to assimilate the measure of damages in contract and tort. Moreover, there might appear to be a certain tension between the idea that, to be recoverable, a loss must be something which would result from the breach in the ordinary course and the idea that it is enough that the loss is just something which is liable to result. Lord Reid therefore surmised that Asquith LJ might have meant that the loss was foreseeable as a likely result. That appears to be an appropriate way of reconciling the two aspects of Asquith LJ’s opinion. In any event, amidst a cascade of different expressions, it is important not to lose sight of the basic point that, in the absence of special knowledge, a party entering into a contract can only be supposed to contemplate the losses which are likely to result from the breach in question – in other words, those losses which will generally happen in the ordinary course of things if the breach occurs. Those are the losses for which the party in breach is held responsible – the stated rationale being that, other losses not having been in contemplation, the parties had no opportunity to provide for them.
In the present case, the arbitrators found that – as conceded by counsel then acting for the charterers – missing a date for a subsequent fixture was a “not unlikely” result of the late redelivery of a vessel. That concession has been criticised elsewhere, but the House must proceed on the basis that, when they entered into the addendum, the parties could reasonably have contemplated that it was not unlikely that the owners would miss a date for a subsequent fixture if the Achilleas were redelivered late. The majority of the arbitrators also found that, at the time of contracting, the parties, who were both engaged in the business of shipping, would have known that market rates for tonnage go up and down, sometimes quite rapidly. Nevertheless, as Rix LJ himself pointed out [2007] 2 Lloyd’s Rep 555, 577, para 120 – when seeking to combat any criticism that the Court of Appeal’s decision would throw the situation in general into confusion because late redelivery and changing market conditions are common occurrences – “It requires extremely volatile market conditions to create the situation which occurred here.” In other words, the extent of the relevant rise and fall in the market within a short time was actually unusual. The owners’ loss stemmed from that unusual occurrence.
The obligation of the charterers was to redeliver the vessel to the owners by midnight on 2 May. Therefore, the charterers are taken to have had in contemplation, at the time when they entered into the addendum, the loss which would generally happen in the ordinary course of things if the vessel were delivered some nine days late so that the owners missed the cancelling date for a follow-on fixture. Obviously, that would include loss suffered as a result of the owners not having been paid under the contract for the charterers’ use of the vessel for the period after midnight on 2 May. So, as both sides agree, the owners had to be compensated for that loss by the payment of damages. But the parties would also have contemplated that, if the owners lost a fixture, they would then be in a position to enter the market for a substitute fixture. Of course, in some cases, the available market rate would be lower and, in some cases, higher, than the rate under the lost fixture. But the parties would reasonably contemplate that, for the most part, the availability of the market would protect the owners if they lost a fixture. That I understand to be the thinking which lies behind the dicta to the effect that the appropriate measure of damages for late redelivery of a vessel is the difference between the charter rate and the market rate if the market rate is higher than the charter rate for the period between the final terminal date and redelivery: Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (The Peonia) [1991] 1 Lloyd’s Rep 100, 108. In that passage Bingham LJ was adopting the approach which had been indicated in earlier authorities: Alma Shipping Corpn of Monrovia v Mantovani (The Dione) [1975] 1 Lloyd’s Rep 115, 117-118, per Lord Denning MR, and Arta Shipping Co Ltd v Thai Europe Tapioca Service Ltd (The Johnny) [1977] 2 Lloyd’s Rep 1, 2, per Lord Denning MR.
More particularly, this understanding of the general position lies behind the observations of Lord Mustill in Torvald Klaveness A/S v Arni Maritime Corpn (The Gregos) [1995] 1 Lloyd’s Rep 1. In that case, when the charterers insisted on proceeding with a voyage which had become illegitimate by the time it was due to commence, the owners refused. The owners began to negotiate a replacement fixture with a concern named Navios, involving a higher rate of freight plus a bonus. In the event, the parties to the original charter-party reached a without prejudice agreement under which the owners would perform the voyage and, if in subsequent proceedings it were held that they had been justified in refusing to perform it, they would be entitled to a sum reflecting the difference between the chartered rate of hire and the more advantageous terms of the proposed substitute fixture with Navios. The sum in question was roughly US$300,000.
In these circumstances the House did not need to deal with the measure of damages in a case of late redelivery. Nevertheless, Lord Mustill said that the obligation of the charterers was to redeliver the vessel on or before the final date or to pay damages for breach of contract. He added [1995] 1 Lloyd’s Rep 1, 5, “On damages, see … The Peonia….” – so endorsing, en passant, what Bingham LJ had said in that case.
In the Court of Appeal in The Gregos Hirst LJ had drawn attention to what he described as “the charterers’ windfall damages” under the without prejudice agreement by comparison with the damages which would have been awarded simply in respect of a few days’ late redelivery: [1993] 2 Lloyd’s Rep 335, 348. Lord Mustill said this [1995] 1 Lloyd’s Rep 1, 10:
“At first sight, this apparently anomalous result is a good reason for questioning whether the claim for repudiation was soundly based. On closer examination, however, the anomaly consists, not so much in the size of the damages, but in the fact that damages were awarded at all. Imagine that the without prejudice agreement had not been made, and that the owners, having treated the charter as wrongfully repudiated, had accepted a substitute fixture with Navios. If one then asked what loss had the repudiation caused the owners to suffer, the answer would be – None. On the contrary, the charterers’ wrongful act would have enabled the owners to make a profit. Even if they had not accepted the substitute employment they might very well have suffered no loss, since they would have been in the favourable position of having their ship free in the right place at the right time to take a spot fixture on a rising market. In neither event would the owners ordinarily recover any damages for the wrongful repudiation.”
The implication from this passage is that, ordinarily, the appropriate measure of damages will be that set out by Bingham LJ in The Peonia, since owners will be able to obtain substitute employment for their vessel.
I would enter two caveats. First, it may be that, at least in some cases, when concluding a charter-party, a charterer could reasonably contemplate that late delivery of a vessel of that particular type, in a certain area of the world, at a certain season of the year would mean that the market for its services would be poor. In these circumstances, the owners might have a claim for some general sum for loss of business, somewhat along the line of the damages for the loss of business envisaged by the Court of Appeal in Victoria Laundry (Windsor)Ltd v Newman Industries Ltd [1949] 2 KB 528, 542-543. Because of the agreement on figures, the matter was not explored in this case and I express no view on it. But, even if some such loss of business could have been reasonably contemplated, as Victoria Laundry shows, this would not mean that the owners’ particular loss of profit as a result of the re-negotiation of the Cargill fixture should be recoverable. To hold otherwise would risk undermining the first limb of Hadley v Baxendale, which limits the charterers’ liability to “the amount of injury” that would arise “ordinarily” or “generally”.
Secondly, the position on damages might also be different, if, for example – when a charter-party was entered into – the owners drew the charterers’ attention to the existence of a forward charter of many months’ duration for which the vessel had to be delivered on a particular date. The charterers would know that a failure to redeliver the vessel in time to allow the owners to deliver it under that charter would be liable to result in the loss of that fixture. Then the second rule or limb in Hadley v Baxendale might well come into play. But the point does not arise in this case.
Returning to the present case, I am satisfied that, when they entered into the addendum in September 2003, neither party would reasonably have contemplated that an overrun of nine days would “in the ordinary course of things” cause the owners the kind of loss for which they claim damages. That loss was not the “ordinary consequence” of a breach of that kind. It occurred in this case only because of the extremely volatile market conditions which produced both the owners’ initial (particularly lucrative) transaction, with a third party, and the subsequent pressure on the owners to accept a lower rate for that fixture. Back in September 2003, this loss could not have been reasonably foreseen as being likely to arise out of the delay in question. It was, accordingly, too remote to give rise to a claim for damages for breach of contract.
Rix LJ objects, [2007] 2 Lloyd’s Rep 555, 577, para 119, that such an approach is uncommercial because to demand that, before the charterers are held liable, they would need to know more than they already do in the ordinary course of events, is to demand something that cannot be provided. But that is simply to criticise the long-standing rule of the English law of contract under which a party is not liable for this kind of loss, precisely because it arises out of unusual circumstances which are not – indeed, cannot be – within the contemplation of the parties when they enter into the contract. In any event, it would not, in my view, make good commercial sense to hold a charterer liable for such a potentially extensive loss which neither party could quantify at the time of contracting.
Rix LJ also describes the charterers as “happily [draining] the last drop and more of profit at a time of raised market rates”: [2007] 2 Lloyd’s Rep 555, 577, para 119. But, in reality, at the outset the sub-contract and the final voyage amounted to nothing more than a legitimate use of the vessel which the charterers had hired until 2 May and for which they were paying the owners the agreed daily rate. The delay which led to the breach of contract was caused by supervening circumstances over which the charterers had no control. The charterers’ legitimate actions under their contract provide no commercial or legal justification for fixing them with liability for the owners’ loss of profit, due to the effects of an “extremely volatile market” in relation to an arrangement with a third party about which the charterers knew nothing.
I have not found it necessary to explore the issues concerning South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 and assumption of responsibility, which my noble and learned friend, Lord Hoffmann, has raised. Nevertheless, I am otherwise in substantial agreement with his reasons as well as with those to be given by Lord Walker of Gestingthorpe. I would allow the appeal.
C Czarnikow Ltd v Koufos (The Heron II)
[1967] UKHL 4
(17 October 1967)
Lord Reid
my lords
By charter Party of 15th October, 1960 the Respondents chartered the
Appellant’s Vessel, Heron II, to proceed to Constanza, there to load a cargo
of 3,000 tons of sugar; and to carry it to Basrah, or, in the Charterer’s option,
to Jeddah. The vessel left Constanza on 1st November. The option was
not exercised and the vessel arrived at Basrah on 2nd December The Umpire
has found that ” a reasonably accurate prediction of the length of the voyage
” was twenty days “. But the vessel had in breach of contract made deviations
which caused a delay of nine days.
It was the intention of the Respondents to sell the sugar ” promptly after
” arrival at Basrah and after inspection by merchants “. The Appellant did
not know this but he was aware of the fact that there was a market for sugar
at Basrah. The sugar was in fact sold at Basrah in lots between 12th and 22nd
December but shortly before that time the market price had fallen partly by
reason of the arrival of another cargo of sugar. It was found by the Umpire
that if there had not been this delay of nine days the sugar would have fetched
£32 10s. Od. per ton. The actual price realised was only £31 2s. 9d. per ton.
The Respondents claim that they are entitled to recover the difference as
damage for breach of contract. The Appellant admits that he is liable to pay
interest for nine days on the value of the sugar and certain minor expenses but
denies that fall in market value can be taken into account in assessing damages
in this case.
McNair J., following the decision in The Parana L.R. 2 P.D. 118, decided
this question in favour of the Appellant. He said:
” In those circumstances it seems to me almost impossible to say that
” the shipowner must have known that the delay in prosecuting the
” voyage would probably result, or be likely to result, in this kind of loss.”
The Court of Appeal by a majority (Diplock and Salmon L.JJ., Sellers L.J.
dissenting) reversed the decision of the trial judge. The majority held that
The Parana laid down no general rule, and, applying the rule (or rules) in
Hadley and Another v. Baxendale and Others (1854) 9 Ex 341 as explained in
Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. [1949] 2 K.B 528,
they held that the loss due to fall in market price was not too remote to be
recoverable as damages.
It may be well first to set out the knowledge and intention of the
parties at the time of making the contract so far as relevant or argued to be
relevant. The Charterers intended to sell the sugar in the market at Basrah
on arrival of the vessel. They could have changed their mind and exercised
their option to have the sugar delivered at Jeddah but they did not do so.
There is no finding that they had in mind any particular date as the likely date
of arrival at Basrah or that they had any knowledge or expectation that in late
November or December there would be a rising or a falling market. The
shipowner was given no information about these matters by the Charterers.
He did not know what the Charterers intended to do with the sugar. But
he knew there was a market in sugar at Basrah, and it appears to me that,
if he had thought about the matter, he must have realised that at least it
was not unlikely that the sugar would be sold in the market at market
price on arrival. And he must be held to have known that in any ordinary
market prices are apt to fluctuate from day to day: but he had no reason
to suppose it more probable that during the relevant period such fluctuation
would be downwards rather than upwards—it was an even chance that the
fluctuation would be downwards.
So the question for decision is whether a plaintiff can recover as damages
for breach of contract a loss of a kind which the defendant, when he made
the contract, ought to have realised was not unlikely to result from a breach
of contract causing delay in delivery. I use the words ” not unlikely ” as
denoting a degree of probability considerably less than an even chance but
nevertheless not very unusual and easily foreseeable.
For over a century everyone has agreed that remoteness of damage in
contract must be determined by applying the rule (or rules) laid down by a
Court including Lord Wensleydale (then Parke B.), Martin B and Alderson B.
in Hadley v. Baxendale. But many different interpretations of that rule
have been adopted by judges at different times. So I think that one ought
first to see just what was decided in that case, because it would seem wrong
to attribute to that rule a meaning which, if it had been adopted in that
case, would have resulted in a contrary decision of that case.
In Hadley v. Baxendale the owners of a flour mill at Gloucester which
was driven by a steam engine delivered to common carriers, Pickford & Co.,
a broken crank shaft to be sent to engineers in Greenwich. A delay of
five days in delivery there was held to be in breach of contract and the
question at issue was the proper measure of damages. In fact the shaft
was sent as a pattern for a new shaft and until it arrived the mill could
not operate. So the owners claimed £300 as loss of profit for the five
days by which resumption of work was delayed by this breach of contract.
But the carriers did not know that delay would cause loss of this kind.
Alderson B. delivering the judgment of the Court said (at page 355) :
” We find that the only circumstances here communicated by the
” plaintiffs to the defendants at the time the contract was made were
” that the article to be carried was the broken shaft of a mill, and that
” the plaintiffs were the millers of that mill. But how do these circum-
” stances show reasonably that the profits of the mill must be stopped
” by an unreasonable delay in the delivery of the broken shaft by the
” carrier to the third person? Suppose the plaintiffs had another shaft
” in their possession put up or putting up at the time, and that they
” only wished to send back the broken shaft to the engineer who made
” it; it is clear that this would be quite consistent with the above
” circumstances, and yet the unreasonable delay in the delivery would
” have no effect upon the intermediate profits of the mill. Or, again,
” suppose that at the time of the delivery to the carrier the machinery
” of the mill had been in other respects defective, then also the same
” results would follow.”
Then, having said that in fact the loss of profit was caused by the delay,
he continued:
” But it is obvious that in the great multitude of cases of millers
” sending off broken shafts to third persons by a carrier’ under ordinary
” circumstances, such consequences would not, in all probability, have
” occurred.”
Alderson B. clearly did not and could not mean that it was not reasonably
foreseeable that delay might stop the resumption of work in the mill. He
merely said that in the great multitude—which I take to mean the great
majority—of cases this would not happen. He was not distinguishing
between results which were foreseeable or unforeseeable, but between
results which were likely because they would happen in the great majority
of cases, and results which were unlikely because they would only happen
in a small minority of cases. He continued:
” It follows, therefore, that the loss of profits here cannot reasonably
” be considered such a consequence of the breach of contract as could
” have been fairly and reasonably contemplated by both the parties
” when they made this contract.”
He clearly meant that a result which will happen in the great majority of
cases should fairly and reasonably be regarded as having been in the
contemplation of the parties, but that a result which, though foreseeable
as a substantial possibility, would only happen in a small minority of cases
should not be regarded as having been in their contemplation. He was
referring to such a result when he continued:
” For such loss would neither have flowed naturally from the breach
” of this contract in the great multitude of such cases occurring under
” ordinary circumstances, nor were the special circumstances, which
” perhaps would have made it a reasonable and natural consequence
” of such breach of contract, communicated to or known by the
” defendants.”
I have dealt with the latter part of the judgment before coming to the
well known rule because the Court were there applying the rule and the
language which was used in the latter part appears to me to throw consider-
able light on the meaning which they must have attached to the rather vague
expressions used in the rule itself. The rule is that the damages ” should
” be such as may fairly and reasonably be considered either arising naturally,
” i.e. according to the usual course of things from such breach of contract
” itself, or such as may reasonably be supposed to have been in the con-
” templation of both parties at the time they made the contract as the
” probable result of the breach of it”.
I do not think that it was intended that there were to be two rules
or that two different standards or tests were to be applied. The last two
passages which I quoted from the end of the judgment applied to the facts
before the Court which did not include any special circumstances communica-
ted to the defendants ; and the line of reasoning there is that because in
the great majority of cases loss of profit would not in all probability have
occurred, it followed that this could not reasonably be considered as having
been fairly and reasonably contemplated by both the parties, for it would
not have flowed naturally from the breach in the great majority of cases.
I am satisfied that the Court did not intend that every type of damage
which was reasonably foreseeable by the parties when the contract was made
should either be considered as arising naturally i.e. in the usual course of
things or be supposed to have been in the contemplation of the parties.
Indeed the decision makes it clear that a type of damage which was plainly
foreseeable as a real possibility but which would only occur in a small minority
of cases cannot be regarded as arising in the usual course of things or be
supposed to have been in the contemplation of the parties: the parties are
not supposed to contemplate as grounds for the recovery of damage any
type of loss or damage which on the knowledge available to the defendant
would appear to him as only likely to occur in a small minority of cases.
In cases like Hadley v. Baxendale or the present case it is not enough that
in fact the plaintiff’s loss was directly caused by the defendant’s breach of
contract. It clearly was so caused in both. The crucial question is whether,
on the information available to the defendant when the contract was made,
he should, or the reasonable man in his position would, have realised that
such loss was sufficiently likely to result from the breach of contract to make
it proper to hold that the loss flowed naturally from the breach or that loss
of that kind should have been within his contemplation.
The modern rule in tort is quite different and it imposes a much wider
liability. The defendant will be liable for any type of damage which is
reasonably foreseeable as liable to happen even in the most unusual case,
unless the risk is so small that a reasonable man would in the whole circum-
stances feel justified in neglecting it. And there is good reason for the
difference. In contract, if one party wishes to protect himself against a
risk which to the other party would appear unusual, he can direct the other
party’s attention to it before the contract is made, and I need not stop to
consider in what circumstances the other party will then be held to have
accepted responsibility in that event. But in tort there is no opportunity
for the injured party to protect himself in that way, and the tortfeasor cannot
reasonably complain if he has to pay for some very unusual but nevertheless
foreseeable damage which results from his wrongdoing. I have no doubt
that to-day a tortfeasor would be held liable for a type of damage as unlikely
as was the stoppage of Hadley’s Mill for lack of a crankshaft: to anyone
with the knowledge the carrier had that may have seemed unlikely but the
chance of it happening would have been seen to be far from negligible. But
it does not at all follow that Hadley v. Baxendale would to-day be differently
decided.
As long ago as 1872 Willes J. said in Home v. Midland Railway Co. L.R.
7 C.P. 583 at page 590:
” The cases as to the measure of damages for a tort do not apply
” to a case of contract. That was suggested in a case in Bulstrode but
” the notion was corrected in Hadley v. Baxendale. The damages are
” to be limited to those that are the natural and ordinary consequences
” which may be supposed to have been in the contemplation of the
” parties at the time of making the contract.”
And in Cory v. Thames Ironworks L.R. 3 Q.B. 181 Blackburn J said (at
page 190):
” I think it all comes to this: the measure of damages when a party
” has not fulfilled his contract is what might be reasonably expected
” in the ordinary course of things to flow from the non-fulfilment of the
” contract, not more than that, but what might be reasonably expected
” to flow from the non-fulfilment of the contract in the ordinary state of
” things, and to be the natural consequences of it. The reason why the
” damages are confined to that is, I think, pretty obvious, viz. that
” if the damage were exceptional and unnatural damage, to be made
” liable for that would be hard upon the seller because if he had known
” what the consequences would be he would probably have stipulated for
” more time or, at all events, have used greater exertions if he knew
” that that extreme mischief would follow from the non-fulfilment of
” his contract.”
It is true that in some later cases opinions were expressed that the measure
of damages is the same in tort as it is in contract, but those were generally
cases where it was sought to limit damages due for a tort and not cases where
it was sought to extend damages due for breach of contract, and I do
not recollect any case in which such opinions were based on a full con-
sideration of the matter. In my view these opinions must now be regarded
as erroneous.
For a considerable time there was a tendency to set narrow limits to
awards of damages. Such phrases were used as that the damage was
not ” the immediate and necessary effect of the breach of contract” (per
Cockburn C.J. in Hobbs v. The London and South Western Railway Com-
pany L.R. 10 Q.B. 111 at page 118). The Parana was decided during that
period. But later a more liberal tendency can be seen. I do not think it
useful to review the authorities in detail but I do attach importance to what
was said in this House in R. & H. Hall, Ltd. v. W. H. Pim (Junior)
& Co. Ltd. (1928) 33 Com. Cas. 324.
In that case Pim sold a cargo of wheat to Hall but failed to deliver it.
Hall had resold the wheat but as a result of Pim’s breach of contract lost
the profit which they would have made on their sub-sale. Three of their
Lordships dealt with the case on the basis that the relevant question was
whether it ought to have been in the contemplation of the parties that a
resale was probable. The finding of the arbitrators was:
” The arbitrators are unable to find that it was in the contemplation
” of the parties or ought to have been in the contemplation of Messrs.
” Pim at that time that the cargo would be resold or was likely to be
” resold before delivery: in fact, the chances of its being resold as a
” cargo and of its being taken delivery of by Messrs. Hall were about
” equal.”
On that finding the Court of Appeal had decided in favour of Pim, saying
that, as the arbitrators had stated as a fact that the chances of the cargo
being resold or not being resold were equal, it was therefore “idle to
” speak of a likelihood or of a probability of a resale “.
Lord Dunedin pointed out that it was for the Court to decide what was
to be supposed to have been in the contemplation of the parties, and then
said:
” I do not think that ‘ probability’ . . . means that the chances
” are all in favour of the event happening. To make a thing probable
” it is enough, in my view, that there is an even chance of its happening.
” That is the criterion I apply; and in view of the facts, as I have said
” above, I think there was here in the contemplation of parties the
” probability of a resale.”
He did not have to consider how much less than a fifty per cent chance would
amount to a probability in this sense.
Lord Shaw went rather farther. He said:
” To what extent in a contract of goods for future delivery the
” extent of damages is in contemplation of parties is always extremely
” doubtful. The main business fact is that they are thinking of the
” contract being performed and not of its being not performed. But
” with regard to the latter if their contract shows that there were
” instances or stages which made ensuing losses or damage a not un-
” likely result of the breach of the contract, then all such results must
” be reckoned to be within not only the scope of the contract, but the
” contemplation of parties as to its breach.”
Lord Phillimore was less definite and perhaps went even farther. He
said that the sellers of the wheat knew that the buyers ” might well sell it
” over again and make a profit on the resale ” ; and that being so they ” must
” be taken to have consented to this state of things and thereby to have
” made themselves liable to pay ” the profit on a resale.
It may be that there was nothing very new in this but I think that Hall’s
case must be taken to have established that damages are not to be regarded
as too remote merely because, on the knowledge available to the defendant
when the contract was made, the chance of the occurrence of the event which
caused the damage would have appeared to him to be rather less than an
even chance. I would agree with Lord Shaw that it is generally sufficient
that that event would have appeared to the defendant as not unlikely to occur.
It is hardly ever possible in this matter to assess probabilities with any
degree of mathematical accuracy. But I do not find in that case or in cases
which preceded it any warrant for regarding as within the contemplation
of the parties any event which would not have appeared to the defendant,
had he thought about it, to have a very substantial degree of probability.
But then it has been said that the liability of defendants has been further
extended by Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd.
[1949] 2 K.B. 528. I do not think so. The plaintiffs bought a large boiler
from the defendants and the defendants were aware of the general nature of
the plaintiffs’ business and of the plaintiffs’ intention to put the boiler into
use as soon as possible. Delivery of the boiler was delayed in breach of
contract and the plaintiffs claimed as damages loss of profit caused by the
delay. A large part of the profits claimed would have resulted from some
specially lucrative contracts which the plaintiffs could have completed if
they had had the boiler: that was rightly disallowed because the defendants
had no knowledge of these contracts. But Asquith L. J. then said:
” It does not however follow that the plaintiffs are precluded from
” recovering some general (and perhaps conjectural) sum for loss of
” business in respect of dyeing contracts to be reasonably expected, any
” more than in respect of laundering contracts to be reasonably
” expected.”
It appears to me that this was well justified on the earlier authorities. It
was certainly not unlikely on the information which the defendants had
when making the contract that delay in delivering the boiler would result
in loss of business: indeed it would seem that that was more than an even
chance. And there was nothing new in holding that damages should be
estimated on a conjectural basis. This House had approved of that as early
as 1813 in Hall v. Ross 1 Dow. 201.
But what is said to create a ” landmark ” is the statement of principles
by Asquith L. J. on pages 539-40. This does to some extent go beyond the
older authorities and in so far as it does so, I do not agree with it. In
paragraph (2) it is said that the plaintiff is entitled to recover ” such part
” of the loss actually resulting as was at the time of the contract reasonably
” foreseeable as liable to result from the breach “. To bring in reasonable
foreseeability appears to me to be confusing measure of damages in contract
with measure of damages in tort. A great many extremely unlikely results
are reasonably foreseeable: it is true that Lord Asquith may have meant
foreseeable as a likely result, and if that is all he meant I would not object
farther than to say that I think that the phrase is liable to be misunder-
stood. For the same reason I would take exception to the phrase ” liable
” to result” in paragraph (5). Liable is a very vague word but I think that
one would usually say that when a person foresees a very improbable result
he foresees that it is liable to happen.
I agree with the first half of paragraph (6). For the best part of a century
it has not been required that the defendant could have foreseen that a breach
of contract must necessarily result in the loss which has occurred. But I cannot
agree with the second half of that paragraph. It has never been held to be
sufficient in contract that the loss was foreseeable as ” a serious possibility “
or ” a real danger ” or as being ” on the cards “. It is on the cards that one can
win £100,000 or more for a stake of a few pence—several people have done
that. And anyone who backs a hundred to one chance regards a win as a
serious possibility—many people have won on such a chance. And the
Wagon Mound No. 2 [1966] 3 WLR 498 could not have been decided as it
was unless the extremely unlikely fire should have been foreseen by the ship’s
officer as a real danger. It appears to me that in the ordinary use of
language there is wide gulf between saying that some event is not unlikely or
quite likely to happen and saying merely that it is a serious possibility, a real
danger, or on the cards. Suppose one takes a well shuffled pack of cards, it
is quite likely or not unlikely that the top card will prove to be a diamond : the
odds are only 3 to 1 against. But most people would not say that it is quite
likely to be the nine of diamonds for the odds are then 51 to 1 against. On
the other hand I think that most people would say that there is a serious
possibility or a real danger of its being turned up first and of course it is on the
cards. If the tests of ” real danger ” or ” serious possibility ” are in future to
be authoritative then the Victoria Laundry case would indeed be a landmark
because it would mean that Hadley v. Baxendale would be differently decided
to-day. I certainly could not understand any Court deciding that, on the
information available to the carrier in that case, the stoppage of the mill was
neither a serious possibility nor a real danger. If those tests are to prevail in
future then let us cease to pay lip service to the rule in Hadley v. Baxendale.
But in my judgment to adopt these tests would extend liability for breach of
contract beyond what is reasonable or desirable. From the limited knowledge
which I have of commercial affairs I would not expect such an extension to be
welcomed by the business community and from the legal point of view I can
find little or nothing to recommend it.
Lord Asquith took the phrases ” real danger ” and ” serious possibility “
from the speech of Lord du Parcq in Monarch Steamship Co., Ltd. v.
Karlshamns Oljefabriken (A/B) [1949] AC 196 so I must examine that case.
The facts were complicated but it is sufficient to say that a voyage was
prolonged by breach of contract so that war broke out before it was completed,
and by reason of an embargo imposed on the outbreak of war the cargo owner
had to incur great expense in transshipping his goods and having them carried
to the contract destination The contract was made in April 1939. The
question was whether he was entitled to recover this expense as damages for
the breach of contract and that depended on whether the outbreak of war and
consequent embargo were or ought to have been within the contemplation of
the contracting parties in April, 1939. By that time war was much more than
merely a serious possibility. Lord Porter said (at page 219): ” Accepting the
” view that the appellants ought to have foreseen the likelihood of war
” occurring …”. Lord Wright said (at page 222) ” There was indeed in 1939
” the general fear that there might be a war . . . . The possibility must have been
” in the minds of both parties “. Lord Uthwatt said (at page 232) that a
reasonable shipowner ” would regard the chance of war, not as a possibility
” of academic interest to the venture, but as furnishing matter which commer-
” daily ought to be taken into account”. And Lord Morton said (at page 235)
that the shipowner ” would feel that there was a grave risk of war breaking out
” in Europe “. On those assessments of the situation holding that the damage
which flowed from the outbreak of war was not too remote to be recoverable
was well within the existing law.
I do not think that Lord du Parcq intended to say that his view was
materially different. Indeed he quoted from Sir Winston Churchill ” No one
” who understood the situation could doubt that it meant in all human proba-
” bility a major war in which we should be involved “. So there was no need
for him to go farther than the existing law and I do not think that he intended
to do so. It is only by taking these two phrases out of their context that any
such intention could be inferred
It appears to me that, without relying in any way on the Victoria Laundry
case, and taking the principle that had already been established, the loss of
profit claimed in this case was not too remote to be recoverable as damages.
So it remains to consider whether the decision in The Parana established a rule
which, though now anomalous, should nevertheless still be followed. In that
case owing to the defective state of the ship’s engines a voyage which ought to
have taken 65 to 70 days took 127 days, and as a result a cargo of hemp fetched
a much smaller price than it would have done if there had been no breach of
contract. But the Court of Appeal held that the plaintiffs could not recover
this loss as damages. The vital part of their judgment is on page 123:
” In order that damages may be recovered, we must come to two
” conclusions—first, that it was reasonably certain that the goods would
” not be sold until they did arrive; and secondly, that it was reasonably
” certain that they would be sold immediately after they arrived, and that
” that was known to the carrier at the time when the bills of lading were
” signed.”
If that was the right test then the decision was right, and I think that that
test was in line with a number of cases decided before or about that time (1877).
But, as I have already said, so strict a test has long been obsolete. And, if one
substitutes for ” reasonably certain ” the words ” not unlikely” or some
similar words denoting a much smaller degree of probability, then the whole
argument in the judgment collapses. I need not consider whether there were
other facts which might be held to justify the decision, but I must say that
I do not see why the mere duration of the voyage should make much difference.
If The Parana had always been regarded as laying down a rule so that
carriage by sea was to be treated as different from carriage by land, one
would have to consider whether it would be proper to alter a rule which
had stood for nearly a century. But in Dunn v. Bucknall Brothers [1902]
2 K.B. 614 it was held that there was no general rule that damages could
not be recovered by loss of market on a voyage by sea, and for special
reasons such damages have been awarded in a number of later cases. So,
whether The Parana is formally overruled or not. it cannot be relied on as
establishing a rule so as to require the present case to be decided in a way
inconsistent with the general law as it exists to-day.
Some importance was attached in argument to Slater v. Hoyle & Smith,
Ltd. [1920] 2 K.B. 11 and the earlier cases there cited. Those cases deal
with sale of goods, and I do not think it necessary or desirable in the present
case to consider what the rule there is, whether it conflicts with the general
principles now established as to measure of damages, or whether, if it does
it ought or ought not to stand. Those are much too important questions
to be decided obiter in the present case, and I refrain from expressing any
opinion about them.
For the reasons which I have given I would dismiss this appeal.
Golden Strait Corporation v. Nippon Yusen Kubishka Kaisha
[2007] UKHL [2007] 3 All ER 1, [2007] 2 Lloyd’s Rep 164, [2007] 2 WLR 691, [2007] 2 All ER (Comm) 97, [2007] 2 AC 353, [2007] Bus LR 997, [2007] 1 CLC 352
Lord Bingham
Principle
The repudiation of a contract by one party (“the repudiator”), if accepted by the other (“the injured party”), brings the contract to an end and releases both parties from their primary obligations under the contract. The injured party is thereupon entitled to recover damages against the repudiator to compensate him for such financial loss as the repudiator’s breach has caused him to suffer. This is elementary law.
The damages recoverable by the injured party are such sum as will put him in the same financial position as if the contract had been performed. This is the compensatory principle which has long been recognised as the governing principle in contract. Counsel for the charterers cited certain classical authorities to make good this proposition, but it has been enunciated and applied times without number and is not in doubt. It does not, however, resolve the question whether the injured party’s loss is to be assessed as of the date when he suffers the loss, or shortly thereafter, in the light of what is then known, or at a later date when the assessment happens to be made, in the light of such later events as may then be known.
An injured party such as the owners may not, generally speaking, recover damages against a repudiator such as the charterers for loss which he could reasonably have avoided by taking reasonable commercial steps to mitigate his loss. Thus where, as here, there is an available market for the chartering of vessels, the injured party’s loss will be calculated on the assumption that he has, on or within a reasonable time of accepting the repudiation, taken reasonable commercial steps to obtain alternative employment for the vessel for the best consideration reasonably obtainable. This is the ordinary rule whether in fact the injured party acts in that way or, for whatever reason, does not. The actual facts are ordinarily irrelevant. The rationale of the rule is one of simple commercial fairness. The injured party owes no duty to the repudiator, but fairness requires that he should not ordinarily be permitted to rely on his own unreasonable and uncommercial conduct to increase the loss falling on the repudiator. I take this summary to reflect the ruling of Robert Goff J in Koch Marine Inc v D’Amica Società di Navigazione ARL (The “Elena D’Amico”) [1980] 1 Lloyd’s Rep 75. That case concerned the measure of damages recoverable by a charterer for breach of a time charter during its currency by an owner. While taking care to avoid laying down an inflexible or invariable rule, the judge held (p 89, col 2) that if, at the date of breach, there is an available market, the normal measure of damages will be the difference between the contract rate and the market rate for chartering in a substitute ship for the balance of the charter period. An analogy was drawn with section 51(3) of the Sale of Goods Act 1893. Neither party challenged this decision, which has always been regarded as authoritative. It does however assume that the injured party knows, or can ascertain, what the balance of the charter period is.
It is a general, but not an invariable, rule of English law that damages for breach of contract are assessed as at the date of breach. Authority for this familiar proposition may be found in Jamal v Moolla Dawood Sons & Co [1916] AC 175, 179: Miliangos v George Frank (Textiles) Ltd [1976] AC 443, 468; Johnson v Agnew [1980] AC 367, 400-401; Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433, 450-451, 454-455, 457; County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916, 925-926; Chitty on Contracts, 29th ed (2004), vol 1, para 26-057; Professor S M Waddams, “The Date for the Assessment of Damages”, (1981) 97 LQR 445, 446. The Sale of Goods Acts of 1893 and 1979 both give effect to this prima facie rule in section 51(3) of the respective Acts in the case of refusal or neglect by a seller to deliver goods to a buyer where there is an available market.
The argument
While not, I think, challenging the general correctness of the principles last stated, the charterers dispute their applicability to the present case. Their first ground for doing so is in reliance on what, from the name of the case in which this principle has been most clearly articulated, has sometimes been called “the Bwllfa principle”. It is that where the court making an assessment of damages has knowledge of what actually happened it need not speculate about what might have happened but should base itself on the known facts. In non-judicial discourse the point has been made that you need not gaze into the crystal ball when you can read the book. I have, for my part, no doubt that this is in many contexts a sound approach in law as in life, and it is true that the principle has been judicially invoked in a number of cases. But these cases bear little, if any, resemblance to the present. In Bwllfa and Merthyr Dare Steam Collieries (1891) Limited v Pontypridd Waterworks Company [1903] AC 426 a coalowner claimed statutory compensation against a water undertaking which had, pursuant to statutory authority, prevented him mining his coal over a period during which the price of coal had risen. The question was whether the coal should be valued as at the beginning of the period or at its value during the currency of the period. The coalowner was entitled to “full compensation” and the House upheld the latter measure. In doing so, it was at pains to distinguish the case from one of sale or property transfer: see Lord Halsbury LC, pp 428-429; Lord Macnaghten, p 431; Lord Robertson, p 432. In re Bradberry [1943] Ch 35, where the principle was invoked, concerned the valuation of an annuity in the course of administering an estate. The claim in Carslogie Steamship Co Ltd v Royal Norwegian Government [1952] AC 292 was a claim by shipowners for loss of time during repairs of damage caused by a collision. After the collision the ship had suffered heavy weather damage, which required the ship to be detained for repair of that damage. It was common ground that the ship would have been detained for the same period if the collision had never occurred (p 313). In In Re Thoars Deceased ([2002] EWHC 2416(Ch), unreported, 15 November 2002) the principle was invoked in the course of deciding whether a policy of life insurance had been transferred at an undervalue within the meaning of section 339 of the Insolvency Act 1986. The principle was again invoked in McKinnon v E Survey Ltd ([2003] EWHC 475 (Ch), unreported, 14 January 2003), a claim against negligent surveyors in which the court was asked to assume, for purposes of a preliminary issue, that the property had not been the subject of movement at the date of valuation and had not been subject to movement since, but that it would not have been possible to establish these facts until after the purchase of the property. In Aitchison v Gordon Durham & Company Limited (unreported, 30 June 1995) the Court of Appeal applied the principle where a joint venture agreement to develop land had been broken and the court took account of what actually happened to decide what the claimant’s profit would have been. I do not think it necessary to discuss these cases, since it is clear that in some contexts the court may properly take account of later events. None of these cases involved repudiation of a commercial contract where there was an available market.
The charterers further submit that even if, as a general rule, damages for breach of contract (or tort, often treated as falling within the same rule) are assessed as at the date of the breach or the tort, the court has shown itself willing to depart from this rule where it judges it necessary or just to do so in order to give effect to the compensatory principle. I accept that this is so. But it is necessary to consider the cases in which the court departs from the general rule. Some are personal injury claims, of which Curwen v James [1963] 1 WLR 748 and Murphy v Stone-Wallwork (Charlton) Ltd [1969] 1 WLR 1023 may serve as examples. Dudarec v Andrews [2006] EWCA Civ 256, [2006] 1 WLR 3002 was in form a negligence claim against solicitors, but damages were sought for the loss of a chance of success in a personal injuries action struck out for want of prosecution seven years earlier, and the issue was similar to that in a personal injuries action. It is unnecessary to consider the extent to which, in the light of Baker v Willoughby [1970] AC 467 and Jobling v Associated Dairies Ltd [1982] AC 794, the breach date principle applies to the assessment of personal injury damages in tort. The court has also departed from the general rule in cases where, on particular facts, it was held to be reasonable for the injured party to defer taking steps to mitigate his loss and so reasonable to defer the assessment of damage. Radford v De Froberville [1977] 1 WLR 1262 and Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433 are examples. In both cases the general rule was acknowledged and reasons given for departing from it. County Personnel (Employment Agency) Ltd v Alan Pulver & Co [1987] 1 WLR 916 was a claim against solicitors whose negligent advice had saddled the plaintiffs with a ruinous underlease, from which the plaintiffs had had to buy themselves out. The ordinary diminution in value measure of damage was held to be wholly inapt on the particular facts. Again, reasons were given for departing from the normal rule. In Miliangos v George Frank (Textiles) Ltd [1976] AC 443 the effect of inflation led the House to sanction a departure from the rule that losses sustained in a foreign currency must be converted into sterling at the date of breach. The plaintiff in Re-Source America International Ltd v Platt Site Services Ltd [2005] EWCA Civ 97, [2005] 2 Lloyd’s Rep 50 was bailee of spools used to carry optic fibre cables which it was to refurbish. The spools were destroyed by fire. It was held to be entitled to recover the cost of replacing the spools, subject to a deduction based on the saved cost of refurbishment. The Court of Appeal took account of what happened after the fire. It was expressly found (para 5) that there was no available market in used spools, so the plaintiff could not have mitigated its loss by replacing them. Sally Wertheim v Chicoutimi Pulp Company [1911] AC 301, cited by the charterers, was not a case of non-delivery or refusal to deliver, but of delayed delivery. The goods, although delivered late, were received and there was no accepted repudiation. The case would not have fallen under section 51(3) of the 1893 Act. The buyer made a claim for damages, based on the difference between the market price at the place of delivery when the goods should have been delivered and the market price there when the goods were in fact delivered. It was apparent on the figures that this claim, if successful, would have yielded the plaintiff a much larger profit than if the contract had not been broken, and he was compensated for his actual loss. None of these cases, as is evident, involves the accepted repudiation of a commercial contract such as a charterparty. It is necessary to consider some cases more similar to the present case to which the House was referred.
Considerable attention has been paid to the decision of the Court of Appeal (Lord Denning MR, Edmund Davies and Megaw LJJ) in Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (“The Mihalis Angelos”) [1971] 1 QB 164. The case concerned a voyage charterparty by which the ship was fixed to sail to Haiphong and there load a cargo for delivery in Europe. In the charterparty dated 25 May 1965 the owners stated that the ship was “expected ready to load under this charter about July 1, 1965”. The charterparty also provided, in the first sentence of the cancelling clause, “Should the vessel not be ready to load (whether in berth or not) on or before July 20, 1965, charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessel’s expected arrival at port of loading”. On 17 July 1965 the ship was at Hong Kong still discharging cargo from her previous voyage. It was physically impossible for her to finish discharging and reach Haiphong by 20 July. The charterers gave notice cancelling the charter. The owners treated this as a repudiation and claimed damages, which were the subject of arbitration and of an appeal to Mocatta J. On further appeal, there were three issues. The first was whether the “expected readiness” clause was a condition of which the owners were in breach, entitling the charterers to terminate the charter contract. All three members of the court decided this issue in favour of the charterers and against the owners. The second issue was whether (if the answer to the first issue was wrong) the charterers had repudiated the contract by cancelling on 17 July, three days before the specified 20 July deadline. Lord Denning held that they had not, but Edmund Davies and Megaw LJJ held that they had. The third issue was as to the damage suffered by the owners, on the assumption that the charterers’ premature cancellation had been a repudiation. Lord Denning, in agreement with the arbitrators, who were themselves agreed, held that they had suffered no damage (p 197):
“Seeing that the charterers would, beyond doubt, have cancelled, I am clearly of opinion that the shipowners suffered no loss: and would be entitled at most to nominal damages.”
Edmund Davies LJ agreed (p 202):
“One must look at the contract as a whole, and if it is clear that the innocent party has lost nothing, he should recover no more than nominal damages for the loss of his right to have the whole contract completed.”
Megaw LJ (at pp 209-210) stated:
“In my view, where there is an anticipatory breach of contract, the breach is the repudiation once it has been accepted, and the other party is entitled to recover by way of damages the true value of the contractual rights which he has thereby lost; subject to his duty to mitigate. If the contractual rights which he has lost were capable by the terms of the contract of being rendered either less valuable or valueless in certain events, and if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then in my view the damages which he can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events.”
It is evident that all members of the court were viewing the case as from the date of acceptance of the repudiation (although only Megaw LJ said so in terms). They were not taking account of later events. They were recognising, as was obvious on the facts as found, that the value of the contractual right which the owners had lost, as of the date of acceptance of the repudiation, was nil because the charter was bound to be lawfully cancelled three days later.
If, as I think, the Court of Appeal’s decision on the third issue in the Mihalis Angelos was entirely orthodox, so was the decision of Mustill J in Woodstock Shipping Co v Kyma Compania Naviera SA (“The Wave”) [1981] 1 Lloyd’s Rep 521. This concerned a time charter for 24 months, 3 months more or less at charterers’ option. The owners repudiated the charter and the charterers accepted their repudiation on 2 August 1979. In assessing the charterers’ loss, and allowing for their ability to obtain a substitute fixture in the available market shortly after the date of the accepted repudiation, in accordance with the ruling in the Elena D’Amico, above, the judge compared the charterparty rate with the market rate in the early days of September 1979, declining to speculate whether market rates in September 1981 would induce the charterers to exercise their three month option one way or the other.
SIB International SRL v Metallgesellschaft Corporation (“The Noel Bay”) [1989] 1 Lloyd’s Rep 361 concerned a voyage charterparty. The charterers repudiated the charterparty and the owners accepted the repudiation on 3 June 1987. On appeal to the Court of Appeal, Staughton LJ accepted (p 364, col 2) the submission of counsel that the value of the contract which the owners lost “must be assessed as at June 3, the date when repudiation was accepted”. He went on to quote, with approval, the passage from the judgment of Megaw LJ in the Mihalis Angelos which I have set out in para 14 above.
Kaines (UK) Ltd v Osterreichische Warrenhandelsgesellschaft Austrowaren Gesellschaft m.b.H. [1993] 2 Lloyd’s Rep 1 concerned not a charterparty but a contract for the sale and purchase of crude oil. The sellers repudiated and at 17.28 hours on 18 June 1987 the buyers accepted the repudiation. Steyn J held that the buyers should have replaced the oil in the market by, at latest, 19 June, and their damages were assessed accordingly. It was an anticipatory repudiation. Both the judge and the Court of Appeal in dismissing the appeal cited with approval (pp 7, 10) a passage in Treitel, The Law of Contract, 7th ed (1987), p 742:
“Under this [mitigation] rule, the injured party may, and if there is a market generally will, be required to make a substitute contract; and his damages will be assessed by reference to the time when the contract should have been made. This will usually be the time of acceptance of the breach (or such reasonable time thereafter as may be allowed under the rules stated above) …”
The Court of Appeal observed (p 11) that the judge’s finding on the date when the buyers should have bought in a substitute cargo “fixes the level of the plaintiffs’ damages on the facts of this case irrespective of what the plaintiffs did or failed to do at the time” and (p 13) “crystallises the position so far as the basis of a capital award of damages is concerned”.
The buyers in North Sea Energy Holdings NV v Petroleum Authority of Thailand [1999] 1 Lloyd’s Rep 483 repudiated an oil purchase agreement and the sellers accepted their repudiation. The sellers could not, however, show that they would have been able to obtain the oil to sell, and the Court of Appeal accordingly held that they were not entitled to substantial damages. In reaching this conclusion the court cited and applied part of Megaw LJ’s statement in the Mihalis Angelos which I have quoted in para 14 above.
BS & N Ltd (BVI) v Micado Shipping Ltd (Malta) (“The Seaflower”) [2000] 2 Lloyd’s Rep 37 concerned a time charterparty dated 20 October 1997 for a period of 11 months, maximum 12 months at charterers’ option. The charterparty referred to various major oil company approvals including that of Mobil all on the point of expiring and provided that if during the charter term the owners lost one of these approvals they should reinstate the same within 30 days failing which the charterers would be at liberty to cancel the charterparty. It also contained a guarantee by the owners to obtain an approval from Exxon within 60 days of the charter date. The vessel was duly delivered but the owners had not obtained an Exxon approval from Exxon and did not do so within 60 days from the charter date. On 30 December 1997 the charterers fixed the vessel to load a cargo of Exxon products. On the same date the charterers asked the owners if they had obtained the Exxon approval and gave notice requiring the owners to obtain it by 5 January 1998. The owners replied that the vessel would be ready for Exxon inspection by late January or early February. The charterers responded by terminating the charter and redelivering the vessel. At an initial hearing Aikens J held that the 60-day guarantee was an innominate term, not a condition. Thus the charterers were not entitled to terminate, and had repudiated the charterparty, which the owners had accepted. In proceedings initiated by the charterers, the owners counterclaimed for damages for wrongful termination of the charter, quantified as the difference between the daily hire rates in the charter and the alternative employment found for the vessel for the rest of the charter period. The charterers met this claim by contending that the owners would have lost their Mobil approval on 27 January 1998 and would not have been able to regain it within 30 days, namely 26 February: therefore the charterers would be contractually entitled to cancel, and the owners’ damages should end then. Timothy Walker J discerned a difference between the three judgments in the Mihalis Angelos, discounting Megaw LJ’s formulation as that of a minority, but found on the facts, as established at 30 December 1997, that the owners would have lost the Mobil approval on 27 January 1998. This conclusion he found to be supported by evidence of what actually happened after 30 December. He concluded that it was inevitable that the charter would have come to an end on 26 February, and limited the owners’ damages accordingly. This was, as I read the judgment, a conclusion he regarded as inevitable on 30 December. It does not appear that there was argument about the permissibility of relying on evidence of what happened later, and the judge cannot have supposed that he was deciding any issue of principle. The result of this case was perhaps less obvious than that on the third issue in the Mihalis Angelos, but it was a judgment, on different facts, to very much the same effect. It was quite unlike the present case, because early termination was very clearly predictable on the date when the repudiation was accepted, and the judge only relied on evidence of later events to fortify his conclusion on that point. I do not think he would have reached a different conclusion had he not received that evidence.
Dampskibsselskabet “Norden” A/S v Andre & Cie SA [2003] EWHC 84 (Comm), [2003] 1 Lloyd’s Rep 287 is a recent example of the application of the general rule. A forward freight swap agreement was treated as terminated because of the defendants’ breach of solvency guarantees. It was common ground by the end of the trial that the injured party’s loss was to be measured by the difference between the contract rate and the market rate after the date of termination. Toulson J recorded this agreement, observing (p 292, col 2) that “The availability of a substitute market enables a market valuation to be made of what the innocent party has lost, and a line thereby to be drawn under the transaction”. This is what the general rule is intended to achieve.
In support of their argument that damages should be assessed as of the date of actual assessment, the charterers contend that their claim attributable to loss of profit share would in any event have to be deferred. Neither the arbitrator nor the judge mentioned this point, from which it seems safe to infer that the point was not at that stage relied on. But Lord Mance, giving the leading judgment in the Court of Appeal, did refer to it (para 25), and counsel for the owners accepted in argument that the assessment of the profit share loss would have had to be deferred. I am far from convinced that counsel was right to accept this. It would of course be very difficult to calculate loss of profit prospectively over a four year period, but an injured party can recover damages for the loss of a chance of obtaining a benefit (see Treitel, 11th ed, (2003), pp 955-957) and the difficulty of accurate calculation is not a bar to recovery. Even if counsel is right on this point and I am wrong, this would not in my view be sufficient to displace the general rule in this context.
Conclusion
The thrust of the charterers’ argument was that the owners would be unfairly over-compensated if they were to recover as damages sums which, with the benefit of hindsight, it is now known that they would not have received had there been no accepted repudiation by the charterers. There are, in my opinion, several answers to this. The first is that contracts are made to be performed, not broken. It may prove disadvantageous to break a contract instead of performing it. The second is that if, on their repudiation being accepted, the charterers had promptly honoured their secondary obligation to pay damages, the transaction would have been settled well before the Second Gulf War became a reality. The third is that the owners were, as the arbitrator held (see para 7 above), entitled to be compensated for the value of what they had lost on the date it was lost, and it could not be doubted that what the owners lost at that date was a charterparty with slightly less than four years to run. This was a clear and, in my opinion, crucial finding, but it was not mentioned in either of the judgments below, nor is it mentioned by any of my noble and learned friends in the majority. On the arbitrator’s finding, it was marketable on that basis. I can readily accept that the value of a contract in the market may be reduced if terminable on an event which the market judges to be likely but not certain, but that was not what the arbitrator found to be the fact in this case. There is, with respect to those who think otherwise, nothing artificial in this approach. If a party is compensated for the value of what he has lost at the time when he loses it, and its value is at that time for any reason depressed, he is fairly compensated. That does not cease to be so because adventitious later events reveal that the market at that time was depressed by the apprehension of risks that did not eventuate. A party is not, after all, obliged to accept a repudiation: he can, if he chooses, keep the contract alive, for better or worse. By describing the prospect of war in December 2001 as “merely a possibility”, the expression twice used by the arbitrator in paragraph 59 of his reasons, the arbitrator can only have meant that it was seen as an outside chance, not affecting the marketable value of the charter at that time.
There is, however, a further answer which I, in common with the arbitrator, consider to be of great importance. He acknowledged the force of arguments advanced by the owners based on certainty (“generally important in commercial affairs”), finality (“the alternative being a running assessment of the state of play so far as the likelihood of some interruption to the contract is concerned”), settlement (“otherwise the position will remain fluid”), consistency (“the idea that a party’s accrued rights can be changed by subsequent events is objectionable in principle”) and coherence (“the date of repudiation is the date on which rights and damages are assessed”). The judge was not greatly impressed by the charterers’ argument along these lines, observing (paras 13, 35) that although certainty is a real and beneficial target, it is not easily achieved, and the charterparty contained within it the commercial uncertainty of the war clause. Lord Mance similarly said (para 24):
“Certainty, finality and ease of settlement are all of course important general considerations. But the element of uncertainty, resulting from the war clause, meant that the owners were never entitled to absolute confidence that the charter would run for its full seven-year period. They never had an asset which they could bank or sell on that basis. There is no reason why the transmutation of their claims to performance of the charter into claims for damages for non-performance of the charter should improve their position in this respect.”
I cannot, with respect, accept this reasoning. The importance of certainty and predictability in commercial transactions has been a constant theme of English commercial law at any rate since the judgment of Lord Mansfield CJ in Vallejo v Wheeler (1774) 1 Cowp 143, 153), and has been strongly asserted in recent years in cases such as Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (“The Scaptrade”) [1983] QB 529, 540-541, [1983] 2 AC 694, 703-704; Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12, [2004] 1 AC 715, 738; Jindal Iron and Steel Co Ltd v Islamic Solidarity Shipping Co Jordan Inc (“The Jordan II”) [2004] UKHL 49, [2005] 1 WLR 1363, 1370. Professor Sir Guenter Treitel QC read the Court of Appeal’s judgment as appearing to impair this quality of certainty (“Assessment of Damages for Wrongful Repudiation”, (2007) 123 LQR 9-18) and I respectfully share his concern.
On my reading of The Seaflower (see para 19 above), I do not think the arbitrator was bound by that decision to reach the conclusion he did. If he was, I respectfully think the judge was wrong to analyse the Mihalis Angelos as he did in that case. But on the facts Timothy Walker J was entitled to value the owners’ charter in that case at two months’ purchase as of the repudiation acceptance date. In the present case, by contrast, the arbitrator found four years’ purchase (less a few days) as the true market value of the charterparty on the repudiation acceptance date.
For these reasons and those given by my noble and learned friend Lord Walker of Gestingthorpe, with which I wholly agree, I would, for my part, have allowed the owners’ appeal.
LORD SCOTT OF FOSCOTE
My Lords,
The facts of this case have been fully and clearly set out in the opinions of my noble and learned friends Lord Bingham of Cornhill and Lord Carswell, both of which I have had the advantage of reading in advance. It will suffice for me to state in summary form what I take to be the salient features of the facts that have led to this litigation and to the appeal to your Lordships.
The charterparty of 10 July 1998 whereby the appellants (the Owners) and the respondents (the Charterers) agreed on a charter of the vessel, Golden Victory, for a period ending on 6 December 2005 contained a provision (clause 33) enabling either party to cancel the charter if war or hostilities should break out between any two or more of a number of named countries. The named countries included the USA, the UK and Iraq. The Charterers in breach of contract repudiated the charter on 14 December 2001 when the charter had nearly four years still to run (but subject, of course, to the clause 33 possibilities of cancellation). The Owners accepted the repudiation on 17 December 2001 and claimed damages for the Charterers’ breach of contract. The Owners’ claim went to arbitration and, after various issues had been determined by the arbitrator, all in the Owners’ favour, but before the arbitrator had assessed the quantum of the damages payable by the Charterers, the outbreak, in March 2003, of the Second Gulf War occurred. The Charterers said that if the charterparty had still been on foot when the Second Gulf War began they would have exercized their clause 33 right to bring the charter to an end. They submitted, therefore, that the Owners’ damages for their (the Charterers’) breach of contract should be assessed by reference to the period from 17 December 2001, when the contract came to an end on the Owners’ acceptance of their repudiation, to March 2003, when the contract would have come to an end if it had still been on foot. The Owners disagreed. They said the damages should be assessed by reference to the value of their rights under the charterparty as at 17 December 2001. That assessment could properly take account of the chance, assessed as at 17 December 2001, that a clause 33 event enabling one or other party to terminate the contract might occur, but should not take account of the actual occurrence of any event subsequent to 17 December 2001. The question was put to the arbitrator for decision. As your Lordships know, the arbitrator decided the question in favour of the Charterers. Langley J did likewise and the Court of Appeal agreed. The question is now before your Lordships for a final decision.
Two important matters that have, or may have, a bearing on the answer to the question are now common ground. First, it is common ground that, if the charterparty had still been on foot when, in March 2003, hostilities between the USA and the UK on one side and Iraq on the other side began, the Charterers would have exercised their clause 33 right to terminate the charterparty. Second, it is common ground that as at 17 December 2001 the chance that any hostilities triggering the clause 33 right of termination would break out was no more than a possibility and certainly not a probability.
My Lords, the answer to the question at issue must depend on principles of the law of contract. It is true that the context in this case is a charterparty, a commercial contract. But the contractual principles of the common law relating to the assessment of damages are no different for charterparties, or for commercial contracts in general, than for contracts which do not bear that description. The fundamental principle governing the quantum of damages for breach of contract is long established and not in dispute. The damages should compensate the victim of the breach for the loss of his contractual bargain. The principle was succinctly stated by Parke B in Robinson v. Harman 1 Ex 850 at 855 and remains as valid now as it was then.
“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
If the contract is a contract for performance over a period, whether for the performance of personal services, or for supply of goods, or, as here, a time charter, the assessment of damages for breach must proceed on the same principle, namely, the victim of the breach should be placed, so far as damages can do it, in the position he would have been in had the contract been performed.
If a contract for performance over a period has come to an end by reason of a repudiatory breach but might, if it had remained on foot, have terminated early on the occurrence of a particular event, the chance of that event happening must, it is agreed, be taken into account in an assessment of the damages payable for the breach. And if it is certain that the event will happen, the damages must be assessed on that footing. In The Mihalis Angelos [1971] 1 QB 164, Megaw LJ referred to events “predestined to happen”. He said, at p.210, that:
“… if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then … the damages which [the claimant] can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events.”
Another way of putting the point being made by Megaw LJ is that the claimant is entitled to the benefit, expressed in money, of the contractual rights he has lost, but not to the benefit of more valuable contractual rights than those he has lost. In Wertheim v. Chicoutimi Pulp Co. [1911] AC 301, Lord Atkinson referred, at 307, to:
“… the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed”
and, in relation to a claim by a purchaser for damages for late delivery of goods where the purchaser had, after the late delivery, sold the goods for a higher price than that prevailing in the market on the date of delivery, observed, at 308, that:
“… the loss he sustains must be measured by that price, unless he is, against all justice, to be permitted to make a profit by the breach of contract, be compensated for a loss he never suffered, and be put, as far as money can do it, not in the same position in which he would have been if the contract had been performed, but in a much better position.”
The result contended for by the appellant in the present case is, to my mind, similar to that contemplated by Lord Atkinson in the passage last cited. If the charterparty had not been repudiated and had remained on foot, it would have been terminated by the Charterers in or shortly after March 2003 when the Second Gulf War triggered the clause 33 termination option. But the Owners are claiming damages up to 6 December 2005 on the footing, now known to be false, that the charterparty would have continued until then. It is contended that because the Charterers’ repudiation and its acceptance by the Owners preceded the March 2003 event, the rule requiring damages for breach of contract to be assessed at the date of breach requires that event to be ignored.
That contention, in my opinion, attributes to the assessment of damages at the date of breach rule an inflexibility which is inconsistent both with principle and with the authorities. The underlying principle is that the victim of a breach of contract is entitled to damages representing the value of the contractual benefit to which he was entitled but of which he has been deprived. He is entitled to be put in the same position, so far as money can do it, as if the contract had been performed. The assessment at the date of breach rule can usually achieve that result. But not always. In Miliangos v Frank (Textiles) Ltd [1976] AC 443 Lord Wilberforce at 468 referred to “the general rule” that damages for breach of contract are assessed as at the date of breach but went on to observe that:
“… It is for the courts, or for arbitrators, to work out a solution in each case best adapted to giving the injured plaintiff that amount in damages which will most fairly compensate him for the wrong which he has suffered…”
and, when considering the date at which a foreign money obligation should be converted into sterling, chose the date that “gets nearest to securing to the creditor exactly what he bargained for”. If a money award of damages for breach of contract provides to the creditor a lesser or a greater benefit than the creditor bargained for, the award fails, in either case, to provide a just result.
In Dodd Properties v Canterbury City Council [1980] 1 WLR 433, Megaw LJ, commenting on the “general rule” to which Lord Wilberforce had referred in the Miliangos case, said, at 451, that it was “clear” that the general rule was “subject to many exceptions and qualifications”. In County Personnel Ltd v. Alan R Pulver & Co. [1987] 1 WLR 916, Bingham LJ, as my noble and learned friend then was, said at 926 that the general rule that damages were assessed at the date of the breach “should not be mechanistically applied in circumstances where assessment at another date may more accurately reflect the overriding compensatory rule.” In Lavarack v. Woods of Colchester Ltd [1967] 1 QB 278, the Court of Appeal held that damages for wrongful dismissal could not confer on an employee extra benefits that the contract did not oblige the employer to confer and Diplock LJ (as he then was) said at 294, that:
“… the first task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money’s worth if the defendant had fulfilled his legal obligations and had done no more. Where there is an anticipatory breach by wrongful repudiation, this can at best be an estimate, whatever the date of the hearing. It involves assuming that what has not occurred and never will occur has occurred or will occur, i.e. that the defendant has since the breach performed his legal obligations under the contract and, if the estimate is made before the contract would otherwise have come to an end, that he will continue to perform his legal obligations thereunder until the due date of its termination. But the assumption to be made is that the defendant has performed or will perform his legal obligations under his contract with the plaintiff and nothing more.”
This passage was cited and applied by Waller LJ in giving his judgment, concurred in by Roch and Ward LJJ, in North Sea Energy Holdings NV v. Petroleum Authority of Thailand [1999] 1 Lloyd’s Rep 483 at 494/5.
The assessment at the date of breach rule is particularly apt to cater for cases where a contract for the sale of goods in respect of which there is a market has been repudiated. The loss caused by the breach to the seller or the buyer, as the case may be, can be measured by the difference between the contract price and the market price at the time of the breach. The seller can re-sell his goods in the market. The buyer can buy substitute goods in the market. Thereby the loss caused by the breach can be fixed. But even here some period must usually be allowed to enable the necessary arrangements for the substitute sale or purchase to be made (see e.g. Kaines v. Österreichische [1993] 2 Lloyd’s Rep 1). The relevant market price for the purpose of assessing the quantum of the recoverable loss will be the market price at the expiration of that period.
In cases, however, where the contract for sale of goods is not simply a contract for a one-off sale, but is a contract for the supply of goods over some specified period, the application of the general rule may not be in the least apt. Take the case of a three year contract for the supply of goods and a repudiatory breach of the contract at the end of the first year. The breach is accepted and damages are claimed but before the assessment of the damages an event occurs that, if it had occurred while the contract was still on foot, would have been a frustrating event terminating the contract, e.g. legislation prohibiting any sale of the goods. The contractual benefit of which the victim of the breach of contract had been deprived by the breach would not have extended beyond the date of the frustrating event. So on what principled basis could the victim claim compensation attributable to a loss of contractual benefit after that date? Any rule that required damages attributable to that period to be paid would be inconsistent with the overriding compensatory principle on which awards of contractual damages ought to be based.
The same would, in my opinion, be true of any anticipatory breach the acceptance of which had terminated an executory contract. The contractual benefit for the loss of which the victim of the breach can seek compensation cannot escape the uncertainties of the future. If, at the time the assessment of damages takes place, there were nothing to suggest that the expected benefit of the executory contract would not, if the contract had remained on foot, have duly accrued, then the quantum of damages would be unaffected by uncertainties that would be no more than conceptual. If there were a real possibility that an event would happen terminating the contract, or in some way reducing the contractual benefit to which the damages claimant would, if the contract had remained on foot, have become entitled, then the quantum of damages might need, in order to reflect the extent of the chance that that possibility might materialize, to be reduced proportionately. The lodestar is that the damages should represent the value of the contractual benefits of which the claimant had been deprived by the breach of contract, no less but also no more. But if a terminating event had happened, speculation would not be needed, an estimate of the extent of the chance of such a happening would no longer be necessary and, in relation to the period during which the contract would have remained executory had it not been for the terminating event, it would be apparent that the earlier anticipatory breach of contract had deprived the victim of the breach of nothing. In the Bwllfa case [1903] AC 426, Lord Halsbury at 429 rejected the proposition that “because you could not arrive at the true sum when the notice was given, you should shut your eyes to the true sum now you do know it, because you could not have guessed it then” and Lord Robertson said at 432, that “estimate and conjecture are superseded by facts as the proper media concludendi” and, at 433, that “as in this instance facts are available, they are not to be shut out”. Their Lordships were not dealing with a contractual, or tortious, damages issue but with the quantum of compensation to be paid under the Waterworks Clauses Act 1847. Their approach, however, is to my mind as apt for our purposes on this appeal as to theirs on that appeal.
My noble and learned friend Lord Bingham, in what has been rightly described as a strong dissent, has referred (in para 9) to the overriding compensatory principle that the injured party is entitled to such damages as will put him in the same financial position as if the contract had been performed. On the facts of the present case, however, the contract contained clause 33 and would not have required any performance by the Charterers after March 2003. It should follow that, in principle, the owners, the injured party, are not entitled to any damages in respect of the period thereafter. As at the date of the Owners’ acceptance of the Charterers’ repudiation of the charterparty, the proposition that what at that date the Owners had lost was a charterparty with slightly less than four years to run requires qualification. The charterparty contained clause 33. The Owners had lost a charterparty which contained a provision that would enable the Charterers to terminate the charterparty if a certain event happened. The event did happen. It happened before the damages had been assessed. It was accepted in argument before your Lordships that the Owners’ charterparty rights would not, in practice, have been marketable for a capital sum. The contractual benefit of the charterparty to the Owners, the benefit of which they were deprived by the repudiatory breach, was the right to receive the hire rate during the currency of the charterparty. The termination of the charterparty under clause 33 would necessarily have brought to an end that right.
The arguments of the Owners offend the compensatory principle. They are seeking compensation exceeding the value of the contractual benefits of which they were deprived. Their case requires the assessor to speculate about what might happen over the period 17 December 2001 to 6 December 2005 regarding the occurrence of a clause 33 event and to shut his eyes to the actual happening of a clause 33 event in March 2003. The argued justification for thus offending the compensatory principle is that priority should be given to the so-called principle of certainty. My Lords there is, in my opinion, no such principle. Certainty is a desideratum and a very important one, particularly in commercial contracts. But it is not a principle and must give way to principle. Otherwise incoherence of principle is the likely result. The achievement of certainty in relation to commercial contracts depends, I would suggest, on firm and settled principles of the law of contract rather than on the tailoring of principle in order to frustrate tactics of delay to which many litigants in many areas of litigation are wont to resort. Be that as it may, the compensatory principle that must underlie awards of contractual damages is, in my opinion, clear and requires the appeal in the case to be dismissed. I wish also to express my agreement with the reasons given by my noble and learned friends Lord Carswell and Lord Brown of Eaton-under-Heywood for coming to the same conclusion.
Vavasour v. O’Reilly & Ors
[2005] IEHC 16 (28 January 2005)
Clarke J
THE CALCULATION OF DAMAGES
There was certainly some confusion which was only cleared up in the course of the proceedings as to the precise manner in which the franchise continued in the years after the plaintiff had departed from active involvement. However, it is now clear that at the instigation of Holiday Autos what in substance amounted to a renegotiation of the arrangements between Holiday Autos and the franchisee occurred in the latter part of 1997 and became operative with effect from 1998. In substance the whole manner in which the franchisee was to be paid altered so that instead of the franchise making a gross profit derived from the difference between what it charged its Irish customers and what it had to pay to the relevant Holiday Auto agent in the country concerned all payments were subsequently made directly to Holiday Autos who paid a commission back to the franchisee which appears to have been as to 7% on the first IR£1 million of turnover and 5% thereafter. It seems likely that this change was significantly motivated by the increased use of the internet as a means of booking car hire. Indeed it seems quite probable that once the business began to operate in that fashion it became increasingly likely that Holiday Autos would wish to terminate the franchise in its entirety, which they did in fact do in 2001.
However, for the purposes of this case it is important to recall that at the interlocutory stage Costello J. (as he then was) directed that the defendants should account to the plaintiff on a monthly basis for the turnover of the franchise business. This they continued to do. When the alteration in the nature of the business occurred at the beginning of 1998, a certificate in a slightly different form was furnished which divided the business into “old business” and “new business”. I was informed, and accept, that the new business was the grossed up turnover figure attributable to the commission paid to the franchisee. The old style business was a figure for turnover which had occurred in the traditional manner by direct sales by the franchisee to the public. This old style business continued for some period into 1998. I am also informed by the plaintiff, and accept, that he was entirely unaware as to that change in the nature of the conduct of the franchise operation until the matter was put in evidence in the course of the hearing. He was therefore, not unreasonably, under the apprehension that turnover in the traditional manner (that is to say sales for which the franchisee would have received payment) in the volumes indicated in the certificates was occurring. On that basis the plaintiff’s expert forensic accountant, Mr. Peter Johnson, had prepared figures for the profits of the franchise which were based on that assumption. Overnight (after the variation was clarified) he produced a revised report, dated 12th January, 2005, reflecting the new situation that had emerged in the course of evidence on the previous day. In that report he sets out what he describes as an upper estimate and a lower estimate of the value of 50% of the franchise net profits. The difference between the two stems from the treatment of the expenses attributable to the conduct of franchise business. The lower estimate is taken on the basis of accepting fully all of the expenses which were included in the statutory accounts of Globetrade Marketing Limited in respect of the business. The upper estimate is simply based on taking half of those expenses. The reason given by Mr. Johnson for tendering that figure was his experience that it was possible and not entirely unusual that accounts for companies within a group of companies do not necessarily allocate the expenses attributable to each company in an exact way. In this regard he noted, and I accept, that in most cases there are no revenue consequences resulting from any such distinction in that for practical purposes groups of companies, as defined in the Taxes Acts, are taxed on their collective profits by means of allowing losses occurring in one company to be the subject of an allowance in another profit making company within the same group. Mr. Johnson also accepted that it was entirely appropriate that where, as here, one company within a group provided services to another company within the group an appropriate charge for those services should be made. He did not, therefore, disagree in principle with the making of a charge but simply questioned whether the charge might not have been overstated.
To that end the defendants led evidence from Greg O’Shea, a partner in Burke & Company, who at all material times were auditors to Globetrade. Mr. Burke indicated that in respect of many of the years to which his evidence related he had himself carried out the calculation as to the sums attributable to the franchise business by way of costs and which should, therefore, be at least notionally paid by Globetrade to other companies within the group. While a number of minor matters were not absolutely clear (vis the fact that in some years there may have a round sum and the fact that for the last year the expenses seemed to continue beyond the date when the business ceased – this latter being explained by the need to wind-up the business) I am not satisfied on the evidence that there is anything like a sufficient basis for me to go behind the statutory accounts. In the circumstances it seems to me that the profits attributable to the franchise in respect of which the plaintiff was entitled to a 50% share are those set out in the lower figure given by Mr. Johnson. To those figures I must apply two reductions. For the reasons indicated above I must exclude the losses which appear to derive from the statute barred period. Furthermore I must reduce all losses subsequent to 1995 to 60% of their full value. On that basis the allowable losses appear to me to be the following:-
TABLE
Year Profit/loss 50% Attributable to Plaintiff Reduction Allowable Balance
1992 2,203 1,102 N/A 1,102
1993 (9,036) (4,518) N/A (4,518)
1994* 9,773 4,887 N/A 4,887
Net Share of profit to end 1994 1,471
Estimated net shares of profit to 14th November, 1994 1,000
1995 21,856 10,928 Statute Barred 0
1996 5,051 2,526 Statute Barred 0
1997 (24,824) (12,412) Statute Barred 0
1998* 39,891 19,946 60% and Estimated statute barred to 22nd June 6,000.
1999 31,771 15,886 60% 9,532
2000 65,000 32,500 60% 19,500
2001 (12,000) (6,000) 60% (3,600)
Total allowable losses £32,432
Notes:-
* While no specific evidence was given as to how the profits attributable to 1994 and 1998 should be divided up as and between the periods which I found to be statute barred and those which I found not to be statute barred, I have made an estimate based on the proportion of the years concerned.
Furthermore, it will be noted from the above table that the net profits in the period which I found to be statute barred were in fact extremely small in that the net position for the entirety of the years 1995, 1996 and 1997 showed a profit of just over IR£1,000 while the broken years showed an approximate profit in the statute barred portions thereof of approximately IR£10,000.
INTEREST
I have next to consider whether it is appropriate to allow courts act interest to the plaintiff. In the ordinary way the plaintiff has suffered commercial losses and a loss of his bonus payment and should be entitled to interest. I do have to have some regard to the fact that it has taken a very long period of time indeed for these proceedings to come on for hearing. There was a significant volume of debate at the hearing concerning the blame that might be attached, in particular to the defendants, in respect of delays experienced in the discovery process had otherwise in the proceedings. In particular reliance was placed upon the fact that Morris J. (as he then was) felt at one stage that the actions of the defendants warranted the dismissal of their defence. However, the precise circumstances which led to the making of that order are not a matter of record and furthermore the decision of Morris J. was in part overturned on appeal by the Supreme Court. However, for the purposes of this aspect of the case it seems to me sufficient to note that it is difficult to blame the plaintiff for any of the delays which occurred in the case up to the year 1999. Thereafter, and it would appear through no fault of his own, the plaintiff has had difficulty in obtaining legal representation which ultimately led to the circumstances in which he was required to represent himself. Equally it must be said that there is no basis for suggesting that the defendants were in any way responsible for those difficulties. Were it not for those difficulties it seems to me that it is likely that this case would have come on for hearing no later than 2001 and would have been the subject of a judgment by the end of that year. In the circumstances it seems to me that the justice of the case would be to award Courts Act interest on each of the sums allowed in the above table and the bonus payment at the appropriate courts act rate from the last day of the year to which the sum is attributable to the end of 2001. Hopefully it will be possible for the parties to agree the appropriate calculation together with the calculation of the sum in Euros to which the plaintiff should be entitled on the basis of the above together with interest calculated on the above basis.
Waller v The Midland Great Western, of Ireland, Railway Company
Queen’s Bench Division.
23 November 1878
[1878] 12 I.L.T.R 145
May C.J., O’Brien, Fitzgerald JJ.
May, C. J.
The facts of this case are few, and were not substantially matter of dispute between the parties. It appeared that the plaintiff, who resides in the county of Meath, after the termination of the hunting season had a large number of hunters (27), which he was anxious to send up to Dublin to be sold by auction at a large sale of similar animals to be held at Sewell’s, a well known auction mart, on Friday, 26th April. Some communications took place between the plaintiff and the agents of the railway company, which eventuated in an agreement by which the company agreed to carry these 27 horses at the reduced rate of £10; it was settled that the horses should go on the afternoon of Wednesday, the 24th. The agents of the railway company were aware that the horses were intended for the auction, and it appeared that though the auction was to take place on Friday, yet the horses should be in the stables on Sewell’s premises on Thursday, in order that they might be seen and examined by intending purchasers before the auction. The horses were brought to the station at Athboy by the plaintiff’s servants on Wednesday about 2:30 p.m., 3.30 being the hour at which the train was to start. But it then appeared that the defendants’ agents could not supply horse-boxes for more than 12 horses, nor could they undertake to furnish boxes for the other horses early on the next morning. The servants of the plaintiff under these circumstances took the 15 horses by road to Dublin, and the distance being about 24 miles, they did not arrive at Sewell’s establishment until 10 o’clock, p.m., on that day. The plaintiff gave evidence that several of the horses were *145 deteriorated in appearance by the journey, and one of thèm was lame in consequence; that some of them were sold, but at prices less than they would have fetched had they presented the appearance which they would have borne but for the journey. It appeared that the plaintiff had no alternative but to send his horses by road to Dublin, if he wished to attain his object of selling them at this auction. The plaintiff sued the defendants for their breach of contract; the defendants let judgment go by default, and on an inquiry before the Master to assess damages, the jury found a verdict for £200 damages. The defendants moved to reduce the damages to a nominal amount. It appeared in evidence that these horses—the hunting season having terminated about three weeks before the Wednesday in question—had been fed on soft food; and one of the plaintiff’s witnesses had stated that had they been in hard hunting condition they would not have been the worse of the journey.
It was contended that the injury to the horses must be regarded as attributable to the soft condition in which they were in, not to any default of the defendants. But I do not think this argument a sound one, as the horses were not in any condition rendering them susceptible of injury in an extraordinary degree—it was rather that they were no longer in an exceptional state of condition, which perhaps had it continued would have enabled them to bear the journey with impunity. But, the defendants’ counsel also contended that damages awarded in consequence of the deterioration in selling value of the horses were too remote, and could not be taken into consideration by the jury. Several cases were cited by counsel on both sides, as might have been expected from the nature of the question, which is one that has been very frequently the subject of discussion. The rule of law applicable to the case, it seems admitted, was laid down with substantial correctness in the oftencited case of Hadley v. Baxendale, in the following terms:—“When two parties have made a contract, which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract, should be such as may fairly and reasonably be considered either arising naturally— i.e., according to the usual course of things, from such breach of contract itself, or, such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it.” I think the damages in this case fall within both branches of the above definition. The horses were injured and deteriorated in value by the fatigue, which naturally and necessarily resulted from the journey which the defendants’ default rendered necessary. This fatigue and consequent injury was the direct and immediate consequence of the defendants’ breach of contract—not the effect of any accident, or collateral event over which the defendants had no control. So, also, I think the injury to the horses must be considered to have been within the contemplation of the parties, it being known to both that the horses were intended for sale on Friday, and for inspection on Thursday; and it was certainly probable that horses starting at 4 in the afternoon to travel 24 miles in the same evening would arrive late at night, somewhat worn and exhausted, and would not present the best appearance on the following day. The case of Hobbs v. London and South Western Railway Company, L. R. 10 Q. B. 111, cited by the defendants, resembled this case most closely. There the defendants, the Railway Company, conveyed the plaintiff and his wife and children, not to Hampton, according to their contract, but to Exeter, where they arrived at 12 o’clock at night. The plaintiff could not obtain any conveyance and was obliged with his family to walk from Exeter to Hampton—the night was wet, and the party did not arrive at home till 3 a.m. of the next morning. The plaintiff was held entitled to recover £8 as compensation for personal inconvenience, but not to a sum of £20, allowed by the jury on account of expenses of medical attendance on his wife, who caught a severe cold upon the occasion. This latter damage was considered too remote, the wetness of the night and the consequent illness occasioned to the lady being considered as contingencies, but which could not have been foreseen, and did not follow naturally and immediately from the breach of contract. The deterioration of the horses in the present case, directly caused by the fatigue of the journey, seems to me to resemble the inconvenience which was allowed for in the case referred to, rather than the expenses occasioned by the illness. I do not think it necessary to examine in detail the other cases cited on both sides; it is admitted that the rules on the subject are vague and indeterminate, and each case must depend on its own circumstances. In the case now before the court I think the damages allowed for by the jury were connected with sufficient closeness and proximity with the breach of contract of the defendants, and the plaintiff is entitled to retain his verdict.
O’Brien, and Fitzgerald, JJ., concurred.
Duffy -v- Ridley Properties & anor
[2008] IESC 23 (30 April 2008)
Judgment of Mr Justice Finnegan delivered on the 30th day of April 2008
By an Agreement for Sale dated the 7th May 2003 made between Ridley Properties Limited (“the Vendor”) of the one part and the respondent (“the Purchaser”) of the other part the Vendor agreed to sell and the Purchaser agreed to purchase lands (hereinafter “the lands”) being part of the lands comprised in Folio 12382 of the Register County Longford therein described as follows:-
“ALL THAT AND THOSE part of the property of the townland of Edgesworthtown in the Barony of Ardagh and County of Longford being part of the property described in Folio 12382 of the Register of the County of Longford comprising 2.05 acres or thereabouts statute measure being the property shown shaded green on the attached map hereto held by the Vendor in fee simple.”
The Agreement for Sale was in the Law Society of Ireland form of General Conditions of Sale 2001 edition. The following Special Conditions are relevant:-
“Special Condition 6
The Vendor shall grant a right of way to the Purchaser on completion over the access road at present being constructed by the Vendor. The grant of said right of way shall be incorporated into the transfer to the Purchaser. The access road shall be completed to the satisfaction of the Purchaser’s architect prior to completion.
Special Condition 7
The Vendor shall arrange for a wall to be constructed on the area marked red on the map attached hereto prior to completion and the construction of the said wall, the dimensions and materials used shall be agreed with the Purchaser’s architect before the commencement of the said works.”
The map attached to the Agreement for Sale was a photocopy of the Land Registry map marked as indicated. It contained the following legend:-
“Area shaded green 2.05 acres excl. public road”.
The legend was signed Mary O’Hara B.E. M.I.E.I., Mary O’Hara and Co. Limited, Civil Engineering Consultants, Market Street, Ballaghaderreen. The purchase price was €520,000 with a deposit of €52,000. The closing date was two weeks from the date of the Agreement for Sale. The interest rate specified was 12% per annum.
On the 2nd September 2003 the Vendor issued a completion notice requiring completion of the purchase within a period of 28 days after service of the notice and making time of the essence. In circumstances which I will detail hereafter the purchase was not completed in accordance with that notice. The Vendor issued the present proceedings on the 25th November 2003 seeking specific performance of the Agreement for Sale and damages in lieu of or in addition to specific performance. In February 2004 the Purchaser became aware that an Agreement for Sale had been entered into in respect of the same or substantially the same lands between the Vendor and the second named defendant. That Agreement for Sale was dated the 10th November 2003. The second defendant completed that purchase on the morning of the 28th November 2003.
Progress of the Transaction between the Vendor and the Purchaser
Kilrane O’Callaghan & Company Solicitors acted for the Vendor and Collins Crowley & Company Solicitors for the Purchaser. Prior to returning the executed Agreement for Sale Collins Crowley & Company obtained confirmation that the wall mentioned in Special Condition 7 would be constructed by Mr Kane (the Purchaser of an adjoining plot) and that the right of way provided for in Special Condition 6 would be coloured and identified clearly on a map. Both Special Conditions were the subject of discussion between the parties after which it was agreed that the Purchaser would be free to connect to the access road when completed and that the wall was to be between two and three metres in height. On the 15th May 2003 the Purchaser’s solicitors raised requisitions on title and submitted a draft transfer for approval. The Vendor’s solicitors replied to the requisitions on title on the 16th May 2003 and promised to forward a map showing the right of way duly marked in the coming days and this was done on the 21st May 2003. However the map furnished also contained a legend signed by Mary O’Hara which referred to the area to be transferred as 2.2 acres rather than 2.05 acres as provided for in the Agreement for Sale. By letter dated 3rd June 2003 the Purchaser’s solicitors queried this. By letter dated 4th June 2003 the Vendor’s solicitors explained that the measurement in the Agreement for Sale excluded the public roadway whereas the second map provided included one half the roadway adjoining the lands agreed to be sold. The Purchaser’s solicitors submitted the map to an architect for approval and a digital survey was carried out by him. His conclusion was that the area as marked on the second map excluding the roadway comprised 1.95 acres and including one half the roadway 2.031 acres: there was also a difference in the boundaries along the western side of the lands agreed to be sold between the two maps. The Vendor’s solicitors responded by letter dated 15th August 2003 in the following terms:-
“The map attached to the contract entered into between our respective clients was for identification purposes only. The discrepancy arises from the fact that the map furnished with the contracts was a copy map only which resulted in the dimensions of the map being distorted.
The map furnished with a letter of 21st May is also a copy of the original map file plan which may explain the discrepancies. In any event, a digital survey of any property will reveal discrepancies as between the boundaries and the file plan and those on the ground.
Notwithstanding the above our client is prepared to accommodate your client insofar as the corner points of ‘plot C’ is concerned and amend the corner points accordingly.”
There was delay in replying to the letter of 15th August 2003 as the solicitor dealing with the matter in the Purchaser’s solicitors’ office was on holiday and on the 2nd September 2003 the notice to complete was served. On the 3rd September 2003 the Purchaser’s solicitors did reply in the following terms:-
“We refer to your letter of 15th August last in response to our letter of 4th July 2003 and confirm that we have forwarded a copy of the same to our clients architects Messrs J.P. McHugh & Company and requested a further report from them as a matter of urgency.
Our client has, however, requested us to point out to you that Special Condition No. 7 of the contract for sale has not yet been complied with. We understand that the wall has been completed but does not comply with the condition as the dimensions and materials used in the wall were never agreed directly with the Purchaser and his architect J.P. McHugh & Company. The wall itself is not plastered. It is of varying heights ranging from metre to 1.75 metres. There are also pillars constructed protruding on to the proposed site. The wall should be 3 metres high in order to conceal the rear of the adjoining premises.”
The Vendor’s solicitors replied by letter dated 5th September 2005 in the following terms:-
“We refer to yours of the 3rd September. The issue of the wall cannot hold up closing of this sale as this is the first time we have heard from your client in relation to this specific requirement regarding the wall. In any event, we note he now requires a 3 metre high wall. We have informed our clients of this and they have stated that this wall will be in place by Monday 8th September. We therefore wait hearing from you as a matter of urgency regarding closing and in that regard our client still intends to rely on the completion notice served herein.”
A further survey by the Purchaser’s architect disclosed that the area to be transferred as shown on the second map comprised 1.95 acres resulting in a shortage of .10 of an acre. There was an offer by the Purchaser to complete the purchase on the basis of a pro rata reduction in the purchase price of €25,366. The Vendor’s solicitors replied that the lands to be sold were clearly defined on the ground at all times: the lands to be sold comprised 2.05 acres or thereabouts. Further that it is not a valid exercise to rely on digitally generated maps which will differ from Land Registry maps based on Ordnance Survey Sheets. The suggestion of an abatement in the purchase price was rejected. Correspondence continued between the parties without prejudice to the completion notice but there was no resolution on the matters in issue. On the 31st October 2003 the Vendor’s solicitors wrote that his client was relying on the completion notice served and proceeding accordingly. On the 6th November 2003 the Purchaser’s solicitor wrote that counsel had been briefed to draft High Court proceedings. By the 11th November 2003 the Purchaser believed that the Vendor was in the course of re-selling the lands. The plenary summons herein was issued on the 25th November 2003 and a lis pendens was registered on the 27th November 2003.
It appears from affidavits filed in the matter that the Vendor entered into an agreement with the second named defendant to purchase the Lands on the 10th November 2003 at a purchase price of €465,000. Requisitions on Title were raised on the 12th November 2003 and replied to on the same day. The requisitions were in the Law Society of Ireland standard form 2001 edition and included the following requisitions:-
14.4 Is there any litigation pending or threatened or has any Court Order been made in relation to the property or any part of it or the use thereof or has any adverse claim thereto been made by any person.
14.5a Has any person other than the Vendor made any direct or indirect financial contribution or being the beneficiary of any agreement or arrangement whereby that person has acquired an interest in the property or any part of it.
b If so furnish now details of the interest acquired or claimed.
The Purchaser registered a lis pendens on the 27th November 2003. The defendant completed his purchase on the 28th November 2003 having carried out searches on the afternoon of the 27th November at 4 p.m. which did not disclose the lis pendens. The defendant’s dealing was lodged in the Land Registry on the 10th February 2004 and registration of the same has now been completed.
Findings of Fact
The learned trial judge heard evidence over three days. Evidence was given by the Purchaser, two directors of the Vendor, the second named defendant, the solicitors for the Purchaser, the solicitors for the Vendor, the Purchaser’s architect and the Vendor’s engineer. The learned trial judge made findings of fact as follows:
1. The lands the subject matter of the Agreement for Sale form part of Folio 12382 of the Register County Longford and are situate on the main road from Edgesworthtown to Longford and close to Edgesworthtown.
2. The Vendor, a development company, owned an adjacent site upon which it proposed to build houses. Planning permission for that development required the use of portion of Folio 12382 of the Register County Longford for an access road and footpath and open space. Prior to entering into the Agreement for Sale the Vendor sold a small portion of Folio 12382 to Mr. Kane who owned an adjacent garage business.
3. The lands comprised in the folio are the site of the old Mart in Edgesworthtown and the Mart buildings remained on the site.
4. From 2001 to April 2003 the lands were on offer for sale. In April 2003 the second named defendant entered into negotiations to purchase the same. At that time there were no physical features to indicate the proposed boundary of the site on the south-western, western and north-western sides (“the western boundary”). The boundary of the small portion sold to Mr. Kane was not identified on the lands. Yellow markings had been placed at certain points to roughly identify the western boundary.
5. The purchase price of €480,000 was agreed with the second named defendant and a deposit paid. Before a contract was signed the Vendor withdrew as a result of a dispute between its directors.
6. The Purchaser is a supermarket owner operating a supermarket in Edgesworthtown. The Purchaser commenced negotiations for the lands on 14th April 2003 with the Vendor’s auctioneer but concluded the terms of an agreement directly with the Vendor. He was informed by the Vendor’s auctioneer that the lands comprised 2.3 acres, was made aware that the Vendor was retaining a portion of the Mart site for the purposes of an access road, footpath and green area but was not made aware of the yellow markings.
7. Prior to signing the contract the Purchaser was aware of the area of the site being sold and had seen the yellow markings on site but was not told that they were definitive boundary marks.
8. The Agreement for Sale was signed and matters proceeded between solicitors as hereinbefore detailed.
9. There were two site meetings as follows:-
(a) On the 6th May 2003 the Purchaser, his architect Mr. McHugh and Mr. Groarke a director of the Vendor attended on site.
(b) On 5th June 2003 the same persons together with Ms O’Hara the Vendor’s engineer attended on site. There was a conflict in the evidence and the learned trial judge made the following findings in relation to the meetings. There are thirteen findings of fact in relation to these meetings.
(i) Prior to the first meeting Mr. McHugh had been instructed by the Purchaser that he was purchasing 2.05 acres excluding the public road.
(ii) Mr. Groarke confirmed that the area being transferred was 2.05 acres.
(iii) At the first meeting there were yellow markings on the walls of the Mart and elsewhere and Mr. Groarke indicated that he had put on those marks as a rough guidance of the proposed western boundary. Further the marks could not be relied upon to properly determine that boundary. The Purchaser did not suggest that the marks had previously been given to him as definitive markings.
(iv) Mr. Groarke, at Mr. McHugh’s request, agreed that he would have his engineer mark definitive points from which the western boundary of the site could be deduced.
(v) The purpose of Mr. McHugh attending the site was to advise the Purchaser as to the area he was obtaining by reference to the actual western boundary marked on the ground.
(vi) There was considerable uncertainty at the first meeting as to what was the accurate line for the western boundary. In particular it was pointed out by Mr. McHugh that on the map attached to the contract the western boundary was a straight line whereas on the ground it was “meandering somewhat”.
(vii) At all times Mr. Groarke made clear that his main concern was that he would have enough space between the western boundary of the property being sold and the western boundary of the lands comprised in the folio to construct a road and footpath to serve the housing development which the Vendor proposed to commence at the rear of the Lands.
(viii) On 5th June 2003 Ms. O’Hara met with Mr. Groarke at the site prior to meeting with the Purchaser and Mr. McHugh.
(ix) Ms. O’Hara was the person who had prepared the map attached to the Agreement for Sale and the second map. The maps had been prepared by her reference to a map used in the application for the planning permission for the housing development at the rear of the Lands. Her instructions were to include in the property for sale that portion not required for the access road footpath and green space as per the planning permission. She prepared the maps by indicating a boundary which she considered excluded those requirements.
(x) There were no physical features on the western boundary which identified the boundary of the site being sold as marked on the map. The fact that part of the old Mart building went through the proposed boundary line at certain points made identifying and marking the boundary line on the ground more difficult. Ms. O’Hara and a colleague identified certain physical features such as a bridge on the road and a drain at the north-eastern point which she considered were identifiable from the copy folio map and from those points scaling back the maps had been prepared. She attempted to mark with red paint appropriate points to identify the intended boundary line on the ground. Certain of these were on the old Mart building. Others were on the ground, a wall and one on a sheet of galvanised iron.
(xi) Ms. O’Hara has no recollection of using a ranging rod. Mr. McHugh was clear in his evidence that a ranging rod was there and appeared to him to have been used as a marker. The learned trial judge concluded on balance that a ranging rod was used by Ms. O’Hara and her colleague as a marking point on the site. On 5th June 2003 when Mr. McHugh and the plaintiff arrived Ms. O’Hara indicated the points marked. She did not give to Mr. McHugh any dimensions she had used. Mr. McHugh identified the marks on that day.
(xii) Mr. McHugh returned to the site a third time a few days later and carried out a digital survey using electronic equipment known as a total station and data logger. He measured the total area enclosed by the site now identified with red markings as 1.95 acres. Mr. McHugh sent to the Purchaser’s solicitors a report dated 27th June 2003 following this survey. Whilst an attempt was made at the hearing to explain the difference in area by reference to the possibility of the red mark on the galvanise sheet having been moved the learned trial judge concluded as a matter of probability it was not so caused.
The learned trial judge made a number of findings in relation to the evidence as to what transpired between the solicitors. The following which are relevant:-
1. The Vendor maintained that it was entitled to rely upon the completion notice. The Purchaser at all times asserted that it was an invalid completion notice.
2. The Purchaser’s solicitor continued to seek a meeting on site between the Vendor’s engineer and the Purchaser’s architect. This was resisted by the Vendor’s solicitors. The Purchaser’s solicitors as a ground for contending that the completion notice was invalid maintained that there remains substantial uncertainty as to the identity on the ground of the Lands.
3. On receipt of a letter from the Vendor’s solicitors dated 31st October 2003 informing them that the Vendor was relying on the completion notice the Purchaser’s solicitors proceeded to instruct counsel and instituted the present proceedings on the 25th November 2003 and the registered a lis pendens on the 27th November 2003.
4. The second named defendant’s purchase was completed on the morning of the 28th November 2003.
Proceedings before the High Court
On the pleadings the issues arising between the Vendor and the Purchaser are as follows.
1. Was the completion notice valid?
2. If the completion was not valid should the court exercise its equitable jurisdiction and refuse an order for its specific performance.
As to the validity of the completion notice it was contended on behalf of the Purchaser that at the date of service of the same the Vendor was not ready willing and able to complete for two reasons:-
1. Special Condition 7 had not been complied with as the boundary wall had not been built.
2. In relation to the identity of the lands agreed to be sold the Purchaser could not be certain of the identification on the ground of the Lands.
It was not in dispute that the wall had not been built. Equally it was not in dispute that the Purchaser had not given the Vendor his specifications and requirements for the wall and that no request had been made by the Vendor to the Purchaser for such specifications. On this ground the learned trial judge was satisfied that the Vendor was not ready, willing and able to complete the Agreement for Sale on 2nd September 2003 the date of the completion notice and accordingly she held the completion notice to be invalid. In relation to the second reason the learned trial judge held that the Vendor was not ready, willing and able to complete the sale to the Purchaser of the lands as the Purchaser could not be certain of the identify on the ground of the lands. On this ground also the learned trial judge held the completion notice is invalid. The particulars in the Agreement for Sale refer to 2.05 acres as did the map attached to the same, the latter clarifying that this area excluded the public road. The second map differed from the map attached to the Agreement for Sale at the western boundary and it is not possible to determine with certainty where the western boundary is located. A discrepancy of 0.10 of an acre might be considered to be insignificant and covered by the words “or thereabouts” in the particulars and accordingly there was no uncertainty as to the area to be transferred. The area shown on the second map intended to be attached to the transfer is shown as 2.22 acres. The learned trial judge found that the area of the land to be transferred as shown on the second map excluding the public road was 1.9 acres and that it was obvious to the naked eye that there were differences in the location of certain of the corner points on the western boundary between the map attached to the Agreement for Sale and the second map intended to be attached to the transfer. There was no agreement as of the 2nd September 2003 as to the identity on the ground of the lands to be transferred. The learned trial judge went on to find as follows:-
“There was no Special Condition included in the contract as to how the new western boundary was to be identified on the ground. Having regard to the evidence of Ms. O’Hara as to the nature of the map used for the contract I have concluded that it was not possible to identify in accordance with any general condition in the contract the western boundary of the site to be sold by reference to the map attached to the contract”.
The learned trial judge continued:
“Counsel for the first named defendants submitted that even if there were what was considered to be a significant difference in the area enclosed by the red markings and that agreed to be sold in accordance with the particulars of a contract, that such matter could be dealt with under Condition No. 33 of the General Conditions of Sale. It does not appear to me that on the facts herein having regard to the uncertainty surrounding exactly the lands agreed to be sold that condition 33 applies. However even if it does so, in accordance with the decisions of the High Court in Keating v. Bank of Ireland [1983] I.L.R.M. 295 and O’Brien v. Carney [1995] 2 I.L.R.M. 232 (with which I agree) a Purchaser is not obliged to comply with a completion notice where the question of compensation for mis-description has not been settled”.
Accordingly the learned trial judge found that the completion notice was invalid.
The learned trial judge then proceeded to consider whether or not applying equitable principles the remedy of specific performance being discretionary she should order specific performance of the Agreement for Sale. She referred to Farrell Irish Law Specific Performance at p. 223 where the author stated:-
“The relief may be withheld as an exercise of that discretion even where a plaintiff proves a valid contract and no particular defence or ground for refusal is established.”
The Vendor contended that specific performance should not be granted for reasons of the uncertainty surrounding the lands to be transferred under the contract. While this case was made in written and oral submissions no such plea was contained in the defence. The submission was only made at the end of the evidence and the learned trial judge concluded that it would be an unfair procedure to the Purchaser if she were to entertain a submission at that stage of the proceeding that the uncertainty was such to render the contract invalid. In the alternative the Vendor relied upon a further passage in Farrell Irish Law of Specific Performance at p. 7 where it is stated:-
“If a contract is ‘completely uncertain’ it is equally void at law and in equity. Occasionally there is a degree of uncertainty which will lose the right to specific performance without also destroying remedies at law. As Lord Redesdale pointed out in 1805
‘If it is certain to a degree, but doubtful as to the extent, equity would, I think would act infinitely more wisely in leaving the party to the old remedy by action for damages, than to run the hazard of doing injustice, in doing what is said to be more complete justice, by decreeing a specific performance’.
The burden is on the plaintiff to satisfy a court of an agreement, the terms of which ‘are sufficiently certain to justify a decree for specific performance’. He may expect to fail if he does not satisfy the court of the certainty of the material terms even though it may believe that some complete and binding agreement was reached”.
On this submission the learned trial judge found as follows:-
“For the reasons which I have already set out above I have concluded that the contract for sale of the 7th May 2003, between the plaintiff and the first named defendant did not desribe with certainty the lands to be transferred herein nor did it include either in the general conditions nor by way of a Special Condition a mechanism by which the western boundary of the plot to be transferred was to be identified on the ground.
I have concluded that this is a case where the uncertainty surrounding the determination on the ground of the plot to be transferred is such that the court should depart from the normal rule and should now exercise its discretion to refuse an order for specific performance and to award the plaintiff damages in lieu thereof. I am reinforced in that view by reason of the attitude of the plaintiff as demonstrated in the correspondence sent on his behalf by his solicitor in the month of September and first half of October 2003. At that time, following the service of the alleged completion notice, as already stated there was at the time, what on the first defendant’s side were “without prejudice” offers as to the terms on which the sale might be completed. For much of the month of September 2003 at least it appears that both parties were genuinely interested in completing the sale but yet no agreement could be reached as to the terms according to which the sale would be completed. In September 2003 the plaintiff was both seeking a reduction in the purchase price and a meeting between respective engineers the purpose of which was to attempt to agree new boundaries from those marked with the red paint on the site. The plaintiff at this stage was resisting any attempt to compel him to complete the transaction and the solicitor stated in the letter of the 23rd September 2003 ‘no court would compel our client to close a transaction where the land to be transferred to him has not yet been definitively identified’.
At no stage throughout this correspondence did either party suggest that the contract provided a mechanism for determining the boundary of the lands which were to form part of the sale. Even when, in October 2003, agreement appears to have been reached upon a reduced purchase price the solicitor for the plaintiff was maintaining as in the letter of the 22nd October 2003, that the boundaries are not adequately defined.
By this point in time the solicitors for the plaintiff had introduced the requirement of the lending institution and created, whether unwittingly or not, what appears to have been a justifiable apprehension on the part of the defendant as to the plaintiff’s then enthusiasm for completing the transaction.
I wish to make clear that the behaviour of the plaintiff in September and early October 2003 simply confirms me in the view which I have formed. It of itself is not the primary reason for which I have determined the court should refuse an order for specific performance. It hardly seems equitable to grant an order for specific performance in favour of a party who has resisted completing a contract for sale upon the basis that the boundaries are not adequately defined when the contract itself does not provide any mechanism or Special Condition as to how those boundaries should be defined. Such definition in a manner acceptable to both parties remains dependant upon agreement being reached between the parties or their respective engineers or architects. The court has no power to compel such an agreement.”
The learned trial judge went on to hold that the Purchaser was entitled to damages in lieu of specific performance.
The learned trial judge having so decided an issue arose in the following circumstances. The statement of claim sought damages for breach of contract in the following terms:-
“Further, or in the alternative, damages for breach of contract and/or negligence against the first defendant, its servants or agents.”
The learned trial judge asked the Purchaser’s counsel on the opening of the case if the claim being pursued was for specific performance only. The effect of counsel’s reply was that the Purchaser was pursuing a claim for specific performance with the alternative of damages in respect of the damage, loss and expense sustained by the plaintiff by reason of the wrongful repudiation of the Agreement for Sale. In the course of the exchanges counsel said:-
“I am asking basically for an affirmation of the contract, My Lord, and a decree of specific performance.”
The learned trial judge understood that the Purchaser was seeking specific performance but was not seeking any special damages; rather general damages were being sought on the basis that the proposed development of the lands by the Purchaser had been delayed. No evidence was given to support a claim for special damages as to the difference in value of the site between May 2003 and the date of the hearing. At the conclusion of the Purchaser’s evidence counsel on behalf of the Vendor asked that the Purchaser should then elect as to the remedy he was seeking. It was submitted that if the Purchaser elected to seek specific performance he is not entitled to damages. As a result of exchanges it was quite clear that the Purchaser was seeking specific performance but if for whatever reasons that relief were not granted he was seeking damages in lieu of specific performance. Further if specific performance should be granted the Purchaser was seeking damages in addition thereto for the delay in completion. In relation to damages in addition to specific performance counsel said that he was not seeking special damages but general damages for delay for the loss of business opportunity. Accordingly the Purchaser’s claim for damages encompassed the following:
1. In the event that specific performance is not awarded, damages in lieu of specific performance.
2. In the event that specific performance is granted, damages in addition thereto by way of general damages for delay and the resulting loss of business opportunity. The Purchaser’s evidence had been that he proposed building a new supermarket on the lands which would be twice as big as the one which he operated and would have resulted in a natural expansion of the business and that that has been delayed.
The learned trial judge decided to leave over the hearing of further evidence should that be necessary in relation to damages in lieu of specific performance. She then made the following ruling:-
“Notwithstanding this ruling I have concluded that it is necessary for me in order to determine the appropriate amount of damages to which the plaintiff is entitled against the first named defendant to obtain further evidence in relation to the following matters only:-
(a) Whether the solicitor’s for the first named defendant still retain the deposit paid by the plaintiff pursuant to the contract. If so the amount of interest earned thereon to date. If not, the date upon which the same was paid to the first named defendant.
(b) Whether any fees were paid by the plaintiff to Mr McHugh or are due and owing by the plaintiff to Mr McHugh for the work done by Mr McHugh for the plaintiff in connection with the contract in 2003.
(c) Whether any fees have been paid or are due and owing by the plaintiff to his solicitor in connection with the work done in connection with the contract up until the 22nd October 2003.”
Having determined that an order for specific performance should be refused it was unnecessary for the learned trial judge to consider the claim against the second named defendant.
The damages hearing and the award of damages
When the matter was re-listed in relation to the time and mode for taking of the additional evidence referred to in the learned trial judge’s judgment counsel for the Purchaser informed the court that the learned trial judge had misunderstood the plaintiff’s position in relation to his claim for damages in lieu of specific performance and that it had been the intention of the plaintiff at all times to pursue a claim for loss of bargain based on the increased value of the property since the date of the contract in the event that specific performance should be refused. He sought to adduce evidence of the current value of the lands. Counsel for the Vendor objected to the admission of any evidence other than that referred to in the judgment of the learned trial judge. The learned trial judge had understood from counsel for the Purchaser that he was not making any claim for special damages whether in relation to a claim for damages in addition to specific performance or in relation to damages in lieu of specific performance. Counsel for the Purchaser informed the court that in dealing with the questions raised as to the nature of the claim for damages he was addressing only the claim for damages in addition to specific performance. The additional evidence which the learned trial judge directed in her judgment of the 7th July 2005 was so directed on the basis of her misunderstanding of what she had been told by counsel for the Purchaser that no claim for special damages was being made. She had understood counsel to have informed her that no claim was being made, that the lands had increased in value between May 2003 and the date of the hearing. The learned trial judge carefully re-considered the transcript of the exchanges which took place on the second day of the hearing. No order had been made up on foot of the learned trial judge’s ruling. The learned trial judge determined that in the circumstances she was entitled to alter the ruling which she had given.
The learned trial judge proceeded to hear evidence of valuation. In relation to the deposit of €52,000 she held that the Purchaser was entitled to the return of the same together with interest earned thereon. The Purchaser’s valuer placed a valuation on the lands as at the 7th July 2005 of €2,000,000. The Vendor’s valuer placed a valuation on the lands at that date of €900,000. The learned trial judge held that the 7th July 2005 was the appropriate date by reference to which the loss of bargain should be calculated. The learned trial judge determined that the value of the lands as at the relevant date was €1,400,000 and the measure of damages for loss of bargain was accordingly €880,000. She refused to assess damages at an earlier date on the basis of the Vendor’s submission that the proceedings ought to have been heard and determined in July 2004 and also refused to take into account that the Vendor had not been enriched by the second transaction the same having been at the reduced price of €485,000.
The Notice of Appeal and Notice to Vary
The vendor in its Notice of Appeal relies upon the following grounds:-
1. The learned trial judge erred in law in determining that the plaintiff was entitled to an award of damages in lieu of specific performance.
2. The learned trial judge erred in law in awarding damages in lieu of specific performance where it was determined that the court did not have the power to compel the Agreement by reason of the fact that the contract did not describe with certainty the lands to be transferred and did not contain a mechanism by which the boundaries were to be defined.
3. Since the reason why the learned High Court judge refused to grant specific performance was that the alleged contract neither specified the lands to be sold nor provided a mechanism for those lands to be ascertained it followed that there was no binding contract between the plaintiff and the first defendant and consequently there could be no breach of that alleged contract by the first defendant, so that it was inappropriate to award the plaintiff damages for breach of contract by the first defendant.
4. The learned trial judge erred in law in awarding damages in lieu of specific performance when the logic of the judgment required a finding that there was not a binding contract between the plaintiff and the first defendant.
5. The learned trial judge erred in law in awarding damages in lieu of specific performance when specific performance could not have been decreed because no valid or enforceable contract existed between the plaintiff and the first defendant.
6. Since the learned trial judge could not have decreed specific performance it was not open to her to award damages in lieu of specific performance.
7. The learned trial judge erred in law in not finding that there was no concluded contract between the plaintiff and the first defendant.
8. The learned trial judge erred in law in allowing the plaintiff adduce evidence of loss of bargain after the issues had been determined and judgment handed down on the 7th day of July 2005.
9. The learned trial judge erred in law in measuring damages for loss of bargain.
10. The learned trial judge erred in law in not assessing damages for loss of bargain by reference to the current market price at the date of the judgment. (sic)
11. The learned trial judge erred in law in not assessing the quantum of damages by reference to a date earlier than the date of judgment.
12. The learned trial judge erred in the method of assessment of the current market value of the said property.
13. The measurement of damages by reference to current property values where there has been a dramatic increase in those values is unfair and inequitable and does an injustice to the first defendant.
14. The learned trial judge ought to have taken into account the finding that there was a justifiable apprehension on the part of the first defendant as to the plaintiff’s enthusiasm for completing the transaction when measuring damages herein.
15. The amount of the award of damages was excessive and amounts to a windfall profit for the plaintiff.
The Purchaser’s notice to vary challenges the learned High Court judgment insofar as she refused specific performance and granted damages in lieu and seeks an order for specific performance.
The following grounds are relied upon:-
1. The finding of the learned trial judge that there was uncertainty in relation to the identity of the property to be sold when the respondent agreed to purchase the property is not borne out by the weight of the evidence.
2. The learned trial judge failed to take account of the fact that the appellant altered the boundaries of the lands to be sold after the initial agreement with the respondent.
3. The learned trial judge was mistaken in fact in finding that the respondent was not told that the yellow markings on the site where definitive boundary marks.
4. The learned trial judge was mistaken in fact and in law in failing take account of the fact that the appellant by agreeing to take a reduced purchase price had acknowledged that it had reduced the size of the property to be sold from that originally offered to the respondent.
5. The learned trial judge was mistaken in fact and in law in holding that the uncertainty, if any, in relation to determining the lands to be transferred was such as to deprive the respondent of his entitlement to a decree for specific performance.
6. The learned trial judge was mistaken in fact and in law in holding that the uncertainty if any in relation to the western boundary of the lands to be transferred was such as to deprive the respondent of his entitlement to a decree for specific performance.
7. The learned trial judge was mistaken in fact and in law in holding that the uncertainty, if any, in relation to determining the lands to be transferred was such as to justify her exercising her discretion to refuse a decree to a specific performance.
8. The learned trial judge was mistaken in fact and in law in failing to take any or any sufficient account of the fact that the appellant having conceded that the corner points of the boundaries should be adjusted failed to take any further steps in that regard notwithstanding the repeated requests of the respondent that the respective engineers meet on site for that purpose.
9. The learned trial judge was mistaken in fact in finding that the appellant had justifiable apprehension as to the respondent’s enthusiasm for completing the transaction.
10. The learned trial judge was mistaken in fact in holding that the respondent had any reasons other than his justifiable requirement that the boundaries of the lands be properly defined on the ground for not completing the transaction.
11. The learned trial judge was mistaken in fact and in law in finding that the contract should have included a mechanism for the finding the western boundary of the lands.
12. The learned trial judge erred in law when, having found that there was a validly subsisting contract and that the twenty eight day completion notice served by the appellant was invalid and of no effect failed to exercise her discretion by granting specific performance.
13. The learned trial judge erred in failing to take cognisance of the fact that the appellant had subsequently constructed boundaries around the lands the subject matter of the contract and that the lands enclosed by the said boundaries comprised just short of 2.05 acres resulting in the removal of the uncertainty, if any, in
relation to the identity of the lands to be sold.
14. The learned trial judge erred in not taking any or any sufficient cognisance of the conduct of the appellant purporting to enter into a contract with the second named defendant for the sale of the said lands when there was already an existing contract with the respondent.
15. The learned trial judge erred in not taking any or any sufficient cognisance of the fact that the appellant in purporting to enter into a contract with the second named defendant was prepared to accept a purchase price which as €55,000 less than that in the contract with the respondent for the same lands a reduction of 10.5% in rising market.
16. The learned trial judge erred in not taking any or any sufficient cognisance of the conduct of the appellant in giving false and misleading replies to requisitions to the second named defendant in which they knew to be false and misleading in order to avoid disclosing the existence of the prior contract with the respondent.
17. The learned trial judge erred in not taking any or any sufficient cognisance of the conduct of the appellant in giving false and misleading replies to requisitions and which they knew to be false and misleading in denying that there was any dispute or any litigation pending in order to avoid disclosing that another party had an existing interest in the property.
On the hearing before this court the Vendor’s grounds of appeal were reduced and consolidated to four grounds as follows:-
1. That the learned trial judge was in error in determining that the plaintiff was entitled to an award of damages in lieu of specific performance.
2. That the learned trial judge was in error in allowing the plaintiff to adduce evidence of loss of bargain after the issues had been determined.
3. The learned trial judge was in error as to the relevant date for assessing damages.
4. That the learned trial judge was in error in the method of assessing valuation.
I propose dealing with each of these submissions in turn.
1. That the learned trial judge was in error in determining that the plaintiff was entitled to an award of damages in lieu of specific performance.
The learned trial judge found that that there was a subsisting contract, the notice to complete being invalid. Nonetheless she found that it was not possible to identify the Lands on the ground in accordance with any general condition in the contract, in particular the western boundary of the Lands, nor was it possible by reference to the map attached to the contract. Further she found that the general and special conditions of the Agreement for Sale did not provide a mechanism whereby the western boundary of the Lands to be transferred was to be identified on the ground. On this basis she concluded that the uncertainty surrounding the identity on the ground of the Lands is such that the court should depart from the normal rule and should exercise its discretion and refuse an order for specific performance. In the course of her judgment she said:-
“It hardly seems equitable to grant an order for specific performance in favour of a party who has resisted completing a contract for sale upon the basis that the boundaries are not adequately defined when the contract itself does not provide any mechanism or special condition as how those boundaries should be defined. Such definition in a manner acceptable to both parties remains dependant upon agreement being reached between the parties or their respective engineers. The court has no power to compel such an agreement.”
The Vendor sought to point to an apparent inconsistency between the finding that there remained in existence a subsisting contract and the finding of uncertainty as to the boundaries of the Lands on the ground and argued that by reason of that uncertainty there could be no concluded agreement. This issue arose at the trial and the learned judge found that while the case had been made in written and oral submissions that there was no concluded agreement, no plea to that effect was contained in the defence. The submission was made at the end of the evidence and the learned trial judge concluded that it would be an unfair procedure to the Purchaser if she were to entertain a submission at that stage of the proceedings that the uncertainty was such as to render the contract invalid.
On behalf of the Vendor it is also submitted that notwithstanding the existence of a concluded and still subsisting Agreement for Sale the court had no jurisdiction to award damages in lieu of specific performance. Firstly, it is submitted, that specific performance could not be granted because of lack of mutuality. A Court of Equity will not grant a decree for specific performance of an agreement unless at the time the agreement was entered into it might have been enforced by either of the parties against the other. By reason of the uncertainty as found by the learned trial judge neither party was entitled to specific performance of the Agreement for Sale they contended for and accordingly neither would be entitled to damages in lieu. As I understand it this is merely to restate the argument that there was no concluded agreement in the first place. In any event mutuality is a matter to be considered in relation to the exercise of the court’s discretion as opposed to a bar on the award of specific performance: Price v Strange [1978] Ch. 337. Again it is submitted that Lord Cairn’s Act section 2 conferred upon the court jurisdiction to award damages in lieu of specific performance only where it had jurisdiction to grant specific performance. Reliance is placed on Ferguson v Wilson [1866] 2 Ch. App. 77 where Lord Cairn’s held that the Act:-
“did not in any way give the court a power where it had no jurisdiction to decree specific performance for want of the subject matter whereon its decree would operate to give damages by reason of some antecedent breach of contract.”
Again in Lavery v Purcell [1866] 39 Ch. D. 508:-
“The jurisdiction to give damages in substitution or in addition to specific performance has not been extended to cases where specific performance could not possibly have been directed.”
I have no difficulty in accepting that this is undoubtedly the law.
For the Purchaser it is submitted that the learned trial judge having found that there was a subsisting contract exercised her discretion in refusing to decree specific performance and instead under Lord Cairn’s Act to award damagers in lieu. She relied on a passage in Farrell, Irish Law of Specific Performance at page 7: 1.11:-
“If a contract is ‘completely uncertain’ it is equally void at law and in equity. There is a degree of uncertainty which will lose the right to specific performance without also destroying remedies at law. As Lord Redesdale pointed out in 1805 (Harnett v Yielding [1805] 2 Schoales & Lefroy 549):-
‘…if it is certain to a degree, but doubtful as to the extent, equity would, I think, act infinitely more wisely in leaving the party to the old remedy by action for damages, than to run the hazard of doing injustice, in doing what is said to be more complete justice, by a decree of specific performance.’
The burden is on the plaintiff to satisfy a court of an agreement, the terms of which ‘are sufficiently certain to justify a decree of specific performance (Williams v Kenneally) [1912] 46 I.L.T.R. 292 at 294.) He may expect to fail if he does not satisfy the court of the certainty of the material terms even though it may believe that some complete and binding agreement was reached.”
In this case the learned trial judge had found a completed and subsisting agreement and her refusal to order specific performance was merely an exercise of her discretion. The power to award damages in any event existed at common law and was not dependant on Lord Cairn’s Act.
I am satisfied that it was no part of the Vendor’s case that the contract was uncertain. That case was not pleaded nor was it canvassed in evidence. No application was made to amend the pleadings. In those circumstances I am satisfied that it was within the learned trial judge’s discretion to refuse to allow that issue to be raised. Quite apart from this insofar as the learned trial judge held that there was a subsisting contract I am satisfied that she was correct in so doing. It is the experience of conveyancers’ that there are very many contracts for the sale of registered land where the lands to be sold are identified by reference to a Land Registry Map. For the entire of the folio this would generally give rise to no difficulty notwithstanding that Land Registry Maps are not conclusive as to boundaries. Where part of a folio is being sold almost invariably a photocopy folio of the Land Registry Map is marked and even if there are boundaries ascertainable on the ground by way of hedges and ditches there remains the difficulty identified in the course of the evidence in this case that scaling from such a map onto the ground cannot be conducted with complete accuracy: the same is true of an original Ordnance Survey Sheet. Such sales are in general completed without difficulty and where difficulty is encountered it can be resolved. The reason for this is the obligation which the law places on the parties to a contract for the sale of land as identified by Costello J. in Northern Bank Limited & Ors v Duffy [1981] I.L.R.M. 309. He cited with approval a passage from Bayley-Worthington and Cohen’s Contract [1909] 1 Ch. 648 in the context of a default by a party to a contract as a result of which it was not completed but it is clear from the passage which I now cite that it is of wider application. The passage cited by Costello J. with approval is the following:-
“Default must, I think, involve either not doing what you ought or doing what you ought not, having regard to your relations with the other parties concerned in the transaction; in other words it involved the breach of some duty you owe to another or others. It refers to personal conduct and is not the same thing as breach of contract. If A contracts that B shall do something by a certain day and B does not do it by the day named A commits a breach of contract; but if the question arises whether delay be due to A’s default, A’s personal conduct has to be considered, and the question will be whether he has committed some breach of his duty towards B. So in contracts for the sale of real estate providing for completion at a certain date and containing provisions as what is to happen if completion be delayed beyond that date by or without the default, or wilful default, of either party, the conduct of that party has to be considered; and if he has been guilty of no breach of duty he will not, I think be in default within the meaning of the contract. Of course, the duties of each party towards the other must be determined by all the circumstances, including the nature of the contract and its provisions; and in determining these duties the complexities of the English law of real property must be borne in mind. The duties of, at any rate, the Vendor under contract for sale of real estate cannot be gauged by the standards applicable to other contracts, for example the sale of goods.”
Costello J. remarked:-
“Just as a Purchaser owes a duty to his Vendor in the course of the implementation of a contract for sale so does a Vendor owe a duty to the Purchaser. The nature and extent of that duty will, of course, be different as the sale progresses.”
A consequence of this is that there is a duty on a Vendor to deal with the reasonable requisitions and objections of a Purchaser. Failure to do so would, as in this case, prevent a Vendor from relying on a Completion Notice. In the present case it was common case that the map attached to the Agreement for Sale and the map proffered by the Vendor to be attached to the transfer did not admit of the western boundary being accurately delineated on the ground. There was a difference in area between the two maps. There was a difference in the configuration of the western boundary of the Lands. I am satisfied that notwithstanding the provisions of General Condition 14 the Purchaser was entitled to an accurate map to be attached to the transfer from which boundaries could be accurately ascertained most likely by accurate dimensions marked thereon or alternatively to have delineated on the ground those lands which the Purchaser proposed to transfer in performance of the Agreement for Sale: see Lindsay & Forder’s Contract [1895] 72 L.T. 832 where a plan attached to Particulars of Sale had endorsed thereon a note “this plan is simply prepared as a guide to intending Purchasers, and its accuracy in regard to area, measurement, abuttals, or otherwise is in no way guaranteed” and it was held that the map formed part of the contract and the Purchaser was entitled to a conveyance of the whole of the lands coloured thereon. The precise boundary in this case was a matter of considerable importance to the Vendor who required access to other lands and to ask the Purchaser to complete in the circumstances which prevailed at the date of service of the notice to complete was to invite the Purchaser to run the risk of future disputes and litigation. The Purchaser’s insistence in having the lands marked on the ground was reasonable and appropriate in the absence of a plan from which the Lands could be scaled. In the event that a dispute then existed the Special Conditions provide an appropriate and well tested remedy in General Condition 33 for any discrepancy that might result between the lands as delineated on the map attached to the Agreement for Sale, the second map and the lands as marked out on the ground. If the discrepancy was of trifling materiality no compensation shall be paid. No compensation is payable in relation to any error in a plan furnished for identification only as here. However under General Condition 33 the Vendor cannot be required to accept property which differs substantially from the property agreed to be sold whether in quantity, quality, tenure or otherwise. If the Purchaser will be prejudiced materially by reason of any such difference the Agreement for Sale provides that the applicability of General Condition 33 and the amount of any compensation shall be determined by arbitration. Neither party sought to invoke General Condition 33. Even if the contract contained no provision to deal with discrepancies the court will resolve any difficulty and may award specific performance with an abatement and where appropriate will direct an inquiry as to the amount of the abatement: Barnes v Wood 8 Eq. 424. It is well settled that where an issue as to compensation arises the Vendor may not rely upon a notice to complete: Keating & Ors v Bank of Ireland [1983] I.L.R.M. 295.
Upon the basis that the court had no jurisdiction to grant specific performance there being no concluded agreement the Vendor argues that the court likewise had no jurisdiction to grant damages in lieu of specific performance. If the premise were correct in this case, that there was no concluded agreement, the court would have no jurisdiction to award damages in lieu of specific performance. However the issue as defined in the pleadings and as presented to the court was whether there being a concluded agreement that agreement had been determined by a notice to complete. Where there is a concluded agreement but the court in its discretion refuses to grant specific performance the court has jurisdiction to award damages.
Having regard to the ruling of the learned trial judge, which in my opinion was correct, it is not open to the Vendor on this appeal to argue that there was no completed agreement.
The award of a decree of specific performance is discretionary. The award of damages whether at common law for breach of contract or under Lord Cairn’s Act in lieu of a decree for specific performance arises where there is a breach of a concluded subsisting agreement. It is a matter for the plaintiff to seek whichever remedy he wishes. The circumstances in which the court will exercise its discretion and refuse to award specific performance are myriad. Both of the cases referred to in Farrell in the passage cited above require some scrutiny. In Williams v Kenneally Barton J. held that there was a binding agreement for a lease of the exclusive right of fishing on the River Lee where it passed through the lands of the defendant. There was no memorandum and the plaintiff relied on part performance. The plaintiff alleged that the agreement was for a term of five years for the season 1909 and the following four seasons. The plaintiff entered into possession in January 1909 and again in January 1910. The learned trial judge found that there was uncertainty as to the date from which the Agreement was to run, whether 1909 or 1910 and as to liability for rates. He purported to follow Harnett v Yielding and on the basis of that uncertainty dismissed the action without costs. The decision appears at variance with the well established law that an agreement for a lease is enforceable only if the parties, the property, the length of term, the rent and the date of commencement are fixed. I do not regard it as correct in law.
The brief head note in Harnett v Yielding reads as follows:-
“Equity will not decree specific execution upon a contract, the terms of which are uncertain as to its extent.
Nor will equity decree specific execution against a party not lawfully competent to execute the contract.
Nor, where it is doubtful whether the party meant to contract to the extent that he is sought to be charged.”
The facts were as follows. The defendant demised lands to the plaintiff’s father for a term of twenty one years. The lease contained a covenant by the defendant “for and during the term of his life to renew the said lease for the said D.H., his executor’s administrators and assigns, by giving unto him or them a lease for twenty one years of said demised premises when applied to by him or them so to do.” The lease contained a break clause which the lessee exercised. The defendant then agreed with a third party to grant to him a lease of the lands and attended at the lands to accept the surrender of the original lessee and to give possession to the third party. The third party did not appear and the defendant entered into an agreement for a fresh lease to the original lessee and an endorsement was made on the original lease as follows:-
“I promise and agree to perfect a fresh lease to Mr Daniel Harnett, at any time he shall demand the same at £5 a year less than the within mentioned rent.”
The endorsement was duly signed and the lessee continued in possession for a further seventeen years paying the reduced rent but without having a new lease executed. He assigned the lease to his son, the plaintiff, and when the term granted was close to expiration the plaintiff applied for renewal which the defendant refused. On behalf of the defendant it was argued:-
1. That the endorsement did not import an agreement for any more than one term of twenty one years.
2. That he was tenant for life with a power to demise for twenty one years only in possession at the best improved rent.
The plaintiff indicated that he would accept a lease for twenty one years commencing on the expiration of the original lease. The court construed the endorsement and expressed it clear and effectual to grant a term of twenty one years but that it did not import into the endorsement the provisions of the original lease providing for renewal. Having construed the endorsement the court refused to grant specific performance of the agreement as that agreement was beyond the powers of the defendant as a tenant for life and this being known to the plaintiff. The conclusion of the judgment reads as follows:-
“…nothing can be more mischievous than to permit a person who knows that another has only a limited power, to enter into a contract with that other person, which if executed, would be a fraud on the power; and when that is objected to, to say ‘I will take the best you can give me’. A Court of Equity ought to say to persons coming before it in such a way ‘make the best of your case with a jury’.
On the whole, I think, (though I have had considerable doubts) that this Bill ought to be dismissed. If the plaintiff shall think fit to waive any action at law against the defendant, I will dismiss it without costs; if otherwise, with costs. This is frequently being done in cases of this kind to put an end to litigation.”
The judgment must be seen in its historical context. Equity did not award damages although in certain circumstances it would award compensation. A party seeking damages for breach of a contract for the sale of lands had his remedy at common law or as Redesdale L.C. said “make the best of your case with a jury”. The ruling on costs equally recognise that an action lay at common law for damages for breach of a contract for the sale of lands where specific performance was refused. This action predated Lord Cairn’s Act (Chancery Amendment Act 1858) and the Judicature Acts which empowered courts of chancery to award damages. Specifically Harnett v Yielding is a case involving a concluded subsisting Agreement where in exercise of its discretion the court refused to order specific performance of the same, such performance being in excess of the powers of the defendant as a tenant for life but also on the grounds that from the circumstances it was doubtful whether the defendant meant to contract to the extent that the court found him liable. It recognised the entitlement of the plaintiff to damages at common law where the court in its discretion refused specific performance: after Lord Cairn’s Act and the Judicature Act it is not necessary for two separate actions to be brought. It does not support the vendor’s contention that the court has no power to award damages where it refuses to order specific performance.
2. That the learned trial judge was in error in allowing the plaintiff to adduce evidence of loss of bargain after the issues had been determined.
In outlining proceedings at the trial I have dealt with the misunderstanding between counsel for the Purchaser and the learned trial judge as to whether the Purchaser was maintaining a claim for damages in lieu of specific performance should the learned trial judge in her discretion refuse to grant specific performance. No evidence was led in relation to such damages. The claim for damages in lieu was not dealt with in the Purchaser’s written submissions in the High Court. The Vendor submits that once the judgment of the court was given it was not open to the Purchaser to pursue a claim for damages: reliance was placed on the judgment of the Supreme Court in McMullan v Clancy [2002] IESC 45 and In the Matter of Greendale Developments Limited (in liquidation) [2000] 2 I.R. 514.
It is customary in the indorsement of claim and statement of claim in an action for specific performance, as here, to claim damages in addition to or in lieu of specific performance but also to claim as a relief if necessary an inquiry as to title and an inquiry as to damages. It is not necessary to do so. Special damages should be claimed and particularised in the Statement of Claim. Prior to Lord Cairn’s Act the Court of Chancery in refusing to grant specific performance of a concluded agreement did so without prejudice to the right of the plaintiff to bring an action at common law for damages. After Lord Cairn’s Act the Court of Chancery and after the Judicature Act the High Court in refusing specific performance will proceed to consider the question of damages even where such question is not raised by the pleadings. See Daniell’s Chancery Practice 10th edition page 1134 and cases there cited. In recent times at least, the common practice for the court in refusing to award specific performance is to direct an inquiry as to damages: see In the Matter of Greendale Developments Limited (in liquidation). In this case the learned trial judge found that the Purchaser had not in opening the case waived its claim to damages in lieu of specific performance. She was entitled to so find and I would not interfere with that finding. Accordingly on refusing to award a decree of specific performance the learned trial judge was entitled under Rules of the Superior Courts, Order 36 Rule 38 and well established practice to adjourn the case for further consideration before her. Both McMullan v Clancy and In the Matter of Greendale Developments Limited (in liquidation) have no application here the former concerning amendments to an erroneous order and the latter the setting aside by the Supreme Court of an earlier order. The learned trial judge was clearly entitled to proceed as she did.
3. The learned trial judge assessed damages for loss of bargain as of the date of the judgment. Thus damages were calculated on the basis of the difference between the value of the lands on that date and the contract price.
The general common law rule as to damages for breach of contract is that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with regard to damages, as if the contract had been performed. The general rule accordingly was that damages should be assessed as at the date of breach. Thus in a contract for the sale of generic goods should the seller fail to deliver, the buyer can at once spend his money in purchasing like goods from another and can recover any increased price as damages. In Wroth v Tyler [1970] 1 Ch. 30 the court considered the position in relation to contracts for the sale of land. In that case the contract price was £6,000 and the value of the house at the date of breach was £7,500. By the date of hearing the value of the house was £11,500. Megarry J. at p.57 in reference to these circumstances said:-
“How, then, it may be asked, would the award today of £1,500 damages place them in the same situation as if the contract had been performed? The result that would have been produced by paying £1,500 damages at the date of the breach can today be produced only by paying £5,500 damages, with in each case the return of the deposit. On facts such as these, the general rule of assessing damages at that the date of the breach seems to defeat the general principle rather than carry it out.”
He considered the terms of Lord Cairn’s Act section 2 which provides as follows:-
“In all cases in which the Court of Chancery has jurisdiction to entertain an application for an injunction against a breach of any covenant, contract or agreement, or against the commission or continuance of any wrongful act, or for the specific performance of any covenant, contract, or agreement, it shall be lawful for the same court if it shall think fit, to award damages to the party injured either in addition to or in substitution for such injunction or specific performance, and such damage may be assessed in such manner as the court shall direct.”
In the course of his judgment at p.58 Megarry J. said:-
“On the wording of the section the power ‘to award damages to the party injured,…in substitution for such…specific performance’ at least envisages that the damages awarded will in fact constitute a true substitute for specific performance. Furthermore, the section is speaking of the time when the court is making its decision to award damages in substitution for specific performance, so that it is at that moment that the damages must be a substitute. The fact that a different amount of damages would have been a substitute if the order had been made at the time of the breach must surely be irrelevant….A choice between the inadequate and the equivalent it seems to me to be no real choice at all.”
He concluded:-
“In my judgment, therefore, if under Lord Cairn’s Act damages are awarded in substitution for specific performance, the court has jurisdiction to award such damages as would put the plaintiffs into as good a position as if the contract had been performed, even if to do so means awarding damages assessed by reference to a period subsequent to the date of the breach.”
He proceeded to award the plaintiff damages as of the date of hearing.
Wroth v Tyler was followed in this jurisdiction in O’Connor v McCarthy & Ors [1982] I.L.R.M. 201 where however it was accepted by counsel that damages should be assessed at the date of judgment.
It is submitted on behalf of the Vendor that it is open to the court in awarding damages in lieu of specific performance to fix a date other than the date of breach or the date of judgment and I accept that this was held by Megarry J. at page 60 and that that represents the law in this jurisdiction also.
The Vendor relies on Suleman v Savari & Ors [1989] 2 All. E.R. 460. In that case damages were assessed as at the date of the judgment. While not material it is to be noted that that was a claim against the solicitor for a vendor who signed a contract without the authority of the vendor and the measure of damages in these circumstances would be the same as in an action against a vendor. In the course of his judgment Andrew Parke Q.C. summarised his conclusions on the cases as follows:-
(a) A purchaser who loses his purchase is entitled to damages at common law as well as to damages in lieu of specific performance under Lord Cairn’s Act.
(b) The usual measure of damages at common law has in the past been the difference between the contract price and the price at completion plus interest from completion until judgment.
(c) This is not an absolute rule of law, and damages may be assessed by reference to the value at a different date if it would be more just to do so.
(d) Where, as often in recent years, there have been dramatic changes in property values, it may be more just to assess damages at a different date.
(e) This is particularly so where the innocent party reasonably continues to try to have the contract completed: in such a case it is logical and just to assess damages as at the date when (otherwise than by his default) the contract is lost.
On behalf of the Vendor it is argued that in the present case the Vendor comes within paragraph (e) above. At the hearing on damages it was submitted on behalf of the Vendor that by reason of the delay of the plaintiff in prosecuting the proceedings that the damages for loss of bargain should be assessed by reference to the market value of the property at a date earlier than the date of judgment, the 24th July 2004 being suggested, that being the date when the proceedings ought to have been heard and determined. It was further submitted that the court should take into account the attempts by the vendor to complete the sale at a reduced price in the autumn of 2003 and the fact that the Vendor sold the property to the second defendant for £485,000, that is less than the purchase price and the Agreement for Sale with the plaintiff, and as a result has not been enriched. Neither of these submissions found favour with the learned trial judge. No submission was made to the learned trial judge on the basis of Suleman v Savari & Ors. Again in this court the Vendor argued that the present case can be distinguished from Wroth v Tyler. In that case damages were measured on the basis that the plaintiff should be put in a position to purchase a replacement or alternative property of an equivalent nature: in the present case the evidence was that the lands represented a once-off or unique site and therefore the approach in Wroth v Tyler was not appropriate.
The purchaser relies on Wroth v Tyler as authority for the damages being assessed as of the date of the judgment.
I am satisfied that damages were correctly assessed as of the date of the judgment and that Wroth v Tyler represents the law in this jurisdiction. I am not satisfied that either of the earlier dates suggested by the Vendor are appropriate. The chronology of the proceedings is as follows:-
Chronology
1. 31st October 2003 theVendor’s solicitor notified Purchaser’s solicitors that the Vendor would rely on the Notice to Complete.
2. 23rd November 2003 plenary summons issued.
3. 2nd January 2004 the Vendor entered appearance.
4. 19th February 2004 the Purchaser delivered statement of claim.
5. 8th April 2004 the Purchaser issued motion to join second named defendant.
6. 30th April 2004 the purchaser issued motion for judgment in default of defence.
7. 4th May 2004 the Vendor delivered defence.
8. 2nd November 2004 second named defendant joined.
9. 6th December 2004 second named defendant delivered defence.
10. 24th February 2005 the Purchaser served notice of trial.
11. 26th April 2005 hearing commenced.
12. 7th July 2005 judgment delivered on liability issue.
13. 28th November 2005 hearing on damages.
14. 7th October 2005 judgment delivered on damages.
I am not satisfied that this chronology discloses any material delay on the part of the purchaser. I do not see that the resale at a lower price is relevant. If, as the Vendor argues, the lands are unique then it should be recalled that underlying the remedy of specific performance in contracts for the sale of lands is the notion that each property is unique. The availability of similar properties will assist the court in arriving at the measure of damages as the price at which such properties can be acquired be relevant. Where there are no similar properties available the court must have regard to expert evidence as with the case here. To apply the test postulated in Suleman v Savari & Ors at (e) above will not avail the Vendor. In that case damages were assessed at the date at which the plaintiff lost his purchase with interest thereon. The earliest date at which the purchaser could be said to have lost his purchase in this case is the date of judgment when specific performance was refused. Even at that date, however, the possibility of being awarded specific performance on appeal remained and that possibility was only lost when in the period between the hearing in the High Court and the hearing of the appeal the second named defendant became registered as full owner of the Lands. In these circumstances I am satisfied that in assessing damages the learned trial judge correctly had regard to the value of the lands at the date of judgment. The Vendor was only ever willing to complete on its own terms: no satisfactory map was offered and the Vendor was unwilling to mark boundaries on the ground.
4. That the learned trial judge was in error in the method of assessing valuation.
The Purchaser’s valuer relied on two comparators and placed a valuation on the Lands as of the date of judgment of €2,000,000. The Vendor’s valuer placed a valuation of €900,000 on the Lands. The learned trial judge held that the comparator the latter relied on was less relevant. Faced with such a conflict of expert evidence the learned trial judge discounted the evidence of the Purchaser’s valuer and concluded that the value of the lands at the date of judgment was €1.4 million. In Wroth v Tyler the valuers on each side did not give evidence but agreed a graph which showed the value of the premises in question on successive dates and which graph was agreed between counsel. It was submitted on behalf of the Vendor that a similar exercise ought to have been carried out in the present case looking at the increase in property values by reference to independent indicators such as the Consumer Price Index, rates of inflation and so forth in the country generally and in the area in which the Lands are situate and the likely effect of Rural Renewal Tax Incentive. Finally it is submitted that the dramatic increase in the value of the Lands worked an injustice on the Vendor who no longer owns the property and did not benefit from the increased and enhanced value.
I am satisfied that the learned trial judge was entitled to adopt the approach which she did. She dealt with the matter on the basis of the evidence which the parties chose to adduce. She rationalised clearly the basis upon which she assessed the evidence of the valuers each of whom gave oral evidence and were cross-examined. This court should not interfere with her finding.
Where specific performance is refused and damages for loss of bargain awarded in lieu the difference in value as of the date of judgment and the date of contract as the measure of loss requires adjustment to arrive at the correct measure of damages. The object of an award of damages is to give the claimant compensation for the damage, loss or injury he has suffered. The question to be asked is what if the plaintiff lost and not what the defendant ought fairly and reasonably to pay: General Tire and Rubber Company v Firestone Tyre and Rubber Company [1975] 1 W.L.R. 819. In In re Daniell [1917] 2 Ch. 405 it was held that a Purchaser awarded damages in lieu of specific performance cannot claim his conveyancing costs as these would have been incurred if the contract had been completed: no such claim as made here. From this, however, it logically follows that the Vendor could claim to deduct from the damages costs, expenses and stamp duty which the Purchaser would have paid had the transaction been completed: see Court of Appeal in Ridley v Geerts [1945] 2 All E.R. 654. Applying these principles to the present case has the following effects:-
1. The transaction had proceeded to the point of completion and the Purchaser has incurred liability for his solicitors’ fees. Accordingly it differs from a case where a contract having been entered into the Vendor takes no steps to complete and accordingly no conveyancing fees or minimal conveyancing fees are incurred by the Purchaser. In these circumstances the Vendor is not entitled to a deduction in respect of solicitors fees.
2. Had specific performance been ordered the Purchaser would have incurred stamp duty on the consideration passing. As the transaction did not proceed to completion he is saved this expense. It is accordingly appropriate that the Vendor should receive credit against the difference in value at the date of contract and the date of judgment for the amount of the same.
3. Had the purchase been completed the Purchaser, if in funds, would have been at the loss of the balance of the purchase price from the contractual date of completion up to the date at which damages are assessed. If not in funds he would have incurred borrowing costs. While it is clear from the evidence that the Purchaser proposed to borrow this is the extent of the information available. To reflect loss of use of funds or borrowing costs which would have been incurred by the Purchaser it is appropriate that a deduction be made from the difference in value at the contract date and date of judgment. In the absence of evidence this allowance should be the amount calculated at Courts Act rate on the balance of the purchase price from the completion date to the date of judgment that is on the sum of €468,000 from the 21st May 2003 to the 7th July 2005. In the Matter of Fuller and Company Limited (in liquidation) [1982] I.R. 161 the vendor claimed a similar deduction and was unsuccessful. That case concerned urban property and the ratio for the refusal is that had the contract been completed by the vendor the purchaser would have had the rents and profits of the lands: in this case the court is concerned with development lands and no claim was advanced by the Purchaser that he was at the loss of rents and profits. It will be possible for the parties to compute and agree the sum which would have been payable by the Purchaser for stamp duty and the amount of interest calculated at Courts Act rate on the balance of the purchase money for the period which I mention.
Conclusion
For the reasons set out above I would dismiss the appeal and affirm the order of the High Court save and except that the award of damages would be adjusted as hereinbefore indicated by the deduction of the amount of stamp duty which would have been incurred by the Purchaser and a sum equal to interest at Courts Act rate on the balance of the purchase price from the 21st May 2003 to the 7th July 2005.
Mount Kennett Investment Company & Anor -v- O’Meara & Ors
[2010] IEHC 216 (01 June 2010)
JUDGMENT of Mr. Justice Clarke delivered the 1st June, 2010
1. Introduction
1.1 These proceedings have a long and complex history. So far as relevant to the issue to which this judgment is directed, I will set out that procedural history in some detail in early course. However, in general terms it is important to note that there has already been a full hearing of substantial issues in this case before Smyth J., in which an order for specific performance of a contract for the sale of property was made in favour of the first named plaintiff (“Mount Kennett”) against the defendants (“the Owners”). That order for specific performance was not complied with. Mount Kennett then successfully brought an application to re-enter the proceedings for the purposes of the assessment of damages. At that stage, the second named plaintiff (“Greenband”) was joined because some of the consequential losses alleged to result from the actions of the Owners were said to have caused loss to that company. Nothing turns on that specific matter at this stage.
1.2 In any event, pre-trial procedures followed and the question of the assessment of the damages to which Mount Kennett and/or Greenband might be entitled was listed for hearing. When counsel for Mount Kennett and Greenband had completed opening the case, an application was made by counsel on behalf of the second named defendant (“Mr. Fitzpatrick”) in which it was said that both Mount Kennett and Greenband were debarred from pursuing the claim in damages which was before the court. It should be noted that the claim which was before the court was, in substance, in two parts. Part of the alleged damages claimed related to the failure of the Owners to comply with the order of specific performance. However, another part of the damages claimed related to an allegation of delay on the part of the Owners in complying with the original contract of sale, as a result of which it was said on behalf of Mount Kennett and Greenband that further actions had to be taken to enable a significant commercial development then contemplated to actually take place. That claim for damages for delay was part of the case as had originally been pleaded and was before Smyth J. when the original trial of the action in these proceedings took place. The order made by Smyth J. on the occasion in question simply provided for specific performance. There is no mention of what was to happen to the claim in damages for delay which was already before the court.
1.3 Having considered the application made by counsel for Mr. Fitzpatrick, I ruled that the application in relation to that portion of the damages which resulted from the failure to make specific performance was premature and that there was no basis for dismissing that portion of the action on the opening. However, certain factual issues having arisen as to what, in fact, happened before Smyth J. during the original trial, I directed that an issue be tried as to whether the damages for delay in completion which formed part of the original action, were capable of being pursued at this stage.
1.4 In substance, the argument made on behalf of Mr. Fitzpatrick (and supported by the other defendants) was that the claim for damages for delay, having been before Smyth J., and not having been the subject of an order of the court, must be taken to have now been dealt with, such that it would amount to an abuse of process or a breach of the res judicata rule to now proceed with it. That preliminary issue having been heard, I ruled, some short number of days later, that Mount Kennett and Greenband were not debarred from pursuing the claim in question. I indicated that I would give reasons for coming to that view at a later stage. The purpose of this judgment is to deal with the questions which arose for consideration and to set out reasons for the conclusion reached. I turn first to the procedural history.
2. Procedural History
2.1 The original hearing commenced before Smyth J. on the 17th April, 2007, and continued on the 15th and 16th May of that year. It will be necessary to turn to the events of that hearing in due course. Smyth J. reserved judgment which he delivered on the 21st November, 2007. See Mount Kennett Investments Limited v. O’Meara & Ors [2007] IEHC 420. As appears from that judgment, Smyth J. rejected the arguments put forward on behalf of the Owners, both to the effect that the relevant contract of sale had been frustrated or was impossible of performance and also found that, in his discretion, he would order specific performance rather than damages in lieu.
2.2 The matter was put in for mention before Smyth J. on the 11th December, 2007, at which stage a formal order was made directing specific performance of the relevant contract of sale by the 31st March, 2008. There is no mention of damages in that order. It should be noted in passing that the reason, as appears from that order, for the time lapse between the conclusion of the proceedings and the judgment of Smyth J., was that Smyth J. had been informed that there was a possibility of the parties resolving their differences and he afforded them a reasonable opportunity so to do.
2.3 Likewise, it is clear that the problem which was at the heart of the proceedings was that the Owners had contracted to sell a freehold interest in the relevant property at a time when they did not own that freehold interest, but had contracted to acquire same subject to the consent of the Charity Commissioners. The problem was that the Charity Commissioners were not happy with the purchase price. The reason for the relatively lengthy period for completion specified in the order of Smyth J. was to afford the Owners an opportunity to complete the task of getting in the freehold so as to be in a position to sell it on to Mount Kennett. At the heart of the issues which Smyth J. had to decide was the question of whether the Owners were in a position to acquire that freehold. Smyth J. held that they were, provided that they were prepared to pay an appropriate price, such as would satisfy the Charity Commissioners.
2.4 In any event, the matter next came before the court on the 2nd March, 2009, when Mount Kennett brought an application seeking to have the proceedings re-entered “for the purposes of the assessment of damages for breach of contract and/or damages in lieu of specific performance”. An order seeking to have Greenband joined was also sought, together with an order giving liberty to deliver an amended statement of claim.
2.5 As it happens I had, at around that time, been dealing with a separate case brought by Greenband relating to neighbouring property. In those circumstances it was felt appropriate that I should take seisin of this case (Smyth J. having retired in the intervening period). While not on consent, no significant opposition was put forward on behalf of the Owners to the re-entry application. Certainly no significant argument was addressed as to why the application should not be acceded to. It is worthy of some note that, in the grounding affidavit (being an affidavit of Thomas Dowling), it is said, at para. 3, that “all issues relating to the plaintiff’s claim for damages were left over for further hearing”. No issue was taken at the hearing before me, at which the re-entry of these proceedings was sought, as to the veracity of that averment. In addition, a draft amended statement of claim was exhibited to the affidavit of Mr. Dowling. Leave to amend in the terms of the relevant draft was given. It was clear from that draft that the damages sought to be recovered included both damages for delay in completing the original contract, and damages arising out of the fact that specific performance had not been complied with.
2.6 Thereafter, at the request of the parties, I case managed these proceedings. Particulars of the damages were sought and supplied. Significant and hotly disputed discovery issues arose which included issues relating to documents relevant to the claim for damages for delay. During all of this period no question was raised on behalf of the Owners as to the propriety of Mount Kennett and/or Greenband maintaining a claim for delay damages.
2.7 It should also be noted that there appeared to be something of a falling out as and between the various defendants such that, by the time the case came on for hearing before me, each was separately represented. Indeed, there appears to be separate litigation as and between the defendants which is not, of itself, material to the issue which I had to decide.
2.8 In particular it should be noted that the defences filed on behalf of the Owners makes no reference to a contention that any aspect of the claim is not maintainable in principle, save that that there is reference to an allegation that an agreement was reached whereby certain damages would be waived.
2.9 It would appear that, in the period immediately prior to the action coming on for hearing before me in early March, there was correspondence on behalf of Mr. Fitzpatrick which gave some indication that contemplation was being given to an application of the type with which I was concerned. However, no formal application was made to amend the pleadings or bring that issue before the court by way of motion or otherwise. It was, therefore, with some surprise that I learned of the application to be made on behalf of Mr. Fitzpatrick for the first time when its nature was outlined to me by counsel for Mr. Fitzpatrick after counsel for Mount Kennett and Greenband had concluded his opening.
2.10 Against that background, it is appropriate to turn to the specific issues which arise.
3. The Issues
3.1 There was some debate between counsel as to the appropriate order in which the relevant issues logically arise. Without indicating any concluded view as to that order, I simply set out the issues.
3.2 Mr. Fitzpatrick (backed up by the other defendants) asserts that it is an abuse of process for Mount Kennett and Greenband to now maintain the claim for damages for delay on the basis, it is said, that that claim was before Smyth J., did not form part of Smyth J.’s order, whether by ruling on it or deferring it to further hearing, and that that claim must now be taken to have been dealt with so as to render it an abuse of process to attempt to reactivate it.
3.3 The first significant issue that arises is as to what in fact happened before Smyth J. It is said, on behalf of Mount Kennett and Greenband, that a proposal was put to Smyth J., to which he assented, which amounted in substance to an agreement that there be a split or modular trial. On that basis it is said that it was accepted that the proper course to adopt was that the question of the entitlement in principle of Mount Kennett (who were, of course, at that time the only plaintiff) to a decree of specific performance should be dealt with first. In the light of the decision of the court on that matter then, it is suggested, it was accepted that all questions of damage would be deferred. Damages could, in those circumstances, arise in a variety of ways. First, there were the damages which Mount Kennett claimed in any event for delay in completing the contract. However, in that context, it should be noted that, until the end of the first day of the hearing, the Owners had maintained that the relevant contract was conditional. If that plea had been successful it would, of course, have meant that Mount Kennett would have had no case either for specific performance or for damages. In the event that that defence failed it was, however, suggested on behalf of the Owners that the court should nonetheless decline specific performance because of the difficulties (or impossibility) which the Owners had encountered in getting in the freehold interest. There were, therefore, a variety of possibilities. The court might order full specific performance. The court might order damages in lieu. The court might order partial specific performance (in the sense of requiring the Owners to procure a transfer of a leasehold interest), but also award damages deriving from the fact that the full interest in the property contracted to be sold was not being transferred.
3.4 The problem is that there is no court order either indicating that questions of damages had been deferred or that such damages were to be assessed, which damages would have arisen in any event if, as the court did find, the contract was enforceable. Two sets of questions, therefore, arise. First, what is the proper characterisation of the events that occurred at the hearing before Smyth J.? In the light of that characterisation and in the light of the fact that the court order made by Smyth J. does not make any reference to damages, it is necessary to consider the status of the damages for delay claim which was undoubtedly before Smyth J. In substance, both of those questions are part of the overall question of whether it would now be an abuse of process for Mount Kennett and/or Greenband to seek to claim delay damages.
3.5 The second set of questions concern what has happened since. There is no doubt but that the Owners did not demur from the proposition that the proceedings should be re-entered at a time when it was clear that the basis for that re-entry was that it was said that Smyth J. had agreed to defer damages. This is clear, both from the grounding affidavit and the draft statement of claim to which I have referred. Second, it is equally clear that the issues sought to be relied on, on behalf of Mr. Fitzpatrick and the other Owners, were not raised in any of the defences filed. It was said, on behalf of Mount Kennett, that, in the absence of an amendment to the defence, it was not open to the Owners to raise this issue. There is, therefore, an issue as to whether a defence of type now put forward can be raised although not pleaded. As a fall back position, counsel for the Owners suggested that, if I was against him on that point, he would invite me to amend the defence. Counsel for Mount Kennett and Greenband argued that it is far too late to do that, and that in any event, any such application ought to be refused.
3.6 Having regard to those issues, it seemed that it is appropriate to start with the question of whether Mount Kennett and/or Greenband pursuing a claim for delay damages would, in all the circumstances, amount to an abuse of process. As pointed out earlier, the first question under this heading relates to what actually happened before Smyth J. I, therefore, turn to that question.
4. The Hearing before Smyth J.
4.1 When the issue was first raised in March, there was some question as to whether comments might have been made by counsel in the course of a very brief portion of the hearing before Smyth J., which took place before lunch on the first day, at a time when no stenographer was present. In considering what happened next, it is important to note that the issue was, to a significant extent, sprung on the parties. Counsel who acted for Mr. Fitzpatrick was not, of course, present at the original trial. Some of the other counsel who continued with the case did their best to give me their recollections, but it is entirely understandable that, with the benefit of more time and an opportunity to review the transcripts, counsel now have a clearer recollection of the events that occurred.
4.2 Suffice it to say that, when the matter originally came up, there appeared to be a possibility that comments were made to Smyth J. prior to lunch at a time when no stenographer’s note was taken, which might be material to the issues which I have to decide. However, by the time the issue came to be fully heard it was agreed on all sides that that was not so. Insofar as material to the issues which I have to decide, what happened occurred after lunch and at a time when a stenographer was present.
4.3 The case before Smyth J. was opened by Mr. Ian Finlay S.C., on behalf of Mount Kennett. At p. 13 of the transcript Mr. Finlay turns to the pleadings and, in particular, the statement of claim. He draws attention to the fact that Mount Kennett “is also seeking damages for breach of contract in lieu or in addition to specific performance” (my emphasis). There is then a reference to what is described as a recent judgment of Finlay Geoghegan J. (which while not mentioned by name is clearly a reference to Duffy v. Ridley Properties & Anor reported as to the Supreme Court Appeal in same at [2008] 4 I.R. 282). On that basis, Mr. Finlay suggests that the court should approach the claim by first determining an entitlement or otherwise to specific performance and then, at a second stage, deal with damages. I will return to that passage in due course.
4.4 At p. 22, Mr. Finlay turns to opening the particulars and especially particulars of the damages claimed for breach of contract. Reference is made to p. 97 of the Book of Pleadings which contained details of Mount Kennett’s claim for damages. On reading those particulars (which, while not read into the record of the court, were before the judge and had been read by the judge), it is clear that the range of bases on which damages might be calculated was highly dependent on the view the court took as to specific performance. A number of different models are set out in the relevant replies to particulars. In that context, Mr. Finlay went on to say the following:-
“I do not think there is very much need to open those today in the sense that I am not pursuing the damages issue at this point in the proceedings. But that may or may not be relevant at a later stage depending on what happens.”
4.5 The next matter of some materiality arose at the end of the opening. It should be recalled that there was a gap between the first and second days of the hearing of over a month. The opening continued on that latter occasion. Prior to that, however, at the end of business on the first day, counsel for the Owners had conceded that the contract was not conditional. On that basis, Mr. Finlay’s argument was that, it being accepted that there was an unconditional contract and that it had not been complied with, the onus rested on the Owners to establish any case which they might have as to frustration or impossibility of performance or the like. Clearly this would not have been a correct proposition if damages were to be proceeded with on that occasion for the onus would nonetheless have remained on Mount Kennett to establish damages. Both the judge and counsel for the Owners accepted Mr. Finlay’s argument, such that the Owners went into evidence and, indeed, the only evidence tendered was from witnesses called by the Owners.
4.6 Finally, it should be noted that in the course of the closing addresses, Mr. Simon Boyle, S.C., on behalf of the Owners, made reference to the fact that there had been no evidence as to damages. However, it seemed to me that that debate, and Mr. Finlay’s reply to it, was clearly in the context of the possibility that the court might be persuaded (as the Owners sought) to take the view that damages in lieu of specific performance might be a more appropriate form of remedy than specific performance itself. It did not seem to me that that debate touched in any way on the question of damages for delay.
4.7 Mr. Finlay, Mr. Boyle and Mr. Peter Clein B.L. (who was Mr. Finlay’s junior), gave evidence before me. I have to commend each of those witnesses for the way in which their evidence was given, notwithstanding the undoubtedly difficult circumstances which had arisen. Mr. Boyle accepted that, at the beginning of Mr. Finlay’s opening, the suggestion made by Mr. Finlay that questions of damages ought to be deferred, applied not just to those damages that might arise in lieu of specific performance, but also related to delay damages which would have arisen in any event. Mr. Boyle also accepted that, although there is no note in the transcript of Smyth J. formally accepting Mr. Finlay’s proposal, it was his understanding that Smyth J. had acceded to Mr. Finlay’s suggestion. There is one point on which Mr. Boyle has a different perspective to that of the counsel who appeared for Mount Kennett. I will shortly return to that point. However, Mr. Boyle’s impression, to which I have referred, is confirmed by Mr. Clein’s careful evidence. Mr. Clein indicated that he believed that Smyth J. had said something which indicated acceptance, even though nothing to that effect appears on the transcript. All familiar with court proceedings will be well aware that a transcript does not necessarily convey every nuance that occurs in court. Relevant personnel, including judges, can nod their heads or otherwise act in a way that indicates agreement where nothing is recorded on the transcript.
4.8 I was satisfied that Mr. Finlay put forward a proposition on behalf of Mount Kennett, which was accepted by the judge however indicated, and not demurred from on behalf of the Owners, to the effect that all issues of damages would be deferred. The fact that Mr. Finlay specifically referred to the particulars of damage (which included particulars of damage for delay) but indicated that those issues were not being pursued at that point but might or might not be relevant later seemed to me to give rise to no other interpretation.
4.9 However, it is necessary to return to the point on which Mr. Boyle differs. Mr. Boyle’s evidence before me was to the effect that, by the close of the case, he had felt that the only question of damages which was being deferred was damages in lieu. It was, in my view, understandable that Mr. Boyle might have come to that view. First, it is necessary to return to the initial passage from the opening to which I have already referred. The reference to Duffy is a reference to a case where Finlay Geoghegan J. determined that, where the court directed damages in lieu of specific performance, the court could return to that issue and assess the damages at a second stage. That case had nothing to do with damages for delay which could arise as well as, as opposed to instead of, specific performance. Likewise, the references during closing speeches on the part of counsel were all references to the type of division which occurs when a court decides the question in principle as to whether specific performance lies, but leaves over the question of the calculation of damages in lieu (in the event that such damages are claimed and are considered appropriate) to a later stage. I can well see that the emphasis placed by Mr. Finlay could well have led Mr. Boyle to take the view which he did. Indeed, it seemed to me that Mr. Boyle said as much towards the close of his evidence.
4.10 However, I was not satisfied that anything occurred in the course of the hearing which could reasonably be taken to amount to an abandonment by Mr. Finlay, on behalf of Mount Kennett, of its delay damages claim. Rather, I was satisfied that Smyth J. went along with a proposal for a split trial (which obviously made sense in all the circumstances) where an initial decision would be made as to whether Mount Kennett was entitled to specific performance and all questions of damages, whether they be damages for delay or damages which might arise in lieu or in default of specific performance, being postponed to a further date.
4.11 It is unfortunate that the court order did not reflect that fact. It does seem to me that Mount Kennett must accept responsibility for that fact. Smyth J. had delivered his judgment in November. The matter was back in, in December, for the purposes of making the order. It would have been appropriate at that stage for Mount Kennett to have reminded Smyth J. of the fact that all questions of damages had been left over so that the order could have included some reference to that fact. What the consequences of that failure and how it is proper to characterise it, is a matter to which I will have to return. I should not leave the question of the events which occurred before Smyth J. without noting that it would, of course, normally be the case that any such issues would come back before the judge who had originally dealt with the case in question. It was only in circumstances where that judge had retired that I felt it appropriate to hear evidence as to what had transpired at a previous hearing before another judge. Having reviewed what happened at the hearing before Smyth J., I now turn to the main issue in this application.
5. Abuse of Process
5.1 The central issue which I have to decide is as to whether it is now an abuse of process on the part of Mount Kennett to seek to have delay damages assessed.
5.2 There can be a number of reasons why an issue which arises on the pleadings is not dealt with in a judge’s judgment or a judge’s order. Sometimes the proper inference may be that a particular aspect of a claim has been abandoned such that the judge does not have to deal with it. For example, no evidence may be tendered and no argument addressed at the hearing on the issue in question. On other occasions a party may put forward a range of items of (say) special damage, some but not all of which the judge allows in a judgment. Where rejecting an item of such damage a judge is likely to expressly disallow the particular item and give specific reasons for so doing. However, an item that is not included in the judgment may be subject to an appropriate inference to the effect that the judge did not allow it for some reason or other. Thus, in certain other cases, the reason why a matter is not dealt with in a judgment or order may, by inference, be that it was rejected.
5.3 However, there may also be cases where it is clear from what the judge said in court that the formal order ought to have included a reference to certain matters which do not, for whatever reason, find their way into the written order of the court as perfected. There is ample authority (see Ainsworth v. Wilding [1896] 1 Ch. 673 and Bula Ltd. (in receivership) & Ors. v. Crowley & Anor. [2003] IESC 28) that in such circumstances the court can amend its order so as bring the written order into conformity with what the judge said or intended. For example, if it is clear that the judge awarded damages under five headings, but only four of them appear in the written order, then it could hardly be said that a party would not be entitled to apply to have the order amended to have the fifth and omitted category included. Such cases are not cases where the judge is being invited to re-open a matter finally decided, but rather cases where the judge is being invited to ensure that the written order as perfected conforms with what the judge actually intended on the occasion when the spoken order was made.
5.4 Of course, in the ordinary way, any absence of conformity between what the judge intended and the written order should be brought back before the same judge who will be in by far the best position to determine whether the order correctly conforms with his or her intention. It does not seem to me that it would be just, however, to deprive a party of the opportunity to have a written order corrected because the relevant judge was no longer serving or was otherwise unavailable. For the reasons which I have set out, I was satisfied that it was the intent of Smyth J. that there be a split trial. I was satisfied that part of that intention was that all questions of damages, including questions concerning the assessment of damages for delay which could arise in addition to specific performance, were to be left over to a subsequent hearing. In those circumstances, it seemed to me that, if necessary, it would be open to Mount Kennett to seek and obtain an amendment to the order of Smyth J. of the 11th December, 2007, to provide for an order directing the assessment of all damages on a subsequent occasion.
5.5 Against that finding it is necessary to turn to the central question as to whether the maintenance of the claim by Mount Kennett and Greenband in relation to delay damages is an abuse of process. It was argued on behalf of Mr. Fitzpatrick that this was a case of res judicata. As pointed out in Moffitt v. ACC [2007] IEHC 245 at paras. 3.7 to 3.10, there is a distinction between two types of res judicata. Where an issue has actually been decided by a court of competent jurisdiction in proceedings between the same or necessarily connected parties, no new proceedings can be brought, except in the limited circumstances where the original order can be set aside on the grounds of fraud or the like. This might be described as strict res judicata. However, the rule in Henderson v. Henderson [1843] Hare 100, covers the analogous circumstances where an issue was not advanced in the original proceedings, but where it amounts to an abuse of process to subsequently maintain a claim which should have been brought in the original proceedings. As pointed out by the Supreme Court in A.A. v. The Medical Council [2003] 4 IR 302, the court retains a discretion in such cases to take into account any relevant circumstances necessary for the purposes of assessing whether it truly is an abuse of process to maintain the relevant claim. There is, therefore, a material difference between strict res judicata where the court has no discretion and Henderson v. Henderson abuse where the court has some discretion.
5.6 A claim which was before a court and is not dealt with in the court’s order, needs careful consideration before it is placed in one or other category. If the appropriate inference in all the circumstances of the case is that the issue was considered by the judge and found against the relevant party (even, perhaps, in the absence of an express statement in the judgment or order to that effect), then it seems to me that it would be appropriate to place such a claim in the strict res judicata box. The claim has, by inference, been considered and rejected by a court of competent jurisdiction. It cannot be reactivated without setting aside the original order in material part and that can only be done on the basis of fraud or other similar serious wrongdoing.
5.7 On the other hand, where an aspect of a case is before the court and is not dealt with, it may be appropriate to infer that the relevant party had abandoned that aspect of their claim. In those circumstances it seems to me that, strictly speaking, it is not appropriate to consider an attempt to re-litigate that aspect of the case under the heading of strict res judicata. It would, however, fall under very careful scrutiny under Henderson v. Henderson. The fact that the case had been brought and abandoned would be a very significant consideration leaning heavily against the court exercising any discretion it might have to allow it to be re-litigated. In those circumstances it would seem to me that a case brought and abandoned would face an even greater struggle than a case not brought in the first place.
5.8 However, where, as here, the proper inference to draw is neither that the claim was dismissed or that it was abandoned but rather that the judge agreed that it be deferred, then it is hard to see how it would be an abuse of process to allow it to be reactivated. True it is to say that Mount Kennett should have ensured that the court order included a reference to that deferral and, perhaps, directed an assessment of damages. However, the absence of such a provision in a written court order, where it is nonetheless clear that the judge accepted that there should be a split trial, seems to me to give rise to an altogether separate set of circumstances. It is hard to see how it can properly be described as an abuse of process to reactivate a claim where the intention of the original trial judge was that that claim would be deferred to a further hearing. All that is now happening is that the original intention of the trial judge is being complied with.
5.9 The absence of a provision in the court order recording the judge’s intention has, of course, created the problem. As Mr. Clein pithily put it in the course of his evidence, when speaking of what might have been in the court order:-
“If it was there we would not be here”.
That is true. It may be the fault of Mount Kennett that “it” was not there and that we were, therefore, here. However, that does not take away from the fact that it was Smyth J.’s intention that we be here. Mount Kennett bringing us here cannot, therefore, in my view, be an abuse of process.
5.10 I should deal, before concluding on this issue, with the case of Ford-Hunt & Anor v. Singh [1973] 1 W.L.R. 738 on which reliance was placed by Mr. Fitzpatrick. That case is clear authority for the proposition that a party who does not ask for an inquiry as to damages at a specific performance trial cannot subsequently reactivate a claim for delay damages or any other form of damages that do not depend on new facts occurring after the date of judgment. I have no doubt that had Mount Kennett simply ignored the question of delay damages at the hearing before Smyth J., then the consequences identified in Ford-Hunt would have applied equally to Mount Kennett. It would be too late to reactivate a claim for delay damages which was not pursued at the trial. The proper inference in those circumstances would be that the relevant claim had been abandoned and would be subject to the rule in Henderson v. Henderson so that same could not be reactivated save in wholly exceptional and unlikely circumstances. But this is not such a case. While it is true to say that Mount Kennett did not specifically raise the question of the inclusion in the written order of provision for an inquiry as to damages, that ignores the fact that, for the reasons which I have found, Smyth J. had already accepted that all question of damages were to be deferred to a second hearing. This is not, therefore, a case where the question of damages is simply ignored. It is a case where the judge went along with a suggestion that damages should be deferred. Ford-Hunt does not, therefore, seem to me to be of any relevance to this case.
5.11 I was, therefore, satisfied that no abuse of process such as would disentitle Mount Kennett and/or Greenband from pursuing a claim for delay damages had been established and I was, therefore, satisfied that these proceedings should continue on the merits. In those circumstances, it was unnecessary to deal with the questions which might otherwise have arisen deriving from the fact that the Owners, and in particular, Mr. Fitzpatrick, went along with this hearing through the application to re-enter, all pre-trial proceedings including defence and up to the trial itself, without seeking to raise the issue. Likewise, it was unnecessary to determine whether it is necessary to plead such a matter as an item of defence in order to be allowed to raise it.
6. Conclusions
6.1 For the reasons which I have sought to analyse, I was satisfied that the proper characterisation of what occurred before Smyth J., was that Smyth J. accepted that there should be a split trial with all issues of damages (including delay damages) being postponed to a further hearing. In those circumstances I was satisfied that, notwithstanding the absence of any reference to those matters in the order of Smyth J., it is not an abuse of process on the part of Mount Kennett to now prosecute a claim for such damages.
6.2 The trial of the damages issue will, therefore, go ahead and the claim for delay damages made on behalf of Mount Kennett and Greenband will be determined on its merits.
Warrenford Properties Ltd & Anor -v- TJX Ireland Ltd trading as TK Maxx & Anor
[2010] IEHC 310 (30 July 2010)
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 30th day of July, 2010
1. The applicants are the manager, operator and owner of a district shopping centre at Lisduggan in the City of Waterford.
2. The first named respondent, since 9th October, 2008, is the occupier of and trading from units formerly known as 1, 10 and 11, Butlerstown Retail Park. The second named respondent is the owner of Butlerstown Retail Park. The first named respondent is a well known brand retailer selling discounted designer fashion clothing and footwear and other goods and it carries on its business, inter alia, from the premises in Butlerstown Retail Park.
3. By an originating notice of motion issued on 2nd April, 2009, the applicants primarily sought the following reliefs:
(i) An order prohibiting the respondents using the premises located at Unit Nos. 1, 10 and 11 of the Butlerstown Retail Warehouse Park for the sale of goods defined as comparison goods in Annex 1 of the Retail Planning Guidelines.
(ii) An order requiring the respondents to operate the retail warehouse premises at Butlerstown Retail Park, Waterford, in accordance with the Planning Permissions granted and, in particular, Planning Permission Register Reference 06/522 which limits the use to that of retail warehouse park.
(iii) An order directing the respondents to reinstate the units comprising Units Nos. 1, 10 and 11 as individual units and restore the premises to its existing use prior to the carrying out of the aforesaid works.
4. The proximate cause of the application made in April 2009 was the decision of An Bord Pleanála of 23rd February, 2009, on an appeal taken by the second named applicant against a declaration granted by Waterford County Council on 29th July, 2008, stating that the current use of Units Nos. 1, 10 and 11, Butlerstown Retail Park (by TK Maxx) was exempted development. In its decision, An Bord Pleanála concluded that the current retailing activity carried on by TK Maxx in Butlerstown Retail Park constituted development, being a material change of use. It also decided that the internal alterations to the units to amalgamate same are directly related to the change of use and are therefore not exempted development.
5. On the 28th May, 2009, the application was admitted to the Commercial List.
6. The second named respondent applied by way of judicial review for an order of certiorari of the decision of An Bord Pleanála of 23rd February, 2009 [2009 406 J.R.]. Those proceedings were also admitted to the Commercial List and the parties agreed to a telescoped hearing and to a hearing with a similar application for judicial review brought in relation to another unit in Butlerstown Retail Park. This application was adjourned pending the determination of the applications for judicial review.
7. In a judgment delivered on 22nd January, 2010, the High Court (MacMenamin J.) refused the applications for judicial review ([2010] IEHC 13).
8. This application was subsequently reactivated and further affidavits sworn.
Section 160
9. Section 160 of the Planning and Development Act 2000, insofar as relevant, provides:
(1) Where an unauthorised development has been, is being or is likely to be carried out or continued, the High Court or the Circuit Court may, on the application of a planning authority or any other person, whether or not the person has an interest in the land, by order require any person to do or not to do, or to cease to do, as the case may be, anything that the Court considers necessary and specifies in the order to ensure, as appropriate, the following:
(a) that the unauthorised development is not carried out or continued;
(b) in so far as is practicable, that any land is restored to its condition prior to the commencement of any unauthorised development;
(c) that any development is carried out in conformity with the permission pertaining to that development or any condition to which the permission is subject.
(2) In making an order under subsection (1), where appropriate, the Court may order the carrying out of any works, including the restoration, reconstruction, removal, demolition or alteration of any structure or other feature.”
10. Section 160 and its predecessor, s. 27 of the Local Government (Planning and Development Act) 1976, have been the subject of decisions of the Supreme Court and High Court to which I was referred. Both parties referred me to the observations of Henchy J. in Morris v. Garvey [1983] I.R. 319, at p. 324:
“When sub-s. 2 of s. 27 is invoked, the High Court becomes the guardian and supervisor of the carrying out of the permitted development according to its limitations. In carrying out that function, the court must balance the duty and benefit of the developer under the permission, as granted, against the environmental and ecological rights and amenities of the public, present and future, particularly those closely or immediately affected by the contravention of the permission. It would require exceptional circumstances (such as genuine mistake, acquiescence over a long period, the triviality or mere technicality of the infraction, gross or disproportionate hardship, or suchlike extenuating or excusing factors) before the court should refrain from making whatever order (including an order of attachment for contempt in default of compliance) as is ‘necessary to ensure that the development is carried out in conformity with the permission’. An order which merely restrains the developer from proceeding with the unpermitted work would not alone fail to achieve that aim but would often make matters worse by producing a partially completed structure which would be offensive to the eye as well as having the effect of devaluing neighbouring property.”
11. Counsel for the respondents submits, I think correctly, that these observations are obiter on the facts of Morris v. Garvey. Subsequent decisions have referred to the “wide discretion” given the Court by sections 27 of the Act of 1976, and 160 of the Act of 2000, and the need to exercise it on the facts of the individual case. In Leen v. Aer Rianta c.p.t. [2003] 4 IR 394, McKechnie J. reviewed in depth many of the decisions, and then at p. 410 stated:
“Finally, on the generality of the discretion point it seems to me that, subsequent to Morris v. Garvey [1983] I.R. 319, the courts have tended to individualise each case and decide it accordingly, rather than to inquire as to whether the resulting circumstances fell within any of the illustrations mentioned in that judgment. For example, in some cases where there was no question of bad faith or lack of candour, injunctions issued, whereas in others relief was refused, even though the facts did not comfortably sit with the exceptions identified by Henchy J. in Morris v. Garvey.”
I would respectfully agree with the above view.
12. The public interest in securing compliance with the relevant provisions in the planning code and any Planning Permission and the conduct of the parties are nearly always relevant matters to be taken into account and are matters which, on the facts of this application, are to be taken into account.
13. There is, on the facts herein, a public interest in securing compliance and also a wider public interest by reason of the National Retail Strategy and the retail strategy for the City and County of Waterford. The parent Planning Permission for the premises at issue in these proceedings (Planning Register Ref. No. 06/522) is for a retail warehouse park known as Butlerstown Retail Park. It is within the functional area of Waterford County Council, immediately outside the boundary of Waterford City Council. The Retail Planning Guidelines for Planning Authorities issued by the Department of the Environment, Heritage and Local Government in January 2005, define a retail warehouse as “a large single-level store specialising in the sale of bulky household goods such as carpets, furniture and electrical goods, bulky DIY items, catering mainly for car borne customers and often in out-of-centre locations”. The Retail Planning Guidelines also define “bulky goods” and by distinction “comparison goods”. It is the sale of comparison goods by the first named respondent which has been determined by An Bord Pleanála to constitute the material change of use and, hence, development.
14. It is not in dispute that the Waterford City Development Plan has a clearly defined retail strategy that includes a policy to acknowledge the city centre as the primary retail centre for high and middle order retail goods for the region and to protect and reinforce this role. Further, that a fundamental objective of the Waterford City Development Plan Retail Strategy is to protect the city centre and to ensure that the primary focus for high and middle order retail goods would continue to remain within the urban core. The continued retail trading of the first named respondent at Butlerstown has, as a matter of probability, on the affidavit evidence, an adverse impact on that strategy. Waterford County Council confirmed to Waterford City Council by letter of 5th December, 2006, that, for the purposes of Condition 22 of Planning Permission 06/522, the use of retail units in Butlerstown would be required to be within the definition of retail warehouse in the Retail Planning Guidelines.
15. Counsel for the respondents refers to the responsible manner in which both respondents approached the use of the premises by the first named respondent and, in particular, the fact that they obtained the letter of 22nd January, 2008, from Waterford County Council in which it stated, in relation to the Planning Permission 06/522,
“I wish to confirm compliance with Condition No. 22 of the Permission subject to the following:
‘The general range of goods relates to carpets, household goods, luggage, gifts, travel goods, toys, fitness and sports equipment, fitness and general leisure apparel with ancillary wear and associated accessories’.”
Both respondents assert that, in reliance upon that letter, the first named respondent entered into the lease and occupation of the premises considering that it was entitled to sell its retail discounted clothes and other goods. Counsel for both respondents, whilst not conceding that the Court should make an order in the terms of paragraph (i) of the notice of motion, also accepted that subsequent to the decisions of An Bord Pleanála and MacMenamin J. already referred to, that the first named respondent could not continue indefinitely to trade, as at present, in the premises in Butlerstown. The first named respondent had, prior to the hearing before me, identified premises in the centre of the City of Waterford, and was at an advanced stage of negotiations with the landlord of a site in the Railway Square Development. It sought time to allow for the fit out of those premises if negotiations were satisfactorily concluded and, in the alternative, for an orderly rundown of its business. It referred, in particular, to its employment of fifty-two people. A period of four months was sought.
16. Counsel for the applicants disputed the entitlement to a further period of four months and drew attention to the fact that the decision of MacMenamin J. had been given in January 2010 and the adverse impact of the continued trading of the first named respondent in a general way on the applicants’ shopping centre. No evidence of actual loss was adduced.
17. At the conclusion of the hearing before me on the 3rd June, I indicated that I had formed a view that I would grant an order in terms of paragraph (i) of the notice of motion and that on this aspect of the application I wished to consider the appropriate length of a stay, but that any stay would be from the 3rd June.
18. Having considered carefully all the evidence before me and the submissions made by counsel for both parties, I remain of the view that, in the exercise of my discretion under s. 160, I should make an order in the terms of paragraph (i) of the notice of motion i.e. an order prohibiting the respondents from using the premises located at Unit Nos. 1, 10 and 11 of Butlerstown Retail Warehouse Park for the sale of goods defined as comparison goods in Annexe 1 of the Retail Planning Guidelines. I have further concluded that, in the exercise of my discretion, balancing the public interest and the interests of the parties hereto, I should put a stay on the coming into effect of that order until 30th August, 2010.
19. Having regard to the above order, it does not appear to me necessary to make the order sought at paragraph (ii) of the notice of motion as it is no more than a statement that the respondents should comply with their legal obligations.
Order to reinstate
20. The third order sought is one directing the respondents to reinstate the units comprising Units 1, 10 and 11 as individual units and restore the premises to its existing use prior to carrying out the aforesaid works. It is the first part of this order which was primarily in issue between the parties and principally affects the second named respondent.
21. Counsel for the second named respondent does not dispute that the decision of An Bord Pleanála found that the internal alterations to the units to amalgamate same are not exempted development. At issue before An Bord Pleanála was s. 4(1)(h) of the Planning and Development Act 2000. This provides:
4.—(1) The following shall be exempted developments for the purposes of this Act— …
(h) development consisting of the carrying out of works for the maintenance, improvement or other alteration of any structure, being works which affect only the interior of the structure or which do not materially affect the external appearance of the structure so as to render the appearance inconsistent with the character of the structure or of neighbouring structures.”
22. Counsel for the second named respondent relies upon the precise terms of the decision of An Bord Pleanála in relation to this issue which is:
“(d) that the proposed internal alterations to the units to amalgamate same are directly related to the change of use and are therefore not exempted development.”
Counsel submits that this decision must be considered in the context of the Inspector’s report to the Board on the appeal which, in relation to the amalgamation of the units, having referred to reliance by the owner on the provisions of s. 4(1)(h) of the Act of 2000, stated:
“I consider that, in this instance, as all the works are internal, that they come within the scope of s. 4(1)(h).”
23. Counsel for the second named respondent submits that if the Court makes the order sought at paragraph (i) of the notice of motion prohibiting the continued unlawful use, that such use will discontinue and the first named respondent will vacate the premises. On the affidavits, I am satisfied this is so. The second named respondent accepts that any re-letting will have to be in compliance with the Planning Permission as interpreted by the High Court (MacMenamin J.) and the decision of An Bord Pleanála. He submits that the only basis for the decision of An Bord Pleanála at paragraph (d), having regard to s. 4(1)(h) of the Act of 2000, is that the internal alterations are directly related to a use not authorised by the existing permissions. He submitted that, having regard to the terms of the decision of An Bord Pleanála, it is premature to determine that reinstatement is required in advance of the cessation of the unauthorised use of the amalgamated units. He submits that to now require the second named respondent to undertake costly works to reinstate the units is disproportionate and would be punitive.
24. I have concluded that, having regard to the terms of s. 4(1)(h) of the Act of 2000, and the reason given by An Bord Pleanála for which the internal amalgamation of the units was not considered exempted development, i.e. as they “are directly related to the change of use in question”, that, having made the order sought at paragraph (i) of the notice of motion, in the exercise of my discretion, I should not now make the order sought at paragraph (iii). I have reached this conclusion on an assumption that the unauthorised use will terminate in accordance with the order made at paragraph (i) of the notice of motion. I will grant the applicants liberty to apply in relation to the order sought at paragraph (iii) in the event there will be any non-compliance by either respondent with the order the Court is now making in relation to the unauthorised use.
McGrath -v- Stewart & anor
[2016] IESC 52 (29 July 2016)
Judgment of Ms. Justice Laffoy delivered the 29th day of July, 2016
Underlying High Court proceedings leading to judgment and orders appealed against
1. The two plenary actions underlying this conjoined appeal were heard together in the High Court. In the first, the plaintiff, as purchaser, and in the second, the plaintiffs, as purchasers, sued the defendant, as vendor, for specific performance of two contracts, each of which was for the sale of property in the City of Dublin. Apart from the obvious fact that each of the contracts related to a different property, there is very little difference between the two contracts in issue and between the factual basis, the pleadings and the procedural process in both actions. That being the case, it is convenient to outline the background to this appeal by reference to the first plenary action.
2. The contract the subject of the first plenary action (Record No. 2004/10969P) was a contract in the standard form published by the Incorporated Law Society of Ireland for a sale by private treaty which was dated 8th June, 1998 and was expressed to be made between the defendant in the first action (Mr. Stewart), as vendor, and, in its final form, by the plaintiff in the first action, P.J. McGrath (Mr. McGrath) in trust, as purchaser, for the sale of the dwelling house and premises know as 14 Rutland Street in the City of Dublin at the price of IR£25,000. The relevant features of the contract were the following:
(a) that the interest being sold was a long leasehold interest for the residue of a term of nine hundred and four years from 29th September, 1882;
(b) that the special conditions did not disclose that the sale was subject to any tenancy, so that by virtue of General Condition 21, ex facie, Mr. McGrath was entitled to vacant possession on completion of the sale;
(c) that the closing date was 23rd July, 1998; and
(d) that a deposit of IR£2,500 was payable by Mr. McGrath on the execution of the contract.
The correspondence put before this Court demonstrates that the solicitors for Mr. Stewart, Stewart & Co., sent that contract and two other contracts, to Mr. McGrath’s solicitors, Tom Collins & Co. on 8th June, 1998 on a “subject to contract/contract denied” basis. The contracts as so furnished named William Black (Mr. Black) as purchaser. Mr. McGrath’s solicitors having obtained confirmation from Mr. Black that it was in order to do so, Mr. McGrath’s name was substituted for Mr. Black’s name as purchaser. The contracts thus amended were returned to Mr. Stewart’s solicitors by letter dated 25th June, 1998 together with a cheque, which will be referred to at the end of the judgment, which covered the deposit on that transaction and on the two other transactions and also requisitions on title. Of the other two contracts, one, which was the subject of the second plenary action (Record No. 2004/10973P), was for the sale of 9 Summerhill Place in the City of Dublin to Mr. McGrath (in trust) for IR£25,000 on similar terms to the terms in relation to the sale of 14 Rutland Street outlined above. The subsequent interaction between the parties and the pleadings disclose that Mr. McGrath was contracting to purchase 9 Summerhill Place in trust for himself and the second named plaintiff in the second plenary action, Thomas McGrath (the second Respondent).
3. On 2nd July, 1998, in accordance with normal practice, one part of the contract signed by both Mr. Stewart and Mr. McGrath was returned to Mr. McGrath’s solicitors. Subsequently by letter dated 10th July, 1998 Mr. Stewart’s solicitors furnished their replies to the requisitions on title, which were in the standard form published by the Law Society. The replies disclosed that the property was occupied by a tenant who was in possession at a weekly rent. By letter dated 8th September, 1998, Mr. McGrath’s solicitors informed Mr. Stewart’s solicitors that their client would seek vacant possession on closing of the transaction. The response of Mr. Stewart’s solicitors by letter dated 14th September, 1998 was that they were not in a position to give vacant possession on closing of 14 Rutland Street or of 9 Summerhill Place, which the replies to the relevant requisitions disclosed was also occupied by a tenant who was in possession at a weekly rent.
4. As regards the third contract, which related to another property in the area, 13 Summerhill Place, of which Mr. Stewart had vacant possession, the sale of that property was completed on 9th October, 1998. However, neither the sale of 14 Rutland Street nor of 9 Summerhill Place was completed. Thereafter correspondence continued from Mr. McGrath’s solicitors to Mr. Stewart’s solicitors seeking to know when the transactions could be completed with vacant possession. Although the relevant letter has not been put before this Court, it would seem that the last item of correspondence was a letter of 23rd May, 2000 from Mr. McGrath’s solicitors, which, as recorded in the judgment of the High Court referred to later (at p. 3), sought confirmation of the position regarding vacant possession and noted Mr. McGrath’s desire to close the sale. There was no response received to that letter or to any of the earlier letters, the last of them being dated 28th March, 1999.
5. Nothing happened after that for over four years. On 11th June, 2004 Mr. McGrath’s solicitors served a notice to complete on Mr. Stewart calling on Mr. Stewart to complete the sale within twenty eight days after the date of service of the notice and indicating that, in the event of failure to comply with the notice, Mr. Stewart, as vendor, would be deemed to have failed to comply in a material respect with the conditions of the contract and Mr. McGrath, as purchaser, would elect to pursue remedies available to him under the contact. The notice to complete was not complied with.
6. The first plenary action was initiated by a plenary summons which issued on 15th July, 2004, in which Mr. McGrath sought specific performance of the contract dated 8th June, 1998 in relation to 14 Rutland Street and damages. A statement of claim was delivered on 31st January, 2005 in which the reliefs claimed were specific performance of the contract and damages in lieu of specific performance. A defence and counterclaim was delivered by Mr. Stewart on 17th February, 2005 in which it was asserted that Mr. McGrath’s claim was statute-barred and, without prejudice to that plea, the various matters pleaded by Mr. McGrath were traversed. In the counterclaim, it was pleaded that the sale, which was denied, was subject to “existing tenancies” and that it was an express provision of the contract that Mr. McGrath would not be given vacant possession on closing. Rectification of the contract was sought.
7. It is disclosed in the outline submissions filed on behalf of Mr. Stewart that, by motion dated 1st April, 2005, Mr. Stewart sought orders striking out the first plenary action and the second plenary action on the basis, inter alia, that neither disclosed a reasonable cause of action. That motion having come on for hearing on 16th December, 2005, the relief sought was refused. That is mentioned merely because affidavits filed on the motion were mentioned in the pleadings in the circumstances outlined later. Those affidavits are not before this Court and their status in the High Court is not clear.
8. Both plenary actions were heard together in the High Court before Murphy J. (the trial judge) over two days on 14th and 15th October, 2008. Judgment was delivered by the trial judge on 11th November, 2008 ([2008] IEHC 348).
The judgment of the High Court
9. Having outlined the factual background more comprehensively than has been done in this judgment, the trial judge made a number of findings which are of relevance on this appeal.
10. First, he found that Mr. McGrath had contracted with Mr. Stewart to purchase his interest in the properties, but not a qualified interest subject to tenancies. He stated (at p. 5):
“The agreement was that he would purchase the properties with vacant possession. The contractual documents are consistent only with the interpretation that the plaintiff was to acquire vacant possession. I am satisfied that it was not until after he entered into the contract that he was informed of the expectation that he would take the properties subject to the existing tenancies. Accordingly, he contracted not for a title subject to tenancies but for the acquisition of all three properties without tenants.”
11. Secondly, the trial judge addressed another issue which had been raised which he stated was:
“. . . whether the parties had ever reached a consensus ad idem, and thus whether they had entered into a valid contract.”
Having observed that he had reservations in relation to the consideration of that question, since the issue was not pleaded, he stated that, in his view, the submission was not well founded in any event. Later, having analysed a number of authorities, he stated that, taking an objective view of the circumstances, it could not be said that Mr. Stewart’s mistaken understanding of the agreement, which I understand to mean his understanding that the sales of 14 Rutland Street and 9 Summerhill Place were subject to existing tenancies, was justified.
12. Thirdly, the trial judge addressed the contention of Mr. Stewart that Mr. McGrath had not come to Court seeking equitable relief with clean hands. Having reiterated that he was satisfied that the parties had entered into a valid contract for the sale of the three properties with vacant possession, the trial judge pointed out that specific performance is a discretionary remedy. He went on to consider whether, in relation to the transactions, Mr. McGrath had come to equity “with clean hands”, by reference to the various allegations made against Mr. McGrath, for example, that he acted otherwise than in good faith. However, he rejected all the allegations and he rationalised that rejection.
13. Fourthly, the trial judge addressed Mr. Stewart’s contention that Mr. McGrath was guilty of laches. In so doing, the trial judge identified the criteria which must be satisfied in order for that defence to be successful by reference to the decision of the High Court in J.H. v. W.J.H. (Unreported, High Court, 20th December, 1979), quoting the following passage from the judgment of Keane J. (at p. 35):
“I have no doubt that the interval of time which elapsed before the proceedings were issued in the present case could properly be described as substantial. That, however, is not sufficient . . . there must also be circumstances which render it inequitable to enforce the claim after such a lapse of time. I must accordingly consider the circumstances in which the defendant will now find himself if the plaintiff’s claim is allowed, as contrasted with the circumstances in which he would have found himself if the plaintiff had successfully prosecuted proceedings in 1973 or earlier.”
The trial judge recognised that in the case before him the Court was confronted with a delay of lesser duration than had arisen in J.H. v. W.J.H., but stated that there was a substantial delay nonetheless. He referred to the fact that the contract was entered into in 1998, that it became clear later that year that Mr. Stewart did not intend to convey the property otherwise than subject to the existing tenancies, that the completion date was 23rd July, 1998 and that Mr. Stewart was in breach from that date in failing to complete the sale and that the proceedings were not instituted until July 2004. The trial judge then stated (at p. 12):
“Where the defendant has indicated an intention not to perform the contract, either by express repudiation or otherwise, the plaintiff is expected to pursue his claim with greater expedition. The same is true where, during the period of delay, the plaintiff knew of the manner in which the defendant would be prejudiced by his failure to act expeditiously (Spry, Equitable Remedies, 5th Ed, 1997, p 232-233). Both of these circumstances arise here.”
Further, the trial judge rejected the explanation advanced for the delay by Mr. McGrath, being unable to conclude that the explanation was a plausible one.
14. The trial judge then considered whether the circumstances were such as to render an order for specific performance inequitable. Referring to the judgment of Keane J. in J.H. v. W.J.H. again, the trial judge stated that Keane J. had concluded that the defence of laches was made out by virtue of the added financial burden on the defendant in that case that resulted from the massive increase in market value of the property in issue and that the same circumstance applied to the case before him, indeed to a greater extent. He recorded that, while the contract price for each of the properties the subject of the actions before him was fixed at IR£25,000, the expert evidence given at the trial valued each somewhere between €250,000 and €270,000. He continued (at p. 14):
“Even in the uncertain climate currently prevailing in the property market, the defendant could not hope to acquire equivalent properties for a sum equivalent to the contract price agreed in 1998. Accordingly, I am satisfied that to make an order of specific performance against the defendant would be inequitable.”
15. On that basis, the trial judge concluded that the defence of laches succeeded. He then stated (at p. 15):
“Accordingly, the decree of specific performance should be refused on the ground of laches. However, even if I am wrong in that conclusion, it has been established that where a decree of specific performance is sought, damages can be awarded in lieu thereof where a delay such as to make damages more appropriate has occurred, even where the defence of laches has not been established (White v. McCooey [1976-77] ILRM 72).”
16. While the trial judge made it clear that, unlike the situation here, the defence of laches had not been established in White v. McCooey, it is convenient at this juncture to consider the circumstances in which, in that case, Gannon J., in the High Court, considered it appropriate to award damages in lieu of specific performance. As here, the action was an action by a plaintiff purchaser against a defendant vendor and it was for specific performance of a contract for the sale of a licensed premises and, as Gannon J. stated in his judgment (at p. 73), “alternatively for damages for breach of contract”. A number of defences were raised by the defendant, all of which were rejected by Gannon J. For instance, he found that the defendant had not established a line of defence based on the contention that there was such disparity between the price which the defendant might reasonably have expected from any other buyer and the price the plaintiff was paying as would suggest unfairness about the contract. On the plea of laches, Gannon J. stated (at p. 86):
“As to the plea of laches on the part of the plaintiff there is no evidence from which I could be asked to infer that the plaintiff intended to abandon his claim nor have I any evidence of injurious affect upon the defendant’s position by such delay as did occur. . . . Nevertheless there are necessarily some changes and circumstances of which I think I should take account in the exercise of the Court’s discretion as to the remedy to be given the plaintiff on his claim.”
Having outlined certain difficulties which might be encountered on the particular facts of that case, which related to the transfer of the publican’s licence attached to the premises and the contractual relations between the defendant and his tenants, Gannon J. stated that the proper relief in the case was to award to the plaintiff a sum of damages in lieu of specific performance. A significant feature of the decision of Gannon J. for present purposes is that he found that the plaintiff purchaser had established an entitlement to have the contract specifically enforced but he exercised his discretion as to the remedy to which the plaintiff was entitled and he determined that damages in lieu of the specific performance was the proper remedy.
17. Having diverged from the outline of the judgment of the trial judge in this case, to highlight the manner in which the decision in White v. McCooey is distinguishable from it, I will now return to it. The trial judge then went on to consider whether damages could be awarded to the plaintiff and he stated (at p. 15):
“Even where a plaintiff has sought a decree of a specific performance in circumstances where he had no right to do so, it is open to the court to award damages in lieu of a decree (Duggan v. Allied Irish Building Society (Unreported, High Court, Finlay J., 4th March 1976)). The plaintiff has sought such damages in the event of the refusal of a decree and the court must now consider how they are to be quantified.”
18. As an introduction to addressing how damages in lieu of specific performance should be measured, the trial judge quoted a passage from the judgment of this Court delivered by Walsh J., with whom Budd and Fitzgerald JJ agreed, in Holohan v. Ardmayle Estates (Unreported, Supreme Court, 1st May, 1967). Expanding the passage quoted slightly, Walsh J. stated:
“The present claim, however, as in all actions for specific performance, is grounded upon the submission that the contract is in being and that it is to be enforced. I take the view, therefore, that when the facts of the case are such that the trial judge is of opinion that he could make an order for specific performance but in his discretion does not do so but awards damages in lieu thereof, he must take into account in assessing the damages not merely such items as the loss of bargain and other loss which flows from that breach but the out of pocket expenses and other money laid out by the plaintiff which would naturally include any part of the purchase money already paid.”
The significant feature of the case under consideration by the Supreme Court which emerges from that passage is the emphasis on the trial judge being of opinion that “he could make an order for specific performance”, but having the discretion to award damages in lieu thereof.
19. There followed an analysis by the trial judge of a number of authorities on the quantification of the damages and on the factual scenario on the basis of the evidence he had heard. He set out at the end of his judgment the basis on which he considered that damages should be assessed in each of the plenary actions before him. He stated (at p. 22):
“From the market value as at mid 2005 (or the date of judgment if the latter is a lesser figure) will be subtracted the contract price of the properties. In light of the decision of the Supreme Court in Holohan, the plaintiff is also entitled to the return of the deposit paid in respect of the two properties. The total arrived at is to be calculated according to this method in respect of each property.”
Earlier, the choice of “mid 2005” was explained. It was chosen “as being three and a half years preceding the date of judgment in this action”.
20. On the delivery of the judgment of the trial judge, each of the plenary actions was adjourned so that the Court could hear evidence as to the market value of each of the properties in sale as at mid 2005. That hearing took place on 6th February, 2009, when the trial judge heard oral evidence of Peter Quigley of Douglas Newman Good, Estate Agents and Valuers, on behalf of Mr. McGrath and further evidence of Mr. Stewart. The order of the High Court on each of the plenary actions was made on 13th February, 2009.
The orders of the High Court
21. Both orders of the High Court are in the same format and have precisely the same effect. Once again, it is convenient to consider the order made in the first plenary action (Record No. 2004/10969P). The effect of the judgment delivered on 11th November, 2008 was recorded as follows:
“The Court refused the Plaintiffs claim for a decree of Specific performance of the contract for sale between the Plaintiff of the one part and the Defendant of the other part dated 8th June, 1998 for the sale by the Defendant to the Plaintiff of all the hereditaments and premises commonly known as 14 Rutland Street in the City of Dublin.
And the Court awarded damages in lieu of a decree of specific performance and ordered and adjudged that the Plaintiff do recover against the Defendant damages to be assessed in accordance with the method set out in the said judgment.”
The finding of the trial judge following the hearing on 6th February, 2009, which was declared on 13th February, 2009, and the subsequent assessment of damages was recorded as follows:
“The Court doth find that the market value of the said property as at mid 2005 was €170,000.00.
In accordance with the method set out in the said judgment delivered on the 11th day of November 2008 the Court doth assess damages in lieu of a decree of specific performance in the sum of €141,589.61.”
It is difficult to relate the final figure to the method set out in the judgment in that difference between the sum found to be the value of the property at mid 2005, €170,000, and the final figure, €141,589.61, is in excess of €3,300 less than the Euro equivalent of IR£25,000. However, that is a minor point. In the order, Mr. McGrath recovered against Mr. Stewart the costs of the action including any reserved costs, when taxed and ascertained.
The appeal
22. The orders of the High Court having been perfected on 19th November, 2009, notice of appeal was filed on behalf of Mr. Stewart in this Court on 16th June, 2010 against both orders of the High Court.
23. The grounds of appeal set out in the notice of appeal can be broken down into the following components, which will be outlined by reference to the first plenary action:
(a) There are eleven grounds which contend that the trial judge erred “in ignoring or not taking any or any sufficient account of certain evidence”, which is described as “uncontradicted evidence” given by three witnesses who were called to give evidence on behalf of Mr. Stewart, including Mr. Stewart. The eleventh ground asserts that even on the basis set out therein alone, there was no consensus ad idem and therefore no agreement between the parties.
(b) It is asserted that, if there was an agreement between Mr. Stewart and Mr. McGrath, which is denied, the trial judge erred in failing to hold that the failure and/or refusal of Mr. McGrath to complete the sale amounted to a repudiation thereof and that the contract was thereupon at an end and entitled to be so treated by Mr. Stewart.
(c) It is asserted that the trial judge erred in fact and in law in having held on the one hand that there was delay on the part of Mr. McGrath in issuing proceedings which disentitled him to specific performance and that he then in error granted to Mr. McGrath damages in lieu of specific performance, as if he was entitled to specific performance, when he should have dismissed Mr. McGrath’s claim and recognised and held that Mr. McGrath was not entitled to the reliefs sought on account of such delay and inactivity.
(d) Without prejudice to the foregoing grounds, it is asserted that the trial judge erred in his assessment of the damages on various bases.
The relief which Mr. Stewart seeks on the appeal, as outlined in the notice of appeal, is an order dismissing the claims in each of the plenary actions for specific performance or damages in lieu thereof in their entirety.
24. Outline submissions were filed on behalf of Mr. Stewart on the appeal on 26th May, 2016. In the outline submissions, having outlined Mr. Stewart’s version of the facts, three issues were identified for determination on the appeal, which, by reference to the first plenary action, may be outlined as follows:
(a) Whether there could have been consensus ad idem between the parties given the unilateral insertion by Mr. McGrath’s solicitor “by Tippex” of the name of Mr. McGrath as purchaser onto the contract with Mr. Stewart as vendor “in circumstances where the uncontradicted evidence of [Mr. Stewart], the beneficial owner that at all material times were selling the [property] subject to [tenancy] to Mr. Black”.
(b) Whether the unilateral insertion of the name of Mr. McGrath, described as “a third party”, “who is not a party to the contract without the consent of the beneficial owner/vendor” has the capacity “to bind the beneficial owner of the property to convey the same to that third party”.
(c) Whether an award of damages in lieu of specific performance can be made where a defence of laches succeeds in defeating a claim for a decree of specific performance.
As regards the issue at (a), it would appear that the issue was intended to be formulated as whether, given the uncontradicted evidence of Mr. Stewart and the beneficial owner, that they were selling the property subject to tenancy to Mr. Black, there could have been consensus.
25. In the replying outline submissions filed on behalf of Mr. McGrath and the second Respondent on the appeal on 20th June, 2016, having recognised that the nineteen grounds of appeal in the notice of appeal had been netted down to those three issues, those issues were addressed.
26. The basis on which the issues outlined at (a) and (b) in para. 14 above are advanced is that all three properties the subject of the transactions in 1998, including 14 Rutland Street and 9 Summerhill Place, were beneficially owned by Mr. Matthew Kelly (Mr. Kelly) and that Mr. Stewart only held the legal title. That is recognised in the judgment of the trial judge, as is the fact that Mr. Stewart was at all material times the solicitor for Mr. Kelly. Both issues are premised on the proposition that Mr. Stewart, who executed the contracts as vendor simpliciter (by which I mean, without disclosing that he held the property in trust) and was, in any event, acting for Mr. Kelly in the sales, did not have capacity to bind Mr. Kelly. Indeed, on the hearing of the appeal counsel for Mr. Stewart sought to advance that argument. Nowhere in the pleadings in either of the plenary actions is any lack of capacity on the part of Mr. Steward been pointed to. Aside from the plea that the claim was statute-barred, and the invocation of laches, the defence was that Mr. Stewart had no liability because the entirety of the claim was traversed, including the denial of the existence of an agreement and, even if an agreement existed, the denial that Mr. Stewart had liability to Mr. McGrath on the basis asserted on various grounds, for example, that the sale of 14 Rutland Street was subject to the existing tenancy. Further, as has already been recorded, in the counterclaim, Mr. Stewart sought rectification of the contract, the clear implication being that he had capacity to do so. The only reference to Mr. Kelly in the pleadings is a reference to an affidavit sworn by him on 30th June, 2005, presumably, on the motion to strike out referred to above (para. 7), which was one of a number of affidavits stated to set out the sequence of events, in reply to a request in a notice for particulars dated 13th July, 2005 issued on behalf of Mr. McGrath requesting that the full facts upon which it was alleged or claimed that Mr. McGrath was not ready, willing and able at the time of service to complete the sale. As has already been noted, those affidavits are not before the Court.
27. Moreover, I see nothing in the judgment of the trial judge to suggest that an argument was made to him on the consensus ad idem point that there was no consensus because Mr. Kelly, as the beneficial owner, was not bound. Quite clearly, the trial judge was treating Mr. Stewart, the defendant in both plenary actions, as the vendor and it was Mr. Stewart’s “mistaken understanding” which he addressed in the context of the consensus ad idem point, as outlined above (at para. 11).
28. For the foregoing reasons, I have come to the conclusion that issues (a) and (b) cannot be pursued on this appeal. Even if they could, this Court would be confronted with an insuperable problem. There is no transcript available of the hearing before the trial judge on 14th and 15th October, 2008 or of the hearing on 6th February, 2009. No digital audio recording of the hearing is available. There is not even an agreed note of the evidence given at the hearings. On the hearing of the appeal, this Court was furnished, for the first time, with notes of the evidence given on 14th and 15th October, to the High Court, which notes were prepared on behalf of the respective parties by their respective legal teams and in which there are conflicting accounts of the evidence.
29. Even if this Court had a satisfactory record of the evidence given in the High Court, and if the Court considered it appropriate to entertain issues (a) and (b), careful consideration would have to be given to the extent, if any, to which the findings of the trial judge could be interfered with, having regard to the jurisprudence of this Court and, in particular, the judgment of McCarthy J. in Hay v. O’Grady [1992] 1 I.R. 210. In any event, I have come to the conclusion that it is proper for this Court only to entertain issue (c). Accordingly, the issue which remains is whether a court may award damages in lieu of specific performance where the defence of laches has been upheld by the court and the court has found that a decree of specific performance should be refused and, in particular, whether Mr. McGrath, having been found guilty of laches, was entitled to damages in lieu of specific performance, as was found in the first plenary action.
Entitlement to damages in lieu of specific performance?
30. As is clear from the outline of the judgment of the trial judge above, the trial judge made an adverse finding against Mr. McGrath, as plaintiff, in the first plenary action, and also against both plaintiffs in the second plenary action, in that he found that the defence of laches must succeed and that the decree of specific performance should be refused on the ground of laches. Significantly, that finding was not cross-appealed by the respondents on this appeal, nor was any notice to vary filed on their behalf. Indeed, on the hearing of the appeal, counsel for the respondents argued that, notwithstanding that finding, the trial judge was entitled to award damages to the respondents, his principal arguments being that –
(a) the decision of the High Court in Duggan v. Allied Irish Building Society was authority for that proposition;
(b) what the respondents were seeking was damages for breach of contract; and
(c) although the relief sought in the statement of claim was damages in lieu of specific performance, in the plenary summons the relief sought was damages without qualification.
31. The jurisdiction to award damages in lieu of specific performance was first conferred on the Courts of Chancery in Ireland by the Chancery Amendment Act 1858 (21 & 22 Vict. c27), commonly known as Lord Cairns’ Act, s. 2 of which provides:
“In all cases in which the Court of Chancery has jurisdiction to entertain an application for an injunction against a breach of any covenant, contract, or agreement, or against the commission or continuance of any wrongful act, or for the specific performance of any covenant, contract, or agreement, it shall be lawful for the same Court, if it shall think fit, to award damages to the party injured, either in addition to or in substitution for such injunction or specific performance; and such damages may be assessed in such manner as the Court shall direct.”
As is pointed out in Buckley, Conroy and O’Neill on Specific Performance in Ireland (Dublin, 2012) (at para. 10.16), while s. 2 was repealed in 1883, the jurisdiction to award damages in lieu and in addition to specific performance continued, as the repealing statute contained a saver in respect of any jurisdiction or rule of law or equity established or confirmed by or under any previous enactment. The authors (at footnote 42) helpfully identify the repealing statute and also the saver provision and a later saver provision.
32. The claim of the plaintiff in Duggan v. Allied Irish Building Society in the High Court proceedings before Finlay J. was described as follows in the judgment (at p. 12):
“In them the plaintiff claims firstly specific performance of an agreement to advance to him the sum of £32,000 upon the security of a mortgage, secondly in the alternative damages for breach of that contract and further and other relief and costs.”
The defendant lender in that case raised a number of defences, the second being that, as a matter of law, the plaintiff was not entitled to specific performance of an agreement to make an advance and could not accordingly obtain damages in lieu of such specific performance either. In relation to this ground of defence, Finlay J. stated (at p. 15):
“With regard to the second ground of defence ultimately relied upon namely that the plaintiff is not entitled as a matter of law to a decree for specific performance and that accordingly the Court cannot award to him damages as an alternative I am satisfied on the authority of the decision in Roger v. Challis 27 Bevin Reports 175 and of Larios v. Gurety Law Reports 5 Privy Council 346 that the Court cannot and should not grant specific performance of a contract to advance money even where the contract is in the form of a contract to enter by the defendants into a legal mortgage. The second part of the contention, however, which of course is the vital one from the defendants point of view namely that there being no power to grant specific performance there is no power to grant damages in lieu thereof fails completely having regard to the provisions of the Judicature Acts. It is quite clear that the necessity for a right to exist or to have existed at the time of the commencement of an action to an order for specific performance as a condition precedent to the granting of damages applied only at a time when the Courts of Equity were separated from and distinct in their powers and jurisdiction from the Courts of Common Law. If in fact I am satisfied that the defendants had been in breach of this contract then the plaintiff upon proof of loss is entitled to damages for that breach irrespective of whether he could at law have obtained an order for specific performance of it.”
Finlay J. stated that, in the circumstances before him, he was satisfied that the defendants had been guilty of a breach of the contract which they entered into to advance the sum of £32,000 to the plaintiff and that the plaintiff was entitled to damages for that breach.
33. The reference in the second passage from the judgment in Duggan v. Allied Irish Building Society quoted above to the Judicature Acts is obviously a reference to the series of statutes which commenced with the Supreme Court of Judicature (Ireland) Act 1877 (40 & 41 Vict. c57) (the Act of 1877) and subsequent Acts which amended it and which were enacted before 1922. Those Acts changed the structure of the courts in Ireland and, in particular, outlined the jurisdiction vested in the various courts and how common law and equitable jurisdictions were to be exercised by each court. Counsel for Mr. McGrath referred the Court to the recent judgment of the High Court (Hogan J.) in Meagher v. Dublin City Council [2013] IEHC 474, in which the extent of what is usually referred to as the “fusion of law and equity” in consequence of the Act of 1877 was discussed in the context of the issue which arose there. It is useful to consider that judgement before considering the judgment in Duggan v. Allied Irish Building Society further.
34. It is clear from the judgment of Hogan J. that what he was considering was a claim for a liquidated sum of money, which had been initiated by way of summary summons which issued on 9th March, 2005. The proceedings were subsequently remitted to plenary hearing. As is pointed out by Hogan J. (at para. 17), the claim was for damages for breach of contract. Laches was pleaded as a defence. The issue addressed by Hogan J. which is of interest for present purposes is whether the equitable doctrine of laches could be utilised to defeat a claim for damages for breach of contract at common law which is otherwise not statute-barred. Having referred to some of the judicial and academic commentary on the effect of the Act of 1877, Hogan J. pointed out that, in over one hundred and thirty five years (and as of now, one hundred and thirty eight years) of jurisprudence since the passing of the Act of 1877, there is no authority for the proposition that the Court might refuse to award damages for breach of contract or in tort on discretionary grounds, such as undue delay per se or because the claimant has been guilty of bad faith, even though these would be well established grounds for refusing any equitable relief which might otherwise have been granted. His conclusion was that, while the two systems of law (that is say, common law and equity) work evermore closely together and draw mutual inspiration from each other, the two systems “are not yet fused”. In consequence, the doctrine of laches has, as such, no application to a claim at common law for damages for breach of contract where that claim is not otherwise barred by the Statute of Limitations. I respectfully agree with that conclusion. It follows that, if the claim by Mr. McGrath in the first plenary action was for damages for breach of contract and that claim was not statute-barred, a finding of laches would not preclude Mr. McGrath from pursuing the claim for damages for breach of contract.
35. Returning to the decision in Duggan v. Allied Irish Building Society, I consider that the identification of “the provisions of the Judicature Acts” as the solution to the problem there is misconceived. It must be borne in mind that the plaintiff there sought two alternative remedies: specific performance; and damages for breach of contract. It was held that he was not entitled to specific performance, because of the nature of the contract he sought to enforce, being a contract in respect of which specific performance is not granted. The reference to the Judicature Acts is made in the context that what Mr. Duggan was seeking was damages in lieu of specific performance. However, his alternative claim was for damages for breach of contract and, moreover, it was held by Finlay J. that the defendants had been guilty of breach of contract and that Mr. Duggan was entitled to damages for that breach. The effect of the Judicature Acts was that Mr. Duggan could pursue a claim in equity for specific performance, which, if wrongdoing was established on the part of the defendant, might, depending on the exercise by the Court of its discretion under Lord Cairn’s Act, give rise to an entitlement to damages in lieu of specific performance and, as an alternative, as he did, he could pursue a claim for damages for breach of contract at common law, and he could pursue both claims in the same Court, as he did, that is to say the High Court.
36. As the Judicature Acts do not supply the solution to the problem, it is necessary to revert to s. 2 of Lord Cairn’s Act and to consider its application on the facts here. The first question which arises, again by reference to the first plenary action, is whether in that action the High Court had jurisdiction “to entertain an application . . . for the specific performance of” the contract for sale entered into between Mr. Stewart and Mr. McGrath. In my view, the answer is that it had, because the contract was a contract for the sale of land. Accordingly, by virtue of s. 2, the Court had jurisdiction to award damages in lieu of specific performance, if it was appropriate for the Court to think it fit that it should do so. In a situation where the Court has determined that laches on the part of the plaintiff purchaser, as here, should operate as a bar to entitlement to an order for specific performance, it is difficult to see how the Court could think it fit to award damages in lieu of specific performance. The situation in which the Court refuses to make an order for specific performance in favour of a plaintiff purchaser because laches on the part of the plaintiff purchaser has been established is wholly different from a situation in which there is no finding that the plaintiff has been guilty of laches but the Court may think it fit to grant damages in lieu of specific performance, rather than specific performance. One example which is pertinent in the context of this case is the situation which arose in White v. McCooey referred to earlier, where it was found that there was delay but it was insufficient to establish the defence of laches, but the Gannon J. determined, in accordance with his discretion, that the plaintiff would be confined to a remedy in damages. In this case, the trial judge, having refused to make an order for specific performance because it would be unequitable to do so on the ground of laches, in my view, should also, for the same reason, have refused to award damages in lieu of specific performance.
37. Of course, as outlined earlier, it is an entitlement to damages for breach of contract which counsel for Mr. McGrath and the second respondent now argues on behalf of his clients. The question which remains is whether that argument can succeed. In my view, it cannot. The pleadings in the first plenary action have been outlined in some detail earlier to demonstrate the relief the plaintiff was seeking. The plaintiff, Mr. McGrath, was seeking specific performance or damages in lieu of specific performance, as was the case in Holohan v. Ardmayle Estates. His case was that the contract was in being. Nowhere was it alleged that he was entitled to damages for breach of contract and no basis for assessing such entitlement or for measuring the damages, if such entitlement existed, was pleaded. The trial judge approached the quantification of damages entirely on the basis that the damages awarded were damages in lieu of specific performance. The quantification of damages for breach of contract would, in all probability, not be the same. As was recognised by this Court in Duffy v. Ridley Properties Limited [2008] 4 I.R. 282, the general rule is that damages for breach of contract should be assessed at the date of the breach. On this appeal, it is not open to Mr. McGrath and the second Respondent to seek to pursue a claim which was not made or pleaded at first instance and, accordingly, the argument advanced on their behalf must be rejected. On this point I have had regard to the principles outlined in Delany and McGrath on Civil Procedure in the Superior Courts (3rd Ed.) at para. 22 – 79 to 22 – 83. I am satisfied that for this Court to find that in this case there is an exception to the general principle that this Court should not hear and determine an issue which has not been tried and decided in the High Court is not justified, because to so find is clearly not required in the interests of justice.
38. In the interests of clarity, I would reiterate that it appears from the judgment in Duggan v. Allied Irish Building Society that the plaintiff in that case did claim damages for breach of contract, so that that authority is distinguishable from the position here. The decision in Holohan v. Ardmayle Estates is also distinguishable because the Supreme Court treated the award of damages in that case as damages in lieu of specific performance in circumstances where the Court had jurisdiction to make such an order for specific performance.
Summary of conclusions
39. The only issue which, in my view, it is appropriate for this Court to consider on this appeal is whether the trial judge was entitled to make an award of damages in lieu of specific performance in favour of Mr. McGrath and the second Respondent in circumstances where he had found that Mr. McGrath and the second Respondent were not entitled to a decree of specific performance in either plenary action, because Mr. Stewart had established laches on their part. On that issue, I am of the view that the trial judge did not have jurisdiction to award damages in lieu of specific performance. As regards the argument advanced on behalf of Mr. McGrath and the second Respondent, that they are entitled to damages at common law for breach of contract, I consider that, as no such claim was made or pleaded in the High Court or considered by the trial judge, they cannot pursue such a claim on the appeal.
Order
40. I propose that there be an order allowing Mr. Stewart’s appeal and vacating the order of the High Court in both plenary actions awarding damages in lieu of specific performance and quantifying those damages.
41. Although not specifically addressed on the hearing of the appeal, apart from in the context of the measurement of damages, I think it appropriate to make some observations in relation to the deposits paid by the plaintiff purchasers under the contracts the subject of both plenary actions. The cheque referred to earlier in para. 2, which was sent to Mr. Stewart’s solicitors on 25th June, 1998, was dated 24th June, 1998 and it was made payable to “Stewart & Co. Solicitors”. It was in the sum of IR£7,500, IR£5,000 of which related to the deposits payable under the contracts in relation to 14 Rutland Street and 9 Summerhill Place. Those deposits, in accordance with Condition 5 of the general conditions in each of the contracts, were payable to Stewart & Co., as the vendor solicitors, as stakeholders. Assuming that the deposits have not been repaid, Mr. McGrath, as regards the 14 Rutland Street contract, and Mr. McGrath and the second Respondent, in relation to the 9 Summerhill Place contract, would appear to be entitled to repayment of the deposits so paid, even if, as seems likely, they have not been demanded. However, apart from making those observations, I do not consider it appropriate for this Court to take any further action in relation to the deposits.