Duress
Cases
Armstrong and Others (New South Wales)
[1973] UKPC 27 [1975] 2 WLR 1050, [1976] AC 104, [1975] 2 All ER 465
Lord Cross (majority)
Their Lordships turn now to consider the question of law which provoked a difference of opinion in the Court of Appeal Division. It is hardly surprising that there is no direct authority on the point, for if A threatens B with death if he does not execute some document and B, who takes A’s threats seriously, executes the document it can be only in the most unusual circumstances that there can be any doubt whether the threats operated to induce him to execute the document. But this is a most unusual case and the findings of fact made below do undoubtedly raise the question whether it was necessary for Barton in order to obtain relief to establish that he would not have executed the deed in question but for the threats. In answering this question in favour of Barton Jacobs J. A. relied both on a number of old common law authorities on the subject of ” duress ” and also —by way of analogy—on later decisions in equity with regard to the avoidance of deeds on the ground of fraud. Their Lordships do not think that the common law authorities are of any real assistance for it seems most unlikely that the authors of the statements relied on had the sort of problem which has arisen here in mind at all. On the other hand they think that the conclusion to which Jacobs J. A. came was right and that it is supported by the equity decisions. The scope of common law duress was very limited and at a comparatively early date equity began to grant relief in cases where the disposition in question had been procured by the exercise of pressure which the Chancellor considered to be illegitimate—although it did not amount to common law duress. There was a parallel development in the field of dispositions induced by fraud. At common law the only remedy available to the man defrauded was an action for deceit but equity in the same period in which it was building up the doctrine of ” undue influence ” came to entertain proceedings to set aside dispositions which had been obtained by fraud, (See Holdsworth’s History of English Law, Vol. 8, pp. 328/9.) There is an obvious analogy between setting aside a disposition for duress or undue influence and setting it aside for fraud. In each case—to quote the words of Holmes J. in Fairbanks v. Snow 13 Northeastern Reporter 596 at 598—” the party has been subjected to an improper motive for action “. Again the similarity of the effect in law of metus and dolus in connection with dispositions of property is noted by Stair in his Institutions of the Law of Scotland, Book IV, Title 40.25. Had Armstrong made a fraudulent misrepresentation to Barton for the purpose of inducing him to excute the deed of 17th January 1967 the answer to the problem which has arisen would have been clear. If it were established that Barton did not allow the representation to affect his judgment then he could not make it a ground for relief even though the representation was designed and known by Barton to be designed to affect his judgment. If on the other hand Barton relied on the misrepresentation Armstrong could not have defeated his claim to relief by showing that there were other more weighty causes which contributed to his decision to execute the deed, for in this field the Court does not allow an examination into the relative importance of contributory causes.
” Once make out that there has been anything like deception and no
contract resting in any degree on that foundation can stand “. (Per Lord Cranworth L. J. in Reynell v. Sprye 1 De G. M. & G. 660 at 708)—see also the other cases referred to in Cheshire and Fifoot’s Law of Contract 8th ed,, pp. 250/251.
Their Lordships think that the same rule should apply in cases of duress and that if Armstrong’s threats were ” a ” reason for Barton’s executing the deed he is entitled to relief even though he might well have entered into the contract if Armstrong had uttered no threats to induce him to do so. It remains to apply the law to the facts. What was the state of Barton’s mind when he excuted the deed is, of coarse, a question of fact and a question the answer to which depended largely on Barton’s own evidence. The judge who heard him give evidence was in a better position than anyone else to decide whether fear engendered by Armstrong’s threats was ” a ” reason for his excuting the deed. It was submitted that the decision of Street J. in favour of Armstrong amounted to a finding that fear engendered by the threats was not such a reason and that as that decision had been affirmed by a majority of the Appeal Division the Board should not disturb it. But this case, as their Lordships see it, is not one to which the rule as to ” concurrent findings” is applicable. In the first place some of the findings of fact made by the judge were varied by the Appeal Division, In particular they held that he was wrong in finding that Barton did not think that Armstrong’s threats were being made with a view to inducing him to execute the agreement. Again there appears to have been little discussion of the law before Street J. and it is by no means clear that he directed his mind to the precise question which was debated in the Appeal Division and before the Board. Consequently one cannot be sure that if he had applied to the facts found by him as modified by the Appeal Division what their Lordships think to be the correct principle of Saw he would have reached the conclusion which he did reach. He might have done so but equally he might not have done so. The judges in the Appeal Division approached the case no doubt in the light of what their Lordships assume to be the right findings of fact but the majority applied to them what in their Lordships’ judgment was a wrong principle of law. In these circumstances their Lordships think that they can properly, and indeed should, reach their own conclusion by applying the law as they understand it to the facts found by the judge as modified by the Appeal Division. They proceed then on the footing that although when he learnt that U.D.C. had decided no longer to finance the Paradise Waters project Barton was at first despondent as to its future he soon came to share Bovill’s view that U.D.C. would change its mind when once Armstrong was out of the way; that the confidence as to the eventual success of the project to which he gave expression to Smith and others during the negotiations and shortly after the execution of the documents was genuine; that he thought that the agreement with Armstrong was a satisfactory business arrangement both from the point of view of Landmark and also from his own point of view; and that the evidence which he gave at the trial, though possibly honest, was a largely erroneous reconstruction of his state of mind at the time. But even so Barton must have realised that in parting with all Landmark’s liquid assets to Armstrong and in agreeing himself to buy Armstrong’s shares for almost twice their market value in the hope that when Armstrong was out of the way U.D.C. would once more provide finance he was taking a very great risk. It is only reasonable to suppose that from time to time during the negotiations he asked himself whether it would not be better either to insist that any settlement with Armstrong should be conditional on an agreement with U.D.C. or to cut his own and Landmark’s losses on the Paradise Waters project altogether rather than to increase the stakes so drastically. If Barton had to establish that he would not have made the agreement but for Armstrong’s threats then their Lordships would not dissent from the view that he had not made out his case. But no such onus lay on him. On the contrary it was for Armstrong to establish, if he could, that the threats which he was making and the unlawful pressure which he was exerting for the purpose of inducing Barton to sign the agreement and which Barton knew were being made and exerted for this purpose in fact contributed nothing to Barton’s decision to sign. The judge has found that during the ten days or so before the documents were executed Barton was in genuine fear that Armstrong was planning to have him killed if the agreement was not signed. His state of mind was described by the judge as one of ” very real mental torment ” and he believed that his fears would be at an end when once the documents were executed. It is true that the judge was not satisfied that Vojinovic had been employed by Armstrong but if one man threatens another with unpleasant consequences if he does not act in a particular way, he must take the risk that the impact of his threats may be accentuated by extraneous circumstances for which he is not in fact responsible. It is true that on the facts as their Lordships assume them to have been Armstrong’s threats may have been unnecessary; but it would be unrealistic to hold that they played no part in making Barton decide to execute the documents. The proper inference to be drawn from the facts found is, their Lordships think, that though it may be that Barton would have executed the documents even if Armstrong had made no threats and exerted no unlawful pressure to induce him to do so the threats and unlawful pressure in fact contributed to his decision to sign the documents and to recommend their execution by Landmark and the other parties to them. It may be, of course, that Barton’s fear of Armstrong had evaporated before he issued his writ in this action but Armstrong—understandably enough—expressly disclaimed reliance on the defence of delay on Barton’s part in repudiating the deed.
In the result therefore the appeal should be allowed and a declaration. made that the deeds in question were executed by Barton under duress and are void so far as concerns him. Their Lordships express no view as to what (if any) effect this may have on the rights or obligations inter se of the other parties to the deeds—and the Order should include liberty to any of them to apply to the Court of first instance for the determination of any questions which may arise between them in that regard. Their Lordships think that the costs below should be dealt with as suggested by Jacobs J. A.—that is to say, that Armstrong and his companies (the first to sixth respondents) should pay Barton’s costs of the hearing before Street J. but that there should be no costs of the appeal to the Appeal Division because so much of the time there was taken up by submissions which all three judges were agreed in rejecting. The first respondent (Armstrong) must pay to the appellant (Barton) his costs of the appeal to the Board. Their Lordships will humbly advise Her Majesty accordingly.
Dissenting Judgment by Lord Wilberforce and Lord Simon
The reason why we do not agree with the majority decision is, briefly, that we regard the issues in this case as essentially issues of fact, issues moreover of a character particularly within the sphere of the trial judge bearing, as they do, upon motivation and credibility. On all important issues, clear findings have been made by Street 3. and concurred in by the Court of Appeal—either unanimously or by majority. Accepted rules of practice and, such rules apart, sound principle should, in our opinion, prevent a second court of appeal from reviewing them in the absence of some miscarriage of justice, or some manifest and important error of law or misdirection. In our view no such circumstance exists in this case.
Before stating those findings of fact, which are to our mind conclusive, we think it desirable to define in our own way the legal basis on which they rest.
The action is one to set aside an apparently complete and valid agreement on the ground of duress. The basis of the plaintiff’s claim is, thus, that though there was apparent consent there was no true consent to the agreement; that the agreement was not voluntary. This involves consideration of what the law regards as voluntary, or its opposite; for in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law: for this the pressure must be one of a kind which the law does not regard as legitimate. Thus, out of the various means by which consent may be obtained—advice, persuasion, influence, inducement, representation, commercial pressure—the law has come to select some which it will not accept as a reason for voluntary action: fraud, abuse of relation of confidence, undue influence, duress or coercion. In this the law, under the influence of equity, has developed from the old common law conception of duress—threat to life and limb—and it has arrived at the modern generalisation expressed by Holmes J.—” subjected to an improper motive for action ” (Fairbanks v. Snow 13 Northeastern Reporter 596, 598).
In an action such as the present, then, the first step required of the plaintiff is to show that some illegitimate means of persuasion was used. That there were threats to Barton’s life was found by the judge, though he did not accept Barton’s evidence in important respects. We shall return to this point in detail later.
The next necessary step would be to establish the relationship between the illegitimate means used and the action taken. For the purposes of the present case (reserving our opinion as to cases which may arise in other contexts) we are prepared to accept, as the formula most favourable to the appellant, the test proposed by the majority, namely that the illegitimate means used was a reason (not the reason, nor the predominant reason nor the clinching reason) why the complainant acted as he did. We are also prepared to accept that a decisive answer is not obtainable by asking the question whether the contract would have been made even if there had been no threats because, even if the answer to this question is affirmative, that does not prove that the contract was not made because of the threats.
Assuming therefore that what has to be decided is whether the illegitimate means used was a reason why the complainant acted as he did, it follows that his reason for acting must (unless the case is one of automatism which this is not) be a conscious reason so that the complainant can give evidence of it: ” I acted because I was forced “. If his evidence is honest and accepted, that will normally conclude the issue. If, moreover, he gives evidence, it is necessary for the court to evaluate his evidence by testing it against his credibility and his actions.
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd
[1979] QB 705
Mocatta J
‘the best known case’ of Maskell v Horner, and also Skeate v Beale, where Lord Denman CJ said an agreement was not void because it was made under duress of goods, but noted that older cases do not deal with what happens when the threat is to breach a contract. He decided that there was such a thing as economic duress, a threat to break a contract is one form and if it led to a contract for valuable consideration ‘I think that contract is a voidable one which can be avoided and the excess money paid under it recovered.’ The agreement here was caused by ‘economic duress’. ‘The owners made a very reasonable offer of arbitration coupled with security for any award in the yard’s favour that might be made, but this was refused… I do not consider the yard’s ignorance of the Shell charter material. It may well be that had they known of it they would have been even more exigent.’ However, because of the delay in bringing the case to court economic duress could not be found in this case: ‘the action and inaction of the owners can only be regarded as an affirmation of the variation.’
Pao On v Lau Yiu Long
[1979] UKPC 17
Lord Scarman
“Their Lordships agree that the mere existence or recital of a prior request is not sufficient in itself to convert what is prima facie past consideration into sufficient consideration in law to support a promise: as they have indicated, it is only the first of three necessary preconditions. As for the second of those preconditions, whether the act done at the request of the promisor raises an implication of promised remuneration or other return is simply one of the construction of the words of the contract in the circumstances of its making. Once it is recognised, as the Board considers it inevitably must be, that the expressed consideration includes a reference to the Paos’ promise not to sell the shares before the 30th April 1974—-a promise to be performed in the future, though given in the past-—it is not possible to treat the Laus’ promise of indemnity as independent of the Paos’ antecedent promise, given at Lau’s request, not to sell. The promise of indemnity was given because at the time of the main agreement the parties intended that Lau should confer upon the Paos the benefit of his protection against a fall in price. When the subsidiary agreement was cancelled, all were well aware that the Paos were still to have the benefit of his protection as consideration for the restriction on selling. It matters not whether the indemnity thus given be regarded as the best evidence of the benefit intended to be conferred in return for the promise not to sell, or as the positive bargain which fixes the benefit on the faith of which the promise was given—though where, as here, the subject is a written contract, the better analysis is probably that of the ” positive bargain”. Their Lordships, therefore, accept the submission that the contract itself states a valid consideration for the promise of indemnity. ….
“ There must be present some factor ‘which could in law be regarded as a coercion of his will so as to vitiate his consent.’ This conception is in line with what was said in this Board’s decision in Barton v Armstrong [1976] AC 104, 121 by Lord Wilberforce and Lord Simon of Glaisdale – observations with which the majority judgment appears to be in agreement. In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it. All these matters are, as was recognised in Maskell v Horner [1915] 3 KB 106, relevant in determining whether he acted voluntarily or not. ”Pao On and others v Lau Yiu Long and another (Hong Kong)
…..
The Third Question
Duress, whatever form it takes, is a coercion of the will so as to vitiate consent. Their Lordships agree with the observation of Kerr J. in The “Siboen” and the “Sibotre” [1976] 1 Lloyd’s Rep. 293 at p. 336 that in a contractual situation commercial pressure is not enough. There must be present some factor ” which could in law be regarded as a coercion of his will so as to vitiate his consent”: loc. cit. This conception is in line with what was said in this Board’s decision in Barton v. Armstrong [1976] AC 104 at p. 121 by Lord Wilberforce and Lord Simon of Glaisdale— observations with which the majority judgment appears to be hi agreement. In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it. All these matters are, as was recognised in Maskell v. Homer [1915] 3 K.B. 106, relevant in determining whether he acted voluntarily or not.
In the present case there is unanimity amongst the judges below that there was no coercion of Lau’s will. In the Court of Appeal the trial judge’s finding (already quoted) that Lau considered the matter thoroughly, chose to avoid litigation, and formed the opinion that the risk in giving the guarantee was more apparent than real was upheld. In short, there was commercial pressure, but no coercion. Even if this Board was disposed, which it is not, to take a different view, it would not substitute its opinion for that of the judges below on this question of fact.
It is, therefore, unnecessary for the Board to embark upon an inquiry into the question whether English law recognises a category of duress known as ” economic duress “. But, since the question has been fully argued in this appeal, their Lordships will indicate very briefly the view which they have formed. At common law money paid under economic compulsion could be recovered in an action for money had and received: Astley v. Reynolds (1731) 2 Str. 915. The compulsion had to be such that the party was deprived of ” his freedom of exercising his will” (at p. 916). It is doubtful, however, whether at common law any duress other than duress to the person sufficed to render a contract voidable: see I Blackstone’s Commentaries 12th ed. pp. 130-131 and Skeate v. Beale (1841) 11 Ad. and E. 983. American law (Williston, op. cit.) now recognises that a contract may be avoided on the ground of economic duress. The commercial pressure alleged to constitute such duress must, however, be such that the victim must have entered the contract against his will, must have had no alternative course open to him, and must have been confronted with coercive acts by the party exerting the pressure: Williston, op. cit. paragraph 1603. American judges pay great attention to such evidential matters as the effectiveness of the alternative remedy available, the fact or absence of protest, the availability of independent advice, the benefit received, and the speed with which the victim has sought to avoid the contract. Recently two English judges have recognised that commercial pressure may constitute duress the pressure of which can render a contract voidable: Kerr J. in The Siboen (supra) and Mocatta J. in North Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd. [1978] 3 All E.R. 1170. Both stressed that the pressure must be such that the victim’s consent to the contract was not a voluntary act on his part. In their Lordships’ view, there is nothing contrary to principle in recognising economic duress as a factor which may render a contract voidable, provided always that the basis of such recognition is that it must amount to a coercion of will, which vitiates consent. It must be shown that the payment made or the contract entered into was not a voluntary act.
For these reasons their Lordships will humbly advise Her Majesty that the appeal be allowed and that the judgment of the trial judge be restored with interest up to the date of Her Majesty’s Order in Council disposing of this appeal. The respondents must pay the appellants’ costs here and below.
Universe Tankships Inc of Monrovia v International Transport Workers Federation
[1981] UKHL 9 [1983] AC 366, [1981] UKHL 9, [1983] 1 AC 366
Lodr Diplock
My Lords, I turn to the second ground on which repayment of the $6,480
is claimed, which I will call the duress point. It is not disputed that the
circumstances in which ITF demanded that the Shipowners should enter
into the Special Agreement and the Typescript Agreement and should pay the
moneys of which the latter documents acknowledge receipt, amounted to
economic duress upon the Shipowners; that is to say, it is conceded that
the financial consequences to the Shipowners of the ” Universe Sentinel”
continuing to be rendered off-hire under her time charter to Texaco, while
the blacking continued, were so catastrophic as to amount to a coercion
of the Shipowners’ will which vitiated their consent to those agreements and
to the payments made by them to ITF. This concession makes it unnecessary
for your Lordships to use the instant appeal as the occasion for a general
consideration of the developing law of economic duress as a ground for
treating contracts as voidable and obtaining restitution of money paid under
economic duress as money had and received to the plaintiffs’ use. That
economic duress may constitute a ground for such redress was recognised,
albeit obiter, by the Privy Council in Pao On v. Lau Yiu Long [1980] A.C.
614. The Board in that case referred with approval to two judgments at
first instance in the commercial court which recognised that commercial
pressure may constitute duress: one by Kerr J. in Occidental Worldwide
Investment Corporation v. Skibs A/S Avanti [1976] 1 Lloyd’s Rep. 293,
the other by Mocatta J. in North Ocean Shipping Co. Ltd. v. Hyundai
Construction Co. Ltd. [1979] Q.B. 705, which traces the development of
this branch of the law from its origin in the eighteenth and early nineteenth
century cases.
It is, however, in my view crucial to the decision of the instant appeal to
identify the rationale of this development of the common law. It is not that
the party seeking to avoid the contract which he has entered into with
another party, or to recover money that he has paid to another party in
response to a demand, did not know the nature or the precise terms of the
contract at the time when he entered into it or did not understand the
purpose for which the payment was demanded. The rationale is that his
apparent consent was induced by pressure exercised upon him by that
other party which the law does not regard as legitimate, with the
consequence that the consent is treated in law as revocable unless approbated
either expressly or by implication after the illegitimate pressure has ceased
to operate on his mind. It is a rationale similar to that which underlies
the avoidability of contracts entered into and the recovery of money exacted
under colour of office, or under undue influence or in consequence of threats
of physical duress.
Commercial pressure, in some degree, exists wherever one party to a
commercial transaction is in a stronger bargaining position than the other
party. It is not, however, in my view, necessary, nor would it be appropriate
in the instant appeal, to enter into the general question of the kinds of
circumstances, if any, in which commercial pressure, even though it amounts
to a coercion of the will of a party in the weaker bargaining position, may
be treated as legitimate and, accordingly, as not giving rise to any legal
right of redress. In the instant appeal the economic duress complained of
was exercised in the field of industrial relations to which very special
considerations apply.
My Lords, so far as is relevant to this appeal, the policy of Parliament,
ever since the Trade Disputes Act 1906 was passed to overrule a decision of
this House, has been to legitimise acts done by employees, or by trade
unions acting or purporting to act on their behalf, which would otherwise
be unlawful wherever such acts are done in contemplation or furtherance
of a dispute which is connected with the terms and conditions of employment
of any employees. I can confine myself to the kind of acts and the particular
subject matter of the trade dispute that was involved in the instant case, and
I use the expression ” legitimise ” as meaning that the doer of the act is
rendered immune from any liability to damages or any other remedy against
him in a court of justice, at the suit of a person who has suffered loss
or damage in consequence of the act; save only a remedy for breach of
contract where the act is done in breach of a direct contract between the
doer of the act and the person by whom the damage is sustained.
The statutory provisions in force when the events with which this appeal
is concerned took place, and which point to the public policy to which
effect ought to be given by your Lordships, are chiefly contained in sections
13, 14 and 29 of the Trade Union and Labour Relations Act 1974. The
legislative history of these sections is referred to in the recent decision of
this House in Hadmor Productions Ltd. v. Hamilton [1982] 2 W.L.R. 322.
In terms they are confined to bestowing immunity from liability in tort; they
do not deal with immunity in any other type of action. In the case of a
trade union such immunity is extended by section 14 to virtually all torts;
in the case of individuals, it is extended by section 13 to defined classes of
torts (which would include the blacking of the ” Universe Sentinel”) which
are limited, not only in their nature, but also by the requirement that what
would otherwise be the tortious act must be committed in contemplation or
furtherance of a trade dispute as defined in section 29.
The use of economic duress to induce another person to part with
property or money is not a tort per se; the form that the duress takes may,
or may not, be tortious. The remedy to which economic duress gives rise
is not an action for damages but an action for restitution of property or
money exacted under such duress and the avoidance of any contract that
had been induced by it; but where the particular form taken by the economic
duress used is itself a tort, the restitutional remedy for money had and
received by the defendant to the plaintiff’s use is one which the plaintiff is
entitled to pursue as an alternative remedy to an action for damages in tort.
In extending into the field of industrial relations the common law concept
of economic duress and the right to a restitutionary remedy for it which is
currently in process of development by judicial decisions, this House would
not, in my view, be exercising the restraint that is appropriate to such a
process if it were so to develop the concept that, by the simple expedient
of ” waiving the tort”, a restitutionary remedy for money had and received
is made enforceable in cases in which Parliament has, over so long a period
of years, manifested its preference for a public policy that a particular
kind of tortious act should be legitimised in the sense that I am using that
expression.
R v. Her Majesty’s Attorney-General for England and Wales (New Zealand)
[2003] UKPC 22 [2003] EMLR 24, [2003] UKPC 22
Lord Hoffman
Duress
In Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 400 Lord Scarman said that there were two elements in the wrong of duress. One was pressure amounting to compulsion of the will of the victim and the second was the illegitimacy of the pressure. R says that to offer him the alternative of being returned to unit, which was regarded in the SAS as a public humiliation, was compulsion of his will. It left him no practical alternative. Their Lordships are content to assume that this was the case. But, as Lord Wilberforce and Lord Simon of Glaisdale said in Barton v Armstrong [1976] AC 104, 121:
“in life … many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law: for this the pressure must be one of a kind which the law does not regard as legitimate.”
The legitimacy of the pressure must be examined from two aspects: first, the nature of the pressure and secondly, the nature of the demand which the pressure is applied to support: see Lord Scarman in the Universe Tankships case, at p 401. Generally speaking, the threat of any form of unlawful action will be regarded as illegitimate. On the other hand, that fact that the threat is lawful does not necessarily make the pressure legitimate. As Lord Atkin said in Thorne v Motor Trade Association [1937] AC 797, 806:
“The ordinary blackmailer normally threatens to do what he has a perfect right to do – namely, communicate some compromising conduct to a person whose knowledge is likely to affect the person threatened … What he has to justify is not the threat, but the demand of money.”
In this case, the threat was lawful. Although return to unit was not ordinarily used except on grounds of delinquency or unsuitability and was perceived by members of the SAS as a severe penalty, there is no doubt that the Crown was entitled at its discretion to transfer any member of the SAS to another unit. Furthermore, the judge found, in para 123:
“The MOD could not be criticised for its motivation in introducing the contracts. They were introduced because of the concerns about the increasing number of unauthorised disclosures by former UKSF personnel and the concern that those disclosures were threatening the security of operations and personnel and were undermining the effectiveness and employability of the UKSF. Those are legitimate concerns for the MOD to have.”
It would follow that the MOD was reasonably entitled to regard anyone unwilling to accept the obligation of confidentiality as unsuitable for the SAS. Thus the threat was lawful and the demand supported by the threat could be justified. But the judge held that the demand was unlawful because it exceeded the powers of the Crown over a serviceman under military law. It was an attempt to restrict his freedom of expression after he had left the service and was no longer subject to military discipline.
The judge’s reasoning was that R had signed the contract because he had been ordered to do so. The MOD could not give a serviceman an order which, as a matter of military law, he was obliged to obey after he had left the service and therefore it was an abuse of power for the MOD to try to extend the temporal reach of its orders by ordering the serviceman to sign a contract which could be enforced after he had left.
If R had signed the contract because as a matter of military law he had been obliged to do so, their Lordships would see much force in this reasoning. But they agree with the Court of Appeal that this was not the case. There was no order in the sense of a command which created an obligation to obey under military law. Instead, R was faced with a choice which may have constituted “overwhelming pressure” but was not an exercise by the MOD of its legal powers over him. The legitimacy of the pressure therefore falls to be examined by normal criteria and as neither of the courts in New Zealand considered either the threat to be unlawful or the demand unreasonable, it follows that the contract was not obtained by duress.
Undue influence
The subject of undue influence has recently been re-examined in depth by the House of Lords in Royal Bank of Scotland plc v Etridge (No. 2) [2002] AC 773. Their Lordships summarise the effect of the judgments. Like duress at common law, undue influence is based upon the principle that a transaction to which consent has been obtained by unacceptable means should not be allowed to stand. Undue influence has concentrated in particular upon the unfair exploitation by one party of a relationship which gives him ascendancy or influence over the other.
The burden of proving that consent was obtained by unacceptable means is upon the party who alleges it. Certain relationships – parent and child, trustee and beneficiary, etc – give rise to a presumption that one party had influence over the other. That does not of course in itself involve a presumption that he unfairly exploited his influence. But if the transaction is one which cannot reasonably be explained by the relationship, that will be prima facie evidence of undue influence. Even if the relationship does not fall into one of the established categories, the evidence may show that one party did in fact have influence over the other. In such a case, the nature of the transaction may likewise give rise to a prima facie inference that it was obtained by undue influence. In the absence of contrary evidence, the court will be entitled to find that the burden of proving unfair exploitation of the relationship has been discharged.
The absence of independent legal advice may or may not be a relevant matter according to the circumstances. It is not necessarily an unfair exploitation of a relationship for one party to enter into a transaction with the other without ensuring that he has obtained independent legal advice. On the other hand, the transaction may be such as to give rise to an inference of undue influence even if the induced party was advised by an independent lawyer and understood the legal implications of what he was doing.
In the present case it is said that the military hierarchy, the strong regimental pride which R shared and his personal admiration for his commanding officer created a relationship in which the Army as an institution or the commanding officer as an individual were able to exercise influence over him. Their Lordships are content to assume that this was the case. But the question is whether the nature of the transaction was such as to give rise to an inference that it was obtained by an unfair exploitation of that relationship. Like the Court of Appeal, their Lordships do not think that the confidentiality agreement can be so described. As in the case of duress, their Lordships think that the finding that it was an agreement which anyone who wished to serve or continue serving in the SAS could reasonably have been required to sign is fatal to such a conclusion. The reason why R signed the agreement was because, at the time, he wished to continue to be a member of the SAS. If facing him with such a choice was not illegitimate for the purposes of duress, their Lordships do not think that it could have been an unfair exploitation of a relationship which consisted in his being a member of the SAS. There seems to their Lordships to be some degree of contradiction between R’s claim, in the context of duress, that he signed only because he was threatened with return to his unit and his claim, for the purposes of undue influence, that he signed because of the trust and confidence which he reposed in the Army or his commanding officer.
The question which has troubled their Lordships is the absence of legal advice. The only evidence that R would not have been allowed to obtain such advice was his own testimony, accepted by the judge, of what he was told by his colleague ST in London; not, perhaps, the most authoritative source. R does not say that he asked anyone at Hereford whether he could obtain advice and the commanding officer said in evidence that such a request would have presented no difficulty.
On this evidence the New Zealand courts made a finding that R had not been able to obtain legal advice which their Lordships of course accept. In any event they think it a matter for regret that members of SAS were not told explicitly that arrangements could be made for them to obtain legal advice. They recognise the security problems which would have had to have been overcome; R could not, for example, have consulted an outside solicitor without disclosing that he was a member of the SAS. Nevertheless, as the commanding officer said, suitable arrangements could have been made and it would have avoided suspicion and recrimination to make this known.
The legal question, however, is whether failing to provide an opportunity for obtaining legal advice made the transaction one in which the MOD had unfairly exploited its influence over R. Here it is important to note that R does not allege that he did not understand the implications of what he was being asked to do. The contract was in simple terms and the explanatory memorandum even plainer. He does say that he had originally thought that it would only prevent publication of matter which remained confidential. However, a moment’s thought would have told him that this would not have prevented the publications to which he and other members of the SAS most objected, namely The One That Got Away and the film which followed. In any case, when he saw the actual contract he knew what it meant.
In these circumstances, their Lordships do not think that the absence of legal advice affected the fairness of the transaction. The most that R can say is that a lawyer might have advised him to reflect upon the matter and, as in fact he changed his mind within a fairly short time after signing, that might have led to his not signing at all. But that is a decision which he could have made without a lawyer’s advice.
Unconscionable bargain
If the transaction was not such as to give rise to an inference that it had been unfairly obtained by a party in a position to influence the other, it must follow that the transaction cannot be independently attacked as unconscionable.
Consideration
The classic definition of consideration is that of Sir Frederick Pollock, cited by Lord Dunedin in Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd [1915] AC 847, 855:
“An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”
In the present case the price for which R’s promise was bought was the forbearance of the MOD to exercise its power to return him to unit. It could not be a promise that he would not be returned to unit, because, as their Lordships have already observed, the Crown was entitled to move him to another regiment and could not fetter its discretion by a contract having effect in private law. Whether there were any circumstances in which it could have created a legitimate expectation giving rise to rights against the Crown in public law is a matter which their Lordships need not discuss. But the actual forbearance was in their Lordships’ opinion sufficient consideration to support the contract. In Alliance Bank Ltd v Broom (1864) 2 Dr & Sm 289, 292 the bank demanded security for its loan in circumstances in which, as Sir Richard Kindersley V-C said, it would otherwise have enforced payment. It made no promise not to demand payment but:
“the [bank] did in effect give, and the defendant received, the benefit of some degree of forbearance; not, indeed, for any definite time, but, at all events, some extent of forbearance.”
The authority of this case has never been doubted and their Lordships think that its principle adequately covers the present case. If R had refused outright to sign the contract, he would have been returned to unit. As it was, the MOD forbore from exercising its power to do so; R remained in the SAS, a valued soldier, and when he said that he wanted to leave, the commanding officer asked him to reflect before eventually consenting. This practical benefit to R was a sufficient act of forbearance to make his promise enforceable.
Headfort v. Brocket.
Budd J. [1966] I.R.230
BUDD J. :
4 May
On the conclusion of the plaintiff’s case in the two actions at present at hearing counsel for the defendants in both proceedings applied for a nonsuit on the grounds that the plaintiff had failed to establish her case in both the actions and I have now to deal with that application.
The two actions were heard together by consent of the parties and both actions concern certain claims made by the plaintiff in the two proceedings arising out of a document, dated the 2nd July, 1958, referred to throughout the proceedings as the “heads of settlement.” In order to understand the nature of the proceedings, and the contentions of the parties, it is necessary to have regard to the background to the proceedings.
The plaintiff is the widow of the late Marquess of Headfort and the mother of the present Marquess. The family seat is at Headfort House, near Kells, in County Meath, consisting of a large mansion house and demesne lands surrounding it. At the time when the document known as the heads of settlement came into existence in July, 1958, the freehold interest in the mansion house and lands was vested in the Headfort Estate Company. That Company had, however, leased portion of the mansion house and lands to a company which carried on a school in Headfort House, known as the Headfort School Limited. That lease was granted in 1950 but the school had in fact been carried on in Headfort House for some years prior to that date. The late Lord Headfort, husband of the plaintiff, in 1958, also held portion of the mansion house, being so much thereof as had not been already leased to the school Company in 1950, under a tenancy agreement from the Headfort Estate Company, dated the 16th August, 1955, for the term of his life. The portion held by him included portion of the east wing of the mansion house, known as Headfort Court; and the late Lord Headfort and the plaintiff resided there from time to time.
From the evidence adduced it appears that the plaintiff and her late husband took a very keen and active interest in the affairs of the school. They were on the board of directors and the plaintiff at the time when the heads of settlement came into existence had a controlling interest in the school Company. The school had prospered and expanded and, with the consent of the late Marquess and the plaintiff, had occupied portions of the mansion house not included in the original lease to the school. That lease was due to expire in 1959. Having regard to their great interest in the school, the late Lord Headfort and the plaintiff were naturally concerned about the renewal of this lease.
The three defendants, who, I should say, are sued in their personal capacities, were, in 1958, trustees of certain marriage settlements of the Headfort family entered into in 1901 and 1934, respectively. The precise terms of these settlements were not opened during the hearing and it is sufficient to state with regard to them that it was accepted that Headfort House and lands would pass to the successor of the late Marquess. Thus the position was that it was generally assumed that the second-named defendant, the present Marquess, then the Earl of Bective, would succeed to the mansion house and lands if he outlived his father, which he did. I mention this matter at this stage because it has a bearing on the later events with which I have to deal. We are, however, concerned also with another matter arising out of these settlements which I pass to next.
It would appear that for some time prior to 1958 the defendants, as trustees of the afore-mentioned settlements, were concerned about the impact of death duties on the Headfort property, which would fall to be paid on the death of the late Marquess. He was also naturally concerned about this matter, his interest being twofold. The amount of duty to be paid would affect his son’s interests but he was also concerned to see that his own interest in the settled property as tenant for life was safeguarded. Various methods of alleviating the position with regard to death duties appear to have been considered by the trustees. One of the projects which the trustees had in contemplation was the purchase of lands in Northern Ireland. The late Marquess objected to this scheme and in April, 1958, brought proceedings against the trustees for a declaration that the proposed purchase on the terms envisaged would constitute a breach of trust and for an injunction to restrain the trustees from proceeding with the purchase. An application for an interlocutory injunction to restrain the trustees from proceeding with the purchase was then brought before the Court.
At this time, as I have mentioned already, the trustees of the Headfort settlements, the present Marquess (then Earl of Bective) being one of them, and the plaintiff and her husband, appear to have acted on the generally accepted basis that the present Marquess would succeed to the property, as indeed occurred. In any event, the trustees appear to have taken the view that it was desirable that the successor to the late Marquess in the Headfort properties should have control of the school Company which carried on the school in part of these properties, Headfort House. The plaintiff and her husband were at the same time concerned about the future of the school and the granting of a new lease on the expiration of the existing lease in 1959. The trustees were also directors of the Headfort Estate Company, the party to grant the lease.
Three other matters should also be mentioned which arose at this time. The late Marquess had taken the view that the scales were not being held evenly by the trustees as between himself and the remainderman and that it was desirable that a fourth trustee should be appointed of the Headfort settlements in everybody’s interest and he had asked that this should be done. He had also claimed that he should be recouped in respect of the loss of income sustained by him owing to the realisation of investments to finance the purchase of the lands. He had further sought a loan from the trustees to finance the purchase of property abroad. One of the suggested methods of lessening the impact of death duties had been the acquisition of a foreign domicile. It was in this state of affairs that the heads of settlement were arrived at, when the injunction motion was before the Court.
The document referred to as the heads of settlement is headed:” Marquess of Headfort v. Lord Brocket and others,” the next line containing the words, “Heads of Settlement.” The document reads as follows:
“1. Defendants undertake not to proceed with the proposed purchase the subject-matter of the action.
2. Defendants undertake not to purchase any lands outside the jurisdiction of the Courts (other than freehold or leasehold ground rents) without consulting the plaintiff.
3. Plaintiff agrees to make no claim against the defendants for loss of income arising out of the realisation of portion of the trust funds to finance the said proposed purchase.
4. Defendants agree to appoint a fourth trustee of settlements nos. 3 and 1B such trustee to be agreed upon by the plaintiff and the defendants.
5. Plaintiff withdraws his request to the defendants for a loan of £10,000.
6. The Marchioness of Headfort shall settle her now present holding of shares in the Headfort School Company Limited upon trust for herself during the life of Lord Headfort with remainder to the person who shall succeed the plaintiff as Marquess of Headfort absolutely. The trustees of such settlement to be agreed upon between the Marchioness of Headfort and the defendant Sir Richard James Musgrave.
7. Upon the Marchioness of Headfort making the settlement in paragraph 6 hereof the defendants shall use their best endeavours to procure that the Headfort Estate Company shall grant a lease to the Headfort School Company Limited of the portion of Headfort House and grounds at present used or occupied by the said school upon terms to be agreed upon and in default of agreement upon the following terms:
(a) The term to be 21 years from the expiration of the existing Lease.
(b) The rent and maintenance charges shall be determined by arbitration. The arbitrator in default of agreement to be appointed by the President of the Incorporated Law Society.
(c) The terms of the said lease shall otherwise be the same as those in the said existing lease with an option for the lessee to surrender at the end of 7th and 14th years of the terms.
8. Both parties to have their costs out of the trust funds. The plaintiff’s costs to be taxed as solicitor and client costs and to include (a) the costs preliminary to and with a view to the present proceedings.
(b) The costs of and incidental to the advice obtained on matters arising out of agreements known as agreements 1, 2 and 3 relating to the loans to enable the plaintiff to purchase a flat in Monte Carlo.
(c) The costs incurred by the plaintiff in connection with the obtaining of advice in the acquisition by the plaintiff of a foreign domicile and otherwise as to the reduction of liability for death duties measured at the sum of £137.
(d) The respective costs incurred and to be incurred by the Marchioness of Headfort and the defendants of and incidental to the preparation and completion of the settlement referred to in paragraph 6 hereof.
The defendants’ costs to be taxed as trustee’s costs.
Dated this 2nd day of July 1958.
“Brocket
Headfort
“Bective
Elsie F. Headfort.”
“R. J. Musgrave”
A great number of events, some of which I shall have occasion to refer to later, took place between the time when the heads of settlement came into existence in July, 1958, and the commencement of these actions. In brief, however, the plaintiff, being of the view that the defendants were under certain obligations to her on foot of agreements contained in the heads of settlement and that the defendants were in breach of these obligations, commenced two proceedings in respect of this document known as the heads of settlement. The first proceeding, 1964. No. 446 P., had to do with the matters set out in paras. 6 and 7 of the document of the 2nd July, 1958, relating to the settlement of the plaintiff’s shares in the Headfort School Company and the procuring of a new lease to the school Company.
The plaintiff alleged in these proceedings that the defendants had by an agreement in writing, dated the 2nd July, 1958, and executed by the parties to the action, agreed with the plaintiff to use their best endeavours to procure that the Headfort Estate Company would grant a lease to the Headfort School Company of the portion of the Headfort House and grounds then used and occupied by the school upon terms to be agreed on and in default of agreement upon the terms set out in the document. It was further alleged that the plaintiff had agreed, in consideration of the said agreement, to settle her then holding of shares in the Headfort School Company Limited upon the trusts specified in the agreement and had, in pursuance of the said agreement and in compliance with her obligations thereunder, by an indenture of settlement, dated the 17th September, 1958, settled 2,142 ordinary shares of £1 each in the capital of the school Company, representing the plaintiff’s then holding of such shares, upon the trustees therein named upon the trusts therein mentioned. It was finally alleged that the said shares were transferred to the trustees of the said settlement on the 30th July, 1963. In the alternative, the plaintiff alleged that the parties agreed verbally to the contract contained in the agreement.
The plaintiff asserted that the defendants, in breach of the said written agreement, or, alternatively, in breach of the said verbal agreement, had not carried out their obligation thereunder and in particular that the defendants (who were themselves the directors and shareholders in the Headfort Estate Company) had wilfully concurred in the grant by the Headfort Estate Company to the Headfort School Company Limited of a lease in terms less favourable than the terms of the lease existing at the date of the agreement of 1958. While the plea is thus stated, the action proceeded on the basis that the breach complained of was the grant of a lease of a lesser portion of the mansion house than that provided for in clause 7 of the document of the 2nd July, 1958.
The plaintiff claimed in the proceedings a declaration that the agreement in writing of the 2nd July, 1958, (or, alternatively, the said verbal agreement) in pursuance whereof the plaintiff on the 21st March, 1963, had transferred to the second-named defendant her holding of 2,142 shares in the Headfort School Company Limited, had not been performed and ought now to be performed and an injunction directed to the defendants to grant a lease to the Headfort School Company Ltd. in terms not less favourable than those set out in the agreement of the 2nd July, 1958.
In the alternative the plaintiff claimed an order directed to the second-named defendant to re-transfer the said shares to the plaintiff on foot of a consideration which had wholly failed, together with certain ancillary relief. Alternatively, the plaintiff claimed damages for breach of contract against all three defendants, measured at the market value of the shares.
The defendants’ defence to these proceedings, in so far as I am concerned with it on the present application, was that, if the said agreements or either of them were made between the parties (which the defendants denied), they were rescinded by mutual agreement made between the plaintiff and her late husband, of the one part, and the defendants, of the other part, prior to January, 1960, or, alternatively, by agreement between the plaintiff and the defendants prior to the 2nd October, 1962, or, again alternatively, on or about the 21st March, 1963. The defendants denied the plaintiff’s allegations as to the settlement of her shares in the fashion she alleged, pleading in the alternative that if the plaintiff did so settle her said shares, the indenture of settlement thereof, notwithstanding that it was dated the 17th day of September, 1958, was in fact executed on or about the 21st March, 1963.
The defendants further in the alternative allege that if the plaintiff did so transfer the said shares she did not do so in pursuance of the agreements alleged by her but in consideration of the procuring by the defendants of the execution by the Headfort Estate Company of the lease to the Headfort School Company Ltd., dated the 21st March, 1963, and for no other consideration. The defendants denied that they had not carried out their obligations under the said agreements and pleaded that the terms of the said lease were agreed upon between the Headfort Estate Company and the plaintiff and the Headfort School Company Ltd.
The plaintiff, in reply to the matters pleaded by the defendants in their defence, pleaded that the lease granted was accepted by the Headfort School Company Ltd. under duress only because the Headfort Estate Company refused to grant a lease on any other terms or to comply with the agreement of the 2nd July, 1958, and thereby compelled the Headfort School Company Ltd. to accept the lease in the terms then offered or give up its occupation of the premises where the school was carried on.
The plaintiff also alleged that if the said agreements or either of them were rescinded by mutual agreement at the times alleged each such rescission, in so far as it affected the plaintiff, was conditional upon the carrying out by the defendants of the express terms of the agreements not then rescinded and that the defendants had not carried out the said terms and could not rely on the alleged rescissions. It was further alleged that the alleged rescissions were without consideration. In the second proceedings, 1964. No. 1542 P., the plaintiff alleged that by the same agreement as that in the first proceedings the defendants agreed with the plaintiff inter alia to appoint a fourth trustee of the settlements described in the agreement, not to purchase lands outside the jurisdiction of the Courts (other than freehold and leasehold ground rents) without consulting the late Marquess, and to discharge out of the trust funds the costs of all parties as set out in the agreement.
It was further alleged that the plaintiff, in consideration of the agreement, agreed to settle her then present holding of shares in the Headfort School Company Ltd. in the fashion set out in clause 6 of the agreement. A verbal agreement to the same effect as the written agreement was pleaded in the alternative. It was further alleged that in pursuance of the agreement (or alternatively in pursuance of the verbal agreement) the plaintiff had settled her shares in the school Company in the manner already stated in the first proceedings and likewise had transferred the said shares in the same fashion as therein stated.
The plaintiff alleged then that the defendants, in breach of their obligation under the written agreement (or alternatively under the verbal agreement), had not carried out their obligations thereunder. In particular it was alleged that the defendants, having agreed with the late Marquess upon the name of the fourth trustee to be appointed, neglected and refused to appoint such person; that during the lifetime of the late Marquess they purchased lands outside the jurisdiction of the Courts without consulting him, and that they have not discharged all the costs agreed by them to be discharged out of the trust funds.
The plaintiff claimed injunctions directed to the defendants to appoint the fourth trustee and to discharge the costs mentioned and, further, to sell all lands purchased outside the jurisdiction not being of the excepted nature, and to re-invest the proceeds of sales in securities lawfully authorised by the trust instruments.
In the alternative, the plaintiff sought an order directed to the second-named defendant to transfer the said shares to the plaintiff as property transferred upon a consideration which has wholly failed, together with ancillary relief, and, in the alternative, the plaintiff claimed damages measured at the value of the shares with interest against all three defendants.
In so far as is relevant to the present application, the defendants, in reply to these allegations, in their defence, denied having entered into such agreements with the plaintiff.
In the alternative, they said that if the agreement as alleged with regard to the appointment of a fourth trustee or as to not purchasing lands outside the jurisdiction of the Court were made, the same is unenforceable and void as against them. The defendants also, as in the previous action, alleged that the indenture of settlement, notwithstanding that it was dated the 11th day of September, 1958, was in fact executed on or about the 21st March, 1963. It was further pleaded in the alternative that the plaintiff did not so settle and transfer the said shares in consideration of the alleged agreements but in consideration of the procuring by the defendants of the execution of the lease dated the 23rd March, 1963, and for no other consideration.
The defendants further say that they were never under the obligations alleged and have not been guilty of the breaches alleged and alternatively that the alleged agreement was unenforceable and void. They also claim that if any such obligation existed the late Marquess in his lifetime waived the same and that the carrying out thereof has become impossible. As to the costs, the defendants say that they have always been ready and willing to pay these but that no bill of costs has been furnished, or a demand for payment made, so that no obligation to pay the same has yet arisen. Finally, the defendants say that the plaintiffs claim discloses no cause of action against them. There are other pleas. The plaintiff denies in her reply the alleged waiver of the agreement.
The application for a nonsuit on the part of the defendants is based in the main on the following contentions: as to the first suit, the defendants say that if and in so far as any agreement existed between the parties for the procuring by the defendants of the granting of a lease in the terms specified in the document of the 2nd July, 1958, such agreement was later rescinded at one or other of the times stated in the defence. They say further that the plaintiff has not established her case that it was in consideration of the agreements, written or verbal, of the 2nd day of July, 1958, that she settled her shares in the school Company in the fashion therein set out in the indenture of settlement thereof, but that she did so in consideration of the defendants’ procuring the execution of the lease to the school Company by the Headfort Estate Company, dated the 21st March, 1963, on terms agreed to by her and in pursuance of a different agreement.
As to the second action, the defendants put their application for a nonsuit inter alia on the following basis: they say that any such agreement as was made in July, 1958, for the appointment of a fourth trustee and the purchase of lands outside the jurisdiction and as to costs was not made with the plaintiff but with her husband and, further, that as regards costs, in so far as the plaintiff has any claim in respect thereof, the obligation to pay has not arisen. They say, consequently, that they were not ever under the alleged obligations to the plaintiff.
They also contend, as in the first action, that the plaintiff has not established her case that it was in consideration of any agreement of the 2nd July, 1958, as to the matters above referred to, that the plaintiff settled her shares in the school Company, but that she did so in consideration of the procuring of the lease, dated the 21st March, 1963, on terms agreed to by her and pursuant to the terms of another agreement. The defendants also contend that the evidence establishes that if they were under any of the obligations as to the appointment of the fourth trustee and as to the purchase of land the late Marquess had waived such obligations.
I shall deal more fully with the nature of applications for a nonsuit later.
In order to appreciate and understand the nature of the grounds relied upon on this application for a nonsuit in both actions it is necessary first to deal with the sequence of events after the document known as the heads of settlement came into existence.
On the 2nd August, 1958, the school Company issued 1,400 shares in the capital therein to the late Marquess. The defendants took the view that this step was not in accordance with the spirit, if with the letter, of the heads of settlement. Their view, as disclosed later in the pleadings in the actions, was that it was an implied term of the agreement that the plaintiff would do nothing to alter the shareholding in the Company, to prevent the transfer of the plaintiff’s shares from vesting in the person who would succeed the Marquess, the majority of shares carrying voting rights in the school Company and that the plaintiff by concurring with the other directors of the Company in issuing these shares was in breach of the agreement. This attitude was made plain in their solicitors’ letter of the 8th December, 1958, in which it was stated that the object of para. 6 of the agreement was defeated by the issue of these shares. The plaintiff’s solicitors did not agree with these views, stating that it was considered that the spirit of the agreement was that the school should take a lease before the settlement of the shares was made. In any event, discord arose over this matter.
After the issue of these shares there came into existence a document, dated on its face the 17th day of September, 1958, purporting to have been made between the plaintiff as settlor, of the one part, and Lord Carew, the Earl of Bective (as he was then), Sir Richard Musgrave and David Powell Wilde (as trustees), of the other part, whereby the plaintiff settled her 2,142 shares in the school Company upon certain trusts therein set out being, in so far as relevant, upon trust to pay the income thereof to the settlor during the life of the late Marquess and after the death of the late Marquess upon trust as to capital and income for the person who should succeed the late Marquess as Marquess. There arose, during the hearing, considerable confusion about this document, which was put in evidence and bore the date, as I have said, the 17th of September, 1958. It appeared, eventually, that the plaintiff had executed a document in 1960 in similar terms, which was produced, but that that document had never been delivered, and it was finally established that the document bearing the date, the 17th September, 1958, was not in fact finally executed and delivered until on or about the 21st March, 1963.
Correspondence on the implementing or failure to implement the terms of the heads of settlement ensued throughout 1958 and part of 1959, during which period the late Marquess entered into two indentures of settlement relating to his holding in the school Company. By the first settlement, dated the 12th December, 1958, the late Marquess settled 1,400 shares in the capital of the school Company upon trust to pay the income thereof to himself for life, and thereafter to his wife for life, and, after the death of both of them, upon trust to pay the income thereof to the Earl of Bective for life and thereafter as to capital and income upon trust for such son or such remoter male issue of the Earl of Bective as he should by will appoint, and in default of appointment upon certain trusts in remainder. By the second indenture, dated the 27th May, 1959, the late Marquess settled a further 800 shares in the school Company upon similar trusts. There was, however, objection to clauses in these settlements providing for the late Marquess and the plaintiff after his death being registered first in the Company register to secure voting rights.
The plaintiff in the proceedings against the trustees then had the motion for the injunction re-entered on the 31st July, 1959, taking the view that there had been delay and failure to carry out the terms of the heads of settlement. The motion was adjourned and the attitude of the defendants is stated in their solicitors’ letter of the 10th August, 1959:
“HEADFORT SETTLED ESTATES HEADFORT V. BROCKET & OTHERS.
We have been instructed by our clients to refer to the statement made by Mr. Matheson before Mr. Justice Dixon on the hearing of the motion on 31st ult. namely, that our clients have at all times been ready and willing to proceed with the implementation of the heads of settlement, provided your clients carried out the intent of paragraph 6, which was that Lord Bective should have effective control of the school Company if and when he should succeed his father.
As you are aware, the motion was adjourned until the first day of next term to give your clients an opportunity of putting matters right so far as concerns the shares in the school Company, and we should be glad to know what steps your clients propose to take for this purpose.”
Further correspondence ensued, and Mr. McVeagh, by letter of the 8th January, 1960, after stating that the late Marquess did not agree that the issue of further shares to him in the school Company defeated the objects of the heads of settlement, indicated that the late Marquess and Lady Headfort (the present plaintiff) were prepared to agree to certain alterations being made in the position under the shares settlements conditionally upon a new lease being granted to the school Company on terms indicated later in that letter. The suggested alterations were briefly of a nature that would be calculated to pass the control of the school Company to the successor of the late Marquess. The letter is as follows:
“HEADFORT TRUSTS.
Dear Sirs,
With reference to previous correspondence herein in connection with the above matter, and particularly to your letters of the 8th December, 1958, and the 10th January, 1959, I am now writing to inform you that Lord Headfort does not agree with the views expressed in those letters, that the issue to him of further shares in the school Company defeats the intention of the heads of settlement. However, in order to remove any possible cause of apprehension on the part of the defendants, Lord and Lady Headfort are prepared to agree to such reasonable alterations being made in the position under the shares settlements as are now practicable, and for that purpose are prepared, conditionally upon a new lease being granted to the school Company on the terms indicated later on in this letter, to agree:
A. As has already been notified to you:
(i) That Sir Richard Musgrave be appointed a trustee of all three settlements of the school Company’s shares, and be the first-named trustee in the settlement of Lady Headfort’s shares, Lord Headfort remaining the first-named trustee in the settlement of the 1,400 shares.
(ii) That steps be taken to procure that no further shares in the school Company will be issued without the consent of or majority of shareholders.
(iii) That the Marquis for the time being, not being a minor, shall be a permanent director of the school Company.
(iv) That Lady Headfort shall retire from the trusteeship of the settlement of the 1,400 shares, and shall not be a trustee in any of the share settlements.
(v) That Lady Headfort shall release her contingent life interests under the settlements of the 800 and 1,400 shares.
B. In addition to the above:
(i) That Sir Richard Musgrave be appointed a director of the school Company.
(ii) That Lord William Taylour will indemnify the trustees of the 1,400 shares settlement against any liabilities thereon if payment be called for before Lord Headfort pays for them.
In regard to the terms of the new Lease for the School, the terms to be as follows:
(1) That the rent be £750 to include all rates and insurance.
(2) That the school Company will maintain at its own expense:
(i) the kitchen garden,
(ii) the American garden,
(iii) the gardens in front of the house, including the topiary,
(iv) the North West Border,
excluding the gardens in front of and adjoining Headfort Court.
I am now instructed to state that unless the defendants’ intention to implement their part of the heads of settlement is notified to me within 14 days from the date hereof, and is duly carried out without further delay, it will be taken that they desire to treat the agreement in the heads of settlement as abrogated and no longer operative, in which case the proceedings in the pending action must be reentered for judgment, and this letter will be relied upon in support of an application for costs against the defendants.”
With regard to the last paragraph of the letter, the defendants did not within 14 days intimate their intention to implement the heads of settlement. As to the letter as a whole, the plaintiff in these present proceedings in her evidence agreed that the letter contained new proposals involving the passing of the control of the school Company to the trustees of the settlements in favour of the successor of the late Marquess.
This letter was followed by another from Mr. McVeagh, dated the 12th January, 1960. The matter of minimising death duties had again come up and he intimated certain steps as to acquiring a domicile of choice in Monte Carlo which the then Lord Headfort and Lady Headfort were prepared to agree to on certain terms therein set out. Mr. McVeagh later, in a letter of the 23rd January, 1960, in reply to a query, stated his view that the letters of the 8th January, 1960, and the 12th January, 1960, dealt with different matters and that there was no conflict between them. The solicitors for the trustees, defendants in the then pending action, did not agree with this view. The letter of the 12th January, 1960, is in the following terms:
“HEADFORT TRUSTS.
Dear Sirs,
I refer you to your letter of 9th September last.
As the trustees have again raised the question of taking steps to minimise the impact of death duties on Lord Headfort’s death, I am instructed to say that Lord Headfort is prepared to co-operate with the trustees if the trustees on their part are prepared to meet his wishes in respect of the matters hereunder mentioned.
Lord Headfort suggested a scheme in 1957/58. He takes the view that this scheme could still be carried out.
He and Lady Headfort are prepared to give up Headfort Court and take any other steps necessary to acquire a domicile of choice in Monte Carlo, if
(a) provision is made at once for a home for them in Monte Carlo by the purchase of real estate there, or by an interest-free loan with a suitable agreement for re-payment.
(b) the trustees make up and maintain for the future
Lord Headfort’s income at a level not less than that at which it stood before the sale of the securities in February, 1958, for the purpose of the Northern Ireland purchase and recoup Lord Headfort for the loss of income which he has suffered up to date.
(c) Headfort House is sold to the school Company with a maximum of land at the minimum possible price.”
On the 30th January, 1960, there took place a meeting at the Shelbourne Hotel between the trustees, their solicitors and the late Marquess’s solicitor, Lord and Lady Headfort being in the hotel but in another room. By letter, dated the 5th February, 1960, Mr. McVeagh, on the late Marquis’s instructions, sent to the solicitors for the trustees what is therein described as “the enclosed memorandum of the agreement reached at that meeting,” the reference being to the meeting of the 30th January, 1960. I mention this because the heading of the agreement might lead one to suppose that agreement had not been reached as to the matters set out therein.
The memorandum is as follows:
“HEADFORT TRUST
Memorandum of proposed Agreement between the Trustees and Lord Headfort as a result of Meeting held on Saturday the 30th January, 1960, between the Trustees, their Solicitors and Lord Headfort’s Solicitor.
The trustees are to do everything in their power to facilitate Lord Headfort in the acquisition of a domicile in Monaco. For this purpose the trustees will:
1. Raise the sum of £15,000 from the capital of the trust funds and will make an interest-free loan to Lord Headfort repayable by him at the rate of £1,000 per annum. This repayment will be made out of trust income during Lord Headfort’s lifetime and in the event of his death before entire repayment Lady Headfort to continue the annual repayments together with interest on the balance outstanding at Bank rate and to secure same by her personal guarantee. The £15,000 will be placed on joint deposit in the Bank at Monte Carlo in the names of Gordon S. Blair and Monsieur Rey until such time as it is required by Lord Headfort for the above purpose. The trustees will examine means of re-investing the trust funds to alleviate the burden of death duties on the basis of the foreign domicile of the tenant for life and in particular the possibility of re-investing in
(a) Irish tax-free funds
(b) Foreign realty.
In this connection Lord Headfort agrees in principle to the purchase by the trustees of the Manx farm, ‘Ellerslie,’ subject to (i) the price and conditions being acceptable to all the trustees and himself, (ii) arrangements being made in accordance with Clause hereof that Lord Headfort shall not suffer diminution of income.
2. The parties shall take immediate steps to carry into effect the following matters:
(i) That Sir Richard Musgrave be appointed a trustee of all three settlements of the school Company’s shares, and be the first-named trustee of the settlement of Lady Headfort’s shares, Lord Headfort remaining the first-named trustee in the settlement of the 1,400 shares.
(ii) That steps be taken to procure that no further shares in the school Company will be issued without the consent of or majority of shareholders.
(iii) That the Marquess for the time being, not being a minor, shall be a permanent director of the school Company.
(iv) That Lady Headfort shall retire from the trusteeship of the settlement of the 1,400 shares and shall not be a trustee in any of the share settlements.
(v) That Lady Headfort shall release her contingent life interest under the settlements of the 800 and 1,400 shares.
(vi) That Sir Richard Musgrave be appointed a director of the school Company.
(vii) That Lord William Taylour will indemnify the trustees of the 1,400 shares settlement against any liabilities thereon if payment be called for before Lord Headfort pays for them.
3. Messrs. Griffin Lynch and Company, Chartered Accountants, of 26 Lower Baggot Street, in the City of Dublin, to be appointed accountants of the Headfort Estate Company forthwith.
4. A fourth trustee to be appointed as the nomination of Lord Headfort.
5. Lord Headfort shall instruct his accountants to ascertain the loss of income suffered by the trustees in consequence of the sale of securities in February, 1958, and the subsequent reinvestment of the proceeds in 41/4% National Loan. This will be done by a comparison of the nett income for each of the two years ending 31st January, 1959, and 31st January, 1960, with the nett income for the year ending 31st January, 1958. Within one month of the accountants’ findings being determined Lord Bective shall pay to Lord Headfort the amounts so ascertained by way of compensation and Lord Brocket shall covenant to make good such payment.
6. At the end of each financial year of the trusts (commence with the year ending 31st January, 1961) accountants will be instructed to ascertain what, if any, diminution of income has resulted during that year by reference to the annual income received from the trust investments prior to the 31st January, 1958, but disregard any loss of income resulting from the loan to be made to Lord Headfort under Clause hereof. Within one month of such determination Lord Bective will pay to Lord Headfort by way of compensation a sum equal to such diminution (if any) and Lord Brocket will covenant to guarantee such payment to Lord Headfort in the event of failure by Lord Bective to do so within the agreed period of one month. (NOTE: It is suggested that in view of Lord Headfort’s proposed change of residence the calculation be effected by a comparison of the gross income for the year in question with the average annual gross income for the three years ended 31st January, 1958, the compensation payable being the difference less income tax at the standard rate in force in Eire for the year ending immediately before the date of calculation).
7. The parties will examine the possibility of effecting an exchange of furniture as between settlement furniture now situate at Monte Carlo and Lord and Lady Headfort’s furniture now at Headfort Court, subject to any necessary financial adjustment arising from a valuation (Adams).
8. The Estate Company to purchase Bective Lodge at Mr. Armstrong’s valuation of £2,800.
9. The Headfort Estate Company shall lease to Headfort School the premises it now occupies and the terms of the lease to be as set out in the heads of settlement as follows:
(1) That the rent of £750 to include all rates and insurance.
(2) That the school Company will maintain at its own expense:
(i) the kitchen garden,
(ii) the American garden,
(iii) the gardens in front of the house, including the topiary,
(iv) the North West Border,
excluding the gardens in front of and adjoining Headfort Court.
10. The parties agree that the granting of a new lease to the Headfort School shall not preclude the School from purchasing the premises at a future date if suitable terms can be agreed between the parties.”
The plaintiff in the present proceedings said that the proposals in the agreement fell down due to delay. Also that they were an attempt to dispose of outstanding matters. She intimated at first that she was only agreeable to the terms contained in the memorandum so far as they carried out the heads of settlement, but later, as I understood her evidence, signified that she was agreeable to the conditions in the memorandum provided that they dealt with the matter of the appointment of the fourth trustee and the matter of the lease to the school, matters in fact dealt with in the said memorandum.
The terms of the memorandum of the proposed agreement were, it is apparent, quite inconsistent with the terms of the heads of settlement. The provisions as to the making of a loan to Lord Headfort and as to recoupment of his loss of income are contrary to the provisions of clauses 3 and 5 of the heads of settlement. The proposals contained in clause 2 of the memorandum, dealing with the control of the school Company, are new matters.
After the meeting in the Shelbourne Hotel on the 30th January, 1960, a prolonged correspondence took place between the solicitors for the trustees and the solicitors for Lord and Lady Headfort. During the course of it a lease to the School was drafted but not executed. The portion of the mansion house proposed to be leased under the terms of the draft lease included areas outside the area contained in the former lease. Of that correspondence it is, I think, fair to say that it was concerned to a great extent with the implementation of the terms of the memorandum drawn up as a result of the meeting of the 30th January, 1960, at the Shelbourne Hotel; but matters outside the memordandum were introduced and attempts to vary it were made. There were also references made by Lord and Lady Headfort’s solicitors to the failure of the trustees to carry out the heads of settlement.
The late Marquess died on the 24th October, 1960. Prior to that date the defendants had, as trustees, purchased land outside the jurisdiction, namely, Ellerslie Farm in the Isle of Man.
The correspondence continued for some time after the death of the late Marquess between the present plaintiff’s solicitor and the solicitors for the trustees without any tangible result, but a letter of importance, having regard to later events, was written by the trustees’ solicitors to Mr. McVeagh on the 2nd February, 1962. This letter was in the following terms:
“THE HEADFORT ESTATE COMPANY AND THE HEADFORT SCHOOL COMPANY
Dear Sir,
We have now received our clients’ instructions of the terms on which they would be prepared to grant a new lease to the School Company. The conditions are as follows:
1. That the Lease be of the entire Main House but excluding main drawing room, Chinese drawing room and morning room and bathroom adjoining, and Headfort Courtthat is to say, the wing to the eastward of the Diamond Hall.
OUTSIDE:
A. Entire stable yard and all buildings thereon including Lilac Lodge.
B. Hard tennis court with concessional use of pavilion.
C. Swimming pool.
ALL THAT AND THOSE part of the lands of Headfort Demesne situate in the Barony of Kells Upper and County of Meath consisting of the North Lawn adjacent to the Mansion House known as Headfort House together with the garden cottage, head gardener’s house, and the green bungalow now known as “The Bungalow” also adjacent to Headfort House aforesaid, with the kitchen garden, the American garden, the gardens in the front of Headfort House (including the topiary, but excluding the gardens in front of and adjoining Headfort Court) and the north west border on the north side of Lilac Lodge, as delineated on the attached map together with the rights of way for all purposes and with all kinds of transport shown on said map marked with red arrows.
2. That no further shares in the School Company have been issued or will be issued.
3. That the settlement of 2,142 shares shall be completed and stamped.
4. That the Dowager Lady Headfort will release her life estate in the settlement of 800 shares and that Sir Richard Musgrave be appointed trustee thereof.
5. That the Dowager Lady Headfort will release her life estate in the settlement of 1,400 shares and that Sir Richard Musgrave be appointed a trustee.
6. That all the shares be transferred to the various trustees and that the name of Sir Richard Musgrave appears first on each certificate.
7. The other terms and conditions of the Lease would be in the form of the draft already approved by you subject to compliance with the above conditions.
We shall be glad to hear from you.”
I have to observe that the area of the mansion house proposed to be leased to the school Company was a lesser area than that contained in the previous draft lease. It was also less than the area which the present plaintiff and the school Company regarded as being agreed to be leased under the terms of the heads of settlement. The way that that came about was this. The late Marquess and his wife (the present plaintiff) had allowed the school to occupy portion of the mansion house outside the area demised in the original lease. The present Marquess had prior to his marriage, which took place in May, 1958, occupied a portion of the premises held by the late Marquess. After his marriage the school occupied this portion of the premises also and the plaintiff contended that it was part of the premises then occupied by the school in July, 1958, so as to fall within the area agreed to be leased under the terms of the heads of settlement. It was suggested that the Headfort Estate Company, and consequently the defendants, knew of the position, but there was controversy on the matter. The suggested terms of the lease contained in the letter of the 2nd February, 1962, were, however, from the plaintiff’s point of view a departure from the terms of the heads of settlement. The conditions numbered 2 to 6, inclusive, contained in the letter were similar to proposals mentioned in the memorandum drawn up following the meeting of the 30th January, 1960, at the Shelbourne Hotel but were outside the terms of the heads of settlement. So far as this letter was concerned, these were the only conditions on which the lease was to be granted. This letter, I should observe, was before the school Company board and each of the directors. The plaintiff was aware of its contents and was not in any doubt as to the area to be leased and that it was less than the area proposed to be leased in 1960.
Again correspondence ensued between the same solicitors for the parties up to July, 1962, when the present plaintiff retained the services of Mr. Fintan O’Connor. During the course of that correspondence the school Company was threatened with eviction if the terms of the letter of the 2nd February, 1962, were not complied with. The school Company board, having raised an objection with regard to the area to be leased to the school, stated in a letter of the 30th March, 1962, that as the proposals were apparently outside the heads of settlement, paras. 2 to 6, inclusive, set forth in the letter of the 2nd February, 1962, did not arise.
After July, 1962, Mr. O’Connor engaged in correspondence with the defendants’ solicitors; various matters were raised, including the matter of the area to be leased. Eviction was again threatened. Then, on the 24th October, 1962, Mr. O’Connor wrote as follows on behalf of Lady Headfort:
“We have now heard from Lady Headfort. She instructs us to inform you that she agrees to the terms of your letter of February 2nd to Mr. McVeagh, paragraphs 2 to 6 inclusive.
We presume you will now proceed to consider the draft lease as of course her agreement to the terms of your letter of February 2nd is subject to the granting of the lease.”
It will be noted that Lady Headfort’s agreement to the terms 2 to 6 inclusive were subject to the granting of the lease.
Further matters were discussed between the respective solicitors and further correspondence ensued, containinginter alia a further threat of eviction, but Mr. O’Connor in the course of a letter, dated the 19th December, 1962, stated that Lady Headfort did not understand the letter of the 7th December, 1962, which contained the threat of eviction, in view of the fact that she had accepted in general the terms of the lease as drafted. The only amendments suggested, he pointed out, were minor ones. He further stated that his clients were willing to accept the lease in the terms in which it was engrossed. “His clients” presumably meant the school Company. The plaintiff then controlled that company. In so far as the portion of the mansion house to be demised was concerned the engrossment followed the terms of the letter of the 2nd February, 1962that is to say, that the portion of the mansion house to be demised was a lesser area than that which the school Company and Lady Headfort had hoped to obtain and which, she had previously thought, they ought to get under the terms of the heads of settlement. Later events had, however, altered the situation. The present Lord Headfort had come to live in Headfort Court in 1962 and had actually occupied what might be described as the disputed rooms. The plaintiff, as she said herself, was conscious that her son needed these rooms and no doubt her maternal instincts were affected. It was put to her that it was her consciousness of his requirements that led her to agree to the terms of the letter of the 2nd February, 1962, and she said that it possibly was.
The plaintiff, during the course of her evidence, dealt with the terms, numbered 2 to 6, inclusive, contained in the letter of the 2nd February, 1962, both as to her attitude with regard to them and their implementation. As to condition 2, that no further shares in the school Company had been or would be issued, that was implemented by an undertaking given by the plaintiff’s solicitor on the 21st March, 1963, that no further shares had been issued up to that date. With regard to the second term (clause 3) that the settlement of the 2,142 shares should be completed and stamped, the plaintiff agreed that her agreement to the terms, including that with regard to the settlement of the 2,142 shares, was in consideration of the granting of the lease by the estate Company to the school Company. With regard to the three remaining conditions in the letter of the 2nd February, 1962, the plaintiff’s evidence in cross-examination was to the effect that she agreed to these terms in consideration of the granting of the lease but was forced to do so because the alternative was that the school would be evicted. The terms of the lease, she said later, were accepted, but under duress.
On the 21st March, 1963, the plaintiff met her solicitor, Mr. O’Connor, at the Shelbourne Hotel. She then executed a release, dated the 21st March, 1963, of her life interest in the settlements made by her husband of the 1,400 and 800 shares. The terms of the recitals to that document are of significance in connection with the application before me now. Having recited that the instrument was supplemental to the two settlements, the recitals continue:”And whereas it is intended that a lease shall shortly be granted by the Headfort Estate Company to the Headfort School Company and whereas it has been agreed by the Releaser in part consideration for the granting of such lease that she will release her life interest in the 1,400 shares settlement and the 800 shares settlement,” and further as therein recited. The actual release is then stated to be “for the consideration aforesaid.” That document was signed only by the plaintiff.
There would also seem to be little room for doubt that the document which bears on its face the date, 17th September, 1958, was also executed by the plaintiff on the 21st March, 1963. Under the terms of that settlement the trustees thereof were to hold the trust fund consisting of the 2,142 shares held by the plaintiff in the school Company upon trust to pay the income thereof to the settlor (that is, the plaintiff) during the life of the late Marquess and thereafter upon trust as to the capital and income thereof for the person who should succeed the husband of the settlor as Marquess of Headfort. Since the late Marquess had died in 1960 the practical result of the execution of the document in March, 1963, was to vest the 2,142 shares in the present Marquess.
The plaintiff agreed that what she was doing on the 21st March, 1963, was carrying out the terms and conditions set out in the letter of the 2nd February, 1962, be these terms “proposed” or “demanded.”
The transaction with regard to the 2,142 shares was later completed by the transfer, on the 30th July, 1963, of the shares to the trustees of the settlement, who in turn transferred them to the present Lord Headfort on the 26th August, 1963.
The lease to the school Company was also executed on the 21st March, 1963, and sealed by the school Company in the presence of the plaintiff. The area of the mansion house demised by the lease corresponded to the area agreed to be leased in the letter of the 2nd February, 1962. It was a smaller portion of the mansion house than that used and occupied by the school Company at the date of the heads of settlement.
The submissions made on behalf of the defendants in the applications for a nonsuit were to a great extent the same in both actions. The matters at issue in both actions were so inter-connected that it is not possible to keep them distinct and separate, so that a good deal of what I have to say in dealing with the applications will be applicable to both actions.
In the first action relating to the lease Mr. Matheson’s submissions on behalf of the defendants were as follows: the plaintiff’s case, he said, as pleaded and sought to be proved, was that she had agreed to settle her shares in the school Company in consideration of the agreement by the defendants contained in the heads of settlement, to use their best endeavours to procure that the estate Company would grant a lease to the school Company of the portion of Headfort House and grounds used and occupied by the school at the time of the heads of settlement in July, 1958, and that she settled these shares in consideration of that agreement by the defendants and pursuant to the terms of the heads of settlement. It was, further, the plaintiff’s case that she having performed her part in carrying out the terms of the heads of settlement, the defendants were in breach of the terms thereof in failing to use their best endeavours to procure the grant of a lease of the nature specified. Mr. Matheson contended that the plaintiff had failed to establish that case. He submitted that on the evidence, oral and documentary, it was clear that the agreement contained in the heads of settlement had been abrogated and rescinded and that the plaintiff had not settled her shares pursuant to any contract contained in the heads of settlement but on foot of an entirely new agreement between the parties based upon the terms of a new offer contained in the letter of the 2nd February, 1962, implemented by the parties on or about the 21st March, 1963, by the execution of the settlement and release executed by the plaintiff and the execution of the lease to the school Company by the estate Company. The agreement sued on was therefore not a subsisting agreement, the consideration for the lease in the shape of the settlement of the shares did not arise out of the agreement contained in the heads of settlement and the substratum of the action was gone.
With regard to his contentions that the agreement contained in the heads of settlement had been rescinded and was no longer a subsisting document, Mr. Matheson submitted that in the first place an end was put to it by the re-entry of the motion for an injunction in the proceedings between the late Lord Headfort and the defendants. If that was not so, he said that the agreement come to in the Shelbourne Hotel on the 30th January, 1960, was one made in substitution for the agreement in the heads of settlement and, by reason of its including entirely inconsistent terms, impliedly rescinded it. Alternatively to both these contentions, it was further submitted that the plaintiff had entered into an entirely new contract with the defendants based on the terms contained in the letter of the 2nd February, 1962, duly accepted by the plaintiff and implemented on the 21st March, 1963, which likewise by implication rescinded the agreement contained in the heads of settlement.
Before dealing with the above matters relating to rescission, there are some matters of law in connection with them with which I should deal.
It was submitted by Mr. Matheson, basing his contention on the cases of Patmore v. Colburn (1), Taylor v. Hilary (2) and Morris v. Baron & Co . (3) and a statement of the law contained in Simonds’ edition of Halsbury’s Laws of England, vol. 8, at p. 173, that a contract may be discharged at any time before breach by a new agreement made between the parties. Such new agreement may simply rescind the old contract or alter its terms and substitute a new contract in its place. In order to discharge the original contract it is not necessary that the new agreement should have been performed. The basis of the decision in the first-mentioned case was that the provisions of two contracts entered into between the parties at different times were inconsistent in many respects and the first contract could not have been operative after the second came into existence. The second case is authority for the proposition that a substituted contract, in order to discharge the first contract, need not be performed. The third case, a decision of the House of Lords, shows that an enforceable contract may be rescinded by an unenforceable contract where the intention to rescind is clear as distinct from an intention to vary. In my view, these cases support the propositions advanced by Mr. Matheson which I accept as correct statements of the law. I should add that it was urged on me that consideration was a necessary ingredient in an agreement to discharge a contract, but the passage relied upon in support of this proposition in Anson on Contract (21st ed., 1959, at p. 395) refers, in my view, to an agreement to discharge a contract simpliciter and does not apply to the case of a substituted contract. This is, I think, made clear by the statement in the same work, at p. 397, dealing with the matter of substituted contracts in a separate fashion. The heading is “Substituted Contract”:
“A contract may be discharged by such an alteration in its terms as substitutes a new contract for the old one. The old contract may be expressly waived in the new one, or waiver may be implied by the introduction of new terms or new parties. This method of discharge is therefore a form of rescission with a new contract superadded.”
In any event if an agreement to waive is implied by the introduction of new terms the implied agreement to waive must be formed of mutual promises to waive and consequently consideration is thus in fact imported by the abandonment by each party of his rights under the original contract.
With regard to all the submissions relating to the alleged rescission of the agreement contained in the heads of settlement it was strongly urged on behalf of the plaintiff that there was never any formal abandonment of that agreement by letter or otherwise and that its existence throughout was constantly asserted. It is quite true that implementation of the heads of settlement was constantly called for in the correspondence and that the plaintiff maintained in the course of her evidence that she sought throughout to have the agreement carried out as a subsisting agreement. What I have to consider, however, is what the parties actually did and what they agreed to and the legal result thereof as regards the continuance or rescission of the agreement.
With regard to the argument based on the re-entry of the motion for an injunction as abrogating the agreement contained in the heads of settlement, while I see considerable force in it, I do not care to rest my decision on it.
The position with regard to the agreement reached in the Shelbourne Hotel on the 30th January, 1960, is quite different. Entirely fresh proposals were advanced by Mr. McVeagh in the two letters of the 8th January, 1960, and the 12th January, 1960, respectively, which I have already read. That of the 8th January had stated that if within 14 days the defendants did not intimate their intention to implement their part of the heads of settlement it would be taken that they desired to treat the agreement contained in the heads of settlement as abrogated. This they did not do and it was in that state of affairs that the meeting in the Shelbourne Hotel took place on the 30th January.
As I have already indicated I take the view that this agreement introduced some entirely new provisions which were quite inconsistent with the terms of the heads of settlement. The provisions about the granting of the loan to the late Marquess and the recoupment of his income were in the teeth of clauses 3 and 5 of the heads of settlement and could not stand with them. The provisions in clause 2 were designed to pass the control of the school after the death of the late Marquess to the trustees of the settlements of the 1,400 and 800 shares and to the present Lord Headfort, thus casting additional obligations on the plaintiff over and above those undertaken by her under the agreement in the heads of settlement. The new agreement was not a mere variation of the agreement in the heads of settlement. Both could not stand together and it is not possible that both could be performed. The fact that the agreement of the 30th January, 1960, was not carried out does not affect the matter from the legal standpoint. The plaintiff was with her husband in the Shelbourne Hotel when the agreement was arrived at, and, I am satisfied, agreed to its terms. Mr. McVeagh, the late Marquess’s solicitor, drew up this document and sent it to the trustees’ solicitors as a memorandum of the agreement reached. I take the view that this agreement of the 30th January, 1960, impliedly rescinded the agreement contained in the heads of settlement as being inconsistent with it. If consideration is needed to support the implied agreement to rescindand I think it is notit is to be found in the mutual implied promises to rescind.
The submissions made on behalf of the defendants, however, go still further. They rely as well on a later agreement and its implementation as rescinding the agreement in the heads of settlement.
I have already referred to the fresh offer contained in the letter of the 2nd February, 1962, and I have quoted the contents of that letter. The late Marquess had died before this and Mr. O’Connor was later retained by the plaintiff as her solicitor in July, 1962. I have already referred to the letters written by Mr. O’Connor on the 24th October, 1962, and the 19th December, 1962, and the plaintiff’s evidence with regard to her attitude to the terms suggested in the letter of the 2nd February, 1962. I am satisfied that she accepted the terms and that thus a new agreement came into existence. That agreement was also, in my view, in-consistent with the terms contained in the heads of settlement. Under the new agreement a lesser area was to be granted in the lease than that provided for in the heads of settlement and additional obligations were placed on the plaintiff. That new agreement was, in my view, implemented by the parties by the execution of the lease and the execution of the settlement of the 2,142 shares and the release of the plaintiff’s life interest in the 800 and 1,400 shares, all executed on or about the 21st March, 1963, and the subsequent transfers of the shares already referred to. That new agreement in my view also rescinded the agreement contained in the heads of settlement.
I am further satisfied, on the evidence already referred to and the documents before me, that the plaintiff in executing the settlement of her 2,142 shares did so in implementation of the new agreement based on the letter of the 2nd February, 1962, and not in implementation of the agreement contained in the heads of settlement.
It is pleaded that the lease of the school was accepted by the school Company under duress. That plea can, I think, have no relevance save in so far as it is aimed at restoring the agreement under the heads of settlement on the basis that the final agreement was procured by duress. The duress referred to is the threat of eviction. It is, however, in fact no duress in law to intimate that one will exercise one’s legal rights in certain events and the estate Company had in law the right to evict the school Company from the school premises.
As to the application for a nonsuit in the first action, I take the view that the contention made on behalf of the defendants, that the plaintiff had not established her case that she had settled her 2,142 shares in the school Company pursuant to the terms of the agreement contained in the heads of settlement and that the defendants were in breach of the terms thereof, is well founded. Consequently, I must accede to the application for a nonsuit in that action.
The main basis of the defendants’ application for a nonsuit in the second action was this: Mr. Matheson submitted that the plaintiff’s case as pleaded and sought to be proved was that under the agreement contained in the heads of settlement the defendants had agreed with the plaintiff, in consideration of her agreeing to settle her shares in the manner provided, to appoint the fourth trustee of the Headfort settlements, not to purchase land outside the jurisdiction without consulting the late Marquess and to discharge the costs of all parties out of the trust funds, and that she had so settled her shares in pursuance of that agreement. Further, that the plaintiff, having so settled her shares in consideration of the defendants’ agreements, the defendants were in breach of the agreement contained in the heads of settlement in failing to carry out their obligations as to the matters above-mentioned. Mr. Matheson submitted that that case had not been established. Other grounds were also advanced, but I do not deem it necessary to deal with them.
In support of this submission Mr. Matheson in the first place contended that the case made by the plaintiff was inconsistent with the case pleaded and made in the first proceedings that the settlement of the shares was in consideration of the lease. Next, he submitted that on the evidence and documents produced it was established that the settlement of the shares was made by the plaintiff in March, 1963, not in consideration of any agreement made by the defendants in the heads of settlement, but in consideration of the procuring of the granting of the lease to the school Company executed on the 21st March, 1963, and on foot of the agreement based on the letter of the 2nd February, 1962, and that it followed that the defendants were not in breach of any obligation under the terms of the heads of settlement. Further, he submitted that any agreement entered into by the defendants with regard to the three above-specified matters was not entered into with the plaintiff but with the late Marquess. The plaintiff, he contended, was a stranger to the Headfort settlements and had no interest in the said three specified matters. She had no more interest in enforcing so much of the agreement, contained in the heads of settlement, as was made between
the defendants and the late Marquess, than a mortgagee would have who had joined as a party to a contract of sale between a vendor and purchaser of land for the purpose of agreeing to release his mortgage for a lesser sum than he was entitled to, and it could not be said that such a mortgagee could bring a suit to enforce the contract of sale. In the same way the plaintiff could not bring a suit to enforce an agreement in which she had no interest. There was, he submitted, no question of attempting to split the consideration; there were two separate and distinct agreements contained in the document, one by the defendants with the late Marquess and the other by the defendants with the plaintiff, relating to the lease.
I have already indicated my view that the plaintiff in fact settled her shares in consideration of the procuring of the lease executed in March, 1963, and in pursuance of a contract based on the terms set out in the letter of the 2nd February, 1962, and therefore not in consideration of any agreement contained in the heads of settlement. Further-more, I agree with the contention made on behalf of the defendants that the defendants did not contract with the plaintiff on the matters specified and hence that the defendants are under no obligation to the plaintiff in respect of these matters. With regard to the third matter in respect of which relief is claimed, namely, the costs, no cause of action can in any event have arisen with regard to such costs as were incurred by the plaintiff because no liability can attach to the defendants until they have neglected or refused to pay such costs and that state of affairs has not arisen because they have not so far been notified of the amount of such costs.
In my view, therefore, the plaintiff has failed to establish her case in the second action also and I must accede to the application for a nonsuit in this action also. Both proceedings will therefore be dismissed.
I have only this to add: it was strongly urged on behalf of the plaintiff that she had got nothing in respect of her settlement of her shares. This, I think, is not quite correct. The lease was granted to the school in which she has a very keen interest. It does, however, certainly appear that her action in settling the shares brought her no personal gain and was of a very altruistic nature on her part. The other side of the picture is that the defendants, in their capacity as trustees, have undoubtedly been faced with a most burden-some task in their office. It is most unfortunate that the matters involved have had to end in this litigation.
Rogers t/a John Rogers Engineering v. Iaralco Ltd.
[2007] IEHC 130 (16 March 2007)
JUDGMENT of Mr. Justice O’Neill delivered the 16th March, 2007
The plaintiff is an engineer and had an engineering business. The defendants are a German owned company registered in Ireland and manufacture parts for motor cars. They have contracts in that regard with Audi, Volvo, VW and Porsche.
In May, 1999 the defendants subcontracted work to the plaintiff. This work involved the sending of certain car body parts.
This arrangement obviously worked well, notwithstanding some complaints by the defendants concerning the plaintiff’s adherence to the defendants’ payment terms.
In October, 2000 the defendants wished to subcontract additional work. This was the polishing of Magne Bumpers and the cutting of rubber strips. Agreement was reached between the plaintiff and defendants for this work to be taken on by the plaintiff.
Unfortunately this additional work, very quickly turned out to be the undoing of the entire commercial relationship between the two.
On the 27th March, 2001, when that relationship was clearly over the plaintiff sent five invoices to the defendants claiming the sums that are now sought in these proceedings, save for credit being given for the sum of IR £27,104 paid by the defendants to the plaintiff on foot of a settlement of injunction proceedings taken by the defendants against the plaintiff on the 29th March, 2001 and settled on the 30th March, 2001.
I propose to deal with the claims made in these proceedings by reference to those invoices.
Before so doing I should say that where a conflict of evidence exists, I prefer the evidence of Mr. Anderson and Mr. Balfer.
The first of these invoices is invoice number 9311004 which is for the sum of IR£15,000 and is claimed as a balance due for the polishing work on the Magne Bumpers.
It was common case that the plaintiff took up this work in November, 2000. Because the work was more complex than that hitherto undertaken by the plaintiff there was an initial training or trial period of about 3 weeks during which the plaintiff worked on scrap parts. Also because of the uncertainty concerning performance the parties did not agree on a price for the work, at the beginning. I am satisfied that there was an understanding that the plaintiff would be paid a price which covered his costs and a normal profit margin.
The defendants via Mr. Anderson conducted an exercise to ascertain the defendants’ costs for doing this work, which had been done in-house by the defendants. Mr. Anderson estimated this at 87p per unit. Having regard to the fact that the defendants were subcontracting this work their expectation was that the plaintiff could do this work for a similar price.
In this regard it is clear that a yawning gulf opened up between the expectations of the parties.
On the 8th December, 2000 the plaintiff presented to the defendants a breakdown of his costs for doing this work. This put the cost per unit at 1.81 each. Buffing and sanding added a further .30 bringing the total cost to 2.11 per unit. If one adds 20% to that you get a figure of 2.53 per unit which is the figure requested by the plaintiff. Comparing this to the 87p which was the defendants expectation, clearly, there was going to be a difficultly in arriving at an agreed price.
The plaintiff attended at the defendants’ premises on the last day for business before Christmas 2000. He requested an urgent payment to enable him to meet his wage bill. After some checking and with Mr. Anderson’s agreement he was given a cheque for in excess of IR£16,000 which was calculated on the basis of 87p per unit and an arrangement was made to sort out a price after Christmas.
Unfortunately the plaintiff suffered a bout of ill health after Christmas. A meeting did not take place until the 22nd January, 2001. At this meeting the issue of the price to be paid for this polishing work was discussed. The plaintiff demanded a sum of IR£45,000 which he said in evidence was a calculation of the cost of the work to him without any profit. The defendants requested a detailed breakdown of his costs. The plaintiff agreed to supply this and on the 23rd January, 2001 he submitted a document which set out his costs amounting to IR£36,340.75p together with supporting documentation.
A further meeting took place on the 31st January, 2001. At that meeting the plaintiff was offered IR£25,000 which he refused. I am satisfied that the discussion was such as to raise in the minds of the defendants an apprehension that the plaintiff would not continue supply and would withhold materials in his possession the property of the defendants and required for producing the defendants’ parts.
A break was requested in the meeting to enable the defendants to discuss the situation amongst themselves.
Following this, the defendants offered the plaintiff IR£30,000 for this work provided he would forthwith furnish an invoice in full and final settlement of this claim.
There was consensus that the plaintiff would not continue doing this work.
I am satisfied that the plaintiff agreed to accept IR£30,000 and to furnish the invoice as requested. The following day the plaintiff did send an invoice in the agreed terms and the defendants paid a cheque for just under IR£14,000 as the balance of the IR£30,000.
In the foregoing invoice furnished to the defendants on the 27th March, 2001, the plaintiff now seeks to recover the balance of IR£15,000, of the IR£45,000 initially claimed by him.
In making that claim in these proceedings he does so on the basis that there was duress which forced him to accept the IR£30,000.00. The nature of the duress alleged by the plaintiff in evidence was that the defendants knew that he needed the money to pay wages and that he was recovering from surgery.
In this regard the plaintiff places reliance on the case of D & C Builders Limited v. Rees [1965] 2 Q.B. at 617 a decision of the English Court of Appeal. This case is authority to the effect that where a creditor accepts a lesser sum than the amount actually and lawfully due, in the absence of accord and satisfaction, or if not restrained by promissory estoppel, he is entitled to sue and recover the full amount of the debt due, and where there has been intimidation, there cannot be a true accord.
In my opinion the plaintiff’s case differs markedly from the D & C Builders Limited case. In the first place, the sum claimed by the plaintiff i.e. IR£45,000 was not an undisputed amount due as a debt. This was what was claimed by the plaintiff, but it was at all times disputed by the defendants and ultimately it was compromised at the figure of IR£30,000.
Secondly the factors put forward by the plaintiff as constituting duress or intimidation could not amount to that. The fact that the plaintiff was under the pressure of having to pay wages could not fairly be viewed as a duress exercised by the defendants. In commercial life the pressure of having to pay wages is universal. Of course, in certain circumstances and because of the fragility of a business that pressure may be greater than in other circumstances. However the pressure to pay wages must be the most common factor underlying all commercial arrangements. Whether or not the defendants took advantage of the plaintiff’s difficulties, is in my view wholly immaterial. These parties were at arms length to each other. Neither had any fiduciary duty to the other and hence each was entitled to make the best bargain they could, short of course, of culpable misrepresentation, which does not arise here.
In any event, I am not satisfied that the evidence establishes that the defendants did seek to take advantage of the plaintiff’s difficulty with regard to the payment of his wage bill. It was clear from the evidence that the defendants had a genuine expectation of paying a price, somewhere in the region of what they estimated to be their own cost of doing this work. The plaintiff was claiming an amount which was approximately three times the defendant’s estimate. The amount ultimately agreed i.e. IR£30,000 represents a price of 1.68 per unit i.e. almost double the defendants’ own original estimate of cost, and in paying this price, I accept the evidence of Mr. Anderson, and Mr. Balfer that they felt somewhat hard done by but were willing to do so because of a feeling of vulnerability as to their own ability to continue supplying parts to the major car manufactures with whom they dealt, a feeling induced by the discussion at the meeting of the 31st January, 2001.
It is also interesting to note that if one factors in Mr. Abbott’s major criticism of the defendants exercise to estimate the cost of doing this work, namely, that the production per hour was grossly over estimated, so that a worker was expected to complete 20 parts per hour whereas experience demonstrated that only half that production was attainable; if one accepted that Mr. Abbott’s criticism was valid, instead of a cost of 87p per part one would end up with a cost of 1.70p per part, almost exactly what was ultimately paid by the defendants.
Thus in my view the plaintiff cannot assert duress on this ground.
The fact that the plaintiff had undergone surgery was unfortunate but there was nothing in the evidence to suggest that he had not sufficiently recovered to be competent to conduct the business of the meeting on the 31st January, 2001.
I am satisfied that these parties made a lawfully binding agreement on the 31st January, 2001 whereby the plaintiff agreed to accept IR£30,000 in settlement of his claim in respect of the Magne Bumper polishing. He cannot now go back on that agreement so as to recover the sum of IR£15,000 claimed, and so in my view this sum is not recoverable.
The next invoice number 933100B was for the sum of IR£18,221.25p. This was for the difference between a price of 7.50 and 3.620 per unit for strips of rubber cut and packaged by the plaintiff.
The agreement for this work was made late in October, 2000 and work began at the beginning of November, 2000. It is common case that a price of 3.62 per unit was agreed. The plaintiff’s complaint is that the work turned out to be different from and greater than that demonstrated when he agreed to take on this work.
Specifically, the difference was, that instead of cutting rubber from a roll and throwing the cut strips into a large container, the plaintiff’s workers were required to take strips from a container, cut them to the required length and then package them neatly in boxes that contained 96 strips each, these boxes in turn being labelled and packaged in a larger container. In addition, the plaintiff was required to store a stock of raw and finished material so that the defendants could draw off that stock as required.
It may be the case that some additional work was involved in this operation and was initially envisaged by the plaintiff. However, I am satisfied that the draft agreement which was furnished to the plaintiff in late October and in respect of which the plaintiff complained that the defendants could not be got to sign the same, did provide for doing the job in the manner of which the plaintiff now complains, and the plaintiff did the work in this way from the very beginning as evidenced by the earliest invoices furnished for it.
I am also satisfied that the plaintiff made no complaint whatsoever about the price of 3.62 until late in February 2001 notwithstanding that meetings took place between the parties on the 22nd January, 2001 and 31st January, 2001 where the plaintiff’s grievance with the price in respect of another product i.e. the Magna Bumpers was comprehensively discussed.
As a result of his complaints and demands in late February, 2001 the defendants agreed to increase the price to 7.50 from the beginning of March, 2001 but refused to pay the addition retrospectively.
The sum of IR£18,221.25 is for the difference between 7.50 and 3.62 on all units produced back to the start of this operation at the beginning of November, 2000.
In my view there is no basis for this claim. The plaintiff agreed to a price of 3.62 and did not seek to renegotiate it until late February, 2001. If he was asked to do work between November 2000 and February, 2001 that he had not contracted to do he was entitled to refuse to do this work. He did not do that.
Nor indeed am I satisfied that the aspects of the work about which the plaintiff now complains were significantly beyond or additional to that which he had agreed to do.
I am satisfied that this aspect of the plaintiff’s claim fails.
The next claim made was on invoice number 9311007 is for the sum of IR£13,087.59p, and is claimed as the cost of acquiring a variety of equipment for the purpose of the work done for the defendants.
The plaintiff claims that in early March, 2001 when negotiating the wind-up of their relationship the plaintiff says the defendants agreed to purchase back this equipment at what it had cost the plaintiff. The defendants say they did agree to purchase the equipment back, but not at cost, but at fair market value. The defendants say that for this purpose they commissioned a valuation of this equipment.
The plaintiff challenges whether the valuation obtained was in respect of the equipment of the plaintiff’s. I am satisfied that on the balance of probability, the valuations obtained were in respect of the equipment which was in fact taken back by the defendants.
I prefer the evidence of the defendants on this question and I am satisfied that the defendants agreed to, only to pay fair market value for this equipment. The value placed on the equipment at the time was IR£1,380.
The defendants as part of the settlement of the 30th March, 2001 paid a sum of IR£5,000 on account, in respect of the amount to be paid for this equipment. It follows in my view that the defendants are entitled to recover the balance overpaid in respect of this equipment as is claimed in their counterclaim.
The next invoice, number 9311005 is for the sum of IR£3,288.82 which is claimed in respect of money allegedly held back by the defendants for defective parts applied by the plaintiff.
Beyond the bald assertion of this claim there was no evidence as to how and in respect of which invoices or goods this claims arises. The plaintiff has wholly failed to demonstrate how this claim arises. That being so this claim cannot succeed.
The final claim made by the plaintiff is for the sum of IR£15,000 and is in respect of a severance payment.
I am satisfied that the defendants did agree in early March, 2001 to pay a severance payment of IR£10,000 to the plaintiff but on condition that there was a smooth transfer back to the defendants of the functions subcontracted to the plaintiff.
For this purpose in my view it was necessary for the plaintiff to give back to the defendants all of their stocks of the defendants’ materials.
Manifestly this did not happen. The plaintiff made the claims that are the subject matter of these proceedings by a series of invoices furnished on or about the 27th March, 2001 and declined to surrender the defendants’ materials, claiming a lien on these in respect of the debts claimed to be due.
Whether the plaintiff was entitled to that lien or not is immaterial. Having found herein that he was not entitled to recover the sums claimed clearly he was not entitled to the lien claimed. The claim to a lien was in itself, however, wholly inconsistent with the smooth transfer, which was the condition which had to be fulfilled for the payment of the severance payment.
As this did not happen and as the defendants were compelled to seek injunctive relief to recover their materials, it is quite clear that the plaintiff was not entitled to the severance payment. That being so this claim fails also.
In conclusion I would dismiss the plaintiff’s action and the defendants are entitled to judgment on their counterclaim for the euro equivalent of IR£3,865.00
Approved: O’Neill J.
ACC Bank -v- Dillon & Ors
[2012] IEHC 474 (12 November 2012)
Judgment of Mr. Justice Charleton delivered on the 12th day of November 2012
1.0 The plaintiff bank seeks judgment against the first defendant Gerard Dillon and the second defendant Patrick Corrigan for €1,493,181, representing personal loans to each of them, and also seeks judgment against the first defendant and the second defendant, jointly and severally, for €5,383,181 in respect of guarantees for the indebtedness of the third defendant Cordill Construction. That company as it is now in the receivership of the plaintiff bank through a fixed and floating charge over its assets. The appointment of a receiver was in May 2011. Any question as to its loans has already been dealt with, or is being dealt with, elsewhere in the commercial list.
1.1 The background to the case is a series of three loans to Cordill Construction to develop a site at The Claddagh in Galway City. The first was for €3,490,000 for a term of twelve months and is evidenced by a facility letter dated 23rd November, 2006; the second was for €750,000 for a term of twelve months to purchase an additional adjoining site and is evidenced by a facility letter dated 3rd January, 2007; and the third was for €1,000,000 for a term of nine months and is described as “additional development finance” in the relevant facility letter which is dated 6th September, 2007. Gerard Dillon and Patrick Corrigan were directors of Cordill Construction. These facility letters do not contain the usual personal guarantee by directors which is an almost standard obligation of bank loans at this time. Instead, in the first such facility letter reference is made to the “net worth statement” of Cordill Construction as borrower and a condition is inserted that should this drop below the level then disclosed to the plaintiff bank, the directors would each have to give a personal guarantee jointly and severally in the amount of €750,000 each. No such guarantee was ever given despite the net worth of the borrowing company falling markedly, as did the net worth of a great majority of construction companies in Ireland, from the autumn of 2008. Instead, in a series of meetings and telephone calls at that time, the plaintiff bank insisted on personal guarantees from the directors for the continuation of the then overdue loan facilities. These personal guarantees were given by the first and second defendants, who claim not to be bound by the same.
Defence
2.0 The defence of the first and second defendants is that prior to entry into the loan facilities, the plaintiff bank, through its relationship manager in Longford, Michael Dillon, the brother of the first defendant, represented that: (1) at no time in the future would the plaintiff bank require the furnishing of personal guarantees by either the first or second defendants in respect of monies loaned to Cordill Construction; (2) at no time in the future would the plaintiff bank require personal guarantees to be furnished by the first and second defendants in order to ensure that the loans granted to Cordill Construction were not called in and/or a receiver appointed; (3) it was the policy of the plaintiff bank at that time that such loans entered into by Cordill Construction would not then and would not at any future stage require to be backed by personal guarantees from the first and second defendants; (4) the policy of the plaintiff bank would not be subject to alteration in that regard; (5) the banking relationship in the present and in the future would always be non-recourse to the first and second defendants.
2.1 This is the core of the defence. In addition, a number of claims are made based upon a lack of consideration for the guarantees by the directors, the tort of misrepresentation and a collateral contract based on the claims made. These defences cannot succeed without the core defence being established by the first and second defendants and central to that defence is that the personal guarantees obtained in the autumn of 2008 were procured by duress.
2.2 Personal borrowings were also taken out by the first defendant. In evidence it has not been claimed that there is any basis for any defence to the claim for judgment on these loans. Instead, it is argued that since damage has been caused to the first and second defendants by duress, a counterclaim based on this tort is sustainable.
Key events
3.0 In a credit report dated 15th July, 2006, the plaintiff bank’s relationship manager Michael Dillon introduced his brother and his brother’s company Cordill Construction as suitable for a business relationship with the plaintiff bank. He noted that the directors would not give personal guarantees, as this was not their policy. In evidence for the defence he said that his brother, the first defendant, was adamant that this would not happen. The credit committee of the plaintiff bank noted this situation but there is nothing in the documentation either then or later to support the proposition that a representation was made by Michael Dillon that the bank were never to return and seek a personal guarantee. Instead, he made it clear that while he might introduce the business, the credit committee of the plaintiff bank would make all the decisions. That position, he said, was well known if not to the first and second defendants as businessmen then to Tom O’Callaghan, the financial controller of Cordill Construction, who did not give evidence. Insofar as contrary evidence has been given by the first defendant Gerard Dillon, it does not overcome the ordinary proposition that business prudence would have dictated proper analysis within the company as to any major financial commitment. Added to that, the facility letters of 23 November, 2006, 3 January, 2007 on 6 September, 2007 are clear as to their intent and purpose; all were signed by the first and second defendants as directors of Cordill Construction.
3.1 Throughout 2007, the market for residential property responded negatively to sales of houses and apartments; this market was overvalued by around 300%, with development land being overvalued by much more. The apartments at The Claddagh in Galway did not sell. A cash flow crisis was thus caused in Cordill Construction. It was hoped that in 2008 the market would return to the inflated values of 2006. That did not happen. Five years later, the true position as to the property values in Ireland is yet to be firmly established. As of 2008, the term of all of the loans had expired. On 20 August, 2008 a meeting was held in the plaintiff bank’s premises at which Gerard Dillon and Tom O’Callaghan attended for Cordill Construction and the plaintiff bank was represented by senior credit managers. Most of these gave evidence, with the exception of Eric Gottenbos who could not attend as he was in Australia and an attempt to take video evidence from him was futile because of a breakdown in technology.
3.2 I take the case given by the first defendant at its highest. He says that he was told that if personal guarantees were not forthcoming from the directors, the first and second defendants, that the bank would exercise its rights under the loan agreement with Cordill Construction to call in a receiver. This, he said, would have the effect of undermining State contracts, as the company was then the second largest school builder in Ireland, would disrupt existing contracts and because receivers rarely carry on businesses as a going concern, would cause the 50 employees of the company and 200 or more site workers in various jobs to lose their employment. This was regarded by Gerard Dillon, a clearly decent person, as a horrible prospect which left him with no option but to furnish personal guarantees. At the meeting itself, no agreement was forthcoming from him. He claims that his will was overborne by that meeting and in particular by the threat made to appoint a receiver. On 5 September, 2008, the matter went to the credit committee of the plaintiff bank. It decided that personal guarantees were required from the directors. On 10 September, 2008, a spirited refusal was delivered from Cordill Construction to the plaintiff bank protesting against personal guarantees. On 1 October, 2008 the credit committee affirmed that personal guarantees were required in the event that the term of the loans were to be extended. On 6 October, 2008, a senior official in the bank, Eoin Gavigan, rang Gerard Dillon and told him of the decision of the credit committee. The next day the first and second defendants changed their minds and agreed to supply personal guarantees for the Cordill Construction loans. A report to that effect by Eoin Gavigan was sent to the credit committee on 13 October, 2008 and two days later it agreed that extending the term of the loans was the appropriate course to take, rather than the appointment of a receiver. The relevant guarantee documentation was sent to the first and second defendants and was returned signed on 8 December, 2008. A complaint was made in the course of the exchanges by letter, already referred to, that a penal rate of interest was being charged. This was treated by the plaintiff bank as a complaint and was dealt with by a refund which would be large in other circumstances but which made little difference to the level of indebtedness of all of the defendants by this stage. The relevant guarantees were headed with a black warning box, all too familiar in these cases, stating that if the debts were not repaid by the borrower the guarantors would be personally responsible and that legal advice of an independent variety should be sought.
Past consideration
4.0 A contract not under seal must be supported by consideration. This means that there is either some detriment to the promisee, for instance by giving value, or some benefit to the promisor. However many parties there are to a contract, this principle can be looked at in a mirrored away from the point of view of each party vis-à-vis the other. One party gets something by giving their promise to give something, while the other party has the expectation of that benefit and at the same time promises or delivers a value which the other wants in return. Rarely will courts condemn a bargain on the basis of the inadequacy of consideration as sometimes it is to the benefit of the parties to establish an underlying bargain by reference to the legality of a price that does not reflect the surface reality. Beneath the surface may be something which the parties to the contract want to happen and which they have pursued through fair negotiation. An example might be the sale to the State of a historic building where a family no longer have the means to restore it, the sale taking place in the expectation that public money will preserve part of Ireland’s heritage for the benefit of its people. Such sales, for instance of Kilkenny Castle, have taken place for a nominal value. Similarly, a small rent, which does not reflect the relevant market rent may be agreed in order to ensure that a lease of premises is subject to the certainty of landlord and tenant law as opposed to the vagaries of an agreement among friends. A caretaker agreement might be chosen instead as another legal instrument that establishes certainty but with a very small return. Without such a substratum, an improvident bargain may be relieved in equity or the nature of the interaction between the parties to a contract may be scrutinised as to whether their relationship undermines the quality of their bargaining power with a view to analysing whether undue influence should result in a contract being avoided.
4.1 A bank loan is a promise to make money available for a particular time. The borrower promises to repay within that time. The lender is not obliged to extend the loan beyond the term bargained for. In some circumstances, the written terms of a collateral contract are subject to such a clear and express purpose by way of representation that the parties minds may be said to have met and agreed thereon. Such a collateral agreement, despite a written contract that does not seem to include it, may bind any attempt to step outside it. Such obligations cannot be open-ended; they must be precise. Rarely can a collateral bargain be resorted to so as to overturn what the parties have reduced to writing as their entire contract. But if there is proof that an underlying and express purpose in definite form was agreed, then there may be an enforceable contract that is collateral to the principal agreement. A representation by one of the parties that the written form is to be expressly overridden in respect of a particular term may also enable a contract to be construed outside the written form; Curtis v Chemical Cleaning and Dying Co [1951] 1 KB 805 and generally Treitel – The Law of Contract (13th ed, Peel, 2007, London) pp 260-262 as to overriding exemption clauses. The proof required for these forms of contractual alteration battles against the certainty of express written terms. Whilst a collateral contract is not impossible despite a written agreement, it is not proven in these circumstances.
4.2 The plaintiff bank did not give an open-ended assurance that, no matter what might happen, personal guarantees would never be required from the directors of the borrowing corporation. As a matter of ordinary sense, it must be remembered that such a company might collapse; it might be taken over by individuals less trustworthy than the first and second defendants; the buildings that were the subject of the loan might be so badly built as to be unsaleable; or the term of the loan might be so extended as to change any reasonable underlying expectation that might be proven by either party to the contract. What happened here was that because of the personal guarantees given by the first and second defendants, the loans were extended through renewals on 13 November, 2008 to 30 April 2009; on 14 April, 2009 to 30 October, 2009; and on 21 December, 2009 to 30 April, 2010. As noted, it was another year before a receiver was appointed by the plaintiff bank in May 2011. In each instance, there was a demand for repayment which could not be met and in each instance the original contract had terminated and required fresh consideration to support any new bargain.
4.3 McKay and Another v. National Australia Bank Ltd [1998] 1 V.R. 173 has been cited as supporting the defence of past consideration. It is not an authority which can relieve the first and second defendants of their personal guarantees for the debts of Cordill Construction. In that case, the bank held guarantees from two directors of a corporation. When the bank became concerned that their level of security might be inadequate, a fresh level of guarantee was sought and obtained from those directors. The consideration was expressed as being the provision of “banking accommodation” and was attractively dressed up as a forbearance “to enforce immediate payment”. This was not sufficient. On appeal, the Supreme Court of Victoria overturned a decree in favour of the bank at first instance and reasoned that consideration was past: the loans had not been called in and the original guarantee of the directors was an existing bargain that had not been replaced by a new contract supported by anything additional to the existing arrangements. Such consideration as there had been was past and the new arrangements were not supported by any fresh consideration from the defendant bank. The judgment of Winneke P. at pp. 177-178 sets out principles that also represent the law in this jurisdiction:
It is, of course, well established that the contract of guarantee, if not under seal, must be supported by consideration and that the onus of proving that there is consideration to support it is on the party who seeks to rely upon it: J. O’Donovan and J. Phillips, The Modern Law of Contract of Guarantee, 3rd ed., [1966], pp. 52-3. The consideration relied upon to support the guarantee must be real and valuable and not illusory or a sham: Reid Murray Holdings Ltd. v. David Murray Holdings Pty. Ltd. [1972] 5 S.A.S.R. 386. Thus the mere recitation in a document of guarantee that the guarantee was given for consideration for “advances to be made” by the person to whom the guarantee was given will not, by itself be sufficient to support the guarantee if the evidence demonstrates that no such advances were, or were intended to be made: Elder, Smith and Co. Ltd. v. McKellar [1895] 21 V.L.R. 644 at 668, per Hood J.
Furthermore, “past” consideration is not sufficient consideration. A guarantee given to secure debt already incurred, but unsupported by any further consideration, will fail for want of valuable consideration:
… if it is evident that the guarantee was intended to be limited to past transactions alone, for example, because the surety new that the principal debtor was already indebted to the creditor in an amount exceeding the limit of the surety’s guarantee, the guarantee will be void as being given without consideration.
Chitty on Contracts, 27th ed., (1994), p. 1314: see also Halsbury’s Laws of England, 4th ed., re-issue, vol. 20, para. 140.
In this case the document of guarantee, executed by the appellants on 20 February 1987, was in the respondent bank’s usual form. The consideration for the giving of guarantee was expressed as follows:
IN CONSIDERATION of the Bank at the request of the Guarantor making loans and advances or providing banking accommodation to the customer whether alone or jointly or in conjunction with any other person and/or in consideration of the Bank at the request of the guarantor for daring to enforce immediate payment of money is (if any) now due and owing by the customer to the Bank …
It was not contended by the respondent, either before the learned judge or on appeal, as any consideration by way of “forbearance to sue” was given by the bank to support this guarantee. No demand had been made by the bank for repayment of the existing debt and no request had been made by the debtor or the appellants for any such forbearance. As the instrument of guarantee itself recognises, the mere fact of forbearance is not of itself sufficient consideration for a person becoming surety for an existing debt. There must be either an undertaking to forbear or an actual forbearance as the surety’s request: Halsbury’s Laws of England, 4th ed., re-issue, vol. 20, para. 142; Murphy v. Timms [1987] 2 Qd. R. 550 at 551, per Kneipp J.
4.4 In an analysis of whether consideration is past or current, the strict order of events is not necessarily decisive. The substance of a bargain may be what may seem to be different transactions that are, in fact, aspects of the one contract. The renewal of the loans in this case do not form part of the one contract; rather, what has been outlined involves a series of different transactions each of which could be supported by a continued promise by the company to pay back the loan within a new term. Such alterations could also be supported by a different rate of interest or could require some different form of security. Times have changed since 2008 and the era when the mass media were claiming that Ireland was one of the richest countries in the world. Regrettably, it is not within the power of the law to relieve guarantors of bargains entered into through a state of hope that the market might return to the inflated levels for property prices that were at their height in 2006. Instead, the courts are required to apply the law.
Duress
5.0 If the contract to guarantee the repayment of loans by Cordill Construction was made under duress then it is voidable. Seeking an underlying rationale for the doctrine of voidability on the grounds of duress informs an application of the defence to the facts of this case. Contracts are made on a rational basis between those who have negotiated, or who have held out goods and services generally, so as to achieve a mutually acceptable bargain. A contract is a meeting of minds as to the obligations of each party to it. Any contract which is not the free expression of one of the parties to an apparent agreement cannot properly be described as a meeting of minds. In bargaining with each other, the parties to any prospective contract are never entirely free. Either they will be driven by what they want to achieve, which is the purpose of their desire to enter into mutually acceptable commercial relations, or they may be motivated by needs. The purpose driving any party into a bargain may in some instances be so pressing that revealing why they wish to benefit from that which the other side may supply would skew the bargain markedly against any expectation for mutual advantage. Negotiation is therefore a process of careful interaction in order to achieve a consensus. A consensus is nonetheless achieved notwithstanding that one party may be sore at what it has had to give and the other jubilant at what has been achieved.
5.1 It is a principle of contract law that the law should not scrutinise the adequacy of consideration supporting a contract; absent undue influence and improvident bargain. Parties should be left to sort out the benefits and burdens of obligations that are to be crystallised in agreement. A contract, when made, is what the law enforces and the law enforces contracts in accordance with the express terms of that which the parties have expressed to be their bargain. In the rare instances where the law intervenes to supply terms that have not been expressed, the approach is always what is required in the context of the bargain already made, and not what the court might substitute as fair to ameliorate an agreement or to replace any apparent imbalance with what might be more acceptable. The doctrine of duress is not part of the law in order to interfere in the context of an imbalance in bargaining powers where that want in balance is merely the result of a difference in commercial bargaining power in negotiations conducted at arms length.
5.2 It also more than difficult to see that the defence of duress would ever be established simply because of an allegation that one side took apparent advantage of the weariness of the other at a stage in negotiation. The law must allow a measure of appreciation to the stresses of commercial negotiation. How, in any event, would such an application of the doctrine of relief from a contract entered into under duress, were it to be so extended, ever be proven? Duress as a defence in contract law had a similar origin to that defence as an answer to a criminal charge. The threat of violence is no longer necessary to establish that a contract was entered into under duress. Nor is it necessary that consent to bargain is negatived; rather that consent must have been so wrongfully obtained that it can properly be described as an illegitimate and significant cause of the party ostensibly contracting giving assent.
5.3 It seems to me that principles such as the availability of an alternative course of action, a protest at the term agreed or bargain extracted, the availability of time and space to think and recourse to independent advice are items of evidence within which the illegitimacy of pressure may be analysed as constituting, or not amounting to, duress. The threat to do something unlawful, such as blackmail, will establish a sufficient degree of illegitimacy to enable the defence in most instances. This is notwithstanding that it can be the case that a threat to reveal a crime may be to adopt a lawful course of conduct. It is the failure to independently peruse that course from the point of view of public spirit and instead linking it to a commercial course of bargaining that is illegitimate. Even where a threat is wrong, it must be such as to wrongfully establish coercive effect on the mutuality which the law expects in the nature of the contract. Economic duress, far removed from the physical origins of the defence, can be sufficient as in B & S Contracts and Design Ltd v. Victor Green Publications Ltd [1984] I.C.R. 419. There a contract to exhibit at a show was altered by a threat from the organiser to cancel seeking additional payment from the exhibitor because the organiser had been made subject to additional payment demands by its workforce. That particular case would also be an example of past consideration being insufficient to support a contract for the new exhibition charge.
5.4 The first defendant Gerard Dillon gave a fair account of the meeting of 28 August, 2008. He is an honest person. It is appropriate in the context of the plea of duress to expand on the detail already given as to this meeting and how it fits into the sequence of events by quoting his account. He described thus how he was first asked to consent to the directors of Cordill Construction giving personal guarantees if the loans were to be extended:
At the meeting Eric Gottenbos – the minute he opened his mouth – you were saying about terms, I didn’t feel they were terms – it was as if a mad bomber had jumped on a bus full of kids and I was told everything is going to blow up or else you sign this. That’s not what you’d call a choice. There was no choice. The repercussions were a huge. Leave me out of it and you take 60 staff, wives, kids, families, mortgages. You take all the suppliers and subcontractors, just save four, five, six hundred of them and loans, they were all going to get burned because of this. That’s not a choice. If you think that’s a choice – I don’t know if you employ people, right, I don’t know if you have your own company or whatever were you employ people but if you do … what I would say to you is don’t ever do it because it’s a massive, moral responsibility.
5.5 Absent from this vivid account was any allegation of overbearing conduct or of the directors being subjected to interrogation-type pressures. The plaintiff bank stood to lose, at the then apparently existing property prices, about €1 million. In the event, the probable loss to the bank would now be of the order of €4 million. The first and second defendants stood to lose their business and the hope of recovery from the position they were in. In the context of a difficult situation, the bargaining power of the plaintiff bank was stronger. It was lawful for the plaintiff bank to appoint a receiver over Cordill Construction and it was lawful to seek to bargain out that final step by the directors seeking further time to pay or by the bank giving further time in return for a personal guarantee that the directors. The circumstances of negotiation were certainly fraught but that does not of necessity always amount to illegitimate pressure. Further, the first and second defendants were advised by the financial controller of Cordill Construction, time was allowed to pass before a final decision was made and the decision was entered into on both sides in the expectation that the end not yet come for the overheated residential property market. All of that is within the level of appreciation that must be allowed in commercial bargaining. It is not duress.
Other issues
6.0 I propose to briefly deal with any other issues in the case. There is no evidence of representation by the bank that, into the future, personal guarantee would never be sought. Such representation might be established by silence in the face of an express requirement by the directors of Cordill Construction that no circumstances would ever change their relationship with the bank. Even was that to be so, once the term of any loan expired, if the money was not to be called in, then a new and separate contracts have to be negotiated. No defence to the personal indebtedness of the first defendant has been established. In terms of apparent authority, the evidence does not establish that the first and second defendants understood Michael Dillon to have authority to bind the bank. Instead, the balance of evidence shows that the credit committee alone had such authority and that everyone understood this. A legal analysis as to the effect of representations as to the future may be relevant to another case, but not this one. Consent to the personal guarantees was not improperly obtained. There is nothing in terms of a collateral contract based on representation or misrepresentation which could alter what the parties have agreed and have reduced to writing. The evidence in that regard is insufficient. There was adequate consideration for the guarantees. The destruction of the asset of the bargain by the creditor acting to the prejudice of the guarantor, as in Black v. Ottoman Bank [1862] 15 All E.R. 573, does not arise at all.
6.1 The second defendant did not appear at the trial. As to the personal indebtedness of that defendant and of the first defendant, this has been properly proven. There is no defence established.
Result
7.0 In all the circumstances, I am obliged to give a decree against the first and second defendants, jointly and severally, of €5,383,181. I am further required to give a decree against the first and second defendants for €1,493,181 in respect of their additional personal borrowings.