Failed Contracts
Cases
Gamerco SA v. I.C.M.Fair Warning (Agency) Ltd
[1995] l WLR 1226, Queen’s Bench Division
The contract, having been discharged by frustration, the plaintiffs were entitled to recover from the second defendants the advance payment of U.S.$412,500 (less the sum returned by the first defendants) by virtue of section 1(2) of the Act of 1943….
Inaddition the balance net of tax, $362,500, ceases to be payable.
The issue which [ have to decide is whether and, if so, to what extent, the defendants can set off against the U.S.$412,500 expenses incurred before the time of discharge in or for the pur pose of the performance of the contract. It is perhaps surprising that over a period of 50 years there is no reported case of the operation of section 1(2), although it was considered obiter by Robert GoffJ in BP Exploration Co. (Libya) Ltdv. Hunt (No. 2) [1979] I WLR 783,800. The section has, of course, received the attention of textbook writers, most recently that of Professor Treitel in Frustration and Fora Majeure (1994) [Ht set out the proviso together with subsections (4) and (S) and continued:)
I therefore turn to the proviso and subsection (4). The defendants’ claim for expenses was set out as a schedule to their defence and counterclaim
The approach to the proviso
The following have to be established: (I) that the defendants incurred expenses paid or payable (2) before the discharge of the contract on 2 July (3) in performance of the contract (which is not applicable) or (4) for the purposes of the performance of the contract, and (5) that it is just in all the circumstances to allow them to retain the whole or any pan of the sums so paid or payable.
The onus of establishing these matters must lie on the defendant. lt is, in the broad sense, his case to be made out and I am assisted by the Victorian case of Lobh v. Va.rry Housing
Auxiliary (War Widows Guild) [1963) VR 239 under the corresponding Victorian Act of 1959, which is in very similar terms to the Act of 1943.
I have already dealt with (1), (2) and (4) so far as the evidence allows. I turn to (5). I take the following matters into consideration. (a) My assumption that the relevant expenses of U.S.$50,000 was undisputed. (b) It was undisputed that the plaintiffs incurred expenses in excess of 52m. pesetas (approximately £285,000 or U.S.$450,000). (c) Neither party conferred any benefit on the other or on a third party, so that subsections (3) and (6) did not apply. (d) The plaintiffs’ expenditure was wholly wasted, as was the defendantli’. (e) The plaintiffs were concerned with one contract only. The defendants were concerned with the last of 20 similar engagements, neither party being left with any residual benefit or advantage. (f) As alreadystated, I entirely ignore any insurance recoveries in accordance with subsection (5).
Various views have been advanced as to how the coun should exercise its discretion and these can be categorised as follows.
(I) Total retention. This view was advanced by the Law Revision Committee in 1939 (Cmd. 6009) on the questionable ground ‘that it is reasonable to assume that in stipulating for pre payment the payee intended to protect himself from loss under the contract.’ As the editor of Chitty on Contracts, 27th edn. (1994), vol. I, ll41, para. 23-060, note 51, (Mr E. G. McKendrick) comments: ‘He probably intends to protect himself against the possibility of the other party’s insolvency or default in payment.’ To this, one can add: ‘and secure his own cash flow.’ [He then considered two passages from the judgment of Robert GojJJ set out at 251-61 above, and continued:]
I do not derive any specific assistance from the BP Exploration Co. case. There was no ques tion of any change of position as a result of the plaintiffs’ advance payment.
(2) Equal division. This was discussed by Professor Treitcl in Frustration and Force Majeure, 555-6, paras. 15-059 and 15-060. There is some attraction in splitting the loss, but what if the losses are very unequal? Professor Treitel considers statutory provisions in Canada and Australia but makes the point that equal division is unnecessarily rigid and was rejected by the Law Revision Committee in the 1939 report 19 which reference has already been made. The parties may, he suggests, have had an unequal means of providing against the loss by insurers, but he appears to overlook subsection (5). It may well be that one party’s expenses are entirely thrown away while the other is left with som·erealisable or otherwise usable benefit or advan tage. Their losses may, as in the present case, be very unequal. Professor Treitel therefore favours the third view.
(3) Broad discretion. It is self-evident that any rigid rule is liable to produce injustice. The words, ‘if it considers it just to do so having r ard toall the circumstances of the case,’ clearly confer a very broad discretion. Obviously the court must not take into account anything which is not ‘a circumstance of the case’ or fail to take into account anything that is and then exercise its discretion rationally. I see no indication in the Act, the authorities or the relevant literature that the court is obliged to incline towards either total retention or equal division. Its task is to do justice in a situation which the parties had neither contemplated nor provided for, and to mitigate the possible harshness of allowing all loss to lie where it has fallen.
I have not found my task easy. As I have made clear, I would have welcomed assistance on the true measure of the defendants’ loss and the proper treatment of overhead and non-specific expenditure. Because the defendants have plainly suffered some loss, I have made a robust assumption. In all the circumstances, and having particular regard to the plaintiffs’ loss, I con sider that justice is done by making no deduction under the proviso….
William Lacey (Hounslow) Ltd v. Davis
[1957] 1 WLR 932, Queen’s Bench Division
Barry J: In elaborating his argument … Mr Daniel [counsel for the plaintiffs] rightly conceded that ifa builder is invited to tender for certain work, either in competition or otherwise, there is no implication that he will be paid for the work-sometimes the very considerable amount of work-involved in arriving at his price: he undertakes this work as a gamble, and its cost is part of the overhead expenses of his business which he hopes will be met out of the profits of such contracts as are made as a result of tenders which prove to be successful.
….. It may also hap pen-as it certainly did happen in the present case-that when a builder is told that his tender is the lowest and Jed to believe that the building contract is to be given to him, he, the builder, is prepared to perform other incidental services at the request of the building owner without any intention of charging for them as such. He is not-Mr Daniel suggests-rendering these services gratuitously, but is content to be recompensed for them out of the profit which he will make under the contract. If, without default on the builder’s part, no contract supervenes, then, says Mr Daniel, the law will imply a contract to pay a reasonable sum for these services. His contention is that, for one or other of these twd reasons, the defendants are under a legal obliga tion to pay for all the work itemised in the schedule.
Mr Lawson’s answer can be put quite shortly. He does not deny that a considerable amount of work was done by the plaintiffs but he says that it was all done on (the plaintiffs’] own admission-in the expectation and hope that they would receive the building contract. They did not do so and, although the consequences to them are, of course, unfortunate, there can be no room for an implication that they were to be paid for services for which they never intended to charge. As an alternative, Mr Lawson somewhat tentatively ques tioned the plaintiffs’ allegation that their services were rendered at the defendant’s request and, further, he suggested that even if requests for these services were in fact made by Day, the lat ter had no authority from the defendant to make any such requests.
… Now, on this evidence, I am quite
satisfied that the whole of the work covered by the schedule fell right outside the normal work which a builder, by custom and usage, normally performs gratuitously, when invited to tender for the erection of a building. In the absence of any evidence called by the defendants, I can only find that the earlier estimates were given for work which it was never intended to execute. It is possible that, in the very latest stages, the defendant was intending to erect the type of building for which the plaintiffs were giving their quotation, but having obtained, without charge, an initial estimate for a purely notional building, Mr Davis could hardly expect the builders to go on giving free estimates when a state of reality was at last approached. The earl ier estimates, as the correspondence shows, were in fact used, and used for some purpose, in the defendant’s negotiations with the War Damage Commission and, as an apparent result of the plaintiffs’ effons, not only were the reconstruction plans approved, but a much higher ‘per missible amount’ was also agreed with the War Damage Commission. It is perhaps justifiable to surmise that these facts, especially the reconstruction plans and the increase in the permiss
ible amount, had at least some influence upon the price of the damaged building which the defendant obtained when it was ultimately sold by him. The work itemised in the schedule which does not relate to estimation, as I think, falls even more clearly outside the type of work which any builder would be expected to do without charge when tendering for a building con tract.The plaintiffs are carrying on a business and, in normal circumstances, if asked to render ser vices of this kind, the obvious inference would be that they ought to be paid for so doing. No one could expect a business firm to do this sort of work for nothing, and again, in normal cir cumstances, the law would imply a promise to pay on the part of the person who requested the services to be performed. Mr Lawson, however, submits that no such promise can be implied in the circumstances of the present case. The existence, he submits, ofa common expectation thata contract would ultimately come into being and that the plaintiffs’ services would be rewarded by the profits of that contract leaves no room, in his submission, and, indeed, wholly negatives any suggestion, that the parties impliedly agreed that these services would be paid for
in any other way.
This, at first sight, is a somewhat formidable argument which, if well founded, would wholly defeat the plaintiffs’ alternative claim. If such were the law it would,I think, amount toa denial of justice to the plaintiffs in the present case, and legal propositions which have that apparent effect must always be scrutinised with some care. In truth, I think that Mr Lawson’s proposi tion is founded upon too narrow a view of the modern action for quantummeruit. In itsearly history it was no doubt a genuine action in contract, based upon a real promise to pay, although that promise had not been expressed in words, and the amount of the payment had not been agreed. Subsequent developments have, however, considerably widened the scope of this form of action, and in many cases the action is now founded upon what is known as quasi-contract, similar, in some ways, to the action for money had and received. In these quasi-contractual cases the court will look at the true facts and ascertain from them whether or nota promise to pay should be implied, irrespective of the actual views or intentions of the parties at the time when the work was done or the services rendered.
I am unable to see any valid distinction between work done which was to be paid for under
the terms ofa contract erroneously believed to be in existence, and work done which was to be paid for out of the proceeds of a contract which both parties erroneously believed was about to bemade. In neither case was the work to be done gratuitously, and in both cases theparty from whom payment was sought requested the work and obtained the benefit ofit. Inneither case did the parties actually intend to pay for the work otherwise than under the supposed contract, or as part of the total price which would become payable when the expected contract was made. In both cases, when the beliefs of the parties were falsified, the law implied an obligation–and, in this case,I think the law should imply an obligation-to pay a reasonable price for the ser vices which had been obtained. I am, of course, fully aware that in different circumstances it mightbe held that work was done gratuitously merely in the hope that the building scheme would be carried out and that the person who did the work would obtain the contract.That,I
am satisfied, is not the position here. In my judgment, the proper inference from the facts proved in this case is not that this work was done in the hope that this building might possibly be reconstructed and that the plaintiff company might obtain the contract, but that it was done undera mutual belief and understanding that this building was being reconstructed and that
the plaintiff company was obtaining the contract.
I have, therefore, come to the conclusion that the defence to the alternative claim fails md that the court should imply a condition or imply a promise that the defendant should pay area sonable sum tothe plaintiffs for the whole of these services which were rendered bythem. As to amount,I have considered the plaintiffs’ charges as set out in the schedule with some care. On the rather scanty information available to me, I have come to the conclusion that while some of the items may well be undercharged, certain of the large items cannot be fully justified. The plaintiffs are entitled to a fair remuneration for the work which they have done, but they cannot, inmyview, quantify their charges by reference to professional scales. Doing the bestI can,
l think the plaintiffs would be fairly recompensed ifl deducted £100 from the amount claimed,leaving a balance of £250 13s Sd.
British Steel Corporation v. Cleveland Bridge and Engineering Co. Ltd
[1984] 1 All ER 504, Queen’s Bench Division
Robert Goff J: … In myjudgment, the true analysis of the situation is simply this. Both parties confidently expected a formal contract to eventuate. In these circumstances, to expedite performance under that anticipated contract, one requested the other to com mence the contract work, and the other complied with that request. If thereafter, as antic ipated,a contract was entered into, the work done as requested will be treated as having been performed under that contract; if, contrary to their expectation, no contract was entered into, then the performance of the work is not referable to any contract the terms of which can be ascertained, and the law simply imposes an obligation on the party who made the request to pay a reasonable sum for such work as has been done pursuant to that request, such an obligation sounding in quasi contract or, as we now say, in restitution. Consistently with that solution, the party making the request may find himself liable to pay for work which he would not have had to pay for as such if the anticipated contract had come into existence, eg prepuatory work which will, if the contract is made, be allowed for in the price of the finished work (cf. William Lacey (Hounslow) Ltd v. Davis [1957] I WLR
932). This solution moreover accords with authority: sec the decision in Lacey v. Davis, the decision of the Court of Appeal in Sandm (S Forster ltd v. A. Monk (S Co. Ltd [1980] CA Transcript 35, though that decision rested in part on a concession and the crisp dictum of Parker) in OTM L1dv. Hydranautics [1981) 2Lloyd’s Rep. 211 at 214, when he said ofa letter of intent that ‘its only effect would be to enable the defendants to recover on a quan- tum meruit for work done pursuant to the direction’ contained in the letter. I only wish to add to this part of my judgment the footnote that, even if I had concluded that in the cir cumstances of the present case there was a contract between the parties and that that con- tract was of the kind I have described as an ‘if’ contract, then I would still have concluded that there was no obligation under that contract on the part of BSC to continue with or complete the contract work, and therefore no obligation on their part to complete the work within a reasonable time. However, my conclusion in the present case is that the parties never entered into any contract at all. It follows that BSC are entitled to succeed on their claim and the CBE’s set-off and coun terclaim must fail.
Crown House Engineering Ltd. v. Amee Projects
(1990) 48 BLR 3:
Slade LJ: … I am not convinced that either [Goff and Jones on the Law of Restitution), or any of the other reported cases cited to us, affords a clear answer to the crucial question of law: On the assessment of a claim for services rendered based on a quantum meruit, may it in some circumstances (and, if so, what cir cumstances) be open to the defendant to assert that the value of such services falls to be reduced because of their tardy performance, or because the unsatisfactory manner of their performance has exposed him to extra expense or claims by third parties?
In my judgement, this question of law is a difficult one, the answer to which is uncertain and may depend on the facts of particular cases. If, as the learned judge apparently considered, the answer to it is an unqualified ‘No, never’, I cannot help thinking that, at least in some circumstances, there would result injustice of a nature which the whole law of restitution is intended to avoid ….
Bingham LJ:… Thdeoctrine of unjust enrichment from which, as I understand, the restimtionary remedy of quantum meruit, in part at least, derives does no doubt require that in the absence of contract a customer should not take the benefit of a contractor’s services rendered at his request without making fair recompense to the contractor, but it does not so obviously require that assessment of that recompense should be made without regard to acts or omissions of the contractor when ren dering those services which have served to depreciate or even eliminate their value to the customer. This question seems to me to have been little explored, and I would profess myself an agnostic. In my judgment it is a classical example of the kind of question unsuitable for resolution without full legal argument in the con text of facts agreed or fully explored.
Regalian Properties Ltd v. London Docklands Development Corporation
[1995) 1 WLR 212, Chancery Division
Rattee J:
In my judgment, one important distinction between the facts in that case and those in the present case is that the work for which the plaintiffs claimed in that case was not work done for the purposes of the expected contract, but was rather … ‘for some extraneous or collateral pur pose.’ It was for the wholly separate purpose of enabling the defendant to negotiate a claim made by the defendant to the War Damage Commission. In the present case, by contrast, the expenditure for which Regalian claims recompense was, I find, all for the purpose either of sat isfying the requirements of the proposed contract as to planning permission and the approval of the designs for the development by L.D.D.C., or of putting Regalian into a position ofreadi ness to start the development in accordance with the terms of the proposed contract. In other words it was expenditure made for the purpose of enabling Regalian to obtain and perform the expected contract.
Although I have to say, with respect, that I do not find the reasoning of Barry J entirely easy to follow, the result seems to me to make perfectly good sense on the facts of that case. At the request of the defendant the plaintiffs had done work which had clearly benefited the defen dant, quite outside.the ambit of the anticipated contract, and had only not charged for it separately, as one would otherwise have expected them to do, because they thought they would be sufficiently recompensed by what they”‘would be paid by the defendant under the contraet. In those circumstances it is not surprising that the law of restitution founda remedy for the plain tiffs when the contract did not materialise. I do not consider that the decision lends any real support to the claim made by Regalian in the present case for compensation for expenditure incurred by it for the purpose of enabling itself to obtain and perform the intended contraet at a time when the parties had in effect expressly agreed by the use of the words ‘subject to con tract’ that there should be no legal obligation by either party to the other unless and untial for mal contract had been entered into. It was frankly accepted by Mr Goldstone of Regalian that he knew and intended that this should be the effect of the use of the phrase’subject to contract,’ and indeed Regalian admits in its pleadings that those words were not intended to have any unusual meaning in the present case. As Mr Goldstone, whom I found an honest and indeed impressive witness, put it in his evidence, he knew that either party was free to walk away from the negotiations, although he confidently expected that this would nothappen.
I should mention at this point the only question of fact on which there was any real issue between the parties. That is whether the expenditure for which Regalian claims recompense produced any benefit for L.D.D.C. Regalian contended that the production of designs and obtaining of detailed planning permission for the proposed development did benefit L.D.D.C. in that it enhanced the value of the Hermitage sites and also other adjacent land belonging to
L.D.D.C. Despite the evidence of Mr Warner, a surveyor called to give expert evidence on behalf of Regalian,I am not satisfied that any such or any other ascertainable benefit accrued to L.D.D.C. L.D.D.C. did not own the copyright in the designs. It could not have used them itself or enabled any other developer to do so. More important was the fact that by the time the negotiations between the parties fell through the fall in the residentiapl roperty market had been such that Regalian was not, and no-one else would have been, interested in buying the land con cerned to carry out the sort of development for which designs had been produced.
The second authority on which Mr Coulson (counsel for Regalian] relied wasa decision of the Supreme Court of New South Wales, Sabemo Pry. Ltd v. North Sydney Mu11icipal Council [1977]2 NSWLR 880. The facts of that case have a certain similarity to the facts of the pres ent case. The plaintiff company (‘Sabemo’) tendered for a building lease of land on which the defendant locaal uthority(‘the council’) wished to carry out development. The council accepted Sabemo’s tender and negotiations for the lease followed. According to the headnote (which contains the only statement of the facts of the case):
‘It was agreed that the acceptance of the tender did no more than bring the parties together so that they could plan the project until a point was reached where they would enter intoa contractual relationship, namely, the proposed building lease.’
Sabemo carried outa lot of detailed work on the plans for the proposeddevelopment, and at one point actually raised (apparently inconclusively with the council) the question of compen sation before it worked on any revised design. Eventually the council decided to abandon the proposed development scheme altogether. Sabemo sued the council for $426,000 which it said was the cost of work done by it for the council in connection with the proposeddevelopment. Sabemo succeeded. Sheppard J said, at 900-1’Ina judgment of this kind it would be most unwise, and in any event impossible, to fix the limitations which should circumscribe the extent of the right to recover. It is enough for me to say thatI think that there is one circumstance here which leads to the conclu sion that the plaintiff is entitled to succeed. That circumstance is the fact that the defen dant deliberately decided to drop the proposal. …. In the William Lauy case, [1957) l WLR 932 too, the defendant made a unilateral decision not to go on, but to sell its land instead. I realise that, in looking aMhe matter in this way, I am imputing a degree of fault to the defendant. To some this may seem to be, at least in English law, somewhat strange. It has long been the law that parties are free to negotiate such contract as they may choose to enter into. Until such contract comes about, they are in negotiation only. Each is at liberty, no matter how capricious his reason to break off the negotiations at any time. If that occurs that is the end of the matter and, generally speaking, neither party will be under any liability to the other. But the concept that there can be fault in such a situation was adopted both by Somervell and Romer LJJ in the Brewer Street case [1954] I Q!3 428,434,438,439 the latter, so it seems to me, basing his judgment upon it. Denning LJ (1954] 1 QB 428,435,437 did not in fact find fault in that case, but it would seem that he thought it could sometimes exist in negotiating situations, as distinct from contractual ones, although there had not in fact been fault in the case with which he was immediately concerned. To my mind the defen dant’s decision to drop the proposal is the determining factor. If the transaction had gone off because the parties were unable to agree, then I think it would be correct, harking back to the expressions used by the judges in the Jennings v. Chapman case (1952) 2 TLR 409, 413,414,415, and in the Brewer Street case [1954) I Q!3 428,436,437, 438, to say that each party had taken a risk, in incurring the expenditure which it did, that the transaction might go off because of the bona fide failure to reach agreement on some point of substance in such a complex transaction. But I do n<_Jt think it right to say that that risk should be so borne, when one party has taken it upon itself to change its mind about the entirety of the proposal.’
Sheppard J described the principle he was applying, at 902-3:
‘In my opinion, the better view of the correct application of the principle in question is that, where two parties proceed upon the joint assumption that a contract wilf be entered into between them, and one does work beneficial for the project, and thus in the interests of the two parties, which work he would not be expected, in other circumstances, to do gratuitously, he will be entitled to compensation or restitution, if the other party unilater ally decides to abandon the project, not for any reason associated with bona fide disagree ment concerning the terms of the contract to J>e entered into, but for reasons which, however valid, pertain only to his own position and do not relate at all to that of the other party.’
Sneppard J appears from other passages in his judgment to have considered that he was apply ing the decision in William Lacey (Ho1mslow) Ltd v. Davis (1957] 1 \\/LR 932. In my judgment Sabemo’s claim was distinguishable from that in William Lacey (Hounslow) Ltd v. Davis on sim ilar grounds to those on which I have already expla.ined I think Regalian’s claim in tne present case is distinguishable-namely that in William Lacey (Hounslow) Ltd v. Davis the work the subject matter of the claim was quite outside the ambit of the intended contract.
I will deal a little later in this judgment with the question whether the principle enunciated by Sheppard Jin the Sabemo case [1977] 2 NSWLR 880 should be held to apply in English law. Irrespective of the answer to that question, in my judgment it would not apply to the facts of the present case, for the reason for the breakdown of negotiations between L.D.D.C. and Regalian was their inability to agree on an essential term of the intended contract, namely the price. It was not because one party ‘unilaterally decided to abandon the project’ in the words of Sheppard J in the Sabemo case.
In this amtext Regalian placed reliance on the letter of 8 July 1987 from Mr Ward, Chief Executive ofL.D.D.C., to Mr Goldstone, which I have already quoted, in which Mr Ward said that ‘the delay in our providing vacant possession will not create the situation under which we would seek to amend the terms of our disposal of the site to you.’ Regalian submitted that in the end that was just what L.D.D.C. did try to do-namely increase the price-because of the alleged change in market value during the period of delay in L.D.D.C.’s obtaining vacant possession. I see some force in this submission, despite L.D.D.C.’s response that in the interim Regalian itself had sought successfully to alter the terms of the deal to take account of the vacant possession problem. However,l cannot see that the submission helps Regalian’s claim as formulated in this action, even if the principle enunciated by Sheppard J in the Sabemo case is to be applied, for it does not alter the fact that negotiations broke down because the parties could not ultimately agree onprice. It may be that the letter of 8 July 1987 could have beenrelied on as giving rise to some sort of estoppel disentitling L.D.D.C. from seeking to renegotiate the price, but no such estoppel is relied on by Regalian for the obvious reason that presumably the result of sucha plea, if successful, would bea contract between the parties at the price agreed subject to contract beforeL.D.D.C. tried to increase it and otherwise on the other terms agreed between the par
ties. This would bea result totally unwanted by Regalian, becausein the light ofmarket changes since mid-1988 sucha contract would be financially very unattractive toRegalian.
The third authorityparticularly relied on by Mr Coulson isa decision of Judge Peter
Bowsher QC sitting on official referee’s business in Marston ConstructionCo.Ltd v.KigaE Ltd (1989) 15 Con. LR 116. In that case the defendant had invited tenders for the rebuilding ofa factory which had been burned down. The plaintiff tendered for the work. Its tender was accepted. It was made clear by the defendant to the plaintiff that no contract for the rebuilding would be entered into unless and until the defendant had succeeded inobtaining from an insur
ance claim sufficient money to finance the rebuilding. Both the plaintiff and the defendant con fidently expected that sufficient insurance moneys would be forthcoming and that accordingly a contract between them would result. In this confident expectation the plaintiff carried out substantial preparatory works the cost of which, if a contract had materialised, would have been
included in the contractprice. At one point the plaintiff sought an assurance from the defen dant that theplaintiff’s costs incurred before the expected contractwas signed would be met by thedefendant. No such assurance was forthcoming. The defendant’sinsurance claim did not produce sufficient to cover the cost of the proposed rebuilding and no contract wasentered into between theparties. The plaintiff sought recompense for the preparatoryworks. Judge Bowsher QC referred, at 126, to William Lacey (Hounslow) Ltdv.Davis (1957]I WLR 932 and cited the passage, at 939, which I have already cited from the judgment of Barry J. He then referred toa dictum of Robert Goff J in British Steel Corporationv. Clei,e/and Bridge and
Enginming Co. Ltd [1984) 1 All ER 504, 511, to which I shall refera littlelater inthis judg ment. Then Judge Bowsher said, 15 Con.LR 116, 127:
‘I find that the facts of the present case, although different in important respects aresimilar in kind to the facts in William Lacey (Hounslow) Ltd v.Davis (1957] 1 WLR 932.
There wasa request to do the work, though the request in respect of the bulk of the work was implied rather than express. It was oontemplated that the work would be paid for out of thecontemplated contract. Both parties believed that the contract was about to be made despitethe factthat there was a very clear condition which had to be met bya third party if the contract was to be made. The defendants obtained the benefit of the work in my judgment, though Mr Raeside submitted that they did not.’
Judge Bowsher QC expressed his conclusion in favour of the plaintiff in the followingterrns, at 129: ‘Thepreliminary works requested were undoubtedly done for the benefit of the defen- dants and were only done for the benefit of the plaintiffs in the sense that they hoped to makea profit out of them. As a result of the works some progress was made towards get ting consents and in the end the defendants had in the handsof their agent somedesigns and working drawings (though not a complete set) together with an implied licence to build to those drawings even though that licence be limited asI think (without having heard argument) toa licence to have the factory built by the plaintiffs. Whether the defen dants decideultimatelyto build a factory or to sell the land, they havea benefit which is be realisable.
Conclusion. I therefore conclude that there was no agreement as alleged in paras. S to 8 of the statement of claim. I find that there was an express request made by the defendants to the plaintiffs to carry out a small quantity of design works and that there was an implied request to carry out preparatory works in general and that both the express and the implied requests gave rise to a right of payment of a reasonable sum.’
I have to say, with all respect for Judge Bowsher QC, that I find this a surprising decision, not least because, as I have recited from his findings of fact, the plaintiff had earlier requested and been refused an assurance that it would be compensated for the preparatory work con cerned. In this respect I agree with the critical commentary on Judge Bowsher’s decision by the editor of the Building Law Reports (1989) 46 BLR 109. However, whether the decision be right or wrong, I do not feel obliged to apply it in the present case, which is distinguishable on the facts in two particular respects. First, in the present case, unlike the M11rston Construction Co case, even if a contract had materialised no part of any costs incurred or work done by Regalian in connection with the contract would have been paid for by L.D.D.C. The only obligation on
L.D.D.C. would have been to grant the building lease. Secondly, as I have already said, I am not satisfied in the present case that the preparatory works resulted in any benefit to L.D.D.C. I referred a little earlier to the citation by Judge Bowsher QC in the Marston Construction Co case of a dictum of Robert Goff Jin British Sttel Corporation v. Cleveland Bridge and Engineering Co. Ltd [1984) l All ER 504, 511. [He set out the facts of the case and considered the judgment of
Robert GoffJ before continuing:] .
I do not consider that this decision lends any real support to Regalian’s claim in the present case. I can well understand why Robert Goff J concluded that, where one party to an expected contract expressly requests the other to perform services or supply goods that would have been performable or suppliable under the expected contract when concluded, in advance of the con tract, that party should have to pay a quantum meruit if the contract does not materialise. The present case is not analogous. The costs for which Regalian seeks reimbursement were incurred by it not by way of accelerated performance of the anticipated contract at the request of L.D.D.C., but for the purpose of putting itself in a position to obtain and then perform the con tract.
Mr Coulson relied on the last part of the dictum of Robert GofTJ at 511, which I have cited, in which he pointed out that the application of the principle of restitution which he applied in that case can result in one party to an anticipated contract which does not materialise finding himself liable to pay the other party for preparatory work for which he would not have had to pay under the contract, because under the contract it would have been allowed for in the over all contract price. I do not think the judge had in mind (because he was not concerned with such a claim) that a landowner intending to contract to graot a building lease could find itself liable to pay the intending lessee developer for preparatory work done by the lessee for the purpose of putting itself in a position to obtain and perform the contract.
l must return now to the statement of principle made by Sheppard J in the Sabemo case
[1977) 2 NSWLR 880, 900-1, 902-3 which I have cited earlier, for the essence of Mr Coulson’s submissions on behalf of Regaliao is that that principle should be applied in the present case. For convenience I repeat here the relevant passage from the judgment of Sheppard J at 902-3:
‘In my opinion, the better view of the correct application of the principle in question is that, where two parties proceed upon the joint assumption that a contract will be entered into between them, and one does work beneficial for the project, and thus in the interests of the two parties, which work he would not be expected, in other circumstances, to do gratuitously, he will be entitled to compensation or restitution, if the other party unilater ally decides to abandon the project, not for any reason associated with bona fide disagree ment concerning the terms of the contract to be entered into, but for reasons which, however valid, pertain only to his own position aod do not relate at all to that of the other party.’
I have already said that the principle as so stated would not, in my judgment, apply in any event to the facts of this case, because the reason the contract did not materialise wasthat the parties could not agree on the price, and not that either party decided to abandon the project. However, in caseI am wrong on this, l should say that in my respectful opinion the principle enunciated by Sheppard Jin the passage I have cited is not established by any English author ity.I appreciate that the English law of restitution should be flexible and capable of continuous development. However I see no good reason to extend it to apply some such principle as adopted by SheppardJ in the Sabemo case to facts such as those of the present case, where, how ever much the parties expect a contract between them to materialise, both enter negotiations expressly (whether by use of the words ‘subject to contract’ or otherwise) on terms that each party is free to withdraw from the negotiations at any time. Each party to such negotiations
must be taken to know (as in my judgment Regalian did in the present case) that pending the conclusion ofa binding contract any cost incurred by him in preparation for the intended con tract will be incurred at his own risk, in the sense that he will have no recompense for those costs if no contract results. In other words I accept in substance the submission made by Mr Naughton forL.D.D.C., to theeffect that, by deliberate use of the words ‘subject to contract’ with the admitted intention that they should have their usual effect,L.D.D.C. and Regalian each accepted that in the event of no contract being entered into any resultant loss should lie where it fell.
Regalian, under the leadership of Mr Goldstone, was a very experienced operator in the
property developmentmarket. To his considerable credit Mr Goldstone did not pretend that he was not aware that L.D.D.C., like any other party to negotiations ‘subject to contract,’ was free to walk away from those negotiations, however little he expected it to do so. Regalian incurred the costs concerned in that knowledge. Though it is perhaps not strictly relevant,I see nothing inequitable in those circumstances in the loss resulting from the breakdown of negoti ations lying where it fell, particularly bearing in mind that, in the light of the slump in the res idential property market that followed the attempt by L.D .D.C. in May 1988 torenegotiate the price for the proposed building leases, Regalian has good reason to be thankful that itdid not
find itself having to take those leases on the terms previously proposed.
In my judgment Regalian has failed to make good its claim based on the principles of resti tution. It havingr, ightly, in my view, abandoned its alternative pleaded claim based on alleged misrepresentation, its action fails and must be dismissed.
Zuphen v. Kelly Technical Services (Ireland) Ltd.
[2000] IEHC 117 (24th May, 2000)
JUDGMENT of Mr Justice Roderick Murphy delivered the 24th day of May, 2000.
1. The Plaintiffs are South African technicians and the first and second named Defendants are each a recruitment company of which the third and fourth named Defendants are directors.
2. By Plenary Summons dated the 13th January, 2000 the several Plaintiffs claim a declaration that the purported determination of their employment under contracts of employment entered into on the 27th September, 1999 with the first and/or second named Defendant is null, void and of no effect and is valid and subsisting until the 27th September, 2000.
3. The Plaintiffs also claim salaries due from the 22nd December, 1999, damages and restraining orders.
4. By Order dated the 13th January, 2000 O’Sullivan J. made certain orders in relation to the replying Affidavit to be served on the Intended Plaintiffs; to the delivery of a Statement of Claim within seven days and the delivery of a Defence within a further seven days.
5. By Defence dated the 10th February, 2000 the Defendants, inter alia, pleaded that the performance of the agreements which the second named Defendant concluded with the Plaintiffs became impossible of performance without any fault on the part of the Defendants or any of them and that the agreements were thereby frustrated.
6. The particulars of frustration contained in the Defence was stated as follows:
“It was at all times understood between the Plaintiffs and the second named Defendant that the retention of the Plaintiffs by the second named Defendant was to be in the context of carrying out work on behalf of Eircom Plc and in late December, 1999 the said Eircom work was no longer available as Eircom Plc indicated to the second named Defendant that it would not be requiring it to carry out any further. (sic). This was not due to any default on the part of the Defendants or any of them.”
7. By reply dated 3rd March, 2000 the Plaintiffs, inter alia, denied that the performance of their agreements with the second named Defendant became impossible of performance without any fault of the part of the Defendants or any of them and denied that the agreements were thereby frustrated. The Plaintiffs denied that, in the premises, the Defendants and each of them were discharged from performance of the said agreements. By way of further special reply, the Plaintiffs plead that the Defendants were estopped from claiming that the agreements were frustrated because the Defendants gave the Plaintiffs unambiguous assurances that the agreements would be for at least one year.
8. Furthermore, the Plaintiffs deny that the contracts were frustrated without any fault on the part of the Defendants, or any of them, because the contract entered into by the second named Defendant and Eircom Plc provided that Eircom could only terminate the contract on the grounds of specified breach by the second named Defendant on grounds set out at clause 47 of that agreement. In the premises, the Plaintiffs plead that the termination of the contract between the second named Defendant and Eircom Plc was caused wholly and/or exclusively as a result of the breach of contract and/or negligence and/or fault of the second named Defendant, its servants or agents.
9. In addition the Plaintiffs deny that at all times it was understood between the Plaintiffs and the second named Defendant that the retention of the Plaintiffs by the second named Defendant was to be in the context of carrying out work on behalf of Eircom Plc and that in late December, 1999 the said Eircom work was no longer available as Eircom Plc indicated to the second named Defendant that it would not be requiring it to carry out any further work. The Plaintiffs further deny that this withdrawal was not due to any fault on their part.
10. The Plaintiffs also plead that if there were any frustration of the contract between Eircom Plc and the second named Defendant (which is denied) then the same was induced by the second named Defendant through its own fault.
11. An amended Statement of Claim was delivered on the 8th March, 2000 which gave particulars of the agreements and of damage, loss, distress and inconvenience.
12. By Notice of Preliminary Issue dated 24th March 2000 the Plaintiffs and the Defendants agreed and the Court ordered as follows:
“That this Honourable Court does direct the trial of the issue of frustration as the sole issue of liability in these proceedings (save for the contention of the Defendants that the Plaintiffs listed under Schedule 1 thereof resigned and/or terminated their contracts with the Defendants, which said resignation and/or termination gave rise to a termination of any liability to those Plaintiffs on the part of the Defendants, which issue shall be tried along with the assessment of damages in the event of the Plaintiffs in the action succeeding on the issue of frustration before this Honourable Court).”
13. A subpoena duces tecum was served on the Company Secretary of Eircom Plc on the 5th April, 2000.
14. By amended reply and Defence to counter claim delivered the 6th April, 2000 the Plaintiffs denied that they terminated or repudiated their contract of employment or agreed to release the Defendants from the contractual obligations and that the Defendants are estopped from so contending.
EVIDENCE
15. The matter came before the Court on Tuesday 11th April. It was agreed that the Defendants, in respect of the preliminary issue would first give evidence.
16. Mr Patrick O’Flaherty, the financial director of the first named Defendant, gave evidence of two distinct contracts.
17. The first was a contract of May, 1999 in respect of the Galway area which involved a dead network requiring a copper jointer’s skills which required less responsibility than working on the existing live network. The first named Defendant employed predominantly Irish copper jointers under this contract which is still ongoing.
18. The second contract of the 30th September, 1999 related to upgrading and maintaining the existing “live” network in Dublin. Eircom Plc (“Eircom”) had told Mr O’Flaherty that 250 workers would be needed and the first named Defendant stated that they could supply 80. That contract was based on the general conditions of the May, 1999 contract but with a difference of the basis of payment and an accreditation course. 70 were employed as copper jointers in Dublin; 6 went to Galway and 4 to Athlone because of the demand there. The worksheets were completed by the first named Defendant and signed by an Eircom supervisor. Mr O’Flaherty stated that the funding for the contract of the 30th September came out of capital which was a separate budget in respect of the Dublin contract with Eircom.
19. On the 23rd December, 1999 Eircom had overpaid on that budget. The first named Defendant offered to postpone receiving payment until April. However, this was refused by Eircom. Mr O’Flaherty told the Plaintiffs who then commenced these proceedings. He tried to get work for them in Eircom. There was no resumption of the work in Dublin. He said that the first named Plaintiff never had any intention of taking the Plaintiffs other than for the work with Eircom. He had assumed that the work was secure until March, 2000. However, work was no longer available. He was able to secure some employment with British Telecom in London, Northern Ireland and in Ireland.
20. Under cross-examination Mr O’Flaherty agreed that the contract with Eircom of May, 1999 gave no entitlement to any particular level of work. He did not have any dealings with the advertising in South Africa. He agreed that the recruitment of 70 in South Africa proceeded before the written memo of the 30th September, 1999 was executed with Eircom. While there was no form of commitment from Eircom he did not feel it improper to rely on Eircom and felt able to make a judgment call.
21. He agreed that the general agreement, at paragraph 2.1, provided that work should be “allocated as the need arises”. The notification of the requirement was received orally in August, 1999 according to his recollection. The figure of 80 followed on his colleague Mr Hartnett visiting South Africa in September, 1999 to recruit copper jointers. He did not agree that the terms offered to the intending workers was prior to a commitment from Eircom. That commitment was verbal that they needed 250 and that the Defendants would provide 80.
22. He agreed that the contract letters dated the 17th September, 1999 to the Plaintiffs offered secure employment conditional on their being available in Dublin on the 29th October, 1999 and having a work permit. Mr O’Flaherty said that his company had been advised that the need was there and that there was no necessity to make the contracts conditional on that work being available.
23. It was not the fault of the Defendant companies that Eircom could not provide any other work. Mr O’Flaherty agreed that the letter of 16th November, 1999 from the first named Defendant to Eircom regarding increases of £30 – £34 per hour was sent but denied that it had anything to do with the termination by Eircom. There was no written response to such a request. He agreed that there was less profit on pressurisation work. A letter dated the 5th January, 2000 from Eircom to the first named Defendant referred to a complaint in relation to the Dublin contract was received by all contractors. He attended a meeting on the 15th March, 2000 to discuss the concerns of Eircom and a discount for the amount charged on work. There was no prospect of new work. However, under “Tender 2000” he expected that Eircom would have additional work which will involve the Access Network Programme. He understood that the Defendant company would be given different work under that programme.
24. He said he was in South Africa in March, 2000.
25. The Plaintiffs were told that there would be recommencement of work not under the September agreement but under the “Access Network Programme 2000”.
26. In relation to the letter of the 23rd March, 2000 Mr Hartnett to Mr Foy of Eircom he agreed that the reference to failure of project to deliver related to Eircom’s contention that there was a failure. The letter of the 5th January, 2000 evidenced the unhappiness of Eircom prior to the ending of the contract on the 7th January, 2000. Mr O’Flaherty disputed the fact that there was a failure. There had been a problem regarding a shortage of tools and equipment. However, at a meeting on the 22nd November, 1999 assurances were given that the employees would be looked after.
27. Mr Martin Cooper, head of Regulation and Costing of Eircom and head of Outsourcing in May, 1999 referred to the contract for the Galway work in May, 1999 and to the September, 1999 contract for the Dublin region which was black spot and pressurisation work.
28. He agreed that the memo of the 30th September, 1999 relating to a meeting between the first named Defendant and Eircom put in writing some of the discussion. He would not describe it as a contract document but as a reflection of what was discussed. He agreed that the Galway project was primarily a capital budget expenditure as was the Dublin pressurisation project. However, the black spot element of the work was a current budget expenditure.
29. He also agreed that the accreditation course for Dublin was one day longer than that for Galway.
30. The work slowed down before Christmas and no further work was given to the first named Defendant after Christmas. From the 7th January, 2000 only authorised work would be paid for. There was no performance issue – the letter of the 5th January was not the reason that they did not get work as there was no work for other contractors.
31. The 2000 contract was mainly general work in respect of new contracts.
32. On cross-examination Mr Cooper agreed that the memo of the 30th September, 1999 was not a contract but gave an indication that there was work. There was no contractual commitment by Eircom. He could not say if there would be more work after Christmas.
33. Mr Brian Hartnett, Operating Director of the Defendant companies was involved in the tendering process. He was asked by Eircom how many technicians could the Defendant company provide and he agreed to provide them with 70.
34. On the 31st August, 1999 he went to South Africa and sent letter to prospective employees with draft terms and conditions. Confirmation would be received once they came to Dublin Airport and presented themselves. There were taken in batches. They had to undergo accreditation process here. They were paid £10 per hour on the course and £14 per hour when working. A unit rate rather than an hourly rate applied to payments by Eircom to the Defendant companies.
35. On the 21st December, 1999 Mr Cooper rang Mr Declan Kelly the fourth named Defendant and indicated that the network upgrade was to stop. The Plaintiffs were informed on the 5th January, 2000 informally and on the 11th January, 2000 formally.
36. On cross-examination Mr Hartnett agreed that the dates for the ads were either August or September, 1999. He believed that the contracts were to run from six months to one year but that there were indications that overtime would be available. He saw the letter of the 27th September, 1999 from Mr O’Flaherty referring to one year renewable. He was assured by Eircom that they would have work until March. Until the tendering process at present is complete the Defendant will not know how many they will need. He said he did not know whether the Defendant was currently advertising for cable jointers in the United Kingdom.
37. Mr Raymond Kelly, the third named Defendant, went to the South African agencies who indicated that they could supply 50 people. There was a verbal agreement with Eircom. The agencies advertised in South Africa as this was their responsibility.
38. Mr Kelly agreed that they believed that Eircom intended to upgrade all exchanges and that they made a commercial judgment accordingly. However, the agency did not act in the absence of a commitment. The agency wished to indicate in the advertisements that the contract was as long as possible but that he had limited contracts to one year as in the memo of the 16th September, 1999.
39. Mr Martin Cooper’s memo to Mr Kelly of the 9th March, 1999 referred to a relationship with fewer contractors. Mr Kelly believed that there was ample work from Eircom. He stressed that he tried to develop long term relationships rather than entering into litigation.
40. Four witnesses gave evidence for the Plaintiffs: Mr Schneeberger (forty first named Plaintiff); Mr Witter (fifty third named Plaintiff); Mr Bezuidenhout (nineteenth named Plaintiff) and Mr Neveling (thirteenth named Plaintiff). All four had left permanent employment. All were given assurances of work of one year and would not have considered a six month contract. They all had signed a letter dated 27th September, 1999 with the agency and left those letters at the agency taking a signed copy with them.
SUBMISSIONS ON BEHALF OF THE PLAINTIFFS
41. The Plaintiffs contend that the advertisements placed by the South African employment companies referred to a guaranteed minimum period of one year renewable in addition to other terms.
42. The conditions of contract dated the 27th September, 1999 emphasise that the offer was conditional upon the Plaintiffs being available for work in Dublin on the 29th October, 1999 and not being refused a work permit. The letter also dealt specifically with the issue of termination of contract as follows:
“This contract can be terminated by yourself by giving one month’s notice at any time. This contract can be terminated by Kelly Technical Services in the event you do not pass the Eircom accreditation within three attempts. This contract can be terminated by Kelly Technical Services with immediate effect for unsatisfactory performance of your duties, primarily if you fail to develop a good working relationship with the Eircom staff with you come into contact with or with your supervisors at Kelly Technical Services.”
43. The Plaintiff say that there was no suggestion that the contracts of employment would be terminated should the Defendants not have any further work from Eircom. The Defendants argue that the contracts with the Plaintiffs had been frustrated because “they lost the Eircom contract”. Nowhere in the contract entered into between the parties is there any reference to the contracts being dependant and/or conditional upon the Defendants continuing to conduct work on the part of Eircom.
44. The Plaintiffs made considerable sacrifices in accepting the offer. They would not have accepted an offer of employment for less than twelve months. A number of Plaintiffs brought their families with them.
45. In January, 2000 the Plaintiffs were advised by the Defendants to return to South Africa and were informed there was no further work available. It was only when the Plaintiffs issued proceedings against the Defendants on the 13th January, 2000 that the Defendants gave undertakings to the Court that they would continue to pay the Plaintiffs the agreed contractual salary and, further, that they would continue to provide or seek to provide employment for the Plaintiffs.
46. The Plaintiffs submit that the theoretical basis for the doctrine of frustration is disputed. There are contradictory Irish authorities providing alternative explanations as between the implied contract theory and/or the true construction theory ( Cummins -v- Stewart (No 2) 1913] IR 95 and Mulligan -v- Browne (High Court, Kenny J. unreported, 9th July, 1976)).
47. Notwithstanding the uncertainty as to its theoretical basis, the doctrine itself is straightforward. A contract may be discharged on the grounds of frustration when something occurs after the formation of the contract which renders it impossible to fulfil the contract or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract. The doctrine is subject to the limitation that the frustrating circumstances must arise without fault of either party ( Maritime National Fish Limited -v- Ocean Trawlers [1935] AC 5 24 and Constantine Lion -v- Imperial Smelting Corporation [1941] 2 All ER 165.
48. The Plaintiffs submit that the doctrine of frustration can never be applied in order to discharge a party to a contract from performing its contractual obligations in circumstances where it may be extremely difficult or even impossible to do so. In Leeson -v- North Bristol Oil and Candle Limited [1974] 8 IR CL 309, it was held that the fact that the Defendants could not obtain paraffin from their own supplier because of a strike did not excuse their failure to supply the Plaintiff. In Paradine -v- Jane [1647] Aleyn 26, the Plaintiff had let lands to the Defendant under the terms of a lease which required the lessee to pay rent on a quarterly basis. The lessees were ejected from possession by armed force, the lands then being occupied by the military during the English Civil War. In an action for arrears of rent, the lessee pleaded that the circumstances excused non-payment of rent. However, this plea was rejected and a distinction was drawn between a general duty imposed by law upon a lessee and a duty undertaken by way of contract. In respect of duty taken on by way of contract the Court stated that:
“When the party by his own conduct creates a duty or a charge upon himself he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity because he might have provided against it by his contract.”
49. The Plaintiff submits that the Defendants could have included the term in this contract specifically dealing with the situation which would arise if the Eircom work was no longer available. They did not do so under the section dealing with termination of contract. However, if such a term had been included the Plaintiffs would not have accepted such a precarious and unguaranteed offer of employment.
50. Besides the requirement in relation to provision against a third party not providing work, an element of mutuality is necessary.
51. The advertisements and the letter of offer and letter containing the contract did not expressly or impliedly provide that the agreement would be terminated should Eircom work not be available.
52. The fact that the Defendants had been able to provide work for 39 of the Plaintiffs who remained in Ireland disproves the contention that the contracts of employment entered into could not be fulfilled should the Eircom work no longer be available.
53. The Plaintiffs submit that the Courts do not allow the doctrine of frustration to apply where increased costs or a limited amount of work make it impossible for one party to perform the contract without incurring serious financial losses and refer to Clarke: Contract Law in Ireland, 3rd Edition, 425:
“It would be undesirable for a business man to agree to perform a contract for a fixed amount and permit him to seek relief through the doctrine of frustration if, during performance, unanticipated difficulties arise.”
54. Reference was also made to Revell -v- Hussey [1813] 2 Ball and B 280 and Davis Contractors -v- Fareham UDC [1956] AC 696.
55. The Plaintiffs contend that the cessation of Eircom work was not unforeseen or unexpected and referred to paragraph 2.1 of the contract whereby work would be allocated “as the need arises” by the head of outsourcing or his duly authorised representative. Moreover, paragraph 2.2 provides a forecast and projection of work that would be required on the “best estimates of anticipated demand for the services as required and are therefore provided for information only and no commitment as to the level of business eventually awarded during the term of the contract is to be inferred, either in its entirety or the relative size or category of work”.
56. Counsel for the Plaintiffs also referred to Neville & Sons Limited -v- Guardian Builders Limited [1995] 1 ILRM 1 where the Supreme Court held that frustration of a contract takes place when a supervening event occurs without the default of either party and for which the contract makes no sufficient provision. The event must so significantly change the nature of the outstanding contractual rights and obligations from what the parties could reasonably have contemplated at the time of the contract’s execution that it would be unjust to hold them to its terms in the new circumstances.
57. The Plaintiffs submit that the failure of Eircom to continue to provide work has not significantly changed the contractual rights entered into by the parties who remain employees of the Defendants. Some are continuing to work while others are available for work. They say that the Defendants do not wish to continue paying the Plaintiffs money for work which is not as abundant as they thought would be the case. Frustration in this circumstance would provide an alternative to redundancy in which an employer would no liability or responsibility to the employee.
SUBMISSIONS ON BEHALF OF THE DEFENDANTS.
58. The Defendants submit that no contractual obligations arose on the part of the last two named Defendants. Any contract with the Plaintiffs arose from the first or second named Defendant against whom any liability which attaches in the present claim arises. I would agree with this submission.
59. The Defendants submitted that a small number of the Plaintiffs have, in fact, resigned from employment with the Defendants and have therefore terminated their contracts with the Defendants. As to the balance of the Plaintiffs the issue is whether the contract between the first and/or second named Defendants and the Plaintiffs was effectively discharged by virtue of frustration of the contract.
60. The Defendants case is that at all material times the contracting of the Plaintiffs for the carrying out of work on their behalf was in the context of doing work on behalf of Eircom Plc; and when Eircom indicated to the Defendants in late December 1999 that no further work was available for the first named Defendants to carry out, the contract was effectively terminated from that point onwards. The contracts commenced with a written contract document on the 27th September 1999 and the Plaintiffs were paid appropriate remuneration and expenses during the currency of that contract and appropriate remuneration and expenses on the termination of the contract by virtue of the withdrawal of the availability of work by Eircom on the aspect of the project on which the first named Defendants were working.
61. The Defendants submit that the relevant law as stated in Halsbury’s Laws of England (4th Edition, Vol 9 at par. 450) is as follows:-
“It frequently happens that a contract is silent as to the position of the parties in the event of performance becoming literally impossible or only possible in a very different way from that originally contemplated. In such cases the law excuses further performance under the doctrine of impossibility or frustration. ”
62. Counsel for the Defendants referred to the origin of the doctrine in the old case of Taylor -v- Caldwell (1863) 3 B. & S. 826. There a contract for a musical performance was discharged by frustration of the contract when the intended music hall venue was destroyed by fire. Counsel mentioned that while there are a number of academic theories as to the basis of the doctrine, the approach of the Courts to commercial arrangements between parties are more instructive. Where events arise which effectively change the basis for the performing of a contract so that what is in place is a materially different contract from that which is originally envisaged by the parties the Courts will alleviate the harshness of the contractual obligation by treating the original contract as being frustrated if its original purpose and intention cannot be met by virtue of outside circumstances with no wrong on the part of the contracting parties. The opposite extremes of the interpretation of the doctrine are to be found in the “Coronation cases” of Krell. v. Henry (1903) 2 K. B. 740 and Heron Bay Steambot Co . v. Hutton (1903) 2 K. B, 683.
63. It is submitted by the Defendants that the cancellation of the Eircom contract effectively gave rise to a situation analogous to that in Krell where the procession which was to be viewed from particular rooms was no longer to take place rather than in Heron Bay where the hirers had at least the benefit of a trip around the port.
64. The Defendants also referred to Neville .v. Guardian Builders (1990) ILRM 601 and (1995) 1 LLRM 1 , where the Defendants purchased a plot of land for development purposes. The only access to the site was through a narrow road which was inadequate for the purpose of proceeding with the intended development. While the High Court determined that the contract had been discharged by frustration, in the Supreme Court overturned this decision on the facts of the case. Blayney J. determined that the contract, while more onerous on the parties, was not completely discharged by frustration owing to the failure to obtain land from the Local Authority to provide sufficient access for development purposes on to the site.
65. The net position as emerges from the Neville case is as follows (as appears from headnote no. 1 of the High Court Report) and echoes Lord Radcliffe in Davis Contractors -v- Farnham UDC [1956] AC 696 at 778/9:
“A contract will be deemed to be frustrated whenever the law recognises without the default of either party a contractual obligation has become incapable of being performed because the circumstances in which it is called for would render it a thing radically different from that which was undertaken by the contract. ”
66. The Defendants say that in the present case Eircom were limited under the terms of their contractual arrangement with the Defendants to terminate the contract only for a stipulated breach. The contract between the Plaintiffs and the Defendants as reflected in the letter of 27th September 1999 and any of the surrounding documents did not provide for a “force majeure”: in fact the contracts did not provide as to what had to happen in the event that what apparently was the basis or cornerstone of the contract was to be removed.
67. In the initial advertising for the contract which is sought to be enforced by the Plaintiffs herein it was specifically indicated that work was to be carried out “At a large telecommunications company in Ireland”. The document of the 1 7th September 1999 to the Plaintiffs specifically indicated that the offer was for a twelve month contract “Working on … the Eircom network”. The document indicated that Telecom Eireann (as it was then known) was Ireland’s national telecommunications company. The document went on specifically to indicate that an orientation course would be required to meet the requirements of Eircom representatives as to sufficiency of competence on the part of the Plaintiffs. These matters were echoed in the letter of the 27th September 1999 which the Plaintiffs contend comprises the contract of obligation on the part of the Defendants. Again reference was made to a twelve month contract working on a particular aspect of the Eircom network (indicating that Eircom is Ireland’s national telecommunications company). The document indicated that the contract could be terminated by the Defendants only in the event that the Plaintiffs fail to meet Eircom accreditation within a fixed period of time and specifically also requires that a good working relationship will be needed with the Eircom staff. The work permit available for the Plaintiffs was only for work in Ireland. The only work in Ireland with the Defendants was to work on the Eircom contract. The contract between the Plaintiffs and the Defendants never envisaged the Plaintiffs being paid for not doing any work. Accordingly it is the contention of the Defendants that once their was no work available on the Eircom contract, they had no other work available and the Defendants were not obliged to pay the Plaintiffs for doing no work. All of the present Plaintiffs were required to attend training programmes which were relevant only to the aspect of the Eircom contract which was subsequently cancelled by Eircom. In these circumstances it is the contention of the Defendants that the contract was discharged by frustration and without any wrongdoing or fault on the part of the Defendants.
Applying the Neville criteria to the facts of the present situation Counsel for the Defendants submitted that all of the considerations determined in the Neville case to give rise to an effective application of the doctrine of discharge by frustration were met:-
(a) There was no default on either the part of the Plaintiffs or the Defendants.
(b) The contract has become incapable of being performed. Eircom have ceased requiring the Defendants to carry out the relevant work for them and therefore the Defendants have no work for the Plaintiffs with Eircom or on the relevant aspect of the Eircom network.
(c) What is now involved in continuing with the contractual obligation is to put in place a contract which is radically different from that which was intended between the parties.
68. It was never intended that the Defendants would pay the Plaintiffs for doing no work. The Defendants have no other work for the Plaintiffs in Ireland except on the identified aspect of the Eircom contract. There is no further Eircom work available with the Defendants to be carried out by the Plaintiffs. Any requirement of the Plaintiffs to do work for the Defendants other than in accordance with the Eircom contract has been in the context of seeking to mitigate the Plaintiffs loss and not otherwise. This work (mainly in the U.K.) was not what was envisaged between the Plaintiffs and the Defendants at the inception of the original contract.
69. In the circumstances the Defendants submitted that the contract was discharged by frustration.
Determination
70. The issue before the Court is whether the contracts entered into on the 17th September, 1999 between the second named Defendant (whether on its own behalf or on behalf of the first named Defendant is not material) and the several Plaintiffs was frustrated by the termination of work by Eircom in January, 2000.
71. It is common case that the Plaintiffs were employed by the Defendant companies and not by Eircom nor by the South African agencies.
72. It is significant that the letter of 27th September, 1999 was conditional only on being available for work in Dublin on the 29th October, 1999, or earlier as arranged, and not being refused a work permit by the Department. There was no condition about availability of work. Such a condition could have been inserted as would be provided in an engineering sub-contract and could have been provided for in a carefully drafted contract of employment.
73. The contract would be terminated by the employee on giving one month’s notice at any time and could be terminated by the Defendant companies where the employee had not passed the accreditation course within three attempts or had unsatisfactorily performed his duties.
74. There is no evidence of either eventuality. Indeed, it is clear that it is not a matter of termination that is before the Court by of frustration of the contract without fault.
75. I accept that the evidence of complaints by Eircom did not amount to a basis for termination of the contract between Eircom and the Defendant companies.
76. The basis of the doctrine of frustration would appear from the authorities is that there is a supervening event which must be so unexpected and beyond the contemplation of the parties, even as a possibility, that neither party can be said to have accepted the risk of the event taking place when contracting.
77. The clear evidence of Mr O’Flaherty was, while there was no form of commitment from Eircom, he did not feel it improper to rely on Eircom and felt able to make a judgment call.
78. The general agreement of the Defendant companies with Eircom as to work being “allocated as the need arises” points to the possibility of such work not arising. It was certainly not so unexpected as to be beyond the contemplation of the parties, even as a possibility.
79. Mr Raymond Kelly believed that Eircom intended to upgrade all exchanges and that, accordingly, the Defendant companies made a commercial judgement accordingly.
80. The memorandum of the 30th September, 1999 related to a meeting between the first named Defendant and Eircom. Mr Martin Cooper of Eircom did not describe it as a contract document but as a reflection of what was discussed. It seems to me that it was on the basis of this document that the Defendant companies proceeded. Indeed, Mr Cooper agreed that the memo gave an indication that there was work even if there was no contractual commitment. Significantly, however, Mr Hartnett had sent letters to prospective employees with draft terms and conditions before that date.
81. The clear evidence was that, notwithstanding the non-finalisation of the contract with Eircom, the Defendant companies sought to engage technicians on one year contracts.
82. The Defendants were aware in making a commercial judgement call that this was conditional on work being available.
83. The Court must accordingly on a general impression of what the rule in relation to frustration requires. It is for that reason that special importance is necessarily to the occurrence of an unexpected event that, as it were, changes the face of things. It seems to me that this is not the case. It is not hardship or inconvenience or a material loss itself which calls the principles of frustration into play. There must have been such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.
84. Moreover, it does not seem to me that the contract had become entirely incapable of being performed. Indeed, the Defendant companies, in order to mitigate loss or damage, have obtained work for some of the workers concerned.
85. Indeed, the very commendable attempt by the Defendant companies to procure such work for the technicians they had employed is to my mind an indication that a contractual relationship survived which would be inconsistent with the contract being frustrated.
86. Moreover, the relationship entered into with the Plaintiffs was one of master and servant, to use the old fashioned term. It seems to me to be inappropriate in that circumstance to apply a strict contract law approach to employment disputes. Attempts to so apply tend to obscure the social implications of certain kinds of conduct or events by reducing them to legalistic principles. However, it is not for this reason alone that I find that the contract was not frustrated in the circumstances.
87. Furthermore, I am satisfied from the evidence given by the four Plaintiffs that they would not have entered into the contracts had there been a condition that the contract could be terminated if work were not available. Those Plaintiffs gave evidence which showed a commitment to coming to Ireland for a period of one year with hope of continuing further in reliance on the first letter of 17th September, 1999 in relation to the renewal of the contract after a period of one year.
88. In the circumstances and for the foregoing reasons it does not seem to me that the contract was frustrated by the loss of the specific Eircom contract.
Margaret Collins v Michael O’Brien
High Court on Circuit in Limerick
14 October 1981
[1981] I.L.R.M. 328
DOYLE J
delivered his judgment on 14 October 1981 saying: This is a difficult case to decide because there is no memorandum or note in writing relating to the transaction. A few words on a sheet of paper may have avoided litigation. A grazing letting is a licence to use the lands of another and usually the letting is for less than twelve months. It does not amount to a tenancy: In re Moore’s Estates Ltd; Fitzpatrick v Behan [1944] IR 295. Similarly a letting in conacre is a licence to put in a crop, grow it, dig it, and take it away. In both grazing and conacre lettings the terms of the agreement customarily follow the natural seasons and, in the case of grazing lettings, the parties usually adopt the eleven month system. I accept the evidence of Mr Quish, auctioneer, when he says that in such lettings it is not unusual for the letting to end on the 31 December of any given year.
Mr Lee has referred me to the case of Crane v Naughton [1912] 2 IR 318 in which the plaintiff, who was possessed of freehold lands, instructed an auctioneer to put up for sale by public auction the grazing of a certain portion of those lands for a period of six months. In pursuance of such instructions the auctioneer duly offered the grazing for sale and accepted the bid of the defendant. In the course of his judgment Gibson J said:
What is the nature of the contract here? When parties to a contract reduce it to writing nothing can be added to, or taken from, the writing; it speaks for itself and is final and conclusive. But the document required by the Statute of Frauds is of a different character. It is a memorandum of what the contract is. Accordingly, if the memorandum is not in accordance with the true contract it is a bad memorandum … The contract here purports to be a contract for a grazing for a definitive period. The reason for the formula of eleven months has come to be used is because if twelve *330 months were put in for a grazing letting there is a special section of the Land Act, 1881, s. 16, which says that that would be a yearly tenancy. That fact shows that the eleven months is a term in such letting that relates to tenancy of land. The contract therefore comes within s.4 of Deasy’s Act [Landlord and Tenant Act, 1874] and, being for less than a year, need not be in writing.
Usually the agreement is, however, reduced to writing which embodies dates for the commencement and termination of the period of grazing. In the present case, on the death of her husband, the plaintiff decided on a clearance sale of her cattle and farm implements by public auction and on the letting of the grazing of her 46 Irish acres. The date of the auction, which was 23 March 1979, was an unusual date for the commencement of a grazing letting. In Crane v Naughton (supra) the date was also unusual as the advertisement in the local press stated that it was to be from 9 October 1911 to 1 April 1912. In the present case there is nothing in writing as to when the letting was to end. The conclusion to which I have come is that the plaintiff thought the term was from 23 March 1979 until 31 December 1979. The defendant believed that it was from 23 March 1979 until 22 February 1980. The parties were thus, never ad idem and so there was no contract between. In those circumstances I have to ask myself: what would a Court of Equity allow? I approach the case as if on a claim for quantum meruit. If the defendant had taken the grazing from a date in or about the middle of January 1979 to end on 31 December of that year the price for the grazing would be £162 per acre. The plaintiff has not discharged the onus of proof which rested on her to show that, in the circumstances, the term ended on 31 December 1979. The defendant enjoyed the grazing only from 23 March 1979 to 7 February 1980 when he was forced to vacate the lands. He lost 15 days grazing and I will give him a decree on his counterclaim for £315 being 15 days at the agreed figure of £21 per day.
Folens and Company Ltd v The Minister for Education
Ireland and the Attorney General
1978 No. 4363 P
High Court
4 October 1982
[1984] I.L.R.M. 265
(McWilliam J)
McWILLIAM J
delivered his judgment on 4 October 1982 saying: This case commenced with a claim for an indemnity against money expended by the plaintiff in preliminary work done by it for the production of a children’s encyclopedia in Irish which was to be financed by the purchase of volumes of the finished work by the Department of Education (hereinafter called the Department) or by means of grants or by both methods. This claim was for £82,466 but it was subsequently amended to include a claim for damages for breach of a contract for the production of the encyclopedia for the Department by the plaintiff, such damages to include loss of profits which would have been earned had the project been completed.
Mr Albert Folens is the managing director of the plaintiff, which is a family concern. He came to Ireland from Belgium in 1948, obtained degrees at UCD and, in 1953, started writing educational books. In 1957 he started publishing educational books for primary and secondary school standards with a few books for the university. The books published in English were published for the Department upon different terms to those applicable for books published in Ireland, for which there is not such a wide market.
In the case of Irish books the plaintiff paid the costs of production and publication, retained the proceeds from sales and received grants from the Department through An Gum. These grants were provided by the Department on terms which appear to have been renewed each year with certain variations mainly concerned with the amounts and methods of calculation of the grants. Amongst the terms, the following were included in each year:
1. A grant will not be payable until the book is published.
2. A publisher who intends to publish a textbook must first submit a sample of the original script of the book (one chapter and brief summary of the other chapters) to the Department for approval.
3. Approval of the sample does not guarantee that a grant will be paid for the published book.
*267
In 1969 or 1970 Mr Folens conceived the idea of producing a children’s encyclopedia in Irish. He had become very well acquainted with Mr Thomas O’Floinn, a senior officer in the Department, in connection with his earlier publications in Irish and he approached Mr O’Floinn about producing the encyclopedia. Mr O’Floinn said in evidence that he was not enthusiastic about the idea but thought it was a good one and asked for a proposition.
Neither of them is clear when the matter was first discussed but it was probably in 1970 as it appears there was a new programme introduced for schools in 1969 and that it was in connection with this that Mr Folens thought of producing an encyclopedia. At all events he was already investigating the question of cost in January 1971.
By 18 August of that year, the plaintiff had decided to appoint Mr de Barra as editor and wrote to Mr O’Floinn and informed him of this fact. With this letter a statement of the plaintiff’s proposals for the production of the encyclopedia was enclosed. These proposals were discussed at a meeting at the Department on 10 September at which Mr O’Floinn and five others from the Department were present and Mr Folens and two others were present on behalf of the plaintiff. This was a preliminary discussion and no decisions were reached but it was recorded that the Department was in favour of the project. It was also stated that the Department of Finance would have to be consulted. The plaintiff’s proposals had suggested an arrangement different to that which had operated between the parties with regard to the previous educational books in Irish having the effect that the Department would enter into certain commitments in addition to the grants normally provided through An Gum.
Shortly after this meeting, the plaintiff furnished an estimate of the cost of the project amounting to £382,962 and pointed out that, on the basis of the suggestions at the meeting of 10 September there would not be sufficient profit for the plaintiff.
At a further meeting in March 1972, a number of matters were discussed and the representatives of the Department present appear to have agreed in principle both to the project and to an increased cost of £425,512 but no agreement was reached and it was emphasised that there could be no prospect of authority to go ahead unless the Department guaranteed the purchase of 6,000 copies of each volume.
In June 1972, Mr O’Floinn sent a memo to the Department of Finance in which he said ‘Folens & Co. Ltd, could not undertake to publish such a work without a guarantee that it would be bought and sold’.
A memorandum from the Department of the Minister for Finance to the Department of Education in August 1972, indicated that the Department of Finance approved the proposals but required them to be considered by the Government Contracts Committee.
The format of the encyclopedia was discussed at a meeting between representatives of the Department and of the plaintiff in January 1973, and a recommendation was sent from the Department to the Government Contracts Committee that a contract be placed for 5,000 copies of each of 16 volumes at £3 per volume making a total of £240,000, publication to be at the rate of two *268 volumes per year between 1974 and 1982.
On 15 March 1973, representatives from the Department and of the plaintiff met with representatives of the Joint Welsh Educational Committee for discussions about a similar encyclopedia being prepared in Welsh, with particular regard to the method of obtaining the assistance of experts.
By the middle of May 1973, a supervisory committee had been appointed by and on behalf of the Department to supervise the work done by the plaintiff and to approve the membership of an editorial committee to produce or approve articles for the encyclopedia. When formed, this latter committee was called the advisory committee. At a meeting with two officers from the Department and the supervisory committee on 11 May 1973, Mr de Barra, on behalf of the plaintiff, submitted that the plaintiff should have some form of contract or guarantee in writing without further delay.
At a further meeting of the supervisory committee on 18 May 1973, there appears to have been some discussion about the scale of payment to be made to the members of the advisory committee and arrangements were made to give guidelines to the plaintiff for the preparation of the encyclopedia. On 30 May the supervisory committee met to discuss the format of the encyclopedia and seem to have approved of the scale of remuneration proposed for the advisory committee.
The supervisory committee met with Mr de Barra present on 28 September 1973, and appears to have asked for an estimate to be prepared. This was done and is dated 1 October 1973, and a letter to Mr O Tuama of 5 October quotes a figure of £573,840 for 6,000 copies of each of twelve volumes.
A draft letter, dated November 1973, from the Department to Mr de Barra which was sent for approval to the publications branch, called for a breakdown of the estimate and stated that the retail price should not exceed £3, that it was understood that an increase in the payments involved would have to be made and that, as soon as the breakdown would be certified and accepted by the Department, a payments scheme would be set up through An Gum. A reply to Mr O Tuama from the publications branch dated 15 November 1973, referred to the memorandum of 24 August 1972, in which the Department had required the proposals to be considered by the Government Contracts Committee and suggested financing the project by determing a price per copy which would cover all the costs and some profit for the plaintiff. This indicates that the draft letter was not approved or sent but it appears to me to be relevant in another context.
The advisory committee met on 10 November 1973, and it appears that at this date, a list of centents had been practically completed.
At a meeting of the supervisory committee on 30 November 1973, it was explaieed to Mr de Barra that the supervisory committee had nothing to do with finance and that the figures in any estimate would have to be checked by a regular contracts committee. A further estimate was furnished on 5 December 1973, and showed an increase in the costs to £627,982 with a cost to the Department by purchase and grants of £587,482.
Two letters of 20 March 1974, from the Department to the Government *269 Contracts Committee and the Department of Finance respectively proposed a scheme to purchase 6,000 copies of the encyclopedia at a price which would show a reasonable profit for the plaintiff.
A letter to the Department from the Department of Finance suggested withdrawing from the scheme owing to the greatly increased costs. There is no indication that this letter was brought to the notice of the plaintiff.
On the basis of these negotiations, meetings of both the advisory committee and of the supervisory committee continued to be held and the plaintiff continued to work on the preparation of the encyclopedia. Then, by letter of 17 January 1975, the Department wrote to say that no further commitments should be made in relation to the production of the encyclopedia as there were no funds available for the project.
Under these circumstances, the case is made on behalf of the plaintiff that, although there was no written contract to be read into any selection of the numerous documents, an undertaking to complete the project had been given by a responsible government department which the plaintiff was entitled to treat as binding. Alternatively, it is claimed that the Department is liable to recoup the expenditure actually incurred by the plaintiff on the work together with a reasonable profit on the basis that a contract for this work must be implied from the circumstances.
The defendants deny that there was any contract either for the production of the encyclopedia or for the work which was done and, alternatively, if there was any contract, it was subject to the terms applicable to the production of books in Irish generally and, as no book was published, the plaintiff did not become entitled to any payment.
I am satisfied that there was no concluded contract for the production of the encyclopedia although it was alleged, and was vigorously urged by Mr Folens in evidence, that he had, in effect, received assurances that, if he produced the encyclopedia, he would be adequately remunerated for it. While Mr O’Floinn stated in evidence that he was not enthusiastic about the idea of the encyclopedia although he thought the idea was a good one, I think this was an understatment and that he was both enthusiastic and fully supported the project. On the other hand, there was never any agreement as to price and Mr Folens’ answer to this was that Mr O’Floinn always said there would be no difficulty about the money. But Mr Folens should not have been under any illusion as to this because he was present at a meeting on 10 September 1971, when it was stated that the Department of Finance would have to be consulted, in May 1973, Mr de Barra was requesting some form of contract or guarantee and, in November of the same year, at a meeting of the supervisory committee, Mr de Barra was told that his estimate would have to be checked by a regular contracts committee. Whatever Mr Folens may have thought, and there is no reason to doubt his honesty, I cannot accept, on the evidence before me that Mr O’Floinn was purporting to bind the Department to commission the encyclopedia at whatever cost would be appropriate having regard to the prevailing conditions of inflation. In each of the cases to which I was referred on this aspect there was a definite commitment or representation which was *270 not present in this case. The following are the cases to which I was referred. Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130; Robertson v Minister of Pensions [1949] 1 KB 227; and Lever Finance Ltd v Westminster (City) London Borough Council [1971] 1 QB 222.
I also reject the contention on behalf of the defendants that the plaintiff entered upon this project on the basis of the terms applicable to the production of ordinary school books. The original proposals by the plaintiff were not consistent with any such terms. At the meeting of March 1972, the representatives of the Department were contemplating a transaction whereby the Department would guarantee the purchase of 6,000 copies and the memo of June 1972 to the Department of Finance indicates that the Department was contemplating such a transaction. Similarly, the recommendation from the Department to the Government Contracts Committee in January 1973, the meeting of 11 May 1973, the letter of 5 October 1972 to Mr O Tuama, the draft letter of November 1973, and the two letters of 20 March 1974, all appear to me to be wholly inconsistent with the contention that the project was intended to be subject to the terms applicable to the grants provided for ordinary textbooks in Irish. I am satisfied that the Department did not approach the proposed transaction on this basis.
I am also satisfied that the Department was anxious to have the encyclopedia published, that the plaintiff was anxious to produce it and that both parties proceeded on the basis that a contract would be made between them for its publication. This being the situation, the plaintiff went ahead with the preliminary work with the full approval of the supervisory committee and of the Department and all steps taken by the plaintiff were either approved or, as in the case of the paper to be purchased, actually directed by the supervisory committee. Although the plaintiff hoped and expected to make a profit out of the production of the encyclopedia, the work was being done for the benefit of the Department.
On this basis I am of opinion that the case should be considered by reference to the principles adopted in the cases of William Lacey Ltd v Davis [1957] 2 All ER 712 and Brewer Street Investments Ltd v Barclay’s Woollen Co Ltd [1953] 3 WLR 869, although I am in full agreement with Somervell LJ, when he said, at page 873 of the Brewer Street case, that the area of this class of case is somewhat difficult and that each case must be judged on its own circumstances and with Lord Denning who said, at page 874 of the same case, that it is not easy to state the legal basis of the plaintiff’s claim.
Barry J, in the William Lacey case rejected the proposition that a common expectation that a contract would ultimately come into being and that the plaintiff’s services would ultimately have been rewarded by the profits of that contract if it had come into being negatives the suggestion that these services could be paid for on any other ground. He was of opinion that an action could be founded on ‘quasi-contract’ so that the court may look at the true facts and ascertain from them whether or not a promise to pay should be implied, irrespective of the actual views or intentions of the parties at the time when the work was done or the services rendered.
*271
Adapting the words of Romer LJ, at page 877 of the Brewer Street case, I have no doubt that had the Department said: ‘We want you to put this work in hand but we are only going to pay for it provided we eventually agree upon the terms of a contract between us’, the plaintiff would not have done the work at its own risk as to cost. On this basis, I am of opinion that the plaintiff is entitled to be paid for all the work which had been done with the approval or at the direction of the Department.
On the question of damages, I have come to certain conclusions. As there was no contract to publish the encyclopedia, I will not allow any sum calculated on the basis of the loss of the profits which would have been made by completing the work. Evidence was given of an elaborate system of calculating loss by reference to the proportion applicable to the production of the encyclopedia of the capital employed by the plaintiff in its entire business. With this was associated loss due to the cost of carrying work in progress. In my opinion such calculations would only be appropriate, if at all appropriate, if, as was claimed by Mr Folens, there had been a contract to produce the encyclopedia at a price to be determined by the plaintiff. Not only was there no such contract but I cannot imagine that any such method of computation could have been reasonably within the contemplation of the Department when approving, authorising or directing the work which was done. Nor do I accept that any part of the costs of purchasing the new factory for the benefit of the plaintiff can reasonably be charged to the Department even though it was felt by the plaintiff that the larger premises were required for the production of the encyclopedia.
Mr Folens stated that he was not in a position to give evidence as to the accounts or the computation of his losses, but he has been carrying on business successfully for many years and some of the accounts he furnished when negotiating a contract shows sums for profit based on 20% of the total cost. In evidence he stated that profits were normally 25% but that, in this case, he reduced them to 20%.
I propose to adopt this streightforward method of calculating the profit to which the plaintiff is entitled for carrying out the work on the encyclopedia.
Some questions arise as to the cost of the work performed. I am somewhat unhappy about the salary for Mr Folens. The plaintiff is a family company and Mr Folens presumably holds a substantial number of the shares and receives a dividend from the profits of the company. Whatever arrangements are made about directors fees for the purposes of taxation or otherwise does not, in circumstances such as arise in this case, appear to me to entitle Mr Folens to a double payment in respect of the work. As the defendant appears to accept that the 10% originally claimed is reasonable, I will allow the sum of £2,850 in respect of this item. Matters on which there was a contest were the loss on paper and the preparation of dummy books, but I am satisfied that these losses were properly incurred although I would only allow a sum of £5,500 on account of the paper as the details of the allowance to be made for use of part of it was not satisfactory. The travelling expenses of Mr Folens were not properly vouched but it is clear that he incurred some and I will allow £500 on this *272 account.
I do not propose to detail all the figures but my calculations show that the plaintiff’s costs were approximately £30,000. Adding 20% to this for reasonable profits makes a total of £36,000.
Two further matters have been raised on behalf of the plaintiff, first that I should allow interest on the sum payable from the date by which it should have been paid and second, that I must take into account and make allowance for the high rate of inflation since the date on which the money ought to have been paid so as to put the plaintiff in the position in which it would have been had the money been paid at the proper time. On the first point I have been referred to the case of East Cork Foods v O’Dwyer Steel [1978] IR 103. In that case the judgment of the Supreme Court was given by Henchy J, who emphasised that the rule at common law was that interest was not generally payable on any debts unless it was expressly agreed or a promise to pay interest could be inferred from the usage of the trade or from other circumstances. He referred to the provisions of s. 53 of the Debtors (Ireland) Act, 1840, which made provision for a notice by a creditor demanding payment with interest and indicated that, without such a notice a claim for interest must fail. At the same time he indicated that there could be circumstances, as where a defendant had made a profit out of the money that was not paid and a plaintiff had made a loss, in which interest could properly be payable. Where sums of money are being considered it seems to me that a person usually either invests his money and makes a profit or is relieved from having to borrow money and so saves having to pay interest on borrowed money. Either way, the plaintiff in the present case must have suffered from the loss of interest or the use of the money unless it can be suggested that the money would have been put in the proverbial ‘stocking’. Accordingly, it seems to me that, in a court of equity, interest should be allowed on a transaction such as the present.
On the question of inflation I was referred to the case of Hickey & Co Ltd v Roches Stores (Dublin) Ltd 1975 No. 1007 P (Finlay P), 1 May 1980, and to Dodd Properties v Canterbury City Council [1980] 1 WLR 433; and Perry v Sidney Phillips & Son [1982] 1 All ER 1005. It seems to me that a distinction is to be drawn between claims relating to the sale of property or damage to and the consequent repairs to property, and claims for money unrelated to damage or repairs to property. In claims relating to property and repairs to property the value of the property or the cost of repairs may have increased due to inflation, whereas, in the case of claims for money, the money, if it had been paid at the proper time and placed on deposit or otherwise similarly dealt with, might have depreciated in accordance with the rate of inflation but there would have to be evidence of some definite intended use which would be affected by inflation before any such claim could be considered. No such evidence was given in the present case and I will not allow any increase in the damages on the basis of inflation.
Allowing a reasonable time for the discontinusance of the project and an assessment of the amount due, I will allow interest at the rate of 10% for six years. This amounts to a sum of £21,600 which, with the sum of £36,000, *273 amounts to a total sum of £57,600 and I will give a decree for this amount.
M’Closkey v Taylor
Court of Common Pleas.
31 January 1876
[1877] 11 I.L.T.R 46
Morris C.J., Keogh, Lawson JJ.
Morris, C.J.—In this case the cause shown must be allowed. The argument principally, if not altogether, proceeded on the non-joinder of the two other parties to the bet, which is founded on the fallacy that this is an action to recover the amount of the original bet. If that could be done, and this action were for such a purpose, they should be joined, but it is not. The way the plaintiff shows that the defendant is responsible to him for the amount received by his agent, Dunbar, and paid over to the defendant, is that he paid the defendant £5 for procuring the bet; the agent of the defendant made the bet with Robinson and Peach for the plaintiff, and although there is some controversy as to the time the plaintiff ought have been in Liverpool, when he arrived he was at once recognised by that agent, and he hedged off a portion of the bet, which was afterwards set off by the bookmakers; and immediately after the race an order is drawn up for the balance by Dunbar, which the plaintiff declined to sign. He is afterwards asked, on the grounds of Dunbar being offended at not being allowed to receive the money, and he withdraws his embargo, by which the defendant receives the amount. For that amount this action, in money had and received for the plaintiff’s use, is brought. The money got into the hands of defendant as the money of the plaintiff, whom he had recognised as the responsible party, who took off the embargo on it, and we are all of opinion that, being so, he is entitled to maintain this action in his own name.
Lawson, J.
I entertained at first a strong opinion against the plaintiff, but it has been removed by the very clear argument of Mr. M’Blain. From the telegrams and conduct of the defendant alone he is estopped from saying he was not acting as the agent of the plaintiff, and I think there was evidence to go to the jury, even putting out of view entirely the prior transaction, that the defendant, through Dunbar, acted as agent of the plaintiff, and received the amount of the bet for him. The verdict should therefore stand, and the cause shown be allowed.
Keogh, J., concurred.