Failed Expectations
Cases
Countrywide Communications Ltd v ICL Pathway Ltd & Anor
[1999] EWHC 293 (QB) (21 October 1999)
Contract
Countrywide put their case in three ways. First they submitted that a binding contract was entered into on 7th November 1994, and that it was confirmed on each later occasion on which they were asked for their services. I have already said that I do not accept this submission. A contract to employ Countrywide, if the bid succeeded, for reasonable remuneration would not be void for uncertainty, but no such contract was concluded. Both Mr. Orme on the one side, and Mr. Jones, Mr. Hodgkins, Mr. Barton and Mr. Foley in succession on the other, knew that there would have to be detailed negotiations and there is nothing from which an intention to enter into a binding contract before the negotiations were concluded can properly be inferred. All the circumstances point in the opposite direction.
What did exist was a clear arrangement or understanding throughout the period November 1994 to May 1996 which, correctly analysed, was as follows. If (a) Countrywide’s “credentials” were accepted by the consortium, (b) Countrywide assisted the consortium with the bid until it was finally submitted and (c) the bid succeeded, then Countrywide would be offered the public relations and communication sub-contract, on terms to be negotiated. In other words, there was an agreement under which (as from April 1995) ICL Pathway promised, if certain conditions were met, as they were, to negotiate. It is trite law that such an agreement is unenforceable: see Walford v. Miles [1992] 2 A.C. 128.
Estoppel
Secondly, Countrywide submitted that, having induced Countrywide to expect that they would be appointed if the bid succeeded, and having done nothing to disabuse it of that expectation, ICL Pathway are estopped from denying the contract alleged by Countrywide to have come into existence. Accordingly, it is submitted, Countrywide should recover, as damages for breach of contract or possibly on a quantum meruit, the profit which they would have made if a contract had been concluded. The calculation of the profit, they submit, should be based on the budget of £780,000 and this leads to an award of damages of £375,000; alternatively, the calculation of profit should be based upon the contract entered into with Financial Dynamics.
In support of this submission, Countrywide relied on the decision of the High Court of Australia in Walton’s Stores (Interstate) Limited v. Maher (1988) 164 CLR 387, in which the owner of land, who was negotiating with a company to grant a lease on terms that a building on the land would be demolished, and a new one constructed to the company’s specifications, demolished the building and began the construction of the new building at a time when the terms of the lease were fully negotiated but before exchange. The company became aware that the demolition was proceeding, but did nothing to stop the owner. When the building was about 40% complete, the company said that it did not intend to proceed. The High Court of Australia held that, despite the absence of any binding agreement for the lease, the company was estopped from denying that it was bound by reason of its unconscionable conduct. All five members of the Court held, although not on precisely the same grounds, that the company’s acquiescence created what was in effect a contractual right; the owner was held to be entitled to enforce the agreement for a lease, just as if a binding agreement had come into existence. The award of damages in lieu of an order for specific performance made by the trial judge was upheld.
Countrywide also referred to the well known decision of the Court of Appeal in Amalgamated Investment & Property Co. Limited v. Texas National Bank [1982] Q.B. 84, in which it was held that the plaintiffs were estopped from denying that a guarantee in favour of the defendants extended to the indebtedness of a subsidiary of the guarantor, because the parties had acted upon an agreed assumption to that effect. In order to meet the objection that Countrywide were in this case seeking to use estoppel as a sword rather than as a shield, reliance was in particular placed upon a passage from the judgment of Brandon L.J., in which he stated that the true proposition of law was that –
“while a party cannot in terms found a cause of action on an estoppel, he may, as a result of being able to rely on an estoppel, succeed on a cause of action on which, without being able to rely on that estoppel, he would necessarily have failed. That, in my view, is, in substance, the situation of the Bank in the present case.”
Similarly, passages in the opinion of Lord Templeman in A-G for Hong Kong v. Humphreys Estate (Queen’s Gardens) Limited [1987] AC 114 at 124H-125A and 127H-128A suggest that, if the respondents in that case had encouraged the appellants to believe that they would not withdraw from an agreement which was “subject to contract”, and if the appellants had acted on a belief so induced, the respondents might have been estopped from denying the existence of the agreement.
In all these cases, the effect of the estoppel contended for was or would have been to leave the plaintiff with a right to enforce a concluded contract, in the Walton’s case a fully negotiated lease, in the Amalgamated Property case a written guarantee containing detailed terms and in the Humphreys case a fully negotiated agreement for the exchange of property. In this case, assuming everything else in Countrywide’s favour, the effect of the estoppel would merely be to prevent ICL Pathway from resiling from or denying an unenforceable contract to negotiate. This would not advance Countrywide’s position at all. The effect of the remedy which they suggest is appropriate, if granted, would be to estop ICL Pathway from denying a contract to employ Countrywide for a remuneration of £780,000.00, or alternatively on the terms negotiated with Financial Dynamics. But ICL Pathway never led Countrywide to expect that they would be offered a contract on either of these bases or indeed on any particular basis. There is therefore no warrant for giving effect to the suggested estoppel by awarding damages or a quantum meruit representing Countrywide’s loss of profit. There is no basis on which the loss of profit could properly be calculated.
The decision of the Court of Appeal of New South Wales in Austotel Pty. Ltd. v. Franklyns Selfserve Pty. Ltd. (1989) 16 N.S.W.L.R. 582 supports this conclusion. In that case it was held that a finding that there was no binding agreement for a lease, no rent having been agreed, was also fatal to a submission that the defendant was estopped from denying the existence of an agreement. The point was put in this way by Kirby P. at 584E: –
“I have reached the opinion that once it is determined that no concluded agreement was made between the parties (for want of a concluded term as to rent) the first ground of estoppel relied upon by the respondent must fail. As Priestly J. A. and Needham J. (the trial judge) have pointed out, all that such an estoppel would do would be to prevent the defendant from denying the existence of an “agreement” which was not a legal agreement at all. This would have no utility …”
and in very similar terms by Priestly J. A. at 602E-D.
Quantum meruit
Finally, Countrywide claimed a quantum meruit for the work done in anticipation of the contract which in the end was not awarded to them. There is no doubt that, in most cases, a person who carries out work in the hope of obtaining a contract, for example a builder who prepares an estimate, cannot claim the cost of doing so. In general, parties are free to withdraw from negotiations at any time before a contact is entered into for good or bad reasons, or for none at all, without incurring liability. If it were otherwise, persons seeking quotes for work might routinely find themselves liable for the expenses of several disappointed bidders. In most cases prospective contractors expressly (for example by offering a free estimate or when negotiations are “subject to contract”) or impliedly do the work at their own risk. As Barry J. said in William Lacey (Hounslow) Ltd v. Davis [1957] 1 W.L.R. 932, 934:-
“… if a 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. This generally accepted usage may also – and I think does also – apply to amendments of the original tender necessitated by bona fide alterations to the specification and plans. If no contract ensues, the builder is, therefore, without a remedy.”
However, it is clear that there are some exceptional cases in which the prospective contractor will be able to recover, not pursuant to an implied contract based on the actual or presumed intention of the parties, but because the court imposes an obligation to pay.
Thus, in Lacey, Barry J, in rejecting the submission that the common expectation of the parties that the plaintiff’s services would be rewarded under the contract which would ultimately be made negatived any suggestion that the parties had impliedly agreed that they would be paid for in any other way, said:-
“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 to a 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 proposition is founded upon too narrow a view of the modern action for quantum meruit. In its early history it was no doubt a genuine action in contract, based upon a real promise to pay, although that promise 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 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.”
Commenting on this, Professor Birks in his Introduction to the Law of Restitution at page 273 said:-
“This judgment was an important advance. There were, however, two matters in respect of which it left room for further explanation. First, while it is right to say that the court will look at the true facts (as opposed to the facts traditionally recited in the declaration), it is a needless perpetuation of the old ways to say that on those facts the courts will decide whether to `imply a promise’. Barry, J., uses the word `implied’ in the sense of `imposed’. A promise which is `imposed irrespective of the actual view or intentions of the parties” is not a promise at all. An `imposed promise’ is a contradiction in terms. So, the implied promise which survives in his vocabulary should more aptly have been an `imposed obligation’. Beneath the words actually used, that is undoubtedly what he meant …”
However, identification of a unifying principle laying down when the court will impose an obligation to pay for work done in anticipation of a contract which does not materialise is not straightforward. Thus, professor McKendrick in an essay published in `Restitution, Past Present and Future’ 1998, ch. 11 pages 171-2 states that:-
“It is generally agreed that a four-stage approach can be adopted to restitutionary claims: (i) the defendant must have been enriched, (ii) the enrichment must have been at the expense of the plaintiff, (iii) that enrichment must have been unjust and (iv) the defences must be considered. Each element of the claim requires careful and methodical consideration, yet it must be conceded that this is not what we tend to see in the cases. The plaintiff’s claim is usually one to recover upon a quantum meruit and, where he recovers, he does so because the court has concluded that, on the facts, he deserves to do so. The precise facts, or set of facts, which render him a deserving plaintiff are articulated, if at all, in rather general terms. More needs to be done to set up a stable framework for analysis.”
He accepts that the issue as to what constitutes an “enrichment”, or benefit conferred on the defendant, remains “shrouded in mystery”: in a note in 1995 RLR page 103, he describes it as a “vexed issue”. In the essay, he also accepts at pages 178, 180-1 the possibility that in some cases liability may be imposed on a non-restitutionary basis for reliance loss which has not resulted in a benefit to the other party.
In his essay on Ineffective Transactions in `Essays on Restitution’ (ed. Finn), ch. 7 pages 211-2 Professor Carter describes the problem of services rendered under “contracts which do not materialise” as follows:-
“An anticipated contract may fail to materialise for any number of reasons. Every day negotiations which might ultimately lead to a contract break down. The breakdown may be a source of disappointment, even bankruptcy, but normally no remedy is available. …
Where the negotiation process breaks down, one party – the plaintiff – may have justification for feeling aggrieved. By the word “justification” I mean that there exists some supernormal factor which at least raises the possibility of a legal (or equitable) remedy. The factors which may count as a justification all focus on the conduct of the defendant. Apart from fraud, they are unconscionable conduct and the contravention of some statutory code of behaviour. If we concentrate on restitution for a benefit received by the defendant, rather than restitution based on a wrong done, unconscionability must be the context of any restitutionary claim. It takes three main forms:
(a) the contradiction of a promise, representation, or conventional state of affairs;
(b) the failure to disabuse the plaintiff of a mistake, or false expectation, usually in relation to the award of the contract itself; and
(c) the attempt to retain without payment a benefit conferred at the defendant’s request in circumstances where the defendant knew that there was no intention to make a gift of the benefit.
It is clear from the above description that the conferral of a benefit is not the primary source of the concern or “justification”. Reliance, expectation and, to put the matter broadly, “fault” clearly have roles to play. The relevance of expectation in at least some of the no contract cases is enough to explode the myth that concepts of contract law have nothing to do with restitution …
… It has been said, with some justification, that neither contract nor restitution provides a satisfactory solution to the problems created. This is hardly surprising given the reluctance of the common law to develop a doctrine of good faith in contract negotiation. The focus of most of the debate in the law of restitution is the element of benefit.”
The relevant passage in Goff and Jones 5th ed. ch. 26 pages 664-5 is also tentative:-
“The restitutionary claim: in principle
It is not surprising, given that only in relatively recent years has the principle of unjust enrichment been expressly recognised, that the courts have inquired in general terms (a) whether the plaintiff’s services had enriched the defendant, and (b) what is the basis of the plaintiff’s claim, the unjust factor.
(a) What is meant by “benefit” in this context?
As has been seen, there is little difficulty in concluding that a defendant has gained a benefit if he accepted goods and services which he requested, even though there may be no contractual obligation to make a payment. Moreover, it is now accepted that he is enriched if he has received an incontrovertible benefit. What is debatable is whether he is benefited if he requested another to perform services, but received no benefit from the other party’s expenditure. The resolution of this question, and the collateral question of the valuation of services rendered, is particularly important in this context.
(b) What is the “ground” (the unjust factor) of the restitutionary claim?
There are a number of possible grounds of the restitutionary claim, which, as the law now stands, may depend on the nature of the benefit conferred. These include free acceptance; mistake; total failure of consideration; and unconscionability, which may well be the basis of the doctrine of proprietary estoppel.
Even if the plaintiff can demonstrate that the defendant has been enriched and that it would be unjust if his claim were denied, there is a third question which must be answered:
(c) Did the plaintiff take the risk that he would be reimbursed his expenditure only if there was a concluded contract?”
Other academic writers take the view that there is no single principle and that liability is simply imposed if this is justified on the facts of the case. For example, Mr. J.D. Davies, commenting on the New South Wales case of Sabemo Pty. Ltd v. North Sydney Municipal Council [1977] 2 N.S.W.L.R. 880 in 1 OJLS (1981), at 305 says:-
“I want to suggest that Sheppard J. comes out on top. In Sabemo he accepts that the law imposed liabilities outside the traditional categories. By so doing he reduces artificiality and placed emphasis where it belongs. There is no ascription of facts to categories of which they are not a natural part. There is no expansion of categories to fill all needs. Instead, there is analysis of the facts; and this ensures that the legitimate grounds for imposing a liability emerge. There is no word magic; and any labels, or titles, that then get used to describe the results will be less liable to confuse. This seems the best way of developing a comprehensive body of law.”
There is not a great deal of English authority. The earliest case which needs consideration is the decision of the Court of Appeal in Jennings and Chapman Limited v. Woodman Matthews & Co [1952] 2 T.L.R. 409. The plaintiffs, who were builders, were the lessees of shop premises which they proposed to sub-let to the defendant, a solicitor, after making alterations to render them suitable as offices. The defendant was to pay the cost of the alterations and then take a sub-lease. The landlords then, applying a provision of the head lease, about which the plaintiffs had not informed the defendant, refused consent to the alteration of user. The plaintiffs sued for the price of the work, and the defendants submitted that it was an implied term of the agreement that he would not be obliged to pay for the alterations if the plaintiffs could not procure the sub-lease. The Court of Appeal held that, in the fundamentally different situation from that contemplated by the parties, the contract ceased to be binding and that it was for the court to decide on which party the loss would fall, or in other words whether to impose upon the defendant an obligation to pay. The Court of Appeal decided not to impose an obligation. Somervell J.J. held that the defendant must be taken to have known that consent would be subject to satisfying the landlord that he was a responsible person, but not that consent was required to do the alterations and for the altered use of the premises, and that in these circumstances the risk of loss fell on the plaintiffs. In addition, it was possible that the plaintiffs would derive some benefit from the alterations. The judgments of Denning and Romer L.JJ. were to the same effect. Denning L.J. said:-
“What does the law say is to be done in the situation as it has emerged? It is no use asking what the parties provided for it, for the plain fact is that they did not foresee it and did not provide for it. It is no use asking what the parties would have provided for it if they had foreseen it, because they cannot say now what provision they would have made – one would have wanted one thing and one another and they might have compromised it ….
In this situation … the law itself must say what the rights of the parties are. There is no other way. The parties cannot help, so the law must solve it. The solution is to be found, I think, by asking: on whom, in all the circumstances of the case, should the risk fall? It seems to me that it should fall on the plaintiffs. They were the people who held the lease of the premises. They knew all the conditions which had to be fulfilled before they could grant a sub-lease. The solicitor did not know those conditions until the word was half done …”
The decision is interesting, in that it suggests that the Court would, if the circumstances had been different, have imposed an obligation on the defendant to pay for the alteration. For example, such an obligation might well have been imposed if the reason why the lease fell through was that, for some reason not disclosed by the solicitor to the builders, the landlord objected to the subletting on the ground that the solicitor was not a responsible person. If the Court had imposed an obligation on the defendant in such circumstances, the tenor of the judgments suggests that it would not have been contractual. Nor could it easily have been regarded as restitutionary, since the defendant would have obtained no benefit whatsoever from the alterations to the plaintiffs’ property. The decision appears to suggest that, in appropriate circumstances, the court might have jurisdiction to impose an obligation on one party to a proposed contract to reimburse the other for the wasted expenditure, no doubt subject to a reduction to take account of any benefit derived by the party incurring the expenditure. A possible rationalisation of the decision in restitutionary terms, had the claim succeeded, would have been that the mere fact that the work was done at the defendant’s request meant that it was a benefit to him. But there is force in the view expressed in Professor McKendrick’s essay, supra, at pages 178 and 185, that such a benefit is “fictional” and the suggestion that a defendant in such circumstances would be enriched “dubious”.
In Brewer Street Investments Limited v. Barclays Wool & Co. Ltd [1954] 1 Q.B. 428, the parties were negotiating for a lease to be granted by the plaintiffs to the defendants, but the negotiations were still expressly “subject to contract”. In that situation the plaintiffs, the owners of the premises, agreed to make certain alterations to the premises at the defendants’ request, and the defendants accepted responsibility for the cost. The parties failed to agree on a term of the proposed lease, and negotiations failed. The alterations, which were stopped when the negotiations failed, did not benefit the plaintiff. Somervell L.J. held that the defendants were liable on the simple ground that the defendants had contracted to pay for the alterations, and that there was no basis for implying a term that this was subject to the lease being entered into, in circumstances in which the agreement had been made at a time when negotiations were expressly “subject to contract”. Denning L.J. however held that the plaintiffs could not claim in contract, because the work was never completed, nor could they claim on a quantum meruit “as ordinarily understood”. The claim was “on a request implied in law, or as I would prefer to put it in these days on a claim in restitution”. He therefore held that, just as in the Jennings and Chapman case, it was for the court to impose a solution. If it could have been said that the breakdown in negotiations had been the “fault” of either party, that party should suffer the loss. However, in circumstances in which the parties simply fell out over a term which could not be agreed, neither was at fault and the defendant should pay for the work because it had been “done to meet their special requirements and was prima facie for their benefit and not for the benefit of the landlords”, subject to credit for any work shown to have been of actual benefit to the landlords. Romer L.J. agreed with both judgments, and it is difficult to see from what he said whether his decision was based on contract or restitution.
Denning L.J’s judgment supports the view that a claim in restitution can be brought, where the “benefit” or “enrichment” consists of the performance of work at the defendant’s request which, as it turns out, has not provided any actual benefit to the defendant at all. The judgments of both Denning and Romer L.JJ., together with exchanges between both of them and counsel in argument, also suggest that “fault” is relevant. On this, in the latest edition of Goff and Jones, 5th ed. at page 669 and 671, it is suggested that “fault” is a “shadowy sign-post which may point in more than one direction” and that the better test is whether “the plaintiff’s services have manifestly benefited a defendant who has behaved unconscionably”.
Next, there is the decision of Barry J. in William Lacey (Hounslow) Limited v. Davies, to which I have already referred and on which Countrywide rely in this case. The defendant in that case had bought a building in Fulham, with the benefit of a cost of works’ claim under the War Damage Act, which he proposed to rebuild with business premises on the ground floor and residential flats above. He obtained tenders from three firms of builders, of which the plaintiffs’ was the lowest; the plaintiffs were told that they would be given the contract to rebuild the house. Subsequently, a licence for the scheme having been refused, they prepared a further estimate, and substantial amendments to its resulting from changes proposed by the defendant which the judge considered to be beyond what a builder would ordinarily be expected to do free of charge. They also prepared an estimate for a notional reconstruction of the premises in their original state before the war damage and a schedule of prices on which their original tender had been based, so as to enable the defendant to negotiate with the War Damage Commission. This was nothing to do with the actual proposed reconstruction.
The plaintiffs claimed on a quantum meruit for the work involved in revising the estimate and in connection with the war damage claim, on the basis that it had been done free of charge on the assumption that they would receive the contract for rebuilding, but had subsequently been told that the plaintiffs would employ another firm of builders although in the event the defendant sold the premises.
Barry J. held that they were entitled to recover on a quantum meruit for the work connected with the war damage claim and the revised estimates on the ground that it “fell right outside the normal work which a builder, by custom and usage, normally perform gratuitously, when invited to tender for the erection of a building” and on the basis that the work had resulted in a real benefit to the defendant; it had been instrumental in obtaining the approval of the reconstruction plans, and the grant of a licence to build, as well as a much higher “permissible amount” for the war damage claim. It was “perhaps justifiable to surmise” that this had had some influence on the price which the defendant obtained when he sold the building. In normal circumstances, the defendant would have had to pay for such work and an obligation to do so was to be imposed in circumstances in which the work had been done “under a mutual belief and understanding” that the plaintiff was obtaining the contract to reconstruct the building.
The decision is criticised in Goff and Jones at pages 666-9 on two grounds. The first concerns Barry J’s reliance on Craven-Ellis v. Canons Limited [1936] 1 K.B. 403, in which the Court of Appeal allowed the plaintiff’s claim on a quantum meruit for work done under a contract which was void. Barry J. said (ibid. at 939) that he could see no valid distinction between work done under a contract erroneously believed to be in existence and work done which was to be paid for out of the proceeds of the contract which both parties erroneously believed was about to be made. As to this Goff and Jones says:-
“… there is a critical distinction … in the former case that services were requested and accepted by the defendant in circumstances where both parties thought the plaintiff was to be paid the contractual sum agreed. But in the latter the defendant may well have expected to pay only if the contract was concluded. Moreover, the plaintiff may well know that under a contract is concluded either party is free to withdraw from the negotiations”.
I would respectfully agree with this, but I am more doubtful about the other criticism:-
“It is difficult to support the conclusion that in William Lacey the defendant received a benefit at the plaintiff’s expense. As Traynor C.J. (in Coleman Engineering Co. v. North American Aviation 420P. 2d 713, 729) once remarked: “[i]n fact the performance of services has conferred no benefit on the person requesting them, and it is pure fiction to base restitution on a benefit conferred”. The reality is that the award concealed a claim for loss suffered in anticipation of a contractual agreement which never materialised”.
It seems to me that this is a point which applies with more force to the Brewer Street case, or at least to the judgment of Denning L.J. in that case. In Lacey the work done by the plaintiffs resulted in substantial benefits, namely the licence required to do the work and the agreed figure for the war damage claim, and Barry J. was entitled to infer that these had made the building more valuable. Since the work had been provided free only on the basis of assurance that the plaintiffs would be given the contract to reconstruct the building, it was unjust or unconscionable, once the assurance was broken, that payment should be withheld. Accordingly, it was right to impose an obligation to pay, although strict logic might have required the amount of the payment to be referable to the value of the benefit rather than (as it was) the extent of the services. Further, on the question of benefit, it seems to me that there is much force in the brief comment of Professor McKendrick on Lacey, op.cit. at 179-180:
“Where … the defendant has made use of the plaintiffs’ part performance he cannot then turn round and say that that part performance was not a benefit to him”.
In British Steel Corporation v. Cleveland Bridge and Engineering [1984] 1 All E.R. 504, there were negotiations for the supply by the plaintiffs to the defendants of a variety of cast-steel nodes for a construction project on which the defendants were engaged. No contract was concluded, but the plaintiffs manufactured and delivered the nodes and delivery was accepted. The plaintiffs successfully claimed on a quantum meruit. Robert Goff J. held as follows at 511b-d:-
“In my judgment, the true analysis of the situation is simply this. Both parties confidently expected a formal contract eventually. In these circumstances, to expedite performance under that anticipated contract, one requested the other to commence the contract work, and the other complied with that request. If thereafter, as anticipated, a contract was entered into, the work done as requested will be retreated as having been performed under that contract; if contrary to that 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, e.g. preparatory work which will, if the contract is made be allowed for in the price of the finished work (cf William Lacey (Hounslow) Ltd v. Davies …) This solution moreover accords with authority: see the decision in Lacey v. Davies … (my emphasis)”
I agree with the view of Rattee J. expressed in Regalian Plc. v. London Docklands Development Corporation [1995] Ch. 212 at 230C that the decision of Robert Goff J. is distinguishable, in this case as in Regalian, because the work cannot be said to have been done “by way of accelerated performance at the anticipated contract”. But Robert Goff J.’s approval of the decision in Lacey is nevertheless significant.
The next case to which I should refer is the decision of Judge Bowsher Q.C. in Marston Construction Co. Ltd. v. Kigass Limited [1989] 15 Con.L.R. 116. The doubts expressed by Rattee J. in Regalian at 227H to 229C as to the decision to award a quantum meruit in this case may be correct, but I would gratefully adopt what Judge Bowsher Q.C. says (at 128-9) on the question of benefit:-
“When considering benefit, a distinction has to be made between the delivery of money and goods on the one hand and the provision of services on the other. Mr. Raeside submits that for there to be any recovery by the plaintiffs in this case they must show that the defendants have received an actual benefit, not a potential benefit that is never realised. Mr. Raeside relies in particular on a passage in para 1943 of the chapter on Restitution in Chitty on Contracts (25th edn) written by Mr. J. Beatson:
“The nature of the enrichment. This may take the form of a direct addition to the recipient’s wealth, such as by the receipt of money, or an indirect one, for instance by improving his property, other `pure’ services do not. The fact that services cannot be restored and the influence of the implied contract theory has meant that they were often not regarded as beneficial so as to give rise to a quantum meruit unless the defendant had requested the services or, knowing that they were to be paid for, had freely accepted them. Many but not all such cases are capable of analysis as a genuine implied contract. These cases do not depend upon the service adding to the defendant’s wealth, the service per se is treated as a benefit. There is, however, also some authority that treats a service as beneficial where it results in an `incontrovertible benefit’ to the defendant (Craven-Ellis v. Canons Ltd [1936] 2 KB 403, Greenwood v. Bennett [1973] 1 QB 195). With the possible exception of necessitous intervention to preserve life or health, only services that result in an accretion to the defendant’s wealth can constitute an incontrovertible benefit. Goff and Jones state that incontrovertible benefit is established where the defendant has made `an immediate and realisable financial gain or has been saved an expense which he otherwise would have incurred.”
Although Goff and Jones refer to the gain as being “realisable” (pp.19 and 148) Birks argues that it must not be merely realisable but realised. But I am not convinced by his argument despite Mr. Raeside’s contention that there is no reported case in quasi-contract where there has not been actual benefit.
It seems to me that in appropriate cases, the benefit may consist in a service which gives a realisable and not necessarily realised gain to the defendant particularly when, as here, the service is a part of what was impliedly requested.”
Before referring further to Regalian, I should mention the decision of Sheppard J. in the Sabemo case. In that case the defendant Council had advertised that it wished to enter into a building lease in respect of a large plot of land and had invited tenders including the provision of administration space, a public hall and a library for the Council, free of charge. The plaintiffs’ tender was accepted, but it was agreed that this did not give rise to a binding contract. Over a period of some 3 years, the plaintiffs did considerable work on the project, including the engagement of a number of expert employees to assist in the preparation of successive schemes. In December 1973, the Council dropped the project. Sheppard J. found (905F, 902G) that, although certain differences had arisen in the negotiations which had not been resolved by the time the Council decided to drop the scheme, if this decision had not been taken they would have been resolved and a binding agreement would have been concluded.
Sheppard J, having reviewed the earlier authorities, held (901H-902B) that where two parties proceed on a project on the joint assumption that a contract will be entered into between them, and the first party does work beneficial to the project, and thus in the interest of both parties, which work the first party would not be expected, in other circumstances, to do gratuitously, the first party will be entitled by operation of law, notwithstanding that the parties did not intend, expressly or impliedly, that such obligation should arise, to compensation or restitution from the second party if the latter unilaterally abandons the project for reasons pertaining only to himself and not to the position of the other party, and not arising out of a disagreement as to the terms of the proposed contract between the parties.
Sheppard J. expressly stated at 897E that the case was not a case of unjust enrichment. At 902F he said (to my mind surprisingly) that he did not regard the benefit obtained by the defendant in Lacey as “going to the root of (the) decision” and at 903B he rejected the proposition that a claim of this kind must always fail unless the plaintiffs’ work has been beneficial to the defendant. In his view, what mattered was the reason why the transaction went off, which determined on whom the risk of loss was to fall. He said at 901B:-
“To my mind the defendant’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 expression used by the judges in the Jennings and Chapman case and in the Brewer Street case to say that each party had taken a risk, in incurring the expenditure which it did, but the transaction might go off because of a bona fide failure to reach agreement on some point of substance in such a complex transaction. I do not 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”.
I share the doubts expressed by Rattee J. in Regalian as to the correctness of this decision. In many cases the risk to both parties of incurring time and expense on a project which either side may abandon will be well known. This is especially so if the project is a large one which is likely to take a long time to negotiate, as economic conditions may change. An agreement to carry out actual building work in advance of the concluded contract is a much clearer indication that the parties will not capriciously or for their own reasons withdraw, than is the planning and general work of the kind done in Sabemo. In the absence of any assurance or indication by the Council that it would not withdraw for its own reasons, and of any benefit to the Council resulting from the plaintiffs’ work, it is difficult to see why liability should have been imposed.
Finally, I must refer again to the decision in Regalian. This was another long drawn out situation in which the plaintiffs did a considerable amount of work on a project which ultimately failed, in essence because the parties were unable to agree a price in circumstances in which market conditions had considerably changed. Crucially, Rattee J. held (at page 225F) that the plaintiffs’ work on the project had not resulted in any “ascertainable benefit” to the defendants. He regarded the decision in Lacey as supportable only on the basis that the plaintiffs in that case had conferred a clear benefit on the defendants “quite outside the ambit of the anticipated contract” (225A). However, in that case the plaintiffs also recovered for work which was within its ambit. He held that Sabemo was distinguishable because the reason for the breakdown of negotiations in Regalian was the inability to agree on the price, and not the unilateral decision by one party to abandon the project (227D), but also considered (230F to 231C) that the principle enunciated by Sheppard J. was not established by any English authority and that, while English law restitution should be flexible and capable of development, it should not be extended to apply in a case in which negotiations are expressly conducted on terms that both parties may withdraw at any time.
I have found it impossible to formulate a clear general principle which satisfactorily governs the different factual situations which have arisen, let alone those which could easily arise in other cases. Perhaps, in the absence of any recognition in English law of a general duty of good faith in contractual negotiations, this is not surprising. Much of the difficulty is caused by attempting to categorise as an unjust enrichment of the defendant, for which an action in restitution is available, what is really a loss unfairly sustained by the plaintiff. There is a lot to be said for a broad principle enabling either to be recompensed, but no such principle is clearly established in English law. Undoubtedly the court may impose an obligation to pay for benefits resulting from services performed in the course of a contract which is expected to, but does not, come into existence. This is so, even though, in all cases, the defendant is ex hypothesi free to withdraw from the proposed contract, whether the negotiations were expressly made “subject to contract” or not. Undoubtedly, such an obligation will be imposed only if justice requires it or, which comes to much the same thing, f it would be unconscionable for the plaintiff not to be recompensed.
Beyond that, I do not think that it is possible to go further than to say that, in deciding whether to impose an obligation and if so its extent, the court will take into account and give appropriate weight to a number of considerations which can be identified in the authorities. The first is whether the services were of a kind which would normally be given free of charge. Secondly, the terms in which the request to perform the services was made may be important in establishing the extent of the risk (if any) which the plaintiffs may fairly be said to have taken that such services would in the end be unrecompensed. What may be important here is whether the parties are simply negotiating, expressly or impliedly “subject to contract”, or whether one party has given some kind of assurance or indication that he will not withdraw, or that he will not withdraw except in certain circumstances. Thirdly, the nature of the benefit which has resulted to the defendants is important, and in particular whether such benefit is real (either “realised” or relisable”) or a fiction, in the sense of Traynor C.J’s dictum. Plainly, a court will at least be more inclined to impose an obligation to pay for a real benefit, since otherwise the abortive negotiations will leave the defendant with a windfall and the plaintiff out of pocket. However, the judgment of Denning L.J. in the Brewer Street case suggests that the performance of services requested may of itself suffice amount to a benefit or enrichment. Fourthly, what may often be decisive are the circumstances in which the anticipated contract does not materialise and in particular whether they can be said to involve “fault” on the part of the defendant, or (perhaps of more relevance) to be outside the scope of the risk undertaken by the plaintiff at the outset. I agree with the view of Rattee J. that the law should be flexible in this area, and the weight to be given to each of these factors may vary from case to case.
There is in my view considerable doubt whether an obligation can be imposed in a case in which the plaintiff has not provided a benefit of any kind, even of the “fictional” kind discussed earlier of performing services at the request of the defendant albeit without enriching him in any real sense. Thus I doubt whether an obligation can be imposed on a contracting party to repay a plaintiff for expense incurred, reasonably or even necessarily, in anticipation of a contract which does not materialise, where this is not in the course of providing services requested by the defendant. Such an obligation would not be restitutionary, and there is no English authority which would clearly support its imposition, except perhaps in circumstances similar to those suggested in the Humphreys Estate and Walton’s cases where the defendant is precluded by estoppel from denying the existence of a binding contract. If it were otherwise, there would often be a remedy against gazumpers, against whom it could always or at least usually be said that the buyer did not take the risk of expenditure wasted through the seller’s decision to withdraw, having earlier accepted an offer “subject to contract”, not for a reason connected with the negotiation of the contract, but because he had been offered more by someone else. Similarly, in some cases there might be a remedy where “gazundering” has caused a contract to go off. There is an interesting suggestion by Mr. Paul Key in 111 L.Q.R. at 180 that, even if the effect of an estoppel would not be to preclude denial of a binding contract, the court could do “the minimum equity” necessary to meet the circumstances, on the basis of the Court of Appeal decision in Crabb v. Arun District Council [1976] Ch 179 and that this could include compensation for “reliance loss”. However, in view of my conclusions set out below, I do not need to reach a decision on this difficult question.
Conclusions on quantum meruit in this case
I would regard it as most unjust if Countrywide were not appropriately recompensed for their work before and after the submission of the bid in March 1996. Put shortly, this is because (1) they were induced to provide their services free of charge by an assurance, ultimately dishonoured, that ICL pathway would be prepared to negotiate a contract with them if the bid succeeded, and (2) their services provided ICL Pathway with a benefit for which (in the absence of such an assurance) they would otherwise have had to pay reasonable fees for time spent, namely advice and assistance in connection with the public relations and communications issues during the bid and subsequently.
As I have already found, the members of the consortium had a policy from the outset of seeking the services of potential sub-contractors during the bid process free, on the basis that they would be assured of being rewarded by a sub-contract if they gave their help until the final bid was submitted and if it succeeded. Such an assurance was given by Mr. Jones at the outset, and repeated by Mr. Hodgson in about April 1995, when ICL Pathway was formed. This is important for two reasons. In the first place, the formulation of this approach, and the giving of the assurance to Countrywide, suggest that the work which was to be expected from potential sub-contractors, and in particular from Countrywide, went beyond that which might be expected to be provided free by a sub-contractor who, if the bid succeeded, would merely be given a chance of bidding for the sub-contract. Secondly, such an assurance takes the case as far from a typical “subject to contract” case, in which each party may be taken to have accepted the risk of withdrawal by the other and consequent waste of expenditure, as it could possibly be taken short of an actual contract. Regalian is clearly distinguishable on this ground.
As to the risk which Countrywide may be said to have accepted of unrecompensed work, clearly a degree of risk was accepted. Countrywide accepted the risk that their work would be unrewarded if it was found to be unsatisfactory at any time before a final bid was submitted, if the bid failed, or if negotiations failed with ICL Pathway for the sub-contract. As to the last, I think that it is most unlikely that this would have happened. It is true that Ms. Campopiano would not have accepted the terms suggested in Mr. Orme’s letter of 23rd May, 1996, or Countrywide’s standard conditions, but I have no doubt that Mr. Orme would never have insisted on these terms, and would have been as flexible as necessary to obtain an important sub-contract of this kind. It may be arguable that Countrywide also accepted other risks, for example that the consortium would decide not to proceed at all, or that BA/POCL would decide to do all the public relations/communication work themselves, and certainly they could not expected to be employed if their work was seriously defective at any stage. But Countrywide did not accept the risk that they would be dismissed, following a change of personnel within ICL Pathway, because their reputation was now not considered to be satisfactory. This is something which Countrywide were entitled to expect to be considered either by the consortium when they made their proposal in early 1995, or by ICL Pathway at the latest before the final tender was submitted. They cannot fairly be said to have taken the risk of being dismissed for this reason not only after the final tender had been submitted, but after having provided further help in preparation for the implementation of the work for a further two or three months.
On the question of benefit, the underlying position is not quite the same as in cases involving building contracts. Countrywide were not bidding for specific work. Rather, they were assisting ICL Pathway to formulate the correct approach to the public relations and communications work and to provide an estimate of costs for which allowance would be made in ICL Pathway’s final tender. The details of the scope of the work, and of Countrywide’s remuneration, were always going to be negotiated after the bid succeeded. From ICL Pathway’s point of view, what they needed at this stage was advice and assistance, rather than a detailed final budget, and some of the work done before 21st March 1996 (for example attendance at meetings which were essentially so that Countrywide were up to date and in a position to advise on any issues which might arise suddenly), and all the work done after that date, was done principally to assist ICL Pathway, and not in the preparation of a bid or proposal for the sub-contract work. Indeed, all the work done between April 1995 and the submission of the final tender on 21st March 1996 can be said to have been done for a dual purpose. It was done to assist ICL Pathway in the formulation of their initial proposal and final tender, and therefore also, by enhancing the prospects of success of the latter, insofar as this depended upon its public relations content, to enhance the prospects of Countrywide being awarded the sub-contract. Countrywide’s work was of value to ICL Pathway, not merely because they performed services at ICL Pathway’s request, but because these services provided ICL Pathway with advice which they needed, and for which (in the absence of an assurance of the kind they gave), they would probably have had to pay either Countrywide or some other public relations consultant. Therefore, ICL Pathway was, in a real sense, enriched by Countrywide’s work. The gain was realised, not merely realisable.
On the issue of benefit, this case is therefore distinguishable from Regalian, in which no benefit was conferred on the defendant. It is less easy to distinguish it from Lacey. It is true that Countrywide’s work cannot be said to have conferred a benefit on ICL Pathway “quite outside the ambit of the anticipated contract”, which Rattee J. said ([1995] 1 W.L.R. at 225A) was the basis on which Lacey was correctly decided. However, I do not understand Rattee J. to have held that it was in all cases necessary that a benefit should have been conferred by the proposed contractor on the proposed employer which was “outside the ambit” of the anticipated contract. Clearly, this was not true of the benefit conferred on the defendants in the British Steel Corporation case. Indeed was it only partly true of the benefit conferred in Lacey. In that case, the work connected with the war damage claim, which was based upon a notional reconstruction of the building in its original state, was outside the ambit of the proposed building work. But the plaintiffs also recovered on a quantum meruit for revised estimates for the actual rebuilding, which was the subject matter of the anticipated contract.
Finally, with reference to the circumstances in which the anticipated contract failed to materialise, I have already found that the principal reasons for this were Ms. Campopiano’s distrust of Countrywide, from her own experience and from what she had heard from within ICL, and the availability of another contractor, Financial Dynamics, in whom she did have trust. One could perhaps with some justice say that ICL Pathway (as opposed to Ms. Campopiano personally, who was not fully aware of the background and was simply following Mr. Foley’s instructions) was “at fault” for not honouring the assurance which they had given. But I think that the more logical question to ask is whether Countrywide took the risk of ICL Pathway reaching this conclusion after all the preparatory work, and indeed some work towards the implementation of the project, had been done. Of course, in a sense, it follows from the very fact that no binding agreement was concluded that the plaintiffs did take this risk, but the effect of the authorities cited above is to require a broader view to be taken. Otherwise no claim of this kind could ever succeed. In my view, what happened was outside the various risks of working without recompense which Countrywide can fairly be said to have accepted. Therefore I think that it is unjust that ICL Pathway have enriched themselves by not paying for Countrywide’s services. I would have held otherwise, if I had found that the, or even a, substantial reason for ICL Pathway’s failure to offer Countrywide the sub-contract was a disagreement about terms. I would also have held otherwise, if the reason had been that Countrywide offered work which, in the circumstances in which it was offered, was seriously defective. However, they merely failed to provide work which was of sufficient excellence to overcome Ms. Campopiano’s predisposition to recommend Financial Dynamics. There was never much chance of their securing Ms. Campopiano’s support if Financial Dynamics were available.
The amount of the claim
On the facts of this case, the correct basis for calculating the amount of the claim is payment for time spent, with associated costs. Countrywide’s claim is based upon their invoice of 19th June 1996, which is supported by a schedule prepared at the time which shows 234 hours worked in the relevant period at a cost of £200 per hour. In addition, there is a claim for £418.50 costs, which includes £62.50 for a lunch in Banbury. The total is £47,218.50 plus VAT. However, as already explained, item 9 on the Scott Schedule, a claim for £3,000, has been resolved, so that the remaining total is £44,218.50 plus VAT. The Scott Schedule contains two items, nos. 6 (3 hours) and 12 (no specific time allotted), which are not reflected in the internal schedule prepared at the time of the invoice or in the amount claimed in the invoice. It seems fairly clear from the evidence that Countrywide have not claimed for every last part of the work they did: for example they spent time liaising with McCann Erickson, although the extent of this is not agreed, but no charge has been made; nor I think does the Scott Schedule take in every meeting, for example the one referred to in Mr. Orme’s letter to Mr. Hodgson of 1st March 1996 is omitted.
The Scott Schedule is formally proved in Mr. Orme’s second statement, which states that it reflects the work done “supporting Pathway”. He was not cross-examined in great detail on every item and broadly I accept that the work itemised in the Scott Schedule was done to support Pathway and benefited ICL Pathway in the manner already described. However there are some items which need to be looked at more carefully.
The most important of these is item 5, relating to the meeting of 23rd January 1996, preparation for it and its aftermath. Although Mr. Hodgkins invited Mr. Orme to attend the meeting so that he could be kept up to date with progress and available to deal with any points which might arise, it is clear on the evidence that Mr. Orme used the occasion to introduce Mr. Bethel of GPC with the object of obtaining a sub-contract for GPC, thus presumably ousting the existing public affairs consultant. This part of the work done by Countrywide (and GPC) under item 5 was certainly not done at the request of ICL Pathway. The attendance of Mr. Bethel of GPC at the meeting was not requested by Mr. Hodgkins. Nor was it of any benefit to ICL Pathway. Thus, this part of the claim could be justified, if at all, only as an expense reasonably incurred by Countrywide in bidding for work. No claim in restitution can possibly be made. Even if a claim for wasted expenditure, reasonably incurred but not involving the performance of any service requested, could be the subject of some form of quasi-contractual claim, or could arise from an estopel, the facts here do not justify it. It was entirely speculative work which ICL Pathway neither sought nor could reasonably have foreseen. Of the 36 hours claimed for this item I allow only 9 hours, consisting of 5 hours for Mr. Orme’s attendance, 2 hours preparation and 2 hours follow-up.
In addition, item 2 consists of 18 hours spent by Mr. Orme and Mr. Bethell and Angela Carter of GPC considering, and meeting to discuss, political issues in April 1995. I accept Countrywide’s submission that time spent by Mr. Orme in briefing himself on political issues was necessary to provide himself with relevant background for the work he was doing, but there is no evidence that Mr. Bethell’s or Angela Casey’s time was charged by GPC to Countrywide. It is difficult to be precise as to the time to be allowed for this time, but doing the best I can I allow 8 hours and disallow 10 hours. Other items include time spent by Mr. Orme in discussing matters with GPC, which I think is allowable; there is no indication that any other item includes a charge for GPC time.
The next point is that item 6 is a claim for 3 hours estimated time, not recorded and not included on the invoice, for giving advice on the Aspen Business Communications Marketing and Education Plan in January 1996. I allow this item.
Item 7 includes the startling total of 32 hours spent by Mr. Orme on only 2 days, 6th and 7th March 1996, on the Pathway Communications Schedule. This was challenged in cross-examination. Having looked at the document, and accepting that a relatively short document may be the product of much detailed work including time spent simplifying it, I still find it difficult to accept that quite so much time was reasonably spent on this document. Doing the best I can in the absence of detailed evidence about it, I allow 20 hours, and disallow 12 hours.
Items 10-15 (other than the last part of item 15) concern the meetings in May 1996, which ICL Pathway submit were held in order to enable Mr. Orme to “sell” Countrywide’s services. I have found that the meetings on 1st and 23rd May were presented to Mr. Orme as being principally for the purpose of briefing Mr. Foley and Ms. Campopiano, who had recently become involved. The meetings on 9th and 21st May were routine meetings for the purpose of planning the implementation of the project. The meeting on 30th May took place to enable Mr. Orme to discuss further points which Ms. Campopiano had asked him on 23rd May to work on, on the basis that Countrywide would be paid. Accordingly, I reject ICL Pathway’s submission on these meetings.
The last part of item 15 reads:-
“8 hrs correspondence and internal planning by John Orme and David Lake to consider the implementation of the bid, the plaintiff’s role in that implementation, and finally preparing and submitting invoice no. C0004326.”
This relates to the period from 30th May 1996 onwards. Some of it must relate to the correspondence complaining about ICL Pathway’s behaviour, rather than consideration of “the implementation of the bid”. However justified, correspondence complaining of ICL Pathway’s behaviour cannot be said to have enriched them and the invoice was intended to have the opposite effect. Again doing the best I can, I allow 4 hours and disallow 4 hours.
Finally, on two small items, I allow an additional hour for item 12, and disallow the expense of the lunch, £62.50, which did not enrich ICL Pathway either.
Subject to counsel correcting my calculations, Countrywide are accordingly entitled to claim for 170 hours at a reasonable rate which, in the light of the evidence to which I have referred earlier, I fix at £190, totalling £32,300, plus costs of £356, plus VAT at 171/2%, making £38,370.80 in all.
Deputy judge, Q.B.D.
Pursuant to the Practice Statement issued by the Master of the Rolls on 9th July 1990 I hereby certify that the attached text records my judgment in this matter and direct that no further record or transcript of the same need be made.
Guinness Mahon & Company Ltd v Council Of Royal Borough Of Kensington & Chelsea
[1998] EWCA Civ 294 (19 February 1998)
LORD JUSTICE MORRITT: On 23rd September l982 the Royal Borough of Kensington and Chelsea (“the Council”) apparently entered into an agreement with Guinness Mahon & Co.Ltd (“the Bank”) setting out the terms of a transaction of a type known as an interest rate swap. The Council agreed to borrow £5m. from a building society for a period of five years at an interest rate of ll.5/8% per annum. Over the same period of five years it was agreed that at the expiration of each successive period of six months the Bank should pay to the Council sums equal to the interest payments to be made by the Council to the building society for that period and the Council should pay to the Bank interest at a floating rate on a notional loan of £5m for the same period. Thus if the floating rate prescribed was less than ll.5/8% pa the Council would receive from the Bank more than it paid to the Bank and vice versa.
The five year period ended on 22nd September l987. By that date, when all swaps had been effected, the Council had received from the Bank £384,409 more than it had paid. There matters might have rested but for the fact that on lst November l989 the Divisional Court declared, as subsequently upheld in the House of Lords in Hazell v Hammersmith and Fulham London BC [l992] 2 A.C. l, that such an agreement as the Council had apparently concluded with the Bank was ultra vires the Council and so void from the start.
In early l993 two actions selected as test actions for the resolution of the problems arising from the invalidity of such interest rate swaps came before Hobhouse J. They were Westdeutsche Landesbank Girozentrale v Islington Borough Council (“Westdeutsche”) and Kleinwort Benson Ltd v Sandwell Borough Council (“Sandwell”). In the former the period prescribed in the agreements during which such swaps should take place had not expired at the time the proceedings were commenced. In the latter the period specified in one of the agreements sued on had, as in this case, expired, all relevant swaps having been duly paid before the writ was issued. In each case the Bank sought repayment of the net amount it had paid the local authority. Hobhouse J gave judgment in February l993 (reported at [l994] 4 All ER 890) upholding the claims of the banks in all cases. In particular he refused to draw a distinction between what might be described as “open swaps” where the period prescribed in the ultra vires agreement had not expired and “closed swaps” where it had.
These proceedings were commenced by the Bank on 26th July l993. On 9th November l994 judgment in default of notice of intention to defend was entered by the Bank. On 4th March l995 Phillips J made a consent order setting aside the judgment entered in default and, but without prejudice to the Council’s right to appeal therefrom, substituting for it a judgment in favour of the Bank in the sum of £l0l,78l and interest. It is against that judgment that the Council now appeals with the leave of Staughton LJ. Though there were appeals in Westdeutsche on certain points in relation to open swaps there was none in Sandwell, because it was settled, and therefore none in relation to a closed swap. Accordingly this appeal has been argued on the footing that it is in substance an appeal from the order of Hobhouse J in Sandwell in so far as it related to a closed swap.
It is necessary at the outset to consider in some detail the decisions of Hobhouse J in Westdeutsche and Sandwell and of the Court of Appeal and the House of Lords in Westdeutsche for the purpose of ascertaining the basis on which sums paid under an open swap are, as is common ground, recoverable if the agreement was ultra vires one of the parties to it. In Westdeutsche the interest rate swaps were of the conventional kind but the agreement provided for the bank to pay to the local authority a lump sum at the commencement of the period for which the agreement was intended to run. All of them were open swaps. In the case of Sandwell there was no such lump sum payment and, as I have pointed out, one of them was a closed swap. The judgment of Hobhouse J (reported at [l994] 4 All ER 890) after a review of the facts of the case is helpfully divided into sections. In section (l) he dealt with a number of preliminary matters, namely (a) the historical development of claims for restitution, (b) the effect of the ultra vires principle, (c) the passing of property in money, (d) the decision of the House of Lords in Sinclair v Brougham [l9l4] A.C. 398, and (e) the effect of certain annuity cases. For present purposes it is sufficient to note conclusions of Hobhouse J in relation to (d) and (e). With regard to the former he considered (p.92l) that Sinclair v Brougham was direct authority for the proposition that if it were ultra vires the payor to make the payment in question then it had an equitable right against the recipient, in the nature of an equitable charge, to trace the money so paid into its general assets. In the case of the latter he concluded (p.923) that the annuity cases, which he described in some detail, established that the right of restitution existed in respect of payments made under void contracts even though there were payments both ways so that on a contractual analysis there was no total failure of consideration. He also considered and found to be inapplicable in Sandwell the statement of Bayley J in Davis v Bryan (l827) 6 B & C 65l, 655 to the effect that where one party received the whole of that for which he bargained it was against conscience to claim that the contract was void from the start.
In section (2) Hobhouse J analysed the restitutionary claim of money had and received under five headings of which only the second “void contracts and absence of consideration” is directly material. He recorded two arguments for the banks; first that payments made under a void contract do not amount to consideration for the purposes of the law of restitution; second, that the banks did not get the benefit for which they had bargained, sc. payments which would discharge a legal obligation and which, therefore, the banks might lawfully retain, but, by contrast, obtained under a void contract money which the local authority was prima facie entitled to recover. After referring to Rowland v Divall [l923] 2 K.B. 500, Linz v Electric Wire Co. of Palestine Ltd [l948] A.C. 37l and Rover International Ltd v Cannon Film Sales Ltd (No.3) [l989] l W.L.R. 9l2 he said
“In my judgment, the correct analysis is that any payments made under a contract which is void ab initio, in the way that an ultra vires contract is void, are not contractual payments at all. They are payments in which the legal property in the money passes to the recipient, but in equity the property in the money remains with the payer. The recipient holds the money as a fiduciary for the payer and is bound to recognise his equity and repay the money to him. This relationship and the consequent obligation have been recognised both by courts applying the common law and by Chancery courts. The principle is the same in both cases: it is unconscionable that the recipient should retain the money. Neither mistake nor the contractual principle of total failure of consideration are the basis for the right of recovery.”
In the concluding passage of that section he decided that it was irrelevant to the existence of a cause of action in connection with the payments made under the first Sandwell swap that the supposed contract was in fact fully performed and there was no failure of consideration in the contractual sense. In section (3) Hobhouse J considered Equitable Tracing and decided that the banks were entitled to that remedy. Sections (4) to (6) dealt respectively with the Limitation Act, the defence of change of position and interest. His ultimate conclusion (p.955) was
“The plaintiff is entitled to recover that sum either as money had and received by the defendant to the use of the plaintiff or as money which in equity belongs to the plaintiff and which it is entitled to trace in the hands of the defendant and have repaid to it out of the present assets of the defendant. The basis of the plaintiff’s claim, which at common law or in equity, is that the defendant has been unjustly enriched at the expense of the plaintiff and that in conscience the defendant must repay to the plaintiff, save in so far as it has already done so, the sum which it received from the plaintiff. The right to restitution arises from the fact that the payment made by the plaintiff to the defendant was made under a purported contract which, unknown to the plaintiff and the defendant, was ultra vires the defendant and wholly void.”
Counsel for the Council criticises this judgment on three grounds. First, he submits, Hobhouse J was wrong to distinguish Davis v Bryan . Second, Hobhouse J failed properly to apply the principle stated by Kerr LJ in Rover International Ltd v Cannon Film Sales Ltd (No.3 ). Third Hobhouse J was wrong to consider that the equitable interest in money paid under an ultra vires contract remained in the payor.
There is no issue with regard to the third criticism for the House of Lords decided the point in the contrary sense in the subsequent appeal in Westdeutsche. However it is clear from the judgment of Hobhouse J as a whole that he found for the banks on two grounds, money had and received and the equitable right to trace. Though the House of Lords disagreed on the second ground both the Court of Appeal and the House of Lords agreed with Hobhouse J on the first.
The order made by Hobhouse J in Westdeutsche awarded to the Banks the net sum paid by them to the local authority with compound interest from the date of the decision of the Divisional Court in Hazell. The appeal in Sandwell was settled. In W estdeutsche the local authority appealed against the award of compound interest and the bank cross-appealed in respect of the date from which interest should run. The Court of Appeal dismissed the local authority’s appeal, so it remained liable for compound interest, but allowed the appeal of the bank so as to award interest on the balance due to the bank from time to time. Both those apparently limited issues involved the further consideration of the basis of the liability of the local authority.
Dillon LJ considered that the liability of the local authority was established in both restitution and equity. In the case of the former the claim was for money had and received on the basis of a total failure of consideration. Dillon LJ rejected the contention of the local authority that such claim must fail because of the interest payments it had made by way of swap. After referring to Rugg v Minett (l809) ll East 2l0 Dillon LJ said:
“I do not see why a similar process of severance should not be applied where what has happened, in a purely financial matter, is that there has been a payment of money one way and a payment of smaller sums of money the other way. The effect of severance is that there has been a total failure of consideration in respect of the balance of the money which has not come back.
Severance apart, however, to hold that as the interest swap transaction and contract were ultra vires and void there was no consideration for the payment by Westdeutsche of the £2.5m and therefore the balance which has not so far been repaid by Islington can be recovered by Westdeutsche in quasi contract as money had and received or on the ground of unjust enrichment is warranted by early cases decided under the Grants of Life Annuities Act l777.”
He concluded that the bank was entitled to recover the balance from the local authority as money had and received or unjust enrichment at the expense of the owner of the money. He also considered and upheld the decision of Hobhouse J in respect of the liability of the local authority on equitable grounds, but that part of his judgment cannot now stand in view of the subsequent decision of the House of Lords.
The judgment of Leggatt LJ was to the same effect. In rejecting the submission for the local authority that because of the payments it had made there could not have been a total failure of consideration he said
“There can have been no consideration under a contract void ab initio. So it is fallacious to speak of the failure of consideration having been partial. What is meant is that the parties did, in the belief that the contract was enforceable, part of what they would have been required to do if it had been. As it was, they were not performing the contract even in part: they were making payments that had no legal justification, instead of affording each other mutual consideration for an enforceable contract. In my judgment, the payments made are in those circumstances recoverable by Westdeutsche, in so far as they exceed the payments made by Islington, as money had and received to the use of Westdeutsche by which Islington have been unjustly enriched.”
There is in that passage an echo of the judgment of Lord Ellenborough CJ in Hicks v Hicks (l802) 3 East l6 where in one of the annuity cases he said:
“This was either an annuity or not an annuity. If not an annuity, the sums paid on either side were money had and received by the one party to the other’s use. If the consideration of the annuity be money had and received, it must be money had and received with all its consequences; and therefore the defendant must be at liberty to set off his payments as such on the same score.”
Leggatt LJ also considered the claims of the bank to be justified on equitable grounds, but for the same reason as in the case of the judgment of Dillon LJ that part of his judgment cannot stand. Kennedy LJ agreed with both judgments. I have referred to these judgments in some detail for it seems to me that, as submitted by counsel for the Bank, the Court of Appeal decided, quite separately from their conclusion on the claim on equitable grounds, that the bank was entitled to succeed in its claim on the grounds of money had and received on the basis of a total failure of consideration notwithstanding that in one sense consideration was given by the local authority in performing its part of the swap.
The local authority appealed to the House of Lords against the order of the Court of Appeal awarding compound interest on the net balance due from time to time. The appeal was allowed in respect of the award of compound rather than simple interest but dismissed in respect of the time from which interest should be payable. The House of Lords disagreed with Hobhouse J and the Court of Appeal in respect of the bank’s claim on equitable grounds. In doing so they re-examined their own decision in Sinclair v Brougham [l9l4] A.C. 398. Though the claim in respect of money had and received was not in issue the decisions of Hobhouse J and the Court of Appeal in that respect were evidently approved. Thus at p.683 Lord Goff of Chieveley said in relation to the annuity cases on which Hobhouse J had relied:
“they were concerned with cases in which payments had been made, so to speak, both ways; and the courts had to decide whether they could, in such circumstances, do justice by restoring the parties to their previous positions. They did not hesitate to do so, by ascertaining the balance of the account between the parties, and ordering the repayment of the balance. Moreover the form of action by which this was achieved was the old action for money had and received – what nowadays we call a personal claim in restitution at common law. With this precedent before him, Hobhouse J. felt free to make a similar order in the present case; and in this he was self-evidently right.”
At p.7l0 Lord Browne-Wilkinson said of the decision in Sinclair v Brougham :
“..in Sinclair v Brougham the depositors should have had a personal claim to recover the moneys at law based on a total failure of consideration. The failure of consideration was not partial: the depositors had paid over their money in consideration of a promise to repay. The promise was ultra vires and void: therefore the consideration for the payment of the money wholly failed. So in the present swaps case (though the point is not one under appeal) I think the Court of Appeal were right to hold that the swap moneys were paid on a consideration that wholly failed. The essence of the swap agreement is that, over the whole term of the agreement, each party thinks he will come out best: the consideration for one party making a payment is an obligation on the other party to make counter-payments over the whole term of the agreement.”
I have referred at length to the course of the proceedings in Westdeutsche to demonstrate that the true basis for the recovery by the bank of the net amount it paid to the local authority which had no capacity to enter into the swap agreement was for money had and received as on a total failure of consideration. I take this to have been one of the two distinct grounds of decision of Hobhouse J and of the Court of Appeal and that ground was expressly approved by at least two of the members of the Appellate Committee in the House of Lords.
Except for the decision of Hobhouse J in Sandwell all these conclusions were reached in the case of an open swap whereas this case concerns a closed swap. For the Council Mr Béar, in his excellent argument, submitted that this makes all the difference. He pointed out that the only interest the Bank had ever had in the capacity of the Council was to ensure performance of the swap agreement but once it had been completed the Bank was in exactly the same position as it would have been if the Council had had the necessary capacity. He submitted that there were two stages to the consideration of any question of restitution; first did the circumstances give rise to a case of unjust enrichment which should prima facie lead to a recovery; if so did the circumstances give rise to a defence or bar to recovery negativing the prima facie case of unjust enrichment, for example, in the circumstances it was not unjust. He submitted that there is no authority binding on this court on the question whether full performance of a void contract precluded a claim for recovery which would have succeeded in the case of partial performance. He submitted that the decision of Hobhouse J in Sandwell was in conflict with the observation of Bayley J in Davis v Bryan . He suggested that to answer the question in the negative would fail to give effect to Rover International Ltd v Cannon Film Sales Ltd (No3 ) [l989] l W.L.R. 9l2. Quite apart from authority he argued that there was nothing unjust in refusing recovery for the “enrichment” of the Council which would result because it would be exactly that for which the parties had bargained. He sought support for his arguments from the statements in Goff & Jones, The Law of Restitution, 4th Ed. p.6l that:
“No doubt it is right that a party who has received the very thing which he has contracted for should be unable to reopen the transaction to recover his money.”
and in Professor Birks Article “No Consideration: Restitution after Void Contracts” The University of West Australia Law Review Vol.23 l95 at p.206 that:
“If we stand back from authority, there is in fact no compelling reason to allow a plaintiff to recover the value of his performance if he has received in exchange for it all that he expected. His ground for restitution, if it exists must be purely technical.”
He pointed out that acceptance of his argument would align the law of England and Wales with the American Law Institute’s Restatement of the Law of Restitution (l937) in which it is stated in para.47:
“A person who, in order to obtain the performance of a promise given or believed to have been given by another and in exchange therefor, has conferred upon the other a benefit other than the performance of services or the making of improvements to the land or chattels of the other, is entitled to restitution from the other if the transferor, because of a mistake of law,
(a) erroneously believed the promise to be binding upon him and
(b) did not obtain the benefit expected by him in return.”
The notes to that paragraph on p. l94 state that:
“If the transferor receives what he expected to receive in exchange for what he gave, his right to restitution is discharged, as where the other party ratifies the act of an unauthorized agent with whom the transferor had dealt or where a married woman, not bound by her promises, gives what she had promised.”
Mr Béar’s concluding submission was to the effect that if the argument for the Bank was right it would amount to giving a right in restitution to repayment of money on the sole ground that its original payment had not been due. This he contended would be contrary to the proposition expressed by Lord Goff of Chieveley in Woolwich BS v IRC [l993] A.C. 70 at p.l72 that English Law did not recognise such a cause of action.
Before considering these submissions in greater detail it is helpful to consider the position of the parties to an open swap and a closed swap. I assume a swap period of 5 years with swap payments between the bank and local authority every six months. The penultimate payments made four and a half years after the date of the agreement have given rise to a net balance in favour of the local authority of £l00,000. Westdeutsche establishes that if the original swap agreement was ultra vires the local authority the bank would have a cause of action for repayment of that balance as money had and received or for restitution at common law. Then I assume that six months later the final swap payments are made by a net payment from the bank to the local authority of a further £50,000. The argument for the Council, if accepted, would deny the bank any right of recovery. But if the restitutionary principle requires the recognition of a cause of action for recovery of £l00,000 when the penultimate payments were made it is difficult to see on what basis it denies any claim at all when on the final payments the balance in favour of the local authority rises to £l50,000.
It was not suggested that the position differed depending on which party was the net winner. Thus I assume the converse case. After four and a half years the balance of £l00,000 is in favour of the bank. That sum is recoverable by the local authority because it had no capacity to enter into the agreement under which the various sums making up the balance were paid. On the last payment the balance in favour of the bank is increased by a further £50,000. That payment was made by the local authority with the same lack of capacity as all the earlier ones. It is hard to see any basis of logic or justice which would justify allowing the claim of the local authority to the balance due after the penultimate swap but denying it in respect of the final balance. The Council seeks to justify the distinction on two theoretical legal bases.
The first theoretical basis on which the case for the Council is put is that because over the whole of the term of the swap agreement the parties paid and received exactly what they had bargained for there can be no failure of consideration in the case of the closed swap. By contrast, in the case of the open swap one or more of the swaps envisaged has not been carried out; therefore, it is said, there is a total failure of consideration for the parties have not received all that for which they bargained. But this argument assumes that in the case of a swap contract the relevant bargain was for the payments which were actually made rather than the legal obligation to make them. It is true that in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [l943] A.C. 32 Viscount Simon at page 48 said
“when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise.”
But that case concerned a contract originally valid but subsequently frustrated due to the outbreak of war and not a contract void from the outset. In any event the statement was not intended to be exhaustive as is apparent from the qualification introduced by the words “generally speaking”.
In Rover International Ltd v Cannon Film Sales Ltd (No.3 ) [l989] l W.L.R. 9l2 the relevant agreement was invalid from the start because the party with which it was expressed to be made had not been incorporated at the time it was executed. The consequence was that Rover was not entitled to the benefit of the profit sharing agreement it contained. The judge had rejected the claim of Rover to recover sums it had advanced in the belief that it was a valid and effective agreement on the ground that “the consideration, if it had been a contract, had not failed” because Rover had received some of the benefits for which the contract provided. Kerr LJ considered that the judge had adopted the wrong test. At p.923 he said:
“The question whether there has been a total failure of consideration is not answered by considering whether there was any consideration sufficient to support a contract or purported contract. The test is whether or not the party claiming total failure of consideration has in fact received any part of the benefit bargained for under the contract or purported contract.”
Kerr LJ then considered the passage from the speech of Viscount Simon in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [l943] A.C. 32 which I have already quoted, the decision of the Court of Appeal in Rowland v Divall [l923] 2 K.B. 500 and of Finnemore J in Warman v Southern Counties Car Finance Corporation Ltd [l949 2 K.B. 576. Kerr LJ considered that in the latter two cases what was bargained for was lawful possession and a good title to the car and the use of and option to purchase the car. He concluded in relation to the case before him that:
“The relevant bargain, at any rate for present purposes, was the opportunity to earn a substantial share of the gross receipts pursuant to clause 6 of the schedule, with the certainty of at least breaking even by recouping their advance. Due to the invalidity of the agreement Rover got nothing of what they had bargained for, and there was clearly a total failure of consideration.”
Dillon LJ did not find it necessary to consider the claim based on a total failure of consideration. Nicholls LJ agreed with the reasoning of both Kerr LJ and Dillon LJ. I accept, as Mr Béar argued, that this case concerned a contract void from the start. But I do not accept Mr Béar’s further submission that Kerr LJ was considering only the performance of the promise. It seems to me that he was considering whether Rover obtained the legal rights for which it had stipulated as well as the fruits of such rights.
But whether or not my reading of the judgment of Kerr LJ is correct one principle clearly established by the Court of Appeal in Westdeutsche is that in the case of a contract void from the start there must for that reason have been a total failure of consideration. per Dillon LJ [l994] l W.L.R. at p. 945H and Leggatt LJ at p. 953E. To the same effect is the speech of Lord Browne-Wilkinson in the House of Lords [l994] AC at p. 7l0H-7llA. These passages, which I have already quoted, demonstrate that it is the very fact that the contract is ultra vires which constitutes the total failure of consideration justifying the remedy of money had and received or restitution for unjust enrichment. If partial performance of that assumed obligation in the case of an open swap does not preclude a total failure of that consideration then there is no basis on which complete performance of a closed swap could do so.
The second theoretical basis on which the Council tries to justify the distinction between an open and closed swap for which they contend is by reference to the principle of the severability or apportionment of consideration. Such a concept was referred to by Lord Wright in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [l943] AC 32 at p.64. He considered that where the entire consideration was severable there might be a total failure of consideration as to a severed part. The authority relied on was Rugg v Minett (l809) ll East 2l0 which was referred to by Dillon LJ in Westdeutsche. The principle was further explained and applied in Goss v Chilcott [l996] A.C. 788 at pp. 797/8. Counsel for the Council sought to apply that principle by severing each six-monthly swap both from the overall agreement and also from each of the others. In this manner he drew a distinction between the open swap, where it was suggested that there was a total failure of consideration with regard to the outstanding swap, with the closed swap, where there was no such failure because all had been performed. But a distinction cannot in my view be drawn on those lines. On that basis each six monthly swap would be severable. If the relevant consideration for each swap was the performance of the obligation each party thought it was under in respect of that swap then each swap would be fully performed and neither party could recover from the other either during the term of the swap agreement or thereafter the amount by which what he paid exceeded what he received. If on the other hand the consideration for each swap was the benefit of the contractual obligation then there was a total failure of consideration in the case of each swap either before or after the term of the agreement had elapsed, thereby entitling to loser to recover the balance under a closed swap as well as an open one. Thus neither horn of the dilemma justifies a distinction between a closed swap and an open swap. As Mr Leggatt QC submitted for the Bank the proposition either proved too much or too little.
Mr Leggatt QC also relied by way of analogy on the provisions of s.84 Marine Insurance Act l906 and cases decided thereunder. I do not think that it is necessary to deal with them further for I do not think that his argument requires any such support. I should for completeness add that I am not sure that the field of insurance is necessarily analogous with regard to claims paid under a policy made void by the section. In many such cases the insurer’s claim for repayment of the insurance moneys paid would be likely to be met by the defence of change of position. No such defence is suggested in this case.
For these reasons I do not accept either of the theoretical bases on which the Council seeks to justify a distinction between an open and a closed swap agreement. In dealing with the first of them I have covered the criticism of the judgment of Hobhouse J based on the judgment of Kerr LJ in Rover International Ltd v Cannon Film Sales Ltd (No.3 ) [l989] l W.L.R. 9l2. It is necessary then to consider the remaining criticism of the judgment of Hobhouse J, namely that based on the judgment of Bayley J in Davis v Bryan (l827) 6 B & C 65l, one of the annuity cases the application of which was expressly approved by Lord Goff of Chieveley in Westdeutsche [l996] AC 669 at p. 683. The Council contend that the conclusion of Hobhouse J is contrary to that judgment. In Davis v Bryan the defendant had sold to the deceased an annuity for the life of the latter, whose estate was represented by the plaintiff, for a capital sum. The defendant had paid the annuity until the death of the annuitant. But as no memorial of the grant of the annuity had been registered the original grant was void. The plaintiff sought to recover the sum paid for the purchase of the annuity. He failed. Bayley J, at p. 655, said
“This appears to be a clear case on principles both of law and honesty. This is an action for money had and received, and I learned many years ago that such an action could not be maintained, if it were against equity and good conscience that the money should be recovered. Here a bargain was made, and the testator paid a consideration of £300, and the defendant agreed for that to pay a certain annuity. The testator received the whole of that which he bargained for, and now his representative says that the contract was void from the beginning. Is there any thing like good conscience in the claim? Then is the contract void? The Act of Parliament says, that unless a memorial be duly enrolled, the deed of which no memorial is enrolled shall be void; but in many cases such words have been held to make [656] the instrument voidable only at the will of the party, and I think we are at liberty to put that construction upon them in the present case.”
Holroyd J gave as an additional ground the fact that the agreement had been fully executed. Littledale J concurred. Hobhouse J observed that that case appeared to be based on three grounds but had subsequently been regarded as authority for only the second, namely that the grantee who had failed to register the transaction could not unilaterally avoid it. He concluded that it did not establish any proposition of assistance to Sandwell in relation to the closed swap save that in an action for money had and received it is always necessary to have regard to considerations of equity and good conscience. I agree with Hobhouse J. The grant of the annuity had not, according to the decision of the court, been void from the start because the grantor had never sought to avoid it and the grantee could not rely on his own failure to register. Accordingly there had not been a total failure of consideration because not only had the annuity been paid in full but also the grant had never been avoided by the grantor. Thus that case is distinguishable from that of a contract void from the start because it was ultra vires.
It must be borne in mind that the ultra vires doctrine exists for the protection of the public. This was stated in relation to limited companies by Lords Parker of Waddington and Wrenbury in Cotman v Brougham [l9l8] A.C. 5l4, 520 and 522 and in relation to statutory corporations by Lord Templeman in Hazell v Hammersmith and Fulham London BC [l992] 2 A.C. l, 36. It is true, as Hobhouse J observed in Westdeutsche that once the transaction has been held to have been void from the start the effect of the doctrine has been exhausted so far as the corporation is concerned for no illegality is involved, though it may have further implications and effect on the officers of the corporation. But that does not mean that the court should apply the law of restitution so as to minimise the effect of the doctrine. If as the Council contends there is no claim for money had and received in the case of a completed swap then practical effect will be given to a transaction which the doctrine of ultra vires proclaims had no legal existence. The House of Lords declined so to do in Sinclair v Brougham [l9l4] AC 5l4 on the theory, now discredited, that the restitutionary claim was based on an implied promise; if the contractual promise was void because it was ultra vires how could the law imply a promise to the like effect? Though the basis of the implied promise may now have gone in my view the general principle must remain that an ultra vires transaction is of no legal effect. It must follow that the recipient of money thereunder has no right to it. If he keeps it he will be enriched. If he does not then or subsequently obtain a right to keep it such enrichment will be unjust. The claim for money had and received may be defeated by the defence of change of position. But in the absence of such a defence, and none was suggested in this case, it seems to me to be no answer to the claim to say that once the transaction has been fully performed the bank no longer has any interest in the capacity of the corporation or that both parties have received the expected return. Nor does it appear to me to be accurate to describe the party’s ability to recover his net payments as a windfall. If any of those factors, not amounting to the defence of change of position, was an answer to the claim it would attribute some effect to the transaction the law had declared to have none.
The passage in Goff & Jones, The Law of Restitution 4th Ed. p.40l, which I quoted earlier is not specifically related to payments made in purported performance of an ultra vires contract. Nor, with respect to Professor Birks, do I agree that there is no compelling reason to allow the bank to recover the value of its performance. The Bank did not get in exchange for that performance all it expected for it did not get the benefit of the contractual obligation of the local authority. Likewise in reference to paragraph 47 of the American Restatement the Bank did not get the benefit it expected in the form of a contractual obligation.
I agree with Hobhouse J that there is no principle which could justify drawing a distinction between a closed swap and an open swap. I can summarise my reasons for that conclusion in the following propositions:-
(l) A contract which is ultra vires one of the parties to it is and always has been devoid of any legal effect.
(2) Payments made in purported performance thereof are necessarily made for a consideration which has totally failed and are therefore recoverable as money had and received. Thus at the first stage of the enquiry suggested in the submissions of Mr Béar the circumstances do give rise to a case of unjust enrichment which should prima facie lead to a recovery.
(3) A party to an apparent swap contract which is void because ultra vires one party is entitled so to recover the amount by which what he paid exceeds what he received whether or not the apparent contract has been completely performed for there is a total failure of consideration whether it is regarded as entire or severable.
(4) The fact that the swap contract, though ultra vires and void, has been fully performed does not constitute a defence or bar to the recovery of the net payment as money had and received for the recipient had no more right to receive or retain the payment at the conclusion of the contract than he did before. Thus at the second stage of the enquiry suggested by Mr Béar there are no grounds negativing the prima facie case of unjust enrichment
(5) Proposition (l) is not disputed. Propositions (2) and (3) are established by the decision of the Court of Appeal in Westdeutsche and supported by dicta in the House of Lords in the same case. Proposition (4) is inherent in that decision and those dicta and is a necessary corollary of the principle of ultra vires and the purpose for which it exists.
I would dismiss this appeal.
LORD JUSTICE WALLER: I agree that this appeal should be dismissed, essentially for the reasons given by Morritt LJ. I would however like to express shortly certain thoughts of my own.
I need not repeat Morritt LJ’s analyses of the facts or his full history of the litigation relating to “swaps”, and I will gratefully adopted his terminology.
Although I think Morritt LJ is right that the general statements he quotes from the judgments of Dillon and Leggatt LJJ in their judgments in the Court of Appeal in Westdeutsche are decisive of this case, I have at certain stages had some doubt about it. I am furthermore doubtful whether the passages quoted from the speeches of Lord Goff and Lord Browne Wilkinson in the House of Lords in the same case can be taken as supporting fully the basis on which Hobhouse J and the Court of Appeal formulated the grounds for recovery for money had and received in the swaps context. This may not be important in the open swaps situation but could be relevant in the closed swaps case.
The Court of Appeal and the House of Lords were of course dealing only with an “open swap” situation, and it seems to me that Lord Goff was clearly sounding a note of caution as to whether the basis for recovery was correctly analysed in a way that might make a difference in the “closed swaps” context.
Lord Goff refers to Professor Birks article “No consideration: Restitution after void contracts” (l993) 23 W.A.L.R. l95 and other articles at 683D-H. He ends that passage recognising the fact that there was not before the Appellate Committee any appeal as to the correctness or otherwise of the decision relating to the basis of recovery but saying:
“ … I think it right to record that there appears to me to be considerable force in the criticisms which have been expressed; and I shall, when considering the issues on this appeal, bear in mind the possibility that it may be right to regard the ground of recovery as failure of consideration.”
Because only “open swaps” were under consideration, that statement should not, as it seems to me, be taken as endorsement necessarily that “closed swaps” could be analysed on the basis that there had been a failure of consideration. Reference to Professor Birks’ article and approval of the criticisms should, if anything, be taken as an indication to the contrary.
I was much persuaded by Mr Béar’s arguments expanding on Professor Birks’ article, that there should be a distinction between “open” and “closed swaps”. There is in my view great force in the argument that “absence” of consideration as opposed to “failure” of consideration should not by itself be a ground for restitution. If one applies the concept of failure as opposed to absence of consideration, failure of consideration still provides a ground for restitution in relation to an open swap. This much is clearly recognised by Lord Goff, and was accepted by Mr Béar. If however the proper concept is failure, and not absence, the position may well be different in relation to a “closed swap”, although (and this seems to me important in the context of this case) Professor Birks would suggest depending on the circumstances that there may be some other basis for restitution.
I follow the force of the “absurdity” argument that Morritt LJ relies on for suggesting that there should be no difference between an “open swap” and a “closed swap”. But prima facie, the right which A has to reclaim money paid flows from the fact that B has been able to refuse to perform the contract, or been released or prevented from performing or obtaining performance of the contract, but if the remedy of restitution is not allowed that will leave B unjustly enriched at the expense of A. I have serious doubts as to whether simply because a party can show that a contract between them duly completed was void for whatever reason, that that should automatically lead to the court being prepared simply to unravel the contract.
I can illustrate the point I wish to make by reference to one of the cases cited to us and referred to in Professor Birks’ article Re Phoenix Life Assurance Co. Burges and Stock’s case reported both at 2 J&H 44l and 3l Courts of Chancery N.S.749 . In that case the court was concerned with an insurance company acting ultra vires by issuing marine policies when its powers were only to issue life policies. Three points had to be dealt with. First, could those insureds under marine policies prove for their claims under those policies; the answer was no. Second, could insureds prove on judgments already obtained and or bills of exchange already issued; one report would suggest yes, (2 J&H 448), but the other report would suggest there was a change of mind by Vice Chancellor Sir W.Page Wood (N.S. 752). Third, could the insureds reclaim the premiums paid; the answer was yes. The case does not deal with whether the insurance company would have been able to reclaim moneys actually paid out on claims under the void marine policies, but the impression one gains from the debate on the judgments and the bills of exchange is that it was not contemplated that they could do so. My instinct would further suggest that even now with the further recognition of restitutionary remedies, and even in the absence of a change of position defence, the court would be reluctant to allow the insurance company to recover, there being nothing unconscionable in the insureds retaining the benefit of the claims which they received not being aware of the ultra vires point and believing the same to be due for the premiums paid. There was little argument before us by reference to those cases demonstrating that payments made to “close a transaction” are regarded as voluntary payments and irrecoverable (see for example Lord Goff’s speech In Woolwich Building Society v I.R.C . [l993] A.C. 70 at l65G). But it may be that would be a basis on which recovery would be refused.
In my view authorities also referred to in Professor Birks’ article, such as Pearce v Brain [l929] 2 K.B. 3l0, (a case relating to a contract at that time absolutely void under which an infant had exchanged his motorcycle for a car, but where despite the nullity of the contract the court did not order restitution and counter restitution); Steinberg v Scala (Leeds) Ltd [l923] 2 Ch. 452 ( a case where an infant under a contract by this time voidable avoided a contract, and then surrendered the shares to avoid further calls, but could not recover the price) also point in the direction of there not being a simple principle that if a contract is void, but completed as expected, there is still a right to restitution and counter restitution so as to unravel the contract. That principle would seem to be contrary to the principles recognised by Lord Goff in Woolwich at l65D and l72D. What is more, if the principle were so simple and straightforward, voidness equals rights on both sides simply to have returned to them that which has been transferred – why has that not been spelled out clearly in some authority prior to Westdeutsche.
But the fact that there is no general principle entitling one party to a void contract, to obtain restitution, and an unravelling of a contract on that basis does not mean that the court should never provide that remedy in a situation in which a contract is held to be void ab initio. Professor Birks indeed does not suggest that there may or should not be restitutionary remedies available where void contracts have been entered into and completed in certain circumstances. He simply argues for the basis of the remedy being accurately recognised and described so that recovery is only allowed in appropriate situations. One difficulty for Mr Béar seems to me to be that Professor Birks would suggest that in the swaps cases, the Banks should be entitled to recover even on a “closed swap”. The first basis suggested is that of mistake. It is of course recognised that English law would have to be liberalised to achieve that result since “mistake of law” is still not a recognised basis for recovery despite criticisms (see Lord Goff in Woolwich l64D).
The other alternative suggested by Professor Birks as a basis of recovery would be as he puts it at one stage “some policy transcending both the plaintiff’s intentions and the defendant’s conduct which requires that restitution be granted”.(206).
It is I think of interest that one can recognise in the judgment of, for example Leggatt LJ in the Court of Appeal in Westdeutsche, support for the view he is taking being gained from policy considerations. The passage with which his judgment starts is pure policy.
“The parties believed that they were making an interest swaps contract. They were not, because such a contract was ultra vires the council. So they made no contract at all. The council say that they should receive a windfall, because the purpose of the doctrine of ultra vires is to protect council taxpayers whereas restitution would disrupt the council’s finances. They also contend that it would countenance ‘unconsidered dealings with local authorities.’ If that is the best that can be said for refusing restitution, the sooner it is enforced the better. Protection of council taxpayers from loss is to be distinguished from securing a windfall for them. The disruption of the council’s finances is the result of ill-considered financial dispositions by the council and its officers. It is not the policy of the law to require others to deal at their peril with local authorities, nor to require others to undertake their own inquiries about whether a local authority has power to make particular contracts or types of contract. Any system of law, and indeed any system of fair dealing, must be expected to ensure that the council do not profit by the fortuity that when it became known that the contract was ineffective the balance stood in their favour. In other words, in circumstances such as these they should not be unjustly enriched.”
There is also, dare I say it, a hint in the above passage, and indeed in a later passage, of Leggatt LJ (953E) being influenced by the fact that the Banks were under a mistaken belief that the contract was valid. It follows that thus for long periods while the contracts were being worked out the Banks were exposed to the possibility that if payments came in their direction they might have to repay them.
I wholeheartedly agree with the passage in Leggatt LJ’s judgment quoted above and would suggest that there is no injustice in the council being bound to repay. Indeed in one sense it can be said that the council were “unjustly” enriched, though the sense seems to me slightly different from the unjust enrichment usually relied on.
We may in one sense be at a crossroads. Hobhouse J has held that the Bank should succeed on a “closed swap” possibly stretching the lack (to use a neutral word) of consideration basis in order to do so. That basis has in fact been approved by the court of appeal and we are bound by it. I have no compunction in dismissing the appeal not only because of the binding nature of that decision but because although I feel (if the matter were considered at a higher level) there may well be further elaboration of the appropriate basis, the result will be the same.
LORD JUSTICE ROBERT WALKER: I have had the advantage of reading in draft the judgment of Morritt LJ. I agree that this appeal should be dismissed, very largely for the reasons set out in the judgment of Morritt LJ, but I add some comments in my own words.
I gratefully adopt Morritt LJ’s summary of the facts and of the course of the proceedings in Westdeutsche and Sandwell. As Morritt LJ says, this appeal is in substance (though not in form) an appeal from the decision of Hobhouse J. on the first, closed swap in Sandwell. Hobhouse J. dealt with that point quite shortly [l994] 4 All ER at pp 923-4, and in summaries at pp 936 and 954). He said of the fully-performed annuity case, Davis v Bryan (l827) 6 B&C 65l, l68 ER 59l that it:
“does not establish any proposition of assistance to Sandwell in relation to the first Sandwell swap save that in any action for money had and received it is always necessary to have regard to considerations of equity and good conscience”.
The Court of Appeal upheld Hobhouse J’s conclusions in Westdeutsche both as to the personal restitutionary remedy (money had and received) and as to the proprietary restitutionary remedy (no passing of property in equity). Had that case not proceeded to the House of Lords on the narrow issue of compound interest, the resolution of the present appeal would, I think, have presented little difficulty. This court would have been bound by its previous decision (which in turn rested on the decision of the House of Lords in Sinclair v Brougham [l9l4] A.C. 398) that the recipient of a net payment under a swaps transaction received money which belonged in equity to the payer. On that basis retention of the payer’s money would on the face of it be unconscionable, subject to any defence of change of position, whether or not the swaps transaction had run its course. It is understandable that Hobhouse J, having concluded that he was not bound by any contrary principle in Davis v Bryan , dealt with the point so shortly. (It is however noteworthy that the learned article by Professor Birks relied on the appellant – (l993) 23 UWALR l95- was published before Westdeutsche had proceeded to either higher court).
The House of Lords, although concerned only with the issue of compound interest, departed from Sinclair v Brougham as to the passing of property in equity, and so upset the symmetry between the claims at law and in equity which is a salient feature of the judgment of Hobhouse J. (especially at [l994] 4 All ER 929 and again at 955 : “the plaintiff is entitled to recover that sum either as money had and received by the defendant to the use of the plaintiff or as money which belongs in equity to the plaintiff” ; see also, in this court, Dillon LJ at pp 962-3 and Leggatt LJ at pp 967-8). In the House of Lords it was the opinion of Lord Browne-Wilkinson ([l996] A.C. at pp 7ll-4) that Sinclair v Brougham should be departed from on the equitable proprietary claim, and Lord Slynn, Lord Woolf and Lord Lloyd agreed on that point (pp 7l8, 720 and 738). Lord Goff would not have departed from Sinclair v Brougham although he contemplated that it might “fade into history” or be reinterpreted (pp 688-9). Lord Goff had already referred (at p.683) to Professor Birks’ article and thought it right to record that he saw considerable force in its criticisms of Hobhouse J’s approach on “absence of consideration”. The other members of their Lordships’ House did not refer to this point, except for a short passage in the speech of Lord Browne-Wilkinson at p.7l0-l.
Since the Westdeutsche litigation evolved in that way, and the appeal to this court in Sandwell was compromised, the resolution of this appeal is not a short or simple matter, despite the excellent submissions from counsel on both sides. Three different lines of approach can be discerned in both sides’ submissions: first impression, legal principle, and authority.
(l) As a matter of first impression, the appellant’s best point is that the swap transaction was carried through to completion, just as the parties intended. One party ended up better off than the other (subject to any “passing on”) but that was always predictable. The appellant was enriched, but it was not unjustly enriched. The respondent’s best point, as a matter of first impression, is the apparent absurdity pointed out in the judgment of Morritt LJ : after four and a half years one party might be £l00,000 down and able to recover; what justice is there is denying it recovery if it is £l50,000 down after five years?
(2) As a matter of legal principle, it is debatable whether the “injustice” of the defendant’s enrichment depend on the fact that (what was supposed to be) an entire contract has been interrupted before it has run its course, or simply on the invalidity of the supposed contract. The appellant argues for the former, calling in aid Professor Birks’ article (at p.206: “his ground for restitution, if it exists, is purely technical”). The respondent argues for the latter, calling in aid Professor Birks’ textbook, An Introduction to the Law of Restitution (l989 revision at p.223: “failure of the consideration for a payment … means that the state of affairs contemplated as the basis or reason for the payment has failed to materialise or, if it did exist, has failed to sustain itself”).
(3) As a matter of authority, the appellant submits that the case is concluded in this court by its decision in Rover International Ltd v Cannon Film Sales Ltd [l989] l W.L.R. 9l2; the respondent submits that the case is concluded in this court by its decision in Westdeutsche , untouched (so far as the claim for money had and received is concerned) by the House of Lord’s departure from Sinclair v Brougham . The appellant also relies on Davis v Bryan but the respondent says that Hobhouse J. was right to treat it as largely irrelevant.
Although I have referred to these as different lines of approach they cannot easily be kept distinct. The tracks soon begin crossing and recrossing. I make two brief preliminary points, one on severance and the other on absurdity.
I do not find the notion of severance helpful to the resolution of this appeal. A swaps contract must, it seems to me, be regarded as an entire contract. That is obviously correct for a transaction (such as the Islington transaction described in Westdeutsche at pp 900-5) which provides for an “up-front” payment by the bank. It is also correct, it seems to me, for a series of matched payments, since the transaction as a whole involves the parties taking a view as to the trend of short-term or medium-term interest rates over the whole period of the transaction. It is no more capable of dissection into separate obligations than a term policy, at annual premiums, on human life.
Moreover it is in the stark financial nature of a swaps transaction that one party or the other will be seen, with the benefit of hindsight, to have got the better of the transaction; and if the other party is doing badly six months before the end of the transaction it is quite likely (but not, of course, certain) that it will be found to have done even worse when the transaction period comes to an end. That diminishes (but does not entirely remove) the force of the argument based on absurdity.
In Rover this court held, in relation to a void contract, that one party’s claim to recover advance payments as money had and received was not barred by the defendant’s plea that there had been no total failure of consideration. In Westdeutsche this court preferred Hobhouse J’s formulation, in relation to a void contract, of “absence of consideration”. This difference of approach calls for examination, although it may not in the end provide a clear answer to the issue raised in this appeal.
In English law the expression “consideration” has at least three possible meanings. Its primary meaning is the “advantage conferred or detriment suffered” ( Midland Bank Trust Co v Green [l98l] A.C. 5l3, 53l) which is necessary to turn a promise (not under seal) into a binding contract. In the context of failure of consideration, however, it is (in the very well-known words of Viscount Simon in Fibrosa Spolka v Fairbair Lawson Combe Barbour [l943] A.C. 32, 48):
“generally speaking not the promise that is referred to as the consideration, but the performance of the promise”.
Then there is the older and looser (and potentially very confusing) usage of “consideration” as equivalent to the Roman law “causa”, reflected in the traditional conveyancing expression “in consideration of natural love and affection” (see Professor Birks’ textbook at p.223; Professor Birks appears, at least superficially, to have moved his position in the last part of his more recent article : (l993) 23 UWALR l95, 233-4).
Where a contract is void ab initio there is in the eyes of the law no contract at all, and so speaking of failure of consideration (in the sense of failure of contractually promised performance) may be confusing. That is why Hobhouse J. preferred (as he explained at p.924) to speak of “absence of consideration” in the case of a purported contract which was void because ultra vires. If on the other hand a plaintiff (of full age and capacity) has got all that he bargained for that is at first blush the opposite of failure of consideration. The proposition that such a plaintiff cannot complain, because he has got all that he bargained for, has a simple and direct appeal. It is a proposition which has been stated, more or less in those terms, in a number of otherwise disparate cases, several of which were cited in argument.
Davis v Bryan (l827) 6 B&C 65l, l08 ER 59l was one of the cases of annuities void for non-registration under the Annuity Act l8l3 (re enacting the Grants of Life Annuities Act l777). The claim (for repayment of the purchase price) was made after the annuitant’s death by his executrix. It failed. Bayley J. said:
“The testator received the whole of that which he bargained for, and now his representative says that the contract was void from the beginning. Is there anything like good conscience in the claim?”
In that case there had been a bargain, and its statutory avoidance for non-registration within 20 days (the obligation being treated as one which fell on the grantee) seems to have been treated as making the annuity voidable ( ab initio ) by the grantor. That is one of the grounds of decision discernible in Davis v Bryan , and in the view of Hobhouse J. that has emerged as the main ground of decision.
In Steinberg v Scala (Leeds ) [l923] 2 Ch. 452 the plaintiff, a minor, had paid for shares allotted to her, and sought to recover the payment on the ground of total failure of consideration. The shares had been registered in her name and she could have sold them. Lord Sterndale MR said at p.459,
“If the plaintiff were a person of full age suing to recover the money back on the ground, and the sole ground, that there had been a failure of consideration it seems to me it would have been impossible for her to succeed , because she would have got the very thing for which the money was paid and would have got a thing of tangible value”.
This is the case referred to in a footnote in Goff & Jones, Law of Restitution (4th ed p.6l) to a sentence on which the appellant strongly relies,
“No doubt it is right that a party who has received the very thing which he has contracted to receive should be unable to reopen the transaction to recover his money”.
(That is not in a section of the work dealing with void contracts.)
In Rowland v Divall [l923] 2 K.B. 500 a car dealer had bought a car to which the seller had no title. The dealer succeeded in his claim to recover the purchase price on the ground of total failure of consideration. Atkin LJ said at p.506,
“In this case there has been a total failure of consideration, that is to say that the buyer has not got any part of that for which he paid the purchase money. He paid the money in order that he might get the property, and he has not got it. It is true that the seller delivered to him the de facto possession, but the seller had not got the right to possession and consequently could not give it to the buyer”.
The vendor had gone through the motions of performance of his contract by handing over a car, but in the eyes of the law that was no performance because the car was stolen.
Then there is the decision, referred to by Goff and Jones (p.402) as anomalous, of the Privy Council in Linz v Electric Wire Company of Palestine [l948] A.C. 37l. The appellant had been allotted what purported to be preference shares in the defendant company. Unlike the plaintiff in Scala, she was of full age; but her case (which the Privy Council assumed to be correct) was that the company had no power under its memorandum and articles to issue the preference shares. After four years she sold her preference shares at a loss, still apparently unaware of the defect in title. Then another shareholder raised the issue in proceedings which were compromised, and the company made an offer to all its registered preference shareholders (including, presumably, the plaintiff’s successor in title) to repay the amounts paid up on the shares. That offer was not made to the plaintiff herself, and she sued for repayment on the ground of total failure of consideration. The Privy Council rejected the claim. Lord Simonds said at p.377, echoing language which is becoming familiar,
“Having been duly registered as a shareholder and having parted for value with her shares by a sale which the company recognised …she got exactly what she bargained to get”.
He rejected (also at p.377), the plaintiff’s counsel’s reliance on Rowland v Divall :
“That case might have assisted him, if the fact was that the appellant still held the shares ….But it does not avail him in a case where the shareholder has sold his shares”.
In fact, the car dealer in Rowland v Divall had resold the stolen car to a customer, and had very properly returned the purchase money to the customer. In Westdeutsche Hobhouse J. (at p.928) treated Linz and Rowland v Divall as depending on an analysis of whether the defendant’s breach was “fundamental to the particular contractual transaction”. That was, he said:
“very different from the present case where there was in truth no bargain at all and problems of deciding what was the essential part of the bargain do not arise”.
In Rover International v Cannon Film Sales [l989] l W.L.R. 9l2 a complicated commercial contract was void because one of the parties, Rover, had not been incorporated at the date of the purported contract. Non-existence is the most extreme form of incapacity. Rover had made a series of payments to Cannon in the expectation of a share of substantial profits from the distribution of cinema films in Italy. The parties fell out, and the invalidity of the supposed contract was discovered, before Rover had received any share of profits. It was conceded that Rover was entitled to a quantum meruit . But it was argued that the Rover could not recover its payments because it had obtained possession of films, and would get a quantum meruit payment. Kerr LJ said at p.923:
“The test is whether or not the party claiming total failure of consideration has in fact received any part of the benefit bargained for under the contract or purported contract”.
Then at pp 924-5 he applied that test to the facts:
“And delivery and possession were not what Rover had bargained for. The relevant bargain, at any rate for present purposes was the opportunity to earn a substantial share of the gross receipts pursuant to clause 6 of the schedule, with the certainty of at least breaking even by recouping their advance. Due to the invalidity of the agreement Rover got nothing of what they had bargained for, and there was clearly a total failure of consideration.
This equally disposes of [Cannon’s counsel’s] ingenious attempt to convert his concession of a quantum meruit, in particular the element of reasonable remuneration, into consideration in any relevant sense. Rover did not bargain for a quantum meruit, but for the benefits which might flow from clause 6 of the schedule. This is the short answer to this point”.
Dillon LJ (at p.933) saw the case as a classic case of money paid under a mistake of fact. He expressed no view on the issue of total failure of consideration (p.935). Nicholls LJ agreed with both judgments.
In Westdeutsche Hobhouse J. discussed Rover in some detail and differed from Kerr LJ’s “essentially contractual” analysis. He said at p.929:
“In my judgment the correct analysis is that any payments made under a contract which is void ab initio, in the way that an ultra vires contract is void, are not contractual payments at all. They are payments in which the legal property in the money passes to the recipient, but in equity the property in the money remains with the payer”.
In the Court of Appeal Dillon LJ made no reference to Rover; Leggatt LJ did (at pp 968-9) and agreed with Hobhouse J’s approach, although he also agreed with Kerr LJ’s statement of the test as being whether the plaintiff had in fact received any “benefit bargained for under the contract or purported contract ” (emphasis supplied).
It may be important to note that Rover was an appeal to this court after a three-week trial which appears from the report (l987 BCLC 540) to have concentrated on issues of fact and (so far as the law was concerned) on estoppel by convention. The Judge dealt very shortly indeed (pp 545g-546b) with the issues which occupied this court’s attention. In this court Kerr LJ referred to Viscount Simon’s well-known statement in Fibrosa Spolka and to Rowland v Divall (both cases where there had initially been a valid contract). He was concerned to point out that Rover’s position was clearer and stronger. His earlier reference to “the contract or purported contract” [l989] l W.L.R. at p.923) cannot have been intended, in the context, to make any general equation of valid and void contracts in relation to failure of consideration.
I am not therefore persuaded that there is any serious difference in principle between the decisions of this court in Rover and Westdeutsche (and the fact that Dillon LJ was a member of both constitutions, but did not advert to a difference, tends to confirm that there is none). The point was more fully considered in Westdeutsche, especially by Leggatt LJ in the passages ([l994] 4 All ER at pp 968-9) to which I have already referred. Leggatt LJ concluded (after referring to the part of Hobhouse J’s judgment reported at p.925e-g):
“There can have been no consideration under a contract void ab initio. So it is fallacious to speak of the failure of consideration being partial”.
I respectfully agree with that. Either there was total failure of consideration, in that neither side to the supposed contract undertook any valid obligation, or there was (in Hobhouse J’s preferred expression) absence of consideration. The choice between the two expressions may be no more than a matter of which is the apter terminology (when Westdeutsche was in the House of Lords Lord Goff pointed out that “the concept of failure of consideration need not be so narrowly confined”: l996 AC at p.683). It becomes more than a matter of terminology only if the expression “absence of consideration” is supposed to take the case right out of any contractual context and into a claim to recover a payment simply because it was not due, a broader ground of recovery than has so far been recognized by English law (see Woolwich Building Society v IRC l993 AC 70 especially at pp l66-72).
Where there is initially a valid contract, total failure of consideration connotes a failure by one contracting party to perform any part of his essential obligation under the contract, as the vendor failed in Rowland v Divall , even though he had delivered a car to the purchaser. Where a supposed contract is void ab initio , or an expected contract is never concluded (as in Chillingworth v Esche [l924] l Ch. 97), no enforceable obligation is ever created, but the context of a supposed or expected contract is still relevant as explaining what the parties are about. An advance payment made in such circumstances is not a gift, and is not to be treated as a gift. A net payment under an ultra vires swaps transaction has this much at least in common with the purchase of a stolen car, that the recipient thinks he is getting a clean title, but he is wrong. That conclusion is not affected by the House of Lords’ decision that property in the net payment passes in equity as well as at law. The recipient’s title is still overshadowed by the payer’s personal restitutionary claim, and if that shadow is there throughout the period of the transaction, it would be paradoxical if it vanished at the moment when (and simply because) the contract, had it been a valid contract, would then have been fully performed. With a valid contract total failure of consideration and full performance are at the opposite ends of the spectrum. The same is not true of a void contract. That is to my mind the real force of the argument based on absurdity. The injustice of the appellant’s enrichment does not vanish because the term of the void contract ran its course.
I am in full agreement with Morritt LJ’s observations on Davis v Bryan . On the facts of that case it would have been remarkable (and unconscionable) if the executrix had been able to recover. The reasoning in Linz is difficult to understand and the case is probably best regarded (as is suggested by Goff and Jones) as anomalous.
For those reasons, and for the reasons given in the judgment of Morritt LJ, I agree that this appeal should be dismissed.
Order: Appeal dismissed with costs.
Bergin v. Farrell
[1999] IEHC 63
Judgment of Miss. Justice Carroll delivered on the 17th day of December, 1999.
1. Before the first named Defendant, James Farrell (also known as Bobby), met the Plaintiffs, Mr. Bergin and Mr. Brennan, his business was in bad shape. He was a builder in Co. Meath for over 40 years. He did not have a good relationship with the planning department of Meath County Council which had sued him unsuccessfully in relation to a development at Rockfield Estate. He had a manager, James Forde, with whom he had a falling out. According to Mr. Farrell, when Mr. Forde left, he took away books and papers belonging to the second named Defendant, the Company through which Mr. Farrell carried on business. Mr. Forde sued Mr. Farrell and recovered judgment for £9,993.51 on 9th October, 1989. Mr. Farrell said he was unable to defend the action properly because of missing papers. Mr. Forde registered a judgment mortgage on 15th March, 1990 on lands comprised in Folio No. 7210F County Meath being lands at Headfort Place, Kells, Co. Meath which had planning permission for two houses. Mr. Farrell had been the registered owner since 22nd October, 1976.
2. Mr. Farrell’s former auditors, the firm of Ernst & Young, had recovered judgment against him for £1,619.08 on 5th February, 1988 and registered a judgment mortgage on the same lands on 2nd November, 1990. The Bank of Ireland also recovered judgment against him on 2nd March, 1989 for £33,732.67 and registered a judgment mortgage on 1st March, 1990.
3. Folio No. 7210F County Meath is the only folio of which I have been furnished a copy so I am unaware of what were the encumbrances on title on other lands belonging to Mr. Farrell. In the Plenary Summons eight folios are mentioned but I have no knowledge of what the state of title of these lands were.
4. The second named Plaintiff, Mr. Brennan, describes himself as a Financial Consultant. In 1991, he was concerned in the “Fairview and Clontarf College”, a commercial college which was family owned, in which he worked with his brother and mother. It was disposed of sometime later and Mr. Brennan moved to Ashbourne, Co. Meath.
5. His background was that he was a member of Fianna Fáil and at one time director of elections in Dublin Northeast constituency, a position he described as a very low grade position organising people to go out and canvas, doing mail shots and putting up posters.
6. Mr. Farrell’s daughter, Tracey, was doing a course in the college and also did secretarial work for Mr. Brennan. She mentioned to him in November 1991 that her father was a builder and had problems about planning permission. Mr. Brennan said for him to come and see him. Tracey said Mr. Brennan said he knew people who could get planning permission but it would involve paying money. Mr. Brennan denied this.
7. Mr. Farrell came to see Mr. Brennan around 16th November, 1991 and again about 6th December, 1991. He told him about his problems particularly his financial problems. He told him about the two sites he owned at Headfort Place, Kells, with planning permission running out and about the lands at Lloyd, Kells. When he bought them in 1977 there was planning permission for 40 houses which had run out. He said Mr. Brennan said he knew politicians and he would have no problem getting planning permission back. There was no discussion of fees at that stage. Mr. Farrell said he made it clear his money was exhausted due to court cases. He said Mr. Brennan said he would get him fixed up with a loan.
8. Mr. Brennan got in touch with Mr. Bergin, the first named Plaintiff, a Consulting Engineer, who was recommended to him. Both Mr. Brennan and Mr. Bergin met Mr. Farrell on 3rd January, 1992. Mr. Bergin said he would give a preliminary view. He would look at the situation without obligation and make a proposal. Mr. Farrell’s assets were identified; Balreask (Navan) (70 acres) (which the County Council were interested in purchasing), owned jointly with a Mr. Burke; Lloyd (Kells) (11 acres); and Headfort Place (Kells) (2 sites). He said Mr. Farrell said he had no money and would pay later when he got it.
9. The pity is that no firm arrangement about payment was made at the beginning.
10. The first steps taken were in connection with the lands at Lloyd with the lapsed planning permission. The lands had been dezoned to agricultural land although planning permission for one house existed dated 10th October, 1989.
11. Mr. Farrell gave Mr. Brennan a letter dated 21st May, 1992 to say he would sell four sites to him for £15,000 subject to planning permission. There was a dispute as to whether it was four sites at £15,000 each or four sites for £15,000. Mr. Farrell said each site would be worth £30,000. Mr. Brennan said he did not know what each site would be worth.
12. Then Mr. Farrell signed a letter on 5th June, 1992 appointing Mr. Brennan sole agent for the lands at Lloyd. This letter is not one of the documents being sued on. In July 1992, Mr. Farrell got a new Accountant, Mr. Lionel Mackay.
13. The first planning application for 51 houses for these lands was prepared and lodged by Mr. Bergin on 6th July, 1992. A cheque for £1,623 (dated 19th June, 1992) for the planning permission (which should have been £1,632) was paid by Mr. Farrell but Mr. Brennan claimed that he paid it. According to his diary he said he personally paid £1504 on 6th July 1992 but I have no doubt that Mr. Farrell paid the cheque, a photocopy of which was produced in Court. The cheque was £9 short and the County Council wrote to Mr. Bergin for an additional £9 which he paid on 20th July, 1992. The planning permission was refused on 26th August, 1992 on the grounds that it contravened the development plan, it was outside the drainage area and a pumping station would not be allowed.
14. This refusal was appealed to An Bord Pleanala but the appeal was withdrawn later (1st February, 1993).
15. In relation to the Balreask lands, Mr. Brennan wrote on 15th October, 1992 to Mr. Farrell referring to the County Council wanting to purchase the lands at Balreask from him and Mr. Burke. He objected to Mr. Farrell meeting the County Council representatives with Mr. Burke without him and he said he expected to be paid.
16. A second planning application for lands at Lloyd for 51 houses, which was much the same as the first, was lodged on 21st October, 1992 in which Mr. Bergin said he concentrated on the engineering aspects. Mr. Farrell paid the cheque for £1,632 (dated 10th October, 1992) although it was claimed by Mr. Bergin that he and Mr. Brennan paid it. I have no doubt that Mr. Farrell paid it. A photocopy of it was produced in Court. Mr. Brennan was canvassing County Councillors to get sufficient signatures for a Section 4 motion in order to authorise a material contravention of the development plan to take place. On 9th December, 1992, Mr. Brennan said he drove over 300 miles to get sufficient signatures for his Section 4 motion for a meeting on 4th January, 1993. But prior to that on 7th December, 1992 permission was refused for 51 houses for the same reasons given in the earlier refusal of 26th August, 1992 with an additional reason that there had been no change of circumstances in the meantime. This pre-empted the Section 4 motion for the County Council meeting on 4th January, 1993.
17. Mr. Bergin made an application for a refund of £1,224, a proportion of the planning fee, on 16th December, 1992.
18. The third application for planning permission was made on 16th December, 1992 for 47 houses, the fee for which was £1,504. Mr. Bergin said that this was paid by Mr. Farrell. Mr. Farrell said he did not want them to make a third application. He said he could not afford it and did not pay for it though he said he co-operated. I accept he did not pay for it. It was probably paid by Mr. Brennan as this is the exact amount he said he paid in July 1992. Notice of Intention to propose a Section 4 Motion at the County Council meeting on 1st February, 1993 was lodged. Apparently nothing was achieved at that meeting.
19. Mr. Brennan continued to canvass County Councillors and T.D.s. Mr. Bergin met the County Council officials to try to persuade them that a pumping station for sewage was a viable option. On 2nd March, 1993, Mr. Bergin applied for the period of consideration to be extended to 16th May, 1993 and prepared a submission (12th March, 1993) for members of the Meath County Council. However, on 12th March, 1993, the application for 47 houses was refused. On the same day, Mr. Bergin applied to withdraw the application of 16th December, 1992 and applied for a refund of £1,504. This was refused but a refund of £1,224 was made later on 16th July, 1993.
20. The rezoning of the lands was to be discussed at a meeting of the Kells area Committee in July 1993. On 16th July, 1993, the County Secretary prepared a report to the members as to why the lands at Lloyd should not be rezoned. Mr. Bergin said he did a circuit of County Council members as there was little point in talking to the engineer.
21. Then on 20th July, 1993, Mr. Farrell was put in prison for the debt owed to Mr. Forde which at this stage had been reduced to about £4,500. He said he wanted to expose the wrongdoing from prison. Mr. Brennan and Mr. Bergin persuaded him to come out and build. They both lent him money to help pay the debt and get started on the building although Mr. Farrell said he did have about £2,000 in the bank. Mr. Brennan and Mr. Bergin each lent Mr. Farrell £7,150 paid in £1,000 instalments on 3rd August, 6th August, 25th August, 31st August, 11th September, 17th September and 6th October, 1993, with a final payment of £150 each on 8th November, 1993. Mr. Farrell said they had agreed to lend him £10,000 each but he thought they had difficulty in coming up with it all.
22. Mr. Bergin advised Mr. Farrell to get substantial works completed before the planning permission ran out on 14th December, 1993 so that a renewal could be applied for. The sites were laid out on 25th August, 1993 and a commencement of building notice served. Building to the top of the walls was completed by 13th December, 1993. Mr. Bergin applied for an extension on that date and the extension was granted on 20th January, 1994 for a year to 13th January, 1994.
23. Meanwhile, after the third planning permission for the lands at Lloyd was turned down, Mr. Bergin did a topographical survey and drew up another plan restricted to 15 houses which could be drained by gravity without recourse to a pumping station. This involved getting a way-leave from adjoining factory premises. Mr. Bergin met with the Managing Director of Southborough factory and offered to cede land in return for a way-leave. Mr. Bergin wrote to the planning department on 26th September, 1993 to say that the undersigned (Bergin, Brennan and Farrell) irrevocably agreed that in the event of the elected members deciding to rezone the lands “residential” in the present review, any subsequent planning application would be restricted to a maximum of 15 dwellings on a layout similar to that shown on plan 3165/10A (which was also signed by all three). It was stated the undertaking would also be binding on any successor in title. This had the effect of sterilising the front half of the lands. Mr. Farrell said he could not remember the red line on the plan showing the sewage pipe. However, he said the plan backfired when they could not get a way leave in writing from the factory manager. Receipt of the letter was acknowledged on 26th October, 1993 and Mr. Bergin was informed that the submission was noted and would be considered before the final plan was adopted. (In the events which happened, the rear portion of these lands were not rezoned until May 1995).
24. With regard to the Balreask lands, Mr. Burke, co-owner with Mr. Farrell, wrote to the County Manager on 5th November, 1993 offering to sell 35 acres for £35,000 or 70 acres for £500,000. On 24th January, 1994, Mr. Farrell wrote to the County Council to confirm agreement for the sale of 70 acres at £500,000 as per the letter of 5th November, 1993. (This offer was not taken up and no sale took place to the County Council).
25. Then came two of the letters on which the Plaintiffs are relying.
26. The first letter dated 25th January, 1994 is as follows:-
“Re: Lands at Lloyd, Oldcastle Road, Kells, Co. Meath
Dear Bobby,
27. So that there will be no misunderstanding, I set out hereunder our agreement in respect of the payment to be made to Roderick Brennan and myself (Ronald Bergin) in return for professional services rendered in obtaining planning permission for residential development on the land at Lloyd.
28. Both Roderick Brennan and myself will each receive the sixth and seventh house constructed on this site, each house having a market value of £72,000 in full discharge of our fees.
29. The following four individuals, Bobby Farrell, Thomas Farrell, Roderick Brennan and Ronald Bergin will each contribute £20,000 towards the development fund and will share equally in the profits of the development. The value of the sites at £160,000 in total will also be paid to Bobby Farrell as each sale is closed.
30. I trust that this is an accurate account of our agreement and I would request that you confirm the agreement to this proposal by signing the appropriate section below.”
31. At Mr. Farrell’s request Mr. Brennan added in writing, “Bobby Farrell will get house, number one.” It was signed by Mr. Bergin and Mr. Brennan and Mr. Farrell countersigned, “I confirm my agreement to the above terms”.
32. By another letter also dated 25th January, 1994, Mr. Bergin wrote as follows:-
“Re: Lands at Headfort Place
33. For clarity, I confirm our agreement that on receipt of the payment from the Local Authority in respect of the sale of the lands at Balreask, Trim Road, Navan, or on the closing of the sale of the two houses at Headfort Place, which ever is the earlier, you will pay the sum of £20,000 plus VAT to myself (Ronald Bergin) and £20,000 plus VAT to Roderick Brennan in repayment of the monies already loaned to you and in respect of professional services rendered relating to the development of the sites at Headfort Place.
34. These sums together with any other out of pocket expenses to be discharged within 24 hours of receipt of the cheque payment from the Local Authority in respect of the lands at Navan or from the purchasers in respect of the houses at Headfort Place. I trust that this is an accurate account of our agreement and I would request that you confirm your agreement to this proposal by signing the appropriate section below.”
35. It was signed by Mr. Bergin and Mr. Brennan and Mr. Farrell countersigned, “I confirm my agreement to the above terms”.
36. Mr. Farrell said the agreement to pay £20,000 was on condition that each lent him £10,000 which was denied by both of them.
37. The money lent by Mr. Bergin and Mr. Brennan was not sufficient to develop the Headfort Place sites. Mr. Farrell said Mr. Brennan made efforts to get money for him from a couple of banks and building societies but was unsuccessful. Eventually Mr. Farrell himself, through CIF (the Builders Federation) got £50,000 from AIB to complete the two houses at Headfort Place.
38. With regard to the Balreask lands, on 20th January, 1994, Aidan O’Driscoll, the Architect for Mr. Burke and Mr. Farrell, wrote to the County Council concerning the development by Eden Cross on adjoining lands. Eden Cross had been granted planning permission for 160 houses in July 1992. Mr. O’Driscoll said the surface water drainage system was causing problems and leading to flooding. He asked the Council to check if they were within their planning permission. This trouble had been brewing since September 1993 when Mr. Steen, Mr. Burke’s solicitor, contacted the builders on site. On 8th February, 1994, Aidan O’Driscoll wrote to Mr. Terry, the Engineer for Eden Cross.
39. In March 1994, Mr. Farrell contacted Mr. Bergin and Mr. Brennan about the surface water drainage. There was a meeting on 18th March, 1994 between Mr. McAllister, (Mr. Farrell’s solicitor, who was dealing with Headfort Place), Mr. Bergin, Mr. Brennan and Mr. Farrell to review the situation regarding the surface water drainage discharge at Balreask.
40. However, Mr. Burke and Mr. Burke’s solicitor, Mr. Steen, were dealing with Eden Cross. Mr. Burke negotiated the way-leave and agreed the map and also agreed the amount to be paid – £45,000.
41. Mr. Steen drafted the way-leave document and Mr. O’Driscoll, the Architect, set out the way-leave. There was a meeting in Mr. Steen’s office on 22nd March, 1994 at which Mr. Burke, Mr. Farrell and Mr. Bergin were present.
42. Mr. Burke said the only time he met Mr. Bergin was when he showed up in Navan. He said he was not needed as the topic was finalised; the size of the pipes and the direction of the pipes was agreed. He remembered that Mr. Bergin suggested collecting the plan/drawing the next day.
43. Mr. Bergin did collect a map from Mr. McCarthy, Engineer, the next day on 23rd March, 1994. But Mr. Steen said he already had a copy and that it was Mr. Bergin himself who wanted a copy. On 30th March, 1994, Mr. Steen faxed the way-leave agreement to Mr. Bergin. On 31st March, 1994, Mr. Bergin wrote to Mr. Steen suggesting amendments. Mr. Steen showed this letter to Mr. Burke and Mr. Farrell and on instructions took no further action. The way-leave was signed on 6th April, 1994.
44. Mr. Farrell claims he made a payment of £6,000 cash out of the monies he got from the way-leave. Mr. Farrell said it was £2,000 each for Mr. Bergin and Mr. Brennan and £2,000 for Mr. Bertie Ahern, T.D., at the request of Mr. Brennan as a contribution towards election expenses. Mr. Brennan denied this and said they each got £3,000. I found Mr. Bergin’s evidence about payments confused. On cross-examination about payments in 1994 he denied any knowledge of any political payment (which I accept) but he said re. 1994 that £2,000 in cash was given and it was for expenses.
45. In relation to the lands of Lloyd, in November 1994 Mr. Murray, a Consultant Town Planner, made a submission on behalf of a Mr. Gavigan to Meath County Council in respect of proposed amendments to the Draft Revisions of the development plan for the environs of Kells in relation to lands belonging to Mr. Gavigan, which were situated further out the road from the lands of Lloyd. He had applied for and been refused outline planning permission by the County Council and by An Bord Pleanala. Mr. Gavigan wanted to construct a Nursing Home and was supported by the Eastern Health Board, local doctors and the local Sisters of Mercy. There was no public main drainage available but Mr. Murray submitted the amount of land available should allow the provision of a private treatment facility sufficient to meet the level of sewage treatment required. The application was to zone the lands for use of community care facilities. The letter was acknowledged on 2nd November, 1994.
46. By January 1995, Mr. Farrell himself had organised finance with the AIB and a charge for present and future advances (stamped to cover up to £50,000) was registered on 16th January, 1995 on the folio comprising the Headfort Place sites.
47. In May 1995 the portion of the lands of Lloyd at the rear of the site were rezoned residential – Mr. Murray resubmitted his application to rezone the Gavigan land.
48. On 27th May, 1995, a letter on Mr. Farrell’s note paper typed up by Mr. Brennan said he wished to appoint Mr. Brennan and Mr. Bergin to act as his agent in respect of all matters relating to the land at Balreask, Navan, Co. Meath, for which a fee of 10% of the sale price would be paid within seven days of completion of the sale. Mr. Farrell said they came to his house and asked if he would give them 10% if they sold the lands and he agreed. He said it was 10% of his share. Mr. Brennan said the agreement did not mean they had to sell it themselves. Mr. Bergin at one stage in his evidence did say Mr. Farrell said if he (Mr. Bergin) could sell it, he would give him 10%. Both Mr. Bergin and Mr. Brennan said it was 10% of the total sale price.
49. As the two houses at Headfort Place were nearing completion, Mr. Farrell signed “an irrevocable letter of authorisation” dated 13th August, 1995 to Mr. McAllister, his solicitor, to pay £7,150 each to Mr. Bergin and Mr. Brennan in repayment of loan. This was drafted and typed by Mr. Brennan on Mr. Farrell’s note paper. This is the letter mentioned in the Statement of Claim. Negotiations for the sale of the two houses was progressing from November 1995.
50. On 1st April, 1996, Mr. Bergin certified compliance with the planning permission. The Auctioneer for the two sales organised by Mr. Brennan was Mr. Ussher. The first sale closed about the 4th of April, 1996. The second sale closed on 26th April, 1996.
51. Two cheques for £7,150 from Mr. McAllister were paid to Mr. Brennan and Mr. Bergin on that day.
52. Mr. Farrell claimed that £10,000 in cash from the first sale and £10,000 in cash from the second sale were collected by the Auctioneer organised by Mr. Brennan and handed over to him at the closing of the second sale. He claimed this money went through his books. He said on the same day he paid £6,850 in cash in the car park of the Ardboyne Hotel to each of Mr. Brennan and Mr. Bergin and it was agreed to be in full satisfaction of monies owing. Mr. Brennan agreed that the Auctioneer had collected two sums of £10,000. He said £2,000 in cash was paid to himself and to Mr. Bergin in the car park of the hotel. He said £1,400 was paid to each of them at Mr. Farrell’s home two to three weeks previously.
53. Mr. Brennan said he was paid £7,500 for expenses made up of £3,400 (from Headfort Place); £3,000 (from the water drainage money); half of £2,000 and half of £300. He also said that in his client account he was going to give Mr. Farrell credit for expenses paid and the money would be deducted from the lump sum. No such client account was produced in Court. Mr. Bergin also referred to a statement of account and said Mr. Farrell was given credit for all payments made which were set out clearly. No such statement of account was produced in Court.
54. When Mr. Bergin was asked in cross-examination about payments in April 1996 other than the cheque for £7,150, he said they received £2,000 each on the sale of the houses and before that £1,400. He also said when they asked for their money on the sale of the houses Mr. Farrell said that was all he had.
55. In November 1996, there was a revision of the development plan for Kells which allowed the development of portion of Mr. Gavigan’s land for community care facilities. The portion of the lands at Lloyd which had been excluded from residential zoning shown on the Kells plan adopted in May 1995, the adjoining land with road frontage and some land on the opposite side of the road adjoining Mr. Gavigan’s land, were now zoned residential. In order to service the lands for the Nursing Home, the County Council permitted a pumping station.
56. Nearly two years later on 20th July, 1998, planning permission for 41 houses on all the lands of Lloyd was granted to Mr. Farrell because he could make a connection with the pumping station for sewage disposal.
57. Meanwhile in relation to Balreask some of the lands at Balreask (c.25a) were rezoned residential in 1996. This was due to an application made earlier by Mr. Burke’s architect, Aidan O’Driscoll. Mr. Burke said they had asked for 40 acres but only 25 acres came through. Mr. Burke told Mr. Farrell who told Mr. Bergin and Mr. Brennan who were unaware of rezoning. Mr Bergin wrote on 21 June, 1996 to the County Council submitting that a further 35 acres should be rezoned. This was the only written application in relation to these lands by Mr. Bergin or Mr. Brennan. Both Mr. Bergin and Mr. Brennan paid visits to the County Council offices but their efforts were unsuccessful.
58. Then Mr. Farrell wrote on 31st October, 1996 to Mr. Brennan saying he had taken independent advice and he expected the lands at Balreask would have been sold by 1995. He said it was agreed at the time a figure of £100,000 would be payable on the sale of the land and to avoid any misunderstanding at a later stage, he felt it would be in everyone’s interest to have an agreement drawn up with their solicitors and payment made through them.
59. Mr. Brennan replied on 6th November, 1996 refuting the contents of the letter and referring to the written agreement of 27th May, 1995. He said he spoke to him on 6th November and he said Mr. Farrell said he wanted to withdraw the letter and contents.
60. Mr. Bergin wrote on 8th November, 1996 that the fee was not limited to a sum of £100,000. Mr. Farrell did not reply to either of these letters.
61. Mr. Farrell said Mr. Brennan said he had a client and wanted a further week or fortnight. He told him to get the clients to go to his Solicitor but this did not happen. He denied he said anything about withdrawing anything.
62. During 1997, Mr. Brennan and Mr. Bergin were making a concerted effort to sell the lands at Balreask. On 16th June, 1997, various letters were sent off to prospective purchasers. On 10th July, 1997, Soltan Limited made an offer of £2 million which Mr. Brennan recommended to Mr. Farrell. Mr. Farrell refused the offer as his partner Mr. Burke had received an offer of £2.7 million.
63. On 17th July, 1997, Mr. Bergin wrote to Mr. Farrell asking him to confirm £3 million was acceptable. On 8th August, 1997, Mr. Bergin again circularised prospective buyers. Then, on instructions from Mr. Burke and Mr. Farrell, an auction was advertised for 23rd September, 1997 by joint agents Messrs. Smiths and Messrs. Jackson Stopps and McCabe. The property failed to sell at auction.
64. On 21st November, 1997, the plenary summons issued which was amended on 12th February, 1998. The lands of Balreask were sold privately by Mr. Burke and Mr. Farrell for £2.46 million on 23rd December, 1997.
65. The Plaintiffs claim specific performance of:-
(1) The agreement of 21st May, 1992 for the sale of four detached sites at Lloyd for the reduced sum of £15,000.
(2) The agreement of 25th January, 1994 for one house each plus one half the profits of the development at Lloyd, the Plaintiffs each contributing £20,000.
(3) The agreement of 27th May, 1995 for 10% of the proceeds of sale of Balreask.
(4) The agreement of 13th August, 1995 by way of irrevocable letter of authorisation.
66. There is an alternative claim on quantum meruit.
67. The Defendants plead in relation to the agreements of 21st May, 1992 and 25th January, 1994 regarding Lloyd that there is no memorandum sufficient to satisfy the Statute of Frauds. Concerning the agreements of 27th May, 1995 and 13th August, 1995, they claim payments were made as follows:-
68. £7,150 per cheque on 26th April, 1996;
circa £13,000 by cash on 26th April, 1996;
69. £2,000 in cash in March 1994; and
70. £50 to Mr. Brennan by cheque in February of 1996.
71. It should be noted that the Plaintiffs did not claim specific performance of the second agreement of 25th January, 1995 dealing with Headfort Place which was not pleaded with the result that it was not referred to in the Defence. It was however referred to in replies to the Notice for Particulars. The case proceeded throughout on the basis that the agreement of 25 January, 1995 re. Headfort Place was included in the Plaintiffs’ claim and I have so treated it.
72. The precise amount claimed on a quantum merit in the replies to Notice for Particulars is stated to be:-
For Mr. Brennan £247,125.00
For Mr. Bergin £145,701.65.
__________
TOTAL £392,826.65
Plus VAT £ 82,493.60
___________
TOTAL £475,320.25
==========
73. Also in the replies to particulars the full financial extent of the Plaintiffs’ claim is stated to be £905,200 plus VAT to each of the Plaintiffs having allowed credit of £7,550 for monies previously paid. No details of how this sum of £7,550 was made up was included in the pleadings furnished although the replies refer to an Appendix A.
74. It should be stated straight away that Mr. Brennan is not registered for VAT and, accordingly, can not make any claim for VAT on his account.
1 There are areas of conflict in the evidence which need to be resolved:-
(1) What was the basis on which Mr. Brennan was taken on?
75. I am satisfied that Mr. Brennan was taken on by Mr. Farrell because he said he knew politicians who could get planning permission. It reflects no credit on either of them that this was the case. However, there is no evidence to suggest any payment of “backhanders” to any local county councillors or the county council officials in order to achieve a Section 4 Motion. Politicians of all parties were canvassed but Mr. Brennan’s efforts were singularly ineffective. The rezoning of the rear of the lands of Lloyd in May 1995 could not be translated into planning permission because the gravity feed depended on a way leave through adjoining factory premises which was not forthcoming. The rezoning in November 1996 was due to the representations made in respect of planning permission for the nursing home for community purposes and the rezoning of the front portion of the lands at Lloyd was a fortuitous consequence of the rezoning of the Gavigan lands.
76. Another reason Mr. Brennan was taken on was that he told Mr. Farrell he would get him fixed up with a loan – something which he failed to achieve.
(2) What part did Mr. Bergin and Mr. Brennan play in relation to the surface water drainage problem at Balreask and how much did each receive in April/May 1994?
77. I accept Mr. Burke’s evidence that all the work was done before Mr. Brennan and Mr. Bergin became involved. Their input was negligible, contrary to what they claimed. Mr. Farrell said he paid £6,000 in all, £2,000 each to Mr. Bergin and Mr. Brennan and he said Mr. Brennan asked for £2,000 for a political contribution to Mr. Bertie Ahern. Mr. Bergin said he got £2,000 for expenses in 1994. Mr. Brennan said they both got £3,000. While it is difficult to be sure, on the balance of probabilities and on my view of the credibility of Mr. Brennan, I believe Mr. Farrell’s evidence. I hold that Mr. Bergin got £2,000 and Mr. Brennan got £2,000 plus £2,000. What he did with the extra £2,000, I do not know.
(3) What were Mr. Bergin and Mr. Brennan paid out of the proceeds of sale of the two Headfort Place houses?
78. There is no conflict that Mr. Bergin and Mr. Brennan each got £7,150 by cheque from Mr. McAllister, the solicitor, on 26th April, 1996 in repayment of the money lent. In addition, Mr. Farrell said he paid them £6,850 cash each. Mr. Brennan says he received £3,400 in cash, i.e. £2,000 after the sale and £1,400 two or three weeks previously. Mr. Bergin also says he got £3,400 in cash.
79. Mr. Brennan’s diary for 4th April, 1996 refers to his organising the sale for Site 1B and states that he only received his money back and that £12,850 was not paid. On his own evidence in Court this is patently untrue. There is no entry on 26th April, 1996 when the second sale was closed and the £7,150 was in fact paid by the solicitor. There is no mention in his diary of the payment of any cash even the £3,400 which he admits he got.
80. There is no entry in Mr. Bergin’s diary for 26th April, 1996 of attending the closing of the sale in Navan, when the solicitor’s cheque was handed over and of being paid money in the hotel car-park.
81. Mr. Brennan agreed the Auctioneer gave £20,000 to Mr. Farrell. In fact, it was he who organised the Auctioneer to retain the £10,000 in cash from each sale.
82. In the Replies to the Notice for Particulars (No. 9(b)), the Plaintiffs say that the only sum repaid on the closing of sale of the two houses was £7,150 each. On their own evidence that is untrue.
83. I can think of no reasonable explanation why Mr. Bergin and Mr. Brennan, even if they had received £1,400 in the short time previously, would have accepted without protest a payment of £2,000 each leaving Mr. Farrell with £16,000 in cash. They did not explain why they did not insist on getting more. I accept Mr. Farrell’s account and I hold that he paid £6,850 in cash to each of them at the hotel car park.
(4) Did they accept the £7,150 and the £6,850 in full settlement?
84. I think they probably did since they made no complaint at that time either to Mr. Farrell or to the solicitor that they were still owed money for the Headfort Place agreement. At this stage the sale of the Balreask lands to the County Council had fallen through so the fund for paying Mr. Brennan and Mr. Bergin had to come out of the purchase monies from the two houses.
(5) Was the agreement of 27th May, 1995 an agreement to pay 10% of the sale price of the Balreask lands to Mr. Brennan and Mr. Bergin if they sold the lands?
85. Mr. Farrell said they came to his house to ask him and he agreed to give 10% of his share if they sold the land. Mr. Bergin at one part of his evidence said Mr. Farrell said that if he (Bergin) could sell it, he would give him 10%. Mr. Brennan said the agreement did not mean that they had to sell.
86. In my opinion, the agreement was dependent on Mr. Brennan and Mr. Bergin selling the land. This is borne out by their extensive and exhaustive efforts to sell the lands themselves. Also, there was no way the work they performed in respect of the Balreask land could justify a payment of 10% of the sale price if they did not achieve a sale. The rezoning was not due to their efforts. It was Mr. O’Driscoll who applied on behalf of Mr. Burke. The written application by Mr. Bergin in respect of 35 acres was unsuccessful. Further light is thrown by two entries in Mr. Brennan’s diary where he said:-
(a) 27th August, 1997 he would have no option but to stop the auction due to Mr. Farrell’s treachery; and
(b) 23rd September, 1997 that Mr. Farrell refused the offer of £2.4 million for the sole purpose of cheating them out of their fees.
87. If the agreement really was that they got 10% regardless of who sold the lands, neither of these diary entries make sense. I prefer Mr. Farrell’s account and I hold that the agreement of 27th May, 1995 was made on the basis that 10% was payable if the lands were sold by Mr. Brennan and Mr. Bergin. The letter written by Mr. Farrell on 31st October, 1996 is equally consistent with his claim that money was payable if a sale was achieved by Mr. Bergin and Mr. Brennan. It is not necessary to decide if it was 10% of the purchase price or 10% of Mr. Farrell’s share of the purchase price.
88. I now turn to the actual claims made:-
(1) Specific performance of the agreement of 21st May, 1992 to sell four sites for £15,000 subject to planning permission.
89. It is clear that this was made in the context of there being 51 sites or thereabouts. The first application for planning permission lodged 6th July, 1992 was for 51 houses. After three planning applications were turned down (the third for 47 houses) and attention was concentrated on a proposed development of 15 houses, this agreement was superseded by the letter of 25th January, 1994 relating to the lands at Lloyd. This was in any event conceded by Counsel who did not pursue this claim.
(2) Specific performance of the agreement of 25th January, 1994 regarding the lands at Lloyd.
90. The letter was drafted in the context of the undertaking to the County Council dated 29th September, 1993 to limit any application for planning permission to 15 houses but where no rezoning or application for planning permission for 15 houses had taken place. The Plaintiffs’ plead acts of specific performance, in particular, the agreement with the Meath County Council of 29th September, 1993 but this predates the letter of 25th January, 1994 and is therefore past consideration. The Lloyd letter cannot be divided in two. The agreement to give the 6th and 7th house (valued at £72,000) to Mr. Brennan and Mr. Bergin cannot be divorced from the agreement to divide the profits between each of the four persons contributing £20,000 less an allowance for sites to be paid to Mr. Farrell and Mr. Farrell to get house No.1. The prior undertaking of 29th September, 1993 negotiated by Mr. Brennan and Mr. Bergin could not be translated into planning permission because the gravity feed for sewage depended on a way-leave through adjoining property which was never forthcoming. Rezoning did not occur until May 1995 for the area referred to in the 1993 undertaking to the County Council. Mr. Farrell was accused of non co-operation in failing to apply for planning permission in 1995 for the 15 house development. But, quite apart from the fact that he did not want to have nearly half of the 11 acres sterilised, it would not have been possible for him to apply for planning permission since he did not own the necessary way-leave. The Lloyd agreement of 25th January, 1994 which was expressed to be for services rendered in obtaining planning permission could not be implemented.
(3) Specific performance of the Headfort Place agreement on 25th January, 1994.
91. In relation to these sites, I found it extraordinary that the two advisers let over 18 months pass while the planning permission was running out without (apparently) urging Mr. Farrell to put everything he had into getting these houses finished instead of letting him spend his money on futile planning applications for the Lloyd lands particularly as Mr. Bergin said they very quickly appreciated about the 2 sites at Headfort Place that the work should be done as soon as possible. However, that being said, they did lend him money (which was repaid) and Mr. Bergin gave undoubted assistance in the building. At the end he certified compliance with the planning permission. As I have already held, Mr. Brennan and Mr. Bergin were each paid £7,150 in return for money lent and £6,850 in cash in settlement of monies due on foot of the agreement. But I do not accept that it was part of the agreement that each of them had to lend him £10,000 in order to get back £20,000. The last part of the loan in the amount of £150 each was made in early November 1993. There is no evidence to suggest that Mr. Farrell asked them for any further loans. When the letter was drafted at the end of January 1994 there is no mention of any further money to be lent. Counsel for the Plaintiffs submitted that the rule in Pinnels case applies (Clarke: Contract Law in Ireland, 3rd Edition, page 51). If a liquidated sum is owed by a creditor, a promise by a debtor to take a lesser sum in full satisfaction of the larger debt will not bind the debtor. No authority to the contrary was cited on behalf of the Defendants. Therefore, the sum of £6,000, the balance of £20,000 having deducted £7,150 and £6,850 is owed to each of Mr. Bergin and Mr. Brennan. Mr. Bergin is entitled in addition to VAT on £6,000.
(4) The specific performance of the Balreask agreement of 27th May, 1995.
92. As I have already held, this agreement was dependent on Mr. Brennan and Mr. Bergin actually selling the lands which they did not do. It was therefore not performed by them. Their claim to be entitled to a one tenth share in the Defendants’ lands never had any basis and the registration of a lis pendens on the lands at Balreask was very dubious. The lis pendens was only removed to allow the sale of the lands to be completed by the lodgement of over £200,000 on joint deposit to await the outcome of this trial. This effectively created a fund to answer the Plaintiffs’ claims which they would not otherwise have been entitled to.
(5) The Plaintiffs’ claim to be entitled on a quantum meruit for work done and services rendered.
93. It was never the intention of the parties that either Plaintiff would be entitled to claim for hours spent and expenses. For this reason I did not find the evidence of Dr. Meehan, the planning consultant, or Mr. O’Kennedy, the chartered accountant, to be of any great assistance.
94. When one tries to analyse the dealings between the parties, I think it is clear that Mr. Brennan and Mr. Bergin agreed to act for Mr. Farrell on the basis that he would pay them when he had money. The remuneration was to take into account the work done and results achieved and whether the value of the lands was enhanced. I think Mr. Brennan and Mr. Bergin were very optimistic that the Lloyd lands could be turned around and rezoning achieved. Their hopes turned out to be exaggerated. The rezoning of part of the lands in May 1995 could not be availed of to get a planning permission. In the end, the rezoning of the entire lands in November 1996, in my opinion, did not depend on their efforts but on the rezoning for community purposes of the land for the nursing home. In 1998 Mr. Farrell got planning permission in respect of the entire lands due to the sewage pipe provided for the nursing home. Any money for work done for the Lloyd lands must reflect the fact that no planning permission resulted or could result from the efforts of Mr. Bergin and Mr. Brennan.
95. Mr. Bergin’s work throughout was as a professional engineer and an authority on planning. He gave undoubted assistance in relation to the Headfort Place sites which is more than can be said for Mr. Brennan. He did considerable work in preparing the first planning application for 51 houses at Lloyd although it was doomed to failure because it was contrary to the development plan. The second application which was basically a duplication was equally doomed to failure because the Section 4 Motion was not lodged in time. The third application was a slight variation. Mr. Bergin spent considerable time in trying to convince the County Council Officials that a pumping station for sewage was a viable option for the Lloyd lands which they did not accept. His work in relation to the Balreask lands consisted of trying to sell the lands to the County Council or to the IDA. When that failed there were some representations to County Council officials. When 25 acres were rezoned on foot of Mr. O’Driscoll’s application he made a written application to rezone a further 35 acres which was unsuccessful. It is not possible to estimate the time spent by Mr. Bergin in relation to the Lloyd and Balreask lands by reference to his diary since not all the time spent in County Meath was referable to Mr. Farrell’s business; some was referable to Mr. Bergin’s own business. Mr. Bergin is entitled to be paid on a professional basis. Since his remuneration amounts to £12,850 for Headfort Place plus £2,000 in relation to Balreask he would, in my opinion, be adequately compensated for all work undertaken by a further payment of £20,000.
96. Turning to Mr. Brennan, his efforts on behalf of Mr. Farrell were particularly ineffective. He did not succeed in getting any finance organised. He did not succeed in organising a Section 4 Motion until the third planning application, and this was ineffective. It seems to me that he was anything but a financial expert and does not merit being paid on a level appropriate to a consultant.
97. It is not possible to estimate the work done and time spent by Mr. Brennan by reference to his diaries which I consider to be unreliable, inaccurate and self-serving. Some entries are untrue and others have clearly been made afterwards, though he said entries were made at the time or shortly afterwards, for example:-
14th January, 1992: He says he organised a meeting with the then County Council Chairman, Mr. John Farrelly.
6th July, 1992: He says he personally paid the fee of £1,504 for the planning application. It was proved in evidence that Mr. Farrell paid £1,623 for the application (it should have been £1,632). It should also be noted that the fee of £1,504 did not arise until the third application which was made on 16th December, 1992.
4th April, 1996: He says he organised the sale of the house at Site 1B and that he was paid £7,150 and £12,850 was not paid. This is untrue and I have already referred to this.
8th June, 1996: He says he was asked to prepare the report and then adds, the report was completed and delivered as per his letter of 2nd August, 1996.
11th July, 1997: In the fifth paragraph of this entry he says that they subsequently discovered that Mr. Farrell had deliberately mislead them.
98. Since Mr. Brennan’s remuneration amounted to £12,850 and £4,000 (which may have been reduced by a political contribution), it seems to me that he would be adequately compensated for the efforts he put in on behalf of Mr. Farrell by a further payment of £10,000.
99. This means that Mr. Bergin is entitled to a decree for £20,000 plus £6,000 plus VAT on both sums and Mr. Brennan is entitled to a decree for £10,000 plus £6,000 without VAT.
Crilly v. T. & J. Farrington Ltd.
[2001] IESC 60; [2002] 1 ILRM 161 (11 July 2001)
URL: http://www.bailii.org/ie/cases/IESC/2001/60.html
Cite as: [2001] IESC 60, [2001] 3 IR 251, [2001] 3 IR 267, [2002] 1 ILRM 161
Judgment delivered by Mrs. Justice Denham on the 11th day of July, 2001
1. Issues
1. In this case the matter for decision is whether the method of calculation of the charge payable under s. 2 of the Health (Amendment) Act, 1986, namely, the calculation of charge by the division of annual hospital costs by the number of occupied hospital bed days during the same year, as used by the Eastern Health Board (now known as the Eastern Regional Health Authority) hereinafter referred to as the claimant, is reasonable, proper and intra vires the Health (Amendment) Act, 1986. In addition the claimant has asked that regard be had to parliamentary materials when interpreting statutes. The second-named respondent in this appeal, F.B.D. Insurance plc., is hereinafter referred to as the insurer.
2. Background
2. Derek Crilly was severely injured in a road traffic accident. He was a patient in a number of hospitals and underwent extensive medical treatment. He sued T. & J. Farrington Limited and John O’Connor . In a reserved judgment on 26th August, 1992 Derek Crilly was awarded £1,667,078.20. As his injuries resulted from a road traffic accident the Act of 1986 applied. The claimant claimed a charge. I was the trial judge in the High Court in the said original action, as was noted in court at the commencement of this appeal. The parties had no objection to my presiding on the adjudication of the issues now before this court. In the said reserved judgment of 26th August, 1992 I stated:
“It seems unreasonable to the Defendants that they should bear the cost of a special road traffic accident rate in hospital over and above the ordinary rate. Consequently I am including in this judgment a figure which represents the cost for a private patient in Beaumont, but not the additional loading because the Plaintiff was a road traffic accident victim. This figure is not final. In relation to Our Lady’s Hospital Drogheda where the Plaintiff was in a general ward I have set payment on the basis of £99 per day, i.e., semi-private. I grant the hospitals liberty to apply to explain why they consider it fair to charge this extra rate for road traffic accident victims to the defence. The evidence I heard from the hospitals merely established that there was this rate over and above the private rate or semi-private rate and its method of costing is set out.”
3. The issue in this case between the claimant and the insurer is as to the method of charging of the Beaumont Hospital bill. In fact the bill has been paid and in this case in the High Court [2002] 1 I.L.R.M. 548 Geoghegan J. questioned whether the subject was moot. However, in view of the fact that the declaratory relief sought is in relation to an issue which arises every day of the week between the claimant and the insurer the learned trial judge acceded to the request of the parties that the matter proceed.
3. The Statutory Law
4. The matter in issue requires the construction of the Health (Amendment) Act, 1986. The long
title to the Act describes it as:
“An act to enable charges to be made by health boards for in-patient services and out-patient services provided for persons in respect of the treatment of certain injuries caused by the use of mechanically propelled vehicles in public places.”
Section 2 states:
“(1) Where –
(a) injury is caused to a person by the negligent use of a mechanically propelled vehicle in a public place, and
(b) in-patient or out-patient services have been, are being or will be provided by or on behalf of a health board in respect of the injury, and
(c) any one of the following, that is to say, the person aforesaid, his personal representative or dependant, has received, or is entitled to receive damages or compensation in respect of the negligent use
aforesaid from the person liable to pay such damages or
compensation in respect of that injury, or any loss, damage or
expense (or mental distress in the case of a dependant) arising
therefrom,
the health board shall, notwithstanding anything in the Health Acts, 1947 to 1985, make a charge upon the person who received or is entitled to receive such damages or compensation in respect of the said in-patient services or out-patient services.
(2) (a) A health board may waive the whole or part of a charge under subsection (1) of this section if it considers it proper to do so –
(i) having had regard to the amount of damages or compensation, and interest (if any) thereon, received by the person liable to pay the charge in respect of the injury to which the charge relates, and
(ii) in a case where there was contributory negligence on the part of the person to whose injury the charge relates or of one for whose acts he is responsible, having had regard to any reduction in the amount which would have been received but for the contributory negligence.
(b) In proceedings brought by a person to whom injury is caused by the negligent use of a mechanically propelled vehicle in a public place, or by the personal representative or dependant, of such a person in respect of such negligent use as aforesaid, claiming damages in respect of that injury, or any loss, damage or expense (or mental distress in the case of a dependant) arising therefrom, paragraph (a) of this subsection shall be disregarded.
(3) (1) Any sum due by a person to a health board under section 2 of this Act may be recovered by the health board from the person as a simple contract debt in any court of competent jurisdiction.
. . .
(4) (1) This Act may be cited as the Health (Amendment) Act, 1986.
(2) The Health Acts, 1947 to 1985, and this Act may be cited together as the Health Acts, 1947 to 1986.
(3) The Health Acts, 1947 to 1985, and this Act shall be construed together as one Act.”
5. The Health Act, 1970 provides:
“s.52 (1) A health board shall make available in-patient services for persons with full eligibility and persons with limited eligibility.
. . .
“s.55 A health board may make available in-patient services for persons who do not establish entitlement to such services under section 52 and (in private or semi-private accommodation) for persons who establish such entitlement but do not avail themselves of the services under that section and the board shall charge for any services so provided charges approved of or directed by the Minister.”
4. The High Court
6. In the High Court [2000] 1 ILRM 548 Geoghegan J. determined at p. 551 of the report:
“… the actual issue in the case is whether the calculation of the charge by the division of the annual costs of a particular hospital by the number of occupied hospital bed days in that hospital during the same year is reasonable and intra vires the 1986 Act”
7. There had been previous decisions on this issue in the High Court in other cases, to which the
learned trial judge referred and he then noted at p. 555 of the report:
“… I do acknowledge that the issue has been argued before me in a much fuller way than it was in the other cases and also that new matter has been put before me if I am prepared to look at it which was not before the other judges … I have also had the benefit of evidence as to the practicalities of different methods of charging.”
8. Applying the traditional canons of construction the learned High Court judge held that s. 2(1) of the Act of 1986 cannot be interpreted as requiring the health board to make a charge similar to the charge under s. 55 of the Health Act, 1970 as the said s. 55 provides for a fixed charge, i.e. a charge to be fixed from time to time by the Minister for Health, and that there was no reference in s. 2(1) of the Act of 1986 to such a fixed charge.
9. Further, the learned trial judge held:
“The charge must be a reasonable one.”
10. After analysis, he held as set out at pp. 555-7 of the report:
“The charge which the health board is obliged to make upon a person such as the plaintiff in this case, is a charge in respect of the actual in-patient services or out-patient services which that plaintiff received. That is perfectly clear from the wording of the subsection. This does not mean that there can be no element of averaging because some averaging may be necessary in order to assess with any practicality a reasonable price for the services given. But on any reading of
s. 2(1) of the 1986 Act it is difficult to see how a health board would be entitled to charge a patient in Beaumont Hospital with a broken toe, the identical daily charge as a similar type plaintiff who had to undergo expensive brain surgery.
…
The general averaging is, in my view, quite clearly an artificial way of determining price and could not fall within any quantum meruit concept. If intended it would have to be expressly provided for.
…
In summary, therefore, applying the ordinary rules of construction I am satisfied that the charge under s. 2(1) of the 1986 Act must be a reasonable charge in the quantum meruit sense. In so far as a plaintiff will have received treatment within a particular speciality some averaging within that speciality would be acceptable in arriving at the charge but the general averaging as contended for could not be contemplated as a reasonable basis for a charge unless there was a special provision in the section covering it.”
11. On the second issue, the consideration of parliamentary debates, the learned High Court judge quoted from Costello P. in People (D.P.P.) v. McDonagh [1996] 1 I.R. 565; [1996]
2 I.L.R.M. 469, referred to other case law and set forth five propositions. He then looked at what the Minister for Health said in the Dail when piloting through the bill which later became the Act of 1986.
5. Appeal by Claimant
12. The claimant appealed. The grounds of the said appeal are that the learned High Court judge erred in fact and law:
In failing to have any or any adequate regard to the uncontroverted evidence in holding that the charge sought to be imposed by the claimant under the Health (Amendment) Act, 1986 was not a reasonable charge.
In failing to have any or any sufficient regard to the claimant’s uncontroverted evidence that the system of determining charges, used by the claimant, was appropriate and reasonable having regard to the available or possible methods of charging.
In holding that the division of annual hospital costs by the number of occupied hospital bed days during the same year, or general averaging as so described by the learned trial judge, could not fall within any quantum meruit concept.
In holding that the general averaging, as contended for by the claimant, could not be contemplated as a reasonable basis for a charge under the Health (Amendment) Act, 1986 unless there was a special provision in the section covering it.
In holding that the claimant’s charge was not a charge in respect of the actual in-patient services or out-patient services which were received.
Alternatively, in holding that the charge the claimant is obliged to make upon a person such as Mr. Crilly in these proceedings is a charge in respect of the actual in-patient services or out-patient services which that person receives.
In failing to have any or any adequate regard to the evidence said by the claimant in respect of speciality costing and/or case mix indices and/or other possible methods of charges in arriving at a decision as to what was a reasonable charge and/or a charge permitted by the Health (Amendment) Act, 1986.
In having regard to s. 157 of the Road Traffic Act, 1988 of England and Wales as an aid to the construction of the Health (Amendment) Act, 1986.
In holding that no attention should be paid to that part of the speech of the then Minister for Health in the Dáil whereby the Minister approved of the claimant’s proposed method of charge, when construing the Health (Amendment) Act, 1986.
In failing to have any or any sufficient regard to the independent, uncontested evidence that the method of charge proposed by the claimant was a reasonable one.
6. Cross Appeal by Insurer
13. The insurer cross appealed on the grounds that the learned trial judge erred in law and/or fact:
In holding that the words “make a charge” occurring in s. 2(1) of the Health (Amendment) Act, 1986 cannot or ought not be interpreted as meaning that a health board should make a charge similar to the charges imposed under s. 55 of the Health Act, 1970; such charges being in the nature of a contribution towards the actual cost of in-patient services rather than a charge representing the total economic cost thereof.
In declining to hold that in the absence of any definition or prescription in the Act of 1986 of the nature and/or amount of the charge to be made thereunder or the method of its calculation it was appropriate to construe the phrase “make a charge” in that Act ejusdem generis with the term “charge” in the Act of 1970, as s. 4 of the Act of 1986 provides for its collective construction with the Health Acts 1947 to 1985.
That if and insofar as the learned trial judge called in aid or was influenced by the statement by the Minister for Health when presenting the bill which subsequently became the Act of 1986 so as to conclude that the charge to be made under the Act of 1986 was not to be equivalent in character and amount to that made under s. 55 of the Act of 1970, he was incorrect in so doing.
In holding that the charges imposed under s. 2(1) of the Act of 1986 amounted to a demand for payment in respect of a statutory contract between the health board and the recipient of the service and thus holding that the said charges were not in the nature of an imposed statutory obligation such as a tax or quasi tax or levy or charge of a similar nature.
In holding that he was entitled to have regard to what was said in the Oireachtas during the course of the parliamentary debates of the Act of 1986 either to the extent to which he so held as a general proposition flow or in the circumstances of this particular case.
In failing to hold that the admission of such material would constitute a breach of the separation of powers as ordained by the Constitution and in particular Articles 15, 28 and 34 thereof.
7. Submissions of the Claimant
14. Paul Gallagher, S.C., counsel for the claimant, submitted that the High Court judge held:
(i) that the charge to be made under s. 2(1) of the Act of 1986 was not the charge made under s. 55 of the Health Act, 1970, known as the maintenance charge;
(ii) that the charge to be made under s. 2(1) had to be a reasonable charge;
(iii) that a charge based on an average daily cost was not a reasonable charge;
(iv) that a reasonable charge could, however, involve some averaging of costs;
(v) that the court was entitled to have regard to the Dáil Debates and the statement of the Minister on the introduction of the bill that the charge proposed was not the s. 55 Health Act, 1970 charge;
(vi) that nevertheless, a court could or should disregard the statement of the Minister made in the same debate that the charge would be an average daily cost.
15. The claimants agreed with the submission at (i), (ii) and (v) above and submitted that (iii), (iv) and (vi) were wrong in fact, in law and internally inconsistent.
16. It was submitted that there is a mandatory obligation on the health board to impose a charge. The manner in which the charge is to be calculated is not set out in the Act. The charge to be imposed may be in respect of future or ongoing services which are necessarily uncertain and can only be determined as a matter of probability. In fact while there should be a relationship between the charge and the service it is not required to be precise.
17. It was submitted that the learned trial judge was correct when he held that the charge must be reasonable and moreover, reasonable vis-à-vis both parties. It was submitted that the claimant’s practice of seeking to recoup the average daily cost (A.D.C.) is reasonable as regards its own conduct and as regards the health board and in-patient/recipient of services.
18. It was contented that a scheme permitting “some” averaging would be necessarily arbitrary and less transparent than the existing practice.
19. It was submitted that as regards a method of calculation whereby the charge would be in respect of actual services received by a patient but permitting some averaging necessary to obtain a reasonable price, there was no such scheme in Beaumont Hospital or in any other hospital in the country. The claimant suggested that the cost of establishing and implementing such a scheme for the less than 1% of patients who are road traffic accident victims would be disproportionate and might even exceed any saving which might otherwise accrue to patients themselves.
20. It was further submitted that the evidence in this case was that of the claimant’s concerning the A.D.C. scheme. The evidence adduced was that it was not feasible to price on an individual basis and that averaging, in particular A.D.C., was a reasonable method of charge. The uncontradicted evidence before the court was that the charge made by the complainant was reasonable and appropriate. Further that the A.D.C. had the advantage of transparency. The method was particularly appropriate as insurers are by definition averagers of cost and risk.
21. The claimant submitted that the conclusion that the charge is reasonable is one which could be reached without recourse to parliamentary materials. However, the claimant adopted the conclusions and reasoning of the learned trial judge as regards the admissibility of parliamentary material, i.e. Dáil and Seanad debates. It was submitted, however, that the treatment of the Minister’s statement to the Dáil by the learned trial judge was not consistent with the learned trial judge’s own enunciation of how such parliamentary material should be treated.
8. Submissions of the Insurer
22. Mr. Patrick Connolly, S.C., counsel on behalf of the insurers, submitted that the High Court judgment, when perused as a whole, found that the method of calculation advanced by the claimant, i.e. A.D.C., was ultra vires the Act of 1986. It was submitted that the learned trial judge was correct in so holding. It was submitted that it is clear from the Act that the charge to be levied is to be in respect of the services actually received by the individual patient. As regards the proposition that individualisation of charges is either very difficult or very expensive, that was nihil ad rem so far as the issue of intra or ultra vires was concerned.
23. The insurer further submitted that the determination by the learned trial judge that the charge to be imposed under the Act should be a reasonable one is correct and that the trial judge was correct in holding that the charge sought to be imposed by the claimant was not reasonable.
24. With regard to the expert evidence, it was argued on behalf of the insurer that the evidence tendered on behalf of the claimant was and is irrelevant to the legal issues at the heart of the case, such as vires and reasonableness. However, the insurer advanced the argument that as “charge” is not defined in the Act of 1986 and the Act provides that it is to be construed with the other acts which constitute the health code, assistance as to the nature of the charge is provided by reference to s. 55 of the Health Act, 1970. Indeed, the insurer submitted that the word “charge” in s. 2 ought to receive a similar meaning to that given to the charge in
s. 55 as both are instances where otherwise eligible patients are required to incur a charge for hospital services and if it had been intended that such a patient would be required to pay the full economic cost of hospital services, the Oireachtas would surely have said so in explicit
language. It was submitted by the respondents that such a conclusion could also be drawn by employing the standard principles of statutory interpretation.
25. As regards the admissibility of parliamentary debates counsel analysed and distinguished case law. It was submitted as a general proposition that whatever be the modern considerations in relation to such concepts as “purposive interpretations” and the looking at external materials, the primary and dominant canon of construction still remains that the meaning of legislation is to be gleaned in the first instance by the language taken as a whole of the act (and sister acts) and that recourse to external material only arises in certain limited circumstances at most. It was submitted that insofar as it is stated in The People v McDonagh [1996] 1 I.R. 565 that external material could be looked at even when there was no ambiguity in the Act, such a proposition was obiter and extreme, and of itself, not well founded
9. Declaration Sought
26. The claimant sought a declaration that the method of calculation of the charge payable under
s. 2 of the Health (Amendment) Act, 1986, namely the calculation of the charge by the division of annual hospital costs by the number of occupied hospital bed days during the same year, as used by the claimant, is reasonable, proper and intra vires the Health (Amendment) Act, 1986.
10. Decision
(a) Method of Calculation of Charge
27. The issue is whether the method of calculation of the charge payable under s. 2 of the Health (Amendment) Act, 1986 by the claimant is reasonable and intra vires the Act. Under s. 2 of the Act of 1986 where injury is caused to a person by the negligent use of a motor vehicle in a public place and in-patient or out-patient services have been, are being, or will be provided by or on behalf of a health board in respect of the injury, and the injured person, or his personal representatives or dependants, have received or are entitled to receive, damages or compensation in respect of that negligence from the person liable to pay such damages arising therefrom, the health board shall, notwithstanding anything in the Health Acts 1947 to 1985, make a charge upon the person who received or is entitled to receive such damages or compensation in respect of the in-patient or out-patient services.
Section 2 of the Act of 1986 is mandatory. The claimant “shall” impose a charge, although the claimant has authority to waive the charge under s. 2(2) of the Act of 1986. The method of calculating the charge is not set out specifically in the said Act. The calculation of the charge may be complex as it may relate not only to past services but to services to be given in the future. The Act of 1986 does not state that the charge shall be in relation to the precise services rendered. However, it is clear that the words envisage a relationship between the charge and the in-patient or out-patient services. What is established under the statute is the basic policy for a pragmatic scheme.
28. The issue arises under a public statute. It is a matter of public law. I am satisfied that the correct basis for the determination of the issue is to be found in public law. The Oireachtas has left the type of charge to be determined, in this case by the complainant, in accordance with the principles and policies of the Act. The applicable rule of law was stated by Henchy J. In Cassidy v. Minister for Industry [1978] I.R. 297 at pages 310-311 where he stated:
“The general rule is that where Parliament has by statute delegated a power of subordinate legislation, the power must be exercised within the limitations of that power as they are expressed or necessarily implied in the statutory delegation. Otherwise it will be held to have been invalidly exercised for being ultra vires . And it is a necessary implication in such a statutory delegation that power to issue subordinate legislation should be exercised reasonably. Diplock L.J. has stated in Mixnam’s Properties v. Chertsey Urban District Council at p. 237 of the report:
‘Thus, the kind of unreasonableness which invalidates a by-law [or I would add, any other form of subordinate legislation] is not the antonym of ‘reasonableness’ in the sense of which that expression is used in the common law, but such manifest arbitrariness, injustice or partiality that a court would say: ‘Parliament never intended to give authority to make such rules; they are unreasonable and ultra vires .’”
29. That test, as applied by Blayney J. in McGabhann v. Law Society [1989] I.L.R.M. 854, is applicable. In that case the learned judge, in considering the question as to whether the Law Society’s compensation rules were unreasonable, stated at p. 862 of the report:
“Could it be said that the committee, in laying down this standard, was guilty of manifest arbitrariness, injustice or partiality? In my opinion it could not. There was no arbitrariness or partiality about it because it was a fixed standard which applied equally to all the candidates taking the examination. Nor could it be said to be unjust.”
30. The test is thus to see if the charge is reasonable in the above sense. It is a matter of construction.
31. I am satisfied that the learned trial judge was correct in holding that s. 2(1) of the Act of 1986 cannot be interpreted as requiring a health board to make a charge similar to a charge under
s. 55 of the Health Act, 1970. The wording of the sections is entirely different. Section 55 relates to “charges approved of or directed by the Minister”: a specific scheme. It is a fixed charge. There is no reference to such a charge in s. 2 of the Act of 1986. Nor is there a reference to charges being approved by the Minister. A different approach is taken in s. 2, where it is stated that the health board “shall … make a charge”. It is noteworthy that the mandatory requirement is stated to be “… notwithstanding anything in the Health Acts, 1947 to 1985”. Thus while the Health Acts, 1947 to 1985, and the Act of 1986 shall be construed together as one, it is clear that separate systems of charging are envisaged.
1
32. The learned trial judge was correct in determining that the charge must be a reasonable one. I am satisfied that the power must be exercised reasonably. It must not be arbitrary, unjust or partial.
33. The Act of 1986 does not state expressly what charge or system of charge is to be used under s. 2. In this it is different from the scheme in s. 55 of the Act of 1970. Thus s. 2 falls to be construed. The section has been set out in full previously in this judgment. Observations have been made as to its nature. It falls to be construed under the traditional canons of construction. The section sets out circumstances:
“Where … the health board shall … make a charge …”
34. As previously noted, the claimant is mandated to make a charge. The Act refers to “a charge”. The Act does not refer to “the charge” for the actual cost of the services. In fact, in certain circumstances, for example, if the damages include future services, the charge could not be determined precisely.
1
35. There was evidence of the difficulties in establishing the actual cost of the services rendered. While this does not settle the matter it is a relevant factor.
36. There was ample factual evidence as to the nature of the charge. The evidence was that the claimant seeks to recoup the “Average Daily Cost” (A.D.C.). The A.D.C. is calculated by taking the hospital’s total annual expenditure and dividing this by the number of bed days occupied in the year. It appears that the charge made by a hospital in a given year usually lags behind the actual cost in that year because it is calculated on the basis of the preceding year’s audited accounts. The A.D.C. excludes capital and capital appreciation costs. This is a transparent system of establishing the charge. It is a system of averaging which is reasonable and consistent. Consequently it is not arbitrary, partial or unjust. No evidence was given as to any other system.
37. Reference was made to English legislation. This has not proved helpful. At issue is the specific interpretation of an Irish act – the establishment of an Irish scheme.
Section 2 of the Act of 1986 is a clear section. The words are plain. There is no ambiguity. It is a situation where no complex canons of construction are needed.
38. I am satisfied that whereas the learned trial judge was correct in determining that the charge must be reasonable and correct in applying the traditional canons of construction, he fell into error in determining that the charge is a charge in respect of the actual in-patient or out-patient services which the victim received. The section does not so state expressly. It is a statutory section enabling a health board impose “a charge”. The section requires “a charge” to be made in respect of the services which the person has received or is entitled to receive. The Act does not expressly require the charge to cover precisely the services given. Discretion is left to the claimant to establish the charge.
39. The section relates to victims of road traffic accidents. The wording echoes legislation requiring compulsory insurance. It refers to such injured persons as have received in-patient or out-patient services and as have received or will receive damages or compensation. In referring to the services rendered or to be rendered and the charge to be made the section does not tie one with the other. Thus the statute does not expressly provide for individualised charges. Nor, in an area where averaging is the norm, would it be reasonable to so imply. Indeed, the learned trial judge accepted that there would in fact be a degree of averaging.
40. On the clear words of the statute “a charge” is mandated. This must be reasonable. On the evidence A.D.C. is reasonable. This is a matter which was uncontradicted and so must weigh in the analysis of the case, for what is reasonable is a matter of law and fact. The facts are based on the evidence. The evidence was that the A.D.C. was reasonable and practical. Section 2(1) provides a distinct charging system relating to victims of road traffic accidents. Road traffic accident victims are 0.78% of users of hospital services. In interpreting the section the fact that the section applies to this separate group is relevant. The reality that individualisation of charges would be very expensive is a factor, although not conclusive, in analysing the factual aspects of the issue.
41. I am satisfied that the A.D.C. falls within the range of “reasonable”. It is not arbitrary, partial or unjust. It is transparent. It is calculated on the general average and not on the more intensive use of hospital facilities by road traffic accident victims. It is charged by the year in arrears. The capital cost is not included. Of course, it is not the only scheme possible under the section. However, the A.D.C. is within the scope of “reasonable”.
42. To summarise my conclusions on this aspect of the case, I am satisfied that the charge must be reasonable. Applying the ordinary rules of construction I am satisfied that the words of the section are clear and unambiguous. The charge under s. 2 of the Act of 1986 is not the charge envisaged under s. 55 of the Health Act, 1970. Further, a charge need not be the precise charge for the actual services rendered. An average is a reasonable basis for a charge. The A.D.C. is reasonable and intra vires s. 2(1) of the Act of 1986. Consequently, I would allow the appeal and dismiss the cross appeal.
(b) Admissibility of Minister’s Statement in Parliamentary Debates – a note of caution.
43. As a result of the conclusion reached above it is not necessary to proceed to determine the admissibility in evidence of parliamentary debates. However, I would strike a note of caution as to the admissibility in court of ministerial statements in parliamentary debates.
44. The learned trial judge pointed out that it was not necessary for him to address this issue. Nevertheless, he then went on and stated:
“In case I am wrong in the view which I have taken, I think that I should now consider whether and to what extent I take into account also a statement made by the minister when piloting through the bill as has been urged on me by counsel for the health board. Traditionally, of course, this was forbidden in common law jurisdictions. But that has now changed somewhat. In England, the House of Lords departed from it in Pepper -v- Hart , [1993] 1 All ER 42 but set down
limits. I do not think that there is any point in my analysing the speeches in that case because it is quite clear that the Irish Supreme Court in People (D.P.P) -v- McDonagh , [1996] 1 I.R. 565; [1996] 2 I.L.R.M. 468 has gone much further.”
In People (D.P.P.) v. McDonagh [2000] 1 ILRM 548, Costello P. expressed an opinion on the use of parliamentary material in the construction of a statute. In stating this opinion in
McDonagh Costello P. was consistent with his judgment in Wavin Pipes Ltd. v. The Hepworth Iron Co. Ltd. (unreported, High Court, 8th May 1981). In McDonagh Costello P. declared at p. 570 of the report:
“It has long been established that a court may, as an aid to the construction of a statute or one of its provisions, consider its legislative history, a term which includes the legislative antecedents of the provisions under construction as well as pre-parliamentary material and parliamentary material relating to it. Irish statutes frequently and for very good reasons adopt with or without amendment the provisions of statutes enacted by the United Kingdom Parliament dealing with the same topic and so the legislative history of Irish statutes may well include the legislative history of the corresponding enactment of the United Kingdom Parliament. It was urged on the appellants’ behalf that the Court should not consider the legislative history of s. 2 of the Act of 1981 because the Court can only do so when construing a section which is ambiguous, which this section clearly is not. I cannot agree with this submission. Our courts do not and should not adopt such a rigid exclusionary rule (e.g. Bourke v. Attorney General [1972] I.R. 36) in which the Supreme Court not only used the European Convention on Extradition to assist in the construction of the Extradition Act, 1965, but also its travaux preparatoires ,) and it seems to me that the Court should have regard to any aspect of the enactment’s legislative history which may be of assistance.”
Of McDonagh’s case the learned trial judge stated, [2000] 1 ILRM 548 at p. 558:
“It is certainly not direct authority for the proposition that an explanation as to the meaning of a section by the relevant minister when piloting the Bill through the Dail can be used as an aid to construction. That point did not arise in that case. The passage from the judgment of Costello P. which I have cited begins with the words ‘it has long been established’. Quite clearly it has not long been
established in Ireland that a minister’s statement could be used in aid of construction. I do not think that Costello P. had that in mind at all when he used that expression. But at the same time I think that it is well within the spirit and intent of the passage cited to deduce from it that he would have been of the view that in certain circumstances such a ministerial statement could be availed of. This view would seem to correspond to that taken by Shanley J. in In Re National Irish Bank Ltd., [1999] 1 ILRM 321 and Kearns J. in Lawlor -v- Flood, High Court 1999 No. 197 JR 2nd July, 1999. What Costello P. was referring to in McDonagh’s case was material such as advice of committees and commissions in advance of legislation, the history of a particular bill passing through parliament such as for instance the significance of amendments that might have been made
along the way, the link with English legislation etc. Not too much significance can be attached to his reference to travaux preparatoires because that was in the context of construing an Act which itself had its foundation in an international treaty.”
The McDonagh decision raises a number of relevant matters:-
1. The decision was that legislative history may be looked at by a court in construing a statute, even if the section being construed is unambiguous.
2. In McDonagh reference was made to earlier relevant legislation both in Ireland and the United Kingdom. It was in that sense that the legislative history of the section in issue was before the court. There was no issue in the case as to the admissibility of parliamentary debates or ministerial statements.
3. Costello P. stated that:
“It has long been established . . . ”
45. Both the above matters (the said legislative history and the fact that its use had long been established) indicate an approach consistent with the current law. It has indeed long been established that such legislative history of a section could be referred to. This is done frequently.
4. Special reference was made to Bourke v. Attorney General [1972] I.R. 36. In that case there was reference to travaux preparatoires . This was in reference to an international treaty. International treaties are a different and specific matter. It is important that the interpretation of international treaties in Ireland be compatible and consistent with the interpretation of the treaty in other countries. Reference to travaux preparatoires aids this approach.
5. The statement of Costello P. was an obiter dictum .
6. It has long been the common law that words spoken in parliamentary debates are not admissible in court in construing statutes.
7. The law of other common law countries was opened in the submissions in this case. It is clear that decisions have been made in other jurisdictions to admit in evidence parliamentary debates. However, it is also clear that such approach has not been without its problems and that in certain instances there appears to have been attempts thereafter to limit the admissibility of such evidence. Consequently, it is not an approach which heralds a panacea for all ills.
8. To hold that parliamentary debates are admissible would be an alteration in the law and an alteration which would have a profound effect. For example, it could have a negative effect on presumptions, such as the presumption of the constitutionality of legislation. Canons of construction and presumptions, which are the product of many years of common law, could be called in question. In addition, it could have an effect on the Dáil and Seanad which might feel bound when debating each bill to state what is meant by each section of a bill. It is possible that a minister’s speech would then be drafted with a view to persuading a court of a certain approach. This would bring a new aspect to the parliamentary process in addition to its current roles. It might render the processing of legislation more complex. In addition, if a Minister’s statement in the Dáil is to be accepted, are those of the opposition to be excluded? Their interpretation may be radically different. Further, bills are often amended as they proceed through the Dáil and Seanad. These amendments may significantly alter the intention expressed in the original ministerial speech. Are all speeches then to be analysed together with the amendments to obtain the expressed intention on the meaning of an act?
46. For well established reasons, including those I have just stated, the speeches made by ministers in the Dáil and Seanad when introducing legislation have not been admissible in court when the court is construing statutes. I am not persuaded that good reason has been indicated in this case for changing or developing the common law in this jurisdiction.
47. In this case the Act is clear, there is no ambiguity and the section in issue has been construed in accordance with the traditional canons of construction. McDonagh decided that even if an act is not ambiguous the legislative history, that is the legislative antecedents, may be considered by a court. I agreed then and I agree now with Costello P.’s judgment that such an approach should not be excluded. A court has a discretion to consider such legislative history.
48. In this case such an approach would not lead to any different construction of the relevant legislation. Nor would I have reached a different conclusion if the Minister’s statement had been admissible.
49. In the High Court the learned trial judge looked at what the then Minister for Health in 1986 said to the Dáil when piloting through the bill which became the 1986 Act. The learned trial judge cited the Minister as stating:
“Section 2(1) gives specific power to health boards to make charges for hospital in-patient or out-patient services on persons injured in road traffic accidents who have received or are entitled to receive damages or compensation in respect of the accidents. The charge payable is not specified but would normally be the average daily cost per bed day in the hospital concerned. This will vary depending on the hospital involved.”
50. Of that statement the learned trial judge held at p. 559 et seq . of the report:
“This statement does assist in the interpretation of the section but only by implication. The fact that the minister told the Dail that the charge would normally be the average daily cost per bed day in the hospital concerned means that as far as the minister was concerned at least it was never intended that the
s. 55 charges should apply. I think that I would be entitled to draw an inference that the members of the Oireachtas who voted in favour of the Act did so on the assumption that the charge was not intended to be calculated by
reference to the charge specified by the minister under s. 55 of the 1970 Act. Of course I had already formed that view independently of reading the ministerial statement.
I have come to the conclusion that I should pay no attention to the remaining part of the minister’s statement. He points out that the charge payable is not specified but that of course is self-evident and in so far as he goes on to say that it would normally be the average daily cost per bed day in the hospital concerned, he is merely indicating departmental policy. That policy was restated in the circular already referred to which was sent to the health boards on 8 August 1986, some three months after the Act came into force. While obviously the departmental memo can be of no assistance to the construction of the Act passed before it, I do not consider that the ministerial statement can be of any assistance either. It is ultimately for the court and only the court to decide whether a charge calculated in the manner suggested by the minister can be regarded as a quantum meruit charge. For the reasons which I have indicated earlier in this judgment, I do not think that it can. Accordingly, the declaration sought by the Eastern Health Board must be refused.”
51. If I were satisfied that in general the statements of ministers in parliamentary debates should be admissible in evidence (which, as yet, I am not), then, consequent on the doctrine of the separation of powers and the division of the functions of the three organs of government and the respect which one organ of government holds for another, such statement should carry significant, heavy weight. Where a minister specifically stated what a section meant I would consider that it would be difficult to determine that such admissible evidence should not be followed. All of that being so, if the statement of the Minister were admissible in this case, I would have been inclined to decide that A.D.C. is a reasonable interpretation of s. 2 of the Act of 1986 and intra vires the Act. However, this approach does not arise.
11. Conclusion
52. For the reasons stated in this judgment I would allow the appeal and set aside the order of the High Court. I would make an order in the form of the declaration sought that:
“… the method of calculation of the charge [payable] under s. 2 of the Health (Amendment) Act 1986, namely, the calculation of charge by the division of annual hospital costs [by] the number of occupied hospital bed days during the same year, as used by the Appellant, is reasonable, proper and intra vires the Health (Amendment) Act, 1986.”
Judgment delivered the 11th day of July, 2001, by Murray, J.
53. The substantive issue in this case concerns the interpretation of Section 2 of the Health (Amendment) Act 1986 and in particular the manner in which the Eastern Health Board, now known as the Eastern Regional Health Authority, calculated the charges which it is entitled, by virtue of that section, to impose on a person to whom in-patient or out-patient services have been provided in respect of injuries received in a road traffic accident and where the person injured is entitled to recover damages from a negligent wrongdoer who caused or contributed to the said accident.
54. A subsidiary but important issue also arises concerning the use of a ministerial statement in Dáil Eireann as an aid to the interpretation of the Act.
55. Mr Crilly received serious injuries in a road traffic accident and successfully sued
1Messrs T.J. Farrington Limited and John O’Connor for negligence as a result of which he was awarded damages in the amount of £1,667,078.00. Since section 2 of the 1986 Act applied to Mr Crilly the Health Board made a charge pursuant to that section in respect of the treatment which he had received for his injuries. The charges made by the Health Board were recoverable from the Defendants and ultimately the Defendants’ insurers, FBD Insurance Plc, the second named respondents. Issues arose as to the level of charges imposed by the Health Board and in particular as to their manner of calculation in the exercise of its powers under Section 2. This is the issue which is now being litigated in these proceedings.
56. Mrs Justice Denham in her judgment has set out all the relevant facts and arguments of the parties and because I have come to the same conclusion as she does in her judgment concerning the interpretation to be given to the Act it is not necessary for me to refer to them except in so far as they are relevant to the issue concerning the admission of statements made by a Minister in the Oireachtas as an aid to the interpretation of Section 2 of the Act.
57. The basic submission of the Appellants, the Health Board, is that the charges which it may make pursuant to Section 2 of the 1986 Act may be properly calculated according to, what they call, the Average Daily cost. The Average Daily cost is calculated by taking the hospital’s total annual expenditure and dividing this by the number of bed days occupied in the year. It excludes capital and capital depreciation costs. The Appellants contend that this method of calculating the charges to be made is a proper and reasonable exercise of their powers under Section 2 of the 1986 Act properly construed.
58. In the High Court the Appellant sought to rely on a ministerial statement made in Dáil Éireann during the passage of the Bill as support for the interpretation for which they contended. It was also part of the case made by the Appellants before this Court that Section 2 of the Act should be interpreted in the light of a ministerial statement in Dáil Éireann that the charge contemplated under Section 2 “ would normally be the average daily cost per bed in the hospital concerned. ”
59. The learned High Court judge ruled that Counsel for the Appellants was entitled to introduce the ministerial statement for the purpose of persuading the court to a particular view as to the interpretation of the statute. As I understand the learned High Court’s judgment such a ministerial statement is admissible for such purposes even where the statutory provision in question is unambiguous. Having done so the learned High Court judge found the ministerial statement of assistance in the interpretation of the Section “ but only by implication ” namely that, contrary to one of the arguments put forward by the Respondents, it was never intended that charges provided by in Section 55 of the Health Act 1970 should apply to a case of this nature. He did go on to observe that he had already formed that view independently of considering the ministerial statement.
In this appeal the Appellants have relied on the learned High Court Judge’s ruling and repeated their submissions concerning the admissibility of ministerial statements as an aid to the construction of statutes. The Respondents, for their part, object to the admissibility of parliamentary debates for such a purpose on the grounds, inter alia , that they are excluded by a long standing common law rule to that effect and because to do so would infringe the separation of powers between the Legislature and the Courts. In these circumstances this is an issue which I consider needs to be addressed in this appeal and the one with which this judgment is concerned.
The Interpretation Issue :
60. The interpretation of legal texts such as statutes has presented problems from the earliest times to the present day. Plato urges that laws be interpreted according to their spirit rather than literally. Voltaire expressed the view that to interpret the law is to corrupt it. These two anecdotes simply highlight the historical tension which still exists between the search for the “ true intent ” of a statute and legal certainty. That such tensions should persist to the present day is not surprising when one considers that first, there is the law; then there is interpretation. Then interpretation is the law. This simplified reference to the judicial process emphasises that when courts apply a statute the interpretation which they give it has ultimate authority. Voltaire’s misgivings would not be altogether misplaced in a judicial environment where rules for interpretation of statutes were lax, subjective or even non-existent. Then there would be a real likelihood that in some cases the Courts would usurp the functions of the legislature.
61. Assuming that a statute is not drafted in haste, which is by no means always the case, and the parliamentary drafter has carefully fashioned and finessed its text, the fact remains that words are often an imprecise tool, however well wielded. Added to this is the impossibility of always foreseeing every situation or combination of circumstances to which a statute may have to be applied. As Bennion in the introduction to his third edition (p. 3) on Statutory Interpretation observed “ The natural and reasonable desire that statutes should be easily understood is doomed to disappointment. Thwarted, it shifts to an equally natural and reasonable desire for efficient tools of interpretation. If statutes must be obscure, let us at least have simple devices to elucidate them. A golden rule would be best, to unlock all mysteries. Alas, … there is no golden rule. Nor is there a mischief rule or a literal rule, or another cure-all rule of thumb. Instead there are a 1001 interpretative “criteria”. Fortunately, not all of those present themselves in any one case; but those that do yield factors that the interpreter must figuratively weigh and balance. That is the nearest we can get to a golden rule, and it is not very near ”.
62. With a view to addressing the difficulties inherent in statutory construction the common law in the course of its evolution over a long period of time has identified an extensive range of criteria, usually referred to as canons of construction, referred to above by Bennion, as efficient objective and neutral aids to the interpretation of statutes. There are also presumptions concerning the interpretation of statutes such as the presumption of constitutionality, that an act is prospective, the strict construction of penal statutes and presumption against absurdity. They are, as I have mentioned, intended as efficient and neutral aids to the interpretation of statutes and are not some sort of standard formulae automatically shaping the result of an interpretative issue. The use of canons or principles of construction, or any one or combination of them in a given case depends on a variety of factors and their interplay – the complexity or clarity of the text in issue, whether applicable precedents exist, whether there are fundamental principles in issue or constitutional considerations – one could go on. The point of departure for the Court is always the actual text of the statute to be interpreted and it is a matter of judicial appreciation, in the light of submissions from Counsel, which canons or method of interpretation are appropriate to the nature of the problem which presents itself in the particular case.
63. Among these well established canons and rules of construction stands the well established rule excluding recourse to parliamentary debates as a means of interpreting statutes and which has been part of the common law since prior to 1769. Craies at page 128 in his seventh edition on Statute Law describes this rule as follows, “ It is not permissible in discussing the meaning of an obscure enactment, to refer to ‘the parliamentary history’ of a statute, in the sense of the debates which took place in parliament when the statue was under consideration. As was said by Willes J in Millar -v- Taylor [1769] 4 BURR. 2303 ‘The sense and meaning of an act of parliament must be collected from what it says when passed into law, and not from the history of changes it underwent in the house where it took its rise. That history is not known to the other house or to the sovereign.’ ”
In Herron -v- Rathmines and Rathgar Improvement Commissioners 27 LR
Ir 179 at 257 , FitzGibbon L.J. in referring to alterations to a Bill during its progress through parliament stated “ We cannot interpret the Act by reference to the Bill, nor can we determine it’s construction by any reference to its original form ”. In the same case Palles C.B. observed “… I think it is important to ascertain whether any reason can be ascertained on the face of the Act for this extraordinary divergence between the express provision of Section 9 on the one hand and that of Section 13 on the other ”. “ To do so I do not feel myself at liberty to look at the Bill as presented to Parliament, nor to contrast its original provisions with those which were introduced by amendment .” The dictum of FitzGibbon L.J. was subsequently cited with approval by Halsbury L.C. when that case was appealed to the House of Lords (1892 A.C. 498).
64. The judicial aids to the construction of statutes, including the exclusionary rule to which I have just referred, were formulated as a matter of judicial policy in the light of experience and with a view to enabling the Courts to ascertain, as far as possible, in a useful, efficient and objective manner the true meaning of the statute in issue. They are not fundamental principles. They are a methodology of approach to the interpretation of statutes. They may be changed or adapted. In very recent times the classic exclusionary rule concerning parliamentary debates has not been applied in the traditional manner in a certain number of cases within this jurisdiction (and I will refer to these later) and the question as to the application of that rule has been once again raised an argument in this case. There is no rule of law which prohibits a review of a rule of construction. The question is whether it is now appropriate to relax or set aside that rule. It is not simply a question of whether the rule is set in stone or is too rigid or ought to be more flexible. It is more a question whether as a matter of judicial policy recourse to debates in the Houses of the Oireachtas should be had generally or in certain circumstances as a useful, efficient and neutral aid to the interpretation of Acts enacted by the Oireachtas.
65. This is a question which has to be addressed in the context of our constitutional framework, the role of the Courts in the interpretation of statutes and the function of the Oireachtas as the legislature of the State. Before going on to address the issue in that context I wish to refer briefly to experience in other jurisdictions and certain case-law in this jurisdiction.
Other Jurisdictions
66. Reliance was placed by Counsel on developments in some other common law jurisdictions where the exclusionary rule applying to parliamentary debates has been modified or fundamentally altered. In some countries such as Canada and Australia changes have been brought about by legislation reflecting legislative policy with which we are not concerned with here. Particular reference was made to the position in the United Kingdom following the decision in Pepper -v- Hart [1993] 1 AER 42 and the United States where use of parliamentary materials in the interpretation of statutory law has been the practice for many decades. While the experience of those jurisdictions, as found in the judgments of their Courts, are interesting and illustrative, I am doubtful as to their value in helping to resolve the issue in this jurisdiction. Although questions of principle may and do arise in the consideration of this issue, such as the role of the courts in interpreting statutes, once general questions of principle are taken into account the issue in any jurisdiction concerning the use of parliamentary debates is fundamentally a question of judicial policy adopted in the context of its own constitutional framework in such jurisdiction and whether, having regard to judicial practice and experience such use should be considered appropriate or useful in that system. A purely analytical approach to judicial pronouncements in the United States or in the United Kingdom (or elsewhere) would involve evaluating what is good judicial policy or practice in those jurisdictions, something which I do not consider to be the function of this Court. Nor would it be in a position carry out such an evaluation. What is clearly illustrated is that a rule permitting the use of parliamentary debates in the interpretation of statutes has not produced a so-called “golden rule” referred to by Bennion. On the contrary it is a judicial practice which is subject to continuing debate and questioning either judicially and certainly extra-judicially. It was only in the 1940’s that extensive use of parliamentary history in the United States emerged. It is a practice that has been regarded by some members of the judiciary there with, at least, some unease. In 1953 Justice Jackson observed in one opinion “I should concur in this result more readily if the Court could reach it by analysis of the statute than psychoanalysis of Congress … That process seems to be not interpretation of the statute but the creation of a statute” ( US -v- Public Utilities Commission of California [1953] 345 US 295) . Writing extra-judicially Justice Scalia of the Supreme Court has observed that the United States has now developed a legal culture in which lawyers routinely make no distinction between words in the text of a statute and words in its parliamentary history. According to him the resort to parliamentary history has become so common that reality has overtaken the parody in the popular quip that “one should consult the text of a statute only when the legislative [parliamentary] history is ambiguous.” He also points out how as a result of this judicial practice in the United States, statements are specifically prepared in Congress, often at the behest of lobby groups, for the purpose of influencing statutory interpretation by the Courts. At pages 483 – 485 of his third edition Bennion argues that on a proper construction of the statute in issue in Pepper -v- Hart recourse to the parliamentary debates ought to have been excluded, a view expressly disagreed with by Lord Bingham in R -v- Secretary of State for the Environment etc [2001] 1 AER 195 at 211 . That is not a debate, if debate it is, which I would wish to enter upon. Suffice it to say that as regards modifying rules of construction it is essentially for each jurisdiction to decide according to its own appreciation of considerations of judicial policy in the context of the factors which I have referred to above. Also the nature of rules of construction as ancillaries to the construction of statutes is such that once a rule is in place whether it is relevant or applicable in any given case in turn depends on the nature of the particular statute and the interpretative problem which it poses. Hence the use of any rule of construction as evidenced in judgments of the Courts is rarely other than an ad hoc illustration of its use rather than a decision in principle. For these reasons it does not seem to me that analysis of judgments of other jurisdictions concerning these matters would be of great value from the point of view of determining judicial policy in this country on that issue.
Cases in this Jurisdiction :
67. In support of its submissions, the Appellants relied inter alia on the judgments of Costello, J. in Wavin Pipes Ltd -v- Hepworth Ireland Co. Ltd the High Court, [unreported, 8th May, 1981] and D.P.P. -v- McDonagh [ 1996] 2 I.L.R.M. 468 which was a judgment of this Court. In the former case, Costello J. relied in large measure on the decision of this Court in Bourke -v- Attorney General and Wymes [1972] I.R. 36 for his view that the classic common law rule, according to which reliance on parliamentary material was excluded for the purposes of interpreting statutory enactments, should no longer apply. However, the Bourke case was concerned with an entirely different issue, namely the interpretation of a particular section of the Extradition Act, 1965 which the Supreme Court considered had been derived from Article 3 of the European Convention on Extradition (Paris, December 1957). For a very long time principles of common law concerning the interpretation of statutes which give effect to international treaties permit the Courts to interpret such a statute in the light of the meaning of relevant provisions of the treaty concerned. No doubt this is in part because the intention of the national legislature is clear – to give effect to provisions of the treaty in domestic law – and the objective consequence of that intent can be clarified or ascertained, where necessary, by reference to the meaning of the relevant provisions of the treaty, itself a legal instrument. There is also the consideration that contracting parties to international agreements should seek, as far as possible, to give uniform effect to its provision in domestic law. Furthermore, with this latter objective in mind, international treaties are interpreted in accordance with the principles of international law according to which the travaux prepatoires may be consulted for the purposes of their interpretation (unless such an approach is excluded, expressly, or by implication by the terms of the treaty itself or if there are no travaux preparatoires available). This common law approach to the interpretation of statutes giving effect to treaties has existed side by side with the general rule which excludes recourse to parliamentary debates and which Costello, J. then acknowledged has been extant since 1769 (citing Miller -v- Taylor 4 Burr 2303). This rule, Costello, J. acknowledged, “ has been applied ever since both in England and in this country ”. The decision in Bourke -v- Attorney General does not purport to qualify the common law exclusionary rule as to parliamentary history of statutes.
68. Perhaps at this point I should expressly refer to a distinction between ‘ legislative history ’ and ‘ parliamentary history’ of a statute – at least for the purposes of this judgment. In some writings and judgments the former term is used so as to include the latter but in classic common law tradition that is not the case. As the seventh edition of Craies observes at page 126 “ The cause and necessity of the Act may be discovered, first, by considering the state of the law at the time when the Act was passed. In innumerable cases the Courts, with a view to construing an Act, have considered the existing law and reviewed the history of legislation upon the subject ”. Craies also observed that it was hardly necessary to cite authorities for this proposition. This is an approach which permits an Act to be interpreted in the light of its legal historical context and with regard to the provisions of other Acts
in pari materia . This long established approach of looking at legislative history is entirely distinct from that of parliamentary history where the latter refers to parliamentary debates and what occurred in the passage of a Bill through parliamentary procedures prior to its enactment. It is in this sense that I use these terms.
69. As regards the judgment of this Court, delivered by Costello, P, in The People (D.P.P.) -v- McDonagh [1996] 2 I.L.R.M. 469 the Appellants have relied on the following observations in that judgment; “ It has long been established that a Court may, as an aid to the construction of a statute or one of its provisions, consider its legislative history, a term which includes the legislative antecedents of the provisions under construction as well as pre-parliamentary material relating to it ”. First of all I would observe that in that case no reliance was placed on or consideration given to parliamentary debates nor indeed to any history of the Act in issue before the Oireachtas. The observations, therefore, must be regarded as obiter. I also agree with the observations of Geoghegan, J. in his judgment in the High Court in this case where he stated “ The passage from the judgment of Costello, P. which I have cited begins with the words ‘ It has long been established…’. Quite clearly it has not been long established in Ireland that a Minister’s statement could be used in aid of construction. I do not think that Costello, P. had that in mind at all when he used that expression ”. Of course, one can conclude from the passage cited, as Geoghegan J. went on to remark, that Costello, P. was of the view that in certain circumstances such a ministerial statement could now be relied upon. That however, was obiter.
70. Counsel for the Appellants also refer to a number of more recent decisions of the High Court on this issue in which it was considered that references to parliamentary material was permissible. The reasoning in those cases, for obvious logical reasons, were in essence based on the cases to which I have referred above or at least one of them. The purpose of my observations on the cases specifically cited above is to express my conclusion that the question as to whether parliamentary debates may be relied upon as aid to the construction of statutes cannot be considered to have been definitively decided and no discourtesy is intended in not citing in detail other cases which have followed such decisions as Wavin Pipes Ltd or D.P.P. -v- McDonagh .
71. I would just add that it is a common feature of those cases to cite a statement in a judgment of the Supreme Court of the United States (United States, the American Trucking Association [1940] 310 US 534 at 543) which says “ When an aid to construction of the meaning of words as used in the statute, is available, there certainly can be “no rule of law” which forbids its use, however clear the words may be on superficial examination .” I confess that I find it difficult to deduce a principle or a judicial policy from this statement since there is little in the judgment from which the extract is taken which sets out adequate criteria by which such an approach might be applied. Apart from its rhetorical content the statement discloses an open-ended approach very much in a United States context which if applied in this country could equally apply to the ‘Heads of a Bill’ submitted to the Government by the promoting department for the initial decision to proceed with a Bill or a memorandum supporting such a submission, departmental briefings to the parliamentary drafter or indeed an affidavit from the parliamentary drafter as to what he or she really meant when drafting a Bill. One could extend the list. The issue in this case requires rather closer scrutiny as to the methodology used by the courts for the purpose of ascertaining the will of the Oireachtas as expressed in Acts adopted.
72. In counterpoint to the submissions made on behalf of the Appellants, the Respondents relied on the dictum of Walsh J. in The People (D.P.P.) -v- Quilligan (No. 1) [1986] I.R. 496 , 511, where he stated “ Whatever may have been in the minds of the members of the Oireachtas when the legislation was passed …” their intention must be deduced ‘ from the words of the statute ”. Furthermore, in Howard -v- Commissioner of Public Works in Ireland [1993] I.R. 101, although the admissibility of debates in the Oireachtas was not directly in issue, Finlay, C.J. stated that “… it would not be permissible to interpretate a statute upon the basis of either speculation or indeed, even of actual information obtained with regard to the belief of individuals who either drafted the statute or took part as legislators in its enactment with regard to the question of the appropriate legal principles applicable to matters being dealt with in the statute ”
73. In that case also Blayney, J. (with whom Finlay, C.J agreed) endorsed the rule expressed in Maxwell on the Interpretation of Statutes (12th edition p.28) to the effect that “ it is well accepted that the beliefs and assumptions of those who frame Acts of Parliament cannot make the law ”.
74. Clearly a great deal of weight must be given to all the judicial views expressed on this question which underline that the issue here involves serious questions of judicial policy concerning the interpretation of statutes.
The function of the Legislature :
75. The legislative organ of the State is the Oireachtas. The Oireachtas consists of the President, and two houses, Dáil Éireann and Seanad Éireann (Article 15.1.2). Article 15.2.1. declares “ The sole and exclusive power of making laws for the State is hereby vested in the Oireachtas; no other legislative authority has power to make laws for the State”. This is subject only to the power of the Oireachtas to make provision by law for subordinate legislatures.
76. The Constitution contains fairly detailed provisions concerning the initiation of Bills in one house and the passing of the Bill by the other. There are particular provisions for a Money Bill which may, for example, only be initiated in Dáil Eireann. Otherwise any Bill may be initiated in one house and accepted or passed by the other house. Article 25.1. provides “ as soon as any Bill, other than a Bill expressed to be a Bill containing a proposal for the amendment of this Constitution shall have been passed or deemed to have been passed by both houses of the Oireachtas, the Taoiseach shall present it to the President for his signature and for promulgation by him as a law in accordance with the provisions of this Article ”.
77. Sub-Article 2.1 provides “ Save as otherwise provided by this Constitution, every Bill so presented to the President for his signature and for promulgation by him as a law shall be signed by the President not earlier than the 5th and not later than the 7th day after the date on which the Bill shall have been presented to him ” (There is special provision for signing and promulgation of a Bill as law in a shorter period).
78. Article 25.4.1 provides “ Every Bill shall become and be law as and from the date on which it is signed by the President under this constitution …” The next sub Article provides “ Every Bill signed by the President under this Constitution shall be promulgated by him as a law by the publication by his direction of a notice in the Iris Oifigiúil, stating that the Bill has become law ”.
79. Leaving aside the provisions of a Bill expressed to be a Bill for the amendment of the Constitution which falls into a special category which is not relevant to present considerations, the President may decline to sign and promulgate as law a Bill (other than a Money Bill) passed or deemed to have been passed by both houses of the Oireachtas if, in the exercise of his or her absolute discretion, after consultation with the Council of State, he or she decides to refer the Bill to this Court pursuant to Article 26 of the Constitution for a decision on a question as to whether such Bill or any of its provision are repugnant to the Constitution.
80. What emerges from the foregoing provisions is essentially self-evident. Only that version of a Bill which is passed or deemed to have been passed by both house of the Oireachtas and which is signed and promulgated into law by the President is an Act of the Oireachtas. The Constitution does not assign or recognise any special role for the initiators or promoters of a Bill. The legislative process consecrated by the Constitution, commencing with the initiation in one or other House of the Oireachtas and culminating with its signature and promulgation into law by the President, is the means by which the constitutionally expressed will of the Oireachtas is achieved. It is by laws so adopted and promulgated that the citizens are bound. It is to the text of those laws as promulgated that they, or their legal advisors, look to ascertain the obligations or rights for which they provide or regulate.
Role of the Courts :
81. As has often been said by this Court, the Courts are one of the organs of government, the judicial organ of government, referred to in Article 6 of the Constitution. Included in their role is the task of applying Acts of the Oireachtas in justiciable disputes between citizens or between a citizen and the State and for that purpose to interpret them. It is frequently said that in interpreting Acts of the Oireachtas the Court seeks to ascertain the “intent” of the legislature or as Blackstone put it at page 59 of his Commentaries “ the will of the legislature ”. The phrase “ intent of the legislature ” is, on a casual view, ambiguous because it does not expressly convey whether it is the subjective intent or the objective intent of the legislature which is to be ascertained. Manifestly, however, what the Courts in this country have always sought to ascertain is the objective intent or will of the Legislature. This is evident for example from the rule of construction according to which when the meaning of the statute is clear and definite and open to one interpretation only in the context of the statute as a whole, that is the meaning to be attributed to it. There has never been any question of examining the statute further in the light of external aids so as to ascertain whether parliament had an intent which it failed to adequately express, at variance with that to be clearly found in the statute.
82. The role of the courts in the interpretation of statues, as a matter of principle, is summed up with great clarity by Lord Nicholls in R -v- Secretary of State for the Environment etc ., at 216 (cited above) when he said “ Statutory interpretation is an exercise which requires the Court to identify the meaning borne by the words in question in the particular context . The task of the Court is often said to be to ascertain the intention of parliament expressed in the language under consideration. This is correct and maybe helpful, so long as it is remembered that the ‘intention of parliament’ is an objective concept, not subjective. The phrase is a shorthand reference to the intention which the Court reasonably imputes to Parliament in respect of the language used. It is not the subjective intention of the Minister or other persons who promoted the legislation. Nor is it the subjective intention of the draftsman, or of individual members or even of a majority of individual members about the house. These individuals will often have widely varying intentions. Their understanding of the legislation and the words used may be impressively complete or woefully inadequate. Thus when the Courts say that such and such a meaning ‘cannot be what Parliament intended’, they are saying only that the words under consideration cannot reasonably be taken as used by Parliament with that meaning. As Lord Reid said … ‘We often say that we are looking for the intention of Parliament, but that is not quite accurate. We are seeking the meaning of the words which Parliament used’ .”
83. The principle of objective intent at the root of the role of the Courts in interpreting statutes is, as I have indicated, the same in this country. The intent of the Oireachtas is imputed to it on the basis of the text of an Act adopted and promulgated as law in accordance with the Constitution.
84. Any proposal that the Courts should go behind the constitutionally expressed will of the Oireachtas so as to rely on the statement of one member of one house, whatever his or her status, must be approached with circumspection and constitutional prudence. To go behind a will so expressed so as to look at such statement and impute an intent expressed by one member to the Oireachtas as a whole may, and I use that word guardedly, risk compromising the legislative process and the role of other members of the Oireachtas. Thus the question as to whether reliance should be placed by the Courts on the parliamentary history of an Act raises considerations which in my view render the issue sui generis and not to be equated with reliance on other external aids such as reports of Commissions which give a contextual background to legislative history. The use of such external aids has a different provenance, gives rise to different considerations and although they too must be relied on with circumspection, we are not concerned with them in this case.
General Considerations :
85. It is in the context of the constitutional role of the courts to ascertain the will of the Oireachtas as constitutionally expressed that the question of judicial policy concerning recourse to parliamentary history, and in particular statements of a minister or other member of the house, for interpretative purposes falls to be considered. I think it can be fairly said that the primary duty of the Houses of the Oireachtas is to express the legislative will in the constitutionally prescribed manner in an Act which they adopt. Such a duty would reflect the universal constitutional principle in a democratic society: Men, and women, may intend what they will; but it is only the laws which they enact which bind us.
86. Of course the Oireachtas may, subject to the Constitution, adopt by law rules governing the interpretation of statutes which are the fruits of the legislative process. One example of this is the Interpretation Act 1937. Section 11 (g) of that Act provides at least one indication of the unique importance which the Oireachtas itself attaches to the actual text of an Act. That subparagraph provides, inter alia :
“(g) Marginal notes. “No marginal note placed at the side of any section or provision to indicate the subject, contents or effect of such section or provision … shall be taken to be part of the Act or instrument or be considered or judicially noticed in relation to the construction or interpretation of the Act or instrument or any portion thereof ;”
87. Although marginal notes are to be found on a Bill on its introduction in the Oireachtas, and continued in the Act adopted, the Oireachtas was nevertheless careful to exclude them from consideration by the Courts, however helpful they might be in some circumstances, as an aid to interpretation. It might come as a surprise to members of the Oireachtas that a statement of a minister or other member of the house were to be relied on by the Courts in construing a statute, even as an aid.
88. A Minister or promoter of a Bill may feel constrained when intervening in the cut and thrust of parliamentary debate to choose her or his words carefully for fear of giving rise to any misunderstanding as to her or his intent on a subsequent parsing of those words in a court of law. On the other hand it has been suggested that a clear and deliberate statement on the part of the Minister or other promoter of the Bill as to the purpose for which it is been introduced could be a helpful aid to interpretation. Apart from other considerations which I will refer to, there is the foreseeable risk that the promoter of the Bill would feel constrained to make statements calculated specifically for interpretative purposes, something which has occurred in the United States. Even if a Minister did not feel so constrained, the fact remains that Ministers or other promoters of Bills do routinely inform the House in question of the general purposes of the Bill and the reasons for its introduction. Statements, calculated or otherwise, promoting a Bill passing through a politically contentious process would not necessarily constitute a neutral aid to construction. If the courts were to go behind an Act and look at the proceedings in the Houses of the Oireachtas and statements made by the promoter of a Bill for the purposes of interpreting the Act adopted, it would place an onus on other members of the Oireachtas to examine his or her spoken words for its implications as to the ultimate effect of a Bill when it becomes law. They would have to do so from a perspective which they have never had to do and which does not currently arise.
89. As the legislative organ of State the Oireachtas has, subject to the constitution, exclusive responsibility for the conduct of its proceedings so I refer to these general considerations primarily for the purpose of indicating that any decision to rely on statements made in one or other House as an aid to the construction of an Act could have implications for the conduct of the legislative process which is another reason for the Courts to consider this question with prudence.
90. Counsel for the Appellants in support of his submission that the Court should have recourse to parliamentary materials relied on the ruling of the learned High Court Judge who, having referred to the decision in The People (D.P.P.) -v- McDonagh stated “ The Court would not be precluded from looking at such ministerial statement or explanation merely because the statutory provision was unambiguous using the traditional canons of construction. If the statement or explanation supports a construction of the section which would be just about open under the ordinary rules of construction, but which would not have occurred to the Judge, he is entitled at least to take it into account. Putting it another way, Counsel is entitled to produce the ministerial statement to the Judge with a view to persuading the Judge that the view he appears to be taking is wrong .”
91. On practical grounds alone this is too broad a portal through which to allow parliamentary material to enter into consideration in the interpretation of Acts of the Oireachtas. It would seem unavoidable that recourse to ministerial statements to confirm, contradict, verify, strengthen, qualify even nuance a particular construction argued for would enter into most if not every contentious case. Account would have to be taken of amendments in one or other House subsequent to a statement. It would be a foolhardy if not negligent lawyer who didn’t at least trawl through the parliamentary interventions of Ministers in one house or both in order to check whether there was something which supported one interpretation or another. Similar considerations could arise when lawyers, accountants or other professionals are advising clients, private or corporate, concerning the implications and effect of an Act. This would be a complex and burdensome exercise – evaluating what weight the courts might attach to this or that sentence or passage in a Minister’s speech. It would add to legal costs. It is difficult to envisage that a ministerial statement could always be divorced from the context of a debate as a whole particularly if a different perception of the Bill was expressed by other members who nonetheless supported the passage of the Bill. That is a situation that one could not exclude. The option of having recourse to ministerial statements generally in the interpretation of Acts must at least risk introducing uncertainty where none may have existed. As the learned trial judge observed “ In practice, ministerial statements in the Dáil will not usually be of assistance to a court in construing a statutory provision .” In the instant case the learned trial judge found some indirect support from the ministerial statement for the interpretation which he attributed to section 2 of the Act but, as he pointed out, it was an interpretation which he had already adopted independently of the ministerial statement. At best, recourse to ministerial statements as an aid to interpretation would have limited value in a limited number of cases. The disadvantages of permitting recourse to ministerial statements greatly outweigh potential benefits. For these reasons I think the submissions on behalf of the Appellants should fail. They should also fail for other reasons.
92. The disadvantages concerning complexity and uncertainty, to which reliance generally on ministerial statements could give rise would not, to my mind, be greatly ameliorated by limiting such reliance only to cases where there is ambiguity in the statute or the need to avoid a patent absurdity and the ministerial statement is clear and unequivocal. First of all I would recall that there are a wide range of canons of construction and presumptions available which are more sophisticated and neutral aids to the resolution of such interpretative problems. Also available are methods of interpretation such as the purposive or teleological approach to statutory construction.
‘Ambiguous’ is an ambiguous terms itself. Nearly every provision of an Act which becomes a subject of controversy and litigation could be said to be ambiguous to some extent. How ambiguous does an Act have to be before such a rule came into play? Moreover, a party contending for ambiguity would perforce be entitled to rely on parliamentary statements if only de bene esse. Frequent reliance on parliamentary debates would increase the burden and costs of preparing for a trial and often prolong hearings unnecessarily. I have already mentioned my concurrence with the learned trial judge’s observation that ministerial statements will not usually be of assistance to the courts in constructing statutes. To put the matter in another perspective the vast majority of cases in which issues arise concerning the interpretation of a statute arise because the statute falls to be applied to a set of circumstances or a combination of circumstances, as inevitably happens, not specifically envisaged by the Oireachtas at the time of its passing. Therefore, there would be no specific intent to be found in the Dáil or Seanad debates.
93. Reliance on a ministerial statement only when it is clear and unequivocal, would displace the focus of interpretation from the statutory text to another location namely the wording of that statement.
94. Even then, if clarity or lack of ambiguity is not achieved in a carefully prepared and drafted Bill or one the text of which undergoes parliamentary scrutiny at each stage of its passage through the Oireachtas, the occasions on which it would instead be found in a ministerial statement must, to say the least, be limited.
95. Having regard to the considerations I have outlined above concerning the role of the Oireachtas recourse to statements of ministers could have implications for the parliamentary process, I put it no further than that, which the courts should avoid unless there are cogent and countervailing judicial reasons for doing so. In my view the existence of such cogent or countervailing judicial reasons have not been demonstrated by the Appellants.
96. Another disadvantage in this context is that there is nothing before us to indicate that the statement of a Minister in one House is available or taken into account by the other House when considering the Bill. A Court could have material before it which was never considered by one House.
97. Would recourse by the courts to parliamentary statements, even in limited circumstances, have implications for the exercise by the President of his or her discretion to refer a Bill to the Supreme Court pursuant to Article 26 of the Constitution? I must confess I am not sure what the answer to that question might be. It is another reason for a cautious approach to changing the existing rule.
98. The presumption of constitutionality means that as between two or more possible constructions of an Act (or a Bill in an Article 26 reference) the construction that is in accordance with the provisions of the constitution would prevail over any construction that is not so. (East Donegal Co-operative, 1970 IR 317 and the Adoption (No. 2) Bill, 1987, 1989 IR 656). Consideration of a ministerial statement which appeared to promote a construction which was incompatible with the Constitution would, it seems to me, conflict with that well established presumption. Members of the Oireachtas are entitled to rely on this presumption when deciding on matters of legislation. Going behind the Act and entering the chamber so to speak to look at ministerial statements would give a status to the promoters of a Bill to the disadvantage of other members of the house which is something this Court should be reluctant to do at least in the absence of compelling grounds. No such grounds have been shown.
99. Having regard to the respective roles of the Oireachtas and of the courts and all the considerations which I have mentioned, I am not satisfied that it has been shown that recourse to ministerial statements as an aid to the construction of statutes is sufficiently neutral useful or efficient to outweigh, from a judicial policy point of view, the disadvantages or possible inconveniences of abolishing or modifying the exclusionary rule. I do not in this case consider it necessary to go so far as to say that this should be decided as a matter of principle.
100. Maintaining the classical exclusionary rule also has the advantage of avoiding a potentially dangerous dichotomy entering into the interpretative practice of the courts. The Courts seek the objective intent of the legislator while the purpose of looking at parliamentary debates as a source of interpretation is to seek the subjective intent. Even in contemporary circumstances applying the traditional exclusionary rule is more likely to promote certainty in the interpretation of statutes than to dilute it. It also has the advantage of avoiding any risk that in abolishing or modifying the exclusionary rule the courts might, even unwittingly, affect the legislative process of the Oireachtas and the role of the members of the two Houses.
101. The matters to which I have referred are sufficient in my view for concluding as a matter of judicial policy that no sufficient grounds have been established for abolishing or qualifying at this time the established exclusionary rule concerning recourse to parliamentary proceedings.
102. Accordingly no reliance should be made on the statement made by the Minister in Dáil Éireann concerning the purpose of section 2 of the Act.
103. As regards the substantive legal issue of interpretation I agree with the judgment of Mrs Justice Denham and with the order which she proposes should be made.
JUDGMENT delivered by Mrs Justice McGuinness on the 11th day of July 2001
104. I have had the advantage of reading the judgment which has been delivered by Mrs Justice Denham and also the judgment which has been delivered by Mr Justice Murray and the judgment which is about to be delivered by Mr. Justice Fennelly. I agree, as do Mr Justice Murray and Mr. Justice Fennelly, with the conclusions reached by Mrs Justice Denham in regard to the principal matter at issue in this case – the interpretation to be given to Section 2 of the Health (Amendment) Act 1986 in regard to the manner of calculation of the charges to be imposed by the Health Board under that Act.
105. I also agree with the conclusion of Mrs Justice Denham that insufficient grounds have been established for abolishing or qualifying the established exclusionary rule concerning recourse to parliamentary proceedings as a matter of judicial policy at this time.
106. Mr Justice Murray in his judgment has provided a wide ranging and in-depth analysis of the latter issue – the admissibility of ministerial statements or, more widely, parliamentary debates, as aids to the interpretation of Statutes. Mr Justice Murray reaches the conclusion that recourse to ministerial statements as an aid to the construction of statutes is not sufficiently useful or efficient as to outweigh, from a judicial policy point of view, the disadvantages or possible inconveniences of abolishing the exclusionary rule. He does not, however, go so far as to say that this should be decided as a matter of principle in the present proceedings. I am in full agreement with these conclusions.
107. Mr. Justice Fennelly in his judgment, having referred to a number of additional authorities also addressed the difficulties both in principle and in practice of allowing the use of Parliamentary Debates in the interpretation of Statutes by the Court. I agree with his conclusion that in the context of the present appeal the statement of the Minister should not have been considered.
108. In this short addendum to the judgments of my learned colleagues, I wish to stress that I entirely share Mr Justice Murray’s concerns as to the constitutional impropriety of blurring the distinction between the legislative task of the Oireachtas in forming and enacting the law and the judicial task of the Courts in interpreting the law as it has been enacted.
109. Apart from these concerns of principle, it seems to me that there are very real practical difficulties in the way of such reliance on either ministerial statements or Parliamentary Debates in the construction of statutes.
110. The process of legislation by the Oireachtas is essentially collective. It is the Oireachtas as a whole which legislates. It would in my view be a misleading oversimplification of this process to rely, in interpreting a statute, on ministerial statements alone. Particularly in the case of more complex statutes, which pass through a lengthy Committee Stage, contributions come from all sides of both Houses of the Oireachtas. The statute as finally enacted may well have been extensively amended and may differ crucially from the Bill as introduced by the Minister’s initial introductory statement at the Second Stage. For the Courts to rely on ministerial statements in interpreting statutes would not, therefore, reflect the will of the Oireachtas as a whole. Yet to search the entire Parliamentary Debates for indications as to the proper interpretation of statutes would be both complex, time consuming and extremely difficult in practice. Such a procedure would be open to all the criticisms voiced by both Mr. Justice Murray and Mr. Justice Fennelly in their judgments.
111. The actual issue between the parties in the present proceedings can be decided without this Court making a decision in principle on the use of parliamentary proceedings as an aid to the construction of statutes. I am, however, clear in my view that in the present proceedings the statement of the Minister should not have been considered. The issue of admissibility of Parliamentary Debates is of considerable importance and will, no doubt, arise again in the future. As a matter of general judicial policy, however, I share the view of Mr. Justice Murray that at present insufficient grounds have been established for abolishing or gratifying the established exclusionary rule.
THE SUPREME COURT
Appeal No. 11 & 28/00
1999 No. 7308p
Denham J.
Murphy J.
Murray J.
McGuinness J.
Fennelly J.
BETWEEN
DEREK CRILLY
Plaintiff
and
T.J. FARRINGTON LIMITED and JOHN O’CONNOR
Defendants
AND IN THE MATTER OF AN ISSUE TO BE TRIED
BETWEEN
EASTERN HEALTH BOARD
Claimant/Appellant
and
DEREK CRILLY
First Named Respondent
and
FBD INSURANCE PLC
Second Named Respondent
JUDGMENT delivered on the 11th day of July, 2001 by FENNELLY J.
112. I agree with the judgment of Denham J on the issue of interpretation of section 2 of the Health (Amendment) Act 1986 and on the order which she proposes. I also agree with both Denham and Murray JJ that evidence in the form of parliamentary debates should not be considered by the Court in this case, but I would like to explain my approach to this issue.
113. The appellant has asked the court to receive in evidence, for this purpose, a statement made in the Dáil by the Minister for Health in recommending the bill to the House. He said:
“Section 2(1) gives specific power to health boards to make charges for hospital in- patient or out-patient services on persons injured in road traffic accidents who have received or are entitled to receive damages or compensation in respect of accidents. The charge payable is not specified but would normally be the average daily cost per bed day in the hospital concerned. This will vary depending on the hospital involved.”
114. Geoghegan J took this passage into consideration in the High Court but only to enable him to reach a conclusion on the first argument advanced by the insurer, i.e. that the charge to be made under the section was not the same as the charge provided for by section 55 of the Health Act, 1970. He had, however, already come to a clear conclusion on this issue. He went on to consider the effect of the Minister’s speech because of the importance of the point for future cases and in case there should be any doubt about his interpretation. On the other hand, he declined to consider the rest of the ministerial statement as it was merely indicative of ministerial policy.
115. Geoghegan J had prefaced his consideration of the issue by a review of the Irish authorities and a brief reference to Pepper v Hart [1993] 1 All ER 42. He took the view that the Supreme Court had gone much further in People (DPP) v McDonagh ( McDonagh ) [1996] 1 I.R. 565.
116. There is no dispute that the traditional common-law rule was that, whatever about certain other extraneous materials such as commission reports, statements made during the progress of a bill through parliament were not admitted in aid of its interpretation after it had been passed into law. Counsel for the appellant submitted that the situation had now changed to such an extent that, if this Court declined to depart from that rule it would be unique among common-law jurisdictions.
117. There are, it seems to me, reasons both of principle and of convenience which plead in favour of caution in modifying the rule, or at least lean against its unqualified abandonment. I agree with Murray J. that what is at issue is better described as judicial policy rather than a fundamental principle.
118. I will commence with the statement of Costello P, when giving the judgment of this Court in McDonagh:
“It has long been established that a court may, as an aid to the construction of a statute or one of its provisions, consider its legislative history, a term which includes the legislative antecedents of the provisions under construction as well as pre-parliamentary material and parliamentary material relating to it. Irish statutes frequently and for very good reasons adopt with or without amendment the provisions of statutes enacted by the United Kingdom parliament dealing with the same topic and so the legislative history of Irish statutes may well include the legislative history of the corresponding enactment of the United Kingdom parliament. It was urged on the appellant’s behalf that the court should not consider the legislative history of s.2 of the 1981 Act because the court can only do so when construing a section which is ambiguous, which this section clearly is not. I cannot agree with this submission; our courts do not and should not adopt such a rigid exclusionary rule (see for example Bourke v. Attorney General [1972] IR 36 in which the Supreme Court not only used the European Convention on Extradition to assist in the construction of the Extradition Act 1965 but also its travaux preparatoires) and it seems to me that the court should have regard to any aspect of the enactment’s legislative history which may be of assistance.”
119. The learned judge then quoted a decision of the US Supreme Court which is discussed below and continued:-
“As legislative history of the section being considered in this case throws
very considerable light on its proper construction it would be wrong of this Court to ignore it.”
120. This statement must now clearly be read in the light of the judgment of this Court in In the matter of Article 26 of the Constitution ….. and … the Illegal Immigrants (Trafficking) Bill 1999 [2000] 2 IR 360. It is worth quoting in full the passage from the judgment of the Court delivered by Keane C.J. on the issue of admissibility of speeches in the Oireachtas in aid of discerning the purpose of considering the purpose of the provisions which were there at issue. The passage is as follows:
“The written submissions by counsel assigned by the court quoted extensively from speeches made by the minister and other deputies and senators during the passage of the Bill through both Houses of the Oireachtas. It was urged in the course of those submissions and the oral submissions that it was legitimate for the court to consider what was said in the course of those speeches, since in determining whether the measures proposed in ss. 5 and 10 are proportionate to the aims sought to be achieved, the purposes of the provisions, as made clear by the minister in the parliamentary debates, are relevant.
In considering the extent, if any, to which the courts can have regard to the legislative history of an enactment, certain distinctions are relevant. It has been the law since Bourke v. The Attorney General [1972] IR 36, that the court may have regard to the travaux preparatoires for international conventions in considering those conventions where legislation has given them the force of law in the State. Similarly, there have been cases in which the courts have had regard to reports of commissions or committees on which the legislation under consideration was based: see McMahon v. Attorney General [1972] IR 69 and Maher v. Attorney General [1973] IR 140. It can indeed be permissible to look at the legislative history of a particular provision in general, as explained by Costello P., speaking for this court in The People (Director of Public Prosecutions) v. Michael McDonagh [1996] 1 IR 565.
The court then quoted part of the passage from McDonagh cited above and continued:
“It should be observed, however, that what was under consideration in that case was whether the court should have regard to the acknowledged fact that a particular section of an Act of the Oireachtas was in precisely similar terms to a section in an English Act of Parliament: the court considered that it was legitimate to have regard to the state of the law with which the English legislation – and, by implication, the Irish legislation – was intended to deal.
It was also held by Costello J., as he then was, in Beecham Group v. Bristol Myers (Unreported, High Court, Costello J., 13th March, 1981), that the court was entitled to have regard to the Dáil Debates themselves to construe a particular provision in patents legislation, even though the statutory provision was perfectly clear and unambiguous. It was also held by the House of Lords in Pepper v. Hart [1993] AC 593, that regard could be had to speeches made by ministers during the course of the parliamentary debates on the measure under consideration by the court. However, it would appear that the view was taken in that jurisdiction that this was only permissible where the provision under consideration was ambiguous or obscure or a particular construction would lead to an absurdity.
It is unnecessary, however, for the purposes of this judgment to consider whether a court is entitled to have regard to what was said by the minister with a responsibility for piloting legislation through parliament in order to ascertain the meaning of a particular provision and, if so, whether the power to do so can be invoked only where the provision is obscure or ambiguous or, construed in a particular manner would lead to an absurdity. In the present case, it is conceded that the meaning of ss. 5 and 10 is clear; what is at issue is whether they are repugnant having regard to the provisions of the Constitution.
Even if it can be assumed that the speeches of the minister and other members of the Oireachtas are a safe guide as to what the purpose of the Oireachtas collectively was enacting the provisions in question, this court is solely concerned with the meaning of the legislation as actually passed by the two Houses of the Oireachtas. Irrespective of what may have been in the minds of those individual deputies and senators who voted for the legislation, the two provisions as passed by them are to be construed in accordance with normal canons of construction: if, as so construed, they are repugnant to the Constitution, the President must be so advised. If they are not, the President must be similarly so advised. Whatever may be the position in other cases, this is not a case in which the court can derive any assistance as to the constitutionality of the two sections from anything that was said concerning them in the course of the debates in the Oireachtas.”
121. This passage prompts a number of observations. Counsel’s purpose in citing Oireachtas debates was apparently to cast light on the purposes of the legislation. It is not absolutely clear whether a distinction was being made between the meaning and the purpose of a statutory provision. In other words, parliamentary debates might be admissible to assist in discerning the first but not the second. The general context of the passage suggests that the court did not make such a distinction. For my own part, I think such a distinction must be too theoretical to be a reliable guide to the circumstances in which extraneous materials will be admissible, though there was some discussion of it in one of the English cases to which I will refer. The Court went on to distinguish both McDonagh itself and the principal authority upon which Costello P had relied, ( Bourke v Attorney General ). In the latter respect, the Court drew attention, as does Murray J. in his judgment in this case, to the distinctiveness of the rule permitting resort to travaux préparatoires when interpreting international agreements.
122. Treaties are interpreted in accordance with special rules, long recognised in international law and now expressed in the Vienna Convention on the Law of Treaties of 1969. The fact that those rules, Article 32 in particular, make specific provision for reference to travaux préparatoires can, of itself, have no bearing on the interpretation of statutes. Article 32 provides:
“Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable. ”
123. Article 31 states the general rule, according to which, a “ treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” Moreover, there is cogent persuasive authority to the effect that resort to these materials should be rare. ( Fothergill v Monarch Airlines [1981] AC 251, per Lord Wilberforce at page 278.)
124. The court in the Illegal Immigrants case drew attention further to the fact that McDonagh itself was not an authority for the admissibility of Oireachtas debates, since it was concerned with legislative history in the sense of the usefulness of reference to similar provision in an English statute.
125. Next the Court referred to the earlier decision of Costello J in Beecham Group v Bristol Myers. It observed that the learned judge had had regard to Dáil debates even where the statutory provision under consideration was itself “perfectly clear and unambiguous.” As the Court noted, this approach would not have been acceptable even under the later approach of the House of Lords in Pepper v Hart.
126. The key point, however, is that the Court did not consider that it could derive any assistance from Dáil debates. The meaning of the provisions was clear. Although the Court did not expressly disapprove Beecham Group v Bristol Myers , it seems to me that it did so implicitly when it stated that the court was “solely concerned with the meaning of the legislation as passed by the two Houses of the Oireachtas” and “the two provisions as passed by them are to be construed in accordance with normal canons of construction…”
127. Where the meaning was clear, it declined to have regard to parliamentary debates. It is true that this pronouncement is qualified by the phrase, “Whatever may be the position in other cases.” I cannot see any basis for adopting a different approach in “other cases” , assuming that description to refer to cases other than references by the President to the Supreme Court pursuant to Article 26 of the Constitution. In either event, the meaning of a statutory provision must be ascertained.
128. Before returning to express my own more general views on the issue, I will refer to a small selection of the material which has been cited from other common-law jurisdictions.
129. The United States is perhaps pre-eminent among the common-law jurisdictions in the world. The range of its legal materials is almost unlimited in its range and its depth. However, it is also notorious that great legal issues are the subject of almost permanent debate often surrounded by heated controversy. We are not, in our courts sufficiently familiar with US jurisprudence to be in a position confidently to assert that one or other school of thought represents the accepted position, at least on controversial issues.
130. Murray J in his judgment delivered today draws attention to the dictum of Justice Jackson in his concurring judgment (though dissenting on the issue he raises) in United States v Public Utilities Commission of California (1953) 345 US 295:
“I should concur in this result more readily if the Court could reach it by analysis of the statute instead of by psychoanalysis of Congress. When we decide from legislative history, including statements of witnesses at hearings, what Congress probably had in mind, we must put ourselves in the place of a majority of Congressmen and act according to the impression we think this history should have made on them. Never having been a Congressman, I am handicapped in that weird endeavour. That process seems to me not interpretation of a statute but creation of a statute.”
131. It seems that there is a long-established practice in the United States, in spite of occasional dissents such as those cited from Justice Jackson, (and currently Justice Scalia) of considering a wide variety of legislative materials including congressional debates. It does not appear that the Supreme Court justices are conscious of the existence of any rule of law to the contrary. This emerges most clearly from the full context of the passage of which part was cited by Costello P in McDonagh from the judgment of the Supreme Court of the United States in United States v American Trucking Association (1940) US 534 at p 543-544:
“There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes. Often these words are sufficient in and of themselves to determine the purpose of the legislation. In such cases we have followed their plain meaning. When that meaning has led to absurd or futile results, however, this Court has looked beyond the words to the purpose of the act. Frequently, however, even when the plain meaning did not produce absurd results but merely an unreasonable one ‘plainly at variance with the policy of the legislation as a whole’ this Court has followed that purpose, rather than the literal words. When aid to construction of the meaning of words, as used in the statute, is available, there certainly can be no ‘rule of law’ which forbids its use, however clear the words may appear on ‘superficial examination.’ The interpretation of the meaning of statutes, as applied to justiciable controversies, is exclusively a judicial function. This duty requires one body of public servants, the judges, to construe the meaning of what another body, the legislators, has said. Obviously there is danger that the courts’ conclusion as to legislative purpose will be unconsciously influenced by the judges’ own views or by factors not considered by the enacting body. A lively appreciation of the danger is the best assurance of escape from its threat but hardly justifies an acceptance of a literal interpretation dogma which withholds from the courts available information for reaching a correct conclusion. Emphasis should be laid, too, upon the necessity for appraisal of the purposes as a whole of Congress in analysing the meaning of clauses or sections of general acts. A few words of general connotation appearing in the text of statutes should not be given a wide meaning, contrary to a settled policy, ‘excepting as a different purpose is plainly shown.” (The part underlined was cited by Costello P in McDonagh)
132. Obviously this thinking is far removed from the established approach to statutory interpretation in this jurisdiction. In particular, it would be impossible to reconcile it with the judgments of the majority of this Court in Howard v Commissioners of Public Works [1994] 1 I.R. 101. Blayney J, with whom Finlay C.J. and Denham J agreed, expounded, by reference to authoritative textbooks and case-law, the traditional rule that the intention of the legislature can be gathered only from the meaning of the words used in the legislation. Finlay C.J. added:
“I am satisfied that it would not be permissible to interpret a statute on the basis of either speculation, or indeed, even of actual information obtained with regard to the belief of individuals who either drafted the statute or took part as legislators in its enactment with regard to the question of the appropriate legal principles applicable to matters dealt with in the statute.”
133. Denham J stated:
“If there is a plain intention expressed in the words of a statute then the court should not speculate but rather construe the Act as enacted …. Dealing with the fundamental concepts, the balancing of rights and powers under the Constitution, the primary and literal approach to the construction of the statute is appropriate.”
134. It is, I think, unnecessary to refer to any extent to the views of Australian, New Zealand and Canadian courts. The different approaches which prevail in those jurisdictions and others have been thoroughly explained in the Consultation Paper of The Law Reform Commission (CP14-1999): Statutory Drafting and Interpretation: Plain Language and the Law. It seems, for example, that Australian interpretation legislation gives express power to the courts to give consideration to a wide range of extraneous material including the speech made in either House of the Australian Parliament by the Minister moving the adoption of a bill on second reading. In several of the jurisdictions studied, the legislation requires the courts to give large and liberal meaning so as to attain its objects whether ascertainable from the legislation or not.
135. However, the jurisprudential development which has received the greatest attention in this jurisdiction in recent years is the decision of the House of Lords in Pepper v Hart. The underlying issue concerned the taxation of benefits in kind. The taxpayers were teachers. They were allowed to have their children educated at the school where they were employed for one quarter of the normal fees. This was a taxable benefit in kind. The legislation provided for taxation on the basis of cost to the employer, but that was ambiguous, because it was not clear if it should be measured as an average of the entire cost or on the basis of marginal cost of educating an additional student. The intention of the Minister responsible for proposing the relevant legislation, assuming it to be admissible, was that taxation should be on the latter basis with the effect that the tax would be either very little or nil. Lord Browne-Wilkinson gave the leading speech. Since the legislation was ambiguous he proposed a limited modification of the existing exclusionary rule. This would be subject to three conditions: “(a) legislation is ambiguous or obscure or leads to an absurdity; (b) the material relied on consists of one or more statements by a minister or other promoter of the Bill together if necessary with such other parliamentary material as is necessary to understand such statements and their effect; (c) the statements relied on are clear.”
136. The obverse of the first criterion is that such evidence will not be received if the meaning is clear. On that principle, the ministerial statement would not have been accepted by the learned trial judge in the present case. A more fundamental question is whether this is a workable criterion. In my view it is not. The difficulty is well illustrated by the second and more recent House of Lords decision cited to the Court at the hearing of this appeal. In R v Secretary of State for the Environment, Transport and the Regions and others, ex parte Spathe Holme Ltd [2001] 1 All ER 196, the House was divided on the issue of whether the statutory provision was clear. Furthermore, there was disagreement as to whether the Pepper v Hart rule extended to interpretation of the scope or purpose of a statutory power or was limited to the interpretation of the meaning of a provision. I have referred to this point earlier in connection with the remarks of this court in the Illegal Immigrants case. It is right to say, nonetheless, that the House was generally concerned to see that the Pepper v Hart conditions were strictly respected for fear that the practical inconveniences which had motivated Lord Mackay’s dissent in that case should materialise.
137. I will conclude by explaining my reservations about the use of the sort of parliamentary material at issue in this case, i.e. a speech made during a Dáil debate. It is enough for those purposes to say that they should not be received for the purpose of confirming a view at which the court can arrive without them. I do not rest my opinion on constitutional considerations. They may – I do not say that they will – arise if and when the matter has to be more directly addressed and the wider implications of the Court’s opinion in the Article 26 reference cited above have to be considered. They obviously have not troubled the US Supreme Court in the judgment cited or the House of Lords when it had to consider the implications in the light of section 9 of the Bill of Rights in Pepper v Hart.
138. Once the principle is accepted that the courts will look at parliamentary debates – even limited to the speech of the responsible Minister – it seems to me inevitable that counsel will feel under a professional obligation, by reason of the duty owed to the client, to investigate that matter in every case. The available material may be considered unhelpful in a great many cases, but at least the work will have to be done, with inevitable implications for legal costs. It is equally inevitable that in a great many cases the courts will be asked to consider the fruits of researches so performed. Thus, even though a court is able to interpret a provision without difficulty in accordance with normal canons of construction, much additional material will have to be reviewed, assessed and judged. In this respect I share the reservations expressed by Lord Mackay in Pepper v Hart. He said:
“If reference to parliamentary material is permitted as an aid to the construction of legislation which is ambiguous, or obscure or the literal meaning of which leads to an absurdity, I believe as I have said that in practically every case it will be incumbent on those preparing the argument to examine the whole proceedings on the Bill in question in both Houses of Parliament. Questions of construction may be involved on what is said in Parliament and I cannot see how if the rule is modified in this way the parties’ legal advisers could properly come to court without having looked to see whether there was anything in the Hansard report on the Bill which could assist their case. If they found a passage which they thought had a bearing on the issue in this case, that passage would have to be construed in the light of the proceedings as a whole.”
139. Both Geoghegan J and all the members of this Court are of the view that the meaning of the section at issue is clear. To admit that material in such a case would be tantamount to admitting them in a great many cases. It is not possible to lay down in advance a satisfactory or workable threshold precondition based on the ambiguity of the statutory provision or the decisiveness of the ministerial statement. One lawyer’s clarity is too often another’s ambiguity. More typically, a party takes as his point of departure that the provision is clear in his favour. He will thus present the parliamentary debate as an alternative.
140. Following the cautious example of the Court in the article 26 reference I would not wish to restate the exclusionary rule on any basis broader than the precise context of the present appeal. In my view, the statement of the Minister should not have been considered.
Mc Cabe Builders (Dublin) Ltd -v- Sagamu Developments Ltd & Ors
[2007] IEHC 391 (23 November 2007)
JUDGMENT of Mr. Justice Charleton delivered on the 23rd day of November, 2007
1. The issue in this case is whether the Plaintiff and the Defendants ever concluded a contract and, if so, what were its terms. A contract is not concluded unless the parties have agreed its essential terms; Supermacs Ireland Limited v Katesan (Naas) Limited [2000] 4 IR 273 at p. 286. Where work is done on behalf of a party in circumstances were there is a reasonable expectation of proper payment then, in the absence of a contract, the value of that work should be assessed on a quantum meruit basis. If the minds of parties who intend to do business with each other on the basis of obligations defined by a contract do not meet as to the fundamentals of what they will be required to do, a resolution of any dispute as to the value of work actually done must be measured on a quantum meruit basis.
The works
2. The plaintiff, a building company, was to build 30, later increased to 32, houses and 14 apartments at Kilmacanogue, County Wicklow for the defendants, which are, in effect, three building companies. Both parties take a radically different view as to what contract has been agreed between them. Mutually, they claim that there were different sets of offers and different acceptances, or non acceptances, in respect of particular sections of this alleged contract.
3. This dispute has been compounded by the attitude of both parties; which might be characterized as wanting in mutual respect towards each other. Building 46 dwellings in circumstances where the developer, as employer, and the builder, as contractor, know what their obligations are is a complex task. I take the view that the plaintiff is a respected building firm. In the past, they have been responsible for several developments of high quality housing. The three defendants operate under the umbrella of the Hanly Group Limited, the third named defendant. These companies have been involved in quarrying, road construction and house building and are a respected set of interlinked firms. I am satisfied that neither party to this dispute has a history of being litigious or of attempting to exploit the niceties of standard forms of building contracts with a view to squeezing unjust returns out of projects. However, there is now no real trust between the parties. The history of the matter explains why, but only to a degree. In essence, many things have gone wrong with this development. While it is not my task to resolve the rights and wrongs thereof, it is as well to list some of the main points that have come up in evidence as items of contention between the parties. The defendants would have liked to have built this development themselves. It seems they were too busy. Hence, they entered into a process of tender whereby the plaintiffs were chosen in a competition to perform the works. Had the defendants been on site themselves then the problems allegedly encountered by the plaintiff would have been theirs. Instead, as to the physical aspect of the completion of this housing development, there have been many serious contentions and counter contentions. Briefly, I will now list some of these:-
1. The site was at a place called Rocky Valley. Looking at the land surrounding the development you might reasonably expect rock. That is what the defendants say in answer to the plaintiff’s claim that the development has been delayed, and has become markedly more expensive, because of the need to excavate. The plaintiff claims, on the basis of the contract documents, that it might have expected about 300 m³ of rock but that they have instead encountered 20 times that amount.
2. To save money on the building of foundations, the plaintiff engaged in a process which has been described in evidence as “value engineering”. This process involves the excavation and treatment of earthwork on site, as opposed to carting away soil and replacing it with hardcore. This may, or may not, be a worthwhile process but, in evidence, the defendants have referred to it as a form of “gardening”.
3. The defendants claim that the project completion date has been delayed unconscionably. The plaintiff will agree that there has been considerable delay; a period of 40 weeks was mentioned in evidence. The plaintiff, however, puts this down to a series of boundary disputes about which it knew nothing, so it is claimed. In addition, they say that their “value engineering” works could not be carried out properly and expeditiously because of the failure, due to these boundary disputes, to give them immediate possession of the entirety, as opposed to around 60%, of the site.
4. The plaintiff says that the specifications for the houses and apartments have been changed during the course of the development. The defendants disagree with this. The main focus of contention relates to the shape of doors; the interior fit out of the houses, with down lighters featuring prominently; and the changing of attic spaces into living areas.
5. The utilities, it is claimed by the plaintiff, were not shown on the relevant drawings.
4. In answer to many of the points of contention of the plaintiff, the defendants claim that the requirements for the building works were shown in the descriptions in the Bill of Approximate Quantities, at tender stage. These descriptions at tender stage, the defendants contend, defined the obligations of the plaintiff as building contractor so that the plaintiff is now complaining in respect of matters that were incorporated in the obligations of the plaintiff under the building contract and are not allowable as variations from it for which the defendants must pay extra. Crucial to how these items of dispute may be resolved is the issue of whether descriptions in the Bill of Approximate Quantities, part of those contended for contract documents, are to be used in deciding, firstly, what was the nature of the work to be done by the plaintiff and, secondly, whether there has been a variation from the works agreed. Because there is so much in dispute, it is crucial to determine what the agreed contract works were and how variations are to be treated for payment purposes. These disputes, on the contended for contract documents, as to the nature of the mutual obligations of the defendants, as employer and the plaintiff as contractor, encapsulate the bulk of what is the disagreement between the parties.
Warning
5. The Liaison Committee for the Building Industry is a formal body that meets a number of times a year. Its constituent bodies are drawn from the building industry, from the architects’ profession, and from the surveyors’ group. The Liaison Committee’s function is to make recommendations as to any amendment that might be made to a standard building contract that is commonly known as the “RIAI agreement”. The Liaison Committee have issued practice notes as to tendering and contracts. Note 6 consists of the following exhortation:
“It is essential that the several documents which go to express or define the contract should relate accurately to one another, without contradictions or discrepancies. This correspondence should extend to all documents, the Agreement, the Conditions, the Contract, the Drawings, the Specifications and the Bill of Quantities.”
6. The Committee also advises that contract documents should be prepared with particular care at the pre-contract stage. Where the nature of the project requires a departure from the standard RIAI form, it is recommended that changes should be made to that form and that the specific attention of the tendering contractors should be drawn to such changes. When it comes to dealing with tendering, at note 8 it recommends that the conditions of tendering should be absolutely clear so that all tenders are submitted on the same basis. At para. 8.3.2.4 the Committee strongly recommends the use of the standard forms of building contract in unamended form. The document reads-
“The Liaison Committee believes that alterations to the standard forms impede the efforts being made towards achieving greater standardisation of building procedures. The Liaison Committee is firmly of the opinion that, if alterations to the standard forms have to be made, it is essential in the interests of good practice and of economic building that they be kept to an absolute minimum. They should not be undertaken without serious prior consideration and should then be drafted by a person competent to ensure that all consequential alterations to other clauses are made.
The tenderer’s attention should be specifically drawn in the “Preliminary Invitation to Tender”… to any alterations to be made to the standard form of contract and, where appropriate, reasons should be given, so that the implications of such amendments may be considered by the tenderers prior to acceptance of the invitation to tender, and so minimise the risk of subsequent queries at tender stage which might result in an extension of the tender period.”
Claim and Counterclaim
7. In June, 2005 Nolan Ryan partnership, a firm of chartered surveyors, acting on behalf of the Hanly Group Limited, one of the defendants, sought tenders for the construction of this housing development. In July, 2005 the plaintiff submitted a tender in a VAT exclusive amount of €17,222,620. After negotiations between the parties, a letter dated 5th August, 2005, was sent from the defendants to the plaintiff, and signed by both parties, whereby the sum agreed for the works to be paid by the defendants as employers, to the plaintiff as contractor, was reduced to €15,300,000. In order to get the project started, a letter of intent for works to the value of €1 million, was issued on the 26th August, 2005, in the absence of completed contract documents. In November, 2005 the defendants furnished to the plaintiff, through their quantity surveyors, a copy of the “blue form” of the RIAI contract. They enclosed the letter of 5th August therewith, but did not refer to it in the contract documents. This form of contract was not signed by the plaintiff until the 19th January, 2006. This, I am satisfied, was because of uncertainties as to its scope and effect. By letter dated the 9th November, 2006, the solicitors on behalf of the defendants indicated to the plaintiff that they did not accept that the agreement between the parties incorporated the terms and conditions spelt out by the “blue form” of the RIAI contract. The defendants contend that the works claimed as variations, in respect of which payment has been sought by the plaintiff, were included in the original contract; whereas the plaintiff says that they were not. This original contract contended for by the defendants is basically the letter of 5th August 2005 and the documents that are mentioned in its text.
8. In the plaintiff’s statement of claim a declaration is sought that a binding agreement exists between the plaintiff and the defendants in respect of this development and that the terms are to be found in the RIAI “blue form” of contract, the standard form of building contract where quantities do not form part of the contract. It makes no mention as to any modifying effect, if any, which the letter of 5th August 2005, may have had.
9. The defendants, in their defence and counterclaim, assert that the course of dealings between the parties incorporates into the contract a number of 2005 documents including, most importantly, a letter of 25th July, a number of letters on the 3rd August, the letter on 5th August (misdated the 9th August) and an interior design report. The defendants counterclaim for a declaration that the contract consists of the letter of 5th August, and the documents referred to therein, and supposedly incorporated thereby; they seek an order declaring that the R.I.A.I contract as executed by the plaintiff is not a contract document; they seek, in the alternative, an order of rectification of that contract so that same conforms with the alleged agreement entered into and evidenced in the letter of the 5th August; and they seek a declaration as to the true terms of the contract if it is otherwise than as pleaded by the defendants and, implicitly, as pleaded by the plaintiff.
10. I now need to refer to these documents, the history of dealings between the parties, and the conflicts of evidence between them. In resolving the latter I must then apply the law as to the construction of contracts with a view to answering the questions inherent in the case.
The tender process
11. The tender forms were distributed in June, 2005. In essence, anyone who wanted to do this work would fill out the tender document which would then be returned to the defendants as an offer. The form of tender documents used recites that the proposed contractor “offers to execute and complete the works described” for a particular sum nominated by the proposed contractor. It indicates that, in the event that the employer accepts the tender, the contractor will “execute with the employer a sealed contract embodying all the conditions and terms contained in this offer”. Clause 5 of that offer has the proposed contractor undertaking to the employer “to complete the works within the time frame advised by the Project Manager, subject to the Conditions of Contract”. The tender documents included tender drawings. These were based on the planning permission application of the defendants for this development and then slightly tweaked for building purposes by the architect on behalf of the defendants. I am satisfied that they contain considerable detail. On the other hand, the specification for materials which formed part of the tender documents has been described in evidence as one of the worst, meaning lacking in detail, ever issued as part of a tender process in a job of this size. A Bill of Approximate Quantities, as it is called, accompanies these documents and runs to several volumes. This part of the tender document details the work to be done, the quality of product to be used, the expected quantities involved and the price in relation thereto. One essential point of disagreement between the parties is as to whether the descriptions of the scope of works set out in the bill of quantities is, or is not, a contract document. The plaintiff contends that it is merely a Schedule of Rates. Normally, it is argued, where a quantity is increased under the “blue form” of contract no variation will arise in respect of which the contractor is entitled to claim. Nor is the employer entitled to any saving in cost that might arise if the quantity in the Bill of Quantities decreases or where the work becomes unnecessary. Where a provisional quantity is inserted, and here the main issue is in relation to the excavations of rock required, it is contended that the contractor does not take the risk of increases in the quantity as, by using the term “provisional quantity”, the employer is taken to recognise that the quantity is not ascertainable. The defendants claim that this contended for rule does not apply here because the descriptions in the Bill of Quantities are part of the contract documents and because of the description of the site as “Rocky Valley”. In addition, the defendants say the invitation to dig trial holes, with a view to ascertaining what amount of excavation might be required, places all the obligation in respect of any contingency as to excavation work on the contractor. The defendants also point to certain terms within the Bill of Approximate Quantities, which made up part of the tender documents. These they say, define the obligations that the plaintiff assumed by making an offer that incorporates the tender documents.
The contentious clauses
12. The Bill of Approximate Quantities within the tender documents contained a section marked “Project Particulars” and was followed by a section entitled “General Conditions”. Three issues arise: firstly, what is specified in these documents; secondly, whether these documents ever became part of the contract; and, thirdly, what they mean within the context of the documentation purportedly agreed by the parties in an attempt to reflect their agreement, if any.
13. The project particulars describe the works to be done in building these dwellings. It states what the site is for the proposed works and then specifies:-
“The form of contract will be the Articles of Agreement and Conditions of Contract, 2002 (Revision 1, Print 4) as issued by the R.I.A.I in agreement with the C.I.F. and the S.C.S. where quantities do not form part of the contract. The appendix to the contract will be filled in as shown in the preliminaries section of the Bill of Approximate Quantities.”
This is commonly called the “blue form” RIAI agreement, and that colour distinguishes it from the “yellow form”. This section of the document goes on to give details as to other matters, like damages and tax clearances certificates. The next section, the general conditions, recommends that the contractor visit the site and states that he is to be taken to have made himself acquainted with the nature of the works, the character, dimensions, levels and other features of the site, all existing buildings on or adjacent to the site and all other things insofar as they may have any connection with, or affect, the works. The contractor is required to submit an approved programme for the entire works. The conditions deal with the disposal of materials on site and such matters as historical finds. The document also requires the use of “qualified tradesmen, together with their labourers”. Under the heading of ‘Documents’ the following appears:-
“The contractor shall carefully examine the drawings and other contract, documents and satisfy himself as to their accuracy and ensure that they cover and embody the proposed works. The contractor shall properly execute the works whether or not shown on the drawings or described in the Bill of Approximate Quantities, provided that same may reasonably be inferred therefrom.”
14. The general conditions require that materials should be of good quality. The works are defined as the entire of the works envisaged by the contract. A reference is made under the heading “Bill of Approximate Quantities” to the following:-
“Where the work has not been measured or described in detail but has been referenced to the detail drawings or sketches, the description given in the Bill of Approximate Quantities shall be deemed to include the additional information given on the detail drawings as if given in full in the bill item.”
15. It is argued by the defendants that by making an offer in response to these tender documents, as the plaintiff did, it could only expect the contract to be as outlined in the project particulars. It is contended that any appendix to the contract could reasonably be expected to be filled in as shown in the preliminary section of the Bill of Approximate Quantities. This follows on in the tender documents from these just quoted sections. Under the heading “Contract” it provides for the RIAI 2002, Revision 1, Print 4, printed March, 2004, form of contract where quantities do not form part of the contract. This negative as to quantities is emphasised in this form. When this “blue form” is chosen by the parties, the Bill of Quantities, the plaintiff contends, becomes a schedule of rates for particular materials and works. Both forms allow for an appendix to be inserted into the standard wording so that the printed terms may be altered so as to reflect the understanding of the parties as to what they have agreed. If no unusual term is specified between the parties, the appendix to the contract may be expected in the form which complies with the articles of agreement and conditions of contract as outlined in the tender forms. However, as the evidence disclosed, the standard form referred to may be amended to reflect what the parties want as their agreement. The form of any future amendment must be uncertain at tender stage. Further, the submission of a tender document is no more than an offer by the contractor hoping that an employer will award him the work at an agreed remuneration. In this form of contract negotiation, all of the terms and the amount of the remuneration are up for discussion after the best tenderers have been identified. Tender documents, incorporating an offer by a contractor made to a potential employer, may be accepted as it is, or subject to new conditions, by the employer. This makes the form of contract actually used in the ultimate agreement crucial to determining the mutual obligations of the parties. The tender process is a means of getting there.
16 The form of contract documents eventually exchanged between the parties, the RIAI “blue form”, specifies in particular detail what documents form part of the contract. The Bill of Approximate Quantities, part of the original tender documents, was signed by the plaintiff on the 19th January, 2006. This was after their tender had apparently been accepted and well after the works had begun. It was signed, however, in the context of the other contract documents, particularly the Articles of Agreement in the “blue form” RIAI contract which specifies in detail how the contract is to work. The appendix to the contract document does not contain the clause contended for as having the effect that descriptions in the Bill of Approximate Quantities became part of the contract.
17. The Articles of Agreement, signed on 19th January, 2006 by the plaintiff, recite the parties and the works. It indicates that the employer desires having the works done and then states:-
“And whereas the contractor has made an estimate of the sum which he will require for carrying out the said works as shown on the tender dated 19th July, 2005 and has furnished a Schedule of Rates in conformity with the requirements of the conditions referred to hereafter and whereas the said contract drawings numbered as per attached list and the said specifications have been signed by or on behalf of the parties hereto.”
18. The document is boldly headed with words indicating that quantities do not form part of the contract. The document declares that it has been agreed between the parties as follows:-
“For the consideration hereinafter mentioned the contractor will upon and subject to the conditions annexed hereto execute and complete the works shown upon the contract drawings and/or described in the specification and conditions all of which together with this agreement or hereinafter referred to as ‘the Contract Documents’.”
19. This contract document is immediately followed by a schedule of precise contract obligations that are headed “Conditions”. It would ordinarily be difficult to construe this as incorporating the general conditions which are part of the Bill of Approximate Quantities at tender stage. Specifically, this concept is excluded by the Bill of Approximate Quantities being described under the “blue form” as a Schedule of Rates. The conditions in the “blue form” oblige the contractor to carry out and complete the works in accordance with the contract documents. Clause 3 of the conditions deals with the drawings and the Bill of Quantities. One of two alternatives is provided. It is as well to describe first the alternative that was specifically crossed off and initialled by both parties. This clause, at 3(a) (i), specifies that if the Articles of Agreement provide for the inclusion of the Bill of Quantities as a contract document, then the contract sum is to be deemed to provide for the quality and quantity of the work set out. The clause goes on to state that no error in the description, or quantity, in the Bill of Quantities should vitiate the contract, but any such error, or omission, is to be rectified as a variation under Clause 13. The alternative clause, the one actually used, provides as follows:-
“If the Articles of Agreement do not provide for the inclusion of the Bill of Quantities as a contract document the contract sum shall be deemed to provide for the quantity and quality of work set out in the drawings and specification and the contractor shall, before the signing of the Articles of Agreement furnish the architect with the Schedule of Rates. The Schedule of Rates shall be deemed to mean:
A copy of the fully priced and detailed estimate upon which the contractor’s tender is based priced in ink, or
Where a Bill of Quantities is provided for tendering purposes the rates therein contained.
The Bill of Quantities unless otherwise stated shall be deemed to be have been prepared in accordance with the method of measurement of building works last before issued or approved by the Society of Chartered Surveyors and the Construction Industry Federation. Nothing contained in the contractor’s estimate or the Bill of Quantities (except as a Schedule of Rates) shall confer rights or impose any obligations beyond those conferred or imposed by the contract documents.”
20. In reading these two clauses I note, in particular, that the clause that is specifically rejected refers to the quality and quantity of work set out in both the descriptions and quantities in the Bill of Quantities, whereas the clause apparently accepted by both parties refers only to the quantity and quality of work set out in the drawings and specification. Further, in the clause apparently chosen to reflect their agreement by both parties, the Bill of Quantities does not confer rights or impose any obligations beyond those conferred or imposed by the contract documents, except as a Schedule of Rates. This is completely different to an obligation arising by description. Clause 13 allows for the ascertainment of prices for variations and specifies that in the form of contract, as amended, the Bill of Quantities has become a Schedule of Rates and that this is to be used to determine the value of the work carried out as a variation, if this is payable under the contract, where the work is of similar character and thus attracts the rate applicable. Wages and price variations are dealt with under Clause 36. If the yellow form had been used then, I am told, an escalation in wage prices due, for example, to economic buoyancy or a series of strikes, or variations in relation to the pricing of materials due to shortages, become the responsibility of the employer. Under the blue form, the general rule is that the contractor, having furnished the Bill of Approximate Quantities, transformed by contract under the “blue form” of RIAI agreement into a Schedule of Rates, has to comply with that Schedule of Rates and gains if prices fall or loses in the event of wage and price inflation.
Preliminary Conclusion
21. The clauses relied on by the defendants in the tender documents argued by them to incorporate the descriptions in the Bill of Quantities were drafted by them. I have difficulty in accepting the evidence of David O’Laoire to the effect that these clauses are almost terms of art that morph the “blue form” of RIAI contract into a hybrid whereby descriptions in the Bill of Approximate Quantities become part of the contract obligations. It would be simple to state clearly in the eventual Articles of Agreement signed by both parties, by way of an appendix, that the descriptions in the Bill of Quantities would form part of the specifications for the works, or to use words to the effect that the works would be defined as comprising the specifications, the drawings and the descriptions in the Bill of Quantities.
22. I regard this matter as analogous to an insurance contract whereby general categories of risk are covered but whereby some specific risks are excluded. In those cases, exclusionary clauses must be clear as to their effect: the burden of proving the incorporation of any derogation from an obligation assumed under a contract is on the party drawing back from the general obligation. Here, the party having charge of the form and wording of the documents, the defendants, wish to put an unusual meaning on to what would otherwise be a standard form. The ordinary and normal expectation in the use of the “blue form” RIAI contract is, as the relevant branches of those concerned in the building industry indicate, that a form of obligation that differs from the standard form should only be used in circumstances where it is expressly agreed by the parties. A lack of clarity arises here by reason of the form of wording in the tender documents and, more particularly, by reason of the clause contended for as the hybrid effect clause having been placed in a document that is not a contract document as defined by the “blue form” RIAI contract eventually signed in January, 2006. I would apply the principle as to interpretation stated in the judgment of Griffin J. in Rohan Construction v. I.C.I., [1988] I.L.R.M. 373 at 377:-
“It is well settled that in construing the terms of a policy the cardinal rule is that the intention of the parties must prevail, but the intention is to be looked for on the face of the policy, including any documents incorporated therewith, in the words in which the parties have themselves chosen to express their meaning. The court must not speculate as to their intention, apart from their words, but may, if necessary, interpret the words by reference to the surrounding circumstances. The whole of the policy must be looked at, and not merely a particular clause.”
23. I am also influenced by the reasoning of Kingsmill Moore J. In Re Sweeney and Kennedy’s Arbitration [1950] I.R. 85. In settling, on the form of the contract following on the receipt of a tender, the defendants were at liberty to adopt any phraseology which they desired. The defendants could have provided clearly and expressly that the descriptions in the Bill of Quantities would form part of the contract documents and, therefore, be subject to the conditions set out in the Articles of Agreement. In that judgment Kingsmill Moore J. quoted Lord Greene M.R. in Woolfall and Rimmer Limited v. Moyle, [1942] 1 K.B. 66, at p. 73, where he indicates that those who have the benefit of competent advice should make up their minds as to the qualifications they wish to impose and express their intention in language appropriate to achieving the result desired. If this form were the whole of the documents incorporating the agreement between the parties, a matter which, as I have said, is in dispute, then those making use of the clauses which they wish a contractor to adopt as incorporating their obligations, must make up their minds as to what they mean and then express it in suitable language. It could be argued that this is the kind of clause which is so unusual, or so onerous, that an unusually high level of notice must be given of it. It seems to me to be reasonable, however, to require that a clause imposing an unusual obligation, and departing from a standard printed form, should not be so unclear in terms of its wording as to attract two days of evidence from expert witnesses on each side of this case, as to what it means within the context in which it occurs. Where an unusual clause is used then the parties should satisfy themselves as to what the clause means and that each has notice of it. If necessary, I would apply the principle set out in Interfoto Picture Library Limited v. Stiletto Visual Programmes Limited [1989] QB 433 which, in turn, is derived from the remark of Denning L.J. in Spurling v. Bradshaw [1956] 1 WLR 461 at p. 466 that there are some clauses which need to be printed in red ink on the face of a document with a red hand pointing to it before it could be held that notice would be sufficient. Here, I need not go that far. Instead, I construe ambiguities against the defendants, as authors of the disputed clauses in the tender documents.
24. I also feel that I cannot get over the express definition within the Articles of Agreement, which is supposed to be the contract in itself, as to what is to constitute the contract. By expressly excluding the clause allowing for descriptions while expressly incorporating one which refers only to drawings and specifications; by failing to incorporate any appendix to the Articles of Agreement that expresses the incorporation of descriptions as part of the conditions of the contract; by expressly including a definition of contract obligations by reference to a Schedule of Rates, contract drawings and specifications, it becomes impossible to conclude that the parties have agreed that descriptions in the Bill of Quantities should be part of the contract obligation.
25. That, however, is not the end of the matter. It is necessary to look at the course of dealings between the parties, and in particular the letters contended for by the defendant in their defence and counterclaim, in order to ascertain whether the contract was agreed in a different form or, if the parties minds did not meet as to an essential term, whether a contract was agreed at all.
Interpretation
26. In resolving the important conflicts of evidence, and interpreting the documents, I am guided by the judgment of the Supreme Court in Analog Devices B.V. v. Zurich Insurance Company [2005] 1 IR 274 at p. 280. There, Geoghegan J. accepted, as representing the law in Ireland, the principles stated by Lord Hoffman in Investors Compensation Scheme v. West Bromwich Building Society [1998] 1 WLR 896, which quotation occurs at pp. 280-281 of the Supreme Court’s judgment:-
“1. Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
2. The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
3. The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
4. The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] AC 749.
5. The “rule” that words should be given their “natural and ordinary meaning” reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201:
“If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”
Dealings between the parties
27. When the tenders were received on 19th July, 2005 the various VAT exclusive prices for the works, between the competing tenderers, varied between a high of €21.2 million and a low of €15.7 million, using round figures. The plaintiff was the second lowest tenderer. The pre-tender estimate of the cost of the works by Nolan Ryan, the quantity surveyors acting in respect of the tender on behalf of the defendants, was €18 million. This was not a contract which was governed by the public procurement rules in European law. The parties were therefore entitled to meet and to negotiate, something normally only possible in respect of public procurement for ultra-complex projects, such as nuclear power stations, under European rules. This meeting and negotiation is what happened. Those resulted in a drop in the tender price of almost €2 million from the price offered by the plaintiff, bringing it down to a level nearly €400,000 below the next lowest competitive tender. Negotiations after tender can also mean that a completely new form of agreement is arrived at, in distinction to a tender submission being treated as an offer and accepted by the employer in the form in which it is received.
Intention
28. Alan Hanly, as principal of the defendant companies worked with his quantity surveyors on this job, Nolan Ryan, and trusted them. He wished to find himself in a situation where there was a fixed price lump sum contract with no variations. He described this as a situation where he knew exactly what the job would cost with no variations allowing for extra costs, with the exception of upgrades. He instanced, as an acceptable variation, putting in a better class of kitchen or better types of tiling. His quantity surveyor, Denis Carron of Nolan Ryan, considered that a fixed price lump sum contract would generally be achieved by using the “blue form” of the R.I.A.I contract, where quantities are not included, but his stated intention was to define the scope of the works by flushing out the requirements from the drawings and specifications by putting certain matters into the Bill of Approximate Quantities in the tender documents. Mr. Hanly’s concern, on receipt of tenders, was not to discuss matters as to the tender details, or the form of contract. Instead, as he said, he was interested in the “bottom line” and wanted to concentrate on the finishes. As was obvious from his evidence, that Mr. Hanly is a committed and competent businessman. With respect to the detail of any proposed form contract, he did not pretend to any expertise. Indeed, he was not aware, until this case, that there was a “yellow form” and a “blue form” of the RIAI contract. Most of his past work was done on the basis of trust. In eventually signing the Articles of Agreement he did not notice the statement, in bold letters, at the top, that quantities did not form part of the contract. He did not consider the relevant written definition as to what documents defined the contract obligation. His case was that a deal had been made on the 5th August 2005 and, in essence, any legal requirements as to the form of contract were just that, a formality. His interpretation of his requirements here was that a Bill of Quantities would be prepared and sent out to the contractor; if ten centimetres were specified in respect of a particular job and they needed to use twelve, then the risk in respect of any extra work or materials had passed to them, no matter what, unless he, as the employer, insisted on an upgrade. That, in any event, was his firm intention. He did not discuss general conditions with his quantity surveyor and nor did he later have a detailed discussion as to the terms of the contract, or whatever appendix that might be inserted in the appropriate form of contract document. Mr. Hanly was assisted by Michael Oates, who works primarily for the defendant Laragan Developments Limited. He did not read the tender documents. The specification in relation to this tender form was scant, in his opinion and, in addition, more work needed to be done on the drawings. My impression was that he and Mr. Hanly had a good working relationship, an understanding of each other. Mr. Oates could not recall reading the legend at the top of the Articles of Agreement, to the effect that quantities did not form part of the contract: he stated that if he had read this, it would have meant very little to him. My view is that neither Mr. Hanly nor Mr. Oates gave any thought to, or were ever aware of, any mechanism to incorporate descriptions from the Bill of Quantities into the contract obligations.
29. Richard McCarthy, as Commercial Director of the plaintiff, had a good understanding of the nature of these forms of contract. A quantity surveyor by profession, he had never dealt with Mr. Hanly before but regarded Nolan Ryan as among the top quantity surveying firms in the State. His evidence, in relation to this contended contract, was that where quantities do not form part of the contract, then the risk on errors in quantities stays with the contractor. When quantities form part of the contract, the opposite applies; the risk on errors in the quantities or changes in the quantities stays with the employer. If a Bill of Quantities was included for tendering purposes, and the contract was without quantities, then excavation done from contours for tendering purposes to calculate the quantity of excavated material can be estimated inaccurately and an excess is not payable. In written submissions, this understanding was advanced by reference to the term of art that it is claimed was actually used in the Bill of Quantities to approximate a measure, such as rock excavations. I will return to this point in the context of the troubled issue as to rock. The Bill of Quantities becomes redundant, on signing such a contract, as Mr. McCarthy understood it, and is transformed into a Schedule of Rates. The contract is, therefore, based purely on the drawings and specifications. Mr. McCarthy’s understanding was that, having submitted a tender, he was entitled to expect a standard blue form of RIAI contract; in which case he had, as he said, the security of knowing that the RIAI form of contract supersedes the Bill of Quantities apart from the fact that it is a Schedule of Rates. Such a form of contract does not, unless specifically amended, include descriptions from the Bill of Quantities, as part of the contract obligations.
Value engineering
30. After the submissions of tenders, I am satisfied that the preference within the defendants was for dealing with the plaintiff, as a company of high reputation. Negotiations ensued in July 2005 with a view, on the part of the defendants, to lowering the price and these were initially conducted between Mr. McCarthy and Mr. Carron. In consequence of looking at the process of treating foundations, the “value engineering” that is described above, and in looking for a different form of brick, it became possible to discount the price offered by the plaintiff, as tenderer, to €15 million. In respect of the prime cost sums, most of these were bought out by the plaintiff as developer. It was hoped that some savings might result thereby.
25th July letter
31. A conflict arises as to whether the plaintiff received a letter dated 25th July, 2005 from the defendant. This letter concerns planning conditions but also contains some points that the defendants wished to have incorporated into the price for the tender works. This letter was forwarded by Laragan Developments Limited to Mr. Carron of Nolan Ryan. I am satisfied that he immediately faxed it to another tenderer. I am satisfied that Mr. Carron would have faxed it on to the plaintiff but for the fact that he was aware that he had a meeting arranged the next day with Mr. McCarthy. On that Tuesday morning, when Mr. McCarthy came to their offices, Mr. Carron claims that he handed that letter, with appendixes, some eighteen pages, to him. Mr. McCarthy claims that complying with additional matters would have affected his price upwards, so he would have read and noted this material. In the discovery documentation of the plaintiff a copy of the fax sent to the other contending tenderer was produced. My view is that Mr. McCarthy had the letter, and that it was passed on to him by Denis Carron shortly after the 25th July, 2005. I will turn to the text of the letter and its effect later.
Rock
32. Earlier, I set out what was contended by the parties to be the difference between the blue and yellow forms of RIAI contract. In their written submissions, counsel for the plaintiff described the exception to the rule that where quantities increase under the “blue form” RIAI contract, the contractor is not entitled to claim a variation because the Bill of Quantities is not a contract document. This is the exception, as so described:-
“The one exception to this rule is where the quantity is described in the Bill of Quantities as a ‘provisional quantity’ (such as is the case in the present circumstances where rock is described as a provisional quantity). In these circumstances the Contractor does not take on the risk of increases in this quantity and it is recognised by the Employer (by inserting the word provisional in the tender Bill of Quantities) that this quantity is not ascertainable. Consequently if this provisional quantity increases the Contractor is entitled to claim this increase as a variation despite the fact that the Bill of Quantities is not a contract document.”
The issue of rock is among the most contentious points of difference between the plaintiff and the defendants. Michael Oates, in giving evidence on this matter on behalf of Laragan Developments Limited, stated that on the 1st August, 2005 he offered the plaintiff and the other competing tenderer an opportunity to dig trial holes. Neither of the two contenders, however, took up the offer to dig. Mr. McCarthy, according to Mr. Oates, is supposed to have said that he has his own machines and that he would take care of it. He also said that he recalled Mr. Hanly telling Mr. McCarthy that if he wanted his help with the quarrying aspect of excavations, then this would be available to assist him. Mr. Oates described Mr. McCarthy as “a proud man” who had his own building company and did not want to hear about this issue. Mr. Hanly’s view on the rock issue was that all who tendered for the contract had put up a rate in relation to rock and that this rate had to include an amount. On this essential point, as on so much else, the parties are at cross purposes. Mr. Hanly did not believe that the contractors were entitled reasonably to expect only 300 m³ of rock. His view was that he had sold the risk on rock excavations to the builder just as he, to balance matters, retained the risk of financing the operation. In any event, he was interested only in a fixed price lump sum tender. Mr. Hanly thought that the plaintiff was happy to buy the risk of the rock from him. He claimed that he had never made an estimate in relation to rock. He said that, in any event, the contractor’s job was to visit the site. If he did not, it would be like “buying a car unseen”. He did not remember seeing a report from a firm of consulting engineers as to the ground composition. I have no evidence that any specialist report warning of the need for serious excavation of the site was passed to the plaintiff. I do not know if such a report existed.
33. I cannot accept that any specialist help was offered by anyone, neither Mr. Hanly nor Mr. Oates not any other person, on behalf of the defendants to the plaintiff to deal with quarrying. As to the amount of rock recovered, it is certainly more than 300 m³ and may be as much as 7,000 m³. That can only be decided by arbitration subsequent to this judgment. Again, as with other issues, it is in dispute between the parties. A prudent contractor may have expected more rock than the amount in the Bill of Quantities by reason only of the appearance of the site. I regard this, however, as yet another area in respect of which the parties did not lay down a contractual basis for resolving their differences. It is one where I am not entitled to substitute a view as to the parties’ obligations where they have not been defined by the parties themselves.
Letters of 3rd August
34. By early August, the defendants were moving swiftly towards a determination that the plaintiff should be the contractor in respect of this work. On 3rd August, Mr. Carron sent Mr. McCarthy an email with some specifications. In addition, Mr. Oates of Laragan Developments Limited sent a letter in relation to specifications. Finally, having spoken on the phone that morning, and arranged a meeting for the following afternoon, Mr. Hanly faxed a letter to Mr. McCarthy. I am satisfied that Mr. McCarthy had all these letters. I am also satisfied that his duty as quantity surveyor, as he told me in evidence, was that if a document which he did not have was referred to in the course of correspondence he should seek it out. I am satisfied, also, notwithstanding his evidence, that the appropriate course for a quantity surveyor to take is to seek out relevant documents and not to rely on a form of etiquette, if such exists, which requires a prospective employer to furnish documents to a prospective contractor.
35. The letter to Mr. McCarthy from Mr. Hanly of 3rd August, 2005 refers to the earlier documents. In confirming a meeting for the following day it states:-
“You should now be in possession of our letter dated 25th July, which was sent to Denis Carron outlining the seventeen points of which we need to be incorporated as part of your contract price. You will also be aware of the 29 additional conditions and what issues pertain to the contractor. As indicated via telephone conversation, I am interested in meeting tomorrow with a view towards bringing the tendering process to a conclusion, possibly signing a letter of intent by Friday.”
36. The letter then lists some prime costs sums and states that the employer intends “to achieve a fix priced contract for approximately €14 million, this we need to do in this development in order to maintain a profit as developers”.
37. The letter lists the following items on the basis that these “will form an integral part of awarding this contract”:-
“1. We would like to be in a position to sign a letter of intent by Friday 5th August.
2. It would be our desire that works commence on site the following week, or certainly mobilisation of plant and equipment to be commenced by 15th through to 19th August…
3. Based on point no. 2 our main concern is that we have a show house ready for October 31st as this will be our launch weekend…
4. Laragan Homes staff including our resident engineer, marketing team and interior designer will be responsible for the fit out of the above mentioned show house and will work in tandem with the builder so as to achieve same.
5. We will discuss at the meeting issues pertaining to valued engineering. As stated before, it will be the ethos of the Hanly Group to work to best common sense principles to achieve cost effectiveness for both the contractor and the developer.
6. It is now considered by the developer that both the foul and storm sewerage needs to be moved on to the main road in one trench and the construction of back drop manholes will result in minimal depths being excavated for said drainage. This will achieve costs effectiveness for the builder in reducing the depth required for excavation of drainage, also, it will be easier for the builder to service each house having the main drainage on the road. The developer will work in conjunction with the contractor to try to establish the drawings for same. The developer has confirmed with the local authority that the movement of same is not a planning issue; it will be part of the compliance with Condition No. 10.
7. All fixtures and fittings are to be as per the designers report furnished from Elevation, Interiors. Upon commencement at site and over the next couple of weeks, we can supply actual samples of all contained within the report; however, it will remain at the discretion of the contractor, which subcontractor they wish to use for the majority of the items in the report, this will, of course, be subject to the approval of Laragan Homes.”
38. Looking at these requirements, in the entire of this correspondence, I am obliged to apply a test as to whether the documents could reasonably have been construed as imposing additional obligations. In my view they would be so construed. What the nature of the obligations precisely were, however, is uncertain. It is uncertain, for instance, as to whether the interior design and fit-out applied to every house or simply to the show house. The letters say nothing as to the form of contract and whether descriptions in the Bill of Quantities will form part of the obligations of the contractor. It is also uncertain as to how the job will be priced in the event that there are variations beyond any additional obligations imposed. The Articles of Agreement, ultimately signed in January, 2006, do allow for a situation within the conditions whereby a job has not been priced; reference can then be made to a trade price. The evidence has been that an interior design report was sent by courier over to the offices of the plaintiff but I cannot establish, as a matter of probability, what was in that package or whether it arrived.
4th and 5th August
39. On the 4th August, a meeting was held between the two sides. The plaintiff was represented by Richard McCarthy and Ken Gallagher. On the defendants’ side, Alan Hanly, Denis Carron and Michael Oates attended. Having reviewed the evidence, I accept the evidence of Ken Gallagher as to what was discussed. His recollection was that the meeting lasted about an hour and that the topics discussed included ground stabilisation, pricing and the programme for having a show house ready in about 13 to 14 weeks. He did not recall a discussion about downlighters or about buying out claims. What I am fundamentally satisfied of in relation to this meeting is that there was no discussion in relation to the form of the contract or as to variations. Nor was there any discussion about, or reference to, whether descriptions in the Bill of Quantities would form part of the eventual contract obligations. The account of Michael Oates was that Mr. Hanly emphasised at the meeting that he wanted a fixed price contract. His version was that downlighters and toggle switches were discussed. Mr. Hanly emphasised in his evidence that he made it clear that he wanted a fixed price lump sum contract and that this was his “number one thing, attribute and desire”. This contention is not established in evidence as a probability. Even if it was, I could not rely on such a statement as amending the “blue form” RIAI contract into a hybrid form. I accept that he said he wanted tried and trusted people on the site. Whereas it might be possible that a reference was made to downlighters and to toggle switches, I cannot regard that as raising a series of contract obligations that would not otherwise exist. I think it probable that Mr. Oates raised the letter of 25th July. I cannot accept that the interior designer’s report was discussed in unequivocal terms or that the planning conditions were discussed either in the context of additional obligations or in the context of a neighbour dispute. Each side had different expectations in relation to this meeting. I am satisfied that Richard McCarthy was aware of the letter of the 25th July, 2005. One of the crucial points of this discussion is agreed; albeit from different perspectives. Mr. McCarthy remembers Mr. Hanly saying words to the effect that he was not interested in a “claims oriented-company”. It is probable that this discussion in some form took place and then continued by reference to the plaintiff being an old-fashioned family firm. The issue in my mind, however, is what either party took out of this. Mr. Hanly agrees he thought that if there was extra work involved beyond what he believed he was contracting for then, as he put it, “hand on heart” he would pay. This was not said at the meeting, however.
40. The crucial issues are how, firstly, the contract obligations were to be defined and, secondly, how extra work was to be assessed. If both parties had different understandings as to what the nature of the work was then it follows, as in this case, each party would take a different view as to what was an allowable variation from the contractor’s obligation. How to define the works and how to allow for variations in terms of the obligations by reference to drawings, specifications, or a description in the Bill of Approximate Quantities, was left unstated at this meeting. I am satisfied that nothing happened at this meeting that would clarify these issues. What a fixed price contract is defined as can be capable of varying interpretations depending on the nature of what works are agreed within the contract price. It does not mean that no variations can ever be allowable.
41. On 5th August, Mr. Hanly and Mr. McCarthy had a discussion by telephone. Mr. Hanly’s expectation was that everything had been agreed as to costing. I do not accept it has been proven that in this conversation there was any discussion in relation to attics or utilities forming part of the contract. I do not accept that a reference was made to the obligation of the contractor on the basis of descriptions in the Bill of Quantities. To accept that would mean implanting something into Mr. Hanly’s mind that was not there. I do not accept that the “blue form” RIAI without quantities contract was discussed at all. I do not accept the evidence of Michael Oates that every aspect of this contract was discussed either at all, or in any meaningful way which would define the obligations of the parties as to the fundamentals which are in dispute here. Instead, I accept that there was a discussion in relation to some specifics, including white goods, and that a deal was made to do the works tendered for, including any extra works that might be implied by the correspondence of the 25th July, and 3rd August, for the sum of €15.3 million plus VAT.
42. What I cannot say, however, is how those works were defined. One party, namely the defendants, had no understanding of the “blue form” of the RIAI contract, how descriptions could be made part of the contract documents by reference to the Bill of Approximate Quantities and how variations might be dealt with in one of two fundamentally different ways depending on the form chosen and the clauses included or crossed off. The other party, namely the plaintiff, had a definite expectation that a particular form of contract would be used in a particular way thereby giving rise to a particular method of defining the work and, therefore, a particular way of defining, and then dealing with, variations.
Reasonable bystander
43. A further finding of fact is necessary on this issue. Mr. McCarthy agreed that the drawings in this case were lacking. The specifications, he accepted, were poor. In those circumstances, descriptions might be regarded as necessary for the purpose of defining the obligations of the contractor. I accept that this could have been done. In this case, it was not done. The plaintiff expected that the Bill of Quantities would drop away, apart from becoming a Schedule of Rates as the “blue form” RIAI contract specifies. If something was not in the drawings or specifications but was in the Bill of Quantities as a description then, theoretically, it is possible for the plaintiff, as contractor, to claim twice in respect of the same work. Some of the later correspondence from the plaintiff hints at some unstated, and perhaps even this, extreme position. I accept the evidence of Mr. McCarthy that no claim would be pursued on the double by the plaintiff. I accept also the evidence of Mr. Hanly that he could never have signed up to any form of agreement that might allow for this. I would also regard a reasonable bystander with knowledge of the intentions of the parties to immediately declare that a claim on the double, even if not expressly ruled out by the form of the contract chosen, would have been excluded. It is thus excluded by implication.
Later Dealings
44. On 5th August, Mr. Hanly sent Mr. McCarthy a letter which was misdated “Tuesday, 09 August, 2005”. The first part of the letter was written prior to the telephone conversation last mentioned, and the second after it. In the first part, the plaintiff’s company is thanked for their efforts in dealing with the project. The letter goes on to indicate that the defendants are under severe pressure to reach a conclusion on awarding the contract. It says: – “I need to decide this afternoon who will be awarded the contract at Kilmacanogue and subsequently issue a Letter of Intent for same”. The letter continues by stating that there is pressure to complete a show house. This is described as “the main driving force in bringing this tender process to a conclusion this afternoon”. The letter goes on to deal with the prime costs sums which have been bought out by the developer. It indicates, as would be standard in these circumstances, that any over-spend on these sums, one of which is missed out, would be the responsibility of the contractor. The letter gives a specification for stairs in the show house and then goes on to deal with covings. The letter says that if covings are improved or reduced then this would be the only remeasurable item “on the Bill”. The letter offers McCabe’s €15 million to carry out the works and states that this price is in excess of €300,000 above the competitor. In fact, that may not be correct. It is €700,000 less than the lowest tender received, if that had not been cut by other negotiations. I will now quote the letter, as it is and reproducing most infelicities, from the sentence before its dictation was interrupted by the telephone negotiations.
“The parameters of this letter encompass all other documentation provided by The Hanly Group to McCabe Builders surrounding the compilation of this contract… The Hanly Group will pay McCabe Builders €15.3 million plus VAT for the Contract as outlined in the Spec. and Bill of Quantities at Kimacnonogue, County Wicklow. The Hanly Group is entering into a Fixed Price Contract and as stated earlier in this letter there are 6 PC Sums of which there are only two nominated Suppliers/Subcontractors (McNally’s Kitchens and Vogue Bathrooms). In both cases, McCabe’s Builders will be dealing directly with these suppliers, however the Hanly Group has already secured competitive quotes from both people and at any rate, as with the other PC sums, should same increase, it will be an extra over-cost for the Hanly Group. Our expertise and experience was used in choosing both suppliers, particularly given the product in question as both suppliers will be able to deal efficiently with customers who wish to upgrade/change product. This will be both beneficial to McCabe Contractors and to the Hanly Group as developers. The Hanly Group will adjudicate on product choices put forward by McCabe Builders; as such we will be taking same out of the domain of the designer and adjudicating on proposed product within our own management team. In the adjudication process, we will be working closely with McCabe Builders to achieve value for money on all products and samples chosen, while at the same time maintaining the theme as set out by the Interior Designer.
Although not relevant to McCabe’s, it must be noted that the Hanly Group are giving in excess of €600,000 over and above a competitor’s price. We are doing this in the knowledge that the show house will be delivered in a timely fashion by the second/third week in November as discussed; also the consolidation of what should be a mutually beneficial relationship between our firms.
In view of the above, whereby the Hanly Group will be fair to the contractor, we will be entertaining no claims whatsoever, we will work in conjunction and on a timely basis with McCabe’s to approve whatever alternatives (both products and methods) are put forward, thus ensuring cost effectiveness for McCabe’s throughout the course of the project.
We propose taking the opportunity over the coming days to work closely with McCabe’s to finalise all outstanding issues and also we would hope to put forward some real samples of the type of product mentioned in the designer’s report. It would be beneficial for both of our companies to have reached a conclusion on this upon signing of contracts.”
45. I note that the price thus apparently agreed was approximately €400,000 less than the lowest competitive tender and was €2.7 million less than the pre-tender estimate by the defendants own quantity surveyor.
46. I am asked to draw three inferences from this letter:
1. That a contract was agreed between the plaintiff and the defendants thereby.
2. That the contract obligations were fully defined and consisted of the letter incorporating some 13 other documents as pleaded in the counterclaim of the defendants.
3. Insofar as a reference is made to the Bill of Quantities, if the “blue form” of the RIAI contract is to be found by the court to be a contract document, that thereby the descriptions became part of the contract documents notwithstanding the express wording of the Articles of Agreement later signed in January 2006.
Subsequent dealings
47. On 10th August there was a meeting on site between the parties. The main contention on behalf of the defendant was concern as to the show house and the date when it might be handed over. It was mentioned that there were problems with neighbours who “had to be kept happy”, according to the instructions to the plaintiff from the defendants. The batch of relevant letters was handed by Michael Oates to Martin Peers, the Procurement Manager for the plaintiff. I have already found as a fact that they had been handed over by Mr. Carron prior to this time. One of the letters concerned a neighbour and involved a substantial variation, according to Mr. Peers. I cannot find as a fact that this particular letter had been received before. Mr. Peers told the court, and I accept, that Richard McCarthy later took the relevant letters from him and told him not to concern himself because they had not seen them beforehand, that anything that was not in the tender would be treated as a variation.
48. Before going to work on site, a letter of intent was sought by the plaintiff from the defendants. I accept Mr. Peers’ evidence that he regarded a letter of intent as necessary after the July and August letters because the plaintiff had no RIAI form of contract on hand at the time. I accept that he did not regard the events of the 5th August, the correspondence on that day, and the correspondence previously, had given rise to a contract. I have already commented on the difference of approach between Mr. Hanly and Mr. McCarthy in that regard. I accept the plaintiff’s contention that it would not have proceeded with the contract for €15.3 million plus VAT on the basis of the letter of 5th August. My view is this; nor would a prudent contractor do so on the entire correspondence between the parties up to that point. In matters of this complexity, the RIAI and other bodies have worked out forms of agreement in order to deal with almost every foreseeable contingency. Both the employer and the contractor on complex building projects need the benefit of carefully defined obligations as provided for in these forms.
49. At some time during the week leading up to Friday the 26th August, 2005, Mr. McCarthy contacted Mr. Hanly. He asked for a letter of intent. Again, there is a conflict in relation to this conversation. Mr. Hanly indicated that his understanding from Mr. McCarthy was that the letter of intent was merely needed for accounting purposes. Mr. McCarthy, on the other hand, claimed that a letter of intent was needed because they were commencing a major project where the show house had to be completed, very speedily, in the absence of a written contract defining their obligations. The conflict here is more apparent than real. I accept that during the course of the conversation some reference may have been made to accounting. The letter of intent was sought and was issued, in my view, because of the absence of a contract. I am not in a position to find it proved that whatever was left to be worked out between the parties was minimal. The letter read:-
“Further to my letter dated 5th August, 2005, which you subsequently signed and returned, we have now appointed our resident engineer and my project manager, Neil McGarry, is also in liaison with your company to try and ensure that we sign a contract in the not too distant future. I believe we have a target dated set of Friday 2nd September for the signing of same.
The contract will comprise the documentation signed by yourself on 5th August and other correspondence between our companies regarding your contract at Rocky Valley, Kilmacanogue. Due to your request, and through this letter, I would like to formally issue you with a letter of intent for works to the value of €1m.
This is primarily to cover you for works that you are commencing on site at present in the absence of fully signed contract. Despite the comfort your company may achieve from this letter, it would be desirable to the Hanly Group that the contract is signed as soon as possible and in the true compliance of same we are still awaiting programmes for bills along with further items as per documentation already supplied to your company.”
50. Thereafter, from September 2005, it seems that a certain amount of panic set in as to the progress and quality of this building project, whether it was justified or not. The defendants wrote to the plaintiff stating that they were disappointed with the lack of progress. Mr. Brennan, on behalf of the plaintiff, wrote to Mr. Neil McGarry of Laragan Developments pointing out the following:-
“We find your opening comments both alarmist and grossly exaggerated. You record your ‘dismay’ at not having documentation or administration controls in place. May we remind you the most fundamental document is not yet in place ‘The Contract’ an element strictly within your control.”
51. On 4th November, 2005 a copy of the contract documentation was sent by the defendants to the plaintiff. At this stage a new company, namely the defendant Sagamu Developments Limited, was named as the party having responsibility. This has the same registered office as the other defendants and is its vehicle.
52. By January 2006, despite expressions of contentment in the previous November, open disagreement had broken out between the parties. I am satisfied that at a meeting on 19th January, 2006, Mr. McCarthy told Mr. Hanly that the issues that he was raising could be put into a position that was not to the defendants’ advantage. The contract had not then been returned. It seems to me that this confrontation was indicative of the fact that the plaintiff had examined the documentation furnished and was considering its meaning. Thereafter, relations between the parties went to an irrecoverable stage.
53. On 26th January, 2006, Mr. Alan Hanly wrote to Denis Carron of Nolan Ryan, his quantity surveyor for the tender and contract phase of the development, having then received back form the plaintiff an unsigned copy of the contract. He expressed his concern as follows:-
“… I refer you to the letter which I wrote on 25th July, 2005, again I have this document here, whereby I listed seventeen number items which I wanted to include in the contract. Can you confirm that same is included as I do not have a full copy of this contract to hand. I also wanted the contents of my letter dated 9th August, 2005 to Richard McCarthy included, I believe that same is included and I have a signed copy of this letter back from Richard regarding our discussions on 9th August, whereby Richard comments that all is in order with the exception to the mechanical installation which needs further work. Both letters are to form an intricate part of our contract and if not, needs to be inserted at this late stage. The first letter being that, dated 25th July, 2005 in which I asked you to include seventeen number items and the second letter is that dated 9th August, 2005. Please find herewith a copy of both letters.”
54. I note further that the defendant Laragan Developments Limited, in the course of a dispute concerning variations, by letter dated 26th April, 2006 did not make the case that the descriptions in the Bill of Approximate Quantities became part of the contract documentation. Underlining the difference in approach between the parties, Mr. McCarthy wrote to Laragan Developments Limited on 27th April, 2006 as follows:-
“Notwithstanding your comments regarding the letter of 5th August, 2006 we are working under the standard form of RIAI contracts where quantities do not form part of the contract. As previously advised, the Bill of Quantities is not a contract document and the contract sum is deemed “To provide for the quality and quantity of work set out in the drawings and specifications.”
The Bill of Quantities act merely as a Schedule of Rates. Furthermore it should be noted that “nothing contained within the Contracts Estimates or the Bill of Quantities shall confer rights or impose any obligations beyond those conferred or imposed by the Contract Documents.””
55. This letter, together with subsequent correspondence, describes the gulf that existed between the parties as to their understanding of what the contract obligations should have involved: see letter of 2nd June, 2006 Hanly Group to the Nolan Ryan partnership; letter of Monday 12th June, 2006 from Hanly Group to Mr. John McCabe of McCabe Builders and letter from A. & L. Consultants Limited to Mr. Padraic Brennan of McCabe Builders Limited dated Tuesday 27th June, 2006.
56. On 1st August, 2006 Mr. Peers, on behalf of the plaintiff sent a copy of the signed contract documentation to the defendant Laragan Developments Limited. At that stage, the notion that the parties had never entered into any contract was not a foreign concept to the defendants. In the course of conciliation proceedings, on 24th August 2006 Michael Oates, on behalf of the defendant Sagamu Development, wrote to Mr. Padraic Brennan of the plaintiff in the following way:-
“Can you please tell us why it took so long to return the Building Contract? Also we are surprised that you failed to enclose our letter to you dated 5th August, 2005 which was attached to the original contract documents as issued to you and which we say forms part of the contract between our two companies (without prejudice to any argument that we may put forward to the effect that no contract was finalised). Please tell us the reason for omitting this letter if anything other than an oversight.”
Defined Obligations
57. It is of the essence of the concept of an agreement that the minds of the parties should meet as to their mutual obligations. Those obligations must be expressed in such a way that the obligations of each party can be determined with a reasonable degree of certainty. The test as to whether a contract ever existed is whether each contracting party had the same intention as to the fundamental terms that give any agreement substantial efficacy. The court is not entitled to substitute a judgment as to what would be an appropriate form of agreement for a situation where lack of certainty precludes the court from finding that a meeting of minds had occurred. As Murphy J. stated in Tansey v. College of Occupational Therapists Ltd. [1995] 2 ILRM 601at p. 603:-
“Contractual obligations derive from an agreement made between two or more parties under which one promises or undertakes with the other the performance of some action. Ordinarily the existence of an agreement presupposes an offer by one party to perform the action on certain terms and the acceptance of that offer by the other. The offer must be communicated to the person for whom it is intended and, in turn, his acceptance must likewise be communicated to the offeror. In the absence of such communication, whether express or implied, there would not be that meeting of minds which is implicit in the concept of any agreement.”
58. The court is entitled to imply into terms which might otherwise be uncertain, the standard form of dealing within a particular type of business which it was clearly the intention of both parties to be bound by. A course of past dealings, or the habitual use of standard forms, may fill out the gaps in the agreement of the parties where these can reasonably be considered as defining mutual obligations. Apparent contracts should be given validity by referring, in addition, to the concept of commercial sense and construed, as to their terms, so that agreements have business efficacy. That does not, however, mean that the court is at large in rewriting the terms to suit an idealist purpose to an apparent agreement. If the parties’ minds never met as to the fundamental obligations in an apparent contract, no one is entitled to renegotiate their intentions so that their obligations become defined in ways they never meant, or perhaps even thought of. Nor is a court entitled to introduce the concept of implied terms in order to cure a defect in an apparent agreement unless these are implicit within the terms of dealings between the parties, are reasonable and are established as something with which both parties would, at the time their minds met, have agreed. If parties are at cross purposes as to the meaning of a crucial term, or where an ambiguity in a crucial term cannot be clarified by reference to the dealings between the parties, the business context within which it occurred, commercial efficacy, or plain sense, then there has been a failure to form a contract; Mackey v. Wilde (No. 2) [1998] 2 I.R. 578 per Barron J at p. 587. The fundamental issue is thus as to whether the apparent contracting parties had the same intention; Scammell v. Ouston, [1941] A.C. per Lord Wright at p. 269.
59. If there is truly an agreement between parties then it is not ineffective because some fact upon which its operation depends is not certain when it is made. If the facts become ascertainable after the making of the agreement the requirement of certainty is satisfied. If, however, there is a need for further negotiation as to a fundamental point in the contract, it cannot be said that an agreement has been concluded. Parties can validly agree to execute a formal document incorporating terms which have been agreed. Those terms need to be listed and the form in which they are stated need to be certain for the benefit of ensuring the performance of the obligations by both parties.
Conclusion
60. I ask myself whether, if the mutual conflicts between the parties had emerged in late August, 2005, and this alleged contract based on the 5th August letter was made the subject of an action in damages by the defendants because the plaintiff refused to perform it, would it succeed as against the plaintiffs? The damages that might be contended for might reasonably be predicted to be the sum of approximately €2.3 million, being the sum lost by the defendants as against next available tender upwards. Were the plaintiff then to plead in its defence the absence of certainty as to the definition of its obligation, and as to variation, it would be impossible to hold that a contract had been concluded by this letter of August 5th.
The nature of this dispute has highlighted the complex and onerous nature of building contracts. I am driven to conclude that the issues as to whether descriptions would become part of the contract, and how obligations might be defined by a choice of particular forms of document would be fatal to any such claim. It is argued by the defendants that it is possible to construe the correspondence that includes the letter of August 5th as imposing an obligation on the plaintiff to complete the works for which they had tendered, together with such other works as are expressly mentioned in the correspondence post tender. I must reject this, however, because nothing in that correspondence deals with the central issue of what is or is not what is or is not to be regarded as a contract term defining the mutual obligations of the parties or what is to be regarded as a variation therefrom. Further, nothing in that letter of August 5th makes descriptions in the Bill of Quantities part of the obligations of the plaintiff.
61. Fundamentally I am satisfied, having considered all of the evidence, that Mr. McCarthy would not have agreed to an altered “blue form” RIAI contract incorporating the descriptions in the Bill of Quantities and that Mr. Hanly, if the matter had been explained to him, would not have agreed to a contract whereby his pricing responsibilities became anything less than certain. The minds of the parties never met as to central issues that are crucial to their differing understanding of what would otherwise be their mutual obligations.
62. It is difficult to regard this case as being in any way different to the principles stated by Kenny J. in Dore v. Stephenson (Unreported, High Court, 24th April, 1980). This related to a contract for the sale of land, where access through a foyer to an otherwise valid sale of a first floor premises had not been agreed. Absence of agreement on this essential term destroyed what would otherwise have been a valid contract. At page 1 to 2 of the unreported judgment Kenny J. stated as follows:-
“Where two or more parties make a contract for the sale of an interest in land, there may be features about the property which make it essential that they should agree on terms in relation to them. This is particularly important when they have different assumptions about what the position is in relation to those features. It may be that they did not think it necessary to deal with these features when making the contract or it may be that they did not realise the legal complications which the features created. This type of case is not to be categorised as a mistake: it is to be regarded as a case where there was never a consensus and so no enforceable contract result. This is the rule even if all the parties, particularly when acting without the benefit of legal advice, believed that they had a made a contract. It is particularly necessary that there should be agreement without any exceptional features when the purchaser is buying part of a building and the vendor is retaining the remainder.”
Remedy
63. I adopt as correct the following passage from Treitel, The Law of Contract, 11th Ed., (2003) at p. 1061:-
“Work may be done where the parties believe that there is a contract but this is not the case because there was never a clear acceptance of an offer. In one such case a quantum meruit was awarded to the party who had done the work. Such an award may also be made where work is done, under an agreement which lacks contractual force for want of contractual intention, in anticipation of a formal contract which fails to materialize for want of execution of the requisite formal document; and where one party does work at the request of the other during negotiations which are expected to lead to a contract between them but which are broken off before its conclusion. But no such award will be made where the party doing the work takes the risk that the negotiations may fail. This was held to be the position where one party to an agreement ‘subject to contract’ incurred expenses without any request from, and without benefiting, the other but solely for the purpose of securing (and then of performing) the contract.”
64. I cannot hold that there is a concluded contract in this case for the reasons that I have given. I have been asked to declare the terms of the contract between the parties. The gulf between them is illustrated by the wildly different interpretations as to what might constitute the contract which have been both pleaded and urged in argument. This is a case where fundamental issues, as to the manner in which an obligation might arise, and as to how any variation from that would be defined and dealt with, have resulted in a failure of the minds of the parties to meet. Having sought to find the terms of the contract, as was my task, one I cannot now fulfil, the matter was always to be sent to arbitration regarding amount.
65. I would make the following observation for the benefit of the arbitrator. This case must be dealt with on the basis of a quantum meruit. This means that the plaintiff is entitled to reasonable recompense, in my judgment jointly and severely against all the defendants, for the benefit which the plaintiff has conferred through the work that has already been done under the purported contract for the defendants.
66. That does not mean that the value of the houses and apartments and ground works standing to the benefit of the defendants at Kilmacanogue should simply be valued as such. This was a speculative building contract whereby an employer, namely the defendants, arranged for the construction of a number of dwellings by the plaintiff in the confident expectation of selling them on the open market. It might arise, for instance, that an arbitrator could be asked to value the nature of the work that was done by a company for its own benefit: an instance might be where a company needed to be valued for the purpose of share buy-out following the oppression of a shareholder-director. Here, however, the situation is different. The plaintiff, together with others, competed in order to be in a position to be awarded the work consisting of the construction of the dwellings at Kilmacanogue on behalf of the defendants and to earn profit from their efforts. The work that they have done, therefore, should be valued on a basis that allows for reasonable remuneration to the plaintiff, as a building contractor, for the work done by the plaintiff on behalf of the defendants who, in turn, assumed the responsibility for financing the contract and then for selling the dwellings on the open market. The remuneration, therefore, that would be reasonable would be to value the work done on behalf of the defendants by the plaintiff at such value that was prevalent in 2005, when the plaintiff entered into the dealings with the defendants which gave rise to them doing these works, and so earned for them a right to recover reasonable remuneration. Such sum as the arbitrator will award, under the doctrine of quantum meruit, should look at those works on the basis that the defendants are entitled to reasonable competitive value from the plaintiff and the plaintiff is entitled to reasonable remuneration as a building contractor building a housing scheme for a developer.
Cregan & Anor -v- Taviri Ltd
[2008] IEHC 159
DEFENDANT
Judgment of Mr. Justice Charleton delivered on the 30th day of May, 2008.
1. The plaintiffs, who had a plan of running a restaurant, wished to buy the leasehold of a premises at 22 Castle Street, Dalkey from the defendant. The purchase has fallen through, but now the plaintiffs, as purchasers, seek the return from the defendant company, as vendor, of their deposit in the sum of €25,000.
Facts
2. The contract was negotiated as far back as November, 2005. An issue in relation to whether there was retention permission concerning the use of the premises, and an architect’s certificate in that regard, delayed the signing of contracts until the 24th August, 2006. The contract records the purchase price as being €245,000 and described the premises as being held under an indenture of lease made on 1st March, 2005 between Michelle Kavanagh, the landlord, and Taviri Limited, the defendant in these proceedings, as tenant. The contract indicates that the closing date of the sale was to be 7th December, 2005, which was well before the problems in relation to planning had been sorted out. In consequence, it is argued that a completion notice could not have been served by the defendant as vendor on the plaintiffs as purchasers. As a matter of law, if a contract does not specify a closing date, a reasonable date will be implied into the contract. The time fixed for completing a contract is the closing date in law, and in equity a reasonable time may be allowed thereafter; Farrell – Irish Law of Specific Performance (Dublin, 1994) at para. 3.28.
3. Because the plaintiffs were buying a leasehold from the defendant, this transaction was subject to the consent of the landlord.
4. The original indenture of lease provided that the tenant, the defendant in this case, had covenanted with the landlord in the following terms:-
“Not to assign sub-let part-with or share the possession of the entirety of the demised premises without the prior written consent of the landlord and if requested by the landlord without supplying a guarantor acceptable to the landlord which consent shall not be unreasonably withheld”.
The special conditions of sale in respect of this lease therefore provided at Clause 6:-
“The sale is subject to the consent of the landlord to the assignment herein and the purchasers hereby irrevocably agree and undertake to furnish as expeditiously as possible all reasonable particulars as maybe required by the lessor to enable her consider the application for consent to assignment to herein. In the event of the consent of assignment not being forthcoming on or before [the date of closing] then this contact shall be at an end and the deposit paid on foot thereof shall be returned to the purchasers without deduction and without any claim for interest and/or compensation.”
5. Another clause in the special conditions indicates that the closing date is to be seven days after the date of the consent to assignment by the landlord.
6. Under the original lease, the two directors of the defendant company had covenanted with the landlord, by way of an indemnity, to ensure the due observance of all the covenants in the lease on behalf of the defendant and to make good all losses howsoever arising by reason of any default.
7. In this case I have heard evidence from two solicitors acting on behalf of the plaintiffs and from the solicitor acting on behalf of the defendant company. All of that evidence was honest and was, in my view, genuinely helpful in assisting the court, and intended to be such. The evidence, however, added little to the correspondence to which I now turn.
8. As of July, 2006 the plaintiffs’ solicitors were expressing frustration with the delay in relation to the planning documentation difficulty. That was resolved soon after and, in due course, on 3rd August, 2006 the correspondence turned to the issue of the guarantee that would have to be forthcoming in favour of the landlord under the lease if the assignment between the defendant and the plaintiffs was to be successful. To satisfy the landlord, the following documentation was requested from the plaintiffs and from their company Karan Foods Limited:-
1. Net statement of affairs certified by the accountants for the proposed assignees;
2. Details of the proposed use of the premises by the proposed assignees;
3. Bank and trade references.
8. On the 18th August, 2006 the plaintiff sought information with regard to the landlord’s consent to the assignment of the lease. Shortly thereafter, on 28th August, 2006, a handwritten note of a telephone conversation with the solicitor for the defendant company was noted on a letter on the file of the plaintiffs’ solicitor seeking an “up-date … on the issue of the landlord’s consent”. This note reads:- “31st [August] Sean Sexton, landlord will agree if his client (Louis) guarantee stays in place – reluctantly going with it if our client signs [covenant] and indemnity”.
9. According to Deirdre Farrell, the solicitor dealing with the matter, this meant that the landlord of the premises would only consent to the assignment to the plaintiffs if one of the guarantors on the lease to the defendant company, namely its director Ray Murray, would stay in place and guarantee the performance of the covenants and obligations under the lease by the new lessees, namely the plaintiffs and their nominee company.
10. It would be fair to say that matters then stagnated for a fortnight. On the 19th September, 2006, the solicitors on behalf of the plaintiffs wrote to the defendant:-
“We would also be obliged to receive an up-date on the landlord’s consent and the proposed guarantee from your client, and covenant and indemnity of our client. Please furnish confirmation of the landlord’s position. We note you are awaiting results of inquiries on the V.A.T. situation, and we would also be obliged to hear from you regarding our letters of 18th August, with regard to the planning documents requested and evidence of health board registration.”
11. On 21st September, the defendant company’s solicitors wrote to the plaintiffs seeking a closing date. The landlord’s consent would, of course, have to be furnished as of the date of the closing. On the 26th September, 2006 the letter which caused the rift between the parties was written by the plaintiffs’ solicitor in the following form:-
“We have been instructed by our clients to inform you that due to the onerous covenants sought by the landlord, our clients no longer wish to proceed with this transaction. In light of the failure to obtain the landlord’s consent in the normal way we are instructed that our clients consider the contract to be at an end and we would therefore be grateful if you would arrange to return the contract together with our client’s deposit cheque.”
12. The solicitors for the defendant company wrote back on 28th September in the following form:-
“With great respect this is the first indication either from your clients or yourselves of ‘onerous covenants’ sought by the landlord. The simple fact of the matter is that the landlord has, as is the normal way, insisted on a personal guarantee when the premises are being taken in the name of a limited liability company. The only difference in this case is that she has requested one of our clients’ directors to personally guarantee the due performance and observation of the covenants and conditions and in turn your clients will indemnify Mr. Murray for this matter. The landlord’s consent has issued subject to the guarantees being put in place which is standard practice. In addition we would point out that by letter dated 22nd inst. you indicated ‘we will revert with an up-date on closing shortly’. In relation to the alleged outstanding matters we confirm as follows:-
(1) You have been aware for some time now of confirmation of the landlord’s consent and the conditions attaching thereto;
(2) There are no V.A.T. implications arising on this transaction;
(3) We previously informed your Mr. Turner by telephone that we had received the final grant of permission, together with the architect’s opinions on compliance in the standard form; and
(4) The contents have been valued at €75,000”.
As a result, a notice making time of the essence was served pursuant to the contract, and when the closing did not take place, the deposit was forfeited.
13. I accept the evidence of Deirdre Farrell and Andrew Turner, both experienced solicitors, in their account of this transaction. Whereas they have come across, as a standard clause, the notion of directors guaranteeing the performance by a company of its obligations under a lease, they have not come across an assignment of a lease whereby the landlord insists that the new lessee should have its performance guaranteed both by its directors and by the previous lessee. Sean Sexton, solicitor on behalf of the defendant company indicated, and again I accept, that he regarded this condition as unusual but that he had seen it once before in the course of his career.
14. Nobody has told me, but I assume, as I feel I am entitled to, that in making a contract for the assignment of the lease, the plaintiffs had sight of, and received advice on the obligations thereunder that they were hoping to assume.
15. It is a standard clause that protects the position of a landlord that a lessee should not assign the premises without the consent of the landlord. The phrase limiting that discretion, which “consent shall not be unreasonably withheld” is taken from s. 66(2)(a) of the Landlord and Tenant (Amendment) Act, 1980. The case law in that regard, is multifaceted and goes back to the 1930s. In essence, however, the decisions of the courts come down to the same thing; that it is unreasonable for a landlord to withhold consent where the use of the premises is to be the same or similar to that employed by the current tenant and where the investment of the landlord in property will be shown to yield the same economic return, without damage to the premises, that is proposed to be demised by assignment.
15. Consent to assignment of a lease would be unreasonably withheld where the landlord will be receiving from the new assignees the same benefit, in terms financial reward and care of the premises, as from his or her current tenants. Clause 4.15.4 of this lease provides:-
“In granting consent to any such proposed alienation the landlord may impose such conditions as are reasonable in all the circumstances.”
16. The landlord of 22 Castle Street, Dalkey found herself in August, 2006 in a position where she had a sitting tenant, namely the defendant company, which was performing all of the obligations of the lessee under the lease. That performance was guaranteed by two businessmen of standing. In order to agree to come to an assignment of the lessee’s interest under the lease, the landlord insisted on one of those businessmen remaining on as guarantor of the performance by the new lessee of the obligations under the lease, as well as insisting on guarantees from the plaintiffs in respect of their nominated company. I note the evidence of Sean Sexton that he had advised his client Louis Murray not to enter into a guarantee in respect of the performance of the obligations under the lease by the new lessee. I accept that evidence.
17. The landlord however, made the request for one of the existing guarantors to the performance of the obligations under the lease to remain in place to ensure that the new lessee would continue to perform the obligations that had been fulfilled up to that point. I do not regard that as being unreasonable. I note the evidence of Andrew Turner that his clients, the plaintiffs, told him that if the business turned into a “rip roaring success”, they might find difficulty in selling it on to another party after a year or so should a similar condition be imposed by the landlord on any further alienation. I accept all of this evidence from Ms. Farrell, from Mr. Turner and from Mr. Sexton as being accurate as well as honest.
Forfeiture of a Deposit
18. Condition 41(a) of the General Conditions of sale applying to the sale of this leasehold provides:
“If the Purchaser shall fail in any material respect to comply with any of the Conditions, The Vendor (without prejudice to any rights or remedies available to him at law or in equity) shall be entitled to forfeit the deposit and to such purpose unilaterally to direct his solicitors to release same to him.”
19. Even in the absence of such a condition, the law implies into any contract for the purchase of a real property interest, that where a deposit is paid to secure performance of the contract it is to be forfeited where the purchaser is unable to complete and, returned where the vendor does not complete. A deposit is paid in order to show that the purchaser is serious in entering into such a contract and to secure the performance of the bargain. The general rule is that the deposit is to be forfeited on the purchaser backing out of the contract, subject to a vendor being able to fulfil the bargain. If the purchaser is in default then the deposit is forfeit: Soper v Arnold [1886] A.C. 429. If a contract is subject to a condition as to fulfilment by a purchaser, then the purchaser must do everything that is reasonable and practicable to meet that condition; Draisey v FitzPatrick [1981] I.L.R.M. 219. If a condition requires a vendor to accomplish something prior to completion, then the vendor is subject to the same stricture, save that it can happen that if a contract provides that a condition must be fulfilled prior to conveyance, it can operate under the contract as a condition precedent without which no sale can be completed; Crean v Drinan [1983] I.L.R.M. 82.
20. In England, the law on the forfeiture of deposits was changed by s. 49(2) of the Law of Property Act 1925 which provides:
“Where the court refuses to grant specific performance of a contract, or in any action for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit.”
21. In applying that provision, the courts in England consider whether it would be fair to order that a deposit be forfeited; O’Neill v Phillips [1999] 1W.L.R. 1092. This brings into issue the context and background of a contract; Omar v El-Wakil [2001] EWCA Civ 1090. An equitable element was thus introduced into the issue which is entirely absent from the law in Ireland.
22. I am not entitled to apply the notion of fairness to the issue as to whether the deposit should be forfeited. The parties are free in whatever bargain that they choose to make and it is for the court to uphold it. The only issue for the court is whether the contract condition as to forfeiture applies in the circumstances as they have unfolded, whereby the contract has not been completed. To some extent, the background of the agreement can be material. In looking at this issue, however, I am not entitled to renegotiate the agreement of the parties. Rather, where, as here, something that is said to be unexpected has occurred, I am only entitled to apply to the contract that construction which parties in the position of the vendor and purchaser would have accepted had the issue arisen at the time of the formation of the bargain; in other words, a reasonable and objective construction. The law of contract presumes that the parties to a contract are reasonable people and that they will accept what is reasonable with a view to fulfilling the object for which the contract was entered into. So, I ask myself, was the requirement, that a sitting tenant who wished to assign a leasehold be obliged by the landlord to stay on and guarantee the performance of the lease by the proposed assignee tenant, one that could reasonably have been expected when the parties entered into the contract, or was it outside the reasonable expectation of the parties?
Decision
23. My decision on this matter is that had the parties been confronted at the time of signing the contract with an assignment of the lease whereby the vendor was willing to guarantee to the landlord the performance by the purchaser of its conditions under the lease, subject only to an indemnity in favour of that guarantor by the new lessee, or its directors, that this issue would not have inhibited the bargain being made. Nor was the position of the landlord outside that which might reasonably have been contemplated under the contract. The reality of the position in which the landlord found herself was that she had a guaranteed economic return in respect of her premises for a period of 35 years from March, 2005. She was happy, no doubt for good reason, with the standing of the guarantors under that lease and wished one of them to remain in place when it was planned, after a period of only a number of months from the date of signing the lease, for him to step out of the position of lessee and to alienate the premises to another lessee. In those circumstances the consent of the landlord being subject to the condition mentioned, namely that one of the directors of the existing lessee should stay on as guarantor of the performance of the new obligations should the lease be transferred, was entirely reasonable. It was also a condition that might reasonably have been anticipated by the plaintiffs on their reading of the lease. In accepting the assignment of the lease subject to that condition, the proposed lessee would, in reality, be losing nothing from the terms of the bargain that they had entered into. In purchasing an assignment of a lease for 35 years, it is reasonable to objectively conclude that the plaintiffs were looking at a longer term of business than creating a success and then selling on the leasehold about a year later.
24. In the circumstances there is no basis upon which I can interfere with the contract of the parties whereby the deposit is forfeited.