Formation Issues
Cases
Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd
[1977] EWCA Civ 9
Lord Denning MR
“This case is a “battle of forms.” The plaintiffs, the Butler Machine Tool Co. Ltd., suppliers of a machine, on May 23, 1969, quoted a price for a machine tool of £75,535. Delivery was to be given in 10 months. On the back of the quotation there were terms and conditions. One of them was a price variation clause. It provided for an increase in the price if there was an increase in the costs and so forth. The machine tool was not delivered until November 1970. By that time costs had increased so much that the sellers claimed an additional sum of £2,892 as due to them under the price variation clause.
The defendant buyers, Ex-Cell-O Corporation (England) Ltd., rejected the excess charge. They relied on their own terms and conditions. They said:
“We did not accept the sellers’ quotation as it was. We gave an order for the self-same machine at the self-same price, but on the back of our order we had our own terms and conditions. Our terms and conditions did not contain any price variation clause.”
The judge held that the price variation clause in the sellers’ form continued through the whole dealing and so the sellers were entitled to rely upon it. He was clearly influenced by a passage in Anson’s Law of Contract , 24th ed. (1975), pp. 37 and 38, of which the editor is Professor Guest: and also by Treitel, The Law of Contract, 4th ed. (1975), p. 15. The judge said that the sellers did all that was necessary and reasonable to bring the price variation clause to the notice of the buyers. He thought that the buyers would not “browse over the conditions” of the sellers: and then, by printed words in their (the buyers’) document, trap the sellers into a fixed price contract.
I am afraid that I cannot agree with the suggestion that the buyers “trapped” the sellers in any way. Neither party called any oral evidence before the judge. The case was decided on the documents alone. I propose therefore to go through them.
On May 23, 1969, the sellers offered to deliver one “Butler” double column plane-miller for the total price of £75,535. Delivery 10 months (subject to confirmation at time of ordering) other terms and conditions are on the reverse of this quotation. On the back there were 16 conditions in small print starting with this general condition:
“All orders are accepted only upon and subject to the terms set out in our quotation and the following conditions. These terms and conditions shall prevail over any terms and conditions in the buyer’s order.”
Clause 3 was the price variation clause. It said:
“Prices are based on present day costs of manufacture and design and having regard to the delivery quoted and uncertainty as to the cost of labour, materials etc. during the period of manufacture, we regret that we have no alternative but to make it a condition of acceptance of order that goods will be charged at prices ruling upon date of delivery.”
The buyers replied on May 27, 1969, giving an order in these words: “Please supply on terms and conditions as below and overleaf.” Below there was a list of the goods ordered, but there were differences from the quotation of the sellers in these respects: (i) there was an additional item for the cost of installation, £3,100 and (ii) there was a different delivery date: instead of 10 months, it was 10–11 months.
Overleaf there were different terms as to the cost of carriage: in that it was to be paid to the delivery address of the buyers: whereas the sellers’ terms were ex warehouse. There were different terms as to the right to cancel for late delivery. The buyers in their conditions reserved the right to cancel if delivery was not made by the agreed date: whereas the sellers in their conditions said that cancellation of order due to late delivery would not be accepted.
On the foot of the buyers’ order there was a tear-off slip headed:
“Acknowledgment: Please sign and return to Ex-Cell-O. We accept your order on the terms and conditions stated thereon — and undertake to deliver by — Date — signed.”
In that slip the delivery date and signature were left blank ready to be filled in by the sellers.
On June 5, 1969, the sellers wrote this letter to the buyers:
“We have pleasure in acknowledging receipt of your official order dated May 27 covering the supply of one Butler Double Column Plane-Miller. This being delivered in accordance with our revised quotation of May 23 for delivery in 10/11 months, i.e., March/April 1970. We return herewith duly completed your acknowledgment of order form.”
They enclosed the acknowledgment form duly filled in with the delivery date March/April 1970 and signed by the Butler Machine Tool Co.
No doubt a contract was then concluded. But on what terms? The sellers rely on their general conditions and on their last letter which said “in accordance with our revised quotation of May 23” (which had on the back the price variation clause). The buyers rely on the acknowledgment signed by the sellers which accepted the buyer’s order “on the terms and conditions stated thereon” (which did not include a price variation clause).
If those documents are analysed in our traditional method, the result would seem to me to be this: the quotation of May 23, 1969, was an offer by the sellers to the buyers containing the terms and conditions on the back. The order of May 27, 1969, purported to be an acceptance of that offer in that it was for the same machine at the same price, but it contained such additions as to cost of installation, date of delivery and so forth that it was in law a rejection of the offer and constituted a counter-offer. That is clear from Hyde v. Wrench (1840) 3 Beav. 334 . As Megaw J. said in Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. [1963] 1 W.L.R. 333 , 337: “… the counter-offer kills the original offer.” The letter of the sellers of June 5, 1969, was an acceptance of that counter-offer, as is shown by the acknowledgment which the sellers signed and returned to the buyers. The reference to the quotation of May 23 referred only to the price and identity of the machine.
To go on with the facts of the case. The important thing is that the sellers did not keep the contractual date of delivery which was March/April 1970. The machine was ready about September 1970 but by that time the buyers’ production schedule had to be re-arranged as they could not accept delivery until November 1970. Meanwhile the sellers had invoked the price increase clause. They sought to charge the buyers an increase due to the rise in costs between May 27, 1969 (when the order was given), and April 1, 1970 (when the machine ought to have been delivered). It came to £2,892. The buyers rejected the claim. The judge held that the sellers were entitled to the sum of £2,892 under the price variation clause. He did not apply the traditional method of analysis by way of offer and counter-offer. He said that in the quotation of May 23, 1969, “one finds the price variation clause appearing under a most emphatic heading stating that it is a term or condition that is to prevail.” So he held that it did prevail.
I have much sympathy with the judge’s approach to this case. In many of these cases our traditional analysis of offer, counter-offer, rejection, acceptance and so forth is out of date. This was observed by Lord Wilberforce in New Zealand Shipping Co. Ltd. v. A. M. Satterthwaite & Co. Ltd. [1975] A.C. 154 , 167. The better way is to look at all the documents passing between the parties — and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points — even though there may be differences between the forms and conditions printed on the back of them. As Lord Cairns said in Brogden v. Metropolitan Railway Co. (1877) 2 App.Cas. 666 , 672:
“… there may be a consensus between the parties far short of a complete mode of expressing it, and that consensus may be discovered from letters or from other documents of an imperfect and incomplete description; …”
Applying this guide, it will be found that in most cases when there is a “battle of forms,” there is a contract as soon as the last of the forms is sent and received without objection being taken to it. That is well observed in Benjamin’s Sale of Goods, 9th ed. (1974), p. 84. The difficulty is to decide which form, or which part of which form, is a term or condition of the contract. In some cases the battle is won by the man who fires the last shot. He is the man who puts forward the latest terms and conditions: and, if they are not objected to by the other party, he may be taken to have agreed to them. Such was British Road Services Ltd. v. Arthur V. Crutchley & Co. Ltd. [1968] 1 Lloyd’s Rep. 271 , 281–282, per Lord Pearson; and the illustration given by Professor Guest in Anson’s Law of Contract, 24th ed., pp. 37, 38 when he says that “the terms of the contract consist of the terms of the offer subject to the modifications contained in the acceptance.” In some cases the battle is won by the man who gets the blow in first. If he offers to sell at a named price on the terms and conditions stated on the back: and the buyer orders the goods purporting to accept the offer — on an order form with his own different terms and conditions on the back — then if the difference is so material that it would affect the price, the buyer ought not to be allowed to take advantage of the difference unless he draws it specifically to the attention of the seller. There are yet other cases where the battle depends on the shots fired on both sides. There is a concluded contract but the forms vary. The terms and conditions of both parties are to be construed together. If they can be reconciled so as to give a harmonious result, all well and good. If differences are irreconcilable — so that they are mutually contradictory — then the conflicting terms may have to be scrapped and replaced by a reasonable implication.
In the present case the judge thought that the sellers in their original quotation got their blow in first: especially by the provision that “these terms and conditions shall prevail over any terms and conditions in the buyer’s order.” It was so emphatic that the price variation clause continued through all the subsequent dealings and that the buyers must be taken to have agreed to it. I can understand that point of view. But I think that the documents have to be considered as a whole. And, as a matter of construction, I think the acknowledgment of June 5, 1969, is the decisive document. It makes it clear that the contract was on the buyers’ terms and not on the sellers’ terms: and the buyers’ terms did not include a price variation clause.
I would therefore allow the appeal and enter judgment for the defendants.
Lawton LJ
“The modern commercial practice of making quotations and placing orders with conditions attached, usually in small print, is indeed likely, as in this case to produce a battle of forms. The problem is how should that battle be conducted? The view taken by Thesiger J. was that the battle should extend over a wide area and the court should do its best to look into the minds of the parties and make certain assumptions. In my judgment, the battle has to be conducted in accordance with set rules. It is a battle more on classical 18th century lines when convention decided who had the right to open fire first rather than in accordance with the modern concept of attrition.
The rules relating to a battle of this kind have been known for the past 130-odd years. They were set out by Lord Langdale M.R. in Hyde v. Wrench, 3 Beav. 334 , 337, to which Lord Denning M.R. has already referred; and, if anyone should have thought they were obsolescent, Megaw J. in Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. [1963] 1 W.L.R. 333 , 337 called attention to the fact that those rules are still in force.
When those rules are applied to this case, in my judgment, the answer is obvious. The sellers started by making an offer. That was in their quotation. The small print was headed by the following words:
“General. All orders are accepted only upon and subject to the terms set out in our quotation and the following conditions. These terms and conditions shall prevail over any terms and conditions in the buyer’s order.”
That offer was not accepted. The buyers were only prepared to have one of these very expensive machines on their own terms. Their terms had very material differences in them from the terms put forward by the sellers. They could not be reconciled in any way. In the language of article 7 of the Uniform Law on the Formation of Contracts for the International Sale of Goods (see Uniform Laws on International Sales Act 1967, Schedule 2) they did “materially alter the terms” set out in the offer made by the plaintiffs.
As I understand Hyde v. Wrench, 3 Beav. 334 , and the cases which have followed, the consequence of placing the order in that way, if I may adopt Megaw J.’s words [1963] 1 W.L.R. 333 , 337, was “to kill the original offer.” It follows that the court has to look at what happened after the buyers made their counter-offer. By letter dated June 4, 1969, the plaintiffs acknowledged receipt of the counter-offer, and they went on in this way:
“Details of this order have been passed to our Halifax works for attention and a formal acknowledgment of order will follow in due course.”
That is clearly a reference to the printed tear-off slip which was at the bottom of the buyers’ counter-offer. By letter dated June 5, 1969, the sales office manager at the plaintiffs’ Halifax factory completed that tear-off slip and sent it back to the buyers.
It is true, as Mr. Scott has reminded us, that the return of that printed slip was accompanied by a letter which had this sentence in it: “This is being entered in accordance with our revised quotation of May 23 for delivery in 10/11 months.” I agree with Lord Denning M.R. that, in business sense, that refers to the quotation as to the price and the identity of the machine, and it does not bring into the contract the small print conditions on the back of the quotation. Those small print conditions had disappeared from the story. That was when the contract was made. At that date it was a fixed price contract without a price escalation clause.
As I pointed out in the course of argument to Mr. Scott, if the letter of June 5 which accompanied the form acknowledging the terms which the buyers had specified had amounted to a counter-offer, then in my judgment the parties never were ad idem. It cannot be said that the buyers accepted the counter-offer by reason of the fact that ultimately they took physical delivery of the machine. By the time they took physical delivery of the machine, they had made it clear by correspondence that they were not accepting that there was any price escalation clause in any contract which they had made with the plaintiffs.
I agree with Lord Denning MR that this appeal should be allowed.”
Bridge LJ
“Schedule 2 to the Uniform Laws on International Sales Act 1967 is headed “The Uniform Law on the Formation of Contracts for the International Sale of Goods.” To the limited extent that that Schedule is already in force in the law of this country, it would not in any event be applicable to the contract which is the subject of this appeal because that was not a contract of international sale of goods as defined in that statute.
We have heard, nevertheless, an interesting discussion on the question of the extent to which the terms of article 7 of that Schedule are mirrored in the common law of England today. No difficulty arises about paragraph 1 of the article, which provides: “An acceptance containing additions, limitations or other modifications shall be a rejection of the offer and shall constitute a counter-offer.” But paragraph 2 of the article is in these terms:
“However, a reply to an offer which purports to be an acceptance but which contains additional or different terms which do not materially alter the terms of the offer shall constitute an acceptance unless the offeror promptly objects to the discrepancy; if he does not so object, the terms of the contract shall be the terms of the offer with the modifications contained in the acceptance.”
For my part, I consider it both unnecessary and undesirable to express any opinion on the question whether there is any difference between the principle expressed in that paragraph 2 and the principle which would prevail in the common law of England today without reference to that paragraph, but it was presumably a principle analogous to that expressed in paragraph 2 of article 7 which the editor of Anson’s Law of Contract, 24th ed., Professor Guest, had in mind in the passage from that work which was quoted in the judgment of Lord Denning MR On any view, that passage goes a good deal further than the principle expressed in article 7 of the Act of 1967, and I entirely agree with Lord Denning M.R. that it goes too far.
But when one turns from those interesting and abstruse areas of the law to the plain facts of this case, this case is nothing like the kind of case with which either the makers of the convention which embodied article 7 of Schedule 2 or the editor of Anson , 24th ed., had in mind in the passages referred to, because this is a case which on its facts is plainly governed by what I may call the classical doctrine that a counter-offer amounts to a rejection of an offer and puts an end to the effect of the offer.
The first offer between the parties here was the plaintiff sellers’ quotation dated May 23, 1969. The conditions of sale in the small print on the back of that document, as well as embodying the price variation clause, to which reference has been made in the judgments already delivered, embodied a number of other important conditions. There was a condition providing that orders should in no circumstances be cancelled without the written consent of the sellers and should only be cancelled on terms which indemnified the sellers against loss. There was a condition that the sellers should not be liable for any loss or damage from delay however caused. There was a condition purporting to limit the sellers’ liability for damage due to defective workmanship or materials in the goods sold. And there was a condition providing that the buyers should be responsible for the cost of delivery.
When one turns from that document to the buyers’ order of May 27, 1969, it is perfectly clear not only that that order was a counter-offer but that it did not purport in any way to be an acceptance of the terms of the sellers’ offer dated May 23. In addition, when one compares the terms and conditions of the buyers’ offer, it is clear that they are in fact contrary in a number of vitally important respects to the conditions of sale in the sellers’ offer. Amongst the buyers’ proposed conditions are conditions that the price of the goods shall include the cost of delivery to the buyers’ premises; that the buyers shall be entitled to cancel for any delay in delivery; and a condition giving the buyers a right to reject if on inspection the goods are found to be faulty in any respect.
The position then was, when the sellers received the buyers’ offer of May 27, that that was an offer open to them to accept or reject. They replied in two letters dated June 4 and 5 respectively. The letter of June 4 was an informal acknowledgment of the order, and the letter of June 5 enclosed the formal acknowledgment, as Lord Denning M.R. and Lawton L.J. have said, embodied in the printed tear-off slip taken from the order itself and including the perfectly clear and unambiguous sentence “We accept your order on the terms and conditions stated thereon.” On the face of it, at that moment of time, there was a complete contract in existence, and the parties were ad idem as to the terms of the contract embodied in the buyers’ order.
Mr. Scott has struggled manfully to say that the contract concluded on those terms and conditions was in some way overruled or varied by the references in the two letters dated June 4 and 5 to the quotation of May 23, 1969. The first refers to the machinery being as quoted on May 23. The second letter says that the order has been entered in accordance with the quotation of May 23. I agree with Lord Denning MR and Lawton LJ that that language has no other effect than to identify the machinery and to refer to the prices quoted on May 23. But on any view, at its highest, the language is equivocal and wholly ineffective to override the plain and unequivocal terms of the printed acknowledgment of order which was enclosed with the letter of June 5. Even if that were not so and if Mr. Scott could show that the sellers’ acknowledgment of the order was itself a further counter-offer, I suspect that he would be in considerable difficulties in showing that any later circumstance amounted to an acceptance of that counter-offer in the terms of the original quotation of May 23 by the buyers. But I do not consider that question further because I am content to rest upon the view that there is nothing in the letter of June 5 which overrides the plain effect of the acceptance of the order on the terms and conditions stated thereon.
I too would allow the appeal and enter judgment for the defendants.”
Hartog v Colin & Shields
[1939] 3 All ER 566
Singleton J
“In this case, the plaintiff, a Belgian subject, claims damages against the defendants because he says they broke a contract into which they entered with him for the sale of Argentine hare skins. The defendants’ answer to that claim is:
“There really was no contract, because you knew that the document which went forward to you, in the form of an offer, contained a material mistake. You realised that, and you sought to take advantage of it.”
Counsel for the defendants took upon himself the onus of satisfying me that the plaintiff knew that there was a mistake and sought to take advantage of that mistake. In other words, realising that there was a mistake, the plaintiff did that which James LJ, in Tamplin v James, at p 221, described as “snapping up the offer.” It is important, I think, to realise that in the verbal negotiations which took place in this country, and in all the discussions there had ever been, the prices of Argentine hare skins had been discussed per piece, and later, when correspondence took place, the matter was always discussed at the price per piece, and never at a price per pound. Those witnesses who were called on behalf of the plaintiff have had comparatively little experience of dealing in Argentine hare skins. Even the expert witness who was called had had very little. One witness, Mr Caytan, I think, had had no dealings in them for some years, though before that he had had some, no doubt. On the whole, I think that the evidence of Mr Wilcox, on behalf of the defendants, is the more likely to be right–namely, that the way in which Argentine hare skins are bought and sold is generally per piece. That is shown by the discussions which took place between the parties in this country, and by the correspondence. Then on 23 November came the offer upon which the plaintiff relies. It was an offer of 10,000 Argentine hares, winters (100 skins equalling 16 kilos), at 10d per lb; 10,000 half hares at 6d per lb; 10,000 summer hares at 5d per lb. Those prices correspond, roughly, in the case of the winter hares, to 3d per piece, half hares 2d per piece, and summer hares 1d per piece. The last offer prior to this, in which prices were mentioned, was on 3 November from the defendants, and the price then quoted for winter hares was 10d per piece. Even allowing that the market was bound to fall a little, I find it difficult to believe that anyone could receive an offer for a large quantity of Argentine hares at a price so low as 3d per piece without having the gravest doubts of it.
I mention merely the price of the winter hares, because Mr Wilcox told me and I accept his evidence, that at some time the price of Argentine winter hares fell to 9d. I am satisfied, however, from the evidence given to me, that the plaintiff must have realised, and did in fact know, that a mistake had occurred. What did he do? Mr Hartog put it forward as being a bona fide act on his part that he at once went to Mr Caytan and entered into a contract with him. I am not sure that it points to a bona fide act at all. Mr Caytan, who was called before me, apparently entered into an arrangement with him on that same day, 23 November, to buy Argentine winter hares at 11d per lb, so that the price, if there had been a contract at 10d per lb, has risen on the sale of the goods to Mr Caytan to 11d per lb. That is 11/2d up, which is a considerable increase, and much greater than that which he had been offering to pay in the letters which passed earlier. It is a much greater increase.
I cannot help thinking that, when this quotation in pence per pound reached Mr Hartog, the plaintiff, he must have realised, and that Mr Caytan, too, must have realised, that there was a mistake. Otherwise I cannot understand the quotation. There was an absolute difference from anything which had gone before–a difference in the manner of quotation, in that the skins are offered per pound instead of per piece.
I am satisfied that it was a mistake on the part of the defendants or their servants which caused the offer to go forward in that way, and I am satisfied that anyone with any knowledge of the trade must have realised that there was a mistake. I find it difficult to understand why, when Mr Caytan bought in this way at 11d per lb, he could not tell me what the total purchase price was, and I cannot help thinking that there was an arrangement of some sort, amounting rather to a division of the spoil. That is the view I formed, having heard the witnesses. I do not form it lightly. I have seen the witnesses and heard them, and in this case can form no other view than that there was an accident. The offer was wrongly expressed, and the defendants by their evidence, and by the correspondence, have satisfied me that the plaintiff could not reasonably have supposed that that offer contained the offerers’ real intention. Indeed, I am satisfied to the contrary. That means that there must be judgment for the defendants.”
Smith v Hughes
(1871) LR 6 QB 597
Cockburn CJ
“I take the true rule to be, that where a specific article is offered for sale, without express warranty, or without circumstances from which the law will imply a warranty—as where, for instance, an article is ordered for a specific purpose—and the buyer has full opportunity of inspecting and forming his own judgment, if he chooses to act on his own judgment, the rule caveat emptor applies. If he gets the article he contracted to buy, and that article corresponds with what it was sold as, he gets all he is entitled to, and is bound by the contract. Here the defendant agreed to buy a specific parcel of oats. The oats were what they were sold as, namely, good oats according to the sample. The buyer persuaded himself they were old oats, when they were not so; but the seller neither said nor did anything to contribute to his deception. He has himself to blame. The question is not what a man of scrupulous morality or nice honour would do under such circumstances. The case put of the purchase of an estate, in which there is a mine under the surface, but the fact is unknown to the seller, is one in which a man of tender conscience or high honour would be unwilling to take advantage of the ignorance of the seller; but there can be no doubt that the contract for the sale of the estate would be binding.
It only remains to deal with an argument which was pressed upon us, that the defendant in the present case intended to buy old oats, and the plaintiff to sell new, so the two minds were not ad idem; and that consequently there was no contract. This argument proceeds on the fallacy of confounding what was merely a motive operating on the buyer to induce him to buy with one of the essential conditions of the contract. Both parties were agreed as to the sale and purchase of this particular parcel of oats. The defendant believed the oats to be old, and was thus induced to agree to buy them, but he omitted to make their age a condition of the contract. All that can be said is, that the two minds were not ad idem as to the age of the oats; they certainly were ad idem as to the sale and purchase of them. Suppose a person to buy a horse without a warranty, believing him to be sound, and the horse turns out unsound, could it be contended that it would be open to him to say that, as he had intended to buy a sound horse, and the seller to sell an unsound one, the contract was void, because the seller must have known from the price the buyer was willing to give, or from his general habits as a buyer of horses, that he thought the horse was sound? The cases are exactly parallel.”
.
Blackburn J
“In this case I agree that on the sale of a specific article, unless there be a warranty making it part of the bargain that it possesses some particular quality, the purchaser must take the article he has bought though it does not possess that quality. And I agree that even if the vendor was aware that the purchaser thought that the article possessed that quality, and would not have entered into the contract unless he had so thought, still the purchaser is bound, unless the vendor was guilty of some fraud or deceit upon him, and that a mere abstinence from disabusing the purchaser of that impression is not fraud or deceit; for, whatever may be the case in a court of morals, there is no legal obligation on the vendor to inform the purchaser that he is under a mistake, not induced by the act of the vendor. And I also agree that where a specific lot of goods are sold by a sample, which the purchaser inspects instead of the bulk, the law is exactly the same, if the sample truly represents the bulk; though, as it is more probable that the purchaser in such a case would ask for some further warranty, slighter evidence would suffice to prove that, in fact, it was intended there should be such a warranty. On this part of the case I have nothing to add to what the Lord Chief Justice has stated.
But I have more difficulty about the second point raised in the case. I apprehend that if one of the parties intends to make a contract on one set of terms, and the other intends to make a contract on another set of terms, or, as it is sometimes expressed, if the parties are not ad idem, there is no contract, unless the circumstances are such as to preclude one of the parties from denying that he has agreed to the terms of the other. The rule of law is that stated in Freeman v Cooke.[5] If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.
The jury were directed that, if they believed the word “old” was used, they should find for the defendant—and this was right; for if that was the case, it is obvious that neither did the defendant intend to enter into a contract on the plaintiff’s terms, that is, to buy this parcel of oats without any stipulation as to their quality; nor could the plaintiff have been led to believe he was intending to do so.
But the second direction raises the difficulty. I think that, if from that direction the jury would understand that they were first to consider whether they were satisfied that the defendant intended to buy this parcel of oats on the terms that it was part of his contract with the plaintiff that they were old oats, so as to have the warranty of the plaintiff to that effect, they were properly told that, if that was so, the defendant could not be bound to a contract without any such warranty unless the plaintiff was misled. But I doubt whether the direction would bring to the minds of the jury the distinction between agreeing to take the oats under the belief that they were old, and agreeing to take the oats under the belief that the plaintiff contracted that they were old.
The difference is the same as that between buying a horse believed to be sound, and buying one believed to be warranted sound; but I doubt if it was made obvious to the jury, and I doubt this the more because I do not see much evidence to justify a finding for the defendant on this latter ground if the word “old” was not used. There may have been more evidence than is stated in the case; and the demeanour of the witnesses may have strengthened the impression produced by the evidence there was; but it does not seem a very satisfactory verdict if it proceeded on this latter ground. I agree, therefore, in the result that there should be a new trial.
Mackey v.Wilde and Longin
[1998] 1ILRM 449
Supreme Court
BARRON J (Hamilton CJ and Barrington J concurring)
“For the next two to three years there was correspondence between the plaintiff and the first named defendant in which the plaintiff was seeking to obtain a written agreement limiting numbers.
As no agreement could be reached proceedings were ultimately brought by the plaintiff to establish a binding agreement that there should be only 25 rods per side. These proceedings were heard by Costello P who held that there was a concluded agreement entered into at the end of 1985 or early in January 1986 that each party would restrict the number of annual tickets to 25 and would also be at liberty to issue a few day tickets. Notwithstanding that the pleadings did not refer to the additional day tickets he was satisfied that a term relating to additional day tickets had been included and held that this entitled each party to issue up to ten day tickets. Accordingly, the first named defendant was restrained from issuing more than 25 annual licences and ten day tickets. From that judgment the defendants have appealed to this Court.
It was submitted on behalf of the defendants that the learned trial judge was wrong to find a concluded agreement in that the evidence showed only some element of agreement. It was also submitted that there were no sufficient acts of part performance to make the agreement enforceable.
It is submitted that there are three matters upon which no agreement was reached and without which no agreement could have been concluded. These were:
(1) the meaning of the word ‘few’ ;
(2) whether the agreement was for the year 1986 or into the future; and
(3) whether either party would be entitled to split the times at which holders of season tickets would be entitled to exercise the licence granted to them.
So far as the latter ground is concerned, it was not argued at the trial. There must be many agreements where the parties do not cover every eventuality because such question does not occur to them. When the question arises, it must be answered in the light of the proper construction of the contract. Here, there were to be annual tickets and day tickets. There was no evidence to suggest that the period covered by either class of ticket might be split and, if so, in what manner. I would reject the suggestion of uncertainty upon this ground.
The second ground relates to the period of the contract. In a contract of this nature, it is reasonable to expect that the agreement is to continue until the parties agree to alter it or circumstances change. In the instant case, it would, having regard to what the plaintiff wrote in the circular which he issued follow ing the meeting at the end of 1985, have been open to regard the arrangement as being for one year only and reviewable at the end of that year. This view would have been supported by subsequent correspondence and the absence of any effort to have the arrangement reduced to writing. Nevertheless, the learned trial judge has found, as a matter of primary fact and on his assessment of the witnesses, that the agreement was a continuing one. It cannot be said that there was no evidence to support such a conclusion.
The remaining ground is one of law and is whether it is open to the court to give a precise meaning to the word ‘few’ . There have been many cases in which the full terms of the contract are not set out precisely, but which have been found to be valid binding agreements. Examples are where a term is implied, where there is a formula for determining the apparent uncertainty with precision or where the term is to be determined upon the basis of what is reasonable or by reference to custom or trade usage. Even in some cases, when none of these means can be operated, the agreement will still be upheld where the court is satisfied that the term which is still to be settled is a subsidiary one and the parties intended to be bound in any event by the main agreement.
The essential question is whether the parties have left over some matter to be determined which can only be determined by themselves. So an agreement to enter into an agreement is not a concluded contract.
In the instant case, the agreement was not capable of being saved by any of the means available to the court to which I have referred. The parties did not intend to be limited to 25 annual licences without any day tickets. Nor could the number be determined by what is reasonable. Reasonableness in law is an expression capable of certainty. But there can be no certainty here. The learned trial judge has held that ten day tickets would be reasonable. But equally any other number between two and ten would have been said also to have been reasonable. When an apparently uncertain term is saved on the basis of what is reasonable, it is because this is imparting certainty, something which cannot be done by choosing which of several reasonable answers is the correct one. In other words, the court cannot make the agreement for the parties by saying this is reasonable. In the instant case what the parties have left over, what is meant by the word ‘few’ , is something which only they can settle. It follows that there was no concluded agreement.
Turning to the question of part performance, it is submitted that the plaintiff permitted the defendant to make greater use of the two beats the use of which was restricted by the 1920 deed. If the defendants’ records were correct, and the evidence suggested that they may not have been, then he did issue 50% more day tickets in 1986 than in 1985, but as against that the number of season tickets was reduced to 25% of those issued in the previous year.
The nature of the doctrine is comprehensively stated in the judgment of Lord Simon of Glaisdale in Steadman v. Steadman [1976] AC 536 at p. 558 as follows:
… almost from the moment of passing of the Statute of Frauds , it was appreciated that it was being used for a variant of unconscionable dealing, which the statute itself was designed to remedy. A party to an oral contract for the disposition of an interest in land could, despite performance of the reciprocal terms by the other party, by virtue of the statute disclaim liability for his own performance on the ground that the contract had not been in writing. Common law was helpless. But Equity, with its purpose of vindicating good faith and with its remedies of injunction and specific performance, could deal with the situation. The Statute of Frauds did not make such contracts void but merely unenforceable; and, if the statute was to be relied on as a defence, it had to be specifically pleaded. Where, therefore, a party to a contract unenforceable under the Statute of Frauds stood by while the other party acted to his detriment in performance of his own contractual obligations, the first party would be precluded by the Court of Chancery from claiming exoneration, on the ground that the contract was unenforceable, from performance of his reciprocal obligations; and the court would, if required, decree specific performance of the contract. Equity would not, as it was put, allow the Statute of Frauds ‘to be used as an engine of fraud’ . This became known as the doctrine of part performance — the ‘part’ performance being that of the party who had, to the knowledge of the other party, acted to his detriment in carrying out irremediably his own obligations (or some significant part of them) under the otherwise unenforceable contract.
The basis of this principle was that the contract by reason of its part performance passed from being a purely executory contract and might create equities which would justify the court enforcing it specifically, something it would not have done while it remained purely executory because of the absence of writing to satisfy the statute.
It is not surprising therefore that the older authorities require evidence of part performance before considering the terms of the agreement. In Maddison v. Alderson (1883) 8 App Cas 467 Lord O’Hagan said at p. 483:
The alleged agreement regarded an interest in lands and the statute nullified it for the purpose of the action. Per se , it was of no account and could have no value given to it unless, in the first instance, it was evidenced by acts to be accounted for only on the supposition of its existence. The allegation of it could not be made the subject of judicial consideration as founding any right of suit, in the absence of such acts, satisfactorily ascertained.
Later on p. 484 he said:
The previous question as to the sufficiency of the part performance must be settled before the construction and operation of the unwritten contract can be legiti mately approached. ‘The principle of the cases is’ , says Sir William Grant, ‘that the act must be of such a nature that, if stated, it would of itself infer the existence of some agreement; and then parol evidence is admitted to show what the agreement is.’ Then, but not till then.
As regards the nature of the acts which could be relied upon as part performance, the Earl of Selbourne LC, with whom Lord O’Hagan and Lord Fitzgerald concurred, said at p. 479:
All the authorities show that the acts relied upon as part performance must be unequivocally, and in their own nature, referable to some such agreement as that alleged….
At p. 485 Lord O’Hagan said:
But there is no conflict of judicial opinion, and in my mind no ground for reasonable controversy as to the essential character of the act which shall amount to a part performance, in one particular. It must be unequivocal. It must have relation to the one agreement relied upon, and to no other. It must be such, in Lord Hardwicke’s words, ‘as could be done with no other view or design than to perform that agreement’ . It must be sufficient of itself, and without any other information or evidence, to satisfy a court, from the circumstances it has created and the relations it has formed, that they are only consistent with the assumption of the existence of a contract the terms of which equity requires, if possible, to be ascertained and enforced.
While these passages appear to indicate that the terms of the contract could be investigated by the court, it seems that it was generally taken that the acts of part performance had to relate unequivocally to the actual contract. This was disapproved by Andrews LJ in Lowry v. Reid [1927] NI 142 who after analysing various passages from the judgments in Maddison v. Alderson and having indicated that he was not prepared to follow such strict rules said (at p. 159):
I make no apology for citing, in conclusion, as a correct summary of the law a passage from Fry on Specific Performance , 5th ed., p. 292, where the editor states that the true principle of the operation of acts of part performance seems only to require that the acts in question be such as must be referred to some contract, and may be referred to the alleged one; that they prove the existence of some contract, and are consistent with the contract alleged.
The learned judge then pointed out that the paragraph from Fry on Specific Performance of which he approved was in the same form as that in the edition published in 1881 which was before the decision in Maddison v. Alderson and that that decision necessitated no alteration in the text.
It is still necessary to show that the other party was aware of what was being done whether by standing by and not doing anything or by more active participation. An example of the latter is to be seen in Lowry v. Reid where Moore LCJ at p. 152 referred to the facts of that case as follows:
In my judgment there is relief for him, because on the facts of the case, having given up his own property to his own detriment, on the faith of his mother’s representations, this is a contract for the specific performance of which he is entitled in equity to a decree to carry those representations into execution, and if he is entitled to such a decree, he is equally entitled to rely on the doctrine of part performance to take the case out of the statute….
It must not be forgotten that ultimately the court is seeking to ensure that a defendant is not, in relying upon the statute, breaking faith with the plaintiff, not solely by refusing to perform the oral contract, but in the manner contemplated from the passage from the judgment of Lord Simon of Glaisdale to which I have referred.
The doctrine is based upon principles of equity. There are three things to be considered:
(1) The acts on the part of the plaintiff said to have been in part performance or of concluded agreement;
(2) the involvement of the defendant with respect to such acts;
(3) the oral agreement itself.
It is obvious that these considerations only relate to a contract of a type which the courts will decree ought to be specifically performed. Each of the three elements is essential. In my view, it does not matter in which order they are considered. Ultimately what is essential is that:
(1) there was a concluded oral contract;
(2) that the plaintiff acted in such a way that showed an intention to perform that contract;
(3) that the defendant induced such acts or stood by while they were being performed; and
(4) it would be unconscionable and a breach of good faith to allow the defendant to rely upon the terms of the Statute of Frauds to prevent performance of the contract.
If the terms of the contract cannot be considered until the acts of the plaintiff have been found capable of being acts of part performance, there is the possibility, admittedly not a very strong one, that the acts might well have been inconsistent with the terms of the contract and in fact not carried out in pursuance of it, but for a different reason. I do not suggest that in such circumstances the court would still accept that there had been part performance. But it does show that it is more logical to find out what the parties agreed since, in the absence of a concluded agreement, there is no point in seeking to find acts of part performance. The court can only then begin its determination as to whether the behaviour of the parties justifies the application of the equitable doctrine to modify the legal rule.
In the result it seems to me that while the passage from Fry on Specific Performance cited by Andrews LJ in Lowry v. Reid expresses the law, the different approach requires the statement of principle to be altered. It would then read: What is required is that the acts relied upon as being acts of part performance be such that on examination of the contract which has been found to have been concluded and to which they are alleged to refer show an intention to perform that contract.
In all the earlier cases, it was assumed that the acts of part performance must necessarily relate to and affect land: see the judgment of Lord Fitzgerald in Maddison v. Alderson at p. 491. Nothing which I have said should be taken to suggest a modification of that position.
There is no evidence in the instant case that the plaintiff issued any more or any less licences than he had the previous year nor that the defendant was aware of how many he was issuing. The plaintiff had never complained during the season that too many tickets were being issued by the defendant and in that regard there was nothing different in his behaviour as between 1985 and 1986. The detriment to the plaintiff which is alleged is presumably the lessening in value of the fishery by over-fishing. But the detriment to the plaintiff must be the result of what the plaintiff does with the defendant standing by and not detriment to the plaintiff as a result of what the defendant does with the plaintiff standing by. There was nothing in what was alleged which would in any way be a breaking of faith by the defendant with the plaintiff for the defendant to plead the statute. Even if there had been a concluded oral agreement as claimed, there were no acts on the part of the plaintiff which show an intention to perform that contract.
I would allow the appeal and refuse the relief sought.
Shirley Engineering Ltd. v. Irish Telecommunications Investments plc
[1999] IEHC 204
Geoghegan J.
5. It is important now to examine the facts. Telecom Eireann, as agent for its own subsidiary the Defendant company, put up for sale a site of approximately 14 acres of land in Clondalkin which was surplus to the company’s requirements. Jones Lang Wootton were the retained agents for the sale. Mr. Nigel Healy of that firm found an interested purchaser in the form of the Plaintiff, Shirley Engineering Ltd. The managing director of that company was Mr. George Shirley and Mr. Healy’s negotiations were with him. It is not necessary to go into all the details of the bargaining about price. It is sufficient to state that an agreed price was arrived at, namely £780,000. This was in the course of oral discussions between Mr. Healy and Mr. Shirley. They both walked the lands and it was pointed out to Mr. Shirley that until proper mapping was done there would be some uncertainty as to the precise boundaries. As the acreage would be approximately the same this was of no concern to Mr. Shirley and I accept his evidence that within the parameters of the agreement he was prepared to accept the final determination by Telecom of the boundaries in accordance with the maps to be produced. Mr. Healy in his evidence explained how he had made it clear to Mr. Shirley that any agreement they reached would be subject to board approval and that he had also indicated that it would be intended there would be a formal contract in writing in which matters such as the deposit and closing date would be inserted following on discussions between the Solicitors. He was not certain whether he had used the precise expression “subject to contract” in the oral discussion. My impression was that there was no significant difference on these matters between the evidence of Mr. Healy and the evidence of Mr. Shirley. Mr. Brady, Counsel for the Defendant, however, in the course of cross-examination got Mr. Shirley to admit more that once that the negotiations had been “subject to contract”. In Mr. Brady’s view this was conclusive. As I argued with him at the hearing, I do not necessarily accept that that is so. While it is abundantly clear from the authorities that the expression “subject to contract” when included in a document must in virtually all circumstances be construed as meaning that there was no binding agreement until a written contract was signed, it is quite another matter to extend that principle to the use of the words “subject to contract” in oral conversation. In considering whether the agreement arrived at is conditional on a written contract being entered into, the Court must assess all the evidence and look at all the surrounding circumstances and the entire context in which an expression such as “subject to contract” was used. It is immaterial whether I am correct in that view or not because having done the exercise which I suggested a Court must do, I have come to the firm conclusion that the oral “agreement” arrived at between Mr. Shirley and Mr. Healy was in fact subject to contract in the sense that lawyers use that expression. The evidence establishes that Mr. Shirley and his company were well accustomed to dealing in property and I think it inconceivable that Mr. Shirley could possibly have thought that there was a concluded agreement in advance of a written contract of the normal type signed by the parties. While one cannot be sure of the precise words used, I am satisfied that Mr. Healy conveyed to Mr. Shirley that there would be no concluded agreement until there was a formal written contract. Mr. Shirley being well accustomed to property transactions would not have been misled and would have understood that that was the intended position. There are other aspects of the evidence which corroborate that point of view. The letter written to Mr. Shirleyby Mr. Healy on the day after the agreement was entered into dated 18th February, 1997 in which Mr. Healy sets out the terms that had been agreed on and makes it clear that they were “subject to contract”. It is not just a question of Mr. Healy heading the letter “subject to contract/contract denied” which of course he did and thereby prevented it being a note or memorandum for the purpose of the Statute of Frauds. He also in the body of the letter when referring to the purchase price states that it was “subject to contract”. There is then the final paragraph which admittedly is probably a paragraph which is always inserted in equivalent letters from Jones Lang Wootton in which it is made clear that the letter is for information purposes only and that no contract shall exist or be deemed to exist until formal contracts have been executed but what I think is particularly important is Mr. Healy’s oral evidence combined with the fact that in the actual body of the terms of the agreement he uses the expression “subject to contract”.
6. Secondly, and just as importantly, instructions were given by Mr. Shirley to the Plaintiff’s own Solicitors, William Fry, on 24th February, 1997 to “hold for a couple of days”. That instruction was countermanded on 5th March, 1997. But the fact that Mr. Shirley gave this instruction indicates to me that he himself did not consider himself contractually bound at that stage. I can see of course the argument put up by his Counsel, Mr. Nesbitt, that all he was concerned with was the non-creation of a letter which might constitute a note or memorandum for the purposes of the Statute of Frauds. But I think that this is too subtle and far-fetched an explanation. It is much more likely that Mr. Shirley quite rightly believed that so long as no further steps at least were taken, he was not contractually bound. That belief would have been based on the nature of his negotiations with Mr. Healy.
7. Accordingly, I am of the view that no unconditional concluded agreement was reached between Mr. Shirley and Mr. Healy as everything was understood to be subject to contract. But there is a second reason also why I think there was no concluded agreement. It would have been unthinkable that the Defendant would enter into an agreement of this kind without insisting on a deposit. Mr. Shirley fully accepts that he would have had to pay a deposit and he had no fixed views as to what the nature of the deposit would have been. My impression was that he was willing to pay any deposit within reason. It was not the policy of Jones Lang Wootton to agree the amount of a deposit and I am satisfied that it was clearly understood between Mr. Shirley and Mr. Healy that the question of deposit was to be negotiated between the Solicitors. Now it may well be that in many types of sales or perhaps sales in particular areas, there would be a recognised percentage deposit which would invariably be inserted in the written contracts. In such a case there might be circumstances depending on the nature of the discussions where the Court would imply an agreement to pay the standard deposit. For reasons which I will explain, I do not think that the implication of such a term by the Court would be contrary to the views expressed by Finlay C.J. in Boyle -v- Lee , [1992] 1 I.R. 555, quite apart from what the views of the majority of the Supreme Court in that case may have been. But this particular case is rather similar to Boyle -v- Lee in that there is no evidence to establish that there was a recognised standard percentage deposit. On the contrary, Mr. Shirley indicated that he would not have known what the particular rate would be and that he was not concerned with it and furthermore it was understood that it would be negotiated between the Solicitors. It is true that witnesses called on behalf of the Defendant indicated that as far as Telecom was concerned a deposit of 10% would have been acceptable. But as far as the oral discussions go all that emerged in relation to the deposit was a certain willingness on the part of the Plaintiff to pay any kind of deposit (though one must assume this was within reason). In those circumstances I do not see how a Court could imply a term that the deposit was to be 10%. The deposit is a most important term in an agreement of this kind as it is a major weapon in the armoury of a vendor. Once there was no express or implied agreement as to the amount of the deposit there cannot be said to have been a concluded agreement. For that reason also therefore I hold that there was no concluded agreement in this case.
8. I am less impressed by the other two arguments against a concluded agreement. I do not think that the failure to agree precise boundaries was necessarily fatal to the conclusion of an agreement. It is clear from the evidence that the basic identity of the lands was known and the approximate acreage and that the Plaintiff was willing to accept whatever Telecom ultimately set down as the boundaries in the formal map. I think that that was sufficient certainty as to the property being bought. Nor do I think that the failure to agree a closing date would have necessarily prevented a concluded agreement. It is true that the Plaintiff wanted the sale closed as soon as possible but I do not think that Mr. Shirley had in mind some unusual early date. I think that it would be reasonable for the Court to imply, as Courts have implied in many cases in the past, that the sale was to be completed within a reasonable time.
9. Before concluding this part of my judgment, however, in relation to whether there was a concluded agreement or not, I intend as I indicated to comment further on Boyle -v- Lee cited above as it featured so prominently in the argument. What is particularly important to consider is what exactly did Finlay C.J. hold in relation to agreement on a deposit. The key passage is at p. 571 where the former Chief Justice after referring to the finding of the trial Judge that the failure of the parties to reach any agreement on the question of a deposit was irrelevant since it was of no importance in the contract, said the following:-
“In my view, this finding was in error. The amount of a deposit to be made, even if a purchaser is willing to make a deposit of the appropriate amount, or the usual amount then experienced in transactions in Dublin, is too important a part of a contract for the sale of land in the large sum of £90,000 to be omitted from a concluded and complete oral agreement unless the parties in such an agreement had agreed that no deposit would be paid. In this case the evidence irresistibly leads to the conclusion that both the first plaintiff and Mr. McManus agreed that there had to be a deposit, but left it over to be agreed between the solicitors when the formal contract was being settled as to its amount and form. In my view that evidence which was not in contest, must lead to a conclusion that there was not a complete contract made orally between the first plaintiff and Mr. McManus before the 8th July, 1988.”
10. There are a number of important points to be drawn from this passage. The first is that the former Chief Justice was strongly disputing that the question of a deposit was so unimportant or minor that the absence of agreement on it did not prevent there being a concluded agreement. That of course was on the basis of the facts in that particular case. However, as I have already indicated, the facts in this case are remarkably similar. The same comment could therefore equally be made in this case. Secondly, the former Chief Justice was pointing out that this would be so in a contract of this kind even if a purchaser had expressed willingness to make a deposit of the appropriate amount or the usual amount then experienced in transactions in Dublin. The important words there are “is willing to make”. A unilateral willingness cannot give rise to an implied agreement. There could only be an implied term that the usual deposit was to be paid if the words or conduct of both parties indicated that that is what was intended. The mere willingness on the part of one party to pay such a deposit could not give rise to an implied term. For that reason I do not think that Boyle -v- Lee is in any way an authority for the proposition that there can never be an implied term that the usual deposit will be paid. But neither in that case nor in this case is there the necessary surrounding evidence to give rise to such implication. Hederman J. agreed with the judgment of Finlay C.J. While there may be some ambiguity in the judgment of O’Flaherty J., I think that it is reasonably clear from his judgment that he considered that the deposit was of importance and that there had been no express or implied agreement in relation to its amount.
11. …..
13. Strictly speaking, it is unnecessary for me to deal with the Statute of Frauds issue. Given that I have held that there was no concluded agreement, that issue does not really arise. But in case a higher court disagreed with my views, I think it would be useful if I did in fact deal with the Statute of Frauds point. For this purpose I must artificially assume that there was a concluded agreement and the question then arises is there a note or memorandum to satisfy the statute. On one view the letter from Mr. McGrath of 3rd March, 1997 which I have already set out is almost a textbook note or memorandum. I think that I am right in saying that specific performance decrees have been granted many times in the past on foot of alleged memoranda much less clear than that one, though in the light of Boyle -v- Lee that might no longer be the case. I am unsure of this however because it is not entirely clear to me that in his comments on the adequacy of the note or memorandum in Boyle -v- Lee , Finlay C.J. addressed the question of whether every term or only the essential terms in an orally concluded agreement had to be included in the note or memorandum. What the former Chief Justice seems to have been addressing were two different points. One is whether the note or memorandum must either expressly or by implication acknowledge the existence of a concluded agreement and he, like the other members of the Court held that it must, thereby agreeing with the views already expressed by Keane J. in Mulhall -v- Haren, [1981] I.R. 364. His reference to “the price, deposit, closing date, résumé of title etc.” is in that particular context and not in any other context. He is suggesting that if those matters were clearly set out in a document that would be an implied acknowledgement of an agreement. Secondly, he was again agreeing with the views of Keane J. in Mulhall -v- Haren that any words in the memorandum which indicated a denial of a contract prevented the memorandum itself from being sufficient for the purposes of the statute. I have already held that there was no implied term in the relevant negotiations in this case that a so-called usual deposit would be paid and I have also held that the deposit was an important term. But that was entirely in the context of whether there was a concluded agreement or not. Once the deposit had still to be agreed there was no concluded agreement. It does not follow from that that the amount of a deposit expressly or by implication agreed would upon have to be set out in the note or memorandum to satisfy the Statute of Frauds. The authorities seem to establish that only the essential terms need be included in the note or memorandum and by that I mean the kind of terms that would always be regarded as essential, together with any special added terms which the parties in the particular case regarded as essential. I do not think that the amount of the deposit is an essential term in that sense, that is to say in the sense that it would have to be included in the note or memorandum. Mr. John Farrell, S.C., in his book “Irish Law of Specific Performance” says the following:-
“Questions may arise whether every term agreed by the parties must be in that memorandum. The case law makes it clear that some terms are always ‘essential’ or ‘material’ in contracts for the sale of land. These are the parties, the property and the consideration so these must be ascertainable from the memorandum relied on.”
14. He goes on to cite a passage from Lord McDermott, L.C.J., in Stinson -v- Owens , unreported judgment but noted in 107 I.L.T.S.J. 239:-
“…. that a memorandum may satisfy the requirements of the statute without mentioning every term that has been agreed between the parties, but that to be good it must mention all the terms which are essential or material. And I am further of the opinion that for the purposes of this requirement what is material or essential must be considered, at any rate primarily, from the point of view of the parties themselves.”
15. Similar views were expressed by the Supreme Court in the form of the leading judgment by Maguire C.J. in Godley -v- Power, (1961) 95 I.L.T.R. 135 at 145, the relevant passage is as follows:-
“A memorandum must contain all essential terms. The parties, the property, and the consideration must always be ascertainable from it, but it need not contain any terms which the general law would imply.”
16. If, therefore, there had been a concluded agreement in this case which had embraced the amount of the deposit, I think that the letter from Mr. McGrath dated 3rd March, 1997 would have been a good note or memorandum of it to satisfy the Statute of Frauds and I reject the argument that it was part of on-going correspondence in which it had been made clear that everything was subject to contract. This was the first letter coming from the Solicitor’s office. As it does not arise, I express no views as to whether perhaps the Plaintiff might have been estopped from relying on the letter of 3rd March as a note or memorandum in view of the fact that his own Solicitors, William Fry, vehemently denied the existence of any contract in the subsequent correspondence from them.
17. The reason that this sale fell through was because a much higher offer came in from another potential purchaser. In the event, the alternative transaction was never completed either. The Plaintiff was understandably aggrieved as it appeared to be a straight case of gazumping on the part of the Defendant. However, I do not intend to go into the circumstances of that aspect of the case in this judgment, though they may possibly have some relevance if and when I come to consider any question of costs. With great sympathy for the Plaintiff and great regret, I must dismiss the action. “
Supermac’s Ireland Ltd. v. Katesan (Naas) Ltd.
[2000] IESC 17
Geoghegan J.
6. Although Mr. Cush opened the case on the basis that there was no concluded agreement because there had been no agreement on the deposit and the amount thereof, no agreement on a completion date and no agreement concerning the possession of the Naas property, there being at the time potential problems about possession, he more or less conceded ultimately that for the purposes of this motion at least the absence of agreement on the deposit was the only factor, but a very important factor, on which he could rely. Obviously at the hearing of the action there could be argument as to whether there might have been an implied term that the sale would be completed within a reasonable time or some other kind of implied term relating to completion date. In relation to the question of possession it might be argued at the full hearing, that in the absence of any mention of this, there would be an obligation to give up clear vacant possession. The deposit however was quite a different matter. Mr. Cush argues that if on any view of the facts as they are before the court at this stage it must have been intended that there would be a deposit, the absence of any agreement as to the amount of it must necessarily mean that there was no concluded agreement. If there was no concluded agreement then the question of the sufficiency of a note or memorandum does not arise and ipso facto the question of part performance does not arise either. In his submissions regarding the deposit counsel for the Appellant principally relies on the decision of this court in Boyle v. Lee [1992] 1 IR 555. That case related to a sale of a house and the issues which fell to be determined was whether there was a concluded oral agreement and if so whether there was a sufficient note or memorandum of it to satisfy the Statute of Frauds. It was common case that there had been no specific agreement in relation to tenancies to which the property was subject or as to a closing date or as to the deposit. Separate judgments were delivered by Finlay C.J., McCarthy J., O’Flaherty J. and Egan J. The fifth member of the court Hederman J. agreed with the judgment of Finlay C.J. Effectively Finlay C.J., Hederman J. and O’Flaherty J. held that there was no concluded agreement but McCarthy J. and Egan J. dissented. It would appear that McCarthy J. and Egan J. took the view that it would be wrong to assume that the parties considered it essential to agree on a deposit and if they had agreed on the other main terms as they had there was no reason to hold that a final agreement had not been reached. This however was the minority view. As to what exactly the majority view was has never been entirely clear. The judgments of Finlay C.J. and O’Flaherty J. have been open to different interpretations and the problems arising out of them have been discussed by the learned author of Farrell on the Irish Law of Specific Performance. The different arguments of interpretation were recently presented before me as a High Court judge in Shirley Engineering Limited v. Irish Telecommunications Investments plc. I had considerable difficulties with them as is clear from my unreported judgment delivered on the 2nd December, 1999. It is in relation to the question of the deposit that the problems mainly arise. The learned High Court judge in that case Barrington J. had held that the failure of the parties to reach any agreement on the question of a deposit was irrelevant since it was of no importance in the contract. The former Chief Justice when commenting on that finding, described it as a mixed finding of law and fact, and he then went on to say the following:-
“In my view, this finding was in error. The amount of a deposit to be made, even if a purchaser is willing to make a deposit of the appropriate amount, or the usual amount then experienced in transactions in Dublin, is too important a part of a contract for the sale of land in the large sum of £90,000 to be omitted from a concluded and complete oral agreement unless the parties in such an agreement had agreed that no deposit would be paid. In this case the evidence irresistibly leads to the conclusion that both the first plaintiff and Mr. McManus agreed that there had to be a deposit, but left it over to be agreed between the solicitors when the formal contract was being settled as to its amount and form. In my view, that evidence, which was not in contest, must lead to a conclusion that there was not a complete contract made orally between the first plaintiff and Mr. McManus before the 8th July, 1988.”
7. It is important to subject that passage to some analysis. First of all in holding that there had to be agreement on the deposit the former Chief Justice was dealing only with the question whether there was a concluded agreement and not in any way with the question of whether there was a sufficient note or memorandum to satisfy the Statute of Frauds. The passage therefore has no bearing on any question as to whether if a deposit is agreed the amount of it should be set out in the note or memorandum. Secondly, it is quite clear from the passage that Finlay C.J. was holding beyond doubt on the evidence that the amount of the deposit was still to be negotiated. If that was so that was clearly the end of the matter because if a term of an agreement has still to be negotiated how can it be said that there is a concluded agreement? When read in that light the passage in the judgment is crystal clear. Confusion has arisen because of references both in the case law and in the text books to expressions such as “material terms” or similar words in relation to the issue of whether there is a concluded agreement. That type of wording should have no place in that consideration. It is a wholly different matter when one comes to consider the sufficiency of a note or memorandum. Only the “material terms” need be included in a note or memorandum for it to be sufficient but all the terms, whether they be important or unimportant, must be agreed before there can be said to be a concluded agreement. It follows therefore that if the evidence is that there is going to be a deposit but that the amount of it is still to be negotiated, there cannot be a concluded agreement. The third point which arises from the passage cited relates to the words “even if a purchaser is willing to make a deposit of the appropriate amount, or the usual amount then experienced in transactions in Dublin.” Some interpret these words as meaning that there can never be an implied agreement as to the deposit. I cannot agree with that view. What the former Chief Justice is saying is that the mere fact that the purchaser was willing to make an appropriate deposit could not render the agreement a concluded agreement if the understanding was that the deposit was to be negotiated. If the evidence establishes that two proposed parties to an agreement intended that their agreement should contain an express term relating to a deposit there cannot then be an implied term. Finlay C.J. is merely pointing out that a unilateral willingness on the part of the purchaser to pay a reasonable deposit is irrelevant in the absence of an agreement by the other party to accept that amount.
8. It is now necessary to consider what O’Flaherty J. had to say on this matter. Unlike this case there had been a “subject to contract” issue in Boyle v. Lee and a propos of that phrase O’Flaherty J. said the following:-
“Before examining this phrase at all, it is necessary to go to back to the rudiments of the law of contract and find out whether there was an offer and acceptance and an intention to create legal relations. That there was an agreement on price, offer and acceptance, there is no doubt. But beyond that, in my judgment, there was much to be sorted out. For a start, the matter of the tenancies was not resolved. It was easy for the first plaintiff to say at the trial that he was prepared to take the property subject to the tenancies whatever kind they were – but one of his answers suggested that he might have had to engage in litigation because of what he felt was a misrepresentation in relation to a tenant who had in effect, a six year tenancy. It is common case that Mr. McManus left him under the impression that they were all short tenancies, meaning thereby not more than year. Then, there was no closing date agreed. Mr. McManus expressly declined to take a deposit believing that that was a matter proper to be put into the formal contract. So, it appears to me, that there was no consensus ad idem. There was, at the most, an agreement to agree.”
9. It is clear from this passage that the evidence in the case must have been that Mr. McManus as agent for the vendor had expressly declined to take a deposit on the basis that the deposit question was to be left to be put into the formal contract. There might be situations where that would not necessarily mean that there was not a concluded agreement as, for instance, where each side simply trusted the other to submit to reasonable arrangements which the solicitors might include in the contract relating to deposit and other matters etc. But it is obvious that on the transcript of evidence in Boyle v. Lee both Finlay C.J. and O’Flaherty J. accepted that the question of the deposit was still to be negotiated and that it was intended to be a term of the agreement. In my view Finlay’s C.J. reference to the importance of a deposit in such a transaction was simply a comment on credibility. He was taking the view that once the deposit was still to be negotiated that meant there was an actual term of the contract still to be negotiated and therefore there was no concluded contract. The views of O’Flaherty J., although expressed differently are not dissimilar.
10. Before considering the application of those principles to this case I think it appropriate briefly to review some other relevant authorities. In an unreported judgment of this court delivered on the 8th May, 1975 in Lynch v. O’Meara Henchy J. (with whom O’Higgins C.J. and Walsh J. concurred) had this to say:-
“In this court, counsel for the plaintiff contended that the first document and the second document should be read together and as such should be held to constitute the note or memorandum required by the Statute of Frauds. However, before one comes to the question of a note or memorandum it is necessary to see if an entire contract was concluded on Sunday 24th October, for it is only in that event that the statutory note or memorandum would be required. If the negotiations between the parties had not ripened into the fullness of an entire contract the plaintiff’s claim for specific performance would fail, not for want of the statutory evidence necessary for the enforcement of a contract for the sale of lands, but simply in default of the existence of any such contract. There would be no contract to be specifically enforced.”
I merely quote that passage because of its clarity as to the correct approach. There cannot be a concluded agreement unless everything intended to be covered by the agreement has been either expressly or impliedly agreed.
11. Black v. Kavanagh 108 ILTR 91 would seem to be an example of a case where on the evidence the judge (Gannon J.) took the view that the parties intended to reach a concluded agreement without dealing with the question of a deposit. It seems clear from the following passage in the judgment:
“I am satisfied on the evidence that the plaintiff and the defendant entered into a firm agreement for the sale and purchase of the defendant’s house at No. 1 Dodder Park Grove Rathfarnham and the specific contents identified by them before they went to their respective solicitors about the matter. At that stage each of them believed that he had entered into a binding agreement which he expected and intended would be legally enforceable by or against subject only to an obligation to facilitate the other reasonably as to when possession would be given and received. I find that neither of them attached any importance to the matter of the payment of a deposit or as to its amount. On the evidence before me I am satisfied that neither of them gave any authority to his solicitor to enter into or negotiate the terms of a contract in any way at variance with the agreement they had already reached and that on the unconcluded matter of the date of possession their final agreement would be communicated but not decided by their solicitors. Both of them recognised and accepted that legal formalities which to them were no more than formalities were necessary and that the procedures of such nature would be followed on their behalf by the named solicitors, and no further authority was given to either solicitor. They relied on their solicitors to prepare any documents necessary to give legal force and effect to their agreement and each was willing and expected to put his hand to whatever documents his solicitor required for that purpose whether it be called the contract, or a draft contract, or a memorandum of agreement.”
12. In this respect it is clear that the evidence in Black v. Kavanagh as to the status of the deposit was quite different from the evidence in Boyle v. Lee.
13. In Barrett v. Costelloe unreported judgment of Kenny J. dated the 13th July, 1973 (but noted in [1973] 107 ILT 239) the plaintiff told his agent that he was prepared to pay £40,000 and auctioneers fees in relation to a particular property but had stipulated that there was a deposit of 10%. The agent spoke to the vendor and told him of the offer but omitted to mention the stipulation about the deposit of 10%. The Defendant approved the sale and although it had not been mentioned to him he would have agreed to the 10% deposit had it been mentioned. On the particular facts of the case and the evidence as to how the negotiations ran Kenny J. held that there was an oral concluded agreement without any express term relating to the deposit. But he went on to observe as follows:-
“In former times a deposit of 25% was usual but the evidence satisfies me that a deposit of 10% has become a common practice in property sales in Dublin. I do not accept the submission of the defendant’s counsel that there was never a concluded contract between the parties.”
14. While it is not entirely clear, I think that Kenny J. was effectively holding that there was an implied term as to a deposit of 10% rather than that there was no agreement of any kind relating to deposit. But it does not much matter because if Kenny J. was holding that there was neither an express nor an implied term as to the deposit then effectively he was holding that there was a concluded agreement with both parties ignoring the question of a deposit and leaving it as something to be dealt with ultimately when the formal contracts were drawn up. In such a situation however if for some reason or other the solicitors drawing up the contract were unable to agree on a deposit, the original oral agreement would remain binding and there would be no contractual deposit. The underlying legal principle was referred to by Lavery J. in his dissenting judgment in Godley v. Power (1957) 95 ILTR 135 at 147 where he quotes with approval what he described as “the oft quoted and oft approved” passage from the judgment of Parker J. in Van Hatzfeldt Wildenberg v. Alexander [1912] 1 Ch. 284 at p.288. The passage reads as follows:-
“It appears to be well settled by the authorities that if the documents
or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain, or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored.”
15. Applying the above principles as enunciated in the case law to this particular case, it would seem that if this action goes to trial there may be a number of alternative arguments relating to the question of the deposit. I would list these as follows:-
(1) That it was always intended that the parties would be contractually bound by a particular deposit yet to be negotiated.
(2) That having regard to the nature of the transaction in this case and in particular the fact that there was a franchisor – franchisee relationship between the parties, it was not intended that there be a deposit.
(3) That in all the circumstances of the case there would have been an implied term that a reasonable deposit would be paid.
(4) That in all the circumstances there was an implied term that the standard deposit normally payable in transactions of this kind would be paid.
(5) That it would never have occurred to any of the parties that there would be a problem about the deposit and that a concluded agreement was reached ignoring it with the assumption that the solicitors when drawing up formal contracts would agree a deposit.
16. If the trial judge held in favour of the first of those arguments the action would undoubtedly have to be dismissed because there would then have been no concluded agreement. But the action would not have to be dismissed if any of the remaining four arguments held good. At this stage of the proceedings it would be wrong and indeed it would not be possible for this court to hold that only the first argument was open. There can be no question therefore in my view of the proceedings being struck out at this stage on the basis that there was no concluded agreement as to deposits.
17. Still less could this court hold at this stage that there was no concluded agreement because of there being no reference to a completion date. In many sets of circumstances the court implies a term that the agreement will be completed within a reasonable time. The evidence in this case suggests that a speedy completion date was desired but it was known to both parties that there were problems of vacant possession in relation to the actual property the subject matter of this action and at this stage it could not be said with certainty that there was not an implied term as to completion.
18. Nor is the absence of any stipulation about vacant possession in relation to the property the subject matter of the action fatal to the Plaintiffs’ claim. On the contrary the general rule would be that in the absence of any such stipulation an obligation to give vacant possession must be presumed.
19. I now turn to the next of the Defendants’ arguments. The Defendants maintain that, if contrary to what they submit there may arguably have been a concluded agreement, there is no note or memorandum of such agreement which could arguably satisfy the Statute of Frauds. To explain this part of the argument it is necessary to go into the facts of the case in more detail.
……
22. None of the intended signatories actually signed that particular document. I should have mentioned that the second page of the document of the 13th November, 1997 is in fact headed 7th November, 1997 and is almost though not quite a straight copy of the second page of the document of the 7th November, 1997. This second page commences with the heading “Staff”.
23. It would be immediately apparent to any lawyer that all kinds of problems could arise from any attempt to set up either or both of these documents as a memorandum for the purposes of the Statute of Frauds. There is first of all the point that Mr. Chambers signed the first document but not the second and that nobody signed the second. If the action goes to trial the Defendants will be strongly arguing that Mr. Chambers was never an agent of the Defendants for the purposes of signing any memorandum. However their counsel Mr. Cush fairly concedes that there is an issue to be tried on that point and he could not succeed in having the action struck out on that basis at this stage. He does however strongly rely on the absence of any signature on the second document. In my view, it would not be correct for this court to strike out the proceedings at this stage on that account. There has been a good deal of development of the case law relating to memoranda to satisfy the Statute of Frauds and as to when and where signatures have to be appended and as to the connection to be made between one document and another. These various cases have been considered by the learned author of Farrell on Irish Law of Specific Performance. It would not seem to me that beyond doubt the Plaintiffs could not rely on the first document or the first document combined with the second as a sufficient memorandum. It is a matter which should be argued out and tried at the action. Nor do I consider that either because of the reference to “Sale Contracts” in each of the documents or the apportionment of price between the different properties as set out in the second document that the Plaintiffs could never succeed in establishing the first document or the first document combined with the second as a sufficient memorandum of the contract alleged in the statement of claim that is to say the composite contract for £4 m.
24. If, notwithstanding the absence of any express reference to a deposit the court should ultimately hold that there was a concluded agreement the absence of any reference to the deposit in the alleged note or memorandum would not necessarily be fatal. If there was an implied term as to the deposit it is well established that there is no need for such implied term to be expressed in the note or memorandum. If on the other hand the question of the deposit was to be left to the solicitors but that there was nevertheless a concluded agreement reached beforehand then in the absence of any mention of the deposit in the memorandum is irrelevant. Even if there had been, which there was not, an express agreement as to the amount of the deposit there would still be plenty of room for argument that it does not have to be referred to in the note or memorandum as it might not all in the circumstances of the case be regarded as “a material term”.
25. The denials of contract in the solicitors’ correspondence may or may not be helpful to the Defendants at the ultimate hearing but at this stage it could not possibly be said that the heads of agreement arrived at were definitely not intended to be a concluded contract.
26. The part performance argument can be dealt with very briefly. If there was a concluded agreement of the kind alleged in the statement of claim, that is to say, a composite contract and involving the sale of all the properties for a composite sum of £4 m. the completion which has in fact taken place of all the other sales must arguably constitute the relevant part performance.
27. For all these reasons therefore I would affirm the order of the learned High Court Judge and dismiss the appeal.
Hardiman J
“On behalf of the Defendants, Mr Cush S.C. put his case with incisive brevity. He submitted that there was no concluded oral agreement between the parties and that, even if there was a concluded oral agreement, it is unenforceable because there is no sufficient note or memorandum to satisfy the Statute of Frauds. He says that the parties, in the persons of Mr Sweeney and Mr McDonagh had got together with a professional mediator to work out an agreement in principle but no more than that. The entire history of the transaction, he says, has to be read against the background of the correspondence between the solicitors all of which is marked “subject to contract”.
More specifically, Mr Cush submits that there was no agreement in relation to deposit or to completion dates. He agrees that there may have been a concluded agreement in relation to price but said that the other two matters are essential to a full agreement. He also points out that there is no provision in the alleged agreement to resolve the position about the sitting tenant in the Naas premises and in particular no agreement as to what would happen if vacant possession was not obtained. In fact, vacant possession was obtained in early 1998.
Mr Cush stated that the core of his case was the failure, as he alleged, to reach any agreement on the question of deposit. He relied heavily on the judgment of this Court in Boyle v Lee (1992) 1 IR 555.
For the Defendants, Mr McCann asserted that there was both a concluded agreement and a sufficient note or memorandum. He further submitted that, in any event, there was sufficient evidence of part performance of the contract: as the Plaintiffs see it, the contract has been five sixths performed.
Deposit
It is convenient to deal first with the question of deposit because this is the core and height of the Defendants case.
In Boyle v Lee, Finlay C.J. held that the parties had agreed that there would be a deposit but left it to their respective solicitors to agree the amount and form of it. In those circumstances, the learned Chief Justice said:-
“The amount of a deposit to be made, even if a purchaser is willing to make a deposit of the appropriate amount, or to the usual amount then experienced in transactions in Dublin, is too important apart of a contract for the sale of land in the large sum of £9O, 000 to be omitted from a concluded and complete oral agreement unless the parties in such an agreement had agreed that no deposit would be paid.” (p.571)
It seems clear that this passage, if and insofar as it suggests that one can never have a concluded agreement for the sale of land without agreement as to the payment of a deposit, represented a considerable development of what the position had previously been. Both Barrett v Costelloe (High Court 13th July 1973 unreported) and Black v Kavanagh (1973)108 ILTR 91 had stated that it is not essential for a concluded agreement that there should be a stipulation in relation to a deposit. In the latter case Gannon J. having held that neither party attached any importance to the matter of the payment of a deposit or its amount, said:
“The question of whether or not a deposit should be paid was not considered by the parties to be material matter, and in my opinion is not an essential term of such a contract.”
The Plaintiffs’ answer to the submission based on Boyle v Lee is first to distinguish that case on its facts and to contend that the evidence here is open to the interpretation that there was to be no deposit. This, Mr McCann said, could be decided as a matter of interpretation of the words and conduct of the parties: there is no necessity for an express agreement that there would be no deposit. Secondly, the Defendant contends that it is not obvious (and he need go no further for the purpose of this Motion) that the passage quoted above from Finlay C.J. represented the view of the majority. If it did, it would represent a substantial change in the pre-existing law: there is ample scope for argument, it was contended, that the judgment of O’Flaherty J. which is pivotal on the point having regard to the views expressed by McCarthy and Egan J.J., did not go as far as the Chief Justice on the question of deposit.
There is no doubt that an agreement in relation to deposit is usual in concluded agreements for the sale of land. But the cases prior to Boyle v Lee demonstrate that it is not invariable. The evidence on affidavit falls well short of certainty in relation to what if anything was agreed on this point and it must not be forgotten that the agreement was between Franchisor and Franchisee and involved the sale of assets other than real property in addition to the premises themselves. In such an agreement, I believe there is at least scope for contention that a deposit may not have been considered essential. It seems to me that the factual position will be a good deal clearer after discovery and, more importantly, oral
evidence, and I could not say that I am confident that, no matter what transpired at the trial, the Defendant would necessarily win.
Furthermore, since there is scope for the view that the parties agreed nothing whatever about a deposit, it seems to me at least arguable that Boyle v. Lee is distinguishable in the present circumstances. The circumstances of that case were that there had been an express agreement that there would be a deposit. It is not manifestly clear that the judgment of the Chief Justice in that case was intended to apply to other circumstances. It is also in my view arguable that the judgment of Finlay C.J. did not represent the view of a majority. On a motion such as this it is neither necessary nor desirable to go further than saying that I am not convinced that the Defendant must win no matter what happens at the trial. It is noteworthy that Boyle v Lee was itself a decision of this Court after a full hearing in the High Court and Finlay C.J. was careful, at page 563 of the Report, to set out precisely what the oral evidence on this topic had been. In my view it would be necessary to hear the evidence in this case before a final decision can be made as to what if anything was agreed between the parties on this topic, what may be implied from what they did and from other facts and to hear legal argument based on that evidence.
Completion Date
Mr Cush also contends that the absence of agreement as to completion date is a fatal defect in the proposition that there was a concluded agreement. In relation to the Naas premises there was a statement on affidavit that completion was to be after vacant possession had been obtained; there was no reference to a completion date at all in relation to the other five properties. He further submitted that there was no evidence on the basis on which a completion date could be implied.
(9)
In Boyle v Lee, Egan J. at page 593 of his judgment stated that:
“It has long been established that where no time for performance is agreed the law implies an undertaking by each party to perform his part of the contract within a time which is reasonable having regard to the circumstances of the case: Simpson v Hughes(1896) 66 LJ Ch. 143.”
This is a long standing and, to my knowledge, unchallenged statement of the law. Accordingly, it cannot be said with certainty that, if the other essentials of a concluded agreement are present, the Plaintiffs case is bound to fail by reason of the non-specification of a completion date.
Vacant Possession
Mr Cush contended that, in order to construe the November agreements as constituting a completed agreement for the sale of land, one has to construe the evidence as committing the Defendant to getting vacant possession. This is no where stated. He further points out that the evidence is silent on the question of what was to happen if vacant possession was not obtained.
In paragraph 5 of his affidavit the mediator, Mr Chambers, says that the second named Defendant pointed out during discussions that the Naas property had a sitting tenant and that there was a court case pending in relation to that person’s entitlements. He goes on:
“As a result of this difficulty and because of the fact that vacant possession was not available, a sum of money was agreed to accommodate the eventuality of allowing this property out of a deal. In other words figures were agreed for either five properties or alternatively six properties.”
This is at variance with the Defendants contention that no provision was made about the eventuality that vacant possession was not obtained. It is unnecessary to go further than holding that there is clearly an evidential issue on this matter. There is also a legal issue which may arise as to the significance of the fact that vacant possession was, in fact, subsequently obtained. Furthermore, there is a distinction between the elements necessary to constitute a completed agreement on the one hand and the consequences of failure to honour such agreement in relation to vacant possession on the other. It is at least arguable that the parties failure to reach any agreement (if that is found to have occurred) on the question of vacant possession would merely have exposed the Defendant to a claim for damages, if vacant possession had not been obtained.
Subject to Contract
Mr Cush submitted that all discussions between Mr McDonagh, Mr Sweeney and Mr Chambers should be interpreted “against the background” of the correspondence between solicitors all of which was “subject to contract”. This, he says, colours all dealings between the second named Plaintiff and the second named Defendant.
In my view it is plainly arguable that the use of this rubric by the solicitors does not preclude the existence of a “done deal” between the parties themselves, which the Plaintiffs contend for. Insofar as it is contended that the Plaintiff is estopped by the use of the rubric from asserting a completed and enforceable agreement, this seems to me to be plainly a matter for evidence at the trial. I did not understand this point to be vigorously pressed on the hearing of the appeal.
No Note or Memorandum
The learned trial judge held that she had to approach this question on the assumption that the Plaintiffs will prove that Mr Chambers was acting as the Defendants agent. I agree with that finding.
The Defendants submissions as to deposit, completion and vacant possession have already been summarised. The contention that the purported memorandum fails to record one or more of these matters must await a finding, after evidence has been heard, as to what was in fact agreed on these topics.
Mr Cush says, however, that of the two documents produced by Mr Chambers, only the first in time is signed: he says that if two documents are to be read together, and only one is signed, it is imperative that the signed document must be the last in point of time “for it would be absurd to hold that a person who signed a document could be regarded as having signed another document which was not in existence when he signed the first” (McQuaid v Lynam (1965) IR 564 at 570)).
The same case, however, is also authority for the proposition that where an oral agreement is intended to be the contract “evidence may be given of an agreed variation even if there is a memorandum or note of the contract but not of the variation “. In my view it is at least arguable that this is the case here and certainly oral evidence will be necessary in order further to explore the contention. The nub of the Plaintiffs case is that there was a “done deal “, as it is expressed, orally arrived at. There is a considerable similarity between the two documents and the variations apparently came about as a result of discussions or correspondence between the parties accountants as to the best way to effect the transaction. In my view it is not possible to be confident that discovery will not reveal further or other
documents on the topic of the variation and this too is a matter suggesting that the case go to trial.
Part Performance
On the topic of part performance, the issue as it can be discerned at present comes down to whether, as the Plaintiff, contends there was an overall contract to sell the six premises, the goodwill and other items for £4,000,000. The alternative, for which the Defendant contends is that there were six individual transactions so that the completion of five of them has nothing to say to the sixth.
It seems to me obvious that it is at least possible that the evidence as a whole will disclose an overall transaction with the individual considerations, the subdivision thereof into various headings and the individual modes of completion tailored by the parties professional advisers so as to be mutually beneficial from a tax point of view and otherwise. Indeed, this proposition seems compatible with the background set out in Mr McDonagh’ s affidavit of a decision to end the dispute which had arisen about the Defendants involvement with “Mother Hubbards” by the severance of their entire business connection. In all these circumstances I cannot say that I am confident that the Plaintiffs’ contention must necessarily fail.”
Triatic Limited -v- Cork County Council
[2006] IEHC 111
Laffoy J.
“The authority primarily relied on by the defendant was the decision of the House of Lords in Walford v. Miles [1992] 2 A.C. 128. The facts in that case were that in January, 1987 negotiations commenced between Walford, as purchaser, and Miles, as vendor, for the acquisition of a company and certain property, which was let to the company, from which it carried on a photographic processing business. On 17th March, 1987 Miles orally agreed to deal with Walford exclusively and to terminate any negotiations then current between Miles and any other competing purchaser, provided Walford furnished within three days a “letter of comfort” from his bankers confirming that the necessary financial resources were available to complete the purchase. The “letter of comfort” was furnished on the following day. It was not disputed that the discussion on 17th March was subject to contract. On 25th March, Miles ended negotiations which had been ongoing with a third party. However, on 27th March, Miles decided not to proceed with the negotiations to sell to Walford. The shares in the company and the property were eventually sold to the third party. The action by Walford was for damages for breach of contract and misrepresentation.
The case as pleaded is set out in the speech of Lord Ackner (at p. 134). The consideration for the oral agreement was twofold: Walford agreeing to continue negotiations; and the provision of the letter of comfort. The oral agreement as originally pleaded was that Miles would terminate any negotiations with any third party or consideration of any alternative with a view to concluding an agreement with Walford and further that, even if he received a satisfactory proposal from any third party prior to the close of business on 25th March, he would not deal with that third party or give consideration to any alternative. Lord Ackner described the agreement as pleaded as purporting to be what is known as a “lock-out” agreement, providing Walford with an exclusive opportunity to try and come to terms with Miles, but without expressly providing any duration for such opportunity. The statement of claim was amended to include an additional plea that it was a term of the collateral agreement necessarily to be implied to give business efficiency to it that, so long as Miles continued to desire to sell the property and shares, Miles would continue to negotiate in good faith with Walford. This was characterised by Lord Ackner as an allegation that Miles was “locked-in” to dealing with Walford for an unspecified period.
In considering the validity of the agreement alleged by Walford in the amended statement of claim, Lord Ackner made the point (at p. 137) that what had been orally agreed on 17th March was “subject to contract”, so that the parties were still in negotiation even in relation to those matters, and there were many other matters which still had to be considered and agreed. He distinguished an agreement to negotiate in good faith from an agreement to use best endeavours and continued (at p. 138):
“The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. The uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for termination of negotiations? The answer suggested depends upon whether the negotiations have been determined ‘in good faith’. However, the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering improved terms. [Counsel for Walford], of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question – how is a vendor ever to know that he is entitled to withdraw from negotiations? How is the court to police such an ‘agreement’? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a ‘proper reason’ to withdraw. Accordingly a bare agreement to negotiate has no legal content.”
Lord Ackner then went on to consider the validity of the agreement as originally pleaded, that is to say, without the additional allegation that it was an implied term that Miles would continue to negotiate in good faith with Walford. He made the following observations about a ‘lock-out’ agreement (at p.139):
“There is clearly no reason in the English contract law why A, for good consideration, should not achieve an enforceable agreement whereby B agrees for a specified period of time, not to negotiate with anyone except A in relation to the sale of his property. There are often good commercial reasons why A should desire to obtain such an agreement from B. B’s property, which A contemplates purchasing, may be such as to require the expenditure of not inconsiderable time and money before A is in a position to assess what he is prepared to offer for its purchase or whether he wishes to make any offer at all. A may well consider that he is not prepared to run the risk of expending such time and money unless there is a worthwhile prospect, should he desire to make an offer to purchase, of B, not only then still owning the property, but of being prepared to consider his offer. A may wish to guard against the risk that, while he is investigating the wisdom of offering to buy B’s property, B may have already disposed of it or, alternatively, may be so advanced in negotiations with a third party as to be unwilling, or for all practical purposes unable, to negotiate with A. But I stress that this is a negative agreement – B by agreeing not to negotiation for a fixed period with a third party, locks himself out of such negotiations. He has in no legal sense locked himself into negotiations with A. What A has achieved is an exclusive opportunity, for a fixed period, to try and come to terms with B, an opportunity for which he has, unless he makes his agreement under seal, to give good consideration. I therefore cannot accept [Walford’s counsel’s] proposition, which was the essential reason for his amending paragraph 5 of the statement of claim by the addition of the implied term, that without a positive obligation on B to negotiate with A, the lock-out agreement would be futile.”
On the facts of the case, Lord Ackner considered that the agreement as originally pleaded lacked one of the essential characteristics of a basic valid lock-out agreement, in that it did not specify for how long it was to last. Because of that deficiency it lacked the necessary certainty and was unenforceable.
The defendant cited an English authority in which a lock-out agreement was enforced: Pitt v. PHH Asset Management Limited [1993] 4 All ER 961. There, in a classic gazumping scenario, the Court of Appeal enforced against the defendant vendor an agreement by the defendant vendor to sell the property to the plaintiff for £200,000 and not to consider any further offers provided the plaintiff exchanged contracts within two weeks of receipt of a draft contract, in circumstances where the court considered the plaintiff had given consideration in withdrawing a threat to seek injunctive relief against the defendant and in committing to a time limit of two weeks for exchange of contracts.
In response to the defendant’s submissions, counsel for the plaintiff submitted that the court should not regard the decision of the House of Lords in Walford v. Miles as a persuasive authority. In any event, it was suggested, it is distinguishable on the facts, in that in the instant case the court is not concerned with a bare agreement to negotiate; through the course of dealings between the parties, the matter has progressed beyond that stage.
The plaintiff referred the court to the helpful commentary on good faith and fair dealing in a contractual context in McDermott on Contract Law (Butterworths, 2001)at paras. 7.41 to 7.44 inclusive. In particular, reference was made to the two Irish cases referred to in the commentary as examples of the Irish courts being prepared to enforce an express or implied obligation to use reasonable efforts to achieve some stipulated result: Rooney v. Byrne [1933] I.R. 609; and Fluid Power Technology Company v. Sperry (Ireland) Limited (Unreported, High Court, Costello J., 22nd February, 1985). In each of those cases, the court was concerned with a situation in which a contract existed. In the first, the contract was for the purchase of a house subject to the purchaser getting a mortgage. It was held that the purchaser was bound to make reasonable efforts to secure the necessary advance. The second concerned the exercise of a power to terminate a distributorship agreement in the context of an application for an interlocutory injunction. Costello J. held that the plaintiff, which was seeking the interlocutory injunction, had made out a fair case that there was an implied obligation to exercise the termination power in a bona fide manner, which he explained as meaning:
“… that when they give reasons for termination these reasons must not be spurious ones, but it also means that if they honestly believe them to be valid, then even if they are subsequently proved to have been wrong the notice is valid. So, if honestly dissatisfied with the plaintiffs as distributors, this would mean that the notice of termination could be given.”
A New Zealand authority, Livingstone v. Roskilly [1992] 3 NZLR 230, in which Thomas J. stated that he would not “exclude from our common law the concept that, in general, the parties to a contract must act in good faith in making and carrying out the contract”, which is referred to in McDermott, was also relied on by counsel for the plaintiff. It was submitted that the court should apply that dictum rather than following the approach adopted in Walford v. Miles. Like the Irish authorities cited by the plaintiff, that dictum is concerned with the implication of the concept of good faith and fair dealing on the part of the parties to an existing contractual relationship. No authority has been cited in which that concept was applied to negotiations, although McDermott does refer to extra-judicial and academic comment on the topic.
Counsel for the plaintiff also referred the court to a decision of the Court of Appeal of England and Wales in which Walford v. Miles was considered: Petromec Inc. & Ors. v. Petroleo Brasileiro SA Petrobras & Ors. [2005] EWCA Civ 891. As was pointed out by Mance L.J. in his judgment in that case (at para. 120), the Court of Appeal was bound by the decision of the House of Lords for what it decided. He pointed out that the main distinction between Walford v. Miles and the Petromec case was that in the former there was no concluded agreement, since everything was “subject to contract”, and there was, moreover, no express agreement to negotiate in good faith. The comments of Mance L.J. in Petromec, which were clearly obiter, concerned the enforcement of an express provision in the contract under consideration, whereby the other contracting party agreed to negotiate certain extra costs with Petromec “in good faith”. Having quoted the last three sentences in the first quotation from Walford v. Miles set out above, Mance L.J. stated as follows (at para. 121):
“That shows the difference from the present case. Clause 12.3 of the Supervision Agreement is not a bare agreement to negotiate. It is not irrelevant that it is an express obligation which is part of a complex agreement drafted by City of London solicitors … It would be a strong thing to declare unenforceable a clause into which the parties have deliberately and expressly entered. I have already observed that it is of comparatively narrow scope. To decide that it has ‘no legal content’ to use Lord Ackner’s phrase would be for the law deliberately to defeat the reasonable expectations of honest men, to adapt slightly the title of Lord Steyn’s … lecture delivered … on 24th October, 1996 (113 LQR 433 (1977)). At p. 439 Lord Steyn hoped that the House of Lords might reconsider Walford v. Miles with the benefit of fuller argument.”
For my part, I find the reasoning of Lord Ackner persuasive, particularly when applied to the facts of this case, in which the dealings and negotiations between the plaintiff and the defendant, the ultimate objective of which was to achieve agreement on terms for the development, subject to planning permission, and the acquisition by the plaintiff of Fort Camden, which the defendant could recommend to the elected members of the defendant, involved a considerably greater element of complexity, and, consequently, more scope for uncertainty than negotiations for the purchase of the shares of a company and a leasehold property or the purchase of a house. The fact that one of the parties to the dealings in this case was a public authority does not give rise to any special consideration in the context of the law of contract.
As I have already stated, I do not accept the defendant’s interpretation of the effect of the undertaking given in the letter of 10th March, 1995. While the issue of what, if any, consideration was given by the plaintiff for that undertaking was not addressed, it can be assumed that consideration was given, in that the plaintiff was prepared to commit time and resources to preparing and submitting a development proposal. On that basis, I am prepared to find that between March, 1995 and November, 1996 there was a contractual relationship between the defendant and the plaintiff created by the letter of 10th March, 1995 and the subsequent extensions of the exclusivity period. That agreement was in the nature of what Lord Ackner described as a “lock-out” agreement. What the plaintiff achieved under it was an exclusive opportunity for the extended period to submit a comprehensive development proposal for Fort Camden. The defendant complied with its obligations under that agreement. It dealt exclusively with the plaintiff in relation to the development of Fort Camden up to the expiry of the exclusivity period. It accepted and considered the development proposal presented to it by the plaintiff. In my view, on the evidence, it did so in a bona fide manner. The defendant’s contractual obligations terminated on the expiry of the exclusivity period.
What happened after November, 1996 was that, while the defendant considered the development proposal submitted by the plaintiff to be inadequate, on the initiative of the defendant, a new phase of negotiation commenced on 3rd February, 1997. In essence, the plaintiff’s case is that there was an agreement to continue those negotiations until they would come to fruition in the form of a formal contract, which, as a matter of law, can only mean until the defendant’s officials were prepared to recommend the agreed terms for the development, subject to planning permission, and the acquisition of Fort Camden by the plaintiff to the elected members. I have no doubt that, if a finding could be made on the evidence that there was such an agreement, it would be unenforceable for lack of certainty.
To take what, perhaps, would have been the simplest component of the transaction, the acquisition price, as an example, one is entitled to ask how a court could be expected to decide the point at which the negotiations on that component had come to fruition. By September, 1997, the point which had been reached in relation to the acquisition price was that the defendant had indicated an asking price of £500,000 some two years earlier. The plaintiff had neither indicated that the asking price was acceptable to it, nor had it made a counter offer. Although very little was offered by way of analysis of this aspect of the case, what happened in 1997 is that the plaintiff had adopted the position that there had been an agreement, that the defendant was in breach, and that the plaintiff was entitled to elect to enforce the agreement or consider that it was discharged from further performance. It was only at the hearing that the plaintiff elected to terminate the alleged agreement. The breach alleged is that the defendant was not entitled to disengage other than for bona fide and valid reasons and none such existed. But, if the dealings between the parties had not taken the turn they took in September, 1997 and negotiations had continued, and if the parties were unable to reach consensus on the acquisition price, how could it be said that one or other party could not withdraw? If the defendant persisted in an asking price of £500,000, and the plaintiff considered that the property was worth only half that price, would the plaintiff not have been entitled to withdraw? If there was to be a contract on the lines suggested by the plaintiff, both contracting parties would have to be locked into it. If either party withdrew because it considered the acquisition price proposed by the other to be unsatisfactory, to adopt the terminology of Lord Ackner, how could a court be expected to decide whether a proper reason existed for termination? Given that on the plaintiff’s case an obligation to deal in good faith is to be implied in the alleged agreement, which must be assumed to bind both contracting parties, a subjective, rather than an objective approach would be required in making that decision. In my view the court would be faced with an impossible task.
Accordingly, I find that from February, 1997 onwards, the plaintiff and the defendant were merely in negotiations and no contractual relationship existed between them.”
Reid & Anor v Health Service Executive
[2016] IESC 8 (03 March 2016)
Supreme Court
Composition of Court:
Hardiman J., MacMenamin J., Dunne J., Charleton J., O’Malley J.
Judgment by:
Charleton J.
Judgment of Mr Justice Charleton delivered on Thursday the 3rd of March 2016
1. Martin Reid and James Turner are self-employed dentists. They claim a breach of their contract with the Health Service Executive to pay for the provision of dental treatment to medical card holders. Prior to a circular of 26th April 2010, dentists were entitled to reimbursement for all routine treatments provided to medical card holders; thereafter only emergency treatment qualified. The Health Service Executive administers the medical card scheme. Those qualified are able to obtain certain forms of medical and dental treatment. Qualification for holding a medical card changes from time to time, depending on social and political considerations. Dentists participate in the medical card scheme by offering their services at an agreed rate. Decisions as to who is qualified to receive treatment, how dentists are to be remunerated and as to what forms of treatment are covered, are administered by the Health Service Executive. The money for that ultimately comes from central funds through allocation to the Health Service Executive. Given the numbers of dentists in the scheme, the entitlements of the respective parties are settled through collective negotiation. This results in a standard contract in writing which must be signed by each dentist. Here, the relevant contract dates from 1994. It was revised in 1999. Under the terms of the 1999 revision, the Health Service Executive claim to be entitled to have made the unilateral change in 2010. Thereby all routine treatments, apart from emergency cases, were disallowed. The appellant dentists counter that nothing in the wording permitted such a major unilateral change by the Health Service Executive.
2. As with the provision of other State services by self-employed professionals, disputes will arise from time to time. Initially, dentists’ contracts were with the various health boards set up under the Health Act 1970. The Health Service Executive is the successor. This particular scheme was introduced in 1994 through collective bargaining. After lengthy negotiations with the Irish Dental Association, a revision came about in 1999 and the contract was altered accordingly. According to the evidence given in the High Court by Dónal Atkins, the former secretary general of the Irish Dental Association, the 1999 revision settled issues between the dentists and the health boards as to fees, access by patient medical card holders and approvals for certain more complex treatments. All participating dentists worked under that scheme for the next decade. This dispute then arose in the wake of the economic crisis that became manifest from September 2008. By 2009, the national cost of this scheme had risen to €80 million. A decision was taken to limit the expenditure for 2010, and for all subsequent years, to €63 million. The decision limiting funding for dental treatments took the form of a letter dated 26th April 2010 to each participating dentist from the Health Service Executive, under the title ‘Circular No. 008/10’. Certain treatments were disallowed. Essentially, the Health Service Executive told the dentists that only emergency treatments were to be funded after April 2010. This was not a negotiated position. It was a decision made solely by the Health Service Executive. As a result, many treatments were cancelled or did not proceed. This affected the income of the dentists. Martin Reid and James Turner contend that the alterations unilaterally made by the Health Service Executive were not authorised by the terms of the 1994/1999 contract. They also claim not to have been party to the 1999 contract revision and thus not bound by it but only by the 1994 form of the contract.
Decision of the High Court
3. Martin Reid and James Turner had applied to the High Court for an interlocutory injunction to restrain the Health Service Executive from implementing the change to their contracts. By decision of Laffoy J, dated 16th June 2010, the High Court ordered “that pending the trial of this action or until further order the [Health Service Executive] its servants or agents or any of them acting howsoever be restrained from giving effect to or purporting to give effect to Circular No 008/2010 on April 26th 2010”. The Health Service Executive appealed that judgment and order by notice of appeal dated 18th June 2010, on the grounds: that the injunction sought was mandatory and not prohibitory, as Laffoy J had held; that Laffoy J had erred in holding the test to be applied was whether there was a fair issue to be tried; and that the balance of convenience did not favour the grant of the order. A motion was then brought before this Court to stay the order of Laffoy J. In case 194/2010, on 9th July 2010, this Court ordered that “the motion be refused and that the defendant do pay to the plaintiffs the costs of this motion when taxed and ascertained.” The outcome of this appeal will govern the result of any subsisting appeal as to any interlocutory matter.
4. At the substantive trial in the High Court, only very limited testimony was allowed by the trial judge, Murphy J. He ruled that the parol evidence rule permitted him to consider only the text of the 1994/1999 contract set within the relevant factual matrix which, in this instance, included a statutory provision as to the budgeting responsibility of the Health Service Executive. The trial judge included in the background against which the contract was to be analysed, two letters from September 1999; one dated 17th September from the Irish Dental Association to the Health Services Employers Agency and the other was the reply from that source dated 21st September. In the High Court, Martin Reid and James Turner disputed that they had been bound by the negotiations conducted in 1999 by the Irish Dental Association. While Murphy J ruled on that issue, it was pursued on this appeal only as a minor point. Nonetheless, it must be decided. In any event, by the time this dispute had arisen, both parties had apparently interacted with each other over a decade by reference to the provisions of the 1999 revision of the 1994 contract. By written judgment, (High Court, unreported, 28 February 2011) Murphy J ruled against the dentists as follows:
The court is of the view that the [revised] procedures had been negotiated on behalf of all dentists, including the plaintiffs herein, by their association. The Irish Dental Association is necessarily a contracting party in relation to the resolution of disputes between dentists and the HSE acting through the Health Services Employers Agency.
The court is satisfied that the emphasis in Circular 008/10 is, despite the limitation, patient oriented. Not alone is the HSE to provide emergency dental care to eligible patients with the focus on relief of pain and sepsis but also additional care would be considered in exceptional or high risk cases. It is the practising dentist who must satisfy herself or himself as to the clinical emergency. The dentist must provide the necessary urgent treatment in accordance with the detailed 11 point schedule.
The court is also of the view that the acknowledgement by the Irish Dental Association of the Health Board’s right to take whatever measures are necessary to live within budget and statutory obligations is, as in the previous clause, a term of the revised procedures. These measures were affected through the circular which implemented what was agreed between the parties.
In the circumstances the court, having regard to the statutory background to the scheme, is of the view that the circular is contractually binding upon the plaintiffs.
The defendant, by virtue of the circular of 26th April, 2010 limits expenditure to what the court understands was the previous budget of [€63 million]. Using the 2009 uptake levels the defendant notified to dentists, including the plaintiffs that it would provide emergency dental care to eligible persons with a certain focus and, indeed, would consider additional care in exceptional or high risk cases. It is the individual dentist who must satisfy him or herself as to the clinical emergency and provide the necessary urgent treatment.
It seems to the court that the circular is within the scope of s. 2 of the Health (Amendment) No 3 Act of 1996.
Accordingly, there is no breach of contract.
Though the circular was dated to have effect on the 28th April, 2010, the plaintiffs had been granted an injunction restraining the defendant from giving effect or purporting to give effect to the circular until the trial of the action. It would follow from the decision of the court that the injunction should be discharged.
5. By order of the High Court dated 7th March 2011, the action of the plaintiffs Martin Reid and James Turner was dismissed and the interlocutory injunction of 16th June 2010 was discharged, with costs to the Health Service Executive.
6. By a notice dated 24th June 2011, Martin Reid and James Turner appealed that decision on the grounds, as argued on this appeal: that Circular No 008/2010 of April 26th 2010 constituted a breach of contract; that the trial judge had misapplied the appropriate principle of construction of contracts; and that he had failed to “ascertain the intention of the parties to the 1999” revision of the 1994 contract. This latter point has not been pursued.
The contract documents
7. After setting out particular definitions, the contract of September 1994 recites the mutual obligations as between the parties, namely the individual dentists and the then relevant health board. Given that the latter party and its successor, the Health Service Executive, is funded by Government, among the assurances given within the contract are a number from the Minister for Health. The Minister is, in fact, stated as being one of the negotiating parties. He assures the dentists that he is aware of their professional duty to their patients. The contract states that in “consideration of the” health board “including a dentist’s name on the dental panel” that “the contracting dentist … undertakes to provide dental treatment, on the terms and conditions hereinafter appearing, to qualified persons who may desire to avail themselves of his/her services.” As to who those persons are and as to what the nature of the treatment is that will be paid for by the health boards is clearly variable. Clause 3 indicates that the scheme would initially “apply to qualified persons in age cohorts to be phased in on an agreed basis to be negotiated between the Minister and the” Irish Dental Association. In the first appendix to the contract, a scale of fees is set out. Clause 24 provides for payment to dentists “by reference to a scale of fees agreed between the Minister and the” Irish Dental Association. This scale is to be reviewed six months after the contract. The contract could be terminated by either of the parties giving to the other three months notice under clause 29. An argument was addressed on the appeal to this being the only method whereby the contract might be amended, namely by termination and the negotiation of a new contract, but that point was not pressed. Clear words would be needed within a contract whereby no alteration by agreement to its terms would be possible. Sometimes a situation might arise whereby the contract specifically provides that the entirety of the bargain between the parties is expressed in the text, stating that the contract is excluding any prior oral representations or subsequent oral variations. That is not this contract. It is clear that this contract is within the category of one which may be renegotiated. It is not necessary for that to happen that every contract be terminated with every dentist participating in the scheme and a fresh contract entered into thereafter on mutually agreed terms. A variation agreed to the existing contract is sufficient provided that assent by participating dentists is proven either individually or through a collective bargaining mechanism. That 1994 contract has minute technical details as to what range of services may be demanded by a patient, or seen as necessary by the dentist and which may be pursued straightaway with financial sanction, meaning an entitlement of the medical professional to be paid. In certain of the documents relevant, these are referred to as “above the line” and “below the line” treatments. Appendix 1 indicates that such routine treatments “above the line” will apparently ordinarily attract payment, although at that stage it seems authorisation, while perhaps routine, was needed. These are set out above a physical line appearing at page 2 of Appendix 1. This includes oral examination, prophylaxis, restorations irrespective of the number of fillings or surfaces, composite fillings of up to 6 anterior teeth, extraction under local anaesthetic, surgical extraction and certain other payments for such interventions as secondary haemorrhage, biopsy and pulpotomy. Procedures for which payment cannot be guaranteed without the dentist first obtaining special sanction include such “above the line” work as root canal therapy, the amputation of roots, protracted periodontal treatment, x-rays and such prosthetics as dentures and the care thereof.
8. There are also detailed provisions in the 1994 contract in relation to timescale, the keeping of records, applications for sanction, response thereto and visits by examining dentists appointed by the health boards where a treatment plan to estimate cost has been lodged outside the category of what has carefully been delineated as routine, or otherwise within the contract. Under this contract, a monitoring committee was set up to ensure that it worked fairly. There is but one reference to any budgetary issue which the paying party, namely the health boards as funded by the Minister for Health, might have and that is contained at clause 7, which reads thus:
The [Irish Dental] Association acknowledges the statutory responsibility of the [h]ealth [b]oards for the provision of dental services under the Act and to ensure the management of such services.
9. The 1999 revision of that contract again contemplates that the range of patients to whom free dental treatment might be afforded can be extended. The contract provides that the parties “comprehend that all eligible adult medical card patients who become eligible due to recent changes in the eligibility criteria for medical card holders are included in the” scheme. Reference is made to extra “funding … to be allocated to cover the costs of introducing the final cohort.” The monitoring committee mentioned in the 1994 contract is continued and further qualified as to its function. The examining dentists from the 1994 contract are ascribed a new range of functions under the 1999 contract and these are specifically described in an appendix. Review of the contract is again provided for, this time within a year. As in the 1994 contract, termination may take place on three months’ notice and there is now specific provision for the cancellation of the proposed treatments. Certain disciplinary and retraining provisions are contained in clause 30 and, under clause 31, what is described as a ‘dental appeals tribunal’ is established. There are new detailed provisions as to the completion of forms and the filling in of dental charts and for record-keeping in relation to the repair of dentures. Validation requirements in relation to patients are described in detail. The distinction between the kind of treatments which are above or below the line do not appear to have been altered by the 1999 contract revision, nor is there any change to the provisions in the 1994 contract in relation to emergency dental treatment, a term which remains undefined through both contracts. From 1999, however, routine treatments did not require prior sanction as they had under the 1994 contract. The appeals mechanism was also strengthened and while this is described as applying to “penalties, non-approval issues and payment issues” it is not fully described.
10. It is, of course, the provisions in relation to finance and eligibility for treatment which are of most relevance on this appeal. In that regard, it has not been argued by either side that the two September letters from 1999, which predate the contract revision of that year, do not form part of the necessary factual matrix within which the terms of the contract are to be construed. Whatever the negotiating position of the parties, which ordinarily are not admissible in evidence and were not sought to be introduced in testimony before the High Court, a specific acknowledgment of budgetary constraints was given by the Irish Dental Association in its letter to the head of industrial relations in the Health Services Employers Agency. That assurance appears in a letter dated 17th September 1999 in the context of a relaxation of the requirement to obtain prior sanction for routine treatments, or those above the line, while those treatments below the line would continue to require approval. Parity of fees with another grade of workers and the backdating of such payments had already, apparently, been assured in the context of the negotiations on the part of the health boards. These details are incidental and unnecessary to this decision, save as a matter of context. What is important, however, is that the following was stated at paragraph (3) of the letter:
We recognise that the Health (Amendment) Act 1996 governs the provision of health services. Health [b]oards are obliged to live within their monetary obligations. The [Irish Dental Association] acknowledges that, in the light of the above, [h]ealth [b]oards have the right to take whatever measures are necessary to live within budget and statutory obligations. Prior approval will be necessary in all cases of below the line treatment and delivery.
The Health Services Employers Agency replied by letter dated 21st September 1999 thus:
I can confirm that your proposals, which will be recommended to your members for acceptance, are acceptable to health service management. The agreed position will be included in the ‘Revised Procedures for Dental Treatment Services Scheme’. In the light of the foregoing I take it that the industrial action will now be called off. Finally, I confirm my availability to finalise arrangements in relation to the matter of [t]erminations/[d]isputes.
11. Whereas the written submissions on both sides of this appeal have tended to focus on only the initial two clauses under the heading in the 1999 agreement ‘TREATMENT CEILING/PATIENT CARE PLAN’, the entirety of that section should be quoted with a view to construing the disputed words within the overall context of the 1994/1999 contract as a whole. The relevant section reads:
“TREATMENT CEILING /PATIENT CARE PLAN
Treatment can be carried out treatments without prior approval.
A patient care plan to be completed and submitted for each patient. In cases where prior approval is not required the patient care plan will be submitted with the claim. Where prior approval is required the patient care plan will be submitted in advance.
Prior approval will continue to be required to treatment on all below the line treatments and dentures in accordance with the above. While awaiting approval, above the line treatments can be carried out.
APPROVAL
The Health (Amendment) Act Nineteen Ninety-Six governs the provision of health services. Health boards are obliged to live within their monetary allocations.
The [Irish Dental Association] acknowledges that, in the light of the above, [health boards] have the right to take whatever measures are necessary to live within budget and statutory obligation.
Prior approval will be necessary in all cases of below the line treatment (including dentures) and delivery.
Within one month, participating dentists will be granted approval for below the line denture treatment. In the event of approval being turned down the specific clinical reasons will be given. The [health board] reserves the right to defer approval in certain limited circumstances, in accordance with the provisions of the Health (Amendment) Act 1996.
Where a dentist identifies below the line or denture treatment, patient care plan must be prepared and submitted to the [health board] for approval, this will be granted within a one month period.
The [health board] will complete in stamp the form indicating the [patient care plan] approval. The form will then be returned to the dentist. A separate approval will not be a feature of the new arrangements.
12. This constitutes relevant extracts from the 1994/1999 contract. The statutory provision referenced on both sides is from the Health (Amendment) (No. 3) Act, 1996. This requires, at section 2(1)(a), that:
A health board, in performing the functions conferred on it by or under this Act or any other enactment shall have regard to –
(a) the resources, wherever originating, that are available to the board for the purposes of such performance and the need to secure the most beneficial, effective and efficient use of such resources.
As to the actual fees payable to dentists under the scheme, for each tooth restoration or extraction for example, it was mentioned on the appeal that these were adjusted downwards pursuant to the Financial Emergency Measures in the Public Interest Act 2009. That reduction was not part of this appeal. From the point of view of the relevant statutory background, section 9(1) thereof may be contrasted with the forgoing provision in the Act of 1996:
Notwithstanding any other enactment, contract, arrangement, understanding, expectation, circular or instrument other document, the Minister for Health and Children may, with the consent of the Minister for Finance, by regulation, reduce, whether by formula or otherwise, the amount or the rate of payment to be made to health professionals, or classes of health professionals, in respect of any service that they rendered to or on behalf of a health body from the date of the regulation.
13. Here, the relevant adjustment was to be made not to fees for doing particular dental work but to the class of eligible treatments for which dentists were entitled to reimbursement under the scheme. That was done under the contract and not pursuant to any statutory power. Hence, Circular No. 008/10 of 26th April 2010 effectively stopped the provision of payment by the Health Service Executive for every form of treatment given by dentists to medical card holders save for emergency treatment. The circular reads in part:
The Budget 2010 decision limited expenditure under the Dental Treatment Services Scheme (DTSS) €63 million. To protect access to emergency dental care for medical card holders and to safeguard services for children and special needs groups, the HSE will prioritise the range of treatments available under the DTSS.
Using 2009 uptake levels, HSE will provide emergency dental care to eligible patients with a focus on relief of pain and sepsis. Additional care will be considered in exceptional or high risk cases. Were an eligible person seeks emergency dental treatment, the contracting dentist must satisfy her/himself as to the clinical emergency and provide the necessary urgent treatment in accordance with the following schedule …
Details then followed. One oral examination per year with x-rays was allowed. Prophylaxis treatment was suspended. Two restorations as part of an emergency treatment were allowable with additional restorations only in “approved emergency circumstances.” Exodontics would be reimbursed “where the contracting dentist is satisfied as to the clinical emergency.” There was a similar restriction on surgical extractions. Presentation with an abscess or irreversible severe pulpitis qualified. These are indeed painful. Denture repair, however, would be reimbursed in emergency circumstances only and a similar rule applied to endodontic treatment. Save for cases such as diabetes, pregnancy and immuno-compromising conditions, among others, protracted periodontal treatment approvals were suspended. Prosthetics would only be allowed in approved emergency circumstances.
Outline of the arguments of the parties
14. For the Health Service Executive, the argument centred on the words within the 1999 revision of the contract which acknowledged the entitlement of the funder to take not just a wide range of measures but whatever measures were necessary to meet its budget constraints. This acknowledgement was contended to be one entitling the Health Service Executive “to unilaterally amend the contract … during the currency of the contract and because of budgetary considerations to vary the range of public health treatments covered by the” scheme. In so far as it was a settled principle of law that a power to unilaterally vary a contract must be expressed in clear and unequivocal terms, it was contended that these words could not be ignored and to construe the contract as a whole as requiring that the 1994 and 1999 arrangements as to funding must always be left in place would be to remove an essential component that had been agreed in negotiation by both parties. In order to do that, the argument went; a principle would have to be evolved whereby certain sections of a contract could be downgraded. One such inadmissible approach, the funder declared, would be merely to regard clauses of a contract not to the liking of the other party as recitals, as opposed to binding terms. Such an approach was not mandated by law, it was contended. Further, in written submissions, it was stated that every dentist entered into the 1994/1999 contract and that through working the contract over a decade these particular dentists had become bound by the collective agreement entered into by their union.
15. For Martin Reid and James Turner it was argued that the clearest possible words were necessary in order for one party to a contract to be given the power to unilaterally vary its terms. In terms of the meaning of this contract, it was said that the words as to budget were clearly qualified by the limited circumstances, within the meaning of the contract, within which a health board might defer treatment. This therefore meant, the argument went, that no health board had the right to refuse to fund treatment which was clinically necessary in accordance with the arrangements set out. The statutory wording referenced in the contract, the Health (Amendment) (No. 3) Act, 1996 section 2(1)(a), was contended to be so weak in terms of the conferring of authority as to not support such extreme measures as fundamentally changing the entire nature of the arrangements between health boards and dentists. The contract was said to have discretionary elements in favour of health boards within it. These elements included an entitlement to defer treatment or to not approve more complex treatments on clinical grounds. Consequently, the argument went, the health boards could not unilaterally change the nature of the agreement so that an entire range of treatments that were agreed for funding would be denied to patients as this was not within their discretion. From 1999 on it had been agreed that a range of “above the line” treatments would be funded and it was said that the contract did not give the power, however much discretion had been vested in the Health Service Executive, to replace that distinction with one whereby only emergency dental treatment was fundable. In any event, it was urged by the dentists that the Health Service Executive had failed to prove that this collective agreement entered into in 1999, if it granted such unilateral power, was in fact a term of the individual contract between them as dentists and the funder: in the absence of such proof, there was no privity of contract.
Binding nature of a collective contract
16. Both Martin Reid and James Turner have been members of the Irish Dental Association over many years. Each disputes the applicability of the 1994/1999 contract to them, particularly the 1999 revision. The grounds for that contention are weak. Martin Reid entered the scheme in January 2001 and the version of the contract which he exhibits in the affidavit which he placed before the High Court includes the 1999 revision. James Turner first entered the scheme on 8th November 2005 but withdrew from it on 2nd August 2007. He then re-entered the scheme from 10th January 2008 and remained within the scheme from then on. His contract is the same in substance as that of Martin Reid and a slightly different wording on a few clauses makes no legal difference. Once the 1999 revision was agreed with the Irish Dental Association, the affidavit evidence on behalf of the Health Service Executive was that the new forms of the contract were sent to all participating dentists on 23rd December 1999. Thereafter, all participating dentists had to submit forms in a new and revised format that was in line with the 1999 revision of the contract. Further, and as a matter of ordinary sense, as to what form of treatment, whether extraction, restoration or tackling gum disease, were allowable was applied for by participating dentists on the basis of the 1994/1999 contract. Refusal, interactions with appointed officials, from the point of view of validation and querying of bills or inspection, likewise took place within a frame of reference which was solely applicable to that revised contract. Thus it is difficult to see how it can be argued that neither dentist was bound by the 1999 revision. The contract had been affirmed multiple times by these dentists in the most practical way.
17. Privity of contract can be a valid defence against the binding nature of a collective agreement entered into between an employer and a trade union. In general, collective agreements bind the union and bind the employer in the ordinary way. They are a contract between two bodies and enforceable as such. But, the membership of a union, or of an employers’ group, may be at one remove from such a contract and not privy to it. When an agreement is negotiated with the intention of having a particular effect on relations between two bodies, it is difficult to argue that no legal effect was intended as between them, as opposed to their membership. As Megaw LJ held as to disproof of the binding nature of such agreement between unions and employers in Edwards v Skyways [1964] 1 WLR 349 at 355, “in a case of this nature the onus is on the party who asserts that no legal effect was intended and the onus is a heavy one.” Terms in a collective agreement may be so aspirational as opposed to practical, however, as to lack legal substance; Ardmore Studios v Lynch [1965] IR 1. On the micro level, as between an individual employer whose representative association has entered into a collective agreement with the union or group of unions and as between a union member whose union has purported to change the terms and conditions of employment with a particular employer on his or her behalf, any analysis as to whether the contract is individually applicable or not is heavily fact dependent. It may be that a representative association accepts into membership only those who will agree to the binding authority of their negotiations on behalf of members. That may affect the individual employment contract between each worker and their employer. If that is so, it will be a matter of construction of a contract as to whether there is authority to bind individual employees through union negotiation with an employer. An individual employment contract may contain an express provision that it may be altered under the terms of a stated negotiating procedure or through collective agreement with the union representing the employee. That is, again, a matter as to how contracts may be differently constructed so as to enable alteration through negotiation of a collective kind. Some agreements, on the other hand, of their nature may be essentially collective to the bodies involved, may impose obligations which are outside the scope of whatever authority has been given to the representative body to negotiate or may confer rights on persons outside the individual employment relationship; see Hepple and O’Higgins – Individual Employment Law (London, 1971), chapter 7 and McDermott – Contract Law (Dublin, 2001) 13.63-13.67. There may also be statutory intervention in the preservation of conditions of employment or for their alteration through collective negotiation, in which case, the issue may be the effect of legislation on individual contracts. This most often happens on the sale of a State enterprise to the private sector with rights reserved to, or defined in respect of, transferred workers by statute.
18. In contrast to this situation, where Martin Reid and James Turner worked this contract over a decade and made no complaint as to the applicability of the 1999 terms, is the case of Goulding Chemicals Ltd v Bolger [1977] IR 211. There, a factory producing fertiliser was to be shut down. The relevant unions negotiated redundancy payments on behalf of their members, which included the nominal defendant. He was part of a minority group of workers. This dissenting group at all times protested the closing of the factory and vehemently disavowed the nature of the deal reached with the employer by their union. In the Supreme Court, Parke J at page 242 regarded the stance taken by that minority as a “defiance of the normal democratic procedures” and one which was a “strike at the whole principle of ordered collective bargaining under the authority of properly elected union representatives.” Nonetheless, there was held to be no privity of contract between the dissenting workers and what had by now become their ex-employer. O’Higgins CJ, at page 231, gave his view that through negotiation “a valid contract was thereby created between these unions and the plaintiffs.” That union-employer contract, however, did not bind the dissenting employees, though members of that union. The submission of lack of privity on behalf of the minority group was considered from the point of view of fact. While it might be convenient for dissenting members to be bound by a collective agreement, as the plaintiff suggested was so, that was not the law:
This submission must be considered in the light of the evidence, which was uncontradicted, that the defendants at all times opposed the conclusion of any agreement with regard to the closing of the plant and made it abundantly clear, both inside the union and to the plaintiffs, that they would not accept any agreement to this effect. I find it hard to accept that in such circumstances the defendants can be bound by an agreement which they have expressly repudiated and opposed. It seems to me to hold them bound would be contrary to all principle. The only basis put forward for suggesting that they should be banned was that they did not resign and continued to be members of the union. The rules of the union were not put in evidence but I would find it very difficult to accept that membership of an association like a union could bind all members individually in respect of union contracts merely because such had been made by the union. I cannot accept for these reasons that this ground of appeal as well founded.
19. In this instance, the dentists working the detailed procedures and conditions of this contract without protest correctly gives rise to the inference, as the trial judge held, that the full terms of the 1994/1999 contract were mutually accepted. There is, in consequence, no basis for disturbing that finding of Murphy J.
Construction of this contract
20. The basic rule for the construction of a contract is that stated by Laffoy J in UPM Kymmene Corporation v BWG Limited (unreported, High Court, 11 June 1999) [1999] IEHC 178 thus:
Tolan -v- Connacht Gold Co-operative Society Ltd
[2016] IECA 131 (05 May 2016)
JUDGMENT OF MR JUSTICE MICHAEL PEART DELIVERED ON THE 5TH DAY OF MAY 2016
1. Mr. Tolan was at all material times a cattle dealer. He bought cattle at marts in Co. Mayo on several days each week and sold them immediately into Dawn Meats with whom he had what I will, in a neutral way, refer to as a long-standing “arrangement” to buy them. There is some controversy between the parties as to whether Mr. Tolan had a contract as such with Dawn Meats, but that question does not touch upon the issue arising on this appeal which essentially is whether a document prepared and signed at the end of a meeting which took place on 16th July 2012 between Mr. Tolan and representatives of Connaught Gold, constitutes a binding contract as contended by the plaintiff, or is merely an agreed note or memorandum of what was discussed at the meeting as contended by the defendant. Mr. Tolan maintains that it was a binding agreement as to the credit terms on which he could buy cattle at the defendant’s mart, that he complied with the pre-conditions upon him, but that at a meeting on 9th August 2012 the defendant company breached the agreement by withdrawing the credit period, thereby putting him out of business since without credit he was unable to buy cattle at the marts. In these proceedings he claims substantial damages for breach of contract.
2. Some idea of the scale of the cattle dealing enterprise engaged in by Mr. Tolan by mid-June 2012 can be gained from the fact that in the seven months preceding June 2012 he had bought cattle to the value of about €3,000,000 at the defendant’s marts. Indeed, there was evidence before the High Court that such was his importance to the business being done at marts in this area that farmers would contact Mr. Tolan in advance of mart dates to find out whether he would be attending the mart, as he was known to pay a good price for cattle they might wish to sell. He was also contacted by mart managers to find out if he would be attending. He was clearly an important player in the cattle business in the area, was well respected, and known to meet his financial obligations to the marts, even though the amounts that he might owe to a mart on any particular date would be large by any standards. That is simply a reflection of the quantity of cattle he would have bought in the previous three weeks, and not of any delay on his part in settlement of his account in accordance with credit terms understood between him and the defendant. Prior to the events giving rise to these proceedings he had by agreement three weeks credit on any cattle purchased by him at the marts.
3. Oral evidence was heard in the High Court over four days, and at the conclusion of the hearing Kearns P. in an ex tempore ruling found against Mr. Tolan and dismissed his claim for damages. It is against that dismissal that Mr. Tolan now appeals to this Court.
4. Before considering the basis upon which the President ruled against the plaintiff, I need to set forth some further detail in relation to the course of dealings between parties, and of certain meetings which took place in June, July and August 2012. These meetings were for the purpose of addressing concerns that the defendant had about the level of its exposure at any particular time which resulted not just from the three weeks’ credit that the plaintiff enjoyed, but because of the gradual increase in the numbers of cattle being bought by the plaintiff, thereby increasing the level of its exposure should the plaintiff for any reason not be in a position to continue in business. There was always three weeks’ cattle purchases unpaid for any particular date under the then arrangements. The defendant wanted to reduce that exposure.
5. Mr. Tolan had been dealing in cattle in this area for twelve to fifteen years prior to these events. During these years there was no written agreement in relation to credit terms, but business was done on the basis of three weeks’ credit. What it meant in practical terms was that if he purchased, say, 100 cattle at the mart on a Saturday, he was required on the following Saturday to give the mart a cheque for the amount of that purchase. That cheque would in turn not be presented for payment for a further week. In this way he had the benefit of three weeks’ credit which gave him sufficient time to sell the cattle into Dawn Meats, and get paid for them. That in turn would enable the cheque to be met. That modus operandi appears to have worked well and to have been mutually beneficial over a long period. Clearly it was an arrangement that depended upon trust, and there has been no suggestion that at any time prior to June 2012 this necessary ingredient in the relationship was missing.
6. By June 2012, however, there were some concerns. Mr. Tolan was called to a meeting where it was explained to him that the marts were worried about their level of exposure given the amount of animals being bought by Mr. Tolan. He was told that there would have to be some limit agreed both as to the numbers of animals being bought, and a reduction of the period of credit to two weeks instead of three. The explanation given to him at the time was that new regulations had come into force which had to be complied with by the marts. According to some of the evidence given, Mr Tolan immediately became very agitated at the suggestion of any limit to the numbers of animals he could buy, and threatened to walk out of the meeting. However, he eventually agreed to the reduced credit period, but requested that he be allowed a few weeks before the new terms would operate, so that he could arrange an overdraft facility to be put in place to replace the loss of one week’s credit. That breathing space was agreed to, and a further meeting was arranged for 16th July 2012 to review the position.
7. Mr. Tolan immediately approached his bank and by 4th July 2012 he had received confirmation from his bank that subject to him fulfilling some usual conditions, such as arranging a life policy as part of the security for the facility, an overdraft of €200,000 would be put in place.
8. On 16th July 2012 that further meeting took place at which Mr. Tolan produced a letter of offer from his bank for an overdraft facility in the amount of €200,000. He explained to them that some conditions had yet to be satisfied but none that caused him any difficulty. There was general discussion about the new credit terms. He was informed that if he did not have his overdraft in place by 10th August 2012 he would not be able to buy at the mart. At the end of that meeting he was asked to sign a document, which he did, and the three representatives of the defendant who were present at the meeting signed also. Mr. Tolan says this document contains the new agreed credit terms which, he says, were to remain in place at least until the end of that year, and with a possible review for future years, though the document is silent in this regard.
9. The text of the document signed on 16th July 2012 is in the following terms:
“By the 10th Aug Finbar Tolan will have his overdraft in place to allow cheque to lodg [sic] on the Saturday for the previous Saturday week’s purchase
During Galway race week cheques will be lodged in the current way with no gap in holding cheques
Ballinrobe cheques will continue to lodg [sic] in same way as in the past
Finbar agrees that the above is acceptable and has to be in place by the 10/8/2012 or all offers are off the table.
The only stock purchased will be dry cows and bulls and if any other stock purchased will be paid for on day.
Signed
[by various persons including Martin Walsh, Tom Jordan and Finbar Tolan]
16th – 7th – 2012.”
10. The defendant says that this document was never intended to be a contract, and is simply a note or memorandum of what was discussed at the meeting on 16th July 2012 and that it could be revisited/revised at any time. Both Mr. Walsh and Mr. Jordan, who gave evidence for the defendant, stated that it was agreed that a further meeting would take place on 12th August 2012, even though this is not mentioned anywhere in the document. Mr. Tolan disagrees that any such further meeting was agreed, and says that in fact there was no need for a further meeting since they had reached agreement in relation to the reduced credit terms, and all that remained was for him to have his overdraft in place by 10th August 2012, so that he could continue to buy at the mart as usual. His bank statement was produced at the trial showing that on 25th July 2012 the sum of €200,000 was credited by his bank to his account, indicating that by that date his overdraft was in place and, therefore, that all pre-conditions had been fulfilled by him by that date.
11. What happened between 16th July 2012 and 9th August 2012 is a matter of controversy between the parties, the latter date being the date on which Mr. Tolan contends the defendant reneged on the agreement reached and signed up to on 16th July 2012. He was informed at the meeting on 9th August 2012 that all credit was being withdrawn and that he was no longer permitted to purchase cattle at the defendant’s marts as before. In other words, insofar as he might wish to purchase cattle at the marts in the future he would have pay for them that same day – something which Mr. Tolan says was tantamount to being told he could not buy, since credit was the only basis on which he had traded and could ever trade, and therefore he was put out of business altogether. It is clear that because of the credit terms on which he was buying cattle, it was necessary for him to keep buying and selling in order to keep the business afloat. If he stopped trading on a particular day for any reason, the cheques given for the previous two or three weeks would not be met. That was the exposure that was of concern to the defendant in the summer of 2012 and which it was trying to address by agreement if possible in relation to both a reduced credit period and a reduction in the number of cattle the plaintiff would buy.
12. The defendant says that nothing was finally agreed on 16th July 2012, and that it was entitled to decide as it did on 9th August 2012. They say also that it was always the case that a further meeting would take place on 10th August 2012 before anything was cast in stone. Mr Tolan refutes this completely. There was evidence given by each side before Kearns P. and he concluded that the document signed by the parties on 16th July 2012 was not a legally binding contract, and he dismissed the plaintiff’s claim for damages for breach of contract. I will continue with the narrative of events subsequent to the meeting of 16th July 2012 as they form the contextual background against which the issues on this appeal must be considered.
13. As I have said, Mr Tolan says that no further meeting was envisaged to take place after he signed the agreement on 16th July 2012 and that all that remained was for him to make sure that by 12th August 2012 he had his overdraft in place so that he could meet the reduced credit terms agreed. The evidence was that his life insurance policy was in place by 18th July 2012 and the overdraft was in place by 25th July 2012. He refers to the fact that the document signed on 16th July 2012 makes no reference to any further meeting to take place on 10th August 2012, and he makes the point also that even if the defendant is correct that this document was simply a note or memorandum of what was discussed at the meeting, and that its purpose was to avoid any confusion or doubt arising as to what was discussed, it is surprising that it makes no mention of such a further meeting, if one was agreed to take place.
14. As to how Mr. Tolan came to attend a meeting on 9th August 2012 in circumstances where he says that no such meeting was contemplated on 16th July 2012, he stated in his evidence to the High Court that he happened to meet Martin Walsh by chance in Castlebar on 3rd August 2012 and that he told him that he had the overdraft in place. His recollection is that Mr. Walsh did not seem very happy with that information, and that it was then that Mr. Walsh said that there would have to be another meeting which was then arranged for 9th August 2012. He says that he was not told what the purpose of that meeting was, and did not know its purpose. He went to the meeting nevertheless.
15. Mr. Tolan’s evidence was that when he got to the meeting he found that not only were the mart managers, Mr. Walsh, Mr. Murphy and Mr. Jordan, there but also Aaron Forde, the CEO of the defendant, whom he had never met before. He says that after the usual introductory pleasantries were over he was waiting to find out why this meeting had been arranged. He says that Mr. Murphy again mentioned that new regulations had been introduced for marts. He was surprised at this being mentioned again since that had been discussed at the meeting in June and again on 16th July 2012 when the document of that date was signed. It appears from Mr. Tolan’s evidence that Mr Forde, the CEO, had not been made aware of that signed document or indeed the previous meetings. Mr. Walsh was able to produce a copy of the document for Mr. Forde, and it was read out by Mr. Walsh. According to Mr. Tolan, Mr. Walsh stopped reading the document at some point and said that it could be all changed at any time. Mr. Tolan says that he interjected and asked where in the document did it state that, to which Mr. Walsh said that it was not written into the document but that it had been agreed on 16th July 2012. Mr. Tolan denied that, and indeed, according to him at least, if it had been included in the document he would not have signed it. It appears that Mr. Forde left the meeting quite quickly as he had to be elsewhere. Thereafter, there was some acrimonious conversation, and according to Mr. Tolan, it was made clear to him by Mr. Walsh that he was getting no credit terms whatsoever and that he was not permitted to bid for cattle at the defendant’s marts, including on 11th August 2012 at Balla mart which Mr. Tolan had been planning to attend.
16. Mr. Walsh’s evidence as to what transpired at the meeting of 9th August 2012 was somewhat different, and I will come to that. He was the general manager and head of communications of the defendant, and had been working with the company for some 40 years. He stated that the meetings in June and July 2012 had been preceded by a meeting with Mr. Tolan the previous year in August 2011. He said that the August 2011 meeting had arisen because, firstly, Mr. Tolan had countermanded a cheque in the sum of €119,000, and this had caused them to be concerned about their level of exposure given the level of business being done by Mr, Tolan at that time. They were also aware of the need to alter credit arrangements as a result of the introduction of S.I. 199/2011 – Property Services (Regulation) Act 2011 (Client Monies) Regulations 2012 which it was believed imposed obligations upon the mart to ensure when they paid the farmers for their animals, that the money was in their account from the purchaser. This meant that they had to alter credit period arrangements such as those enjoyed historically by Mr. Tolan. Hence they needed to bring him back to two weeks’ credit instead of the three he enjoyed up to that. Those Regulations were not opened to the Court but were referred to in evidence and submissions. Mr. Walsh’s evidence was that following the introduction of those Regulations there was a need to bring in better controls in relation to getting paid for animals sold at the marts, and paying monies out to the farmers whose animals were sold. Put simply, he understood that on whatever day the farmer was given a cheque, the mart had to be in funds from the buyer of the animals concerned.
17. Mr. Walsh stated that the document signed on 16th July 2012 does not contain a note of everything that was discussed at that meeting “particularly credit and credit limits” (Day 3, page 12/13). He went on to say “… and the only reason they’re not on that note is the fact that Mr Tolan would not agree to any limits”. This is a reference to limits on the numbers of animals that Mr. Tolan might buy on any particular day, which is a separate matter to the period of credit he would be allowed. The mart had apparently become concerned at the quantity of animals he was buying over the previous months, and wanted to discuss some limit on numbers as well as the curtailment of the credit period, so that its exposure at any particular time would be reduced. However, according to Mr. Walsh’s evidence, Mr. Tolan refused point blank to discuss limits on numbers. Nevertheless by 10th August 2012 the level of exposure had been successfully reduced from about €400,000 to €154,000, but there are seasonal explanations for that too.
18. Mr. Walsh stated that as far as he was concerned what is noted as having been agreed in the notes of the meeting on 16th July 2012 was to cover only the period from that date until the parties would meet again on the 10th August 2012, and that on that date there would be further discussions as to what the position would be going forward. He also was clear that the purpose of the signed document was to ensure that there would be no confusion as to what had happened at the meeting. He also said that if he was entering into a legally binding agreement, he would have got their solicitor to prepare an agreement. He was asked in cross-examination why, if they were simply agreed notes, they were not headed as such, to which he responded that he had done his best in the circumstances, and that he was simply a mart manager. He went on to state “I have indicated that the key items that I want to achieve are not in the notes because I had no choice because the man would not remain in the room if I put them on that” (Day 3, page 33). It was put to him that it was in fact an agreement reached between them and Mr Tolan on that date to which he replied:
“It was not an agreement. It was notes pertaining to a discussion that took place that day and we had a number of other items that we discussed, like credit terms, that were unacceptable to be put on the notes.” (Day 3, page 34)
19. It was put to Mr. Walsh that there was no reference in the notes to any follow up meeting on 10th August 2012 at which any further discussion would take place for the future. He replied: “Because anything else other than what I have there I had difficulty in getting Mr. Tolan to agree to. And we wouldn’t have got this signed for the bit we got” (Day 3, page 36). I take that to mean that they were glad to at least get his agreement to a reduction to two weeks’ credit, and to get that noted, and that other matters still in controversy, such as some agreed limit of the numbers of animals he would buy on any particular day would have to await the further meeting which he says was fixed for 10th August 2012. Nevertheless that is not contained in the document, and Mr.Tolan says that there was never any mention of any further meeting until he met Mr. Walsh accidentally on 3rd August 2012 in Castlebar as already mentioned.
20. Mr. Walsh also gave his version of the accidental meeting with Mr. Tolan on 3rd August 2012 in Castlebar. He agrees that he had a conversation with Mr. Tolan, but disagrees that Mr. Tolan told him that his overdraft was in place as of 25th July 2012. He said that there was just small talk, and that he was glad of that because if there was to be any serious discussion he would want to have witnesses present. He also stated that he was unsure when Mr. Tolan was told that there was to be a meeting on the 9th August. He knew that there was a meeting arranged for 10th August in any event. He was asked how it came to be changed to 9th August and when that was done, and he explained that his daughter was emigrating on 10th August, and that Mr. Tolan had agreed to change the date to 9th August. That must have been in a subsequent conversation because Mr. Walsh confirmed that this had not taken place at the meeting in Castlebar on 3rd August.
21. As for the meeting on 9th August 2012, Mr. Walsh stated that after the usual pleasantries, he told Mr. Tolan that there were three issues that needed to be discussed:
(1) limits on numbers of animals being purchased,
(2) the credit period, and
(3) the fact that Mr Tolan had countermanded a cheque for €131,000 since the previous meeting.
22. I should add that Mr. Tolan explained that countermanding on the basis that he had drawn the cheque on the wrong account and had immediately replaced it, and there was no loss to the mart on that account. Nevertheless, it was a worry to Mr. Walsh that it had happened at all, and gave rise to concerns about the level of exposure at any particular time. He went on to say that the meeting lasted only a short time because Mr. Tolan got up and walked out of the meeting at the mention of a limit being placed on the number of cattle he could buy. He was asked whether at this meeting he had requested sight of any documents to show that the overdraft was in place. He replied that he did not get the chance to ask that, because Mr. Tolan had walked out abruptly, and he had seen no evidence that the overdraft was actually in place.
23. Mr. Walsh denied ever having told Mr. Tolan that he was barred from attending the mart at Balla on 12th August 2012, or any other mart, and clarified that what he had said was that he was welcome to attend any mart he liked provided that he paid on the day for any animals that he bought. It will be recalled that Mr. Tolan stated that if he was being given no credit (in breach as he sees it of the agreement signed on 16th July 2012) it was, in effect, putting him out of business and preventing him from buying. Mr. Tolan has stated that he walked out of that meeting when he realised that they were reneging on the agreement that he would have 2 weeks’ credit provided that he had his overdraft in place by 10th August 2012.
24. Mr. Tom Jordan gave evidence also. He was at the time a manager at the Ballymote mart which had dealings with Mr Tolan. He attended the meetings that took place on 18th June 2012, 16th July 2012, and 9th August 2012. He confirmed that the concern was to reduce the level of the marts’ exposure in relation to Mr. Tolan’s dealings, and that they wanted to limit the number of animals he would purchase, and also rein in the credit terms to two weeks, and address the question of countermanding cheques. Without going into his evidence in detail, he stated that the very mentioning of any limits being imposed on the number of animals he could buy was something which made Mr. Tolan very angry and caused him to rise up and threaten to leave the meetings. It was a topic on which no discussion was possible as far as Mr. Tolan was concerned. He wanted to be able to come to the marts and buy as many animals as he wished. Mr. Jordan’s evidence was, like Mr. Walsh, that on 16th July 2012 it was agreed that there would be another meeting on 10th August 2012 at which evidence of the overdraft being in place would be produced by Mr. Tolan. He agreed that at 16th July 2012 meeting, Mr. Tolan had produced a letter of offer from his bank, but that there were things that had to be put in place, and that he was given until 10th August 2012 to get his paperwork in order. He also believes that the contents of the notes signed on 16th July 2012 were only matters agreed for the period between 16th July 2012 and the next meeting to take place on 10th August 2012, and that if he had his overdraft in place by that date, they would discuss what was to happen thereafter. But he is clear that the notes were not intended to be a legal agreement as such, but rather something to make sure there was no confusion about what was discussed.
25. Mr. Jordan was able to give evidence of his recollection of the meeting which took place on 9th August 2012. He said that by that date another cheque had been countermanded. It had been in the sum of €131,000. It was replaced and no problem remained in that regard, but it was still something that was of concern especially at that quiet time of the year. He remembered that after pleasantries had been exchanged, and Mr. Walsh had outlined the three issues that needed to be discussed, the topic of limits to numbers of animals came up, and that the moment it was raised Mr. Tolan got up immediately, went over to the door and started shouting that he would be attending the mart at Balla that Saturday, and that as far as he was concerned he had signed an agreement on 16th July 2012 and he was sticking to that. He then left the meeting. Mr. Jordan stated that they never got the chance to find out if the overdraft was actually in place as Mr. Tolan simply left the meeting abruptly. He believes that if Mr. Tolan had conducted himself differently at this meeting something could have been sorted out but that Mr. Tolan gave them no opportunity to do that.
26. Mr .Jordan was asked in cross-examination if, at this meeting on 9th August 2012, Mr Tolan was asked if he had his finance in place. It is worth setting out his reply:
“I’ve already said and I’ll repeat again. We didn’t get the opportunity to ask him because he didn’t sit there long enough. When we indicated what the subjects on our agenda were, once he heard credit limits he jumped from his chair, he went to the door. So, how could you ask him that? How could you ask him the question you’ve asked him three or four times? You couldn’t ask him because you’d have to be in the room and understand that the man was on edge and was obviously under a lot of pressure, you know. As I’ve said before in our June meeting and in our July meeting he made it crystal clear that he’d agree to nothing. The only reason that he signed those notes with us, in my opinion, in July is because he needed to keep trading to keep his cash flow going. And here we were in September, if he had an overdraft, which I never saw, truthfully never saw. We didn’t ask him, I accept that but we had no ways of knowing.” (Day 4, page 39).
27. Mr. Tolan was clearly extremely angered by this unexpected turn of events, as he saw them, and walked out of the meeting. He says that he expected that somebody might get in touch with him to try and resolve matters but this did not happen that same day. The following day he got a call from Mr. Murphy who had been at the meeting. He stated that he fully expected him to be calling so that they could sort something out, but in fact Mr. Murphy explained that he had been asked to phone him in order to arrange to get a cheque for everything that was owing at that date. It appears to have been in the sum of about €104,000, which through the ordinary course of trading had reduced from over €400,000 some weeks previously. Mr. Tolan said that he would give him that cheque at the Balla mart the next day. However, according to Mr. Tolan , Mr. Murphy went on to make clear that he had been told to tell Mr. Tolan that he was not permitted to attend the mart at Balla or any other mart, until further notice, and that if he attended and made a bid it would not be accepted. However, Mr. Walsh in his evidence has denied that he was ever told he could not attend, but rather that he could buy provided that he paid for what he bought on the day – in other words, there would be no credit period at all.
28. Mr. Jordan was asked how Mr. Tolan might have come to the idea that the agreement which was signed on 16th July 2012 was to last until the end of December 2012 as there was no mention of that in the document. Mr. Jordan said that it was never stated that it was to last until the end of the year. Mr. Jordan was certain that it was agreed that they would all meet again in August to allow Mr. Tolan an opportunity to get his overdraft in place. He feels that it was up to Mr. Tolan then to satisfy them that it was in place by the August meeting, and he never did that. He accepted that at the meeting of 16th July 2012 meeting the bank’s letter of offer had been produced, which had mentioned certain conditions to be complied with before drawdown, but that Mr Tolan had left the meeting on 9th August 2012 abruptly at the mention of limits on numbers of animals he could buy, and therefore the meeting never got the opportunity to confirm the position about his overdraft.
29. There is no need to recount everything that followed, except to say that Mr. Tolan was extremely angered and upset by this turn of events. As he saw it, he was being put out of business, and his reputation within his family and wider community was being destroyed because rumours were spreading that he was in financial difficulties and could not attend marts to buy cattle and supply them to Dawn Meats and so forth as he had done for years. He sought legal advice from his solicitor thereafter.
30. The result of the withdrawal of credit terms meant that sums then owing to marts could not be paid, since without credit he could not buy cattle to sell into Dawn Meats as previously, and get paid for them. This meant that he could not pay the amount then owing. It appears that by 12th August 2012 a sum of €154,830 was owing and could not be paid. But as Mr. Tolan explained in his evidence this sum was only in respect of cattle bought over the previous few weeks under the old credit terms, and that if he had been permitted to continue to trade as before, this would have been discharged in the normal way.
31. I have set forth a summary of the evidence partly to provide a factual context for the legal issue that arises, and partly because the judgment of the trial judge was an ex tempore judgment given at the conclusion of the hearing, and therefore does not contain any detail of the evidence tendered. There is one aspect of the evidence that I have not mentioned. I will do so for the sake of completeness, but it is really a side-issue and not material to the issue for determination. In his evidence Mr. Tolan had floated the idea that in fact Mr. Walsh had an ulterior motive behind putting him out of business, which is that he objected to Mr Tolan bidding against some other unnamed dealer in respect of dry cows and heifers, and thereby raising the price which that dealer would have to pay for such animals. Mr Walsh completely denied any such motive. I mention it because it was part of Mr Tolan’s evidence.
32. I will turn shortly to the ex tempore judgment given by the President at the conclusion of the defendant’s evidence on Day 4. Before doing so it is helpful to refer to a discussion between the President and Counsel at the conclusion of the plaintiff’s case towards the end of Day 2. There was no application made by the defendant for a dismiss at that stage, but there was a discussion initiated by the President as to the nature of the plaintiff’s claim and the legal issues arising as he saw them. That discussion ranged over issues such as whether the document amounted to a contract, and if so, to do what, for how long it was to operate, or whether it really amounted to some sort of representation by the defendant that if Mr Tolan put an overdraft in place he could continue to buy as previously, or whether some sort of legitimate expectation arose, though the President noted that no claim had been pleaded on the basis of any legitimate expectation. He noted also that no case was pleaded in relation to competition law i.e. a denial of access to a market.
33. On Day 4 at page 88 the President is noted as stating:
“Right, Mr Fogarty [counsel for the defendant].I don’t need to hear you on [the] contract point. I’m satisfied there isn’t a contract. There can’t be a contract based on this document for the reasons I’ve just been discussing with Mr Flannery and no case has been made that Mr Tolan was induced by something said to act to his own detriment although a case of legitimate expectation might have been made. It hasn’t been made. A case for damages in breach of principles of competition law, denial of access – that hasn’t been made either”.
34. Having so stated, the President indicated to Mr. Fogarty (for the defendant) that he would need to focus on whether the document signed on 16th July 2012 could be seen as a representation by the defendant that for so long as Mr. Tolan complied with the new credit terms he would not be denied access to the mart under the control of the defendant at least up to the end of December 2012. Mr. Fogarty responded firstly by highlighting the fact that there was no basis put forward by Mr. Tolan for any contention by him that the terms of the document were to endure until the end of December 2012 as the document was silent in that regard, and there was no evidence that anybody had so stated at the meeting. Further submissions were made by each side, and ultimately the President concluded at that point (i.e. before the defendant went into evidence) as follows:
“I am satisfied at this stage of the case only, in other words the halfway stage on this particular issue, that no case in legitimate expectation having been made out and no claim for damages for breach of competition rules under the Competition Act having been advanced, that really the only case the plaintiff can advance [is] a claim for breach of contract ……… or a representation …… that the defendants cannot as it were, walk away with impunity.
In so far as the contract claim is concerned, I am quite satisfied that this document of 16th July cannot be regarded as a contract of the sort that Mr Tolan believes it is, whereby he could indefinitely continue to attend at the mart and buy and sell in the sense that he would have some sort of a claim against [the defendant] if he could not buy the cattle he wanted or something of that sort. The problem is that the underlying relationship was [where] there were a succession of one-off transactions each time he went to the market. He went to the market on a particular day. He did not have to buy anything nor did the mart have to sell anything, so what is sauce for the goose is sauce for the gander. Neither side had any binding obligations of a contractual nature arising out of their trading relationship.
On the other hand obviously by reason of an ongoing trading relationship one would expect, all would imagine in the ordinary course of events that trust would build up over the years between the parties and Mr Tolan has told me and he has not been challenged on this, that he was a big buyer in this particular market. His contention that other farmers were glad to see him arrive because he paid top dollar for the animals he bought. None of that has been challenged. He has given a version of events which apparently has not been given in correspondence, that he thinks there was ill-will towards him developing at co-op and management level because he was engaged in a bidding exchange with another gentleman going back to March 2011 whereby they would submit rival bids for bullocks and heifers and he feels that this in a sense contributed to the decision which he believes occurred by [the defendant] effectively to terminate the trading relationship and he says it has nothing to do with his finances that they terminated this association. It was entirely due to the fact that they either thought he was too big for his boots or they thought there was something going on and therefore they stepped in. First of all they called him to a meeting.
Now at this stage I have no reason not to accept what Mr Tolan says about the two swapped cheques which have been mentioned, that he substituted two cheques, so I do not in a sense see anything untoward about that but he has explained all that. He has in relation to the third cheque, the 18,700, said yes, he did to that in a moment of anger after he’d been shown the door as he says by the representatives of [the defendant] in August.
But what I have to do is put an appropriate construction on this document of 16 July which was not drawn up for no reason. It was drawn up for a particular reason because some understanding had been arrived at. Now, it may well be that I will hear in evidence that Mr Tolan was up to his eyeballs in debt not only to [the defendant] but to others. I have heard various figures mentioned which would suggest he was out to more than half a million, what he owed to various co-ops, but we will have to wait and see about that. But, by the very nature of the terminology of this document I think it can legitimately be seen as a representation that if he complied with its terms he would be allowed continued access to the market because it says as follows: “by 10 August Finbar Tolan will have his overdraft in place to allow cheques to be drawn on the Saturday for the previous Saturday week’s purchase”. In other words this sentence clearly envisages that the trading scenario is going to continue. “During Galway race week” – which was again a future event at the time of the drawing up of this document – “cheques will be lodged in the current way with no gap in holding cheques. Ballinrobe cheques will continue to be lodged in the same way as in the past”. So here we are, this has no meaning except in the context of ongoing access by Mr Tolan to a particular mart. “Finbar agrees that the above is accepted and has to be in place by 10 August 2012 or all offers are off the table”. In so far as that goes there was an arrangement in place whereby he would service the commitments which were outlined at the top and if the offer means anything it can only mean on that basis he would be allowed continued access to the mart. Now that isn’t to say it was an endless access or that something else could have turned up that would have persuaded [the defendant] to cease dealing with them and that may well be, even the incident of the cancelled cheque might be ultimately regarded by this court as sufficient for the [defendant] to decide not to deal with any further. There also is the restriction on him to the extent that during the trading relationship that he could stock purchase only dry cows and bulls and any other stock purchase would be paid for on the day and that is signed by all relevant parties.
So I can only construe this document in one way and that is an assurance and representation by [the defendant] that subject to Mr Tolan complying with these terms, that some form of continuing access to the market would be permitted. That is as far as this case goes. The plaintiff himself apparently has said he didn’t himself feel that this would endure longer than the end of that particular year, so we’re talking about a period of four or five months. So, on the plaintiff’s own case, everything may have been up for grabs at that stage, but there is sufficient, in my view, to barely get the plaintiff over this only remaining avenue whereby the Court may have to consider if he has any entitlement. If of course it emerges that over that particular five-month or any five-month period he could not have made any worthwhile profit, any damages he might recover would be very small if that were to be the case and we certainly would not be talking about millions anything of that sort. For the moment I’m not going to dismiss the case, but I have to, in the interest of court time, I have to be satisfied as to what case can be made out on the material heard so far.”
35. Following these remarks by the President the defendant went into evidence, as I have described to some extent above. At the conclusion of that evidence, the President gave his judgment. In it he referred to his earlier conclusion that there was no evidence of any contract, and he re-iterated that having heard all the evidence his view in that regard was unchanged. In that regard he stated:
“… I want to re-state it now at the end of the case that the document dated 16 July 2012 cannot be taken by the court as a contract in the sense that it obliged the mart to be available to Mr Tolan and to supply him with for purchase a limitless number of cattle for as long as – for as long as he was able to meet the credit terms to which the discussion on 16 July related. I am quite satisfied there was no contract in the sense normally understood between the parties but there was a history, a pattern of trading between them”.
36. He went on to refer to that pattern of trading up to 2011, where balances were cleared at year end. He then noted that in 2012 there had been a significant change in the level in the indebtedness of Mr Tolan at any particular time, due to the increased numbers of animals that he was buying in 2012. He drew particular attention to the fact that by the time the discussions between the parties were taking place in June and July 2012 he owed what the President described as “a staggering sum” of €464,000. He went on to state that it was not surprising that there was a sense within the defendant that something had to be done about this level, and that this concern gave rise to the meetings which have been described. The President stated that there was no question of the defendant trying to “do down Mr Tolan” because he was bidding against another cattle dealer in relation to heifers and bullocks, and that this seems to be something that Mr Tolan mentioned only at the hearing and not in any prior correspondence or in any particulars provided while pleadings were being exchanged. The President went on to note the purpose of the meetings which were arranged during the summer of 2012 as far as the defendant is concerned, namely to discuss the level of indebtedness, the numbers of animals being purchased, and the countermanded cheques. He accepted that the first meeting was inconclusive on 18th June 2012 and that a further meeting was set up for 16th July 2012 which generated the document at the centre of this case. He went on in that regard to state:
“… I am quite satisfied having heard all the evidence, that this document simply recorded – is a record of a work in progress in terms of the dealings between Mr Tolan and the defendants. Certainly it is not to be taken as a contract, for the very simple reason [it is ] non-specific as to time, non-specific as to limits, non-specific as to virtually everything. I was told and I accept the evidence of Mr Walsh and Mr Jordan that it was time specific as far as they were concerned until the meeting which was due to take place on 9th of August when everything would be under consideration. I accept that Mr Tolan was told to try and get his overdraft facility in place. And in fairness to Mr Tolan, he did go off and make arrangements for an overdraft facility and he was able to actually show, produce at the meeting of 16 July a letter of offer in that regard. But a letter of offer is one thing, the completed loan arrangement does not appear to have come into being until 24 July in this particular case.
But going back to the undertakings, as I previously referred to it, the very terminology of it is short-term because it indicates one of the items addressed in it is the upcoming Galway races, and as Mr Walsh himself said, [if] this was to be some sort of contract which would govern the parties behaviour towards each other for years to come or even months to come it would be drawn in a proper legal form as such. I’m quite satisfied this was not meant. Firstly it was never intended to have a legal effect. It was a note of certain topics that were touched upon – a holding operation, to use the expression I put counsel, until they would meet again on the 9th of August at which stage it had been hoped that Mr Tolan would be in a position to meet the requirements of the mart in a manner that would enable a trading pattern to continue. The unfortunate meeting of the 9th of August, as we have heard, terminated very quickly, and it seems, and it is not really I think seriously in contradiction, but that Mr Tolan was not prepared to agree limits. As far as he was concerned if he met his end of the bargain and had the overdraft facility he should be allowed to continue as before at least until Christmas. Now, I have asked Counsel where he got this idea of the arrangements continuing until Christmas. I can only think, in the absence of any evidence on this specific point, that what Mr Tolan was thinking was he had a breathing space, he might have had a breathing space to get his liabilities down to 0 by the end of that particular year. Nothing appears in writing along those lines and I do not believe that any kind of lifespan of that sort was discussed at any of these meetings. Rather they were concerned to – the defendants were concerned to see in place some sort of reassurance for them which, to quote Mr Jordan, “would reduce their exposure on this particular relationship”.
So, in so far as I say that the meeting of 16 July is concerned, I do not regard the undertaking that was given on that occasion as being anything other than a holding position until they would meet again on 10th of August, that was a date mentioned at the first line of the notes even though, as we know, the meeting which did eventually derail the relationship took place on the 9th .”
37. Mr. Tolan submits that the President was wrong to conclude that the document which was signed on 16th July 2012 was not a contract, and that it was never intended to have any legal effect, and that it was simply a note of certain topics discussed and some sort of holding document for a short duration which could be revisited on 0th August 2012 when the parties would meet again. He concluded that it was what he described as a work in progress.
38. The President was not entitled to reach his conclusions based on what either of the parties stated was their subjective intention when putting their signatures to the document. There is nothing in his concluding remarks which would indicate that he did so. In fact it was at the conclusion of the plaintiff’s evidence, and without having heard the defendant’s evidence at all, that he first stated that he was not satisfied that there was a contract, and that what he was leaving over until after he heard the defendant’s evidence was whether the document constituted some sort of representation that the plaintiff would be allowed access to the marts if he fulfilled certain conditions by the 10th August 2012. He then heard that evidence, and reached his final conclusions as set forth above, maintaining his earlier view that it was not a contract but rather a note of a work in progress, and to be revisited before the 10th August 2012 when the overdraft was in place.
39. In my view, when looked at objectively, but against the contextual background described above, this was a correct interpretation. If the President was not privy to the contextual background, where there was a clear wish on the defendant’s part to reduce its potential exposure to losses, not just by reducing the credit terms but also by placing a limit on the numbers of cattle Mr. Tolan could buy in any one week, one might possibly be able to consider the document of the 16th July 2012 as a complete agreement to the effect that provided that there was an overdraft in place by the 10th August 2012 Mr. Tolan could buy as many cattle as he wished at the marts provided that he paid for them within the new two week credit period. In such a case the absence of any statement as to the duration of such an agreement might be filled by implying a necessary term that reasonable notice of any alteration or termination of those terms would have to be given to Mr. Tolan.
40. Viewed in isolation from the overall context, one might consider that there was an offer in the sense of a two week credit period, and an acceptance of that period by Mr.Tolan, as well as his performance of the only condition mentioned, namely getting his overdraft in place. One might see also a form of consideration passing which could be expressed in terms that in consideration of Mr. Tolan agreeing to a reduction in the terms of credit, the defendant would permit him to continue to buy animals at its marts. Finally, being a document drawn up in the context of a commercial business relationship and setting out certain terms of trading, an intention to create legal relations could be presumed, and there is certainly nothing in the document to indicate that it was not intended to create legal relations between the parties. In this respect, I note a passage in Chitty on Contracts, 29th edition at para. 2-153 which states:
“Burden of proof: express agreements. In the case of ordinary commercial transactions it is not normally necessary to prove that the parties to an express agreement in fact intended to create legal relations. The onus of proving that there was no such intention ‘is on the party who asserts that no legal effect is intended, and the onus is a heavy one’. In deciding whether the onus has been discharged, the courts will be influenced by the importance of the agreement to the parties, and by the fact that one of them acted in reliance on it.”
41. Whether it is or is not a contract must be judged objectively, but against the background context, and not by reference to any subjective intention on their part. There was ample evidence from the defendant’s witnesses of the general background of concern as to the level of indebtedness of Mr. Tolan and its wish to address that concern against which the President was entitled to consider the document’s effect and meaning. It wished to address these concerns in two ways, firstly by a reducing the number of weeks’ credit he would have, and secondly by placing a limit to the number of cattle that he would buy at any particular mart. It is clear that without the second element, the reduction in the credit period alone would not achieve the defendant’s purpose.
42. The President was entitled to have regard to that contextual background when considering whether all the necessary indicia of a legally binding and complete agreement were present, or whether it was simply a note of a holding arrangement covering the period between 16th July 2012 and when the parties would meet again – originally on 10th August 2012, and in fact, on 9th August 2012. That is simply the context against which the document must be objectively considered in relation to its contents and whether there was an intention to create legal relations. The President heard the parties’ evidence, and having considered the document he concluded that it was not a contract and that it simply reflected matters that were discussed and agreed upon to cover a short period until the parties would meet again. He relied in part for this conclusion on the fact that there was reference to arrangements to cover the upcoming week of the Galway Races when marts and much else in the area would be closed down.
43. Mr. Tolan however submits that the four necessary constituents of a contract are present, namely an offer, its acceptance, consideration, and an intention to create legal relations. To the contrary, the defendant submits firstly that there is no evidence of any intention to create legal relations; secondly that there is no consideration, and thirdly that while it does not state for how long the alleged agreement was to last, it can be inferred from the document and the surrounding circumstances that it was to operate up to the 10th August 2012 when at a further meeting it would be established if Mr. Tolan’s overdraft was actually in place, and then see if more long term arrangements could be agreed and put in place, which would ensure a reduction in Mr. Tolan’s indebtedness at any particular time, including by agreeing some limit on the number of animals that he would buy in any one week – something which Mr. Tolan had not been prepared to even discuss on the 16th July 2012. .
44. The document ought not to be construed as simply a note or memorandum of what was discussed at the meeting on 16th July 2012 just because the Court might prefer the evidence of the representatives of the defendant as to what they intended by the document. Their subjective intention does not aid its construction by the Court. That, as I have said, must be determined on an objective basis, albeit against the backdrop of the surrounding circumstances to give it context since no document exists in a vacuum. That is clear from a number of authorities, including the judgment of Murphy J. in the Supreme Court (Keane C.J. and Denham J. concurring) in Igote Limited v. Badsey Limited [2001] 4 IR 511. The issue in that case was not whether the document signed by the parties was or was not a legally binding agreement, but rather what meaning should be given to one particular clause of what was clearly a share subscription agreement. Having stated at p. 513 that “the purpose of construing a document entered into between two or more persons is to ascertain their common intention” he went on to look at what exactly was meant by “intention” and referred to what was stated by Lord Shaw in Great Western Railway v. Bristol Corporation [1918] 87 L.J. Ch. 414 at p. 424 as follows:
“… one hears much use made of the word ‘intention’, but courts of law when on the work of interpretation are not engaged upon the task or study of what parties intended to do, but of what the language which they employed shows that they did: in other words, they are not constructing a contract on the lines of what may be thought to have been what the parties intended, but they are construing the words and expressions used by the parties themselves. What do these mean? That, when ascertained, is the meaning to be given effect to, the meaning of the contract by which the parties are bound. The suggestion of an intention of parties different from the meaning conveyed by the words employed is no part of interpretation, but is mere confusion.”
45. Murphy J. went on to refer to the development of the concept of the ‘factual matrix’ and what Lord Wilberforce stated within his speeches in Prenn v. Simmons [1971] 1 W.L.R. 1381 and Reardon Smith Line Ltd v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989 about the utility of looking at those surrounding circumstances (or factual matrix) as a tool or aid in ascertaining the intention of the parties. He referred also to the dangers identified by May L.J. in Plumb Brothers v. Dolmac (Agriculture) Ltd [1984] 271 E.G. 373 when he warned:
“There is the danger, if one stresses reference to the factual matrix, that one may be influenced by what is in truth a finding of the subjective intention of the parties at the relevant time, instead of carrying out what I understand to be the correct exercise, namely, determining objectively the intent of the parties from the words of the documents themselves in the light of the circumstances surrounding the transaction. It is not permissible, I think, to take into account the finding of fact about what the parties intended the document to achieve when one is faced with the problem some five, ten or many years later of construing it. In deciding what the document did in fact achieve, all that one can look at are the general circumstances surrounding the making of the document and in which it was made, and deduce the intention of the parties from the actual words of the document itself. The contract between the parties is what they said in the relevant document. It is not for this or any court to make a contract for the parties different from the words that the documents actually use merely because it may be that the parties intended something different.”
46. However, before one gets into the business of construing a contract, there must in the first place be a contract to construe. In my view the first question is whether this document is a contract. If it is then the Court can enter upon the next question of determining what it means, and that is done objectively, and not by reference to the subjective intention of the parties.
47. It is too simplistic just to consider whether the four classic indicia of a contract are present in this case, namely offer, acceptance, consideration, and an intention to create legal relations, without taking into account the context in which the document arose. The Court must have regard to the overall context when deciding if this document is the complete agreement between the parties, or whether it was intended to be a partial agreement in the sense that it dealt with just one of the issues which fell to be agreed between the parties, with the remainder of what had to be discussed and agreed in some fashion being left to another day. Was it in other words an incomplete agreement? There is a fine distinction between an agreement on all matters at issue between the parties which is temporary pending the putting in place of a longer term agreement, and an agreement on part of what is at issue between the parties, be that on a temporary or a longer term basis, but a distinction nevertheless remains.
48. In the present case there was no evidence given by the defendant’s witnesses or indeed Mr. Tolan from which the Court could have concluded that on the 16th July 2012 all the issues between the parties had been agreed, since Mr.Tolan had refused to even discuss the question of limiting the number of cattle he would buy in any one week at the earlier meeting in June 2012. That absolute refusal on his part to discuss a limit on numbers is confirmed by the evidence of his behaviour at the meeting on the 9th August 2012 once that issue was raised. The fact that it was raised again by the defendant at this meeting is clear evidence that it remained an issue to be sorted out between the parties, and there is nothing in the document of 16th July 2012 or even in Mr. Tolan’s own evidence to indicate that the defendant had on that day abandoned its ambition of achieving agreement on a limit to the number of animals Mr. Tolan would buy. Mr. Tolan simply would not discuss that. That is part of the overall context against which the document must be considered, and in my view that it not to offend against the principle that the document must be construed objectively.
49. There were two legs to the solution to the defendant’s concerns as to its level of exposure, and while these were both raised for discussion at the meeting in June 2012, progress could be made on only one, namely the reduction of the credit period from three weeks to two weeks. Clearly the agreement on that matter could go some way to easing the defendant’s concern, but it alone would not achieve a long-term reduction in the exposure of the defendant unless there was some limit on numbers, because the very purpose of Mr. Tolan having a period of time to get an overdraft in place was to avoid the consequences of the reduction in the credit period so that he could continue to trade at the same level as previously. The overdraft was necessary for Mr. Tolan in order to cover the effect of the one week reduction in the credit period. In my view that general background in respect of which there was evidence can be taken into account in determining, not so much the meaning of the words used in the document, but whether or not the document was intended to represent a complete agreement as to the issues between the parties.
50. In my view all the evidence indicates that the document signed on 16th July 2012 evidences only that an agreement had been reached at that meeting that Mr Tolan would have two weeks’ credit instead of three going forward . It also evidences that at Mr Tolan’s request this reduction in the credit period would not commence before the 12th August 2012 as he wanted time to put an overdraft in place. There was agreement reached also as to what was to happen during the week of the Galway races, and in relation to two incidental matters, namely the buying of dry cows and bulls on a no credit basis only, and the lodging of Ballinrobe cheques. In the overall context of the purpose of the meetings in June and July 2012 this document cannot be seen as other than one recording an agreement on one aspect of the defendant’s concerns only, with the other being parked until the further meeting which was clearly envisaged so that the defendant could be shown evidence that the anticipated overdraft was in place in time for the new reduced credit period to commence on 12th August 2012. In my view the President was correct to so conclude. If evidence is needed to emphasise that the document signed on the 16th July 2012 simply evidenced agreement on one leg of the defendant’s concerns, it is provided by the evidence of the meeting on the 9th August 2012. The defendant attempted to raise its remaining concern again, namely some limit on the number of animals that Mr. Tolan would buy, but Mr. Tolan simply walked out of the meeting thereby preventing any discussion of that question.
51. The consequence of that impetuous behaviour on Mr Tolan’s part, and before he had even provided any evidence at that meeting that his overdraft was in place, was that he had no agreement as to credit terms after 12th August 2012. This consequence is in accordance with the clause in the document signed by him on 6th July 2012 which stated:
“Finbar agrees that the above is acceptable and has to be in place by the 10/8/2012 or all offers are off the table.”
52. His behaviour took everything off the table. Had he remained he would certainly have satisfied the defendant that his overdraft was in place, because there was no doubt that by 9th August 2012 it was in place. Had he been prepared to discuss the other concern which the defendant had, and which he knew they had a concern about, namely some limit on numbers some agreement might well have been reached. But to simply walk out of the meeting as he did led in my view to a consequence of his own making where “all offers were off the table”. I am satisfied that the President was correct to conclude as he did. I too am satisfied that the document signed on the 16th July 2012 is a note of what had been agreed up to that date, but in the overall context cannot be seen as a document intended to dispose of all issues of concern to the defendant. T here is nothing in the document to indicate that what was agreed on the 16th July 2012 was to endure until the end of the year. It clearly envisaged a further engagement between the parties before the 12th August 2012 because the defendant was entitled to know that the overdraft was in place . But that further engagement was not necessarily to be confined to that question alone. The second leg of the defendant’s concerns had yet to be addressed and the only reason why it had not been even discussed was because Mr Tolan was not prepared to discuss it. He had no entitlement to dictate such an exclusion of the topic. If he chose to, there could be consequences, as in fact occurred. In such overall circumstances it is not open either on the facts or as a matter of law to conclude that the document signed on the 16th July 2012 determined the contractual relations between the parties for some indefined period into the future beyond the 12th August 2012.
53. Even though I have concluded that the document is one where the parties must be taken as intending to create legal relations, albeit that it is an incomplete, it is not enforceable as a stand-alone agreement because it lacks essential details such as, by way of example only, how long it was to endure, and how many cattle the plaintiff was allowed to buy, for example, during any one week or other period of time.
54. It is therefore unenforceable because it is imprecise in its terms. It lacks the certainty necessary for it to have the consequences contended for by the plaintiff. One could say that it is imprecise because it is incomplete. I consider that the context against which the document is to be considered suggests clearly that an agreement as to numbers was contemplated in addition to the reduction in the period of credit. I emphasise that this is in my view evident from the context in which the document came to be prepared, which is admissible for that purpose, and it is not placing reliance on any subjective view of the defendant’s officers as to what they intended.
55. The agreement noted in this memorandum of 16th July 2012 needed something more before one could say that it contains within it the certainty and precision that would permit it to be enforced. In Cadbury Ireland Ltd v. Kerry Co-operative Creameries Ltd [1982] I.L.R.M. 77, Barrington J. had to consider Clause 19 of a particular agreement whereby certain creameries were transferred to Kerry C-operative Creameries Ltd by Dairy Disposal Co. Ltd. That clause contained an undertaking from Kerry to Dairy that adequate supplies of milk would continue to be provided to the plaintiff’s factory at Rathmore subject to certain stipulations. It is unnecessary to venture further into the facts of that case, save to say that Barrington J. concluded that the clause was so imprecise as to fall short of business efficacy. He stated his view that the draftsman of the agreement assumed that Clause 19 would be followed by a further agreement between Cadbury and Kerry where details necessary for that efficacy would be supplied. He stated at p. 85:
“It appears to me that the imprecision of the language in Clause 19 is explained by the fact that that clause was concerned with policy considerations and that the draughtsman assumed that Clause 19 would be supplemented by a bilateral agreement between the plaintiff’s and the first-named defendants in which the precise rights and duties of both parties would be set out. Put another way one could say that Clause 19 contemplated a further agreement between the plaintiff and the first-named defendants to give it business efficacy.”
56. I do not overlook the factual differences between that case and the present one. In the present case the further agreement necessary for business efficacy would have been between the same parties, unlike in Cadbury where that company was not a party to the agreement containing Clause 19. But Cadbury contains the common feature that it was an incomplete agreement on its own, just as in the present case what was agreed on 16th July 2012 was incomplete when taken in isolation. In my view it contemplates a further agreement before it had business efficacy. If Mr Tolan had not walked out of the meeting on 16th July 2012 when the question of limiting his numbers was raised, the document might well have contained sufficient detail to be enforceable. Even if on 9th August 2012 he had been prepared to discuss numbers, some further agreement might have emanated to reflect with sufficient precision the entire of what was being agreed. But on its own the agreement reached as to the credit terms as reflected in that document imprecise and uncertain as to its terms.
57. For these reasons, I would dismiss this appeal.
The basic rules of construction which the Court must apply in interpreting the documents which contain the parties’ agreements are not in dispute. The Court’s task is to ascertain the intention of the parties, and the intention must be ascertained from the language they have used, considered in the light of the surrounding circumstances and the object of the contract. Moreover, in attempting to ascertain the presumed intention of the parties, the Court should adopt an objective, rather than subjective approach and should consider what would have been the intention of the reasonable persons in the position of the parties.
21. This statement mirrors the restatement of the law by Lord Hoffmann in the House of Lords in ICS v West Bromwich BS [1998] 1 WLR 896 at pages 912 to 913, which has been approved any number of times in this jurisdiction especially in Analog Devices BV v Zürich Insurance Company [2005] 1 IR 274. Contracts must be given business efficacy, since negotiations take place for a purpose, most commonly to render certain the obligations of the parties in language which makes it mutually clear what each expects the other to do. Thus, the objective meaning of words within a contract are informed by an objective consideration of the background knowledge of the parties to whom the contract is addressed; The Starsin [2004] 1 AC 715 at 731. Thus interpretation is “not a question of what one party actually intended, or what the other party actually understood to have been intended, but rather what a reasonable person in the position of the parties would have understood the words to mean”; Treitel – The Law of Contract, 13th ed. (London, Peel ed, 2011) 6.009. Where there is disconnect in accord, mistake or rectification may offer remedies in particular and well-defined circumstances. These are not argued for here. This is not a question of whether the background is more important than the words but, rather, what objectively the words would have been taken to mean by a reasonable person in the position of the parties at the time of making the contract and with knowledge of the factual circumstances into which it was designed to fit. In this regard, it is less than helpful to reference other decided cases as to the meaning of a particular clause: if what is in question is an individual contract in consequence of negotiation, then every section of the text must be given meaning in the light of the wording used. Context of wording informs the meaning of particular clauses. As to whether something may be regarded merely as aspirational, or as a preliminary introduction intended to have no legal effect, or as a crucial clause around which the entire meaning of the contract turns – all of this must be a matter for individual interpretation. Clauses are to be judged as to their efficacy and meaning as part of an overall written document. As Griffin J observed in the context of an insurance policy in Rohan Construction and Rohan Group PLC v Insurance Corporation of Ireland PLC [1988] ILRM 373 at 377, the “whole of the policy must be looked at and not merely a particular clause.” If ambiguity exists in relation to the meaning of language, then is right to choose that meaning which fulfils the commercial purpose of the agreement as ascertained from the entire text seen in the light of the background facts; Cooperative Wholesale Society Ltd v National Westminster Bank Plc [1995] 1 EGLR 97 at 99.
22. No complaint is made on the appeal as to the exclusion by the trial judge of extrinsic evidence beyond the background facts, including the September 1999 exchange of letters referred to above. Part of the background to a series of contracts, however, may be the form in which the relevant text stood at the time of an earlier iteration before being changed by negotiation. Changes to commercial contracts are not easily to be understood as having been made purposelessly.
23. In the light of those principles, it is difficult to accept the contention on behalf of Martin Reid and James Turner that the reference in the contract to the Health Service Executive having “the right to take whatever measures are necessary to live within budget and statutory obligation” is merely to be regarded as a recital of circumstance, and one which must, at that, be disregarded. In entering into the specific obligations in 1999, the Health Service Executive declares that it is “obliged to live within … monetary allocations.” It is possible that taking that last statement on its own might be argued to have only bound the Health Service Executive into deferring approval “in certain limited circumstances, in accordance with the provisions of the Health (Amendment) Act 1996.” But this is a contract where both sides entered into negotiations from the point of view of improving access to dental services within the context of a funder, as party to the contract, which has unilaterally reserved all measures necessary to comply with its spending obligations under the delegated budget. That wording cannot be regarded as merely aspirational in the context of the admitted background documents. It is clear, from the exchange of letters in September 1999, that a revision of the contract was only possible on the basis of undermining what had been, pursuant to the 1994 version of the contract under clause 7, a mere acknowledgement of “the statutory responsibility” of the health boards for “the provision of dental services … and to ensure the management of such services.” It has to be significant, therefore, in construing this contract, that this provision was entirely overridden. It was replaced in 1999 by a clause which is not to be downgraded or ignored through any description of it as a recital or otherwise. This gave the funding party virtually untrammelled choice in withdrawing funding from particular forms of dental treatments. The new agreement in 1999 would not have been entered into but for the acknowledgment by the Irish Dental Association in the letter of 17th September 1999, which replaced the wording of that old clause 7 from 1994, with an entitlement from 1999 onwards to act on the basis of budget constraints. This clause was expressed in the widest possible form.
24. The change introduced was unequivocal as to the effect which it might have, even though the nature of the change that was brought about thereby was as unexpected in 1999 as the economic crash through property inflation which necessitated these extreme measures by the Health Service Executive in 2010. While it is clear that while the power to unilaterally alter a contract in the form agreed between parties is unusual, there is no basis upon which a court can change an unambiguous meaning through the application of any principle which contradicts express words. From the point of view of the fundamental principle of accord, contracts without unilateral alteration clauses require consultation and agreement prior to being changed, but a term against unilateral alteration is not to be read into a contract merely because that approach might seem beneficial. A court cannot override express terms but must affirm them. In Hickey v Health Service Executive [2009] 3 IR 156, it was expressly required that before the Minister for Health might direct change in the rates payable to community pharmacy contractors, first there had to be a consultation with the relevant committee of the Irish Pharmaceutical Union. Such a clause had to be construed in its ordinary sense. That was the meaning of that particular contract. There is no such requirement in this contract. At the opposite end of the spectrum are cases where an economic crisis may demand alterations to contracts entered into by the State at a time when resources were more readily available, but in the absence of enabling contractual provisions or statutory intervention, binding contractual relations must remain in place; Irish Pharmaceutical Union v The Minister for Health and Children and Another [2007] IEHC 222 per Clarke J at 3.13, 7.3, 7.4.
25. Finally, it might be commented that while Murphy J was invited to enter into an analysis of the construction of statutes on the basis of the relevant section of the Act of 1996, the legislative wording in question is not as strong as that which is contained in the contract revision of 1999. Therefore, and correctly, it was not thought necessary by the parties on this appeal to engage that issue.
Result
26. In the circumstances, no error has been identified in the judgment of the High Court and this appeal against the judgment of Murphy J must therefore be dismissed.
Sheridan & Anor practicing as Sheridan Quinn -v- Gaynor
[2009] IEHC 421 (14 September 2009)
Judgment of Mr. Justice Feeney delivered on the 14th day of September, 2009.
1.1 The High Court ordered an issue to be tried on oral evidence in these proceedings. That order was made on the 28th April, 2008 and it directed that Cecilia Traynor was to be the plaintiff in the issues to be tried and Noel Sheridan and Peter Quinn trading under the style and practice of Sheridan Quinn were to be the respondents and that John Gaynor was to be a notice party.
1.2 The issues directed to be tried were, namely:-
(i) Whether Cecilia Gaynor has an interest in the lands and property at Farthingstown containing 16.2127 hectares situate in the Barony of Rathconrath County Westmeath and comprised in Folio No. 2538 of the Register of Freeholders, County Westmeath.
(ii) If Cecilia Gaynor has any interest in the said lands, what precisely is the nature and classification of that interest, that is, is it a legal or an equitable interest?
(iii) Does such a recognition of a legal interest affect the well charging Order and/or Order for sale previously made by the Court (being the Order herein dated the 12th day of July 2004 [as amended]) and, if so, does the Court, following such a recognition, have jurisdiction to make a well charging Order and/or an Order for sale in respect of the said lands and/or to make an Order for partition and subsequent sale?
(iv) If Cecilia Gaynor’s interest is an equitable interest, does it rank in priority to the judgment mortgage registered by the Plaintiff?
(v) If Cecilia Gaynor estopped from relying on such an interest to frustrate the enforcement of the well charging Order and Order for sale herein?
1.3 Pursuant to the said order the plaintiff in the issue, Cecilia Gaynor, delivered her points of claim in the form of an affidavit sworn on the 22nd July, 2008. John Gaynor, the notice party in the issue, also delivered an affidavit sworn on the 22nd July, 2008 in relation to the issues ordered to be tried by the High Court. The plaintiffs in the action, the respondents in the issue, Noel Sheridan and Peter Quinn trading under the style and practice of Sheridan Quinn, delivered points of defence on the 8th August, 2008.
1.4 In the claim made by Cecilia Gaynor, as set out in her affidavit, she asserted that she had “part purchased with my brother John Gaynor the lands and bungalow type residence in Folio No. 2538 at Farthingstown, Rathconrath, Mullingar, Co. Westmeath from my cousin Edward Rogers on the 25th November, 1996 by way of private treaty”. An identical claim was asserted in paragraph 1 of the affidavit of John Gaynor sworn in support of the claim made by his sister. In support of that claim it was sworn by both Cecilia Gaynor and John Gaynor that Cecilia Gaynor had discharged £20,000 or €25,394.76 towards the contract of purchase of the said lands and bungalow type residence to Edward Rogers on the 25th November, 1996 and it was further claimed that there was a hand-written statement from Edward Rogers confirming that he had received that £20,000 “as part of the sale of contract to Cecilia Gaynor after his death”. Affidavits also stated that Edward Rogers had obtained legal advice from solicitors prior to entering into the contract with John Gaynor.
1.5 A memorandum of agreement was made between Edward Rogers and John Gaynor dated the 12th December, 1996 wherein it was agreed that Edward Rogers as the vendor would sell and that John Gaynor as the purchaser would purchase in accordance with the special and general conditions of sale contained in the said agreement ALL THAT AND THOSE the property described in Folio No. 2538 of the Register County Westmeath which was held in fee simple by Edward Rogers. The stated purchase price was £25,000 and the special conditions provided, inter alia, that the sale price of £25,000 should be paid to the vendor by the immediate payment of the sum of £2,500 which was to be deemed as the deposit and that thereafter the purchaser, John Gaynor, was “to pay to the vendor the sum of £2,000 each year payable on the 28th November, 1996 or such other date as may be agreed between the parties”. It was also provided for in special condition number 7 that the vendor, Edward Rogers, reserved the “sole right of residence in his favour to reside in the dwelling house on the property in sale and that his right of residence would be registered as a burden on Folio No. 2538 County Westmeath”.
1.6 A deed of transfer and charge dated the 16th January 1997 was signed, sealed and delivered by Edward Rogers and John Gaynor.
1.7 The plaintiff in the issue, Cecilia Gaynor, claimed that she part purchased with her brother the lands and bungalow, the subject matter of the proceedings herein. It is claimed that the actual purchase price of the lands and bungalow from Edward Rogers were £40,000 and that Cecilia Gaynor had provided half of that sum. It is claimed by Cecilia Gaynor that she formed part of the purchase of the property by paying the said sum of £20,000 for the lands in Folio No. 2538 and that she is entitled to a fifty per cent interest in the said lands and bungalow.
1.8 In the points of defence the plaintiffs in the action and the respondents to the issue deny that the plaintiff in the issue, Cecilia Gaynor, has part purchased whether with her brother John Gaynor, or at all, the said lands and bungalow and it is denied that she has discharged £20,000 toward the alleged contract of purchase. It is also denied that Cecilia Gaynor has any interest in the said lands and it was further pleaded that if Cecilia Gaynor has or had any interest in the lands, which is denied, that it is denied that the same affects the well charging order and/or the order for sale made by the High Court on the 12th July, 2004 and varied by Court order dated the 22nd January, 2007. It is also pleaded in the points of defence that if Cecilia Gaynor has any interest in the property, which is denied, that she is estopped from relying on same to frustrate the enforcement of the well charging order or the order for sale.
2.1 Cecilia Gaynor averred that she had part purchased the lands and property at Farthingstown, containing 16.2127 hectares situated in the Barony of Rathconrath, County Westmeath and comprised in Folio No. 2538 of the Register of Freeholders, County Westmeath on the 25th November, 1996 by way of private treaty. She claimed that she thereby has a fifty per cent interest in the said lands in that she had contributed fifty per cent of the actual purchase price.
2.2 The Court heard the issue on oral evidence. The plaintiff in the issue and the notice party to the issue confirmed the information in their affidavits and gave oral evidence. Documentation was also available to the Court which was admitted by the parties. The documentation included the documents relating to the sale of the lands in question in December 1996 by Edward Rogers to John Gaynor together with other documents relating to that sale. The documents admitted also included documents concerning the source of funds to finance the purchase together with agreed and admitted documents concerning the legal advice received by Edward Rogers in relation to such sale. There was also two handwritten documents admitted in evidence dated the 25th November, 1996 and 4th September, 2000.
3.1 The contract for sale made between Edward Rogers and John Gaynor identified a purchase price of £25,000 in respect of the property contained in Folio No. 2538 of the Register County Westmeath, such purchase being subject to the special and general conditions of sale set forth in the memorandum of agreement dated the 12th December, 1996. The claim made by the plaintiff in the issue and by John Gaynor was that the stated purchase price was not the actual sum paid or to be paid to Edward Rogers but that rather the actual sum agreed was £40,000 of which Cecilia Gaynor paid half on the basis that she was to have a fifty per cent interest in the property in Folio No. 2538 which interest was to be registered in her name in a new folio after Edward Roger’s death. It was claimed that such agreement was evidenced by a hand-written document signed by John Gaynor, Cecilia Gaynor and Edward Rogers dated the 4th September, 2000.
3.2 The central issue before the Court as set out in the order of the 28th April, 2008 is whether Cecilia Gaynor has an interest legal or equitable in ALL THAT AND THOSE the property described in Folio No. 2538 of the Register County Westmeath together with the bungalow thereon and if so, the nature and effect of such interest.
3.3 The evidence before the Court in the form of oral evidence and admitted documents established a number of matters. Firstly, it was established that the late Edward Rogers had owned various lands and that in December 1994 he had those lands valued. The oral evidence, supported by the admitted documentation, established that in the latter half of 1996 a proposal was considered whereby Edward Rogers would sell part of his lands to his relations. The lands which were proposed to be sold were the lands and premises set forth in Folio No. 2538 of the Register County Westmeath. At that time, Edward Rogers was residing in the bungalow situated on those lands. The evidence established that those lands and the bungalow had been valued in 1994 at the sum of £40,000. John Gaynor gave evidence that in 1996 he placed a value on the said lands and bungalow of £45,000. The evidence established that John Gaynor was interested in acquiring the lands but did not have the funds available to him to finance a purchase. A purchase did proceed but the evidence clearly establishes that the full facts concerning that purchase were not disclosed to third parties. The third parties involved in the transaction, particularly the legal advisers, were provided with incomplete and false information.
3.4 Mr. Rogers went to his solicitor, Patrick J. Groarke & Son, and indicated that he proposed to sell his lands and premises comprised in Folio No. 2538 at a certain price and on certain terms. The proposed price was £25,000, as disclosed to Mr. Groarke. The attendance of the 21st November, 1996 indicates that Edward Rogers attended Patrick J. Groarke & Son in relation to the proposed transaction which was identified as the sale of the property described in Folio No. 2538 to his cousin John Gaynor. The attendance indicated that Mr. Rogers was 75 years of age and was a bachelor and that Mr. Groarke, obviously being aware of the earlier valuation from some two years previous, advised him that the proposed purchase price represented a gross undervalue. The attendance stated “I advised re – independent advice etc., advised strongly that the purchase price on the memorandum presented to me represented a gross undervalue. Mr. Rogers replied that he was the full owner and could give it away if he liked”. The proposed special conditions are set out in a document dated the 21st November, 1996 and were stated by Mr. Gaynor, in his oral evidence, to be substantially in his handwriting. That document indicated that the lands and dwelling house were to be sold as a unit by Edward Rogers to John Gaynor and that the sale price of £25,000 was to be paid off in instalments of £2,000 each year. Further notes on that attendance indicated that a deposit of £2,500 was payable now. Patrick J. Groarke & Son determined not only to write formally to Mr. Rogers concerning the suggested undervaluation but also insisted upon him obtaining independent legal advice before signing any contract. The proposed contract also provided that Edward Rogers was to remain the sole resident in the dwelling house until his demise but that the expenses such as ESB incurred in respect of the dwelling for the period of that residence were to be paid by Edward Rogers. The contract envisaged that John Gaynor would become the full owner of the property but that Edward Rogers would have a right of residence in the house on the property until his death.
3.5 On 25th November, 1996, Patrick J. Groarke & Son wrote to Edward Rogers and stated “We again reiterate the advice which we gave to you on Thursday night last. The sale price in the contract for sale represents a gross undervalue of the property and we insist that you receive independent legal advice before contracts for sale are signed by you”. Arrangements were made for Edward Rogers to receive such independent advice from Peter D. Jones & Co., solicitors. Peter Jones duly met with Edward Rogers and thereafter wrote to Patrick Groarke of Patrick J. Groarke & Son stating, “I write to advise that Mr. Rogers called to me on the 5th December seeking this advice. I considered the contract as drafted by you and the special conditions inserted in same. I purposefully drew Mr. Roger’s attention to the fact that the consideration for the sale was far less than the true market value which Mr. Rogers himself advised me was somewhere in the region of £30,000. I enquired of him as to whether he understood that he was selling the land at an undervalue and he clearly understood this. He advised me that Mr. Gaynor was a second cousin and he had done a lot of work for him in the past”. The letter also makes it clear that Mr. Jones went through the proposed draft contract and explained the terms and conditions to Mr. Rogers. Thereafter the contract for sale was completed and a memorandum of agreement dated the 12th December, 1996 was entered into between Edward Rogers as vendor and John Gaynor as purchaser for a purchase price of £25,000, the property being ALL THAT AND THOSE the property described in Folio No. 2538 of the Register County Westmeath. The special terms and conditions envisaged in the earlier discussions were set forth in the special conditions.
3.6 The evidence given by Cecilia Gaynor and John Gaynor was that the actual agreement was that the property described in Folio No. 2538 would be sold subject to Mr. Rogers’s right of residence for his lifetime for a consideration of £40,000. £20,000 of that was to be paid by ten instalments of £2,000 and the remaining £20,000 was to be transferred into an account in the name of Mr. Rogers. The payment of that £20,000 which was to be made as part of the consideration for the purchase of the property was not to be disclosed to any third party or any solicitor. The evidence before the Court was that the explanation for this was that Mr. Rogers was afraid that he might lose his entitlement to a pension payment if such a sum was to be paid and that therefore he wished its existence to be kept secret. Neither of the two solicitors involved in the transaction were made aware of any such payment or the real nature of the agreement. The evidence before the Court was that the sum of £20,000 was provided by Cecilia Gaynor. Both Cecilia Gaynor and John Gaynor stated that the contract price contained in the memorandum of agreement of the 12th December, 1996 was not the true contract price and that it did not reflect a secret payment of £20,000 to Mr. Rogers. The evidence was that the sum of £20,000 which was paid to Edward Rogers emanated from a bank account in the joint name of Cecilia Gaynor who effectively controlled that account and that she was involved in the completion of the payment and went to the bank for that purpose.
3.7 The evidence given by Cecilia Gaynor and John Gaynor was that they both knew that the property was being sold to John Gaynor in 1996 and it would be transferred into his sole name but that a parallel or related agreement had been reached whereby after Edward Rogers’s death the property would be divided. Both John Gaynor and Cecilia Gaynor stated that the division of the property was not identified or agreed in 1996 and that what was envisaged was that after Edward Rogers’s death an agreement would be entered into between the two of them whereby John Gaynor would transfer a portion of the property into Cecilia Gaynor’s name and that that portion of the property would have on it the bungalow. Both parties indicated that the division of the property was to be agreed after the death of Edward Rogers and that the exact division was never identified or agreed other than to the extent that the house would be on the portion of the land which was to be transferred to Cecilia Gaynor.
3.8 The evidence established that the necessity for the side agreement arose due to the fact that as Edward Rogers was in receipt of a small pension and he was apprehensive that if the payment of £20,000 was disclosed that it might affect his entitlement to such payment.
3.9 Both Cecilia Gaynor and John Gaynor claimed that the agreement for the transfer of part of Edward Rogers’s land to her was made on the 25th November, 1996 and was evidenced by a letter of that date signed by Edward Rogers which stated “ Farthingstown, Rathconrath, 25/11/1996 – Received from my cousin Cecilia Gaynor £20,000 on 25/11/1996 for dwelling house and surrounding area after my death. Signed: Edward Rogers”. The £20,000 was paid over on a later date. That document is consistent with the evidence given by Cecilia Gaynor and John Gaynor that the actual identification of the land to be transferred to Cecilia Gaynor was not to take place until after his death in that the extent and area of the surrounding area to be transferred had not been identified. The common evidence of John Gaynor and Cecilia Gaynor was that the identification of such land or “area” was to take place after Edward Rogers’s death and in fact has never taken place. As of the date of the hearing before the Court the position contended for by John Gaynor and Cecilia Gaynor was that the extent of the property, the subject matter of the agreement of the 25th November, 1996, was to be agreed, identified and described in a memorandum that was to come into existence after the death of Edward Rogers. There was no evidence as to any such agreement being completed nor was any document or contract completed identifying with certainty the area to be transferred. The private treaty pleaded by both Gaynors of the 25th November, 1996 was never related to a defined area of land.
3.10 Edward Rogers died on the 28th September, 2000 and the evidence was that shortly prior to his death a document was signed by him and by John Gaynor and Cecilia Gaynor. That document was ultimately produced in evidence even though it had not previously been discovered. No issue was taken in relation to the admissibility of that document and therefore the Court was able to consider the document. The document was drawn up at a time that Edward Rogers was in St. Mary’s Hospital in Mullingar where he was to remain until his death some three and a half weeks after the date of the document. The document is hand-written and states:
“St. Peters Ward, St. Marys Hospital, Mullingar, 4/9/2000 – I John Gaynor agree that my sister Cecilia Gaynor has a 50% claim on the property in Folio No. 2538 Farthingstown, Rathconrath Mullingar, to be registered in Cecilia name in a new folio No. after Edward Rogers demise.
Signed: John Gaynor, Signed: Cecilia Gaynor, Edward Rogers”.
The evidence of both John Gaynor and Cecilia Gaynor was that Edward Rogers in signing that document recognised that Cecilia Gaynor had provided fifty per cent of the real purchase price in 1996 and that what was envisaged was that Cecilia Gaynor’s interest in the property would be registered after his death. The document refers to a fifty per cent claim on the property and that is what was claimed in the issue before the Court but the evidence before the Court was that Cecilia Gaynor had provided fifty per cent of the total purchase price but that the actual property to be transferred and incorporated into a new folio was not to be identified or agreed until after Edward Rogers’s death and would be as a result of an agreement between John Gaynor and Cecilia Gaynor. The extent of the identification of the property to be included in such proposed agreement went no further than identifying that the lands which were to be the subject matter of the future agreement were to include the bungalow situated on the lands.
3.11 The evidence in relation to the actual £20,000 payment was not entirely clear. However, the weight of evidence was to the effect, and the Court accepts, that Cecilia Gaynor did pay the sum of £20,000 out of a bank account controlled by her into an account which was opened in Edward Rogers’s name in the Bank of Ireland, Mullingar. There is documentation from the Bank of Ireland, Mullingar, to support such payment which confirms not only the receipt of £20,000 but also a transfer of £5,000 on the same date as the date of the lodgement into Mr. Rogers’s current account. The Court also accepts the evidence that the payment was made on the basis that John Gaynor, Cecilia Gaynor and Edward Rogers all knew and were aware that it was to be a private and undisclosed payment in respect of the transfer of the lands by Edward Rogers to John Gaynor and that it was being made on the understanding that after Edward Rogers’s death that John Gaynor would agree and identify with certainty the lands to be transferred to Cecilia Gaynor and that thereafter such transfer would take place and a new folio established.
3.12 The Court also heard evidence that on the 11th September, 2000, shortly before his death, Edward Rogers gave John Gaynor a cheque for £3,500. This was explained by John Gaynor, in evidence, that it had been made to balance the payments between himself and his sister. By that date by means of the annual instalments and the deposit, John Gaynor claimed that he had paid a total of £23,500 to Edward Rogers and that therefore Edward Rogers paid to him the sum of £3,500, by cheque, so that the position could be arrived at whereby John Gaynor and Cecila Gaynor had each contributed £20,000 towards the total package in relation to the sale of Edward Rogers’s land.
4.1 In summary, the evidence establishes that John Gaynor entered into an agreement to purchase in his sole name the lands of Edward Rogers for a sum of £40,000 to be paid partly by means of a £20,000 under the counter payment and partly by ten instalments of £2,000. Edward Rogers was to be allowed to reside in the house on the property until his death. The £20,000 used for the under the counter payment was provided by Cecilia Gaynor and in return for the provision of those funds it was agreed that after Edward Rogers’s death that the lands would be divided, the precise portion of such lands to be agreed at that time. The facts also establish that at the time that the contract for sale was concluded between Edward Rogers and John Gaynor that both of them and Cecilia Gaynor were aware of the fact that the contract price for insertion in the contract for sale was a false and incorrect price. They all proceeded on the basis that the real purchase price would not be disclosed on the contract. The case as put forward on behalf of Cecilia Gaynor was that at the time her brother John Gaynor had purchased the lands it was for the mutual benefit of herself and her brother and that in effect John Gaynor had purchased the lands as trustee for Cecilia Gaynor. However, the evidence which was given to the Court demonstrates that that was not in fact the case as it is clear from the testimony of both John Gaynor and Cecilia Gaynor that the lands were purchased in their entirety, subject to the special conditions, by John Gaynor with it being agreed that after Edward Rogers’s death that John Gaynor would transfer a portion of those lands, including the portion upon which the bungalow was located, to the sole name of Cecilia Gaynor and create a new folio. It is also the case that the actual portion to be transferred was at no time agreed or identified and that there was never any agreement or intention that Cecilia Gaynor would have a fifty per cent interest in the entire property.
4.2 It is against that factual background that this Court must determine the issues identified in the order of the 28th April, 2008.
4.3 The Court is satisfied that Cecilia Gaynor does not have an interest in the lands and property at Farthingstown containing 16.2127 hectares situate in the Barony of Rathconrath, County Westmeath and comprised in Folio No. 2538 of the Register of the Freeholders, County Westmeath. The lands were transferred by contract to John Gaynor and under that contract Cecilia Gaynor has no interest in the lands. It was not the case nor does the evidence support a claim that Cecilia Gaynor was to have a fifty per cent interest in the entire property. No evidence was given to support that contention. Rather it was a case that there was an agreement between Cecilia Gaynor, John Gaynor and Edward Rogers that, after Edward Rogers died, the lands which Edward Rogers transferred by sale to John Gaynor would be sub-divided into two separate lots by a future agreement to be concluded between John Gaynor and Cecilia Gaynor. There never was an agreement, either on the 25th November, 1996 or on any date for the transfer of any identified or certain portion of lands to Cecilia Gaynor. There is no agreement or contract for the transfer of any property to Cecilia Gaynor which can be identified with certainty. It is clear that any property which is the subject matter of a contract or agreement for sale must be described with sufficient certainty to be capable of being clearly identified. What was agreed between the parties was an agreement to agree at some future date as to the identity of the property to be transferred to Cecilia Gaynor. There is not and never was a sufficient identification of the property sufficient to establish a legal or equitable interest therein on the part of Cecilia Gaynor. The evidence which was given by her and on her behalf did not and was incapable of establishing the precise identity of the property which she claims to be hers. Given the absence of any agreement as to the identity of the property it follows that there was not and could not have been a sufficient or adequate identification of the property. It therefore follows that there is not and never has been any document which identifies the property sufficient for the Statute of Frauds (Ireland) Act 1695. Section 2 of that Act provides that, if the contract itself is not in writing, there must be some written memorandum or note of the contract, that is, some form of written evidence of it. There is not any written evidence of such a contract nor is there any sufficient written memorandum or note.
4.4 In the text book Irish Conveyancing Law (2nd Ed.) J. C. W. Wylie deals with the formation of a contract for the sale of land in the following terms (at para. 6.02. p. 141):-
“The first point that must be emphasised with respect to conveyancing contracts is that they must, like any other contract, comply with the general principles of the law of contract relating to formation of a contract. Thus, the parties to the purported contract must have the legal capacity to enter into such a contract. They must have had an intention to create legal relations, and the terms of their agreement must be sufficiently certain that, if necessary, a court will be able to see precisely what it is they have agreed.”
On the facts of this case that certainty is entirely absent as the Court cannot identify what lands are to be the property of Cecilia Gaynor.
4.5 The Court is satisfied that the agreement in relation to the nature and extent of the proposed interest of Cecilia Gaynor in the property amounted to no more than an agreement to agree and therefore at no time did Cecilia Gaynor become entitled to an interest either legal or equitable in any identified portion of lands comprised in Folio No. 2538 of the Register of Freeholders, County Westmeath.
4.6 In arriving at the conclusion that Cecilia Gaynor did not have any interest in the said lands either legal or equitable, the Court has considered the fact that a sum of £20,000 was made available by her to enable the under the counter payment to be made to Edward Rogers. Whilst it might be possible to argue that there is no general rule that payment of money can never be part performance, sufficient to take a particular case out of the Statue of Frauds, this clearly is not such a case. The facts and circumstances surrounding the under the counter payment to Edward Rogers are not such that that payment is evidence of the existence of a contract for Cecilia Gaynor having a fifty per cent interest in the entire of the said lands. Neither does such payment relate to an agreement of sufficiently precise terms as to the lands to be transferred to result in an enforceable contract. Cecilia Gaynor has not identified any enforceable contract or agreement for the transfer of any portion of the property identified with certainty. The Supreme Court has identified the correct approach to be followed in considering whether there was a concluded agreement in the case of Supermacs Ireland Ltd. v. Katesan (Naas) Ltd. [2000] 4 I.R. 273. In that case Geoghegan J. held that the correct approach to identify whether there was a concluded agreement in the following terms (p. 288):-
“There cannot be a concluded agreement unless everything intended to be covered by the agreement has been either expressly or impliedly agreed.”
On the facts of this case the plaintiff in the issue is unable to identify any concluded agreement because the precise portion of the lands forming part of Folio No. 2538 which were to be transferred to her were never agreed either expressly or impliedly. John Gaynor and Cecilia Gaynor have both openly acknowledged, in their oral evidence, that there was not and never has been an agreement as to what precise lands were to be transferred to Cecilia Gaynor. For Cecilia Gaynor to have a legal or equitable interest in lands those lands would have to be identified with certainty and absent such certainty the Court is satisfied that Cecilia Gaynor has not established any legal or equitable interest in any identifiable lands.
4.6 The Court is also satisfied that neither of the two documents, either the one dated the 25th November, 1996 or the 4th September, 2000 provide sufficient note or memorandum to satisfy the Statute of Frauds (Ireland) Act 1695. The first of those two documents refers to the dwelling house and surrounding area without any identification of the surrounding area and the second of those documents refers to a fifty per cent claim on the property. The extent of the surrounding area was never established or agreed. Also the evidence does not support any claim based upon John Gaynor having bought the entire property or part of the property as trustee for Cecilia Gaynor. That is not the case made by the Gaynors in evidence. The purchase by John Gaynor from Edward Rogers was for his benefit subject to a claimed future obligation to enter into an agreement yet to be agreed and was not the purchase of a half interest for Cecilia Gaynor or of any specified interest. The land was not purchased in trust. There is no basis upon which Cecilia Gaynor can assert that the lands were purchased in trust for her and therefore she cannot make the case that there has been a repudiation of a trust constituting a fraud by John Gaynor.
4.7 Even if the Court is wrong in its conclusion in relation to the finding that Cecilia Gaynor does not have an equitable interest in the lands comprised in Folio No. 2538, it is clear that John Gaynor, Cecilia Gaynor and indeed, Edward Rogers all were fully aware of what they were doing and participated in a scheme to hide the true extent of the payment to Edward Rogers and that they did so for the purposes of hiding the extent of the funds available to Edward Rogers. John Gaynor and Cecilia Gaynor are candid in acknowledging such and the Court is satisfied that it would be a breach of public policy if a contract and side agreement which were constructed to conceal from the Revenue authorities the true nature of the transactions was to be enforced.
4.8 As this Court has determined that Cecilia Gaynor has neither a legal or equitable interest in the lands comprised in Folio No. 2538 of the Register of Freeholders, County Westmeath, the issues raised at paragraphs 3, 4 and 5 of the Order of the High Court of the 28th April, 2008 do not arise. This judgment does not deal with nor does it make any findings in relation to whether or not Cecilia Gaynor has any claim for the return of the £20,000 sum or any other claim against her brother.
Triatic Limited -v- Cork County Council
[2006] IEHC 111 (31 March 2006) Judgment of Miss Justice Laffoy delivered on 31st March, 2006.
The factual background
The plaintiff was incorporated on 16th February, 1993 under the name Barevan Limited. Two brothers, James O’Brien and William O’Brien, own the entire share capital of the plaintiff and they are its sole directors. The claim being pursued in these proceedings arises out of dealings between the plaintiff and the defendant in relation to the proposed development and acquisition of Fort Camden at Crosshaven, County Cork in the mid-1990s. At the time, William O’Brien was working abroad and it was James O’Brien who primarily dealt with the defendant.
Fort Camden, which got its name from the Earl of Camden, the Lord Lieutenant of Ireland between 1795 and 1798, is described in an historical note which was put in evidence as being recognised internationally to be one of the world’s finest remaining examples of a classical Coast Artillery Fort. After it was handed over to the Irish government in 1938, it was renamed Fort Meagher in honour of Thomas Francis Meagher. However, the evidence indicates that it continued to be known as Fort Camden locally. It was handed over by the Department of Defence in late 1988 to the defendant on the basis that the defendant would develop it for tourism and amenity purposes. What emerged on the evidence was that “handed over” meant that physical possession of the property was given to the defendant. The ownership remained in the State, a fact of which James O’Brien was unaware until 31st August, 1995.
The defendant, being unable to identify a suitable source of funding the development work, decided to seek private sector involvement. In September 1989, the defendant placed advertisements in a number of publications, including the Cork Examiner, announcing the availability of “serviced development sites” for industrial, commercial and tourism development at a number of locations in Cork, including Crosshaven. Fort Camden was not specifically mentioned. The advertisement elicited no response in relation to Crosshaven. Subsequently a French enterprise expressed interest but withdrew. The defendant’s involvement with an Irish enterprise was somewhat more fruitful and on 7th April, 1993 the defendant issued a notification of decision to grant planning permission, subject to conditions, to Valcoast Limited to “convert and refurbish part of Fort Meagher (Camden) to a hostel, restaurant and lounge bar and ancillary activities”. James O’Brien’s involvement with the defendant in relation to Fort Camden commenced shortly after that.
In the Cork County Development Plan, 1996, which was published as a draft in 1994, the development of Fort Camden was addressed under the heading “Amenity & Tourism – Cork Harbour”. It was stated that the Fort Camden development would help develop Crosshaven’s tourist function; there were proposals at a fairly advanced stage to develop a substantial tourist hostel in the fort complex; and the possibility of developing water based activities at the lower levels would be examined in conjunction with its development as a stop-off point in the proposed harbour transport tourism initiative.
The plaintiff’s involvement with the defendant
By agreement between the parties the documents discovered by the defendant were admitted in evidence without formal proof. The following outline of the involvement of James O’Brien and the plaintiff and their advisers with the defendant in relation to the development of Fort Camden is drawn from those documents and from the plaintiff’s witnesses, namely: James O’Brien; William O’Brien; William Brady, an architect in the firm of W.H. Hill & Son, who was retained in connection with the plaintiff’s project for Fort Camden in 1994; Peter Roberts, an accountant in the firm of V.F. Nathan & Company, which firm was engaged by the plaintiff in August, 1996 to secure investment for the Fort Camden project and to assist in the preparation of an outline proposal to be submitted to the defendant; Brendan Cunningham, a solicitor in the firm of Barry C. Galvin & Son, which acted for the plaintiff; and Ian O’Leary, a partner in the firm of O’Leary Lehane & Co., Accountants, who became involved in the plaintiff’s project for Fort Camden at the beginning of March, 1995.
The plaintiff’s involvement with the defendant in relation to Fort Camden evolved as follows:
· James O’Brien was made aware of the development potential of Fort Camden in July, 1993 by an administrative officer in the planning department of the defendant when he brought in proposals to the defendant in relation to a proposed development at Ringaskiddy, which never came to fruition. Mr. O’Brien’s perception was that he was encouraged towards Fort Camden and, in particular, towards the development of the lower part of the fort, the wharfage, quays and such like. He visited the locus with officials of the planning department. At the time, planning permission had issued on foot of the notification of decision referred to earlier for the development of the upper part of the fort and agreement in principle had been reached between the Irish enterprise, which I will refer to as “Valcoast”, and the defendant, under which Valcoast was to raise £500,000 under a business expansion scheme to fund the development, carry out the development and secure Bord Fáilte approval for the project and the defendant was to grant a 35-year lease to Valcoast. Although James O’Brien kept in contact with the planning department throughout the remainder of 1993, he made little or no progress in relation to getting involved in a project at Fort Camden.
· In late March, 1994, James O’Brien and his solicitor, Barry Galvin, had a meeting with the personnel behind Valcoast at which a suggestion that Mr. O’Brien would develop the lower part of Fort Camden, the waterfront, was well received. This was followed by a letter dated 21st April, 1994 from Valcoast to Mr. Galvin, which proposed discussions to examine the possibilities of a joint venture with James O’Brien “to acquire and develop [Fort Camden] outright”. This letter disclosed that Valcoast was considering another location for a hostel project in Crosshaven because it perceived its efforts to make progress with the defendant were being frustrated by bureaucracy. Through his solicitors, James O’Brien responded that he would be interested in a joint venture.
· On 3rd June, 1994, the O’Briens, on behalf of the plaintiff, met with Brendan Kelleher, the Chief Planning Officer of the defendant, to discuss where they were in relation to Camden Fort. They were accompanied by their architect, Mr. Brady, and their solicitor, Mr. Cunningham. They learned that the defendant, which at one time was considering a heritage development within the Fort, was no longer interested in that project. A one-page document was presented to Mr. Kelleher, which illustrated the type of development which the O’Briens considered might be accommodated at Camden Fort involving: a heritage trail, hotel, holiday cottages, self-catering apartments, craft shops and a picnic area at the upper level; and, in addition to fishing, boat hire, sailing, diving and water skiing at the lower level, a heritage trail, bar and restaurant, fishermen’s cottages, and a fishing shop. Mr. Kelleher suggested that the plaintiff and Valcoast might discuss a joint development of the entire property and bring back a joint proposal to the defendant. However, it was emphasised by Mr. Kelleher that a heritage centre would have to be incorporated in the development. On the same day, an official of the defendant wrote to Valcoast seeking confirmation of its continued interest in the development of the Fort and enquiring whether its development proposals were being made jointly with James O’Brien. In response, the defendant was informed by Valcoast, by letter dated 24th June, 1994, that Valcoast had a continued interest in the development of Fort Camden and that the interest of James O’Brien would form part of the development plan. Agreement had already been reached whereby the architect for Valcoast, Stephen Hyde, in conjunction with the plaintiff’s architect, Mr. Brady, would draw up a development plan for Camden Fort to be submitted to the planning department for consideration.
· Very little progress was made between the plaintiff and Valcoast through June to November, 1994. As a result of a contact he initiated with an official in the planning department of the defendant in late November, 1994, James O’Brien was informed by letter dated 2nd December, 1994 that if an integrated development proposal for the fort was not forthcoming from the plaintiff and Valcoast, the defendant was “minded to seek further proposals by way of public advertisement.” Both the plaintiff and Valcoast were asked to revert to the defendant by 16th December, 1994. Arising out of that ultimatum, Valcoast informed the plaintiff that, due to the initial difficulties with the defendant in moving ahead with its proposal for Camden Fort, the project it had intended for Camden Fort had been moved to another location in Crosshaven and it was not then in a position to consider proceeding on Camden Fort. However, it remained interested in taking part in discussions with the plaintiff at a future date. It was made clear that it did not wish to hinder any proposal that the plaintiff might wish to independently submit. Valcoast wrote in similar terms to the defendant.
· The response of the plaintiff’s solicitors to the letter of 2nd December, 1994 was to seek an option to purchase the property at an agreed price, meaning at a price to be agreed, the option to provide that the plaintiff would have a period of up to two years to put together the full development plan, carry out necessary surveys, arrange for the necessary financing and obtain the appropriate planning permissions from the defendant. It was made clear that what motivated this suggestion was that the plaintiff had already expended considerable monies in drawing up draft plans in respect of the development of the property, and it was anticipated that the cost of putting together a full development plan would be in the region of £50,000 to £60,000.
· Following further correspondence from the plaintiff’s solicitors, representations made on its behalf by politicians, and a meeting between officials of the defendant, including the County Manager, and the O’Briens on 3rd March, 1995, by letter dated 10th March, 1995, James O’Brien was informed that the defendant was prepared “to deal exclusively” with him “in regard to the submission of a comprehensive development proposal for Fort Camden for a period of six months from the date of this letter”. It was stated that if such a proposal was not progressed to the defendant’s satisfaction by 8th September, 1995, the defendant would feel free to treat with other parties or to take such other action as it deemed appropriate.
· During the following six months, James O’Brien was involved in securing investors, progressing the plans for the development with the plaintiffs architect, and visiting heritage centres in Ireland and England to get ideas. There was a meeting with Council officials in mid March 1995 and there were two in June, one on site. On each occasion, professional advisors attended on behalf of the plaintiff. At a meeting in June, the plaintiffs architect was proposing a hotel for the upper portion of the Fort, but it is clear on the evidence that the Chief Planning Officer was not receptive to the idea.
· One of the issues which James O’Brien was pursuing with the defendants officials during this period was what the purchase price of the property would be. By letter dated 10th August, 1995, his solicitors were informed that the defendant’s “asking price” for Fort Camden was £500,000.
· The O’Briens and the plaintiff’s advisors, Mr. Brady, Mr. O’Leary and Mr. Cunningham and Liam Mullens, a former county engineer who had been retained by the plaintiff as a consulting engineer for the project, attended a meeting with the defendant’s officials on 31st August, 1995. It was at that meeting that James O’Brien learned that the defendant did not, in fact, have title to Fort Camden. What the documents put in evidence indicate is that in November, 1988 the Department of Defence agreed to transfer Fort Camden, comprising 33.8 acres, to the defendant, but it was to retain a seven acre field adjoining the fort. In May, 1995, the Department of Defence indicated that it was prepared to transfer the seven acre field to the defendant, to be used in conjunction with Fort Camden as a tourist amenity, at the price of £50,000. The title to the Fort and 33.8 acres was to be transferred at the same time as the title to the seven acres. At the meeting of 31st August, 1995, the Council officials dropped a bombshell: the O’Briens and their advisors were told that the defendant had been notified by the Department of Defence, which in turn had received a direction from the Department of Finance, to the effect that the defendant would have to advertise the property for sale. The outcome of what appears from the evidence to have been a rather fractious meeting was twofold. First, it was agreed on the defendant’s side that the possibility of not advertising would be investigated and the exclusivity clause contained in the letter of 10th March, 1995, would be extended for a further two-month period. Secondly, the plaintiff’s proposal in relation to land use seemed to have found favour with the personnel on the defendant’s side.
· Following that meeting, by letter dated 6th September, 1995 to the defendant, the plaintiff sought confirmation of the extension of the six-month period to 8th November, 1995, and also sought confirmation that no step would be taken by the defendant to deal with a third party in any manner relating to the property, without the prior written consent of the plaintiff. By letter dated 7th September, 1995, the defendant confirmed the extension of the six-month period by two months. However, in relation to the second point which the plaintiff had raised, the plaintiff was referred to the terms of the letter of 10th March, 1995 and, suggesting what the plaintiff sought appeared to be a significantly greater commitment from the defendant, the defendant indicated that it was not prepared to go beyond the terms already set out.
· By letter dated 25th October, 1995, the defendant informed the plaintiff that the extension of time to 8th November, 1995 had been given on the basis that, as of August, 1995, the defendant expected to have a number of issues about the Fort clarified with the Department of Defence well in advance of the November deadline. The relevant issues had not been clarified. Therefore the defendant was prepared to extend the period for a further three months or until the necessary clarifications were received from the Department, whichever was earlier.
· It is clear from the documents put in evidence that the issue on which the defendant was seeking clarification from the Department of Defence was the basis on which the defendant could involve a private developer in the development of the property it was acquiring from the Department of Defence, because, apparently, the conditions of sale as furnished by the Chief State Solicitor involved a special condition which inhibited this in some manner, which is not clear from the documents put in evidence. It is not necessary to record the various “twists and turns” which occurred in the interaction between the defendant, the Department of Defence and the Department of Finance and internally between the various organs of the defendant. Suffice it to say that, in putting the relevant evidence before the court in relation to the period before proceedings were threatened by the plaintiff, the defendant has been very open. The upshot was that it was recognised by all relevant parties that the responsibility for the decisions in relation to Fort Camden rested with the defendant. At a council meeting held on 12th February, 1996, the elected members of the defendant agreed to a proposal of the County Manager that, subject to no further developers showing an interest prior to the next council meeting, a proposal for the disposal of Fort Camden to the plaintiff would be put before the council on condition that the sale would be closed within three months. If any other party were to show an interest in purchasing the property prior to the next council meeting, or if the sale was not finalised within three months, the property was to be advertised for sale.
· In the meantime, the plaintiff accepted the three months’ extension. James O’Brien’s evidence was that he was awaiting the outcome of the clarification and he was endeavouring to keep the plaintiff’s financial backers in place. Mr. O’Brien was aware of the outcome of the meeting on 12th February, 1996 and he was aware that no other party emerged.
· The next significant event was a meeting of the plaintiff’s principals, the O’Briens, and its advisors, Mr. Mullins and Mr. O’Leary, with officials of the defendant, including the Chief Planning Officer, on 7th May, 1996. In the defendant’s own minute of this meeting it was stated that the defendant had satisfied itself that it could deal exclusively with the plaintiff on the preparation of an overall development proposal for Fort Camden, and it was proposed to do so for a period of six months. A document headed “draft briefing document” was produced by the defendant’s side and circulated for discussion. This document set out the terms of any disposal for development of Fort Camden by the defendant. The plaintiff’s representatives indicated that the plaintiff’s intention was to develop a hotel, holiday homes, restaurant, bar, marine activities and heritage developments. They were informed that that proposal would come within the “tourist amenity purposes” use stipulated in the briefing document. The defendant’s asking price was still at £500,000. The council’s minute records that the Chief Planning Officer stated that he was concerned about the reference to “hotel” in relation to the development components, where previous discussions had referred to the development of a “hostel”. The minute records that he was assured that there had been no change in the plaintiff’s plans in that regard. The evidence of James O’Brien was that, going back to 1995, what the plaintiff proposed was a hotel. The defendant’s minute records an agreement that the plaintiff would submit an offer for the property and a development package, which would include a business plan with full details of projected trading accounts, profit and loss accounts, balance sheet, cash flow statements for the first five years including working capital requirements and how the latter would be financed, and development proposals which would form the subject of further discussions. The plaintiff sought a letter that the defendant would deal exclusively with the plaintiff for six months from the date of the meeting and the defendant agreed to furnish the same.
· Following that meeting the following occurred:
o On 8th May 1995, the plaintiff’s solicitors wrote to the County Solicitor seeking various documents referred to in the draft briefing document, for example, a draft lease, a draft licence and so forth. This letter was headed “subject to contract/contract denied”. The response from the County Solicitor, which was dated 13th May, 1996, was that she had received no instructions in the matter.
o By letter dated 4th July, 1996, which was headed “without prejudice/subject to contract”, the defendant formally confirmed to the plaintiff that for a period of six months from the date of the meeting of 7th May, 1996, the defendant would deal exclusively with the plaintiff in regard to the submission of a comprehensive tourism/amenity development proposal for Fort Camden. By a further letter dated 16th August, 1996, which was also headed “without prejudice/subject to contract”, the defendant reminded the plaintiff that the exclusivity period would expire on 6th November, 1996. In a response dated 21st August, 1996, James O’Brien, on behalf of the plaintiff, informed the defendant that he was confident that a proposal would be before the defendant within the time allowed. He requested a response to the plaintiff’s solicitor’s letter dated 8th May, 1996.
o On 9th September, 1996, the plaintiff’s architect, Mr. Brady, furnished to the defendant two drawings showing the plaintiff’s proposals for the Fort along the lines which had been previously discussed to the Chief Planning Officer. Mr. Brady recognised that the proposals were subject to planning permission but, due to the size of the development, he sought the Chief Planning Officer’s views. By letter dated 4th October, 1996 from the defendant, which was headed “without prejudice/subject to contract”, the plaintiff was informed that the proposals were “regarded as generally acceptable subject to further elaboration on the leisure centre and its relationship to the existing buildings”. It was intimated that the defendant required substantial detail on the costings for the development, the proposed financial package and an indicative works programme. The plaintiff was again reminded that the exclusivity period would expire on 6th November, 1996 and was informed that consideration of extending it could only be contemplated on receipt of the required data.
o On 4th November, 1996, a document entitled “Proposal for the development of Fort Camden by Triatic Limited” prepared by V.F. Nathan & Company, Chartered Accountants, was submitted to the defendant.
· Obviously, James O’Brien was unaware at the time of how the plaintiff’s proposal was received by the defendant. The documents put in evidence disclose that the Chief Planning Officer found it very disappointing and, apart from the lack of details, he was concerned about the central emphasis on a one hundred bedroom hotel and whether it would be compatible with the overriding objective of retaining the heritage quality of the site. He listed other matters which had not been addressed or costed, for example, sewage disposal and treatment, water storage and distribution, and interpretative material in relation to the heritage element. An ad hoc group within the defendant known as the Fort Camden Development Advisory Group met on 9th December, 1996 to analyse the proposal submitted by V.F. Nathan & Company and found it inadequate. They recommended that the plaintiff be advised that the defendant would re-advertise in the public press seeking alternative development proposals. However, another internal group, the Planning Team, which met on 9th January, 1997, were of the view that, if the plaintiff were to revert to a hostel rather than a hotel as part of the proposed development package, discussions could continue.
· At the invitation of the defendant, the plaintiff’s representatives and advisers, including its accountants, its solicitor, its architect, and its engineers attended a meeting on 3rd February, 1997. Contemporaneously with that meeting the plaintiff’s solicitors were informed that, as the plaintiff’s proposal was incomplete, it would be premature for the defendant to provide contracts at that stage. Most of the difficulties which the defendant’s representatives perceived were addressed at the meeting. The matter was left on the basis that it would have to be discussed with the County Manager and put before the elected members and it was anticipated that this would take approximately one month.
· A further meeting took place between representatives of the defendant and Mr. O’Brien and the plaintiff’s engineer on 5th March, 1997. The defendant sought greater detail in relation to the hotel component before the matter was put before the elected members. The outcome was that it was agreed that the Chief Planning Officer and the plaintiff’s architect would meet to deal with the issues which had been raised. The evidence of James O’Brien was that his understanding from the meeting of 5th March, 1997 was that, from a planning point of view, the hotel component could be included without difficulty.
· The next meeting between the plaintiff’s representatives and the defendant’s representatives took place on 28th May, 1997. The purpose of the meeting was to update the plaintiff’s representatives on progress since the meeting on 5th March, 1997. The plaintiff’s representatives were informed that the Chief Planning Officer had recommended that an assessment “similar to an EIS” be undertaken with a view to assessing the impact the proposed hotel would have on the site and on the infrastructure of the area. The defendants own minute discloses that James O’Brien was astounded at this proposal. Mr. O’Brien’s evidence was that the plaintiff had no option but to agree to the defendant’s proposal.
· In mid-July 1997, the defendant retained CAAS Environmental Services Ltd. (CAAS) to carry out “an EIS type appraisal” of the proposal to build a 100 bedroom hotel at Fort Camden. The report of CAAS was submitted in August, 1997. It was considered at a meeting of the Planning Team on 20th August, 1997 and the minute of that meeting records that the conclusions from the appraisal were “favourable towards the concept of encouraging a hotel type development”. However, the Planning Team concluded that the inclusion of the hotel was a fundamental change and, accordingly, the defendant should be advised that it would be prudent to re-advertise, seeking new proposals incorporating a hotel, and that the plaintiff should be advised of the need to re-advertise. The decision of the defendant to re-advertise was conveyed to James O’Brien by telephone on 22nd August, 1997.
· The information was conveyed formally by letter dated 9th September, 1997.
· At a meeting of the Development Committee of the defendant on 17th October, 1997, the Deputy County Manager reported to the committee of elected members on the then current position in relation to Fort Camden. A proposal was put to continue negotiations with the plaintiff. However, the decision of the meeting was that the matter be adjourned until the opinion of senior counsel could be obtained on the position of the defendant vis-à-vis the plaintiff and, in particular, on the following issues: whether there was a contractual obligation on the defendant’s part to deal exclusively with the plaintiff; if the defendant should decide to continue dealing exclusively with the plaintiff, whether this could give rise to liability for non-compliance with public procurement procedures; and whether the defendant could decide to revalue Fort Camden and deal exclusively with the plaintiff on the basis of a revised valuation.
· On 17th November, 1997, the plaintiff’s solicitors wrote to the County Solicitor outlining their understanding that it was proposed to re-advertise Fort Camden. An undertaking was sought that the defendant would not re-advertise the property and would not place the property for sale without having completed negotiations with the plaintiff. An application for interlocutory injunction was threatened, if the undertaking was not forthcoming within seven days. By letter dated 24th November, 1997, the Acting County Solicitor informed the plaintiff’s solicitors that the plaintiff had made no decision to re-advertise the property and did not then presently intend to do so. Mr. Cunningham’s evidence was that it was hoped that the defendant would re-engage with the plaintiff. The defendant did not re-engage with the plaintiff.
It was against that background that the plenary summons in these proceedings was issued on 22nd January, 1998. In the intervening eight years, no steps have been taken by the defendant to re-advertise for proposals for the development or disposal of Fort Camden.
The plaintiff’s claim as pleaded
In its statement of claim delivered on 22nd April, 1998 the plaintiff asserted two alternative bases for its claim for declaratory relief, injunctive relief and damages.
The first was that the plaintiff had, and was entitled to, the legitimate expectation that the defendant would not, inter alia, advertise for or seek out potential purchasers, other than the plaintiff, for, or sell or otherwise alienate or deal with Fort Camden –
(a) pending its bona fide consideration of the plaintiff’s proposal for the purchase and development of the lands,
(b) pending its bona fide completion of negotiations with the plaintiff in respect of the plaintiff’s proposal,
(c) pending its bona fide completion of an assessment of whether or not it might or should properly contract with the plaintiff for the sale of the lands to the plaintiff,
(d) on the basis of the plaintiff’s proposals or any near or substantially similar variation of such proposals for the construction of a hotel on the lands,
(e) on the basis of any tender documentation incorporating the proposals referred to at (d) or any of them.
The second basis was that the factual circumstances were such as to constitute a contract between the plaintiff and the defendant in the terms of the legitimate expectations pleaded.
It was alleged that by its expressed intention to re-advertise Fort Camden with a view to securing tenders for the purchase and development thereof from persons other than the plaintiff, the defendant had acted wrongfully, unlawfully, in breach of contract and contrary to and in a manner inconsistent with the plaintiff’s legitimate expectations.
The declaratory relief which the plaintiff claimed were declarations that –
(a) the plaintiff had and was entitled to the legitimate expectations in the terms pleaded,
(b) that the defendant was estopped from acting in any manner contrary to or inconsistent with the plaintiff’s legitimate expectations or any of them, and
(c) that it would be unconscionable of the defendant to act or omit to act in any manner contrary to or inconsistent with the plaintiff’s legitimate expectations.
The claim for damages encompassed damages for breach of contract, breach of collateral contract and failure to respect the plaintiff’s legitimate expectations.
The defendant delivered a full defence to the plaintiff’s claim as pleaded. It denied that the plaintiff had or was entitled to the legitimate expectations pleaded by the plaintiff. It denied that the defendant ever contracted with the plaintiff. It also denied that the circumstances as pleaded in the statement of claim were such as to constitute a contract between the plaintiff and the defendant in terms of the legitimate expectations pleaded. The defendant asserted that the doctrine of legitimate expectation does not apply and has no application to the facts, matters or circumstances of this case or to any of the reliefs claimed by the plaintiff and that it does not extend to and cannot form the basis for the granting of the reliefs claimed.
The hearing
The hearing commenced on 4th October, 2005. There was no stenographer present and, consequently, there is no transcript available of the hearing on that morning, although there was a stenographer present for the hearing in the afternoon. Accordingly, I am basing my observations of what occurred when the case was being opened by counsel for the plaintiff on my own note, which I believe to be an accurate note.
In opening the case, counsel for the plaintiff indicated that the claim which was being pursued was for damages for breach of legitimate expectation. It was indicated that, while there was also a claim for breach of contract, it was accepted by the plaintiff that there was no concluded contract and that claim was not being pursued. In particular, it was stated that the paragraph of the statement of claim in which it was alleged that the circumstances therein set out were such as to constitute a contract in the terms of the legitimate expectations pleaded was not being relied on. In relation to the paragraph of the prayer in the statement of claim in which damages were sought, my understanding was that damages were being claimed only for failure to respect the plaintiff’s legitimate expectations.
When all of the pleadings had been opened, in response to my question as to what the legal basis of the claim was, counsel for the plaintiff stated that the defendant is a public body. The plaintiff was relying on the decision of this Court (McCracken J.) in Abrahamson v. The Law Society of Ireland [1996] 2 I.L.R.M. 481. He formulated the basis of the plaintiff’s claim as follows:
Having been induced to embark on the project on the basis of an exclusive arrangement and the defendant advancing it as being a development objective, it was to be expected that the defendant would deal with the plaintiff in a certain way; that it would treat the plaintiff fairly and not in a manner which was one of capriciously breaking off negotiations when the plaintiff had expended money.
The defendant had changed the “ground rules” in 1997. It moved from a situation where the plaintiff had an exclusive arrangement with the defendant for four years and was allowed to spend significant resources, of which the defendant knew. The defendant “changed the goal posts”. The plaintiff had a legitimate expectation to be dealt with on an exclusive basis. [If the defendant resiled and the plaintiff had expended sums to the benefit of the defendant] the plaintiff was entitled to reimbursement, having been induced to act to its detriment.
Counsel intimated that while McCracken J. had referred to the remedy of damages being available, what the plaintiff was claiming was reimbursement of expenditure it was induced to incur on foot of the legitimate expectation that it would be treated on an agreed basis by the defendant. The plaintiff was not seeking damages for loss of profits. Counsel adopted the obiter dictum of Fennelly J. in Glencar Exploration Plc. v. Mayo County Council (No. 2) [2002] 1 IR 84 at p. 162, to which I will return, as setting out what it is necessary to establish in order to succeed in a case based on failure of a public authority to respect legitimate expectations.
The plaintiff’s case was heard over three days. In relation to the quantum of the damages which it was contended the plaintiff should receive, evidence was adduced by the plaintiff to support an award in the region of €270,000, made up of sums in the region of €79,000 due to the plaintiff’s professional advisers and sums in the region of €191,000 claimed by the O’Briens in respect of their time and expenses incurred.
At the end of the plaintiff’s case, counsel for the defendant applied for a direction. He indicated to the court that the defendant did not intend to go into evidence. That being the case, the agreed position was that, following the decision of the Supreme Court in O’Toole v. Heavey [1993] 2 I.R. 544, the question for the court is whether the plaintiff has established as a matter of probability the facts necessary to support a finding in its favour. If it has, judgment should be entered in its favour; if it has not, the action should be dismissed.
The hearing was then adjourned to enable the parties to prepare and exchange written submissions, the defendant in support of its application for a direction and the plaintiff in response to the application.
When the hearing resumed, both parties furnished comprehensive written submissions to the court, which were supplemented by oral submissions.
Because of the course the hearing took, I consider it prudent to outline the submissions made on behalf of the parties in greater detail than might otherwise be the case.
The defendant’s submissions
In its written submissions the defendant proceeded on the basis that the plaintiff had indicated that it was not pursuing its claim based on contract. The defendant focused on its undertaking “to deal exclusively” with the plaintiff in regard to the submission of a comprehensive development for Fort Camden for a limited period, which initially had been given in the letter of 10th March, 1995, the duration of which it was acknowledged had been extended from time to time. The effect of the undertaking and the position of the plaintiff vis-à-vis the defendant arising from their dealings inter se were analysed as follows:
(1) It was submitted that the context in which the undertaking “to deal exclusively” was entered into was relevant in considering the nature and extent of any expectation which the plaintiff could have arising from it, the following factors being emphasised:
(a) That the plaintiff’s proposal was a continuation of the proposal of Valcoast, so that the exclusive right was granted in a context in which both parties already had an understanding of the type of proposal which would be submitted by the plaintiff, namely, a proposal which encompassed a hostel, not a hotel. I am not satisfied that that proposition accords with the evidence. In my view, it is clear on the evidence that, although the Chief Planning Officer had and expressed misgivings about a proposal which encompassed a hotel, neither the plaintiff’s principals nor its advisers considered the plaintiff restricted to a hostel, rather than a hotel, either before the meeting on 3rd March, 1995, which resulted in the letter of 10th March, 1995, or subsequently in their dealings with the defendant.
(b) That the defendant was constrained by certain public procurement obligations in relation to the sale of Fort Camden of which the plaintiff must be taken to have been aware, including the Department of Finance Guidelines on Public Procurement promulgated in 1994. It was submitted on behalf of the plaintiff that there is no evidence before the court in relation to the public procurement requirements. Apart from that, it is pertinent to ask why, in its letter of 10th August, 1995, the defendant intimated to the plaintiff’s solicitors that the “asking price” for Fort Camden was £500,000. At that stage the defendant had obtained a valuation from Hamilton Osborne King, Estate Agents, Auctioneers & Valuers, which was not put in evidence. However, the evidence indicates that the valuer had been furnished with a copy of the plan submitted by the plaintiff’s architect, Mr. Brady, at a meeting on 22nd June, 1995, so that the valuer would have been aware that a hotel was in contemplation by the plaintiff, even if the Chief Planning Officer was not receptive of the idea. It is clear on the evidence that the Department of Defence requirements, which became obvious in the summer of 1995, gave rise to concerns on the part of the defendant’s officials and compliance with the State’s public procurement requirements was also a concern.
(c) That the approval of the elected members of the defendant was necessary to any disposal of Fort Camden. That was undoubtedly the case and it was something which was known to the plaintiff’s principals. The plaintiff is not claiming, and could not claim, that it had a contract to acquire Fort Camden.
(d) That the defendant, as a local authority, must act in the public interest. That is undoubtedly the case and it is to be assumed that it is something to which the defendant’s officials gave consideration in their dealings with the plaintiff.
(e) That the County Development Plan for South Cork which was published in draft form in 1994 and adopted in 1996, envisaged a hostel development at Fort Camden. That is undoubtedly the case. However, it is clear on the evidence that the dealings between the plaintiff and the defendant proceeded on the basis that the plaintiff would have to submit an application for planning permission.
(f) That the title to Fort Camden would be subject to certain conditions which would be imposed by the Department of Defence, including a requirement that the lands were to be used for “tourist/amenity” purposes.
By way of general observation, I would comment that the extent to which the factors at (b) to (f) above constrained the defendant in its dealing with the plaintiff was, or should have been, known to the defendant’s officials who were dealing with the plaintiff in March, 1995 and thereafter and that it must be assumed that it was taken account of in the defendant’s dealings with the plaintiff. In the absence of evidence to the contrary, it is to be assumed that the defendant’s officials considered that the defendant was not breaching any statute, rule or principle which governed its conduct in such dealings.
(2) On the core issue as to the proper construction of the undertaking given in the letter of 10th March, 1995, it was submitted on behalf of the defendant that it amounted to an undertaking that the defendant would not engage with or assist any other party with regard to the submission of a proposal for the development of Fort Camden, but that it did not go so far as to amount to an exclusive entitlement to make such a proposal. Put another way, the exclusivity related to “dealing”, rather than to the exclusive right to submit a proposal, it was suggested. In my view, that submission is not correct. The wording of the letter is clear and unambiguous. The defendant was telling the plaintiff that the plaintiff would have an exclusive right to submit a comprehensive development proposal for Fort Camden during the period stipulated. However, the defendant is correct in submitting that the exclusivity was not open ended and that it did not extend to an exclusive right to deal until the completion of any negotiations, as claimed in the statement of claim, whenever that would be. Further, the defendant’s submission that the undertaking connoted a significant discretionary element on the part of the defendant, in that the exclusivity would come to an end where the defendant considered that the plaintiff’s proposal was not progressing to its satisfaction, is correct.
(3) In relation to the legal nature of what transpired between the parties after the right to deal exclusively was granted by the defendant to the plaintiff, it was submitted on behalf of the defendant that the parties were involved in a process of negotiations and that effectively what the plaintiff is claiming is that the legitimate expectations arose from the course of the negotiations. The law does not impose a duty to negotiate in good faith, it was submitted, and there are strong policy reasons why a court ought not extend the law on legitimate expectation to the conduct of negotiations. I will return to this issue later.
(4) In any event, any legitimate expectation which the plaintiffs could have had regarding its dealing with the defendant has been honoured and satisfied by the defendant. That is illustrated by any one of the following factors or a combination thereof:
(a) That the defendant dealt exclusively with the plaintiff until 6th November, 1996.
(b) That, despite being given more than ample opportunity to progress its proposal, the plaintiff did not produce comprehensive proposals and, in particular, the business plan submitted did not contain an offer price for Fort Camden. There is no doubt that detail was absent in relation to the business plan proposal and the actual development proposal, as the plaintiff’s witnesses acknowledged.
(c) That the proposal was in fact considered by the defendant and it was considered to be inadequate.
(d) That, given that the plaintiff made a very significant alteration to the proposal envisaged in March, 1995 in including a hotel rather than a hostel in the proposal, the plaintiff could not have had an expectation that the defendant would continue to deal exclusively with it. This change, it was submitted, brought into focus the defendant’s public procurement obligations, which require transparency and competition in the award of contracts. It was also submitted that the scale and location of the hotel, which became apparent in November, 1996, was significant and that the location raised questions as to whether the requirement of the Department of Defence that the land be used for “tourist/amenity” purposes would be fulfilled. I agree with counsel for the plaintiff that there is not before the court evidence to support that last submission.
(e) That the court should have regard to the fact that the defendant had committed considerable time and resources in its dealing with the plaintiff, with the end result that the plaintiff produced a deficient proposal, so that it would be unfair and inappropriate to find that the defendant was bound to continue to deal exclusively with the plaintiff.
(5) Even if the plaintiff had a legitimate expectation that the defendant would not re-advertise for development proposals for Fort Camden, which the plaintiff did not admit, the defendant was entitled to reverse such expectation having regard to the circumstances of the case. In developing this argument, it was submitted that, even if the defendant had represented by its communications or its conduct that it would continue to exclusively deal with the plaintiff, it was objectively justified in resiling from that position because the fundamental change arising from the inclusion of a hotel in the plaintiff’s proposal justified re-advertising to ensure that the defendant fulfilled its public duties of transparency and open competition in the sale of Fort Camden. In this context there was a suggestion that the inclusion of the hotel arguably amounted to a material contravention of the development plan. Even if that was the case, in my view, it was immaterial; as I have said, it was always envisaged that the plaintiff would have to obtain planning permission for the development.
It was further submitted that, if the plaintiff did have a legitimate expectation that the defendant would not seek to re-advertise, that merely entitled the plaintiff to a fair hearing, not to substantive relief. The plaintiff had been afforded ample opportunity to make its case. It was also submitted that it is not open to the court to compel the defendant to breach its public obligations, in particular its public procurement obligations. On this point I agree with counsel for the plaintiff that there is no evidence before the court that, by continuing to deal with the plaintiff on the basis it had been dealing hitherto, the defendant would have breached any statutory obligation, rule or principle. Counsel for the defendant did not pursue an argument advanced in its written submission that the defendant was not performing a public function in its dealings with the plaintiff, acknowledging, properly in my view, that it was a public function. However, the argument advanced that, because of the discretionary nature of the function, it could not give rise to a legitimate expectation, in my view, is not tenable.
(6) The plaintiff submitted that, by its nature, legitimate expectation is an equitable doctrine and that, as such, any relief granted by the court is discretionary. In this case, it was submitted that no relief should be granted for the following reasons:
(a) delay on the part of the plaintiff in prosecuting the proceedings;
(b) the existence of these proceedings has had a “chilling” effect, in consequence of which Fort Camden has never been developed;
(c) the proceedings were premature because the plaintiff was informed that it would get seven days’ notice prior to any re-advertising by the defendant; and
(d) it was only when the case was opened that it was disclosed by the plaintiff that it was not pursuing injunctive relief, which it was submitted manifested a position which is entirely inconsistent with the plaintiff’s claim for legitimate expectation and calls in question the plaintiff’s bona fides.
The plaintiff’s submissions in reply
Counsel for the plaintiff submitted that the court was entitled to draw the inference on the evidence that the defendant did not act bona fide in the course of its dealings with the plaintiff. Ascribing the inclusion of the hotel in the development plan as being a fundamental change in September, 1997 as a justification for disengaging from the negotiations with the plaintiff was spurious, it was submitted, given that a hotel featured in the plans produced by Mr. Brady from May, 1995 onwards. The complaint that the proposal lacked comprehensiveness and, in particular, the complaint of lack of financial information in the business plan, it was submitted, was not evinced as a reason for disengaging at the time and it was suggested that reliance on this factor was also spurious and disingenuous.
As to the basis of the claim, the plaintiff advanced not only the doctrine of legitimate expectation but reverted to the contention that there was a breach of contract or of a collateral contract. Counsel for the defendant, understandably in my view, vehemently objected to that course.
The contract or collateral contract contended for by the plaintiff was effectively an open-ended contract in the terms of the letter of 10th March, 1995, in other words, a contract by the defendant to deal exclusively with the plaintiff in relation to the submission of a comprehensive development proposal for Fort Camden. There was necessarily implied in that contract, it was argued, a term that the defendant was not entitled to arbitrarily resile from its commitment to treat with the plaintiff as it purported to do by the letter of 9th September, 1997. What gave rise to that necessary implication, it was argued, was that the plaintiff could derive no benefit, despite considerable input in terms of time and money and engagement of professional expertise, except by bringing the project to fruition. Having regard to the manner in which the contract or collateral contract was operated by the parties, it was an implied term thereof that the defendant would treat reasonably and fairly with the plaintiff “as the exclusive tenderor” and, provided all reasonable requests of the defendant were met, the arrangement would proceed to fruition in the form of a formal contract. Furthermore, as a matter of law, there was an obligation on the defendant to deal with the plaintiff in good faith.
Insofar as the plaintiff’s claim was founded on the doctrine of legitimate expectation, the plaintiff continued to rely on the obiter dictum of Fennelly J. in the Glencar case and asserted that the evidence established:
(1) that the defendant had made a statement and had adopted positions amounting to a promise or representation that it would deal with the plaintiff exclusively, not require public advertisement, and, if the plaintiff put forward plans according to its reasonable requirements, would continue negotiations with it;
(2) the representation was conveyed directly to the plaintiff, which acted on the faith of the representation to its detriment and incurred considerable expense of which the defendant would have been aware; and
(3) the representation created an expectation that the defendant would abide by it and would not seek to resile from it on spurious grounds.
The representation which the plaintiff asserted grounded the claim of legitimate expectation is, in substance, the same as the contract or collateral contract contended for: in plain language, that the negotiations between the parties would continue until a deal was done, in other words, until there was a concluded contract for the development by, and the sale to, the plaintiff by the defendant of Fort Camden. I surmise that the reason the plaintiff has reverted to reliance on the contract/contractual collateral contract basis of the claim is because of the observations of Kelly J. at first instance in the Glencar case, in which, in a passage quoted in the plaintiff’s written submission he states:
“The existence of a legitimate expectation was not established by the applicants; but even if it had been, damages would not be available in the absence of a subsisting contractual or equivalent relationship between the parties.”
The law: contract to negotiate in good faith?
Although, as I have stated, counsel for the defendant vehemently objected to the plaintiff seeking to rely on a contract or a collateral contract in its final submissions, the issue as to whether a contract of the type asserted by the plaintiff could, as a matter of law, exist was addressed in the defendant’s written submission and it was submitted that it could not. Therefore, I consider it proper to determine the issue.
The authority primarily relied on by the defendant was the decision of the House of Lords in Walford v. Miles [1992] 2 A.C. 128. The facts in that case were that in January, 1987 negotiations commenced between Walford, as purchaser, and Miles, as vendor, for the acquisition of a company and certain property, which was let to the company, from which it carried on a photographic processing business. On 17th March, 1987 Miles orally agreed to deal with Walford exclusively and to terminate any negotiations then current between Miles and any other competing purchaser, provided Walford furnished within three days a “letter of comfort” from his bankers confirming that the necessary financial resources were available to complete the purchase. The “letter of comfort” was furnished on the following day. It was not disputed that the discussion on 17th March was subject to contract. On 25th March, Miles ended negotiations which had been ongoing with a third party. However, on 27th March, Miles decided not to proceed with the negotiations to sell to Walford. The shares in the company and the property were eventually sold to the third party. The action by Walford was for damages for breach of contract and misrepresentation.
The case as pleaded is set out in the speech of Lord Ackner (at p. 134). The consideration for the oral agreement was twofold: Walford agreeing to continue negotiations; and the provision of the letter of comfort. The oral agreement as originally pleaded was that Miles would terminate any negotiations with any third party or consideration of any alternative with a view to concluding an agreement with Walford and further that, even if he received a satisfactory proposal from any third party prior to the close of business on 25th March, he would not deal with that third party or give consideration to any alternative. Lord Ackner described the agreement as pleaded as purporting to be what is known as a “lock-out” agreement, providing Walford with an exclusive opportunity to try and come to terms with Miles, but without expressly providing any duration for such opportunity. The statement of claim was amended to include an additional plea that it was a term of the collateral agreement necessarily to be implied to give business efficiency to it that, so long as Miles continued to desire to sell the property and shares, Miles would continue to negotiate in good faith with Walford. This was characterised by Lord Ackner as an allegation that Miles was “locked-in” to dealing with Walford for an unspecified period.
In considering the validity of the agreement alleged by Walford in the amended statement of claim, Lord Ackner made the point (at p. 137) that what had been orally agreed on 17th March was “subject to contract”, so that the parties were still in negotiation even in relation to those matters, and there were many other matters which still had to be considered and agreed. He distinguished an agreement to negotiate in good faith from an agreement to use best endeavours and continued (at p. 138):
“The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. The uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for termination of negotiations? The answer suggested depends upon whether the negotiations have been determined ‘in good faith’. However, the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering improved terms. [Counsel for Walford], of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question – how is a vendor ever to know that he is entitled to withdraw from negotiations? How is the court to police such an ‘agreement’? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a ‘proper reason’ to withdraw. Accordingly a bare agreement to negotiate has no legal content.”
Lord Ackner then went on to consider the validity of the agreement as originally pleaded, that is to say, without the additional allegation that it was an implied term that Miles would continue to negotiate in good faith with Walford. He made the following observations about a ‘lock-out’ agreement (at p.139):
“There is clearly no reason in the English contract law why A, for good consideration, should not achieve an enforceable agreement whereby B agrees for a specified period of time, not to negotiate with anyone except A in relation to the sale of his property. There are often good commercial reasons why A should desire to obtain such an agreement from B. B’s property, which A contemplates purchasing, may be such as to require the expenditure of not inconsiderable time and money before A is in a position to assess what he is prepared to offer for its purchase or whether he wishes to make any offer at all. A may well consider that he is not prepared to run the risk of expending such time and money unless there is a worthwhile prospect, should he desire to make an offer to purchase, of B, not only then still owning the property, but of being prepared to consider his offer. A may wish to guard against the risk that, while he is investigating the wisdom of offering to buy B’s property, B may have already disposed of it or, alternatively, may be so advanced in negotiations with a third party as to be unwilling, or for all practical purposes unable, to negotiate with A. But I stress that this is a negative agreement – B by agreeing not to negotiation for a fixed period with a third party, locks himself out of such negotiations. He has in no legal sense locked himself into negotiations with A. What A has achieved is an exclusive opportunity, for a fixed period, to try and come to terms with B, an opportunity for which he has, unless he makes his agreement under seal, to give good consideration. I therefore cannot accept [Walford’s counsel’s] proposition, which was the essential reason for his amending paragraph 5 of the statement of claim by the addition of the implied term, that without a positive obligation on B to negotiate with A, the lock-out agreement would be futile.”
On the facts of the case, Lord Ackner considered that the agreement as originally pleaded lacked one of the essential characteristics of a basic valid lock-out agreement, in that it did not specify for how long it was to last. Because of that deficiency it lacked the necessary certainty and was unenforceable.
The defendant cited an English authority in which a lock-out agreement was enforced: Pitt v. PHH Asset Management Limited [1993] 4 All ER 961. There, in a classic gazumping scenario, the Court of Appeal enforced against the defendant vendor an agreement by the defendant vendor to sell the property to the plaintiff for £200,000 and not to consider any further offers provided the plaintiff exchanged contracts within two weeks of receipt of a draft contract, in circumstances where the court considered the plaintiff had given consideration in withdrawing a threat to seek injunctive relief against the defendant and in committing to a time limit of two weeks for exchange of contracts.
In response to the defendant’s submissions, counsel for the plaintiff submitted that the court should not regard the decision of the House of Lords in Walford v. Miles as a persuasive authority. In any event, it was suggested, it is distinguishable on the facts, in that in the instant case the court is not concerned with a bare agreement to negotiate; through the course of dealings between the parties, the matter has progressed beyond that stage.
The plaintiff referred the court to the helpful commentary on good faith and fair dealing in a contractual context in McDermott on Contract Law (Butterworths, 2001)at paras. 7.41 to 7.44 inclusive. In particular, reference was made to the two Irish cases referred to in the commentary as examples of the Irish courts being prepared to enforce an express or implied obligation to use reasonable efforts to achieve some stipulated result: Rooney v. Byrne [1933] I.R. 609; and Fluid Power Technology Company v. Sperry (Ireland) Limited (Unreported, High Court, Costello J., 22nd February, 1985). In each of those cases, the court was concerned with a situation in which a contract existed. In the first, the contract was for the purchase of a house subject to the purchaser getting a mortgage. It was held that the purchaser was bound to make reasonable efforts to secure the necessary advance. The second concerned the exercise of a power to terminate a distributorship agreement in the context of an application for an interlocutory injunction. Costello J. held that the plaintiff, which was seeking the interlocutory injunction, had made out a fair case that there was an implied obligation to exercise the termination power in a bona fide manner, which he explained as meaning:
“… that when they give reasons for termination these reasons must not be spurious ones, but it also means that if they honestly believe them to be valid, then even if they are subsequently proved to have been wrong the notice is valid. So, if honestly dissatisfied with the plaintiffs as distributors, this would mean that the notice of termination could be given.”
A New Zealand authority, Livingstone v. Roskilly [1992] 3 NZLR 230, in which Thomas J. stated that he would not “exclude from our common law the concept that, in general, the parties to a contract must act in good faith in making and carrying out the contract”, which is referred to in McDermott, was also relied on by counsel for the plaintiff. It was submitted that the court should apply that dictum rather than following the approach adopted in Walford v. Miles. Like the Irish authorities cited by the plaintiff, that dictum is concerned with the implication of the concept of good faith and fair dealing on the part of the parties to an existing contractual relationship. No authority has been cited in which that concept was applied to negotiations, although McDermott does refer to extra-judicial and academic comment on the topic.
Counsel for the plaintiff also referred the court to a decision of the Court of Appeal of England and Wales in which Walford v. Miles was considered: Petromec Inc. & Ors. v. Petroleo Brasileiro SA Petrobras & Ors. [2005] EWCA Civ 891. As was pointed out by Mance L.J. in his judgment in that case (at para. 120), the Court of Appeal was bound by the decision of the House of Lords for what it decided. He pointed out that the main distinction between Walford v. Miles and the Petromec case was that in the former there was no concluded agreement, since everything was “subject to contract”, and there was, moreover, no express agreement to negotiate in good faith. The comments of Mance L.J. in Petromec, which were clearly obiter, concerned the enforcement of an express provision in the contract under consideration, whereby the other contracting party agreed to negotiate certain extra costs with Petromec “in good faith”. Having quoted the last three sentences in the first quotation from Walford v. Miles set out above, Mance L.J. stated as follows (at para. 121):
“That shows the difference from the present case. Clause 12.3 of the Supervision Agreement is not a bare agreement to negotiate. It is not irrelevant that it is an express obligation which is part of a complex agreement drafted by City of London solicitors … It would be a strong thing to declare unenforceable a clause into which the parties have deliberately and expressly entered. I have already observed that it is of comparatively narrow scope. To decide that it has ‘no legal content’ to use Lord Ackner’s phrase would be for the law deliberately to defeat the reasonable expectations of honest men, to adapt slightly the title of Lord Steyn’s … lecture delivered … on 24th October, 1996 (113 LQR 433 (1977)). At p. 439 Lord Steyn hoped that the House of Lords might reconsider Walford v. Miles with the benefit of fuller argument.”
For my part, I find the reasoning of Lord Ackner persuasive, particularly when applied to the facts of this case, in which the dealings and negotiations between the plaintiff and the defendant, the ultimate objective of which was to achieve agreement on terms for the development, subject to planning permission, and the acquisition by the plaintiff of Fort Camden, which the defendant could recommend to the elected members of the defendant, involved a considerably greater element of complexity, and, consequently, more scope for uncertainty than negotiations for the purchase of the shares of a company and a leasehold property or the purchase of a house. The fact that one of the parties to the dealings in this case was a public authority does not give rise to any special consideration in the context of the law of contract.
As I have already stated, I do not accept the defendant’s interpretation of the effect of the undertaking given in the letter of 10th March, 1995. While the issue of what, if any, consideration was given by the plaintiff for that undertaking was not addressed, it can be assumed that consideration was given, in that the plaintiff was prepared to commit time and resources to preparing and submitting a development proposal. On that basis, I am prepared to find that between March, 1995 and November, 1996 there was a contractual relationship between the defendant and the plaintiff created by the letter of 10th March, 1995 and the subsequent extensions of the exclusivity period. That agreement was in the nature of what Lord Ackner described as a “lock-out” agreement. What the plaintiff achieved under it was an exclusive opportunity for the extended period to submit a comprehensive development proposal for Fort Camden. The defendant complied with its obligations under that agreement. It dealt exclusively with the plaintiff in relation to the development of Fort Camden up to the expiry of the exclusivity period. It accepted and considered the development proposal presented to it by the plaintiff. In my view, on the evidence, it did so in a bona fide manner. The defendant’s contractual obligations terminated on the expiry of the exclusivity period.
What happened after November, 1996 was that, while the defendant considered the development proposal submitted by the plaintiff to be inadequate, on the initiative of the defendant, a new phase of negotiation commenced on 3rd February, 1997. In essence, the plaintiff’s case is that there was an agreement to continue those negotiations until they would come to fruition in the form of a formal contract, which, as a matter of law, can only mean until the defendant’s officials were prepared to recommend the agreed terms for the development, subject to planning permission, and the acquisition of Fort Camden by the plaintiff to the elected members. I have no doubt that, if a finding could be made on the evidence that there was such an agreement, it would be unenforceable for lack of certainty.
To take what, perhaps, would have been the simplest component of the transaction, the acquisition price, as an example, one is entitled to ask how a court could be expected to decide the point at which the negotiations on that component had come to fruition. By September, 1997, the point which had been reached in relation to the acquisition price was that the defendant had indicated an asking price of £500,000 some two years earlier. The plaintiff had neither indicated that the asking price was acceptable to it, nor had it made a counter offer. Although very little was offered by way of analysis of this aspect of the case, what happened in 1997 is that the plaintiff had adopted the position that there had been an agreement, that the defendant was in breach, and that the plaintiff was entitled to elect to enforce the agreement or consider that it was discharged from further performance. It was only at the hearing that the plaintiff elected to terminate the alleged agreement. The breach alleged is that the defendant was not entitled to disengage other than for bona fide and valid reasons and none such existed. But, if the dealings between the parties had not taken the turn they took in September, 1997 and negotiations had continued, and if the parties were unable to reach consensus on the acquisition price, how could it be said that one or other party could not withdraw? If the defendant persisted in an asking price of £500,000, and the plaintiff considered that the property was worth only half that price, would the plaintiff not have been entitled to withdraw? If there was to be a contract on the lines suggested by the plaintiff, both contracting parties would have to be locked into it. If either party withdrew because it considered the acquisition price proposed by the other to be unsatisfactory, to adopt the terminology of Lord Ackner, how could a court be expected to decide whether a proper reason existed for termination? Given that on the plaintiff’s case an obligation to deal in good faith is to be implied in the alleged agreement, which must be assumed to bind both contracting parties, a subjective, rather than an objective approach would be required in making that decision. In my view the court would be faced with an impossible task.
Accordingly, I find that from February, 1997 onwards, the plaintiff and the defendant were merely in negotiations and no contractual relationship existed between them.
For completeness, I should record that, in any event, I am not satisfied that it has been established on the evidence that the defendant failed to act in a bona fide manner in September, 1997, if one applies the test set out in the passage from the judgment of Costello J. in the Fluid Power Technology Company case quoted above. Even though the defendant did not go into evidence to explain its position, I do not think that it would be appropriate to find a lack of honesty on the part of the defendant’s officials.
Legitimate expectation
The formulation of the doctrine of legitimate expectation advanced by the plaintiff, as I have stated, was the obiter dictum of Fennelly J. in the Glencar case in the following terms (at p. 162):
“In order to succeed in a claim based on failure of a public authority to respect legitimate expectations, it seems to me to be necessary to establish three matters. Because of the essentially provisional nature of these remarks, I would emphasise that these propositions cannot be regarded as definitive. Firstly, the public authority must have made a statement or adopted a position amounting to a promise or a representation, express or implied as to how it will act in respect of an identifiable area of its activity. I will call this the representation. Secondly, the representation must be addressed or conveyed either directly or indirectly to an identifiable person or group of persons, affected actually or potentially, in such a way that it forms part of a transaction definitively entered into or a relationship between that person or group and the public authority or that person or group has acted on the faith of the representation. Thirdly, it must be such as to create an expectation reasonably entertained by the person or group that the public authority will abide by the representation to the extent that it would be unjust to permit the public authority to resile from it. Refinements or extensions of these propositions are obviously possible. Equally they are qualified by considerations of public interest including the principle that freedom to exercise properly a statutory power is to be respected …”
Counsel for the defendant accepted that formulation but emphasised its provisional nature and what he described as the overarching public interest saver.
The plaintiff also relied on the decision of this Court (McCracken J.) in the Abrahamson case as authority for the proposition that an award of damages is the appropriate relief for the defendant’s alleged failure to respect the plaintiff’s legitimate expectation. The decision of this Court (Hamilton P.) in Duggan v. An Taoiseach & Ors. [1989] 1 I.L.R.M. 710 was cited as a case in which an award of damages was made for breach of the applicants’ legitimate expectations.
It seems to me that the plaintiff’s claim based on legitimate expectation founders on the first precondition identified by Fennelly J. in the Glencar case. The core issue is whether the evidence establishes that the defendant promised or represented to the plaintiff that it would continue to deal exclusively with the plaintiff until a contract for the development and acquisition of Fort Camden by the plaintiff was concluded. As a matter of law, if there was a representation, it could be no more than a representation to recommend, subject to planning permission, agreed terms to the elected members of the defendant. In my view, the evidence does not establish that any such representation was given.
The letter of 10th March, 1995 undoubtedly contained a promise by the defendant that the plaintiff would have the exclusive right to submit a comprehensive development proposal for Fort Camden within the stipulated period, and that period was extended from time to time, so that the promise endured until November, 1996. The defendant accepted, and considered, the development proposal submitted by the plaintiff. Neither the letter of 10th March, 1995 nor any other representation made by, or conduct on the part of, the defendant is open to the interpretation that the defendant was promising that it would continue to deal with the plaintiff beyond the stipulated exclusivity period irrespective of the defendant’s assessment of the development proposal submitted. On the contrary, from the outset the defendant expressly reserved the right to treat with other prospective developers and purchasers if the submission was not to its satisfaction. On the evidence, the submission made by the plaintiff within the exclusivity period was not to its satisfaction. Notwithstanding that, it renewed its dealings with the plaintiff in February, 1997. However, in my view, there was no representation made, or promise given, by the defendant at that stage that it would continue to deal exclusively with the plaintiff until both sides came to an agreement.
It is instructive to consider whether, if the dealings between the parties had not taken the turn they took in September, 1997, the plaintiff would be entitled to an order of mandamus or a mandatory injunction to compel the defendant to bring the dealing between the parties to a point which would be permissible in law, namely, to agree in terms, subject to planning permission, for recommendation to the elected members. It seems to me that the very same problems which prevent giving recognition to the existence of an enforceable contract between the parties would prevent the court from making an order of mandamus or a mandatory injunction, particularly, the lack of certainty.
As I have indicated in outlining the defendant’s submissions, the defendant submitted that there are strong policy reasons why the court should not extend the law on legitimate expectation to the conduct of negotiations. It was submitted that to do so would lead to considerable uncertainty. That is so. It would also interfere with the free flow of negotiations in general. That may be so; it would inevitably lead to lack of predictability. But it seems to me that the most problematic outcome would be the virtual impossibility and the futility of the court’s position. If the plaintiff had pursued its claim for injunctive relief and the court were to order that the defendant could not withdraw from its dealings with the plaintiff, what would that achieve? I think the answer is nothing. In reality, a court cannot effectively order litigants or negotiating parties to agree the terms of a complex property development and acquisition transaction.
In my view, there is a large grain of truth in the suggestion made on behalf of the defendant that in this case the plaintiff is seeking to extend the notion of legitimate expectation to insulate it from the ordinary commercial risks which are inherent in negotiations. Counsel for the defendant referred to the following passage from the judgment of the European Court of Human Rights in Pine Valley Developments Limited v. Ireland [1992] 14 EHRR 319:
“The applicants were engaged on a commercial venture which, by its very nature, involved an element of risk and they were aware not only of the zoning plan but also of the opposition of the local authority, Dublin County Council, to any departure from it. This being so, the court does not consider that the annulment of the permission without any remedial action being taken in their favour can be regarded as a disproportionate measure.”
While the principle to which that quotation relates was not in point in this case, that passage is a useful reminder that the dealings between the parties in this case were essentially commercial in nature and that the doctrine of legitimate expectation could only come into play because one of the parties in the commercial negotiations was a public body.
For the foregoing reasons, I have come to the conclusion that the plaintiff has not made out a case on legitimate expectation.
Decision
The plaintiff’s claim is dismissed.
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URL: http://www.bailii.org/ie/cases/IEHC/2006/H111.html
Airscape Ltd -v- Heaslon Properties Ltd [2008] IEHC 82 (31 March 2008)
URL: http://www.bailii.org/ie/cases/IEHC/2008/H82.html DEFENDANT
JUDGMENT of Mr Justice John Edwards delivered on the 31st day of March, 2008.
Introduction – the proceedings in outline.
1. This is a breach of contract action based upon an acknowledged agreement of the 5th of March 2002 under which the plaintiff was to carry out certain building works to a premises supplied by it to the defendant. The plaintiff claims that it was an implied term of the said agreement that the defendant would not unreasonably withhold its co-operation for the carrying out of the works in question, that the defendant did not in fact co-operate with the plaintiff, and that as a result of the defendants lack of co-operation the plaintiff could not fulfil its obligations under the agreement. The plaintiff says that in the circumstances the defendant was guilty of breach of contract; that that breach was a fundamental breach; and that by virtue of the defendant’s fundamental breach the plaintiff is entitled to be discharged from any further obligation pursuant to the agreement. The plaintiff claims an order directing the return of a retention sum of €317,434.52, and any interest accrued thereon, held pursuant to the agreement on joint deposit account by the parties’ respective Solicitors pending completion of the works. The plaintiff further claims a declaration that it is discharged from its obligations pursuant to the said agreement. The plaintiff further, or in the alternative, claims damages for breach and/or repudiation of contract.
2. The defendant has sought to fully defend the plaintiff’s claim. In substance the defence alleges unjustifiable non performance by the plaintiff, and that the plaintiff did not in fact make any or any reasonable attempts to carry out the works, nor to satisfy what the defendant characterises as its “reasonable requests concerning works of repair to the roof”. The defence asserts that it is the plaintiff that is in breach of contract rather than the defendant, and the plaintiff’s entitlement to relief is denied.
3. The defendant in turn counterclaims against the plaintiff for breach of contract. The defendant alleges that the agreement of the 5th of March 2002 was in fact supplemental to an earlier agreement of the 18th of July 2000. The defendant variously alleges that, on the one hand, there was a failure to carry out certain agreed works, and on the other hand, that works in fact carried out were carried out in “a grossly defective and incompetent fashion”. In the circumstances the defendant claims that the plaintiff is guilty of breaches of both agreements. The defendant claims to have suffered loss, damage and expense on account of plaintiff’s said alleged breaches of contract and counterclaims for damages for breach of contract and also, in the case of the agreement of the 5th of March 2002, a declaration as to the plaintiff’s breach of contract..
4. In its reply and defence to the defendant’s counterclaim the plaintiff, in substance, denies the alleged breaches of contract and asserts that the agreement of the 5th of March 2002 superseded the earlier agreement and that any claims that the defendant might have arising from the earlier agreement (which were not admitted) were “fully compensated …within the terms of the subsequent agreement.” Further the claim of repudiatory breach by the defendant is reiterated, and there are also pleas, in the alternative, of negligence, breach of duty, breach of contract and unreasonable conduct on the part of the defendant.
The hearing.
5. There was a full plenary hearing in this matter. Evidence was heard over five days in the course of which both sides called and cross-examined witnesses and produced copious documentation by way of exhibits.
Facts relevant to the liability issue as established in evidence.
6. For many years the Semperit Tyre Company operated a substantial tyre manufacturing plant at Gallanstown, Ballyfermot, Co Dublin. Unfortunately, during the mid 1990’s the Semperit factory closed with the loss of many jobs. Following the closure the factory buildings and appurtenant lands were acquired by the plaintiff, a property development company. The plan was to convert the Semperit campus, so to speak, into an industrial park comprising a number of self contained industrial units for commercial letting to businesses. The development was to be called the “Park West Industrial Estate”. The plan, as conceived, involved subdividing the existing factory premises into a number of smaller units and the construction of a number of additional units on lands not previously built on. The plan further envisaged the provision of critical infrastructure within the campus such as roadways, paths, parking areas, loading bays, public lighting, signage and so forth. Planning permission was duly applied for, and successfully obtained, by the plaintiff. Works commenced in due course and by 1999 matters had progressed sufficiently to enable the plaintiff to begin letting units.
7. The lettings were conducted through two firms of Industrial Sales and Letting Agents, namely Palmer, McCormack Lambert, Smith, Hampton and DTZ Sherry Fitzgerald.
8. During 1999 DTZ Sherry Fitzgerald introduced a client to the plaintiff as a potential tenant. That client was an office furniture manufacturer, then based in Chapelizod, incorporated as Europlan Furniture Ltd and trading as Europlan Furniture. It was looking to relocate to new premises as its existing premises was too small, and in any case was unsuitable. It was decided to move the business to a 65,000 sq ft unit in the Park West Industrial Estate, being Unit S4, a unit in the now subdivided former tyre factory building.
9. Although the former tyre factory building had been physically subdivided, significant additional works required to be done to Unit S4 to render it suitable for Europlan Furniture to relocate there. Accordingly, on the 18th of July 2000 the plaintiff entered into a Contract of Sale with the defendant company (a company associated with Europlan Furniture Ltd) to sell Unit S4 to the defendant on the basis of a long lease, coupled to a Development Agreement of the same date and on foot of which the significant additional works were to be carried by the plaintiff to render Unit S4 suitable for Europlan Furniture to use as its new manufacturing centre. The total consideration payable by the defendant to the plaintiff in respect of both the Contract of Sale and the Development Agreement was IR£4,235,625 (equivalent to €5,378,134) apportioned equally between both contracts.
10. It is important at this stage to deal in a little more detail with the relationship between the defendant and Europlan Furniture Ltd. The defendant Heaslon Properties Ltd is one of four associated companies, which I shall loosely refer to as the “Europlan companies”. The others are Europlan Furniture Ltd, Europlan Office Furniture Ltd, and Contract Powder Coatings Ltd. The basis of these associations is that all of these companies have common shareholders and directors. However there is no common subsidiary relationship or holding company relationship. Accordingly, they do not form a Group of companies. The defendant’s managing director, Mr Frans de Ru, explained the practical reality of the relationship between the Europlan companies in the course of his testimony. He told the Court that Europlan Furniture Ltd is the manufacturing company. Heaslon Properties Ltd owns the premises in which the business is carried on. Europlan Office Furniture Ltd holds the patents for the products manufactured by Europlan Furniture Ltd. Contract Powder Coatings Ltd carries out powder coating of components produced and used by Europlan Furniture Ltd, and also does contract work for outside companies.
11. Returning to the Development Agreement, the works to be carried out were specified in a document entitled “Outline Specification Incorporating Materials to be used in the Re-furbishment / Construction of Industrial & Warehouse Units at Unit S4 Ex Semperit Factory for Europlan Ltd” (hereinafter called “the specification document”). This specification document was prepared by the plaintiff’s architects and annexed to the said Development Agreement. Although the specification document covers all of the work to be done, there are two particular aspects of that work that feature centrally in the disputes between the parties with which this Court is concerned, namely concrete flooring works and roofing works. Accordingly it is appropriate that I should recite those parts of the specification document dealing with those works. Section 3 of the specification document is entitled CONCRETE WORK. Within that section, paragraph 3.3 states:
“Floors:
New Concrete floors internally will be power floated concrete slabs, on damp proof membrane on blinded hardcore designed to Engineers requirements. Where appropriate and possible existing floors to be retained, top level taken off, and levelled with screed to accommodate required loadings, allowing for bonding to existing. All existing pits etc to be stripped out and filled with hardcore, then slab as necessary – all to structural engineer’s specification and details.”
Section 6 of the specification document is entitled ROOFING WORK and states at paragraph 6.1:
“All existing roofs to be inspected to assess suitability for re-roofing, over roofing or retention.
For existing roof, existing ‘Trocal’ or similar flat roof membrane/sheeting on insulation on metal decking on vapour check on secondary steel structure to be retained. Existing roof lights to be retained, refurbished where necessary.”
12. There was another important aspect of the works to be carried out that requires to be mentioned at this stage which, while not central to the disputes that developed between the parties, nevertheless had implications for both the roofing works and the flooring works. This was the intended removal of a large steel gantry from the roof of the former tyre factory, and its supporting stanchions one of which was within the CPC area of Unit S4 encased by a blockwork wall. The gantry in question was one of a pair that had supported air conditioning plant for the tyre factory. Each gantry spanned 60 meters without touching the roof and was completely independent of the roof. When the gantry was eventually removed a special crane was required to remove it, such was its size and weight. Originally, all of the gantry legs were outside of the Semperit building. However, what is now the CPC area of Unit S4 represents an extension to the original building and this extension incorporates one leg of a gantry. It was explained in evidence by Mr Barry Kelly, Architect, that at the time of construction of this extension it would have been impossible to satisfactorily address a roof covering around the gantry leg. Accordingly, what they did was they created a well in which the leg sat, effectively an external space, by building a block wall around it. The Development Agreement called, inter alia, for removal of the gantry in question and the supporting leg or stanchion that was within the CPC area, and also demolition of the encasing block wall. This block wall partially supports the roof of the CPC area. Mr Kelly explained that the structural engineers for the project had proposed that, to allow for demolition of the wall in question, works should be carried out to the roofing steelwork to enable it to be tied back into the main structure so that the roof would be supported. This could be done either before or after the roof was resurfaced, although it would be preferable to do it before resurfacing.
13. Although both the Contract of Sale and the Development Agreement are dated the 18th of July, 2000 Europlan Furniture was allowed into occupation much earlier than that. The circumstances surrounding this were also explained in evidence by Mr de Ru. Originally Europlan Furniture had hoped that the acquisition of Unit S4 would be completed by the end of December 1999, particularly as the defendant had, in turn, had entered into an agreement to sell the Chapelizod premises to a property developer. However, for reasons that it is not necessary to go in to, it was not to be. Mr de Ru explained that in the course of pre-contractual negotiations in 1999 the defendant was particularly concerned about the concrete floors within the building, which had surface defects and differences in levels. The plaintiff agreed to install a new floor prior to Europlan Furniture entering into occupation. However, when it became apparent that the transaction could not be completed before the end of 1999 it was then further explained to the plaintiff that Europlan Furniture had acquired specialised equipment from a supplier in Holland for the powder coating section of its business. This equipment, scheduled for delivery in February 2000, would consist of an array of dipping tanks (variously containing detergent solution, a mild acid or “acid type” solution, and clean water) for cleaning metal components prior to powder coating, and a special oven for baking on the powder coating once it was applied to the cleaned metal. Europlan Furniture urged upon the plaintiff that it would make no sense to have this equipment installed in their existing Chapelizod premises, only to have to move it again a few months later when their business would be transferred to Park West.
14. In the circumstances the plaintiff agreed that Europlan Furniture could have the new equipment delivered directly to Park West and installed there in February of 2000. Moreover, the plaintiff agreed to have the new floor installed in time for the arrival of the new equipment. Without going into the reasons for it, there were delays in installing the new floor. This was to be an engineered floor in accordance with the specification document. It was originally envisaged that a new floor would be laid throughout the entire premises as a single job. As a consequence of the delays the plaintiff subsequently agreed to split the work and afford priority to the laying of a temporary new floor in the CPC area, where the new equipment would be installed, before a permanent new and engineered floor was laid throughout the unit. The temporary floor would not be an engineered floor and involved placing a temporary screed on top of the existing floor in the CPC area.
15. However, by February the temporary floor in the CPC area had still not been laid. The new equipment arrived from Holland and had to be placed in storage in another part of the premises, while the installers returned to Holland. By April the temporary floor in the CPC area was finally completed. The installers returned and the new equipment was duly installed. At the end of May or in early June somebody within the plaintiff company apparently became concerned about the insurance implications of Europlan Furniture’s occupation of the CPC area of Unit S4 on a permissive basis, and the defendant was then asked to enter into a Licence Agreement. A Licence Agreement was duly entered into on the 14th of June, 2000 and the licence continued until formal possession was taken of the entire of Unit S4 pursuant to the aforementioned Contract of Sale and Development Agreement of the 18th of July, 2000.
16. The Contract of Sale provided for a closing date of six calendar weeks from the date of the contract. The concurrent and collateral Development Agreement provided for a date of practical completion of “31st October 2000 or as soon as possible thereafter”. However the schedule slipped again and again, and by the end of 2001 the works covered by the Development Agreement were still not completed, and the sale was still not closed. The situation was most unsatisfactory from Europlan Furniture’s point of view. Their business was now split between the Chapelizod site and the Park West site. The main part of their manufacturing operations was still being conducted in the premises at Chapelizod, whereas the CPC part of their business was being conducted in a portion of Unit S4 at Park West. Moreover, they were being placed under enormous pressure to move out of the Chapelizod premises from the developer who had acquired it. This developer threatened to issue High Court proceedings against them; such was his frustration at the delay. Furthermore, the temporary new floor that had been laid in the CPC area in April 2000 subsequently developed cracks because the temporary screed had not fully cured before it was put to use.
17. The delays generated extensive correspondence between the parties respective solicitors, and there were innumerable meetings and so forth in an effort to move things on. A Certificate of Practical Completion was issued on the 17th of December 2001 by the plaintiff’s architect, who certified that the works were practically completed on the 17th of December 2001; save for “snagging items” on a list attached thereto which still required to be attended to. This Certificate of Practical Completion was rejected by the defendant for reasons that it is not necessary to go in to.
18. Matters finally came to a head in early March of 2002 when, following a series of direct meetings between representatives of the plaintiff and defendant companies, respectively, the parties arrived at a new agreement. The status of this new agreement is disputed as between the parties. The plaintiff contends that it replaced the original Development Agreement of the 18th of July 2000. The defendant, however, contends that it was merely a supplement to, and amounted to no more than a variation of certain aspects of, the original Development Agreement. This Court will have to resolve this dispute in due course. Be that as it may, the terms of this new agreement were recorded in a letter dated the 5th of March 2002 from the plaintiff’s solicitors to the defendant’s solicitors. That letter records:
“The following revised terms are agreed in full and final settlement of all outstanding issues between the parties with regard to this premises and the development agreement between the parties:-
1. Completion of the development agreement to take place this afternoon by discharge of the balance proceeds by bank draft so that your client can take possession of the premises on Wednesday. The bank draft to be couriered to us and we will send you the completed documents by return courier.
2. A retention sum of €317,434.52 (IR£250,000) will be held on joint deposit account by Partners at Law, Solicitors and Maurice J. Bannon and Co Solicitors with interest accruing to Airscape Limited. The €317,434.52 (IR£250,000) retention will be released on practical completion of the attached list of items (‘the list’) to be signed by Pat Power and Frans De Ru.
3. Airscape Limited will use its reasonable endeavours to practically complete the items on the list within four calendar months of the date of payment pursuant to clause one of this letter with the exception of the roof. Airscape will use it reasonable endeavours to practically complete the roof within eight weeks of the payment of the balance proceeds pursuant to clause one of this agreement. However, Airscapes endeavours to practically complete the items on the list within four calendar months is subject to the movement by the occupier of the equipment in the CPC area at its expense to permit the works to be carried out to the CPC area.
4. On practical completion of all the items on the list or of all of the items save for the works to the CPC area, your client’s architect will be notified and a joint inspection of same will take place with our client’s architect within three working days. Practical completion is to be agreed between our client’s architect and your client’s architect who will both sign a practical completion certificate to this effect. In the event of a dispute with regard to the practical completion of the items listed the matter will be referred to the decision of an independent architect who will be required to give a decision within five working days of being requested to do so. The decision of the independent architect shall be final and binding on the parties. The independent architect for the purpose of all matters in dispute will be acting as an expert and not as an arbitrator. ‘Independent architect’ means such independent architect as may be agreed between the parties but failing agreement between the parties within four working days, one will be appointed on the application of either party, by the President or acting President for the time being of the Royal Institute of Architects of Ireland.
5. In the event that all other items of work on the list have practically completed and certified in accordance with clause 4, save to the works to the CPC area the sum of €253,948 (IR£200,000) plus interest on this amount will be released immediately to Airscape Limited. The balance of €63,486.90 (IR£50,000) will be released, subject to the removal of the equipment and machinery on the CPC area by Heaslon, when the works to the CPC area have been practically completed and certified in accordance with clause 4.
6. A reduction of €65,000 is agreed from the balance proceeds in full and final settlement of the windows omitted from the building and the work involved in moving the equipment and machinery in the CPC area.
7. The balance proceeds therefore to be paid by bank draft by your client is the sum of €2,649,555.52 in accordance with the attached invoice of which the retention sum of €317,434.52 will be held by Partners and Law, Solicitors and Maurice Bannon on joint deposit account in accordance with these terms.”
19. A schedule, representing “the list” referred to, was attached to this agreement in the following terms (reproduced with capitals and formatting preserved):
“Euro Plan
List of Items
· Removal of the overhead gantry and air handling units. To include the removal of the wall in CPC and making good to the roof and wall.
· Existing roof to be recovered to specification to be agreed, to include tower and 60/65 No New Sky Lights.
· Credit to Europlan of €65,000 in respect of Labour to CPC area and glazing omitted to tower.
· New/Remedial work to floor to CPC area to be completed between 22nd July, 02 and 29th July, 02 when platforms are to be removed. A written undertaking will be given so that the work under the oven and tanks to take place at a later date. This does not affect the release of the €63,487 (£50,000) retention on work in the CPC area.
· Three Fire Doors to CPC area to be supplied by developer and fitted by Europlan.
· Fire alarm to be installed to CPC and P & M and completed elsewhere. Specification to be discussed/approved.
· ESB mains connection.
· Bollards to the South Elevation Pathway.
· Windows at high level to CPC area to be made good where necessary and painted.
· All Cladding and Flashing and guttering to be snagged including down pipes etc.
· Concrete splashed on claddings and doors.
· Flashing installation doors in P & M in progress.
· Doors Scratched and Damaged (To be inspected).
· Footpath and Entrance to Acute Precision.
· CPC Smurfit Junction block work damaged.
· All Raw steel work to roller shutter door runners to be painted in the house colour (Silver).
· Movement to Office Glazed North Elevation to be made good.
· Repairs to Suspended ceilings in Office area due to leaks and movement.
· All fire doors and Roller shutters to be snagged and made good in relation to mechanism/closing etc.”
20. The evidence establishes that following the agreement of the 5th of March 2002, the plaintiff, through an agent Park West Construction Ltd, engaged the services of a specialist roofing contractor Gerard F May Roofing Ltd to carry out the roofing works, and supplied that firm with terms of reference based upon the specification document hereinbefore referred to. Gerard F May Roofing Ltd in turn prepared a detailed specification and a proposed programme of work and furnished that to the plaintiff. Upon receipt of Gerard F May Roofing Ltd’s specification and proposed programme of work the plaintiff’s Architects, Carew Kelly, forwarded these documents to the defendant on or about the 26th of April 2002, with a view to securing the defendant’s agreement to what was being proposed. It is clear from the evidence that Carew Kelly did not anticipate any objection. Moreover, it is equally clear that the plaintiff didn’t either, because the evidence establishes that at an early stage, before the specification and proposed programme of work was furnished to the defendant, a firm order was placed with Gerard F May Roofing Ltd by Park West Construction Ltd.
21. Having received a firm order Gerard F May Roofing Ltd in turn ordered the materials that it needed for the works from suppliers in Germany and the UK. These materials were delivered to the site on the 29th of April, 2002. They were left at ground level on that date. However, on the 7th of May, 2002 representatives of Gerard F May Roofing Ltd returned to the site, equipped with a mechanical hoist, with the intention of lifting the materials in question on to the roof and starting work. They were stopped and prevented from doing so by a representative or representatives of the defendant.
22. The evidence is somewhat conflicting in respect of the stoppage. In the course of his evidence Mr de Ru stated that the following exchange occurred:
“I went out and said ‘Listen, lads, what are you doing here?’ [The reply received was] ‘We are here to do the roof work’ I said; ‘But you can’t.’ [The reply to that was] ‘Oh, yes, we are. e are instructed by Parkwest to carry out the work.’ I said; ‘Sorry, I cannot let you on the roof for a few reasons. First of all I never knew you were coming. We weren’t notified. Secondly, I have not seen a health and safety statement or a risk assessment at all of the work to be carried out. Thirdly, none of your company has come to me previous to this and got a walk-through through the premises and see what equipment …..’.” [the sentence was unfinished due to an interjection.]
However, notwithstanding that the court had received this testimony from Mr de Ru, Mr Seamus Kennedy, an interior architect, employed by Europlan Furniture, later testified that it was he (Mr Kennedy) who ordered the men to stop work. His evidence was “I told them; ‘What are you doing here? Nothing has been agreed (sic) to the roof yet.’.” Mr Kennedy further testified that he then got on to Mr Kelly’s office and said “They are here and nothing has been agreed yet.”
23. At any rate it is clear from the foregoing that various reasons are being advanced for the stoppage. One of the reasons for it was that, apparently, the defendant did not agree with Gerard F May’s specification and proposed programme of work. That much is clear. As regards whether there really were other reasons the position is less clear. This is so notwithstanding Mr de Ru’s testimony. One of the defendant’s contentions is that it was concerned to see a health and safety plan, and in particular the contractor’s safety statement, before it could allow the workmen on to the roof. It is true that in the course of his evidence Mr de Ru did say that he told the workmen that he had not seen a health and safety statement and a risk assessment. However, although it was put to some of the plaintiff’s witnesses that the plaintiff had these concerns it was never put to the representative of Gerard F May Roofing Ltd that this was one of the reasons given to its workmen. Further, although it was put to some of the plaintiff’s witnesses that the defendant also had insurance worries and required confirmation of the insurance position before it could allow the contractor on to the roof, neither Mr de Ru, nor Mr Kennedy, made any mention of insurance being a concern on the day. There is no convincing evidence that at any time either prior to, or in the immediate aftermath of the stoppage, the defendant made a request to either the plaintiff, or its contractor Gerard F May Roofing Ltd, for reassurance in respect of health and safety or insurance matters, or to see documentary evidence of the position in regard to either or both of those matters. While Mr de Ru does contend that he was not notified that the workmen were coming on that day, and the evidence does seem to bear that out, that fact alone does not dispose of the court’s concerns, particularly as Mr de Ru’s company had only just recently entered into an agreement whereby roofing works were to be undertaken as a matter of priority, and his company had also been sent the Gerard F May Roofing Ltd specification and proposed programme of work and, by the date of the stoppage, had not intimated having any problem or difficulty with it.
Moreover, Mr Kennedy’s evidence was expressed using the conditional mood, as witnesses sometimes do, namely that “We would have been requesting for (sic) insurances and health and safety statements, all of that.” (my emphasis). However when pressed subsequently to give precise details of these requests he couldn’t give any. There was certainly no correspondence, nor is there a paper trail of any sort, to support these alleged requests. The plaintiff denies receiving such requests.
I am satisfied from a consideration of all of the evidence that the main reason for the stoppage was that the defendant did not agree with Gerard F May’s specification and proposed programme of work, and that concerns about insurance or health and safety, if they existed at all, were peripheral.
24. In regard to the specification and proposed programme of work, there were differences between the parties both as to the materials to be used, and as to the methodology to be employed. The defendant then put forward a counter proposal involving a specification drawn up by another firm of roofing contractors, namely Moy Materials Limited. However, the plaintiff’s Architects were not happy with the counter-proposal and a stand-off developed.
25. The principal difference between the parties with respect to the materials to be used was that Gerard .F. May Roofing Ltd proposed to use a Sika-Trocal type membrane whereas Moy Materials Ltd proposed using an alternative product namely Paralon. The plaintiff’s architects were of the firm view that the Sika Trocal product was superior. In the course of being cross-examined by counsel for the defendant on day 2 of the trial, Mr Barry Kelly of Carew Kelly, Architects, stated that he found it “amazing” that the specification put forward by Moy Materials Ltd was being insisted upon by the defendant, as it only carried a ten year guarantee, whereas the Sika Trocal specification advocated by Gerard F May Roofing Ltd carried a fifteen year guarantee. He stated that he just could not understand the logic of it. This was not countered in evidence by the defendant’s architect.
26. The principal difference between the parties with respect to methodology concerned how openings in the roof were to be covered. Mr Seamus Kennedy, an interior architect, representing the defendant, wanted these openings made good with flush coverings. The plaintiff’s architect, however, felt that covering existing opes in the roof with “boxes”, which allowed the formation of an upstand, with Trocal membrane dressed up around each box, represented a much better and safer detail for closing these openings. The defendant’s architect disagreed, being of the view that water bunding would occur in the vicinity of the upstands. The plaintiff’s architect’s answer to that was that bunding was usual and to be expected with Trocal membrane, and that it was irrelevant to, and would not affect, the integrity of the watertight seal.
27. While the document trail is somewhat incomplete it appears that some correspondence was exchanged in the weeks following the 7th of May, 2002, and some meetings may also have occurred, all aimed at resolving the impasse. Ultimately this was to no avail. The solution, eventually agreed to by both parties, was that the disputes would be referred to an independent arbitrator, the late Mr David Keane, MRIAI., for his decision, which was to be binding on the parties. The referral was in October of 2002 and Mr Keane was furnished with all relevant documentation. He also visited the site and walked the roof accompanied by Mr Barry Kelly, Architect, and Mr Dermot Arthur, Head of Group Construction, representing the plaintiff, and Mr Seamus Kennedy, Interior Architect, representing the defendant. The respective proposals were apparently discussed in some detail during this walk. Mr Arthur’s evidence is that Mr Seamus Kennedy specifically raised with Mr Keane his worries about water bunding around the proposed upstands if the G.F. May Roofing Ltd proposal was proceeded with. In any event Mr Keane issued his determination on the 10th of April 2003, and upheld the plaintiff’s proposal. He stated, inter alia:
“It seems to me, therefore, that in the circumstances the works proposed by Airscape Ltd, taking both the general tenor of the original agreements into account and also the guarantee offered by Sika Trocal, should be considered satisfactory.”
28. It should also be stated, for the purpose of maintaining the chronology, that during the month of March 2003, and while the parties were still awaiting Mr Keane’s determination, the gantry was removed. However, the leg in the CPC area remained in situ, the block wall encasing it remained to be demolished, and the hole in the roof above the leg-well remained to be closed over.
29. The defendant’s representatives were clearly unhappy with Mr David Keane’s determination. They have contended, and continue to maintain, that his determination only dealt with the materials to be used and not with the proposed methodology, particularly the use of box coverings as opposed to flush coverings for openings. The defendant sought to refer the matter back to Mr Keane but Mr Keane refused to entertain it. Having carefully considered the terms of Mr Keane’s determination I am against the defendant with respect to its contention that Mr Keane’s determination is to be construed narrowly and as referring only to the question of materials. Having walked the roof with representatives of both sides Mr Keane was fully aware of what was being proposed, and of the parties’ respective concerns. In the paragraph that I have quoted Mr Keane clearly endorses the “works proposed by Airscape”.
30. Following Mr Keane’s determination the plaintiff set about making fresh arrangements to carry out the required roofing works. Mr Pat Power, on behalf of the plaintiffs stated in evidence that they assumed that that was the end of the disputes and that it was just a case of getting on and doing the work. Gerard F May Roofing Ltd was contacted and asked to proceed with the works. They were prepared to do so but only subject to an additional “restocking charge” of €5, 328.89 which the plaintiff agreed to pay.
31. On the 25th of April 2003 Mr Barry Kelly, on behalf of the plaintiff, wrote to Mr Frans de Ru, on behalf of the defendant, in the following terms:
“Re: Roofing works to Europlan at Unit S4, Park West.
Dear Frans,
Following on from David Keane’s decision in respect of the proposed works to the roof, we are currently in the process of organising the contractor to commence the works. In order to co-ordinate with yourselves and to ensure the works can be carried out with as little disruption as possible to yourselves, can you indicate what timeframe suits you best – we would intend to start within the next couple of months, to ensure good weather.
I would be grateful if you could revert to me in connection with the above, and we will set the process going.
Yours etc.”
32. There does not appear to have been any response to this letter. According to Mr. Kelly this was just one of a number of attempts on his part to get agreement from the defendant as to when the works could start but the defendant did not reply to any of his communications. Matters dragged on for some weeks and eventually, the plaintiff instructed its solicitors to write to the defendant’s solicitors about the matter. By letter of 28th May, 2003 from Partners at Law, solicitors for the plaintiff, addressed to Maurice J. Bannon & Company, solicitors for the defendant, the plaintiff’s solicitors wrote in the following terms:-
“Re: Premises Unit S4, Park West Industrial Estate
Dear Sirs,
We refer to the above and to previous correspondence. We are instructed by our client that they have endeavoured on numerous occasions to contact your client with a view to agreeing a date and time for access to be granted to the roof contractor to carry out the works, without success.
In the circumstances, if your client does not propose allowing access to the roof contractor to carry out the works, please confirm by return that the retention can be released. We await hearing from you.
Yours etc.”
That letter was apparently despatched by fax.
33. Maurice J. Bannon & Company, Solicitors, in turn replied by fax on the same date in the following terms:-
“Re: Premises Unit S4, Park West Industrial Estate.
Dear Sir,
We refer to the abovementioned matter and thank you for your fax on the 28th May, 2003. We are awaiting clarification from David Keane in relation to the following:
1. Ponding of water to rear of tower area.
2. Upstands/boxing on roof.
3. Closing/removal, open area to gantry legs.
We will contact you in the near future.
Yours etc.”
34. As previously alluded to, notwithstanding this attempt by the defendant to refer certain matters back to Mr. Keane, Mr. Keane declined to revisit the matter. The correspondence indicates that the attempt to refer matters back to Mr. Keane was by means of a letter from Maurice J. Bannon & Company, Solicitors dated 27th May, 2003. Mr. Keane’s letter declining to revisit matters is dated the 9th June, 2003.
35. On the 17th June, 2003 the plaintiff’s solicitors wrote again to the defendant’s solicitors pointing out that as Mr. Keane had made his decision he was functus officio and that there was no basis for the defendant seeking to re-open the matter. The letter went on to state the position of Mr. Barry Kelly, of Carew Kelly, Architects, with respect to the three items mentioned in the defendant’s solicitors fax of 28th May, 2003 and then, in conclusion, stated:-
“We would suggest, at this stage, that your client’s attention be focused on a schedule for executing the roof and any further works required.
Our client is anxious to have all matters resolved and awaits your cooperation in this regard. Our client proposes to have the work carried out in July and you might please let us have proposed dates in this regard. We look forward to hearing from you.
Yours etc.”
36. Neither the plaintiff’s solicitors nor the plaintiff itself received an immediate response to that letter. Accordingly, on the 26th June, 2003 Mr. Barry Kelly wrote again to Mr. Frans de Ru. He stated:-
“Re: Roofing works to Europlan at Unit S4, Park West.
Dear Frans,
Further to my letters of 25/04/03 and the 20/05/03 in connection with the carrying out of works to the roof at Europlan (Unit S4) we would request that you would reply in writing within seven days, if we receive no reply, Airscape Ltd, will be forced to initiate the appropriate legal proceedings.
Yours etc.”
37. It seems that this letter did elicit some form of response. Apparently a fax was sent by Mr. Seamus Kennedy, Interior Architects, to Mr. Barry Kelly. Unfortunately that fax has not been exhibited before me. However, it is referred to in a subsequent letter from Mr. Barry Kelly addressed to Mr. Seamus Kennedy and dated the 30th June, 2003 which is in the following terms:-
“Re: Roofing Works to Euro Plan at Unit S4, Park West.
Dear Seamus,
Further to your fax of 27/6/03 in connection with the roofing works to Unit S4, we would note that we will be carrying out the works in accordance with the specification and scope of works submitted to the arbitrator, and approved by him. We will not be removing or treating the upstands other than as part of the recovery works. It is intended to close over the roof at the gantry support location and treat the area behind the tower, but the removal of the wall at the CPC side of the factory did not form part of the arbitration, and is not relevant to the issue of roofing works.
We would note that our letter of the 26/06/03 states that written agreement must be received within seven days and we would reiterate that this remains the position particularly as the arbitrator has given his clear decision.
Yours sincerely.”
38. The next thing that occurred was by letter of 2nd July, 2003 the defendant’s solicitors wrote to the plaintiff’s solicitors seeking the plaintiff’s consent to a supplemental referral of the three issues mentioned in their fax of 28th May, 2003 to Mr. David Keane. There was some delay on the plaintiff’s side in replying to this. The plaintiff appears to have changed solicitors around this time. At any rate the plaintiff’s new solicitors (Sheehy Donnelly, Solicitors) eventually replied to the defendant’s solicitors said letter by a letter of the 28th October, 2003 in the following terms:-
“Dear Sirs,
We refer to previous correspondence in this matter and in particular your letter of the 2nd July, 2003.
1. Our client’s architect has advised that the issue of the ponding of the water has been addressed in Gerard F. Mays revised proposal, it will be dealt with as part of the recovering of the roof.
2. The issue of the upstands does not relate directly to the referral to Mr. Keane. As our client’s architect has noted on previous occasions, he regards the covering of the existing opes in the roof with ‘boxes’ which allows the formation of an upstand, as a much better and safer detail for closing these openings. Our client does not propose to change them, which our client is advised by its architect will allow for the possibility of leaks and will be more dangerous as weak points (which flush coverings of openings would be) will not be obvious on the roof. Our client’s architect is of the opinion that the detail provided is best practice and that he would not be prepared to stand over the flush finishing of opes, as it is not a good detail.
We trust that this deals with the issues raised. In these circumstances can you please confirm your client’s permission to our client to commence work on the roof?
Yours etc.
39. A reminder was sent by the plaintiff’s solicitors on the 10th of November, 2003 as no response had been received by that stage. The end of the year came and went and there was still no response. Accordingly, on the 5th of February 2004 the plaintiff’s solicitors wrote in comprehensive terms to the defendant’s solicitors placing the defendant on notice that a continued failure to nominate a commencement date for the roofing works would result in proceedings being commenced by the plaintiff against the defendant on the basis that the defendant had repudiated the agreement. The plaintiff’s solicitors went on to call upon the defendant, within 7 days of the date of that letter, to nominate a date for the commencement of the roofing works, failing which High Court proceedings would issue.
40. The 13th of February 2004, being seven clear days after the letter of the 5th of February 2004 came and went without the defendant nominating a commencement date.
41. The Plenary Summons herein issued on the 3rd of June 2004.
42. In the course of the evidence before me it was put to the plaintiff’s witnesses by counsel for the defendant, and the defendant’s own witnesses, particularly Mr de Ru and Mr Kennedy, expressed the view on behalf of the defendant, that notwithstanding the existence of an on-going dispute between the parties concerning the proposed roofing works, there was no reason why the plaintiff could not have carried out the remainder of the works that required to be done under the agreement of the 5th of March 2002. To adopt a phrase used by Mr Gilhooley S.C., it was strenuously urged that “there was no critical path”.
43. The plaintiff’s witnesses, particularly Mr Power and Mr Kelly, rejected the suggestion that there was no critical path. On the contrary they maintained that it was central to the agreement between the parties that the roof was to be done first. This was why the agreement of the 5th of March 2002 provided for the shorter time period of eight weeks for the carrying out of the roofing works, so says the plaintiff. In particular Mr Kelly, in the course of his evidence in chief, and in response to a question as to what was the anticipated sequence of works, described the roofing works as “the key element”. He went on to describe proffering the Gerard F May Roofing Ltd specification to Europlan and being unable to obtain agreement on it. He then stated:
“In the meantime we wished to proceed with the other works which involved the repairing of the floor in the CPC area, the removal of the wall in that particular area and various other minor works within that area primarily. Unfortunately, we were never able to gain access because the equipment in that CPC area was required to be removed. We did understand and, I believe there was an agreement, that it would be moved at the end of July 2002 in order that we would get in and do the work in a safe manner.”
44. An issue arose in the course of Mr de Ru’s evidence on day 4 of the trial as to the extent to which it was in fact necessary to move equipment out of the CPC area for the purpose of doing works other than the roofing works. Mr de Ru suggested that to remove all of the equipment from the CPC area in one go would involve a shut down of CPC operations for 7 to 8 weeks. He was fully aware of this, having discussed the matter with the Dutch equipment installers, at the time of negotiating the agreement of the 5th of March 2002, and it was not something that he was prepared to contemplate at that time. Accordingly, he says that he agreed with Mr Power on behalf of the plaintiff, that part only of the equipment would be removed from the CPC area at the end of July 2002, and that the tanks and the oven would specifically not be moved at that time. He stated that these items of equipment were coming to the end of their working life and were going to have to be replaced “within a space of six to eight months” anyway. That being so, the plan was to lay a new floor around, but not under, the tanks and oven in July 2002 and then when the tanks and oven were being replaced at a later date the plaintiff’s workmen would come and do the portion of floor on which the tanks and oven had been standing. Mr de Ru pointed out that the following paragraph from “the list” annexed to the agreement of the 5th of March 2002, reflects this:
“New/Remedial work to floor to CPC area to be completed between 22nd July, 02 and 29th July, 02 when platforms are to be removed. A written undertaking will be given so that the work under the oven and tanks to take place at a later date. This does not affect the release of the €63,487 (£50,000) retention on work in the CPC area.”
45. Mr de Ru went on to state that at this stage the new equipment has in fact been installed. However, neither the flooring work nor demolition of the gantry leg-well has taken place. His evidence as to exactly what has been done then became rather confused. He initially stated that the “new equipment” was installed about a year previously (c. January 2007, as the witness was giving his evidence in January 2008). He also gave the impression that both tanks and oven had been replaced. He later seemed to suggest that only the oven was in fact replaced, that it had been replaced “a year later” (ie a year after the agreement of 5th March 2002) and that “now” (ie at the time of the case) “we are in the process of taking the tanks out because we are not using them anymore”. When asked by the Court if Mr Power was notified “that the old equipment has now gone out of the premises and if you want to carry out the [outstanding] works now is your opportunity”, Mr de Ru stated:
“Well at that stage when that was all done there was a big dispute going on and they refused to do any work in our premises, regarding the floor, the gantry wall and the roof. They just point blank refused to come and talk to us or do any work for us at all.”
46. The evidence before me suggests that up to late May 2002 both sides were in the course of preparations for works to be carried out during the proposed shutdown of operations, scheduled to occur from 22nd of July 2002 to the 29th of July 2002. (This week had been chosen deliberately and specified in the agreement of the 5th of March because it was immediately prior to a week of annual holidays during which the factory would be closed in any event. Accordingly the actual window available for the carrying out of the necessary works was two weeks.) The defendant retained the services of the Dutch equipment installers to move the spray equipment and so forth to facilitate the works, and there is evidence of a payment to them of IR£15, 227 (being 33,500 Dutch Guilders) in that regard. The evidence is not satisfactory as to whether it was the defendant itself or another of the Europlan companies that actually issued this cheque, or as to how it was accounted for, but I am, on balance, satisfied that the Dutch equipment installers were paid such a sum. On the plaintiff’s side its personnel were engaged in discussions with Seamus Kennedy concerning the logistics of carrying out the proposed works to the gantry leg well and this is reflected in an exchange of correspondence between the plaintiff’s project manager, a Mr Peter Howcroft, and Mr Seamus Kennedy. On the 28th of May 2002 Mr Kennedy stated in a letter to Mr Howcroft:
“I spoke to Barry Kelly and Dermot Arthur last week and they are due to come back with a proposal for removal of the wall and roofing of the former gantry area. It is now vital that this is agreed so that works can go as planned.”
Mr Howcroft replied by letter of 30th May 2002 enclosing the requested proposal (i.e. a technical drawing) and stating:
“This proposal has been discussed in detail between our structural engineers D.B.F.L. and our steelwork contractor (Paddy Wallis) and in both their opinions it is the safest most practical solution to the works.
We await your comments”
47. There is no evidence that Mr Howcroft’s letter of 30th May 2002 was responded to. Indeed Mr Seamus Kennedy did not recall receiving it but I am completely satisfied that he did receive it. The context, of course, is that this correspondence was exchanged just three weeks after the refusal to allow G.F. May Roofing Ltd’s workmen access to the roof, and during a period of deteriorating relations between plaintiff and defendant.
48. In the course of his evidence on day 4 of the trial Mr de Ru sought to suggest that a major variation to the timeframe provided for under the agreement of the 5th of March 2002 was discussed as between himself and Mr Peter Howcroft in a meeting held on or about the 11th of July 2002. He stated that Mr Howcroft came to him and stated that the intended works involving the gantry leg well was “a bigger job than they anticipated” and that it couldn’t be done in the time available. His evidence was that Mr Howcroft asked:
“…would I be agreeable to not to carry out the work, get an engineer to come out after the summer holidays and investigate exactly what work had to be done on the repair job on the gantry wall and could they then come out another time, preferably the Christmas holidays to carry out all that work.”
Mr de Ru’s response, according to his testimony, was as follows:
“I said; ‘listen, what I will do is, if you come and do all that work I will close down that part of the factory for an extra week so we have three weeks to do all the work; the gantry leg, the wall and the floor. We do it in a three week period. I have one condition, I have paid the people in Holland already 15,000. If you are prepared to pay them the same amount again for them to come over to do that work, I will close down the factory for a week for you to carry out all the work.’ He said; ‘I have to go back to my superior and discuss it all. In the meantime an engineer from DBFL will come over after the summer holidays to do a further investigation and we will report back to you.’ Which somebody did come out and met me on site and went through the whole lot. He went off and he said; ‘You will be hearing from us.’ And to date I have heard nothing.”
49. The plaintiff strenuously denies that the alleged variation was agreed, and it is suggested that if Mr de Ru did have discussions with Mr Howcroft about the logistics and timeframe for the carrying out of the gantry leg well works, those discussions occurred much earlier. The Court has some difficulty in resolving this issue because Mr Howcroft was not called by the plaintiff. Apparently he no longer works for the plaintiff and was not available to be called as a witness. That having been said, I regard the evidence of Mr de Ru on this issue as somewhat unsatisfactory and I have significant doubts about the reliability of his testimony. His contention is not corroborated or supported by any documentation. Given the background to the matter, and in particular (i) the supposed exasperation of the defendant with a string of persistent delays on the part of the plaintiff; (ii) the existence of an agreement concluded as recently as the 5th of March of that same year after lengthy negotiations, and containing a specific timeframe for the carrying out of outstanding works; and (iii) the development of a new dispute about the specification for roof works which was now causing further delays, it seems highly improbable that such a discussion could have taken place in July of 2002 as suggested by Mr de Ru. If, indeed, it did take place, one would have expected to see follow up correspondence, or some paper record of it, given the extent of the proposed departure from what had been agreed in March. In particular, one would have expected strong written complaints from the defendant’s side at the failure of the plaintiff company to revert after the proposed DBFL inspection, as had been allegedly promised by Mr Howcroft. There were none. Indeed, it was put to Mr de Ru by Mr McDowell S.C., representing the plaintiff company that the plaintiff’s proposed engineering solution, approved by DBFL, Consulting Engineers, was sent to the defendant on the 30th of May 2002 (in which case Mr de Ru was wrong about the July date), and it was put that the failure to revert was in fact the defendant’s. Mr de Ru’s response was to disavow any knowledge of the letter of the 30th of May 2002 and to claim that he had never seen it before. The plaintiff’s position, unlike that of the defendant, is supported by documentation. On balance I am satisfied that I must resolve this conflict in favour of the plaintiff.
50. Furthermore, a close scrutiny both of witness testimony at the trial, and of the documents put before the Court, concerning events subsequent to the 30th of May 2002 reveals no evidence, apart from Mr de Ru’s say so, of a complete refusal on the part of the plaintiff to do any work for the defendant, or of a point blank refusal to talk to the defendant. On the contrary there is a complete absence of the sort of supporting documentation that one would expect to see were that really the case. There is not a single document to suggest that the plaintiff was requested to get on with the outstanding works apart from the roofing works. For example, there is not a single letter, fax, e-mail or telephone attendance to suggest that the defendant confirmed to the plaintiff that, notwithstanding the dispute about the roofing works, the premises would still be made available during the two week closure originally envisaged (i.e., the agreed factory shut down period from 22nd of July 2002 to the 29th of July 2002, and the subsequent week, being the first week of August, during which the factory would be closed for holidays in any event), and that the plaintiff was expected to proceed with those works during that period. There is no correspondence complaining that they didn’t turn up, or offering alternative dates or anything of that sort. Moreover, in the aftermath of Mr Keane’s award it is quite clear that it was the plaintiff that was pressurising the defendant for confirmation as to when its roofing contractor could get back to work with a view to the plaintiff fulfilling its contract. There is not one single letter, fax or e-mail from the defendant to the plaintiff suggesting that, notwithstanding the ongoing dispute about the roof, there was no reason why the plaintiff could not get on with the flooring works and demolition of the gantry leg-well. Moreover, it is clear from Mr de Ru’s evidence that the plaintiff was not informed when new equipment was being installed and offered an opportunity to do the works at that time.
51. It also requires to be noted in this review of the evidence relevant to liability that on day 2 of the trial Mr Barry Kelly gave evidence, which was not challenged, that a great many of the items of work specified in the schedule accompanying the agreement of the 5th of March 2002 have in fact been completed by the plaintiff. The only works that remain to be done are those relating to the gantry leg well, the floor in the C.P.C. area and the roof. While the defendant’s witness Mr Blaise Alexander, inspected the premises in August 2004 for the purpose of identifying defects in the building and cross referencing/comparing them to the works listed in aforementioned schedule, the major items identified by him as needing to be attended to are those relating to the gantry leg well, the floor in the C.P.C area and the roof. As it is common case that these works have not yet been done, and that at this stage they urgently require to be done, his evidence is not of major assistance to me, at least in terms of deciding on liability. Moreover his inspection post-dated the 13th February, 2004, the date upon which the plaintiff claims the contract terminated due the defendant’s breach.
52. Finally I should say that Mr Alexander’s evidence is of some significance in the context of the counterclaim in as much as he does not significantly criticise those works that have been performed since the 5th of March 2002. While he had some minor criticisms with respect to vegetation in gutters, loose flashing and so forth he was understood by the Court as accepting in cross examination that these problems could have arisen after the fact in which case they would be maintenance issues for the occupier. All in all his evidence does not satisfy me that such works as have been carried out by the plaintiff were carried out negligently or in a substandard fashion. I regard it as of some significance that there are no complaints in the inter partes correspondence about the quality of the plaintiff’s work in the period from the 5th of March 2002 to the 13th of February 2004.
The plaintiff’s legal submissions with respect to liability
53. There are essentially two legal strands to the plaintiff’s case on liability.
(a) That there was an implied term in the agreement of the 5th March, 2002 that the defendant would not unreasonably delay the carrying out of the agreed works and/or unreasonably withhold its co-operation for the carrying out of the works;
(b) That in refusing to allow the plaintiff to carry out the agreed works, the defendant was guilty of repudiatory breach, in which circumstances the plaintiff is entitled to be discharged from any further obligation pursuant to the agreement;
The implied term
54. The Court was referred to para. 7.45 et seq of Contract Law by Paul Anthony McDermott (2001:Lexis Nexis Butterworths) wherein the author explains both the business efficacy test and the officious bystander tests respectively.
55. McDermott states that the leading statement of the business efficacy test is to be found in The Moorcock [1889] 14 PD64 wherein it was stated:
“the law is raising an implication from the presumed intention of the parties, with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, what the law desires to affect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties”.
As McDermott points out, the test as formulated in The Moorcock has been cited with approval by the Irish Supreme Court in Tradax (Ireland) Ltd. v. Irish Grain Board [1984] I.R. 1.
56. The officious bystander test was formulated in Shirlaw v. Southern Foundries Ltd. [1939] 2 K.B. 206 where MacKinnon J. stated:
“Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a comment of ‘oh, of course!’”.
McDermott points out that this test has been cited with approval in a number of Irish cases including Carna Foods Ltd. v. Eagle Star Insurance [1997] 2 I.L.R.M. 499; Sullivan v. Southern Health Board [1997] 3 I.R. 123 and Sweeney v. Duggan [1997] 2 I.L.R.M. 211.
57. The plaintiff submits that it was at all times essential for the performance of the contract that the defendant would agree to reasonable specifications for work to be done; would indicate such agreement within a reasonable time and would co-operate with the execution of the works following such agreement. The plaintiff further submits that if such terms were not implied in the contract, it would make a nonsense of the timeframes stipulated by the defendant in the letter of the 5th March, 2002, and, further, would mean that the defendant would be in a position to reject every offer made by the plaintiff of specifications for and/or the execution of work, and would enjoy an open-ended right to sue the plaintiff for breach in the event of the works not being done.
58. The plaintiff further submits that a contract which allowed the defendant assume such a position would be fundamentally improvident and on such basis the obligation to act reasonably must be imposed on the defendant by implying such a term into the contract.
Repudiatory breach
59. The plaintiff contends that the evidence before the Court establishes that the plaintiff was ready, willing and able to perform the works as agreed on the 5th March, 2002. The plaintiff points out that it engaged contractors who presented themselves on site, only to be turned away by the defendant. The plaintiff had submitted specifications and expert reports for the works to the roof but the defendant refused even to debate their merits. The plaintiff co-operated with the reference to the independent architect, Mr Keane, and, having been fully vindicated by Mr Keane’s decision, again offered to undertake the work. Notwithstanding this, the defendant failed to co-operate with, and facilitate the plaintiff, in having the works carried out. The plaintiff contends that the defendant, by effectively preventing the plaintiff from performing its duties under the contract, was in breach of contract.
60. The plaintiff further contends that the defendant’s particular breach is a properly to be characterised as a repudiatory breach because it was the defendant who refused to co-operate with the performance of the contract, despite the fact that it may appear to all the world that the failure was on the part of the plaintiff to carry out the works. In that regard the Court was referred to Chitty on Contracts, 27th Edition, para. 24-027 at p.11168 where it is stated:
“It has been noted that the Court will readily imply a term that each will co-operate with the other to secure performance of the contract and that neither party will, by his own act or default, prevent performance of the contract. If one party is in breach of his duty to co-operate, so the performance of the contract cannot be affected, the other party will be entitled to treat himself as discharged”.
61. The plaintiff further contents that it is clear from the evidence of the plaintiff’s witnesses that the plaintiff repeatedly tendered to perform his contractual obligations. The plaintiff submits that the rule that a tender performance is equivalent to performance is particularly applicable in this case. In support of this rule, the Court has been referred to the case of Start-up v. McDonald [1843] 6 Man & G.593.
62. The plaintiff further contends that although the plaintiff was frustrated by the defendant’s conduct, it was so only in the literal sense. The plaintiff submits that the legal doctrine of frustration has no application in this case.
The Defence filed
63. With respect to the defence filed by the defendant, the plaintiff says that no cause of action or grounds of defence can lie based upon any alleged delay or defect of workmanship prior to the 5th March, 2002. The plaintiff contends that the defendant did not adduce credible evidence of “reasonable requests concerning works of repair to the roof” as alleged in the defence. Instead, the defendant furnished the Court with extensive lists of outstanding works which pre-date the 5th March, 2002 and with letters which outline dissatisfaction post-dating the 13th February, 2004, the date upon which the plaintiff claims the contract terminated due the defendant’s breach.
64. The plaintiff further submits that the defendant is estopped from relying on any alleged breach of contract on the part of the plaintiff prior to the 5th March, 2002. The plaintiff acknowledges that it has not carried out the final works agreed in March 2002 but contends that this is solely because of the defendant’s refusal to co-operate. The plaintiff acknowledges that the evidence of Mr Frans De Ru for the defendant asserted that he had discussed the works to the roof, the floor, to the CPC, the removal of the gantry leg and wall and the high level decoration with representatives of the plaintiff, named as Mr Pat Doherty and Mr Peter Howcroft. The plaintiff submits that Mr de Ru may be mistaken regarding the timing of such discussions and/or the persons named and that he is incorrect in his assertion.
65. The plaintiff further submits that the defendant did not raise reasonable issues regarding the specification for the works to the roof and the plaintiff further submits that even if the defendant had such issues, its signal failure to communicate same to the plaintiff is a matter for which the defendant should bear total responsibility.
The Counterclaim
66. The plaintiff further seeks to address the counterclaim put forward by the defendant. The defendant asserts that the plaintiff failed to carry out the works in the agreed list appended to the letter of the 5th March, 2002 in the time specified in a proper and workmanlike fashion. The defendant further claims that the plaintiff carried out works pursuant to the development agreement in a grossly defective and incompetent fashion. The defendant alleges that as a consequence of these matters it suffered loss, damage and expense. In so far as legal submissions are concerned the plaintiff relies upon its assertion that the agreement of the 5th of March 2002 was “in full and final settlement of all outstanding issues between the parties” with regard to the premises and the development agreement, and says that in the circumstances so much of the defendant’s counterclaim as relates to pre 5th March 2002 issues is misconceived and is not justiciable by this Court.
67. Further, with respect to that aspect of the defendant’s counterclaim relating to works to be performed under the agreement of the 5th of March 2002, the plaintiff reiterates its defence and says that it was unable to carry out the required works in the time specified due to the defendant’s non co-operation and repudiatory breach. The plaintiff rejects the defendant’s allegation that such works as were performed were not performed in a proper and workmanlike fashion, and contends that this is not supported by the evidence.
The Defendants’ Legal Submissions with respect to Liability
68. The defendant contends that the agreement of the 5th March, 2002, did not put an end to the development agreement. The defendants’ position is that this agreement was merely supplemental to the development agreement and had the effect of varying aspects of it. The defendant points in particular to Clause 29 of the Development Agreement which is in terms that it:-
“… will continue in full force and affect after the date of Practical Completion in so far as anything remains outstanding on the part of any of the parties to it and the Covenants and Conditions contained therein shall not in any way be extinguished or affected by the Practical Completion of the Development”.
69. The defendant strongly contends that its refusal to allow the plaintiff’s contractors access to the premises to carry out roofing works was not unreasonable. The defendant says that the plaintiff has sought to categorise this refusal as a type of objection to the position of the late Mr. David Keane in the arbitration process and relies upon this refusal as repudiating the agreement of the 5th March, 2002. The defendant submits that the evidence clearly discloses that the defendant accepted the decision of the late Mr. Keane insofar as decision was confined to the choice of material to be used to cover the roof.
70. The defendant further submits that, while the defendant was disappointed with Mr. Keane’s decision, it sought clarification as regards the particular methodology for the execution of the roof works, from both Mr. Keane initially, and thereafter, from the plaintiff. The defendant submits that to characterise the invocation of a contractual right to arbitration, on foot of the original agreement, as being in some way unreasonable is manifestly absurd. The defendant submits that the issues relied upon by the defendant relating to the time scale, methodology and ancillary matters, regarding the execution of the outstanding works were never satisfactorily answered by the plaintiff, and thus the plaintiff cannot claim that full or even partial responsibility for the failure to complete works lies with the defendant.
71. The defendant admits and accepts that the court will, where necessary, imply a term into a contract that each party will co-operate with the other to secure a performance of the contract and that neither party will, by his own act of default, prevent performance of the contract. The defendant has referred the court to the decision in Mackay v. Dick, [1881] 6 App. Cas. 251. The defendant contends that if the plaintiff is seeking to contend that the implied term as to co-operation was a condition precedent it is then for the court to determine what was the standard of endeavour which the plaintiff itself must have satisfied before it may attempt to rely upon a breach of condition precedent. The defendant also refers to Contract Law by McDermott, wherein the author states at para. 19.64 thereof:-
“[w]here the contract has not expressly stated the particular standard of endeavour, the courts will imply a term requiring reasonable efforts to be made”.
72. The defendant submits that if the plaintiff is to rely on the failure of the defendant to allow the workers on site as a breach of a condition precedent to the contract it must also establish that it made reasonable efforts to agree the roofing specification or other preliminary requirements, to ensure its subcontractors were permitted access to the work side. If that had been done, the plaintiff would be in a position to claim unreasonableness, since it would have duly performed all of the duties required of it prior to commencing work. However, the defendant submits that, as only one attempt was made to access the premises, and as the plaintiff failed to attempt to address the concerns of the defendant as raised subsequent to the refusal of entry to the premises, the plaintiff failed to satisfy this burden. The court is further referred to the decisions in Rooney v. Byrne [1933] I.R. 609 and Conor v. Pukerau Store Ltd [1981] 1 NZLR 384 in support of this submission.
73. The defendant further alleges that the plaintiff, in failing to agree a specification for the roof and in failing to consult adequately with the defendant, and in failing to address outstanding health, safety and insurance issues, was itself in breach of contract. The defendant’s position is that while this was a breach of contract it was not one which could properly be classified as repudiatory but it did entitle the defendant to turn the plaintiff’s contractors away from the site pending some attempt from the plaintiff to demonstrate that it was in compliance with its obligations. The defendant contends that no serious attempt was made by the plaintiff to return to the site to complete the work to the roof, at any stage up to the issue of proceedings.
74. The defendant further contends that if the court should find that the actions of the defendant in refusing the plaintiff’s contractors entry to the premises amounted to a breach of an implied term of the contract, such a breach was not in fact a repudiatory breach. The court has been referred to the statement in Ross Smyth and Company Limited v. Bailey Son and Co, [1940] 3 All ER 60 at 71 to the effect that whether or not a particular breach amounts to a repudiation is “a serious matter not to be likely found or inferred”.
75. The defendant submits that what falls for the determination of the court in this respect is whether the plaintiff has established that the refusal of the defendant to allow access to the plaintiff’s contractors, on the single occasion on which they attempted to gain entry to the premises, amounted to a breach of a term of the contract that goes to its route. The defendant’s submits that the case law suggests that in arriving at the decision on this the court is obliged to consider all the facts of the case. The court was referred to case of Decro-Wall International v. Practitioners in Marketing, [1971] 2 All E.R. 216 wherein the English Court of Appeal held that a number of delays in making payment pursuant to a contract did not constitute a fundamental breach of its terms giving rise to an entitlement to rescind, as the contract did not make time of essence in respect of payment, and the plaintiffs did not give notice that if late payment continued the contract would be terminated. The defendant submits that, likewise, the defendant’s refusal of entry to the plaintiff’s contractors did not constitute a repudiation of the contract in the particular circumstances of this case. 76. As to what are the circumstances of the case, the defendant firstly points to the fact that no notice was given to the defendant of the date on which the work was to be commenced. Secondly, it says that its refusal to allow the roofing contractor access was not an act done with the intention of preventing the contract from being performed. Thirdly, while the turning away of the plaintiff’s contractors may indeed have delayed the performance by the plaintiff of its contractual obligations, and may have entitled the plaintiff to damages in respect of that delay, the circumstances of the case reveal that it would be impossible for the plaintiff to now claim that time was of the essence in the contract, given its delay in the performance of its obligations under the agreements of the 18th July, 2000, and the 5th March, 2002. Fourthly, the evidence does not establish that the defendant did not intend to be bound by the contract. On the contrary, the defendants refusal to the allow the plaintiff’s contractors on the premises was an act done in good faith and was founded upon genuine concerns as to compliance on the part of the plaintiff with various contractual obligations and statutory obligations. Fifthly, it is important not to view the incident in which the contractors were turned away from the premises in isolation. The court is referred again to Contract Law by McDermott, at para. 21.112, wherein the author states:
“conduct which, a first sight, may seem repudiatory may be held not to be so when the court examines the history of dealings between the parties”.
Sixthly, it is a relevant matter to be considered by the court, in determining whether a breach amounted to repudiation of the contract, as to whether or not notice was given by the party seeking to establish the repudiation, that it viewed the breach as giving rise to its entitlement to terminate the contract. The Decro-Wall International case previously referred to was also cited in support of this proposition.
77. The defendant further submits that even if it was guilty of a repudiatory breach of contract the plaintiff did not accept the defendant’s repudiation. The defendant refers to Heyman v. Darwins Limited, [1942] A.C. 356 at 361 as authority for the proposition that in order for a party to rescind the contract, not only must there be a repudiatory breach, but the party seeking to rely on that breach must accept the repudiation. The court was further referred to the following passage from Chitty on Contracts, (27th Ed.) wherein it is stated at para. 24-011, p.1158:
“This usually done by communicating the decision to terminate to the party in default, although it may be sufficient to lead evidence of an ‘unequivocal overt act which is inconsistent with the subsistence of the contract’…without any concurrent manifestation of intent directed to the other party’. Unless and until the repudiation is accepted the contract continues in existence for ‘an unaccepted repudiation is a thing write in water’. Acceptance of a repudiation must clear and unequivocal and mere inactivity or acquiescence will generally not be regarded as acceptance for this purpose”.
Decision on Liability
78. I am satisfied on the evidence that has been adduced before me that up until the 5th of March 2002 the plaintiff was in significant default in the performance of its obligations under the Development Agreement of the 18th of July 2000, and that the defendant had multiple legitimate grievances arising out of that default. Counsel for the plaintiff very fairly acknowledged this in opening the case before me, and at no time since then has the plaintiff attempted to resile from that acknowledgement.
79. However, I am also satisfied that by the agreement of the 5th of March 2002 the defendant settled with the plaintiff in respect of all and any claims that it had, or may potentially have had, against the plaintiff as of that date in respect of non-performance by the plaintiff of its contractual obligations under the development agreement and grievances on the part of the defendant arising therefrom. I regard the agreement of the 5th of March 2002 as being clear and unequivocal in terms of its objectives and intended effect. It expressly states that it is “in full and final settlement of all outstanding issues with regard to this premises and the development agreement between the parties.” I further consider that the new obligations assumed by the plaintiff under the agreement of the 5th of March 2002 were intended to provide the defendant with satisfaction and accord in respect of those claims or potential claims. 80. I do not consider that the agreement of the 5th of March 2002 put a complete end to the development agreement. It did not do so because the development agreement of the 18th of July 2000, in addition to providing for the carrying out of works, also covered matters such as the developer’s insurance obligations, site security, advertising, site safety and so on. The agreement of the 5th of March 2002 does not address such issues and it is to be inferred that it was never the intention of the parties that they should be released from their respective obligations in respect of issues of that variety. The correct interpretation is therefore that the development agreement continued to subsist after the 5th of March 2002 but that it was supplemented, and very significantly varied, by the new agreement. In essence in so far as any works scheduled to be performed under the development agreement of the 18th of July 2000 remained to be done, the plaintiff was relieved of its obligation in that regard, and instead assumed a replacement obligation to perform such works as were specified in the agreement of the 5th of March 2002 according to the timetable provided for in the new agreement.
81. I hold that even though the agreement of the 5th of March 2002 did not put a complete end to the development agreement of the 18th of July 2000, the variations effected by the new agreement were so far reaching as to render the plaintiff correct in its assertion that no cause of action or grounds of defence can lie based upon alleged delay, or defective workmanship, in respect of works carried out, or to be carried out, under the original development agreement..
82. In addition the plaintiff is correct in saying that the defendant is estopped from complaining about any issue relating to the premises or the development agreement, that pre-dates the 5th of March 2002.
83. It is common case that the Court will, where necessary, imply a term into a contract that each party will co-operate with the other to secure a performance of the contract and that neither party will, by his own act or default, prevent performance of the contract. I consider that the implication of such terms is indeed necessary in the circumstances of this case. However, the plaintiff suggests that the Court should go further and, applying the business efficacy test and/or the officious bystander test, imply terms requiring the defendant (i) to agree to reasonable specifications for work to be done; (ii) to indicate such agreement within a reasonable time and (iii) to co-operate with the execution of the works following such agreement. I think that it is not necessary to go that far. The implication of a general term requiring that the parties should co-operate with each other to secure a performance of the contract is sufficient. I am further satisfied that this implied term is fundamental to the contract and that compliance with it constitutes a condition precedent. Whether or not a particular party has truly co-operated is a question of fact to be decided upon the evidence. A single transient instance of non co-operation would not, I think, be sufficient to be deemed a breach of the implied term. Conversely, a persistent single episode, or multiple or successive instances of non-co-operation might indeed be sufficient to be deemed a breach of the implied term.
84. The plaintiff in this case contends that there has been a lack of co-operation on the part of the defendant, on multiple fronts, dating from in or about the 7th of May 2002 when the roofing contractor’s workmen were denied access to the roof. The plaintiff says that there has been a breach of the implied term, and moreover that this constituted a fundamental breach entitling the plaintiff to treat the contract as having been discharged.
85. I am satisfied that the defendant was entitled to be consulted with respect to the roofing specification and that its agreement to any proposed specification was required before any works could be carried out. The plaintiff, perhaps unintentionally and out of an excess of zeal, did act in a somewhat cavalier manner towards the defendant in placing a firm order for roofing works with Gerard F May Roofing Ltd before securing the defendant’s agreement. Accordingly I find that the defendant was within its rights in calling a halt to roofing works pending agreement being reached on specification. There was not a failure to co-operate at this stage. Moreover, the defendant cannot be criticised for insisting upon an arbitration when, after some period of engagement between the parties concerning the roofing specification, it proved impossible to get agreement on specification.
86. However, what has concerned me throughout this case is the obstructive attitude of the defendant that seems to have developed within weeks of the work stoppage. I am satisfied that the evidence establishes that from the beginning of June 2002 there was a complete unwillingness on the part of the defendant to co-operate with the plaintiff, or indeed to engage meaningfully with the plaintiff, to facilitate the carrying out of the other major works, apart from the roofing works, that required to be performed, or indeed with respect to any issue. While the agreement envisaged that ideally the roofing works should be carried out first, the evidence establishes that it would have been perfectly possible, had co-operation been forthcoming from the defendant, to carry out the flooring and gantry leg well works in advance of the roofing works in circumstances where the roofing works were being unavoidably held up on account of a referral to arbitration. Ironically it was Counsel for the defendant who contended that there was no critical path. In fact there was a critical path, but it could be deviated from providing that the defendant was willing to facilitate deviation. What was required was that the defendant should shut down the CPC area and move some of the equipment out for a limited period so as to provide the plaintiff with unimpeded access to enable the necessary non roofing works to be carried out. The agreement of the 5th of March 2002 envisaged that this would be done towards the end of July of that year. The significant point is that this deadline was missed through the defendant’s default and there is no evidence of any attempt by the defendant to discuss with the plaintiff (who was, I am satisfied on the evidence before me, anxious to get on with the job) as to an alternative date when the works might be conveniently done. It was for the defendant to take the initiative and make the premises available to the plaintiff. The plaintiff could do nothing unless the defendant moved out temporarily. The defendant was in control of the premises but failed to facilitate, co-operate or engage with the plaintiff in that regard. There were other occasions subsequent to July 2002 when the premises could conveniently have been made available, such as when the new equipment was being installed, but the plaintiff was never notified concerning, or requested to avail of, the opportunity. In all the circumstances I am satisfied therefore that from the beginning of June 2002 onwards there was a lack of co-operation by the defendant and that it has persisted, and indeed it has broadened (particularly in the aftermath of David Keanes’s ruling), to such an extent as to constitute a breach of the implied term requiring co-operation.
87. I accept in principle the defendant’s submission that it is for this Court to determine the standard of endeavour which the plaintiff must have satisfied before it can rely upon a breach of condition precedent, as constituting a fundamental breach of contract. I am satisfied that the preponderance of evidence supports numerous attempts by the plaintiff to engage with the defendant in a meaningful way in an effort to progress matters, only to be ignored or rebuffed by the defendant. I am satisfied that these efforts constituted a sufficient endeavour by the plaintiff to allow it to rely upon breach of condition precedent.
88. I am satisfied from the inter partes correspondence, and in particular the letter of the 5th of February, 2004, that it was made abundantly plain to the defendant that the plaintiff, in specifying an ultimate deadline of seven clear days from the date of that letter, viz the 13th February 2004, was effectively making time of the essence of the contract, and that a failure on the defendant’s part to respond within that time with a firm proposal as to when the works might be permitted to commence would result in the plaintiff treating the contract as having been discharged.
89. I find both as a matter of fact and of law that the defendant has been guilty of a fundamental breach of contract, and that the plaintiff must succeed in its action. Accordingly, the plaintiff is entitled to a declaration that it is discharged from any further obligation under the contract.
90. The plaintiff is also entitled to the return of monies held by way of retention and I will deal further with this under a separate heading below. The plaintiff is also entitled to recoup by way of special damages the restocking charge in the sum of €5,238.89 paid to Gerard F May Roofing Ltd.
91. I am further satisfied that the defendant’s counterclaim must be dismissed. In so far as it purports to relate to events pre- 5th of March 2002 it is misconceived. In so far as works subsequent to the 5th of March 2002 are concerned I find no evidence of negligence, breach of duty or breach of contract on the part of the plaintiff. While the roof is continuing to leak, and damage has been caused by water ingress, this has not been due to any breach of the agreement of the 5th of March 2002 by the plaintiff. It is the view of this Court that, since the date of Mr Keane’s award, total responsibility for the fact that the roofing works provided for in the agreement of the 5th of March 2002 have yet to be carried out, rests with defendant.
The monies retained
92. The Plaintiff has submitted that if the defendant is due anything further from the plaintiff that it can only amount to the monetary value of the works not performed by the plaintiff at the cost of such works to the plaintiff at the time when it was reasonable for such works to be carried out.
93. The plaintiff asserts that in the agreement of the 5th of March, 2002 it was expressly agreed between the parties that a sum of IR£250,000 (€317,434.52) would be retained on joint deposit pending completion of the agreed outstanding works. Despite some exchange of correspondence prior to the agreement offering valuations for various items of work, there was no attempt in the letter of the 5th March, 2002 to ascribe any particular value to the works or any component part or parts thereof. Although there is acknowledgement that IR£200,000 could be released when all works were complete, save those to the CPC area, it was essentially a sum held in terrorem over the plaintiff as an additional incentive for the plaintiff to carry out the agreed works. It was not an agreed retention based on any valuation. The plaintiff submits that if the plaintiff is not required to carry out all the works on the list due to repudiatory breach and breach of an implied term to co-operate, then it may be argued that the plaintiff would be unjustly enriched were the entire of the retention to be released to the plaintiff. The plaintiff’s position is that it seeks no unjust enrichment and is desirous only to secure such sum from the retention as is just. The plaintiff contends that as it was ready, willing and able to proceed in April 2003 with the agreed works which at that time remained undone, it is that date upon which the plaintiff values such works and submits such value should be released to the defendant pending further adjustment by this honourable Court, if appropriate. The plaintiff submits that such date is important not only because the value has increased by 17% according to the plaintiff’s quantity surveyor since that date, but also because, crucially, in April 2003, the plaintiff had significant ongoing construction activities at Park West, which meant that labour, plant and other costs would have been very much reduced. The plaintiff submits that any later date for valuation of the works will unreasonably penalise the plaintiff for not carrying out the work when it wished to, and at the same time unjustly reward the defendant for persistently failing and refusing to co-operate with the execution of the works.
94. I consider that the plaintiff’s position is commendable and reasonable. At the end of December 2007 the balance of funds in the joint deposit account was €328,829.03 inclusive of interest. In the circumstances, and in accordance with evidence that I have received, I direct the repayment to the plaintiff of the sum of €194,716.30 and the repayment to the defendant of the sum of €134,112.73. The plaintiff is also entitled to a decree in the sum of €5,238.89 in respect of damages for breach of contract.
Costs
95. In the absence of exceptional circumstances, costs must follow the event on both claim and counterclaim respectively. Accordingly, the plaintiff is entitled to its costs on both claim and counterclaim, respectively, to include any and all reserved costs. I further direct that the costs on both claim and counterclaim respectively are to be taxed in default of agreement.
Redfern Ltd -v- O’Mahony & Ors
[2010] IEHC 253 (29 June 2010)
JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 29th day of June, 2010
1. The plaintiff (“Redfern”) is a limited liability company registered under the laws of Jersey and, at all material times, was the sole beneficial shareholder in Alburn, a company with unlimited liability (“Alburn”). The plaintiff and Alburn were, at all material times, under the control of Noel Smyth who formerly practiced as a solicitor but who has, for some years, been carrying on business as a property developer. The first and second named defendants, collectively referred to as “the Partnership” are businessmen and developers. They have been involved in a number of joint ventures together and have also carried on their business from time to time, independently of each other. The third named defendant is a businessman and developer. The fourth named defendant, Tafica Ltd. (“Tafica”) is a limited company incorporated under the laws of the State and is controlled by the third named defendant. The fifth named defendant, Aifca Ltd. (“Aifca”) is a company registered under the laws of the State and, at all material times, was under the control of the first and second named defendants.
2. Mr. Noel Smyth, who controls Alburn, has been involved in the development of The Square, Tallaght, since its beginning. Companies over which he has control hold a significant portfolio of properties in The Square. Mr. Liam Carroll, the third named defendant, is a property developer. For some years, he has been involved in developments at Tallaght. In particular, he developed the buildings known as “Glashuas” and “Tallaght Cross” which compete with The Square, both for retail tenants and also for office tenants and residential purchasers.
3. These proceedings arise out of plans to redevelop the shopping centre known as “The Square” in Tallaght, County Dublin. It was proposed that the redevelopment of The Square would enlarge the footprint of the buildings on the existing site so that areas of the existing car park would be built upon. The car parks surrounding the shopping centre at The Square are subject to a number of licences, and in order to enable the redevelopment to proceed, it was necessary that the parties wishing to carry out the redevelopment would purchase these licences and/or extinguish them.
4. Redfern is the holding company of Alburn, an Irish unlimited company. In July 2003, Alburn sought to embark upon the redevelopment of The Square. The project was to proceed on the basis of a development in two phases, namely, Phase III and Phase IV, most of which was to take place on the surface car park area surrounding the existing shopping centre. This surface car parking area was approximately 18.5 acres. For that purpose, Alburn entered into negotiations with the Square Management Limited (“SML”), and in July 2003, concluded a joint venture agreement with SML (“the SML Agreement”). Under this agreement, Alburn was required to acquire a licence held by an adjoining owner in respect of the car park. The owner of the licence was Lowe Taverns (Tallaght) Limited. That company held a licence over the entire car parking area, and in order to proceed with the development of Phases III and IV, that licence had to be acquired and/or extinguished. In March 2005, the first and second named defendants, through a company which they controlled, namely, Aifca Ltd., acquired Lowe Taverns (Tallaght) Ltd. from Mr. Sean Davin for a sum of €55 million. Lowe had two assets, namely, a property known as Tuansgate (which comprised mixed commercial and residential development) at a corner of The Square development, and the licence to the car park for The Square. In order to fund this purchase, Aifca borrowed from Bank of Scotland Ireland Ltd. (“BOSI”). The loan was for a sum of up to €56 million, repayable in accordance with the terms of a facility letter of 4th March, 2005, and in any event, not later than twelve months from the date of drawdown of the funds. The sale closed in March 2005, and the loan therefore was repayable no later than one year later. In fact, the loan was not repaid on time, and in July 2006 the bank was putting pressure on the first and second named defendants to make arrangements for Aifca to repay the loan. The bank indicated to the first and second named defendants that if the monies were not paid by the end of August 2006 a receiver would be put in over the assets of Aifca. This is of significance in the context of this case, and ultimately became the reason for the involvement of the third and fourth named defendants in this dispute, as they entered into an agreement with the first and second named defendants which had the effect of clearing the BOSI debt.
5. After Aifca purchased the Lowe licence, Mr. Noel Smyth, through his company, Alburn, entered into negotiations with the first and second named defendants with a view to Alburn purchasing the Lowe licence. The negotiations led to the conclusion of an agreement dated 4th August, 2005, between Redfern Ltd. and the first and second named defendants (described in the Agreement as “the Partnership”). This agreement (“the Redfern Agreement”) provided that the Partnership would dispose of the entire issued share capital in Lowe to Alburn, free from encumbrances, in exchange for Redfern issuing to the Partnership two ordinary shares and one A-ordinary share in the issued share capital of Alburn so as to ensure that 50% of the issued share capital of Alburn is owned by Redfern and 50% of the issued share capital of Alburn is owned by the Partnership in the manner provided under the Agreement. It was, in effect, a partnership arrangement for the purpose of carrying out the development of Phases III and IV of The Square through Alburn. The Agreement provided for the preparation of a detailed shareholders’ agreement.
6. The completion date for the Agreement was 20th August, 2005, or such other date as might be agreed between the parties in writing. The date was extended by agreement in writing to 20th October, 2005, but no further extension was ever agreed between the parties.
7. In the summer of 2006, the first and second named defendants were coming under severe pressure from BOSI to clear the debt owed by Aifca. Noel Smyth of Alburn was aware of this and arranged an extension of the repayment date to 30th September, 2006. The Redfern Agreement provided, inter alia, that on completion, Lowe would have no assets or liabilities other than the Lowe licence and all benefits and rights thereunder, and a debt with Bank of Scotland for a maximum of €30 million. In fact, the debt was larger than €30 million, but it appears that the figure of €30 million came to be inserted because that was the sum attributable to the Lowe licence and the balance was allocated in respect of the Tuansgate building which was included in the sale of Lowe Taverns Ltd. to Aifca. Neither the Partnership nor Aifca were in a position to discharge the debt. Redfern agreed to procure that Alburn had, prior to or at the completion date, no assets or liabilities other than:
(a) The Square Agreement
(b) The Sandyford lands
(c) A liability of €2 million to Redfern in respect of pre-existing costs and
(d) A debt of €5 million to Irish Nationwide Building Society.
Redfern agreed to procure the assignment of an existing binding contract in respect of a site in Leopardstown known as Site A and the transfer of all lands in another site at Leopardstown known as Site B to Alburn, as well as any existing agreements in respect of the adjacent lands marked on a map attached to the Agreement.
8. With the date for repayment rapidly approaching, and as neither Noel Smyth nor his companies were able to raise the necessary finance to assist Aifca, the Partnership entered into an agreement with the third named defendant, Mr. Liam Carroll (“the Aifca Agreement”). The Agreement was made on 20th September, 2006, without the knowledge of the plaintiff, Mr. Noel Smyth, or Alburn.
9. Under the Aifca Agreement, Mr. Liam Carroll agreed either himself or though another company or entity owned or controlled by him, to refinance the borrowings of Aifca on or before 29th September, 2006, and to subscribe for shares in Aifca to the extent of 50.25% of the issued share capital of the company. Following the Aifca Agreement, the shares were allotted to Tafica, the fourth named defendant. The effect of the Aifca Agreement was that the indebtedness of Aifca to BOSI was discharged and Mr. Liam Carroll and Tafica acquired control over the Lowe licence. The plaintiff claimed that it was unaware of the Aifca Agreement until the first and second named defendants delivered their defence in these proceedings. This resulted in an application being made to join the third, fourth and fifth named defendants in the proceedings and amended pleadings were then delivered. The plaintiff commenced these proceedings for specific performance of the Redfern Agreement, together with damages and other relief. At the commencement of the hearing, counsel for the plaintiff informed the court that the plaintiff was no longer seeking specific performance, but was maintaining its claim for damages. The claim can be summarised as follows: the plaintiff claims that the first, second and fifth named defendants are in breach of the Redfern Agreement, and that the first and second named defendants are in breach of their fiduciary duties to the plaintiff. It is alleged the third and fourth named defendants procured the breach of the Redfern Agreement and entered into the Aifca Agreement in full knowledge of the Redfern Agreement. In the circumstances, the plaintiff claims damages including exemplary damages.
The issues
10. On the opening day of the hearing, counsel for the plaintiffs submitted that there were six issues for the court to decide:
(i) Was there a legally binding agreement between the plaintiff and the first and second named defendants?
(ii) Did they or did they not fail to perform it?
(iii) Did the first and second named defendants enter into a secret agreement with the third named defendant which had the effect of interfering with the performance of that contract?
(iv) Did the third, fourth or fifth named defendants procure a breach of contract?
(v) If so, should they be liable for damages?
(vi) Assess the damages.
It seems to me that the court will also have to consider whether the Redfern Agreement was subsisting at the time of the Aifca Agreement. The court will also have to decide whether the conduct of the parties and, in particular, the plaintiff and Mr. Noel Smyth, was inconsistent with the Redfern Agreement subsisting. On the issue of damages, the court will have to decide whether or not punitive or exemplary damages should be awarded.
11. In order to resolve the issues it is necessary to consider, in some detail, not only the Redfern Agreement and the Aifca Agreement, but also a number of other relevant documents including, but not limited to, the following:
(a) A side letter connected to the Redfern Agreement and dated 27th July, 2005, and two other letters dated 3rd August, 2005, and 4th August, 2005, respectively, which purport to amend the terms of the Agreement.
(b) The joint venture agreement between The Square Management Ltd., Alburn Ltd. and Alburn Investments Ltd., dated 31st July, 2003, (“the SML Agreement”).
(c) A manager’s order made under s. 183 of the Local Government Act 2001 and dated 3rd February, 2006, and
(d) A subscription agreement between Tafica Ltd., Aifca Ltd. and Liam Carroll dated 1st February, 2007, (“the Tafica Agreement”).
(e) Agreement dated 3rd August, 2006, between Thomas McFeely, Larry O’Mahony and Noel Smyth (Alburn) (“the Phil Flynn Agreement”).
There are other documents which will be referred to in the course of this judgment where they are relevant to the issues to be decided.
The Redfern Agreement
12. The first recital in the Redfern Agreement states:
“The partnership are the sole beneficial and legal owners of the entire issued share capital of Lowe, free from encumbrances.”
This was, in fact, incorrect. The first and second named defendants did not own the share capital. It was owned by Aifca Ltd., a company controlled by the Partnership. The completion date of the Agreement was 20th August, 2005 “. . . or such other date as is agreed between the parties in writing”. That date was extended to 20th October, 2005, by virtue of a letter from Alburn of 4th August, 2005, which responded, inter alia, to a request from the solicitors of the Partnership on 3rd August, 2005.
13. Clause 1 of the Agreement provides that Redfern and the Partnership shall be equal 50% shareholders in Alburn with equal Board representation, and the parties to the Agreement were to procure the relevant share transfer and issues on completion, so that Alburn is owned equally by the Partnership and Redfern and Alburn would own all the shares in Lowe. A project management fee of 15% of the construction costs was to be solely for the benefit of Redfern (clause 5).
14. Clause 11 of the Agreement stated that Alburn intended, as soon as possible after completion, to make an offer to the existing shareholders of The Square Management Ltd. (“SML”) to acquire each of such shareholders’ interests in the units of The Square Town Centre, Tallaght, at a yield 4% following the proposed rent review in October 2005. Alburn also agreed, in clause 12, to take a lease of approximately 20,000 sq. ft. of the property at Tuansgate at an open market rent under a four year and nine month lease.
15. Clause 13 provided that the parties would incorporate the terms into a final shareholders’ agreement which would be prepared and submitted to the parties. If there was any disagreement between them as to what the Agreement should contain, there was provision for referring the dispute to a Senior Counsel from a list of names set out in the Fourth Schedule. Clause 20 of the Agreement provided that the parties would cooperate with each other and exchange all necessary information, and clause 23 contained provisions relating to good faith, including a provision that neither party shall be entitled to assign or transfer the benefit of the Agreement or any shareholding or interest held by them in Alburn or Lowe.
16. The side letter of 27th July, 2005, refers, inter alia, to the BOSI debt of €30 million, notwithstanding the fact that the debt was greater than that figure. As I have already indicated, this was because €30 million of the loan was attributed to the licence and the balance to the purchase of the Tuansgate building. It also refers to clause 3.2.1 of the SML Agreement which requires the developer to procure the agreement of Lowe Taverns to the extinguishment of their interest in the licensed area on terms approved by SML and records the agreement of the parties that Redfern will make an application to The Square for its approval of the Agreement as complying with the pre-condition.
17. On 3rd August, 2005, Messrs. Ivor Fitzpatrick, the solicitors for the Partnership, wrote to Mr. Noel Smyth of Alburn, referring to the “Draft Heads of Terms” furnished by Redfern, and they set out their comments on required amendments to the draft document. The first matter they pointed out was that the completion day of 20th August, 2005, would be extremely difficult to achieve and they suggested a later date to be agreed between the parties. The solicitors to the Partnership also requested that recital F in the Redfern Agreement should reflect the fact that Alburn owed approximately €5.7 million to Irish Nationwide Building Society. They asked that clause 11 relating to the proposed purchase of the units of The Square at a yield of 4% should be amended to a yield of 3.9%. Clause 12, relating to the lease of 20,000 sq. ft. of office space at Tuansgate, was to be amended to a 25-year lease. There were some other amendments sought which it is not necessary to refer to here and also certain documents were requested.
18. By reply dated 4th August, 2005, Alburn agreed to a new completion date of 20th October, 2005, “or such earlier date as may be agreed between the parties”. On the issue of the project management fees, Alburn said that as it was now to be owned on a 50-50 basis with the Partnership, “. . . then the project management must remain and the benefit of the fees payable must remain for the benefit of Redfern.” SIZE=2 FACE=”Verdana”> Alburn agreed to clause 11 being amended to show a yield of 3.9%. They also agreed to the lease referred to in clause 12 being for a period of 25 years. There were other matters referred to in the letter which, again, it is not necessary to refer to here.
19. In order for the development to proceed, a number of matters had to be put in place. Under the SML Agreement, the Lowe licence had to be bought out or extinguished. There had to be a valid planning permission in place and an order had to be made under s. 183 of the Local Government Act 2001, permitting the Council to dispose of lands at The Square. A Manager’s Order to this effect was made on 3rd February, 2006.
20. After the signing of the Redfern Agreement, a number of problems emerged. These included the requirement to extinguish a licence held in connection with the UCI cinema complex, and a claim by Dunnes Stores Ltd. that they held a licence. The extinguishment of these licences was referred to at clause 3.1.5 of the SML Agreement, made in 2003, between SML, Alburn Ltd. and Alburn Investments Limited. But on day 14 of the hearing, Mr. Noel Smyth stated:
“So, at the time when we entered into the Agreement with the parties in the partnership in 2005, the UCI licence was never part of anyone’s consideration.” (Page 45, A. 66)
It also became clear that the planning permission which had been granted in October 2000 was not financially viable for the parties to the Agreement, and would, in any event, expire on 21st February, 2006. A new planning permission was obtained in February 2007 and Noel Smyth gave evidence that it was not commercially viable either.
UCI Licence
21. In the course of his evidence, Mr. Noel Smyth said that the sale of the UCI interest arose in June 2006. (T. 14, p. 44). The plaintiff discovered late in the day about the UCI licence and Mr. Smyth said that he or his companies were offered the cinemas and a lease which gave them the right to a licence. He went to SML and asked if they were interested in purchasing the licence and the cinemas and they told him they were not. He then says that he spoke to the first and second named defendants and sought counsel’s opinion. Redfern finally purchased the interests of the UCI cinema for €52 million (T. 5, pp. 96 and 97). When asked if he got the consent of the Partnership to acquire the UCI interest, Mr. Smyth replied, “consent mightn’t be the correct word”. (T. 17, p. 83). He said he met with the second named defendant and explained to him the problem that had arisen with the UCI licence and that it was going to cost €52 million. The first and second named defendants, for their part, gave evidence that Mr. Smyth went on a “solo-run” on this issue and that they did not agree to the sum being spent on the licence. They felt it was a ridiculous figure. The second named defendant said that the Partnership was not asked at any stage about the purchase of the licence before Noel Smyth made an offer of €55 million for it. The first named defendant said that after Noel Smyth bought the licence on behalf of Redfern, he looked for a contribution and he thought the price was outrageous. Mr. O’Mahony said that Mr. Smyth did not keep the first and second named defendants informed when buying the UCI licence, and that it was not part of the Redfern Agreement.
22. I am satisfied, on the balance of probabilities, that Noel Smyth negotiated the purchase of the UCI cinema and licence independently of the Partnership and the fifth named defendant, that he made the offer of €52 million without consulting them or, at the very least, getting their consent to the payment of that sum. Redfern/Alburn put in a bid and the third named defendant also did so. I am satisfied that Noel Smyth only went to them looking for contribution after he had concluded the deal. I accept the evidence of Mr. Philip Flynn who was also of the view that Mr. Noel Smyth concluded a deal on the UCI cinema and licence and subsequently went to the Partnership looking for a contribution towards that portion of the purchase price that he allocated to the licence. He said that the Partnership was not happy about that at all and did not accept it.
23. The purchase of the UCI cinema and licence was a significant matter. The licence had to be acquired in order for the redevelopment of the Tallaght Town Centre to take place and it involved the expenditure of a considerable sum of money. In its closing submissions, the plaintiff stated “. . . its acquisition by Redfern was a necessary element in the project” (para. 443). It was never provided for in the Redfern Agreement and there was no agreement between the plaintiff or Mr. Smyth, on the one hand, and the Partnership and Aifca, on the other hand, concerning the purchase of the cinema and licence and the expenditure of the sum of money involved.
Planning Permission
24. Tallaght is the nominated County Town of South County Dublin. The Square Shopping Centre in Tallaght was completed in or about 1991. Many shopping centres at that time were owned by a single entity. But at The Square, long leasehold interests in individual units were made available for sale to investors. All the investors were shareholders in SML. The Square was the first major town centre development in Dublin and commenced trading in 1991. At that time, it had 141 retail units and there were three anchor tenants. By 2006, The Square had been operating for fifteen years and had become somewhat jaded in terms of its appearance and facilities. In the meantime, other major shopping centres had developed, such as Dundrum and Liffey Valley, and access to competing shopping centres had become easier with the development of the M50 around the City of Dublin. It was generally accepted that The Square was in need of redevelopment as its market share was declining and it was losing competitiveness. When redevelopment was being considered, SML, through “the Phase III Ltd. Partnership” sought and obtained planning permission for what became known as the Phase III development. This planning permission was obtained in October 2000 and had a reference S00A/0553. It lapsed in February 2006. SML was pivotal in any arrangements for the future development of The Square. It held the licence to the entire car parking area and it managed the existing shopping centre. Therefore, whoever would redevelop The Square had to involve SML. A year after the planning permission for Phase III had been granted, the local authority, South Dublin County Council (“SDCC”) called back the site that the Tuansgate building was built on and they sold it to Lowe Taverns Tallaght Limited. On 25th October, 2001, they granted Lowe Taverns a licence to park cars in the car park. When SML sought to proceed with the Phase III development, they came into conflict with Lowe Taverns, which had a right to park cars anywhere in the car park of The Square. Litigation ensued and a High Court decision delivered on 14th November, 2002, determined that the Lowe licence applied to the whole of the car parking area. SML tried to resolve this obstacle but was unable to do so. Noel Smyth and his company, Alburn, then became involved. The Partnership, through Aifca, purchased the Lowe licence in March 2005.
25. Under the Redfern Agreement of 4th August, 2005, Redfern and the Partnership were to carry out Phase III and Phase IV of the development of The Square. In order to this, they would have to act on the planning permission granted in respect of Phase III and apply for permission in respect of Phase IV. Following the Redfern Agreement, Alburn entered into discussions with SDCC and on 3rd February, 2006, an order was made under s. 183 of the Local Government Act 2001, transferring approximately eleven acres of land at Tallaght from the County Council to Alburn. The disposal was by way of a building licence. The Phase III development was to be based on the scheme for which planning permission was granted, ref. S00A/0553, save as amended by subsequent planning applications prior to the commencement of the development and/or by the parties and/or by agreement between the parties. When Alburn investigated the existing Phase III planning permission, it discovered some defects concerning the boundary of the development. Planning permission was also due to expire in February 2006. It was decided to submit a new planning permission which was submitted to SDCC on 31st July, 2006.
26. The original planning permission granted in 2000 was for a development of 386 apartments, a 43-bedroom hotel, a 47-bedroom aparthotel and 14,144 sq. m. gross of retail and 1,321 sq. m. gross convenience retail, 2,387 sq. m. gross for restaurant and bars, 6,171 sq. m. gross for offices and services and a 1,529 space multi-storey car park.
27. A decision on the new application issued on 22nd September, 2006. The permission was for a development consisting of the following uses: 384 apartments and associated private open space; a 27-bedroom hotel; 23,232 sq. m. of retail floor space; 3,690 sq. m. of restaurants/bars; 4,108 sq. m. of office space and 1,720 sq. m. of leisure space. A 6,117 space multi-storey car park was also to be provided. The permission was granted on the basis that it accorded with the policies and objectives of SDCC as set out in the Local Development Plan. There were forty-eight conditions attached. Two appeals were lodged against the decision. One was by a nearby resident, Mr. Darren Ireland, and the other was by Alburn itself, who objected to some of the conditions. Both appeals were subsequently withdrawn. The date of Final Grant of permission was 22nd February, 2007.
28. The second planning decision was substantially based on the earlier permission for Phase III. There were some design amendments and there was a requirement for more dual-aspect apartments. Mr. Noel Smyth gave evidence that the permission was not, in fact, viable, and that Alburn would have to submit further applications and have the terms altered. Before the first permission expired, Alburn had written to the Deputy County Manager on 10th October, 2005, stating, inter alia:
“. . . we have considerable difficulty with the terms advised by the Chief Valuer for Phase III. The high capital value, which is linked to a specific planning approval, and the overall burden on the land due to the ‘Lowe’ factor, has resulted in an unviable project.”
The letter went on to say that Alburn would not be proceeding on the basis of those terms. But the terms of the second permission were not very dissimilar and also involved a substantial amount of residential development. Although Mr. Smyth sought to persuade the court that it was likely that Alburn would be able to get more favourable conditions by way of amendment to the planning permission, this was disputed by other witnesses. He also anticipated that the development could commence on the site in January 2008, and would have been completed by July 2010.
29. In order for the project to be viable from the plaintiff’s point of view, they would have to have obtained a higher retail element. Mr. Tom Walsh of Muir & Associates, who were project managers employed by Alburn, agreed that there was no planning permission between February 2006 and February 2007, and that the development could not be started without planning permission. It was accepted by Mr. Smyth that Alburn could not ignore the residential requirements entirely. What it was seeking was contrary to the Local Area Plan which was designed to ensure that The Square developed into a town centre with mixed residential retail, office and hotel and leisure facilities.
30. Mr. Fergal McCabe, a town planner, was of the view that it was not unusual for a developer to go in on site without all the conditions being complied with. But he was quite clear in his evidence that he would not advise a developer to start work without any conditions precedent being met. He expected Alburn could commence Phase III of the development by the end of 2007, and then seek changes. But Alburn could not have built out the development because they had not got the Lowe licence. Ms. Anne Mulcrone, a planning consultant, expressed the view that Alburn was never in a position, during the course of the lifetime of the planning permission, reference S00A/0553, to commence development on the site. Moving on to the next planning permission, reference SD06A/0654, she dealt at some length with the planning report and appraisal signed off by Mr. Daragh Larkin, the senior executive planner with SDCC, which established that there was a significant number of issues which had to be sorted out before the development could commence. She referred to correspondence between Mr. Noel Smyth and Mr. Tom Walsh of Muir & Associates, and in particular, a letter of 3rd March, 2008. In that letter, Mr. Noel Smyth stated, “. . . what we cannot do is that we cannot emasculate ourselves because of the planners concerns and that our ultimate position must be that if we have to go back to the Manager and to the local representatives to amend the LAP in order to preserve and hold Tallaght in its place, then so be it. That is the position we would take, but for the most part, we will try and work with them.” This was a reference to the conflict between what Alburn wanted to do and needed to do and what the Local Area Plan allowed them to do. This had been alluded to in an email of 3rd March, 2008, from Muir & Associates which was copied to Noel Smyth and others and which stated, inter alia, “Thirdly, we had our standard Alburn meeting on Friday last, and it was agreed that the most urgent task now facing us is to establish the extent of substantive conflict between what Alburn want and need to do and what the LAP allows us to do”. In the discovery made by Muir & Associates, notes of a meeting in SDCC offices on 15th February, 2008, were produced. In the course of that meeting, Mr. Paul Hogan, a senior planner for the Tallaght Town Centre, stated, “in the overall, what has been presented runs totally counter to the LAP aspirations. I understand why you are proposing this Scheme, but we would recommend refusal on the grounds of conflict with LAP”. Mr. Tom Walsh of Muir & Associates was in attendance at that meeting.
31. Ms. Mulcrone said that Alburn had presented its plans and strategy and SDCC had responded clearly, indicating that they would refuse permission on the basis sought. She said the range of issues in conflict was considerable and covered urban design, parking strategy, social mix, entertainment use and the land mix use. Alburn did not focus on the grant of permission, but rather, was proposing to pressurise the manager and local authority to grant something that they had already outlined was not in accordance with proper planning and sustainable development. This would involve a change to the Local Area Plan. The submission made by Lafferty Design and Development to the County Council related mainly to the commercial viability of the scheme and did not advance alternative planning scenarios. What Alburn was trying to do was in conflict with the Local Area Plan.
32. I accept the evidence of Ms. Mulcrone that there was a significant number of problems to be overcome by Alburn before it could commence the development.
33. A considerable amount of debate took place between a number of witnesses on the issue of what Fire Certificates were required to cover the proposed building work. Mr. Tom Walsh of Muir & Associates arranged for a Fire Certificate to be obtained that would be sufficient to allow the development to proceed. The application was made by Michael Slattery & Associates and Lafferty Design & Development had inputs into that application. The certificate issued on 2nd August, 2006, and in the view of Mr. Walsh, would have been sufficient to enable a commencement notice to be served. Mr. Patrick Lafferty, who is a principal of Lafferty Design Group Ltd., architects, were engaged by Alburn in connection with the redevelopment of The Square. He was involved in obtaining the Fire Certificate and met with the fire authority in the company of Michael Slattery Associates, who were the lead consultants involved in obtaining the certificate. Mr. Maurice Johnson was the main person in Michael Slattery Associates dealing with the matter. He was of the view that the Fire Certificate would have enabled them to commence development. Although it would have only applied to some of the development, it would take four to six months for a full Fire Certificate for the entire building to be obtained. He would not have recommended starting work on areas not covered by a Fire Certificate without one being in place. Mr. Lafferty agreed that Mr. Maurice Johnson was an expert in this area, but said he had thirty-nine years experience himself. Mr. Maurice Johnson said that the Fire Certificate related to the first planning permission which lapsed in February 2006. In his view, it was not a basis for commencing that portion of the development to which it related because there were substantial differences between the fire safety certificate design and the subsequent planning application. He disagreed with the view expressed by Mr. Lafferty that moving a water main and hydrants in the course of preliminary works would not pose a problem under the existing Fire Safety Certificate. He said that such works would be a material alteration which would be affected by building regulations and would require a separate Fire Safety Certificate prior to its commencement. Mr. Johnson’s position was somewhat compromised because he did not inform the court, until pressed in cross-examination, that he commenced working for Mr. Liam Carroll, the third named defendant, in April 2008. It seems to me that, having regard to all of the evidence on this issue, the commencement of the development could have taken place on the basis of the existing Fire Safety Certificate, although works would have had to be limited to those areas covered by the Fire Safety Certificate. Further, discussions would have been required with the local authority in order to obtain the relevant Fire Safety Certificates to progress the work and I am satisfied that this would have taken something in the order of one year. That would have had implications for the commencement date of much of the project.
Events following the Redfern Agreement
34. Having entered into the Redfern Agreement, neither Messrs. O’Mahony and McFeely nor Aifca were in a position to repay the monies borrowed from BOSI in order to fund the purchase of the Lowe licence. It is clear that Noel Smyth was aware of this because he negotiated an extension of time from the bank to the end of September 2006, at a time when the bank was threatening to call in a receiver over Aifca’s assets. Mr. Noel Smyth gave evidence that he was determined that this would not happen, as it would jeopardise the project. But in the course of cross-examination, he conceded that he wished to have a pre-emptive right to acquire the loan in the event of non-performance by Aifca by 31st August, 2006, which was the deadline at that time. (T. 16, A. 91). If he took over the loan, no receiver would be put in.
35. On 25th September, Mr. Duffy asked Mr. Smyth if he would take over the loan, but there was an issue in relation to €10 million of the loan. It seems that it would have been Redfern or Alburn who would have taken over the loan, but the bank wanted Mr. Smyth to guarantee the debt personally. Mr. Smyth agreed in cross-examination that in a conversation with Mr. Duffy on 25th September, 2006, he agreed to guarantee the debt personally to allow that loan transfer over to Alburn. (T. 16, A. 261). Although he admitted that this was a very critical matter, it did not appear in his witness statement, nor did he have an attendance of the conversation with Mr. Duffy. No guarantee was completed or furnished to Mr. Smyth. With the time limit about to expire at the end of September 2006, Mr. O’Mahony made contact with Liam Carroll who obtained funding from Irish Nationwide Building Society and entered into the Aifca Agreement, to which I will refer in greater detail later. It was the Aifca Agreement which would signal the final breakdown in the relationship between the plaintiff and Mr. Noel Smyth, on the one hand, and the Partnership on the other hand. But between the signing of the Redfern Agreement and that point, a number of other developments had taken place which are relevant.
36. The Redfern Agreement provided for a completion date of 20th August, 2005, which was extended in writing by mutual agreement between the parties to 20th October, 2005. Subsequent to the completion date, the parties continued to negotiate. On 4th November, 2005, draft Heads of Agreement were furnished by Ivor Fitzpatrick & Company, solicitors for the Partnership, to Noel Smyth & Partners in which it was proposed that the partners would buy out Alburn’s interest. In March 2006, Mr. Noel Smyth proposed splitting the redevelopment of The Square, with the Partnership taking over Phase III and Alburn taking over Phase IV.
37. On 4th May, 2006, a draft Share Purchase Agreement was furnished by Noel Smyth & Partners to Ivor Fitzpatrick & Company whereby the partners were to purchase the entire issued share capital of Alburn.
38. On 29th May, 2006, a revised proposal was put by Mr. Noel Smyth to Mr. Phil Flynn (acting on behalf of the Partnership). This proposal envisaged the joint venture along the lines of the Redfern Agreement, but with an option for the Partnership to buy out the plaintiff’s interest in Alburn, failing which, Redfern would have an option to purchase the partners’ interest.
39. On 29th June, 2006, a draft shareholders’ agreement was furnished by Noel Smyth & Partners to Ivor Fitzpatrick & Company on foot of the proposals of 29th May, 2006.
40. On 3rd August, 2006, an agreement (which became known as the “Phil Flynn Agreement”) was signed by Noel Smyth and John McKenna, as directors of Alburn, and Phil Flynn on behalf of Thomas McFeely and Larry O’Mahony. The Agreement stated as follows:-
“At a meeting held today (3rd August), facilitated by the undersigned, Thomas McFeely, on behalf of Larry O’Mahony and himself, agreed to sell their interest in Tallaght Square to Noel Smyth (Alburn) on the terms set out below:
Existing Bank Loan and Share Option
Noel Smyth (Alburn) to take over the existing bank loan with Bank of Scotland in the sum of €30m and to honour their entitlement to a 15% interest in the option previously granted to them.
Glasnevin/Terenure/Murphystown Sites
The above sites to be transferred to McFeely/O’Mahony on payment to Noel Smyth of €5.5m. In addition, a charge of €5m to be held against one of the above sites until planning permission is granted on Phase III (current application).
Timeframe
Contracts to be agreed by 31st August and closure by 30th September.”
Noel Smyth accepted that this was a binding agreement. This Agreement was a radical departure from the Redfern Agreement. It was never completed.
41. On 1st February, 2007, the subscription agreement between Tafica Ltd., Aifca Ltd. and Liam Carroll (“Tafica Agreement”) was entered into between the parties.
42. Even after the Aifca Agreement was signed on 19th September, 2006, the Partnership continued to correspond with Noel Smyth through their solicitors without disclosing the existence of that Agreement and they attended meetings from time to time with Noel Smyth. At a meeting in April 2007, Noel Smyth brought up the question of the RedfernAgreement and was told by Larry O’Mahony that it was no longer in existence and Noel Smyth became very angry and upset.
Conduct of the Parties to the Redfern Agreement
43. It seems to me that in resolving the issues in dispute, the conduct of the parties to the Redfern Agreement is of some relevance.
Noel Smyth
44. On 4th August, 2005, Noel Smyth informed SDCC that Alburn had taken over Lowe Taverns on terms acceptable to all concerned. This was before the Redfern Agreement was performed. The evidence establishes that, in the summer of 2006, Noel Smyth agreed to purchase the UCI cinema licence independently of the first and second named defendants. It was only after he had concluded the Agreement that he sought a contribution from the first and second named defendants who thought that the amount spent on the licence was ridiculous.
45. On 10th October, 2005, Mr. Derek Brady, on behalf of Alburn, wrote to Mr. Tom Doherty, the Deputy County Manager of SDCC, informing him that Alburn would not be proceeding with Phase III on the basis of the terms advised by the chief valuer. This was written without consultation with the first and second named defendants. In the same letter, Mr. Brady invited SDCC to consider the option of becoming a full development partner in the project. Again, this was done without reference to the first and second named defendants.
46. On 9th March, 2006, Mr. Noel Smyth wrote to the first and second named defendants, suggesting, inter alia, that they would take over Phase III of the development and that Alburn would develop Phase IV. Noel Smyth wrote to the chairman of SML on 18th March, 2006, informing him of this arrangement.
47. On 27th March, 2006, SML’s solicitors wrote to Noel Smyth & Partners informing them that this proposal was “. . . wholly unacceptable to SML”.
48. Clause 11 of the Redfern Agreement provided that Alburn intended, as soon as possible after completion, to make an offer to the existing shareholders of The Square to acquire each of such shareholder’s interest in the units of The Square at a yield of 4%, following the proposed rent review in October 2005 (this was later amended by agreement to 3.9%). At the end of 2005 and beginning of 2006, Alburn entered into negotiation to buy out these interests independently of the first and second named defendants. In fact, the first and second named defendants put in a competing bid for the Quinlan units, and in the course of the evidence it was suggested that Noel Smyth phoned the third named defendant to join him in a bid. He purchased the Quinlan units at a yield less than 3.9% which involved additional cost and liability for Alburn over and above what had been agreed under the Redfern Agreement.
49. On 3rd August, 2006, the “Phil Flynn Agreement” was signed. The parties were stated to be “Noel Smyth (Alburn) and Thomas McFeely/Larry O’Mahony”. Under this Agreement, the first and second named defendants agreed to sell their interest in The Square to Noel Smyth (Alburn) on terms set out in the Agreement.
50. After the s. 183 manager’s order had been signed, Mr. Eoghan Clear, the solicitor to SDCC, insisted on full compliance with the order. Mr. Noel Smyth was of the view that Mr. Eoghan Clear was interpreting the s. 183 order in too strict a fashion and he sought to sideline Mr. Clear by making unwarranted claims to SDCC that Mr. Clear had a conflict of interest.
51. It was at all times clear to Mr. Smyth that Anglo Irish Bank was not prepared to fund the redevelopment of The Square so long as the first and second named defendants were involved. Mr. Smyth produced to SDCC correspondence from Anglo Irish Bank Corporation Ltd. which purported to show that there was loan approval, when, in fact, there was a side letter making it clear that the loan would not be forthcoming if the first and second named defendants were involved in the project. Noel Smyth failed to pass on this information to SDCC or to its solicitor. Mr. Clear gave evidence that he would have expected it to be brought to his attention, and Mr. Derek Brady, the Chief Development Officer of Alburn, and a former County Manager of Dun Laoghaire Rathdown County Council, stated in evidence that he would have expected that information to be made known.
52. I am satisfied that the information was deliberately suppressed by Mr. Noel Smyth and that he misled SDCC as to the position concerning available finance for the project. Mr. Clear gave evidence that, from the point of view of SDCC, funding was crucial, and I accept that this was so. The letter of 8th August, 2006, from Anglo Irish Bank was a letter of comfort but could not be relied on, in view of the side letter.
53. In July 2006, Mr. Noel Smyth/Alburn was trying to buy out the BOSI loan to the first and second named defendants without them knowing it.
54. The defendants argue that the matters referred to above are relevant in determining whether or not the Redfern Agreement continued in existence or had terminated. I will deal with the legal principles involved in applying this evidence to the enforceability of the Redfern Agreement later in the judgment.
Larry O’Mahony and Thomas McFeely
55. The first and second named defendants borrowed monies from BOSI for the purpose of purchasing the Lowe licence. They were never in a position to repay that money within the period laid down by the bank. As early as April 2005 (before the Redfern Agreement), they were discussing a joint venture with the third named defendant.
56. On 13th April, 2005, Mr. Garret O’Reilly (solicitor for the third named defendant) wrote to Ivor Fitzpatrick & Co. (solicitors for the first and second named defendants), suggesting that the third named defendant might acquire a 50% interest in Lowe Taverns (Tallaght) Ltd., in a deal which was similar to the Aifca deal concluded in August 2006. In that letter, he passed on correspondence from Mr. Noel Smyth.
57. The first and second named defendants appear to have purchased the Lowe licence in order to turn it over at a profit or to get involved in the redevelopment of The Square. When BOSI called in the debt, it was their responsibility, and not that of Mr. Noel Smyth, to organise the repayment of the loan. Having signed the Redfern Agreement, it became clear that they were unable to repay the bank and then they entered into the “Phil Flynn Agreement” in August 2006. The first named defendant admitted in evidence that the ink was hardly dry on the Phil Flynn Agreement when he commenced talking to the third named defendant and Irish Nationwide Building Society with a view to paying off the loan. There are numerous diary entries for the third named defendant in August 2006, referring to the first and second named defendants which support the plaintiff’s contention that there was ongoing contact between these parties. When they met the third named defendant on 8th August, 2006, and 10th August, 2006, they did not tell him that, as recently as 3rd August, 2006, they had done a deal with Mr. Noel Smyth, namely, the Phil Flynn Agreement. At the same time, they were entering into discussions with the third named defendant which were wholly incompatible with the Redfern Agreement. When they signed the Aifca Agreement, it provided, inter alia, that each of the shareholders shall terminate or procure the termination of any third party negotiations currently taking place. They were binding themselves to terminate all those negotiations from 20th September, 2006, onwards, even though, under the Phil Flynn Agreement, Mr. Noel Smyth had until 30th September, 2006 to try and persuade BOSI or some other bank to provide finance to the tune of €30 million.
58. Both the first and second named defendant insisted that the Redfern Agreement had a completion date of 20th August, 2005, which was extended, by agreement in writing, to 20th October, 2005, and then lapsed – not having been extended further – in accordance with the terms of the Agreement. Yet it is quite clear that they allowed their solicitors to convey the impression that they were bound by the Redfern Agreement after that date. For example, on 7th July, 2006, their solicitors wrote to Noel Smyth & Partners informing them that their clients were aware of their obligations under the Redfern Agreement.
59. In correspondence leading up to the Aifca Agreement, the solicitors for the first and second named defendants informed the third named defendant’s solicitor that he was purchasing in full knowledge of the Redfern Agreement and they sought an indemnity in respect of any claims that might arise, pursuant to that Agreement.
60. At the same time, they were writing to the solicitors for Alburn, looking for the shareholders agreement under the Redfern Agreement. The Redfern Agreement provided, inter alia, that neither party was entitled to transfer the benefit of the Agreement or any shareholding or interest held by them in Alburn or Lowe. Yet, the first and second named defendants transferred 50.1% of Aifca (the owner of the Lowe licence) to the third named defendant in September 2006, and took elaborate steps to ensure that neither Mr. Noel Smyth nor Alburn nor Redfern were aware of these discussions. Furthermore, they arranged for correspondence and other documents to be passed on to the third named defendant’s solicitors for consideration before deciding on the manner of reply to Noel Smyth & Partners concerning implementation of the Redfern Agreement.
61. In short, the first and second named defendants were trying to have it every way. They were negotiating with both Noel Smyth and Liam Carroll up until June or July 2006. In August, 2006, the Phil Flynn Agreement was signed, and around the same time, they reopened negotiations with Mr. Liam Carroll which culminated in the Aifca Agreement.
62. Around the time that Mr. Noel Smyth put in a bid for the Quinlan units at The Square, the first and second named defendants put in a competing bid of €307 million. Mr. McFeely admitted in evidence that he was not sure where he and Mr. O’Mahony were going to get this money. It is hard to credit that Messrs. O’Mahony and McFeely would offer €307 million for the units and not know where the money was coming from but that, apparently, was the position. The first named defendant believes he told Mr. Noel Smyth about this. Mr. Smyth claimed to have bought the Quinlan units under the Redfern Agreement and the court will have to assess whether this could have been so, having regard to the fact that separate bids were made by Mr. Smyth/Alburn, on the one hand, and the first and second named defendants, on the other hand.
63. The first named defendant agreed that by June 2007 he and the second named defendant had agreed to repudiate the Redfern Agreement and look for an indemnity from the third named defendant.
Liam Carroll
64. Liam Carroll was at pains to ensure that his negotiations with the first and second named defendants were concealed from the plaintiff, Mr. Noel Smyth, and Alburn. He had tried to purchase the UCI cinema licence but was unsuccessful. He knew that when he bailed out the first and second named defendants by paying off the loan due to BOSI through the Aifca Agreement, that he could effectively block the redevelopment of The Square by the plaintiff.
65. On 22nd September, 2006, Mr. John Pope, on behalf of the third named defendant, sent an email to Mr. John Maxwell of AIB in which he stated, “this will provide us with a licence over the development rights of the entire car park in The Square and will prevent anyone else developing The Square without us”. Although the Aifca Agreement stated that it was subject to the Redfern Agreement, this was a fiction, because the two Agreements were wholly incompatible. The Redfern Agreement could not have been completed under the Aifca Agreement.
66. Mr. Liam Carroll did not give evidence. Medical evidence was produced to me which satisfied me that he was not fit to attend court or give evidence, either on commission or otherwise. It is quite clear from the evidence which was given to the court that in various respects, which have been outlined above, Mr. Noel Smyth, on the one hand, and Messrs. Larry O’Mahony and Thomas McFeely, on the other, failed to act in good faith towards each other in certain material respects. I am also satisfied that while the Aifca Agreement referred to the fact that it was subject to the Redfern Agreement, this was a charade as the two Agreements were incompatible. The evidence clearly establishes that the third named defendant knew, when he was rescuing the first and second named defendants from their obligations to BOSI, that he (or a company controlled by him) would either supplant Redfern/Alburn or frustrate the attempt of Mr. Noel Smyth to redevelop The Square through those companies or by himself. As between the plaintiff, on the one hand, and the first and second named defendants, on the other, they had duties of good faith towards each other under the Redfern Agreement (if it was a binding agreement) and they were in each in breach of that duty. It is necessary, therefore, to see whether the Redfern Agreement was binding or enforceable and, if so, to determine the effect of those breaches of duty of good faith on each side. The allegations against the third named defendant fall to be considered if the Redfern Agreement was binding at the time the Aifca Agreement was signed.
The law
67. It seems to me that the first legal issue to be decided is whether or not the Redfern Agreement was a legally binding agreement or merely Heads of Agreement. The Agreement was entered into between Redfern and the Partnership for the purpose of facilitating the development by them, through a company called Alburn, of the 18.5 acre car park area surrounding The Square Shopping Centre in Tallaght. The development would also have involved integrating the existing Centre with the newly developed area. The Agreement envisaged the development taking place through an equally owned joint venture company, namely, Alburn, in which the shareholders would be Redfern, on the one hand, and the Partnership, on the other. The Agreement provided for the disposal by the Partnership of their interests in the entire issued share capital of Lowe Taverns (Tallaght) Ltd. (“Lowe”) to Alburn, a subsidiary of Redfern, in exchange for Redfern issuing shares in Alburn to the Partnership. The Agreement further provided for the regulation of the affairs of Alburn and the regulation of relations between Redfern and the Partnership as shareholders in Alburn.
68. The Agreement was signed, sealed and delivered by the parties on or about 4th August, 2005, and was supplemented by a side letter of 25th July, 2005, and by letters of 3rd August, 2005, from Ivor Fitpatrick & Co., solicitors on behalf of the Partnership, to Noel Smyth on behalf of Redfern, and 4th August, 2005, from Noel Smyth on behalf of Redfern to Ivor Fitzpatrick & Co., solicitors to the Partnership. The Agreement provided for certain steps to be taken in the future. For example, clause 11 (as amended) provided that Alburn intended, as soon as possible after completion, and with the support of their bankers, to make an offer to existing shareholders of The Square to acquire each of such shareholder’s interest in the units of The Square at a yield of 3.9% following the proposed rent review in October 2005. By clause 13, the parties agreed to incorporate the terms into a final shareholders’ agreement which would be prepared and submitted to the parties and provided a mechanism for the resolution of any dispute that might arise as to what that agreement should contain. There were some ambiguities in the text of the agreement. For example, clauses 16 and 26 were somewhat contradictory. Clause 16 states:
“Each of the parties hereto hereby confirms that they have each had independent legal and professional advice prior to entering into the terms hereof and that same is legally binding on the parties.”
Clause 26 states:
“Proper Law: save to the extent that may be otherwise agreed in writing, the transaction (including these Heads of Agreement to the extent that they are legally binding) will be subject to Irish law. The Irish courts are to have exclusive jurisdiction to settle any disputes that may arise out of or relate to these Heads of Agreement or any relationship created thereby.”
69. Clause 8 of the Agreement provides that Redfern is appointed by the parties to be project manager of both the Sandyford Project and The Square Project. Redfern are to charge open market rates for its services or, where a rate is agreed, an agreed rate. On the other hand, clause 5 provides that the project management fee was 15% of the construction costs to be paid to Redfern.
70. Mr. Tim Scanlon, a solicitor and partner in Matheson Ormsby Prentice, was called to give evidence on the nature of this Agreement. Counsel for the plaintiff objected to his evidence being given and I overruled that objection. In the circumstances, the witness confirmed his statement and was not cross-examined. His view was that the RedfernAgreement had many of the characteristics one would expect of a typical Heads of Agreement. While such evidence might be a useful guide to the court as to how it should approach the issue, the court has to decide, by the exercise of its own judgment, what is the legal status of the Redfern Agreement, having regard to the surrounding facts. There was broad agreement between the parties as to the way in which the court should approach this task. The test is an objective one. In the case of Analog Devices B.V. v. Zurich Insurance Company [2005] 1 IR 274, the Supreme Court adopted the following statement of principles relating to contractual interpretation as set out in the speech of Lord Hoffman in the House of Lords’ decision in Investors Compensation Scheme Limited v. West Bromwich Building Society [1998] 1 WLR 896 at pages 912-913:
“(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 next mentioned, 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 grammar; 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 meaning 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 Ltd. v. Eagle Star Ass. Co. Ltd. [1997] AC 749.
(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense 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 S.A. v. Salen 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’.”
71. The principles enunciated by Lord Hoffman have been applied recently by the Supreme Court in Emo Oil Ltd. v. Sun Alliance and London Insurance plc. [2009] IESC 2, which noted, with approval, the views expressed by Laffoy J. in UPM Kymmene Corporation v. BWG Ltd. (Unreported, 11th June, 1999), when she stated:
“. . . The basic rules of construction which the court must apply in interpreting the documents which contain the parties’ agreements are not in dispute. The court’s task is to ascertain the intention of the parties, and the intention must be ascertained from the language they have used, considered in light of the surrounding circumstances and the object of the contract. Moreover, in attempting to ascertain the presumed intention of the parties the court should adopt an objective, rather than subjective approach and should consider what would have been the intention of reasonable persons in the position of the parties.”
72. Applying these principles to the Redfern Agreement and the relevant side letters, it seems to me that while there are some ambiguities and inconsistencies contained in the Agreement, it was intended to create legal relations. While there were further matters to be put in place, for example, the shareholders’ agreement and the purchase by Alburn of the interests in existing shareholders in units at The Square at a yield of 3.9%, the Agreement was clear that these were matters that were required to be done as obligations under the Agreement. The Agreement was complete to the extent that it set out, albeit in broad terms, what had to be done and what the parties agreed would be done. In an exchange of correspondence on 3rd and 4th August, 2005, between Ivor Fitzpatrick & Co., solicitors, and Alburn, the authors (including Mr. Noel Smyth of Alburn) referred to the Agreement as “Heads of Terms”. While this is so, and while clause 26 refers to “. . . these Heads of Agreement to the extent that they are legally binding”, the document, when considered in its entirety, and in the light of surrounding circumstances, seems to me to be more than Heads of Agreement. The fact that clause 26 uses the words “. . . to the extent that they are legally binding” does not mean that the Agreement is not legally binding. It may raise an issue as to the status of the Agreement. But this issue seems to be resolved by clause 16 which states that “each of the parties . . . . confirmed that they have had independent legal and professional advice prior to entering into the terms hereof and that the same is legally binding on the parties”. Using the objective test, and considering the context in which the parties entered into the Agreement, I hold that it was their intention to enter into a legally binding relationship in the Redfern Agreement, notwithstanding some inconsistencies to which I have already referred. Whether the Agreement is enforceable or whether its performance has been frustrated or whether it has been repudiated by the conduct of the parties, is a separate issue and I will now go on to consider these matters.
73. The first and second named defendants claim that the Redfern Agreement ceased to remain enforceable for a number of reasons which are also advanced by the third and fourth named defendants. The third and fourth named defendants say that by the time the Aifca Agreement was concluded, the Redfern Agreement had ceased. The following are the arguments advanced by the defendants on this issue:-
(i) The Redfern Agreement was not completed by the extended completion date, namely, 20th October, 2005, and it thereby lapsed. Alternatively, there was a failure to complete it within a reasonable time thereafter, rendering the Agreement unenforceable.
(ii) The Redfern Agreement was terminated unilaterally by the plaintiff on or about 10th October, 2005, when Mr. Derek Brady wrote to the Deputy County Manager of SDCC informing him that Alburn would not be proceeding with Phase III of the development.
(iii) The Agreement was rescinded when replaced by another binding arrangement between the parties, namely, the Phil Flynn Agreement in August 2006.
(iv) It was frustrated by a number of subsequent events including (a) the emergence of the UCI cinema licence as a necessary obstacle to be overcome; (b) the acquisition of Carstan Ltd., the owner of the UCI licence at a cost of €52 million by Alburn, thereby making the performance of the parties’ respective obligations under the Redfern Agreement commercially impossible; (c) the strict provisions of the s. 183 order issued by SDCC preventing the performance of the Redfern Agreement insofar as it related to the involvement of the first and second named defendants; and (d) funding being provided to Alburn on the basis that the first and second named defendants would not be shareholders in Alburn, which was a breach of the terms of the Redfern Agreement.
(v) There are other issues raised by the defendants. For example, it is alleged that the transfer of shares in Lowe Taverns Tallaght Ltd. under the Redfern Agreement amounted to an unlawful distribution and that the Agreement was unenforceable because it breached prior subsisting legal obligations as the shares in Lowe Taverns had been charged in favour of BOSI in March 2005, so that the transfer of those shares without the consent of BOSI was not permissible. Finally, it is alleged that Redfernwas not at the date of the Agreement ready, willing and able to complete the Agreement as it did not have the finance to do so.
74. I will now look at some of the legal issues that apply.
Completion date
75. Mr. Noel Smyth, on behalf of Alburn and Redfern, adopted his witness statement. In that statement, at paragraph 53, he stated:
“It was always the clear understanding that time was critical in order to ensure that we could get on site, open negotiations in a fuller sense with SDCC to acquire the Freehold, pursue the activity of getting on site without delay and ensuring that the Planning Permission that had been secured some years previously was acted on immediately and that Capital Allowances were not lost.”
In his evidence, however, Mr. Smyth sought to resile from that position and stated that 20th October, 2005, became a “rolling date”. This was disputed by the defendants. It is quite clear from the evidence that apart from the one extension in writing of the completion date to 20th October, 2005, it was never extended in writing beyond that or by agreement between the parties. The contract is clear in its terms as to the closing date and the method whereby it could be extended. Under the “Parol Evidence Rule”, oral testimony cannot be received to contradict, vary, add to or subtract from the terms of a written contract or the terms on which the parties have deliberately agreed to record any part of their contract. In Analog Devices B.V.. v. Zurich Insurance Co. [2002] 1 IR 272, Fennelly J., giving the judgment of the Supreme Court, stated at p. 294:
“Insofar as Irish law is concerned, a contract is to be interpreted objectively in accordance with the meaning of the words the parties have used. The corollary is that parol evidence is not admissible so as to add to or vary that meaning.”
Common law adopts a strict approach in relation to times specified in a contract; time is always of the essence of the contract. But a different set of rules evolved in Equity, where time was not of the essence of the contract, except in certain cases. In Hynes Ltd. v. Independent Newspapers Ltd. [1980] I.R. 204, Kenny J., for the majority in the Supreme Court, stated at p. 219:
“When is time of the essence of the contract? There have been such a number of cases (both Irish and English) on this matter that I do not intend to review them because the law is, I believe, correctly stated in a text-book of high authority in a passage which has been judicially approved on a number of occasions. The passage appears at p. 502 of the 6th edition of Fry on Specific Performance:
‘Time is originally of the essence of the contract, in the view of a Court of Equity, whenever it appears to have been part of the real intention of the parties that it should be so, and not to have been inserted as a merely formal part of the contract. As this intention may either be separately expressed, or may be implied from the nature or structure of the contract, it follows that time may be originally of the essence of a contract, as to any one or more of its terms, either by virtue of an express condition in the contract itself making it so, or by reason of its being implied’.”
Contracts for the sale of shares are a contract in which time is generally considered of the essence because shares vary in price from day to day. In Hare v. Nicoll [1966] 2 Q.B. 130, the Court of Appeal considered whether or not time was of the essence in a contract which provided an option for the purchase of shares. The Court of Appeal held that time was of the essence due to the commercial nature of the contract. Winn L.J. stated at p. 147:-
“In my judgment, where there is a provision for the purchase of shares upon payment by a stated date, it is to be presumed, in the absence of any contrary indication that the parties to such a contract have impliedly stipulated and mutually intend that the time of payment shall be of the essence of the contract.”
76. The Redfern Agreement is not a contract for the sale of shares, but it is a contract which required, inter alia, a share transfer agreement to be executed. I have already indicated what Mr. Noel Smyth said in his witness statement about time being “critical”. When the Agreement was signed, the parties knew that the planning permission for the redevelopment of The Square, which had been obtained in February 2001, was due to expire in February 2006. This, of itself, would suggest that time was of importance to the parties.
Rescission
77. In Chitty on Contracts, 29th ed. Para. 22-028, the author states:
“A rescission of the contract will also be implied where the parties have effected such an alteration of its terms as to substitute a new contract in its place. The question whether a rescission has been effected is frequently one of considerable difficulty, for it is necessary to distinguish a rescission of the contract from a variation which merely qualifies the existing rights and obligations. If a rescission is effected the contract is extinguished; if only a variation, it continues to exist in an altered form. The decision on this point will depend on the intention of the parties to be gathered from an examination of the terms of the subsequent agreement and from all the surrounding circumstances. Rescission will be presumed when the parties enter into a new agreement which is entirely inconsistent with the old, or, if not entirely inconsistent with it, inconsistent with it to an extent that goes to the very root of it.”
An oral agreement is sufficient to effect its discharge. In Morris v. Baron & Co. [1918] A.C. 1, the House of Lords held that a subsequent oral agreement was sufficient to discharge an original agreement, even where the subsequent oral agreement was itself unenforceable for want of writing. In British & Benningtons Ltd. v. Northwestern Cachar [1923] A.C. 48, the House of Lords adopted the decision in Morris v. Baron & Company. Lord Atkinson, in his speech, said at p. 62:
“A written contact may be rescinded by parol either expressly or by the parties entering into a parol contract entirely inconsistent with the written one, or, if not entirely inconsistent with it, inconsistent with it to an extent that goes to the very root of it.”
This issue was considered by Budd J. in Marchioness of Headfort v. Ronald Arthur Nall Baron Brocket [1966] I.R. 227. He held that a new agreement impliedly rescinded the original agreement contained in Heads of Settlement as being inconsistent with it. If consideration was needed to support the implied agreement to rescind, it was to be found in the mutual implied promises to rescind.
78. Mr. Noel Smyth conceded in evidence that the Phil Flynn Agreement signed by the parties in August 2006 was a legally binding agreement. The first and second named defendants gave the same evidence. It was an entirely different contract to the Redfern Agreement. It is clear, however, that that contract was not performed but that does not appear to be relevant on the authorities which have been opened to me. Evidence was also given of other agreements subsequent to the Redfern Agreement which were of similar effect to the Phil Flynn Agreement. One of these was referred to in an email of 30th January, 2006, from Mr. Derek Brady to Mr. Coleman Birmingham of Noel Smyth & Partners after a meeting between Mr. Noel Smyth and the second named defendant where he stated, inter alia:
“They shook hands on that basis. Deal done. Close Tuesday next.”
Repudiation by conduct/breach of contract
79. In paragraphs 44-66 of this judgment, I have referred to the conduct of various parties after the signing of the Redfern Agreement which might have a bearing on the outcome of this case. The defendants contend that the conduct of Mr. Noel Smyth and other agents of Redfern or Alburn amounted to a breach of the Redfern Agreement and a repudiation of it. Mr. Noel Smyth, on the one hand, and the first and second named defendants, on the other hand, made separate bids for the “Quinlan units” in The Square and it is contended by the defendants that this amounted to a repudiation of the Agreement. Furthermore, Mr. Noel Smyth purchased the Quinlan units at a yield which was less than 3.9%, as specified in the Redfern Agreement, and involved additional cost to Alburn over and above what had been agreed. The defendants entered into the Aifca Agreement and the Tafica Agreement which is a breach of the Redfern Agreement if it subsisted at the time. Both Mr. Noel Smyth, on behalf of Alburn/Redfern, on the one hand, and the first and second named defendants, on the other hand, failed to comply with their good faith obligations under the Redfern Agreement.
80. Where there is repudiation by breach of contract, the innocent party must elect to treat the contract as continuing or at an end. It is clear from the evidence that the first and second named defendants were of the view that they were discharged from the contract and they appear to have based this opinion largely on the fact that the completion date had expired and there had been other negotiations such as the Phil Flynn Agreement. But the first and second named defendants allowed their solicitors to write to the solicitors for the plaintiff, making it clear that they were aware of their obligations under the Redfern Agreement. Indeed, they sought an indemnity from the third named defendant in respect of any breach of the Redfern Agreement arising out of the Aifca Agreement. Some of the actions alleged to constitute repudiation were known to the other parties and some were not. For example, the first and second named defendants were not aware that Mr. Noel Smyth was negotiating with BOSI to buy out their interest. Nor were they aware that Mr. Derek Brady had been writing to SDCC to inform them that Alburn would not be proceeding with Phase III of the development. Neither Mr. Noel Smyth nor the plaintiff were aware that the first and second named defendants were negotiating with Liam Carroll. I will deal, in my conclusions, with the question of whether these actions brought the RedfernAgreement to an end.
Frustration
81. “A contract may be discharged on the ground of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfil the contract or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract.”
See Chitty on Contracts, 29th ed., para. 23-001.
82. In National Carriers Ltd. v. Panalpina (Northern) Ltd. [1981] AC 675, Lord Simon, in the House of Lords decision, stated at p. 700 of his speech:
“Frustration of a contract takes place where there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.”
83. In J. Lauritzen A.S. v. Wijsmuller B.V. (The Super Servant Two) [1990] 1 Lloyd’s Rep. 1, Bingam L.J. set out five propositions which describe the essence of the doctrine. These propositions are summarised at para. 23.007 of Chitty on Contract, 29th edition, as follows:
(i) The doctrine of frustration has evolved “to mitigate the rigour of the common law’s insistence on literal performance of absolute promises” and that its object was ”to give effect to the demands of justice, to achieve a just and reasonable result, to do what is reasonable and fair, as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances”.
(ii) Frustration operates to “kill the contract and discharge the parties from further liability under it” and therefore it cannot be “lightly invoked” but must be kept within “very narrow limits and ought not to be extended”.
(iii) Frustration brings the contract to an end “forthwith, without more and automatically”.
(iv) “The essence of frustration is that it should not be due to the act or election of the party seeking to rely on it” and it must be some “outside event or extraneous change of situation”.
(v) A frustrating event must take place “without blame or fault on the side of the party seeking to rely on it”.
84. The defendants contend that the following matters had the effect of frustrating the Redfern Agreement:
(a) The necessity to purchase the UCI cinema licence in order to proceed with the redevelopment of The Square, pursuant to the Redfern Agreement, in circumstances where the first and second named defendants did not know about this at the time they entered into the Agreement. The Redfern Agreement was drafted by Noel Smyth & Partners and it was suggested, in the course of the evidence, that Mr. Noel Smyth knew or ought to have known about the UCI licence because it was referred to in the SML Agreement of 31st July, 2003. Alburn was a party to that Agreement in which SML, in consideration of a non-refundable payment of €1 million, agreed, at the request of the developer and subject to the terms of the Agreement, to extinguish its licence in the licensed area. Clause 3.1.5 provided, inter alia, that the extinguishment would be subject to the right or entitlement (if any) of a number of named parties, including UCI Cinemas. But for whatever reason, it was not adverted to by Mr. Smyth or the solicitors acting on behalf of Alburn/Redfern, and the first and second named defendants knew nothing about it. The fact that €52 million was paid for the cinemas and the licence clearly establishes that this was a very significant burden to be assumed.
(b) Alburn acquired Carstan Ltd., the owner of the UCI licence, without the consent of the first or second named defendants.
(c) The s. 183 resolution passed by the members of SDCC, in February 2006, contained a clause (clause 34) prohibiting the first and second named defendants becoming directors of Alburn which they claim made the Redfern Agreement incapable of implementation. Clause 34 reads as follows:-
“That for the avoidance of doubt, this transaction shall take place between South Dublin County Council, on the one hand, and Alburn on the other hand i.e. the present directors of Alburn as at 3rd February, 2006. Alburn shall take the Agreement for Lease and perform on the financial and other terms of the agreement until such time as the agreement is terminated.”
At that time, SDCC was unaware of the Redfern Agreement. It first received it on the cover of a letter of 30th May, 2006. Mr. Eoghan Clear said that SDCC was concerned about the involvement of the first and second named defendants in Alburn and I accept his evidence.
(d) The Anglo Irish Bank facilities of 7th February, 2007, (together with the side letter) were provided to Alburn strictly on the basis that the first and second named defendants were not participating in the development. Mr. Eoghan Clear, solicitor for SDCC, said that a fully binding, unconditional and irrevocable commitment letter from a financial institution was a condition precedent to the completion of the s. 183 agreement. I accept this evidence. In my conclusions to follow I will consider the implications of these matters.
85. The shares in Lowe Taverns Tallaght Ltd. were charged in favour of BOSI when Aifca Ltd. borrowed the money to purchase Lowe Taverns Tallaght Limited. This meant that until the loan was paid off, Aifca could not transfer the shares to Alburn and it could not thereby acquire the licence under the Redfern Agreement. The Agreement provided for the first and second named defendants to dispose of the entire issued share capital in Lowe to Alburn, free of encumbrances. In fact, the first and second named defendants did not own the share capital in Lowe, and while it might be argued that they could procure that Aifca would dispose of the entire issued share capital in Lowe to Alburn, free of encumbrances, this could only have been done if the debt to BOSI was discharged and the bank’s consent to the transfer was obtained.
86. In order to decide this case, I do not have to decide whether or not the transfer of shares from Aifca to Alburn amounted to an unlawful distribution. I believe I can reach my conclusions on the central issues that arise in this case on the basis of the facts set out above. On the question of damages, the plaintiff claims general damages for breach of contract and also punitive and/or exemplary damages. These issues become relevant if the plaintiff succeeds in establishing breach of contract against the first, second and fifth named defendants, and the procurement of a breach of contract by the third and fourth named defendants.
Conclusions
87. I am satisfied that in entering into the Redfern Agreement the parties intended to enter into legal relations. The Agreement, as executed, contains some fundamental errors of fact and omits to deal with certain issues that were necessary to carry it into effect. I refer to the recital to the effect that “the Partnership are the sole beneficial and legal owners of the entire issued share capital of Lowe, free from encumbrances”. This is incorrect. The share capital was owned by Aifca Ltd., a limited liability company, with a separate legal identity from the Partnership. The Agreement was drafted by Noel Smyth & Partners on behalf of the plaintiff and it seems to me that they must bear the consequences of this fundamental error. The legal consequences of incorporating a limited liability company are that the company assumes a separate legal identity as distinct from its owners. This is not a fiction. The rule in Salomon v. Salomon & Co. [1897] AC 22 is still the law in this jurisdiction. The Company and its shareholders are separate legal entities. (See Allied Irish Coal Supplies Ltd. v. Powell Duffryn International Fuels Ltd. [1998] 2 IR 519).
In Fyffes plc .v DCC plc. [2009] 4 IR 417 Laffoy J. at p. 488 quoted with approval the following passage from the third edition of Keane, Company Law, at para. 11.64:
“In certain cases, where no actual misuse of the privilege of incorporation is involved, the courts may nonetheless infer the existence of an agency or trust if to do otherwise would lead to injustice or facilitate the avoidance of a tax liability”.
The plaintiff could make an arguable case that the court could infer the existence of an agency or trust in this case so as to impose on the first and second named defendants (“the Partnership”) a duty to procure that Aifca Ltd. transfers the shares to Alburn. But even if that were so, it seems to me that there are other problems of a fundamental nature affecting the enforceability of the contract. I am satisfied that the conduct of the parties after the execution of the Redfern Agreement, and in particular, the fact that the parties executed what they considered to be a legally binding agreement in August 2006, namely, the Phil Flynn Agreement, had the effect of rescinding the Redfern Agreement, notwithstanding the contents of correspondence from the solicitors for the first and second named defendants, thereafter, suggesting that they were aware of their obligations under the Redfern Agreement.
88. I hold that in setting a completion date and the manner whereby it could be extended, and having regard to the surrounding circumstances, the parties made time of the essence. The Agreement was made in the context of clear understanding that time was critical in order to ensure that the redevelopment of The Square could commence as soon as possible and that negotiations could proceed with SDCC to acquire the freehold. The parties were aware that the original planning permission was about to expire and that they would have to get on site quickly in order not to lose capital allowances. The parties complied with the terms of the contract by extending the completion date in writing, on one occasion, up to 20th October, 2005, but did not do so thereafter. In my view, that rendered the Agreement unenforceable as it had lapsed. On 10th October, 2005, Mr. Derek Brady wrote to the Deputy County Manager of SDCC informing him that Alburn would not be proceeding with Phase III of the development which indicated a desire to unilaterally terminate the Redfern Agreement, and was contrary to the provisions of the Agreement because it was done without consultation with the first or second named defendants.
89. I hold that the attempt by Mr. Noel Smyth/Alburn to buy out the BOSI loan to the first and second named defendants in July 2006, without them knowing it, was in breach of the Redfern Agreement and a repudiation of it. Similarly, the separate bids by Mr. Noel Smyth or one of his companies, on the one hand, and the first and second named defendants, on the other hand, to buy out the other units in The Square known as the “Quinlan units”, separately, amounted to a repudiation of the Agreement. Furthermore, the purchase of the units by Mr. Noel Smyth at a yield which was less than 3.9% as specified in the Redfern Agreement amounted to a breach.
90. I hold that the conduct of the first and second named defendants in negotiating with the third named defendant, without the knowledge of the plaintiff or Mr. Noel Smyth or Alburn, was in breach of the good faith provisions of the Redfern Agreement. At the time when they transferred 50.1% of Aifca (the owners of the Lowe licence) to the third named defendant in September 2006, the Redfern Agreement was already repudiated and had been rescinded by the Phil Flynn Agreement. But I am satisfied they were negotiating with both Noel Smyth and Liam Carroll up until June or July 2006, when the Phil Flynn Agreement was signed, and that shortly thereafter, they reopened negotiations with Mr. Carroll which culminated in the Aifca Agreement. By that time, there had been conduct on the part of the first and second named defendants, on the one hand, and Mr. Noel Smyth on behalf of Alburn/Redfern, on the other hand, which could only be described as a breach of the good faith obligations on their respective parts under the Agreement. By then, the Redfern Agreement was “. . . more honoured in the breach than the observance”, and in August 2006, the signing of the Phil Flynn Agreement had the effect of rescinding the Redfern Agreement. It is my view that none of the parties to this action emerges with much credit for the manner in which they conducted their business dealings with each other.
91. A number of matters took place after the contract which had the effect of frustrating it. I do not include in this list the inability of the first and second named defendants and/or Aifca to procure the release of the shares in Lowe Taverns Tallaght Ltd. to Alburn on account of their inability to repay the BOSI loan. This cannot amount to frustration because it does not arise without the default of the first and second named defendants. But I hold that there were a number of matters that do give rise to frustration of the RedfernAgreement and they are as follows:-
(i) The necessity to purchase the UCI Cinema licence was not adverted to in the Agreement by either party, and yet the purchase of that licence was necessary to give effect to the Agreement. It also involved the expenditure of a considerable sum of money which would have imposed a significant burden on the parties to the Agreement. This meets the criterion of a supervening event without the default of either party and for which the contract made no sufficient provision and which significantly changed the nature of the contractual rights and obligations of the parties which could reasonably have been contemplated at the time of the execution of the Agreement. I hold, therefore, that the Redfern Agreement was frustrated by the necessity to purchase the UCI licence. Furthermore, the acquisition of Carston Ltd., the owner of the licence, by Alburn, without the consent of the first and second named defendants, was, in itself, a breach of the good faith provisions of the RedfernAgreement.
(ii) Clause 34 of the s. 183 resolution passed by the members of SDCC contained a clause prohibiting the first and second named defendants from becoming directors of Alburn which made the Redfern Agreement incapable of implementation.
(iii) The provision of finance for the project was of critical importance to SDCC and the evidence established that the facilities of 7th February, 2007, offered by Anglo Irish Bank Corporation to Alburn, were provided strictly on the basis that the first and second named defendants would not be participating in the development. This meant that the Redfern Agreement could not have proceeded unless finance was organised elsewhere. There was no evidence of such other finance. Indeed, I was not impressed by the wilful concealment, on the part of Mr. Noel Smyth, of the conditions attached by Anglo to the provision of such funds, when he was corresponding with SDCC and its legal advisor, Mr. Clear.
92. For the reasons I have outlined above, I am satisfied that the Redfern Agreement is unenforceable.
93. So far as the third and fourth named defendants are concerned, I hold that the initial approach made to the third named defendant for assistance in bailing out the first and second named defendants in respect of their obligations to BOSI came from the first named defendant, Mr. Larry O’Mahony. I am also satisfied that the third named defendant was a willing participant in the proposal to obtain alternative finance to discharge the BOSI debt because he knew that he could use the Aifca Agreement as a vehicle to supplant Mr. Noel Smyth or his companies in the redevelopment of The Square or, alternatively, he could thereby frustrate the plans of Mr. Smyth or his companies to carry out the redevelopment. His motives in becoming involved were self-serving and the elaborate steps which he took to ensure that his involvement was kept secret from Mr. Noel Smyth lends credence to this. Having said that, he can only be liable if, at the time he became involved, the Redfern Agreement was still subsisting. I am satisfied that, at the time the Aifca Agreement was concluded on 19th September, 2006, the Redfern Agreement was no longer subsisting, notwithstanding the correspondence which had passed between the solicitors for the first and second named defendants and the plaintiff/Alburn/Mr. Noel Smyth or their legal advisors, and notwithstanding the indemnity sought by the first and second named defendants from the third named defendant.
94. The plaintiff has failed to establish a breach of contract or the procurement of a breach of contract. In the circumstances, I do not need to consider the issue of damages.
96. I dismiss the action.
Jodifern Ltd. v. Fitzgerald
[1999] IESC 88; [2000] 3 IR 321 (21st December, 1999)
[Judgments by Keane J., Barron J. and Murray J.; Hamilton C.J. and Murphy J. agreed]
Judgment delivered the 21st day of December, 1999, by Keane, J.
1. These proceedings were commenced by plenary summons on the 16th March of this year. The statement of claim contained the following averment at paragraph 3:-
“By two agreements in writing made in or around the month of November between the plaintiff through his agent, Thomas Coughlan, of the one part and the defendants of the other part, the defendants agreed to sell and the plaintiff agreed to purchase ALL THAT part of the lands comprised in Folio 10845 of the Registrar of Freeholders County of Cork comprising approximately 111 acres or thereabouts and as therein identified for the total price or sum of £2,000,000.”
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2. Paragraph 4 contained an averment that the plaintiff had at all times been ready, willing and able to perform the agreement on its part but that the defendants had failed, refused and neglected to perform the agreement and had purported to return to the plaintiff the deposit which it had paid. The relief claimed included specific performance of the agreement and damages in addition to or in lieu of specific performance.
3. On the 24th May, the defendants applied by notice of motion to the High Court for an order striking out the plenary summons and statement of claim on the grounds that they disclosed no reasonable cause of action against the defendants and/or that any cause of action thereby disclosed was frivolous or vexatious and in the alternative an order pursuant to the inherent jurisdiction of the High Court striking out the plaintiffs action on the ground that it was clearly unsustainable, bound to fail and frivolous and/or vexatious. In a reserved judgment dated the 28th July 1999, McCracken J. acceded to the defendants’ application and ordered the proceedings to be struck out. From that judgment and order, the plaintiff now appeal to this court.
4. The facts, to the extent that they are not in dispute at this stage, or would not be in dispute if the action was allowed to proceed, are as follows. Two agreements in writing dated the 1st December 1998 for the sale of the lands referred to in paragraph 3 of the statement of claim for the sum of £2,000,000 were executed by the respective solicitors for Thomas Coughlan, described in the statement of claim as the agent of the plaintiff, and the defendants. It is not in dispute that these are the agreements referred to in paragraph 3 of the Statement of Claim and that they were executed with the authority of Thomas Coughlan and the defendants. The agreements were in the standard form approved by the Incorporated Law
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5. Society and provided for a total deposit of £200,000. While no deposit was paid at the time, the defendants’ solicitor was sent a cheque on the 20th January 1999 in the sum of £150,000 as a deposit.
6. Following the execution of the two agreements of December 1st 1998, there was correspondence between the solicitors for the plaintiff and the defendants on certain features of the transaction. These related to:
(a) the date on which the sale was to be completed;
(b) an arrangement under which the defendants were to remain on in possession of the lands not immediately required by the plaintiff under a caretaker’s agreement;
(c) the consent of the defendants to the plaintiff lodging an application for planning permission in relation to the development of the lands;
(e) the granting of a wayleave to Bord Gais Eireann across the lands;
(f) assurances which the defendants required that the plaintiff would be in a position to complete the sale.
7. All of the letters forming part of this correspondence and emanating from the defendants’ solicitor were headed:- “SUBJECT TO CONTRACT-CONTRACT DENIED.” On the 4th March, 1999 the defendants’ solicitor wrote to the plaintiffs solicitor as follows:-
“Further to previous correspondence herein we wish to confirm that our clients have decided not to proceed with the proposed transaction and we
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return herewith your firm’s client account cheque dated 20th January 1999 for £150,000.
Shortly thereafter, the present proceedings were issued.
The two agreements in writing dated the 1st December 1998 were sent by the defendants’ solicitor to the plaintiffs solicitor together with the following letter dated 30th November 1998:-
SUBJECT TO CONTRACT/CONTRACT DENIED
Re: Our client: Patrick G. Fitzgerald, Junior
Your client: Mr. Thomas Coughlan, BE (In trust)
Property: circa 111 Acres at Ballinviskrig, Whte ‘s Cross
Dear Ray,
I refer to my telephone discussion with you and I now enclose herewith two contracts splitting the development land from the remainder of the property. I confirm that these are pro-forma contracts which, although signed by the parties, will not come into effect until both you and I agree that that should be the case. It may well be that some alterations may be negotiated to the contracts before the matter is finalised.
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As you are aware it is important that the contracts be signed and dated before tomorrow I will therefore need to get the contracts back from you, duly signed by lunch time tomorrow, to facilitate the execution thereof by my client.
If you have any queries please do not hesitate to contact me.
Yours sincerely
There is a note in the handwriting of the plaintiffs solicitor on the letter to the following effect:-
“Signed per client’s instructions today 1st December 1998 – deposits will follow once agreement is to hand.”
8. It is also not in dispute that, at the time that letter was written and the two agreements were signed, there was speculation that the rate in respect of capital gains tax might be increased in the imminent budget from 20% to 40%. The defendants, or their advisers, wished to be in a position to satisfy the Revenue Commissioners, if a question arose as to the higher rate being payable, that contracts for the sale of the land had been entered into prior to the date of the budget.
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9. The case, accordingly, which the plaintiff wishes to make is that a concluded agreement had been reached on the 1st December 1998 for the sale of the lands at the price of £2,000,000 and that the agreements in writing of that date constitute a note or memorandum in writing signed by the party to be charged therewith sufficient to satisfy the requirements of s.2 of the Irish Statute of Frauds.
10. In his judgment the learned High Court judge reviewed in some detail the correspondence subsequent to the execution of those two contracts and the letter of March 4th returning the cheque for £150,000. He concluded that the defendants had at all times insisted that there must be certainty as to the availability of funds to the plaintiff and had at all times maintained that they were not satisfied as to the relevant assurances and that for that reason alone, there was not a completed agreement between the parties. He also rejected the plaintiffs claim that the agreements of 1st December remained the basic agreement and said that the letters written on behalf of the plaintiffs solicitors quite clearly envisaged a future contract and were also headed “SUBJECT TO CONTRACT/CONTRACT DENIED”. In addition, he concluded that, since those agreements were sent by the defendants’ solicitor on the express condition that they would only come into force when both solicitors agreed that that should be the case and were never mentioned by the solicitors again, they had quite clearly never agreed that they should come into force.
11. For these reasons, the learned High Court judge held that there was no concluded agreement between the parties. He also held that, even if there were such a concluded agreement, the continued use on every letter written by the defendant’s solicitors of the words
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“SUBJECT TO CONTRACT/CONTRACT DENIED” coupled with an express denial of any authority to conclude an agreement in a letter of 1st March 1999, meant that the plaintiffs case could not possibly succeed, having regard to the decision of the High Court in Mulhall v. Haren [1981] IR 364 and of this court in Boyle v. Lee [1992] 1 IR 555 .
The principles of law applicable are not in dispute. It could not be seriously contended that the statement of claim itself disclosed no reasonable cause of action or one that was frivolous or vexatious. The case made on behalf of the defendants and accepted by the learned High Court Judge was that the proceedings should be struck out in the exercise of the inherent jurisdiction of the High Court to take that course where it is clear that the plaintiffs claim must fail. As was pointed out by McCarthy J. in this court in Sun Fat Chan v Osseous Limited (1992) 1 IR 425, such a jurisdiction undoubtedly exists and is peculiarly appropriate to actions for the enforcement of contracts, since in such cases it may well be that the action may inhibit or preclude the party sued from entering into a new contract in respect of the same subject matter. He also observed, however, that, generally, the High Court should be slow to entertain an application of this nature, since though the facts at first sight may appear clear, a different picture may emerge at the trial. In this case, the defendants say that the correspondence exhibited with the affidavits grounding the application make it clear that the plaintiffs case must fail and that, accordingly, the High Court was correct in striking out the proceedings.
The correspondence subsequent to the two agreements for sale could undoubtedly be regarded as somewhat inconclusive in some respects. The plaintiffs solicitor had not satisfied the defendants’ solicitors at the time the correspondence was broken off that the
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plaintiff would be in a position to produce the funds on the closing of the sale. The granting of the wayleave to Bord Gais Eireann did not appear to present a problem and the parties did not appear to envisage any difficulty in reaching agreement as to the other matters, i.e. the plaintiffs applying for planning permission, the defendants’ remaining on in possession of the lands not immediately required by the plaintiff under a caretakers’ agreement and a date being fixed for completion. It is, however, undoubtedly the case that the letters on both sides referred frequently to the execution of a further agreement and that, on the defendants’ side, they were invariably headed “SUBJECT TO CONTRACT – CONTRACT DENIED”. The correspondence before the defendants withdrew, moreover, concluded with a letter dated March 1st in which their solicitors said:-
“We confirm that we have no authority to bind our clients until such time as contracts are exchanged and signed by both parties.”
12. Counsel on behalf of the plaintiff, however, rest their claim on the two agreements in writing dated the 1st December 1998 which were admittedly executed by the solicitor for the defendants with the authority of his clients. The case they make is quite straightforward: they say that the defendants cannot have it both ways. When the action comes to trial, unless they are prepared to assert that the two agreements in question were executed with a view to perpetrating a fraud on the revenue should the rate of capital gains tax have been increased after they were executed, the court would be coerced into finding that they were what they
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purported to be, i.e. concluded agreements for the sale of the lands at the price stated. Since neither document was headed with the fatal rubric, “subject to contract”, the principles laid down by this court in Boyle v Lee would not apply and the two documents would constitute a note or memorandum sufficient to satisfy the requirements of the Statute of Frauds. The subsequent correspondence undoubtedly envisaged that, to provide for matters which were relatively peripheral, a further agreement would be executed, but that did not in any way negative the existence of a concluded agreement for the sale of the land the essential terms of which were set out in the two contracts. That the parties were ad idem as to all the essential terms of the contract is, they say, made clear by the fact that a deposit of £150,000 was paid by the plaintiff and the cheque not returned until sometime later. As to the letter accompanying the two agreements from the defendants’ solicitor, in which he said that the agreements were not to come into effect until both solicitors had agreed that that should happen, the plaintiff again says that, unless the defendants are asserting that they were perpetrating a fraud on the revenue, that letter was not, and could not be, intended to negate the existence of a concluded agreement.
13. Both that letter and the subsequent correspondence between the solicitors could be construed as negating the existence of a concluded contract. To the extent that it could be said that the two agreements failed to include all the material terms, it could be said that no sufficient note or memorandum existed for the purposes of the Statute of Frauds, since all the relevant letters were headed “SUBJECT TO CONTRACT – CONTRACT DENIED”.
14. Support for the plaintiffs case, can, however, be found in the following well known passage from the judgment of Lord Blackburn in Rossiter v Millar (3 App.Cas.11249 at p.1151));
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“But the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself show that they continue merely in negotiation. It is a matter to be taken into account in construing the evidence and determining whether the parties have really come to a final agreement or not. But as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed.”
15. That passage was approved of by Kenny J. in Law and Another v Robert Roberts and Company (1964) IR 292 in a judgment which was subsequently unanimously upheld by this court.
16. In such a case, provided a document exists which is capable of constituting a note or memorandum sufficient to satisfy the Statute of Frauds and which does not contain the words subject to contract”, the principles laid down by this court in Boyle v Lee do not apply, as was made clear by the judgment of O’Flaherty J. in the latter case.
17. That case may or may not succeed, if the action is allowed to proceed to trial. But to say that it is a case which cannot possibly succeed or that it is a frivolous or vexatious claim and an abuse of the process of the court seems to me to be an unsustainable proposition.
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18. Mr Gordon S.C. on behalf of the defendants sought to rely on what he said was the inconsistent approach of the plaintiff as to what precisely the documents were on which it was sought to rely as constituting both the evidence of a concluded contract and a note or memorandum sufficient to satisfy the Statute of Frauds. The affidavits sworn on behalf of the plaintiff by its solicitor, may, as Mr Gordon urged, reflect some uncertainty as to the legal basis of the plaintiffs claim. The fact remains that as pleaded in the statement of claim and as reflected in both the oral and written submission to this court – and it would appear in the High Court – it rests unequivocally on the two agreements for sale dated the 1st December 1998 and not on subsequent correspondence protected as it is by the use of the formula “SUBJECT TO CONTRACT – CONTRACT DENIED”.
19. I would allow the appeal and substitute for the Order of the High Court an Order dismissing the defendants’ application.
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Hamilton C.J.
Keane J.
Murphy J.
Barron J.
Murray J.
188/99
THE SUPREME COURT
JODIFERN LIMITED
Plaintiff
V.
PATRICK G. FITZGERALD AND MARGARET FITZGERALD
Defendants
JUDGMENT delivered on the 21st day of December, 1999 by BARRON J.
This is an appeal from an order of the High Court (McCracken J.) that the proceedings be struck out. This order was made pursuant to an
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application by the defendants for such an order essentially upon two grounds: (1) that the claim disclosed no reasonable cause of action; or (2) that the proceedings were an abuse of the process of the Court.
20. In reality the application proceeded upon the latter basis, the defendants relying upon the inherent jurisdiction of the Court to strike out proceedings upon that ground.
21. Although the plaintiff is a limited company, the negotiations to purchase the lands were carried out by Thomas Coughlan who for convenience I shall refer to as the plaintiff.
22. The relevant facts are as follows. The plaintiff approached the defendants to purchase their farm probably some time in June 1998. In any event, each consulted their respective solicitors and correspondence ensued in the course of which various terms were agreed. This
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correspondence was headed on each side “Subject to contract/contract denied” .
23. On 30th November, 1998, the solicitor for the defendants furnished the solicitor for the plaintiff with two contracts for sale for execution. The letter accompanying them was also headed “Subject to contract/contract denied” and its terms were as follows:
“Dear Ray
I refer to my telephone discussion with you and I now enclose herewith two Contracts splitting the Development Land from the remainder of the property.
I confirm that these are Pro-forma Contracts which, although signed by the parties, will not come into effect until both you and l agree that that should be the case. It may well be that some alterations may be negotiated to the Contracts before the matter is finalised.
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As you are aware it is important that the Contracts be signed and dated before tomorrow. I will therefore need to get the Contracts back from you, duly signed by lunchtime tomorrow to facilitate the execution thereof by my Client.
If you have any queries please do not hesitate to contact me.
Yours sincerely
The reason for the urgency was the Budget being opened in the Dáil on the following day, it was rumoured that Capital Gains Tax would be increased from 20 per cent to 40 per cent. It is also clear from the letter that it was by no means certain in the mind of the writer that any further terms would need to be agreed between the parties.
The contracts were in the names of the defendants as vendors and in the name of the plaintiff (in trust) as purchaser. Each contract was
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executed on behalf of the plaintiff by his solicitor who returned the documents on the 1st December, 1998 with the following cover note:
“Frank, signed per client’s instructions today 1st December, ‘98 – deposits will follow once agreement is to hand. Sincerely”
24. On receipt the contracts were executed by the solicitor for the defendants.
25. Notwithstanding these executed contracts, the next letter was sent by the solicitor for the plaintiff and was headed “Subject to contract/contract denied”. In this letter, he dealt with several matters. They were: the legal basis upon which the vendors might remain on in possession, presumably after the sale was closed; the basis upon which the deposit would be paid; a closing date and the right of the purchaser to apply for
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planning permission before that date; and provision of funds, if the vendors found an alternative farm.
26. Further correspondence continued. A deposit of £150,000 was sent by the plaintiffs solicitors on the 20th January, 1999. The letter sending on this cheque indicated that the payment was made subject to incorporation in the contracts for sale of the matters more particularly set out in his letter of the 18th December, 1998.
27. On the 29th January, 1999 evidence of financial standing was supplied. On the 4th March, 1999 the defendants’ solicitor indicated that his clients were no longer prepared to proceed with the transaction and returned the cheque for the deposit which had not been lodged.
28. The substantial question to be determined on the motion was whether the Court, if it had allowed the proceedings to continue would be condoning an abuse of process. This in turn requires that the basis upon
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which the plaintiff claims to be entitled to succeed in the action should be identified, and clarity that such basis is insufficient in law. In no sense should there be any trial.
29. In a claim for specific performance, a plaintiff must establish the making of an enforceable concluded agreement. Where the agreement is a verbal one, the plaintiff must establish not only the concluded agreement but also the existence of a note or memorandum of that agreement signed by the defendant or his agent.
30. Clearly, if the agreement is in writing, it depends upon a construction of its terms whether they amount to a contract. When the terms have been reached orally and there is a reference to a written contract, it is also a matter of construction whether such reference is the expression of a wish that what has been agreed should be embodied in a formal document or that there should be no concluded contract until the
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terms had been embodied in a formal contract, executed by both parties and then exchanged.
31. The question of the sufficiency of a memorandum in writing arises whenever the evidence shows that the parties reached a concluded oral agreement. If a party or his agent wishes to negotiate in correspondence, but does not at the same time wish to enter into an enforceable contract, this can be avoided by heading the letter or, if appropriate, any other form of writing with the form of words which says and can be understood to mean “there is not as yet any concluded agreement”. The expression which has legal sanction and which is normally used is “subject to con tract” .
32. It is important to realise that this expression has such a meaning when placed at the head of the letter or other writing so as to govern the entire. If not so contained, but contained in the body of the document it is
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a matter of construction of the writing as a whole whether it is intended to deny the existence of a concluded agreement.
33. The relevance of this arises solely in the case of oral arrangements and merely illustrates the legal principle that there cannot be a valid note or memorandum in writing of an agreement when at the same time such note or memorandum denies that any such agreement exists.
34. In the present instance much of the correspondence was headed “Subject to contract/contract denied”. It was intended to have the same meaning as “Subject to contract” and certainly any writing so headed would not create a valid note or memorandum sufficient to satisfy the Statute of Frauds. At the same time, the duplication shows the difficulties with which competent conveyancers believe themselves to be faced having regard to cases both in England and in this jurisdiction during the middle seventies. It would be a much more satisfactory state of affairs, if
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conveyancers headed correspondence with the words “Subject to contract” only when their clients did not wish to be bound and omitted such words altogether when they did.
35. I refer to these matters because it is against these principles that the plaintiff would have had to establish his case. The plaintiff does not seek to set up a concluded oral agreement evidenced by a note or memorandum in writing thereof signed by the defendants. Accordingly, initially at any rate, the question of a note or memorandum does not arise.
36. The plaintiff seeks to rely upon the agreements executed on either the 30th of November, 1998 and 1st December, 1998 respectively or solely on the 1st December, 1998.
37. On their face, these agreements appear to be enforceable contracts. The defendants submit that these agreements do not portray the real
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relationship between the parties which they submit is that of two parties negotiating, but never concluding an agreement.
38. To support their submission, the defendants by affidavit on the part of their solicitor have referred to the correspondence both before and since the execution of the agreements. In addition the first-named defendant has sworn an affidavit as to certain facts. This has resulted in affidavits in rebuttal by the plaintiffs solicitor and by the plaintiff. The first-named defendant and his solicitor each swore a further affidavit and these in their turn brought two further affidavits, one from the plaintiff and the other from his solicitor. As a result it is hard not to regard the consideration of these affidavits and documents as a form of trial.
39. Every case depends upon its own facts. For this reason, the nature of the evidence which should be considered upon the hearing of an application to strike out a claim is not really capable of definition.
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40. One thing is clear, disputed oral evidence of fact cannot be relied upon by a defendant to succeed in such an application. Again, while documentary evidence may well be sufficient for a defendant’s purpose, it may well not be if the proper construction of the documentary evidence is disputed. If the plaintiffs claim is based upon allegations of fact which will have to be established at an oral hearing, it is hard to see how such a claim can be treated as being an abuse of the process of the Court. It can only be contested by oral evidence to show that the facts cannot possibly be true. This however would involve trial of that particular factual issue.
41. Where the plaintiffs claim is based upon a document as in the present case then clearly the document should be before the Court upon an application of this nature. If that document clearly does not establish the case being made by the plaintiff then a defendant may well succeed. On the other hand, if it does, it is hard to see how a defendant can dispute this
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prima facie construction of the document without calling evidence and having a trial of that question.
42. The instant case is in reality an example of the latter situation. Here there is prima facie a concluded written agreement. The defendants seek to deny this on the basis that correspondence both before and subsequent to the execution of the agreement shows a different intention. Again, that is something which can only be established by evidence at a trial.
43. There may well be situations in claims for specific performance in relation to contracts for the sale of land where a defendant may well succeed upon such an application. For example, the plaintiff may claim the existence of a concluded oral agreement and rely upon a particular document as being a note or memorandum sufficient to satisfy the Statute of Frauds. If, for example, that note or memorandum does not disclose
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the price, then clearly a defendant would be entitled to bring such an application to show that the plaintiff could not possibly succeed. In similar circumstances, the defendant may well allege that a material term of the oral agreement has not been included in the note or memorandum. Again, this would depend upon the nature of the term alleged. There are very many terms in relation to a contract for the sale of land which do not need to be expressed. They are all set out in Williams on Vendor and Purchaser and if not expressed are implied by law. The problem which could arise on an application to strike out a claim arises where a term which would be implied is alleged to have been agreed expressly. Again, such a situation would create a difficulty for a defendant because it would be unlikely that issues such as, was such a term agreed expressly and, if so, was it a material term requiring to be included in a note or memorandum, could be determined other than by a trial of such issues.
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44. In my view, a defendant cannot succeed in an application to strike out proceedings upon the basis that they disclose no reasonable cause of action or are an abuse of the process if the Court on the hearing of such application has to determine an issue for the purpose of deciding whether the plaintiff could possibly succeed in the action. It is not the function of the Court to determine whether the plaintiff will succeed in the action.
45. The function of the Court is to consider one question only, was it proper to institute the proceedings? This question must be answered in the light of the statement of claim and such uncontravertible evidence as the defendant may adduce. If the claim could never have succeeded, then the proceedings should be struck out. There is no room for considering what evidence should be accepted or how it should be interpreted. To do the latter is to enter on to some sort of hearing of the claim itself. The affidavits which have been filed and the judgment of the High Court reflect
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an incomplete hearing of the case. It was incomplete because the issues had not been defined by pleadings nor could they have been. It was incomplete in the sense that the witnesses gave direct evidence only. There was no cross-examination nor re-examination. Nor should there have been.
46. However, this may appear to be how the matter was approached, I am satisfied that the learned trial judge applied the correct test: whether the plaintiff could succeed rather than whether he would. It is in the manner which he applied it that I think he was wrong. It is common case that formal contracts for sale were executed. The reason for so doing is also common case. Therefore, whatever else, each party was at that
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stage, for that reason, prepared to be bound by the terms of the documents. In my view, in the light of those circumstances, it could not have been an abuse of process to have commenced the proceedings. In my view, these matters call for pleadings in the course of which issues will emerge for decision at a plenary hearing.
47. I would allow the appeal.
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THE SUPREME COURT
Hamilton, CJ
Keane, J.
Murphy, J.
Barron, J.
Murray, J.
BETWEEN
JODIFERN LIMITED
Plaintiff
AND
PATRICK G. FITZGERALD AND MARGARET FITZGERALD
Defendants
Judgment delivered the 21st day of December. 1999, by Murray J.
48. Having had the opportunity of reading the judgements delivered by Keane J. and Barron J. I agree with them and concur that the Plaintiffs appeal should be allowed. There are some aspects of this matter which I wish to address and since the facts and circumstances of the case have been comprehensively set out in those judgements, there is no need for me to recite them again.
49. The Appeal concerns the exercise of the inherent jurisdiction of the High Court to stay or strike out proceedings in order to prevent an abuse of the process of the Courts taking place. As Costello J. stated in Barry v. Buckley [1981] IR 306 “This jurisdiction should be exercised sparingly and only in clear cases;” This view was echoed by McCarthy J. in
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Sun Fat Chan v. Osseous Ltd [1992] 1 IR 425 when he expressed the view that the High Court should be slow to entertain an application of this kind and grant the relief sought.
50. The reason for such caution is self-evident. The making of an Order staying or dismissing the proceedings on the basis of such inherent jurisdiction deprives the Plaintiff of access to the Courts for a trial of his or her action.
51. The object of such an Order is not to protect a Defendant from hardship in proceedings to which he or she may have a good defence but to prevent the injustice to a Defendant which would result from an abuse of the process of the Courts by a Plaintiff. Clearly, therefore, the hearing of an application by a Defendant to the High Court to exercise its inherent jurisdiction to stay or dismiss an action cannot be of a form of summary disposal of the case either on issues of fact or substantial questions of law in substitute for the normal plenary proceedings.
52. For this reason, a primary precondition to the exercise of this jurisdiction is that all the essential facts upon which the Plaintiffs claim is based must be unequivocally identified. It is only on the basis of such undisputed facts that the Court may proceed.
53. Moreover, and this is the aspect I wish to emphasise, where all the essential facts have been so identified, it must also be manifest that on the basis of those facts the Plaintiffs case has no foundation in law. It seems to me that if on the basis of the undisputed facts there remains a substantial issue or issues of law as to whether the Plaintiff is entitled to some or any of the reliefs sought, the proceedings can hardly be said to constitute an abuse of the
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process of the Courts. It may indeed be that since the factual basis of the Plaintiffs claim has been identified that the legal issues arising are susceptible to judicial determination. For this reason it may be tempting, in the interests of economy of litigation, to do just that. However, to proceed (at least in the absence of agreement between the parties) to make a final determination of such issues in an application to stay or dismiss proceedings for abuse of the process of the Courts would deprive the Plaintiff of the due process of plenary proceedings before the Courts. It must be borne in mind that such an application is usually if not invariably to be made by the Defendant before he or she has filed a defence and always before the action is heard. McCarthy J. in Sun Fat Chan v. Osseous Ltd also pointed out that ‘Experience has shown that the trial of an action will identify a variety of circumstances perhaps not entirely contemplated at earlier stages in the proceedings, Oftentimes it may appear that the facts are clear and established but the trial itself will disclose a different picture.” I fully agree with that observation. Any such change in perception of the circumstances of the case or disclosure of a different picture could well have implications as to the application of the relevant principles of law and how the legal issues are determined.
54. Certainly, a Plaintiff faced with an application to have the proceedings stayed or dismissed in these circumstances is likely to raise, in one form or another, legal issues in response. In a case where there is in effect an abuse of the process of the Courts, it is quite possible that some at least will be clearly spurious or have no relevance to the facts of the case. Any other legal issues must be clearly discernible as being without merit and readily capable of being resolved in favour of the Defendant. It is for the Judge hearing the application, within the scope of his discretion, to determine whether any points of law raised
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can be so clearly and readily resolved in favour of the Defendant that to allow the action to proceed would constitute an abuse of the process of the Courts. Legal issues that are sufficiently substantial as to fall outside that bracket should be left to the trial of that action in those proceedings.
Prunty -v- Crowley & ors
[2016] IEHC 293 (30 May 2016)
JUDGMENT of Ms. Justice Iseult O’Malley delivered on the 30th day of May, 2016
Introduction
1. This is an appeal from an order of the Circuit Court in relation to a claim for specific performance. It turns on the status of contractual negotiations between the parties, for the sale of a property belonging to the plaintiff, and on the effect of certain steps taken in the course of those negotiations.
2. The plaintiff’s case is that the correspondence evidences a concluded contract. The doctrine of part performance is also relied upon, because of the fact that the plaintiff abandoned a claim against another individual, allegedly at the request of the first named defendant. It is also argued that the defendants are estopped from denying the existence of a contract on the basis that it would be unconscionable were they to do so.
3. The background to the case was a proposal to develop a new shopping centre in Longford town. Those involved in the project included the defendant, Mr. Crowley, who was an architect and is now deceased, and Mr. Clem Kenny, a developer. The hope at the time was that Dunnes Stores would invest a sum of around €12 million in the development. Mr. Crowley, who acted as architect and also put some of his own money into the project, is said to have had good contacts with key personnel in that firm.
4. According to the uncontradicted evidence of Mr. Kenny, Mr. Crowley’s role was to act as architect to the development on a no-foal-no-fee basis. He was also to provide the money for the deposits necessary to purchase the lands needed for the site.
5. The plan to assemble a site for the shopping centre envisaged, amongst other aspects, the acquisition of certain properties in the town including three adjacent residential properties. One of these was a house belonging to a Mr. Stokes, who was agreeable to disposing of his home but wanted a house to be built on a particular site in exchange. The site, which is outside the town and was not part of the development plan, belonged to the plaintiff. The plaintiff was agreeable to the sale of his property. He says that Mr. Kenny executed a contract with him in 2004, and he and Mr. Kenny both say that in so doing Mr. Kenny was purchasing in trust for himself and Mr. Crowley. The price agreed was €110,000 and a deposit of €11,000 was paid.
6. Mr. Kenny did not complete the purchase and the plaintiff commenced specific performance proceedings against him in the High Court in February, 2005.
7. Mr. Crowley and Mr. Kenny fell out, and the plaintiff says that he was contacted by Mr. Crowley with an offer to take over the contract. Mr. Crowley proposed, and the plaintiff agreed, that the plaintiff should serve a notice of forfeiture on Mr. Kenny and discontinue the proceedings against him. This was done (at least to the extent that the solicitor thought that he had filed a notice of discontinuance, gave notice that he had done so and did serve a notice of forfeiture), and the deposit paid by Mr. Kenny was then credited to Mr. Crowley for the purposes of the sale.
8. The balance of the purchase monies, amounting to €99,000, was subsequently transferred by Mr. Crowley’s solicitor to the plaintiff’s solicitor.
9. Meanwhile, one of the other property owners whose site was required for the proposed development decided that she did not want to sell her house.
10. Mr. Crowley’s solicitor subsequently wrote to the plaintiff denying that there was any contract. A counterclaim in these proceedings seeks the return of the money.
The evidence
The contract with Mr. Kenny
11. In late July, 2004 Mr. Mark Connellan, the plaintiff’s solicitor, received a sales advice note from a firm of auctioneers on foot of which he prepared the documentation for the sale of the plaintiff’s house. The proposed purchaser was “The Blayney Partnership”, with an address care of Keans Solicitors in Dublin. The purchase price was €110,000 and a booking deposit of €5,000 had already been paid. It was requested that the sale be closed as quickly as possible.
12. It is common case that the agreed price represented the market value of the property and was in no sense a “ransom” price.
13. On the 3rd August, 2004, Mr. Connellan wrote to Mr. Donal King at Keans, enclosing various documents relating to the property and contracts in duplicate. Mr. King responded with certain queries, in a letter headed “Subject to contract/contract denied” which contained a statement that the firm had no authority to bind its client and that the letter was sent without prejudice and strictly subject to formal exchange of contracts.
14. Correspondence continued over the next few weeks. All letters from both solicitors continued to be headed “Subject to contract/contract denied”.
15. On the 7th September, 2004, Mr. Connellan wrote a letter in which he said that unless he received a signed contract with the balance of the deposit by close of business on the following day his client would sell the property to another interested party.
16. The following day Mr. Connellan received an email from a Mr. Michael J. Blayney of the Blayney Partnership. This gentleman said that he had assured the plaintiff earlier that day that it was still proposed to acquire the property at the agreed price. He apologised for what he termed a “hiccup” and said that he hoped to sign the contract on the next day.
17. Ultimately, Keans forwarded a signed contract, dated the 23rd September, 2004, and a deposit cheque in the sum of €11,000 under cover of a letter dated the 22nd September, 2004. The letter was headed “Subject to contract/contract denied”. There was a request for a reply to the non-title queries and for one part signed contract.
18. The contract refers to the plaintiff as the vendor. The purchaser appears to have originally been described as “The Blayney Partnership” (in typewriting) but this was crossed out and the words “Clem Kenny (in trust)” were written in by hand. The document was signed “Clem Kenny (in trust)”. Mr. Connellan said in evidence that he knew who Mr. Kenny was, and that at that stage he knew why the property was being acquired.
19. The closing date was to be four weeks later.
20. Mr. Connellan replied on the 29th September, 2004, enclosing the contract as signed by the plaintiff together with the replies to the requisitions.
21. The closing date came and went. After further correspondence Mr. Connellan served a completion notice on Keans under cover of a registered letter dated the 22nd November, 2004. Clause 4 of the notice stated that if the sale was not completed, and the balance of the purchase monies plus interest paid, within twenty-eight days, the deposit would be forfeited and the vendor would either rescind the contract or re-sell the property.
22. On the 7th January, 2005, Mr. Connellan wrote to Keans observing that the completion notice had expired. He noted that Mr. Kenny had signed the contract in trust, and called for identification of the principal. This letter was described in evidence by Mr. Connellan as an attempt by him to ratchet up the pressure, in that he could not have forfeited the deposit without serving a formal forfeiture notice.
23. The letter, and follow-up correspondence, was not responded to and on the 21st February, 2005, Mr. Connellan sent a plenary summons to Keans, inquiring whether they had authority to accept service. The proceedings sought an order for specific performance against Mr. Kenny.
24. On the 7th March, 2005, Mr. Gerald Kean, the principal of Keans Solicitors, sent a fax to Mr. Connellan in which he said that his clients were proceeding to complete the purchase. He apologised for the delay and asked Mr. Connellan to send him an apportionment account. He said that he would arrange for the funds to complete the purchase without any further problems.
25. Mr. Connellan responded on the 10th March, 2005. He said that he awaited requisitions and draft deed, and that he would deal with the requisitions although not obliged to do so. If the sale was closed without further delay he would not charge a professional fee in respect of the High Court proceedings, but he insisted that court stamp duty, counsel’s drafting fee and interest on the balance of the purchase money would have to be paid.
26. There does not appear to have been a reply to this letter. On the 7th April, 2005, Mr. Connellan wrote again, consenting to the late filing of an appearance within 21 days.
27. Apart from a letter resulting in a telephone conversation between Mr. Connellan and Mr. Kean on the 5th or 6th May, and despite further letters from Mr. Connellan stating that he was still willing to complete, there was no further movement from Mr. Kenny’s side. The proceedings had still not been formally served.
28. Mr. Connellan described this situation as “mildly unsatisfactory”. However, he said that he had no doubt that the plaintiff would get his money “either the easy way or the hard way”. Mr. Connellan accepted in evidence that he was told later by Mr. Crowleythat Mr. Kenny was not good for the money. However he believed, then and now, that Mr. Kenny was a mark. He had been involved in a very successful housing development in Longford, and Mr. Connellan knew him to be a man of means. Secondly, Mr. Kenny had signed the contract in trust and if the matter went to litigation the principals would have to be disclosed and the money could come from there.
29. Mr. Kenny, who has given evidence on behalf of the plaintiff in these proceedings, agreed that the money for the deposit had come from Mr. Crowley. In negotiating with the plaintiff he was acting on behalf of himself, Frank Crowley and “whoever we deemed would be necessary” to progress the development. There was a recognition at the time that they needed another partner, and a particular individual was being considered. He said that he had no recollection now of the reason why the name “the Blayney partnership” was used, and he did not recall an individual named Blayney. There might have been a vehicle set up by Keans that was ready to use. Alternatively it might have been a shelf company used by Dunnes Stores. He had no difficulty signing the contract “in trust” for that entity. He said that he understood that Mr. Crowley to be the person ultimately responsible, as the person who had made the financial contributions pending the taking on of a new partner.
30. This, Mr. Kenny said, was not because he did not have money of his own – he said that his net asset value in 2006 was about €6.5 million. However, he did not intend putting his own money into this development at this stage.
31. Mr. Kenny said that he could recall being pressed by Mr. Connellan to complete the purchase from the plaintiff. At that time he was also engaged in parallel discussions with the other landowners. At a certain stage, which he put as being around November 2005, he received a phone call from Mr. Crowley telling him that he was being excluded from the project and that Mr. Crowleyand the new partner would carry on with the development.
The negotiations between the plaintiff and the defendant
32. On the 8th (or possibly the 10th ) June, 2005, (nothing seems to turn on the exact date) Mr. Connellan received a phone call from Ms. Fiona Roche of M. Roche & Co. Solicitors. Ms. Roche told him that she acted for Mr. Crowley, and that Mr. Kenny had been acting on behalf of Mr. Crowley. In the knowledge that proceedings against Mr. Kenny were pending, Mr. Crowley wanted to take over the transaction relating to this plaintiff and the negotiations with the other two landowners. Mr. Connellan said that he told Ms. Roche that his client would not mind who paid so long as he got his money, but that there were High Court proceedings out and he would have to be sure of the money before he could complete with Mr. Crowley.
33. Mr. Connellan accepted that Ms. Roche was only making a proposal, and agreed that he needed to take instructions before the matter could progress. However, he had given a clear indication that if he could be certain of the money he would be happy to complete with Mr. Crowley.
34. Later on the 10th June, 2005, Ms. Roche faxed a letter to him. This is headed “Without Prejudice” and the client is referred to as “Frank Crowley (In Trust)”. Ms. Roche said that her understanding was that “without prejudice” meant “something that was not binding in negotiations”. She used the phrase “in trust” because it was not clear to her yet whether Mr. Crowley was proposing to buy in his own name or on behalf of another person or entity.
35. The letter stated that her client had invested money in the development project and was keen to “finalise” the transaction with Mr. Prunty. It continued:
“We understand your client is agreeable to conclude the transaction and we have received instructions that our client is agreeable to take over the contractual matters, on the terms previously agreed with Clem Kenny, with a proposed closing date of 16th July, 2005. We await receipt of files and documents from Keans, Solicitors. We understand that there is a High Court matter pending in relation to this transaction and it was previously agreed with Keans, Solicitors that your reasonable costs would also be discharged and we should be obliged to receive a note of same.”
36. Mr. Connellan also received a letter from Ms. Roche in his capacity as solicitor to Ms. Celine Barry, one of the other two property owners with whom Mr. Kenny had been negotiating. That letter said that the writer had been instructed to take over the contractual negotiations and was awaiting files from Keans.
37. Mr. Connellan replied to Ms. Roche on the 15th June, 2005. This letter was headed simply “Danny Prunty to Clem Kenny”. He stated that the High Court proceedings against Mr. Kenny had issued, and that he had instructions to go ahead with them. However, if Ms. Roche could confirm that she was in funds, and could provide a draft deed and a list of documents required for closing, he would “of course” furnish the deed duly executed together with an estimate of Mr. Prunty’s reasonable costs.
38. On the 24th June, 2005, Ms. Roche responded in an open letter headed only “Our Client: Frank Crowley (In Trust)/ Danny Prunty -to- Clem Kenny/Danny Prunty -v- Clem Kenny”. In relevant part the letter reads:
“Please note that our client is presently finalising his funding and subject thereto, intends to complete with your client within two weeks.
Please note that we still await the formal hand over of files from Keans, Solicitors but in anticipation of same and the writer reviewing the contract documentation we should be obliged to receive details of your reasonable costs.
We hope to hear further from our client within the next 7 days with confirmation of the funding and the Lending Institution and shall revert to you then.”
39. It may be noted here that Mr. Kenny has said that he never gave instructions to Keans for his files to be sent to Ms. Roche. He was also unaware that the file was then returned by Ms. Roche to Keans. Ms. Roche said that possibly she had requested sight of the contract documents but that she had no recollection of a “formal handover” of files. She said that she presumed that the question of the client’s authorisation did not arise, but that this was not as much an issue in those days as it would be now.40. Mr. Connellan observes in relation to this letter that there was no suggestion of a new contract to be executed by Mr. Crowley. The purpose of the correspondence, he believes, was to finalise with Mr. Crowley the contract which had been negotiated by Mr. Kenny. Ms. Roche emphasises the reference in the letter to the need to obtain confirmation of funding, and points out that at that stage she had still not seen the contract documentation.
41. Ms. Roche wrote again on the 20th July, 2005. Again, the letter is not headed “subject to contract” or any cognate words. She stated that the firm had “finally” received the files from Keans, and arising therefrom she raised certain queries in relation to the title. She said that “subject thereto”, she was awaiting confirmation from the client as to whether the property was to be in his own name or in the name of a company. “Subject thereto” she furnished a draft deed for approval. She asked for details of the reasonable costs due to the plaintiff, and noted that a contract deposit of €11,000 had been paid and that the balance of the consideration due was €99,000.
42. Mr. Connellan says that it was not at that stage clear what entity would complete the purchase, so the fact that the transferee on the draft deed was left blank was “perfectly in order”. It was clear to him that the original contract was being taken over, with the deposit being availed of and the balance due under the contract to be paid. Ms. Roche says that what she was doing was raising pre-contract requisitions and that this is not an uncommon practice. It did not mean that there was a binding contract in place.
43. On the same day, Ms. Roche also wrote to Mr. Connellan in relation to Ms. Barry, inquiring whether he had instructions. This letter was headed “subject to contract/contract denied”.
44. On the 25th July, 2005, Mr. Connellan responded on behalf of Mr. Prunty. He objected to the raising of requisitions at this stage but dealt with them nonetheless. He requested a draft deed.
45. Under cover of an open letter headed referring to her client as “Frank Crowley (In Trust)”, Ms. Roche forwarded a draft deed of transfer on the 27th July, 2005. She said that the client was still deciding whether or not to purchase in his own name. The draft was approved by Mr. Connellan by letter dated the 2nd August, 2005.
46. Also on the 2nd August, 2005, Mr. Kean wrote to Mr. Connellan on behalf of Mr. Kenny, requesting a letter consenting to late entry of appearance in the High Court proceedings. Mr. Connellan responded by asking for clarification – he said that he had been advised by M. Roche & Co. that they were taking over the matter and had obtained the file from Keans. He copied this letter to Ms. Roche.
47. Mr. Kean’s reply to this was that he was taking instructions. There was no response to the suggestion that the file had been transferred.
48. On or about the 10th August, 2005, Ms. Roche telephoned Mr. Connellan. She says that she was anxious to clear up any misunderstanding there may have been that Mr. Crowley would be willing to take over the court proceedings – what he was willing to do was to pay the costs, or something towards the costs, in relation to the matter. She was concerned to ensure that there would be no comeback from Mr. Kenny, and therefore she wanted the proceedings against him discontinued and a forfeiture notice served on him. As things stood, if Mr. Kenny had offered to pay the balance the transaction would have to have been completed with him. She told Mr. Connellan that she was arranging to furnish monies, to be held in trust, as a good faith gesture.
49. According to Mr. Connellan, Ms. Roche said that he would be receiving a letter, and should not worry about it. It seemed to him that she was concerned to protect Mr. Crowley from possible litigation by Mr. Kenny. She wanted him to serve a forfeiture notice on Mr. Kenny to “clean out” the contract.
50. Ms. Roche faxed two letters to Mr. Connellan on the 16th August, 2005. One was an open letter in which Ms. Roche said that, given the existence of the High Court proceedings against Mr. Kenny and the forfeiture of the deposit, “we cannot take over the contractual obligations of Clem Kenny in this matter.” She said that the file had been returned to Keans.
51. The other letter was headed “Subject to Contract/Contract Denied”. This noted that separate correspondence had been sent on the same day and continued as follows:
“We note you continue to hold a forfeited Contract Deposit in the sum of €11,000, which Contract Deposit was solely funded by our client. Our client wishes to proceed with the acquisition of this site from your client.
As we are not in a position to take over the contractual obligations of Clem Kenny in this matter, per our letter to you of even date, we suggest:-
1. That a Notice of Discontinuance be served on Clem Kenny via Keans, Solicitors. We have already intimated that we will pay your reasonable costs in this matter and we should be obliged to receive a note of same.
2. A Forfeiture Notice should be served on Clem Kenny via Keans, Solicitors. We note you served the Completion Notice under cover of registered post on Keans, Solicitors on or about the 22nd of November, 2004. We attach a draft Forfeiture Notice for your assistance.
3. Please issue an up to date Contract with a sale consideration of €99,000 only. This Contract cannot be executed until the expiry of the Forfeiture Notice aforesaid. In the meantime, we shall arrange to forward you as a gesture of good faith the completion funds in the sum of €99,000 which completion funds will be held strictly on trust to be returned on demand to our firm if requested, prior to the expiry of the Forfeiture Notice. Upon expiry of the Forfeiture Notice, we shall arrange for completion of this matter with your client….
52. The letter went on to make certain suggestions in relation to the contract. It concluded:
“We should be obliged to hear from you with confirmation of the above but in the meantime, please note that we have no authority, express or implied to bind our client to any Contract or Agreement. No contract or Agreement shall exist at law until such time as same have been executed and exchanged by all necessary parties and the Contract deposit paid. Furthermore, neither this nor any other correspondence shall be deemed a note or memorandum for the purpose of the Statute of Frauds.”
53. A draft forfeiture notice was enclosed.
54. Mr. Connellan replied on the 2nd September, 2005. In a letter headed “Strictly Without Prejudice” he said that his client required payment of the balance of the purchase money; the sum of €7,000 for interest; and the sum of €2,000 for the legal costs in respect of the proceedings against Mr. Kenny. He was also concerned that Mr. Prunty might be exposed to an application for costs by Mr. Kenny when the notice of discontinuance was served, and inquired as to Ms. Roche’s view on whether or not an indemnity would be needed. He said that on satisfactory performance of these matters he would hold all monies in trust, immediately serve a forfeiture notice and complete with Mr. Crowley.
55. In evidence Mr. Connellan said that he had not been prepared to issue a new contract and walk away from the recourse he had against Mr. Kenny unless absolutely certain of the money from Mr. Crowley. Mr. Kenny was, so far as he knew, a mark.
56. There was no immediate response to this letter. After a reminder, Mr. Connellan wrote on the 8th November (a Tuesday) to say that he had strict instructions that, unless the full sum set out in the letter of the 2nd September, was paid on the terms set out in that letter by close of business on the following Friday (which was the 11thNovember), Mr. Prunty would end all discussions.
57. On the 11th November, 2005, Ms. Roche wrote a letter (headed “Subject to Contract/Contract denied”) enclosing “on trust and to our order” the balance of the funds.
“This is paid to you on the understanding that you will now proceed to forward the Notice of Discontinuance and thereafter a Forfeiture Notice on Clem Kenny via Keans, Solicitors.
Subject to our being in a position to freely complete this transaction with you the €99,000.00 can then be released to your client in this matter and we will then arrange to discharge the balance monies due to you being your costs and interest in the sum of €9,000.
We note that in the event that Clem Kenny does not accept the Notice of Discontinuance in this matter and confirms that he intends to purchase this Site and furnishes you with the funds to so complete that the €99,000.00 paid by us on trust in this matter shall be refunded to us. We look forward to hearing from you further in the above but in the meantime, please note that we have no authority, express or implied to bind our client to any Contract or Agreement. No Contract or Agreement shall exist at law until such time as same have been executed and the Contract deposit paid. Furthermore, neither this nor any other correspondence shall be deemed a note or memorandum for the purpose of the Statute of Frauds.”
58. Mr. Connellan says that his understanding was that the transaction could be “freely completed” once the forfeiture notice expired without Mr. Kenny having come up with the purchase money. If Mr. Kenny did in fact produce the money within the time stipulated by the notice, the €99,000 would have to be returned to M. Roche & Co. If not, he was free to release it to his client.
59. Mr. Connellan said that on receipt of the letter of the 11th November, 2005, enclosing the payment, he served the forfeiture notice by fax on the 15th November, 2005. The letter, addressed to Keans, stated that proceedings had issued against Mr. Kenny; that he had not entered an appearance; that a notice of discontinuance had been lodged; that the plaintiff now proposed to sell the property on the open market; and that the deposit was now forfeit and would be released to the plaintiff. A period of 21 days was specified for response.
60. Mr. Kean replied on the 6th December, 2005, stating that he was taking instructions and would revert.
61. According to Mr. Connellan, he prepared a notice of discontinuance at the same time as serving the notice of forfeiture. He sent the notice of discontinuance to his town agent for filing. The letter of instructions to the town agent, dated the 15th November, 2005, has been produced. Apparently it became clear in the course of the Circuit Court hearing in this matter that the notice had not in fact been filed, and this omission was subsequently rectified by Mr. Connellan.
62. A letter from Mr. Kean, dated 14th February, 2014, has been produced in which he says that he was not aware that a notice of discontinuance was filed. He does not refer to the contents of the notice of forfeiture, which he undoubtedly did receive.
63. Mr. Kenny has given evidence that he received the notice of discontinuance, and has produced it in court.
64. On the 8th December, 2005, Mr. Connellan informed M. Roche & Co. that the forfeiture notice had expired and the sale could now be completed. He requested a draft deed of transfer, together with any closing requirements and the sum of €9,000 for the interest and the costs. On the 14th December, 2005, he replied to Mr. Kean’s letter of the 6th, stating that the matter was now at an end and the plaintiff had sold the property.
65. On or about the 9th December, 2005, Mr. Connellan released the €99,000 to the plaintiff.
66. There was no response to Mr. Connellan’s letter of the 8th December, 2005. He sent a reminder on the 10th January, 2006, and again there was no response.
67. Meanwhile, Mr. Connellan was continuing to act for Ms. Barry in relation to the proposal by Mr. Crowley to purchase her house, and was by now also acting for the third landowner, a Mr. Shanley. They were both reluctant to move, but Mr. Shanley eventually agreed to sell and signed a contract on the 17th November, 2005. It may be noted that his property was worth many multiples of the price of the plaintiff’s site.
68. Ms. Barry appears to have been more reluctant. She would not sell without being sure of a house to move into and had looked at various alternative houses. She had given verbal instructions that she would sell. Mr. Connellan said that throughout this period he had frequent contact with Mr. Crowley, who had been very pleased with the Shanley transaction and was anxious to get Ms. Barry’s agreement. He referred often to the plaintiff, saying “We delivered for Prunty and we will deliver for Mrs. Barry”. However, in mid or late March Ms. Barry told Mr. Connellan that she had made up her mind not to sell. The deposit received by her was duly returned to M. Roche & Co.
69. On the 5th April, 2006, Ms. Roche wrote to Mr. Connellan to say that her firm had received instructions that the client did not intend to proceed with the negotiations for the purchase of the plaintiff’s house and now required the return of the €99,000.
70. Further correspondence between the solicitors served merely as a prelude to litigation. In summary, Mr. Connellan asserted that the contract with Mr. Kenny had been terminated in reliance on the correspondence while Ms. Roche relied upon the contention that the correspondence was subject to contract. These positions have been maintained in evidence – Mr. Connellan says that at all times what was contemplated was that Mr. Crowley was to complete the contract entered into by Mr. Kenny on behalf of his principals, one of whom was Mr. Crowley. The €99,000 was forwarded to him on trust, with a covering letter specifying the terms on which it was to be held. Once the forfeiture period expired he was at liberty to release the money. That was the effective completion of the deal, while formal completion could take place at any time thereafter.
Submissions
71. On behalf of the plaintiff, Mr. Bland SC makes a number of alternative submissions.
72. It is argued that there had been a concluded contract between the plaintiff and Mr. Kenny, and that by virtue of the conversations and the correspondence in June 2005 Mr. Crowley had made an open offer to take it over. This latter contract was subsequently varied by the agreement on the part of Mr. Connellan to serve the notices and the agreement on the part of Mr. Crowley to pay the €99,000 in trust. The variations were necessary to clear Mr. Kenny out of the picture but it was still the same contractual vehicle. It is submitted that no matter, of the sort that could only have been determined by the parties, was left outstanding. The use of the phrase “subject to contract” could not, in the circumstances, have retrospective effect. Per Hardiman J. in Supermacs Ireland Ltd. v. Katesan (Naas) Ltd. [2000] 4 I.R. 273, the use of this rubric does not preclude the existence of a “done deal”.
73. The plaintiff also relies on the decision of the Supreme Court in Mackie v. Wilde (No.2) [1998] 2 I.R. 578 in relation to the doctrine of part performance. It is contended that, in accordance with the criteria set out therein, there was a concluded contract, recorded in the correspondence and endorsed orally by Mr. Crowley; that the plaintiff acted in such a way that showed an intention to perform that contract; that the defendant induced such acts or stood by while they were being performed; and that it would be unconscionable and a breach of good faith to allow the defendant to rely upon the terms of the Statute of Frauds to prevent performance of the contract.
74. In further submissions on the applicability of proprietary estoppel, the plaintiff refers to the judgment of Hardiman J. in Owens v. Duggan (Unrep. High Court 2nd April, 2004) and to that of Edwards J. in An Cumann Peile Boitheimach Teoranta (The Bohemian Football Club Ltd.) v. Albion Properties Ltd. [2008] IEHC 447 (“the Bohemians case”).
75. On behalf of the defendants, Mr. Ó’Scanaill SC submits that there was no concluded contract and that the doctrine of part performance cannot therefore apply.
76. In relation to proprietary estoppel, it is submitted that Owens v. Duggan can be distinguished on the basis that it concerned a purely oral agreement, and that the court did not have to consider the role of estoppel in circumstances where the negotiations took place by way of “subject to contract” correspondence. Reference is made to Cobbe v. Yeoman’s Row Management Ltd [2006] 1 WLR 2964, where Mummery LJ said that the position in such circumstances “might well be different” (albeit with a proviso considered below). The Bohemians case is distinguished on the basis that the defendants in that case had incurred significant expenditure. It is submitted that the plaintiff in the instant case did not in fact suffer any detriment, since the notice of discontinuance was not filed in court.
Discussion
77. In the first instance, I find that there was no concluded contract between the parties arising from the correspondence and discussions in June 2005. I accept that the letter of the 10th June, 2005, from Ms. Roche could certainly be construed as an offer to take over the Kenny contract, on the same terms. However, it seems to me to be clear that Mr. Connellan was, throughout this period, very careful not to commit his client to a contract with Mr. Crowley, and thereby have to relinquish the claim against Mr. Kenny, until he was certain that Mr. Crowley would pay up. He was aware at all times that if Mr. Kenny came up with the money before the expiry of a forfeiture notice he would have to complete with him. He did not consider himself bound to Mr. Crowley, as the letter of the 8th November, 2005, demonstrates.
78. It also seems clear that Ms. Roche was reserving her position in that initially she wanted to see the documentation relating to the Kenny contract. She then adopted the position that Mr. Kenny would have to be cleared out of the picture, although Mr. Crowley was willing to pay the costs incurred by the plaintiff in pursuing Mr. Kenny.
79. However, matters took on a different aspect with Ms. Roche’s letter of the 11th November, 2005. Despite the “subject to contract” formulation, this letter is in my view an unequivocal inducement to the plaintiff to surrender his claim against Mr. Kenny on the basis that, once he did so, he could have the €99,000. That, in my view, could only be seen as amounting to an implicit promise that the contract with Mr. Crowley would proceed and that the “subject to contract” phrase would not be relied upon.
80. At p. 32 of the judgment of Hardiman J. in Owens v. Duggan the authorities on the issue of proprietary estoppel are summarised in the following passage:
“In the English case of Re Basham [1986] 1 WLR 1498 proprietary estoppel was described as follows:-
‘Where one person, A, has acted to his detriment on the faith of a belief which was known to and encouraged by another person, B, that he either, has or is going to be given a right in or over B’s property, B cannot insist on his strict legal rights if to do so would be inconsistent with that belief’.
This view has a long pedigree going back to the classic statement of Lord Kingsdown in Ramsden v. Dyson [1866] LR 1 HL 129:-
‘If a man, under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without objection by him, lays out monies upon the land, a court of equity will compel the landlord to give effect to such promise or expectations…’.
It will be seen that the first of these formulations is a more generalised form of what is said in the latter. The trend of judicial decisions since 1866 has to been towards a more generalised and less formulaic statement of the substance of promissory estoppel. In Taylors Fashions Ltd. v. Liverpool Trustee Company Ltd. [1982] QB 133 Oliver J. said:-
‘Furthermore, the more recent cases indicate… that the application of the Ramsden v. Dyson principle… requires a very much broader approach which is directed rather at ascertaining whether, in particular circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment rather than to enquiring whether the circumstances can be fitted within the confines of some preconceived formula serving as a universal yardstick for every form of unconscionable behaviour’.
In McMahon v. Kerry County Council [1981] ILRM 419 Finlay P. (as he then was) emphasised the notion of unconscionability in its most general form:-
‘If a court applying equitable principles is truly to act as a court of conscience, then it seems to me unavoidable that it should consider not only conduct on the part of the plaintiff with particular regard to whether it is wrong and wilful but also conduct on the part of the defendant and furthermore the consequences and the justice of the consequences both from the point of view of the plaintiff and the defendant.’
All these expressions on the nature of promissory estoppel require that the plaintiff should have in some way suffered a detriment in reliance on the defendants’ assurance. This detriment frequently consists of the expenditure of monies but, on the authorities, is not confined to that. See the unreported decision of Blayney J. in Haughan v. Rutledge (1988 High Court unreported Volume II at 314), where this is the first of the conditions required for proprietary estoppel.”
81. Hardiman J. stressed that the point at which the unconscionability must arise is not at the time of the making of the agreement, or the giving of the inducement, but at the point where it is repudiated.
82. The detriment relied upon in Owens v. Duggan was the act of the plaintiffs in refraining from objecting to an application for planning permission, in consideration of a right of way and a small portion of land. Hardiman J. held that this was a real detriment.
83. In Cobbe v. Yeoman’s Row Management Ltd, Mummery LJ considered the interaction between “subject to contract” negotiations and the doctrine of proprietary estoppel in paragraph 57 as follows:
“Where that well understood expression is used an intention has been expressed to reserve the right for either party to withdraw from the negotiations at any time prior to the exchange of formal contracts. It is made clear that there are no legally enforceable rights before that happens. Even the use of the expression “subject to contract” would not, however, necessarily preclude proprietary estoppel if the claimant established that the defendant had subsequently made a representation and had encouraged on the part of the claimant a belief or expectation that he would not withdraw from the ‘subject to contract’ agreement …”
84. In discontinuing the proceedings against Mr. Kenny, the plaintiff abandoned what must be considered to have been a strong case. Not only has there been no evidence that Mr. Kenny was not a mark, there has been uncontradicted evidence that he was contracting on behalf of a partnership of which Mr. Crowley was a member. The dropping of the case, therefore, was an act to the detriment of the plaintiff.
85. If the defendants’ position were to be upheld in this case, the plaintiff would be left without either the claim that he had against Mr. Kenny (with the very real possibility that Mr. Crowley would ultimately have been found liable as a principal on foot of that claim) or against Mr. Crowley. That situation would have been brought about by the clear representation on behalf of Mr. Crowley that if the case against Mr. Kenny was dropped and a forfeiture notice served, the monies held by him in trust could be released to the plaintiff.
86. I consider that it would, on the facts of the case, be unconscionable to permit that result. The fact that the notice of discontinuance was not actually lodged in court does not alter my view – all parties believed it had been, and Mr. Kenny and his solicitor were told that the matter was at an end. I do not think that the suggestion that Mr. Connellan could have revived those proceedings is realistic.
87. In the circumstances there will be an order in favour of the plaintiff.
Shiel v McKeon
[2006] IEHC 194
Cite as: [2007] 2 ILRM 144, [2006] IEHC 194JUDGMENT of Mr. Justice Clarke delivered 31st May, 2006.
1. Introduction
1.1 Both the plaintiff (“Mr. Shiel”) and the defendant (“Mr. McKeon”) had an interest in purchasing a property at Carrowhubbock, Enniscrone, Co. Sligo (“the property”). The property concerned had been in the ownership of the Sproule family for some time. The property consisted of a house with surrounding garden backing onto a further plot of land which in turn backed onto the sea. Mr. Shiel is a solicitor who owned a holiday home just across the road from the property. Mr. McKeon’s family were from Enniscrone and owned lands directly adjacent to the property. Mr. McKeon had purchased those lands from his father and secured a planning permission for a significant retail and residential development for the development of his lands. His interest in the property dated back some years when the property was owned by a Mr. Ken Sproule with whom he had some contact in relation to a possible purchase. Sadly Mr. Sproule died in April 2005. There can be little doubt but that, subject to obtaining a suitable planning permission, the portion of the property nearest the sea could have been easily incorporated into the development for which Mr. McKeon had already obtained planning permission.
1.2 It will be necessary to set out in more detail the precise attempts which both parties made to purchase the property. Suffice it to say that there was a time when it is clear that both were actively pursuing the property. During that time a meeting between the parties took place on the 14th August, 2005, as a result of which Mr. Shiel contends that an arrangement was entered into whereby Mr. McKeon would purchase the property, would retain the rear portion for himself but would hold the front portion (which consisted of the Sproule house and the gardens immediately around it), on trust for Mr. Shiel. Any such arrangement is strenuously denied by Mr. McKeon.
1.3 However it is in the context of such an alleged arrangement that these proceedings are brought.
1.4 It will be necessary to turn in due course to the nature of the trust claimed and the legal principles applicable. However before doing that I should set out the uncontroversial facts which led to the meeting of the 14th August.
2. The Facts
2.1 While it would appear that both parties knew of each other, there does not seem to have been any direct contact between them until Thursday 11th August, 2005. The history of events concerning the possible purchase of the property up to that date needs to be outlined.
2.2 It would seem that Mr. McKeon had approached Mr. Ken Sproule some considerable time earlier with a view to a possible purchase of the property. However at that stage Mr. Sproule had, unfortunately, been diagnosed with a serious illness from which he, sadly, died. In the circumstances no further progress in relation to the matter occurred until July 2005 when the property was advertised for sale through Sherry Fitzgerald.
2.3 It should also be noted that there was a potential issue between Mr. McKeon and the Sproules as to the precise boundary between the neighbouring property which Mr. McKeon owned (and in respect of which he had obtained planning permission) and the property. While the amount of land concerned was not, in itself, very significant, the line of the boundary between the properties had the potential to be of some significance to Mr. McKeon because of access to public drainage facilities. If the boundary was where Mr. McKeon asserted it to be, then he would have had ready access to the public drainage. If the boundary was where it appeared on the ground then it might have been somewhat more difficult for Mr. McKeon to secure such access. There was some debate in the course of the hearing as to the extent to which there might have been other alternatives for Mr. McKeon. It was not possible, on the basis of the evidence before me, to reach any clear view as to the viability of alternative sources of access. I can do no more than conclude that securing that the boundary was where he (Mr. McKeon) suggested it ought to be was an issue of at least some importance to him. In that context Mr. McKeon arranged for his solicitor (Mr. Gordon) to write to Ms. Nuala Feeney of Sherry Fitzgerald in respect of the boundary.
2.4 It would also appear that prior to the 11th August Mr. McKeon had made a number of offers in respect of the property to Ms. Feeney and had, it would seem, agreed in principle to purchase the property for €435,000 on Monday or Tuesday the 8th or 9th August. No booking deposit had been paid by the time the events which are in controversy between the parties occurred. Still less had any formal contract been entered into.
2.5 I should note that neither side called Ms. Feeney to give evidence. Therefore much of the evidence given respectively on behalf of Mr. Shiel and Mr. McKeon concerning their dealings with the property (other than in relation to each other) was largely dependent on their own accounts and were not controverted. In the absence of any evidence to the contrary I can see no basis for not accepting those accounts. I merely note the fact that Ms. Feeney did not give evidence in fairness to her, for the purposes of pointing out that it is possible that she might have a different account in respect of some of the matters.
2.6 So far as Mr. Shiel is concerned it would appear that he had asked a Mr. Noel Jacob to bid on the property for him. Mr. Jacob had known Mr. Shiel for at least 10 years prior to these events and had phoned Mr. Shiel for the purposes of informing him that the property was for sale. It would appear that a number of bids were put on the property by Mr. Jacob on behalf of Mr. Shiel. It was Mr. Jacob’s evidence, which I accept, that at the time when he made what was, for him, the highest bid of €415,000, it was his understanding that it was the top bid as of that time. He did not disclose to Ms. Feeney that he was bidding on behalf of Mr. Shiel. After making the bid of €415,000 and communicating that fact to Mr. Shiel, Mr. Jacob was no longer directly involved. It would appear that on 11th August Mr. Shiel came to understand that the property was to be sold to another party. In those circumstances he contacted a member of the Sproule family (Mr. Glen Sproule) directly rather than contacting Ms. Feeney the Estate Agent. As a result of that initial contact, it would appear that Mr. Shiel had a subsequent conversation with Ms. Feeney where he was informed that he would have to offer €500,000 for the property if he was to secure it. It would also appear that at that stage he offered €450,000.
2.7 The position which existed immediately prior to the initial contact between the parties was, therefore, that from Mr. McKeon’s perspective he had an agreement to purchase the property (admittedly subject to contract and, indeed, subject to him paying a booking deposit in order to secure that the Estate Agents would treat the property as no longer on the market) and found that Mr. Shiel was attempting to interfere with that sale. However from Mr. Shiel’s perspective, he had made what he considered to be the highest offer on the table at the time of the making of his offer of €415,000 and found that the property had, apparently, been sold without giving him a chance to up his bid. Due to the absence of any witnesses from either the Sproule family or the Estate Agents acting on their behalf, it is impossible to know with any precision how that undoubtedly difficult situation arose. However it is easy to see how, from the perspective of both parties, there was a feeling that things had not been properly dealt with. That fact should be noted before passing on to the controversial series of dealings between the parties which occurred between Thursday 11th August and Sunday 14th August to which I will turn in due course. It may also go some way towards explaining the level and force of the accusations directed at the hearing against both parties. However before going on to analyse the course of dealing between the parties it is necessary to turn, first, to the legal principles by reference to which those facts need to be assessed.
3. The Law
3.1 In Pallant v. Morgan (1953) 1 Ch. 43 Harman J. had to consider the legal implications of an agreement reached between the agents of two neighbouring land owners in an auction room immediately before an auction. One agent agreed that he would refrain from bidding on the basis that there would be a division of the land according to a formula which left certain details to be agreed later. The parties subsequently failed to agree on those details and the aggrieved party claimed specific performance or alternatively a declaration of trust. In respect of the claim for specific performance the court held that the arrangements between the agents were not sufficiently precise (having left matters of some substance over for further agreement) to permit specific performance. There was, the court held, “too much left undecided”. However, at p. 48 Harman J. went on to say the following
“Is the result then that the plaintiff must fail? In my judgment not so. To allow the defendant to retain lot 16 under these circumstances would be tantamount to sanctioning of fraud on his part and I find the following in Fry on Specific Performance 6th Ed. at p. 184, para. 386, at the end of the chapter in which the author is dealing with what he styles the “uncertainty of the contract”: “the same certainty”, he says, “will not be required in cases where there is an element of fraud, as in simple cases of specific performance of a contract. Thus where A. agreed with B. in effect that if B. would not try to buy a certain estate, A would try to buy, and in case of success would seed a portion of the estate to B. at a certain price: and B. acted on his bargain and allowed A. to purchase: and A. having purchased refused to perform his part and set up the uncertainty of the part to be seeded: the court held that the defence could not avail and directed an inquiry to ascertain the portion to be given up and the price. It seems that if this could not have been ascertained, B. might have claimed the whole estate”.
3.2 The court then went on to note that the relevant paragraph from Fry is based on Chattock v. Muller 8 Ch. T 177 and proceeded to apply the principle to the facts of the case before it.
3.3 The Court of Appeal in the United Kingdom returned to the issue in Banner Homes plc v. Luff Developments Limited and Another (2000) Ch 372. In applying Pallant Chadwick L.J. (speaking for the court) and having reviewed extensively all relevant authorities stated the following at p. 397:
“Equity must never be deterred by the absence of precise analogy, provided that the principle invoked is sound. Mindful of this caution, it is, nevertheless, possible to advance the following propositions.
(1) A Pallant v. Morgan equity may arise where the arrangement or understanding on which it is based precedes the acquisition of the relevant property by one party to that arrangement. It is the pre-acquisition arrangement which colours the subsequent acquisition by the defendant and leads to his being treated as a trustee if he seeks to act inconsistently with it. Where the arrangement or understanding is reached in relation to property already owned by one of the parties, he may (if the arrangement is of sufficient certainty to be enforced specifically) thereby constitute himself trustee on the basis that “equity looks on that as done which ought to be done”, or an equity may arise under the principles developed in the proprietary estoppel cases. As I have sought to point out, the concepts of constructive trust and proprietary estoppel have much in common in this area. Holiday Inns Inc. v. Broadhead, 232 E.G. 951, may perhaps, best be regarded as a proprietary estoppel case; although it might be said that the arrangement or understanding, made at the time when only the five acre site was owned by the defendant, did, in fact, precede the defendant’s acquisition of the option over the 15-acre site.
(2) It is unnecessary that the arrangement or understanding should be contractually enforceable. Indeed, if there is an agreement which is enforceable as a contract, there is unlikely to be any need to invoke the Pallant v. Morgan equity; equity can act through the remedy of specific performance and will recognise the existence of a corresponding trust. On its fact Chattock v. Muller, 8 Ch.D. 177, is perhaps, best regarded as a specific performance case. In particular, it is no bar to a Pallant v. Morgan equity that the pre-acquisition arrangement is too uncertain to be enforced as a contract – see Pallant v. Morgan [1953] Ch. 43 itself, and Time Products Ltd. v. Combined English Stores Ltd., 2 December 1974 – nor that it is plainly not intended to have contractual effect – see Island Holdings Ltd. v. Birchington Engineering Co Ltd., 7 July 1981.
(3) It is necessary that the pre-acquisition arrangement or understanding should contemplate that one party (“the acquiring party”) will take steps to acquire the relevant property; and that, if he does so, the other party (“the non-acquiring party”) will obtain some interest in that property. Further, it is necessary that (whatever private reservations the acquiring party may have) he has not informed the non-acquiring party before the acquisition (or, perhaps more accurately, before it is too late for the parties to be restored to a position of no advantage/no detriment) that he no longer intends to honour the arrangement or understanding.
(4) It is necessary that, in reliance on the arrangement or understanding, the non-acquiring party should do (or omit to do) something which confers an advantage on the acquiring party in relation to the acquisition of the property; or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms. It is the existence of the advantage to the one, or detriment to the other, gained or suffered as a consequence of the arrangement or understanding, which leads to the conclusion that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself, in a manner inconsistent with the arrangement or understanding which enabled him to acquire it. Pallant v. Morgan [1953] Ch. 43 itself provides an illustration of this principle. There was nothing inequitable in allowing the defendant to retain for himself the lot (lot 15) in respect to which the plaintiff’s agent had no instructions to bid. In many cases the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market. That will usually be both to the advantage of the acquiring party – in that he can bid without competition from the non-acquiring party – and to the detriment of the non-acquiring party –in that he loses the opportunity to acquire the property for himself. But there may be advantage to the one without corresponding detriment to the other. Again, Pallant v. Morgan provides an illustration. The plaintiff’s agreement (through his agent) to keep out of the bidding gave an advantage to the defendant – in that he was able to obtain the property for a lower price than would otherwise have been possible; but the failure of the plaintiff’s agent to bid did not, in fact, cause detriment to the plaintiff – because on the facts, the agent’s instructions would not have permitted him to outbid the defendant. Nevertheless, the equity was invoked.
(5) That leads, I think, to the further conclusions: (i) that although, in many cases, the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market, that is not a necessary feature; and (ii) that although there will usually be advantage to the one and correlative disadvantage to the other, the existence of both advantage and detriment is not essential – either will do. What is essential is that the circumstances make it inequitable for the acquiring party to retain the property for himself in a manner consistent with the arrangement or understanding on which the non-acquiring party has acted. Those circumstances may arise where the non-acquiring party was never “in the market” for the whole of the property to be acquired; but (on the faith of an arrangement or understanding that he shall have a part of that property) provides support in relation to the acquisition of the whole which is of advantage to the acquiring party. They may arise where the assistance provided to the acquiring party (in pursuance of the arrangement or understanding) involves no detriment (in pursuance of the arrangement or understanding) involves no detriment to the non-acquiring party; or where the non-acquiring party acts to his detriment (in pursuance of the arrangement or understanding) without the acquiring party obtaining any advantage therefrom”.
3.4 It seems to me that the above passage represents the current state of development of the law in this area in the United Kingdom.
3.5 There does not seem to be any direct Irish authority on the matter. In The MacGillicudy of the Reeks v. Joy and Another [1959] I.R. 189 this court was concerned with an agreement entered into by the parties to the effect that they would join in the purchase of a farm. The case would appear to have turned on whether the agreement entered into was enforceable for a variety of reasons including an allegation of uncertainty, an alleged absence of consideration or intention to create legal relations an absence of a provision dealing with land commission consent for subdivision and an alleged absence of a sufficient note or memorandum to satisfy the statute of frauds. The plaintiff having satisfied the court that none of the above prevented an enforceable arrangement having been entered into, the court declared that the defendant held the appropriate portion of the lands on trust for the plaintiff. However it is clear that the case was argued on the basis of contract rather than a trust per se.
3.6 I see no reason not to follow the logic of the decisions in Pallant v. Morgan and Banner Homes and hold that, independent of an entitlement to enforce a contract, there exists an equitable entitlement in the circumstances detailed in those authorities to the enforcement of an arrangement which may fall short, in some respects, from the requirements for the enforcement of a contract. As was pointed out in Banner Homes there would be no need for a Pallant v. Morgan equity in circumstances where there was an enforceable contract because the aggrieved party could simply seek specific performance.
3.7 It is important to emphasise that the Pallant v. Morgan equity arises in circumstances where two persons may be engaged in a joint venture to purchase a property from a third party. It has no application to the more straightforward case where one party is engaged with the other in negotiations for a direct sale of the property. In the latter case a contract will only be enforceable if all of the elements necessary for the creation of contractual relations have been established and if there is a sufficient note or memorandum to satisfy the Statute of Frauds or a sufficient act of part performance or where, as noted in Banner Homes, a proprietary estoppel arises. However the principle behind the doctrine of part performance is that the Statute of Frauds cannot be used as an instrument of fraud. Similarly the Pallant v. Morgan equity derives from the principle that it would inequitable for a person who obtains a benefit (such as the withdrawal of a competitor from a bidding process) to retain the benefit without conceding the substance of the arrangement. I am therefore satisfied to follow Pallant v. Morgan and Banner Homes.
3.8 Having considered all of the relevant authorities I am therefore satisfied that the issue which I must consider on the facts of this case is as to whether there was an arrangement or understanding between the parties as to the purchase of the property such that the circumstances make it inequitable for Mr. McKeon to retain the property in its entirety for himself. It is not necessary that the arrangement or understanding has to be contractually enforceable. Against that background it is now necessary to turn to the contact between the parties which occurred on and after the 11th August, 2005.
4. The Facts in Controversy
4.1 The first actual contact between the parties would appear to have occurred when Mr. McKeon received a phone call, at his house, on Thursday 11th August, from Mr. Shiel. While there are some minor disputes as to what was said on that occasion it seems clear that Mr. Shiel indicated his active interest in the property, but Mr. McKeon was annoyed by this fact, and that the telephone call ended abruptly.
4.2 Mr. Shiel had earlier left a voice message for Mr. McKeon. Subsequently Mr. McKeon made a further phone call to Mr. Shiel which was taken by Mr. Shiel on his mobile phone as he was driving back to Dublin from Enniscrone in the company of his son. There are again some disputes as to precisely what was said during the course of that conversation. However it does not seem to me that anything specifically turns on that conversation in itself save to the extent that it may cast some light on the crucial discussions which took place the following Sunday.
4.3 In that context it is important to note that a great number of issues were explored in the course of the hearing not because they were questions of fact which in themselves had the potential to impact on the final decision in the case but rather were matters which either went to the credit of either of the parties or might be said to make it more likely that one or other contention as to what actually transpired on the Sunday was actually correct. It does not seem to me to be necessary to address each and everyone of those matters in the course of this judgment.
4.4 In any event it seems clear that the second telephone conversation started with Mr. Shiel indicating that he was not prepared to continue with the conversation unless Mr. McKeon apologised for the abrupt termination of their earlier phone call. Such an apology was ultimately tendered. Thereafter it would seem that Mr. McKeon indicated that his primary interest was in the rear portion of the property while Mr. Shiel indicated that his primary interest was in the house and surrounding garden. It appears to be common case that the parties agreed to meet when Mr. Shiel was back down in Enniscrone on the following weekend. As it happens it would appear that the meeting was originally intended to take place on the Saturday but did not, in fact, take place until the Sunday.
4.5 In the intervening period one matter of note occurred. It is clear that Mr. Shiel arranged for his partner, David Fowler, to ring Ms. Feeney on the following day (Friday) for the purposes of telling her that Mr. Shiel would not be available until Monday. It would appear that Ms. Feeney told Mr. Fowler that if Mr. Shiel did not confirm, by close of business on that day (Friday), that Mr. Shiel was prepared to pay €500,000, the property would be sold to Mr. McKeon. It should be said that Mr. Shiel had first given the impression in evidence that nothing of any substance had occurred between the telephone calls on the Thursday and the meeting on the Sunday, but then conceded, under cross examination, that the conversation carried out on his behalf by Mr. Fowler with Ms. Feeney had occurred and, perhaps more importantly, that the substance of that conversation was to the effect that unless Mr. Shiel were to make a bid of €500,000 by close of business on Friday the property would be sold to Mr. McKeon.
In the same context the content of an affidavit sworn by Mr. Shiel on the 21st October, 2005 in an application made earlier in these proceedings needs to be noted. At para. 12 of that affidavit Mr. Shiel conveys the strong impression that he had no contact with Ms. Feeney between Thursday and the Sunday meeting. While this is technically true, in the light of his concession about the contact made on his behalf and the substance of the communication with him (to which I have referred) the paragraph is, regrettably, a long way short of the whole truth.
Of even greater concern are the contents of para. 15 of the affidavit which attempts to convey the impression that Mr. Shiel had outbid Mr. McKeon by offering €450,000 without mentioning that that bid had been rejected and that he had failed to bid €500,000 by close of business on the Friday as he was told by Ms. Feeney he was required to do to avoid a sale to Mr. McKeon.
It is, unfortunately, difficult to avoid the conclusion that Mr. Shiel attempted to conceal the adverse developments with Ms. Feeney on the Friday.
4.6 It is clear that Mr. Shiel was aware of that conversation (and that he had not, in fact, met the deadline of close of business on Friday), when he met with Mr. McKeon on the Sunday. It is equally clear that Mr. McKeon was not aware of the fact that Mr. Shiel had not met a deadline imposed by Ms. Feeney.
4.7 Much of what occurred at the meeting on the Sunday is common case. The parties had an initial meeting at Mr. Shiel’s house, went to visit the site which was, of course, just across the road, and returned for further discussions in Mr. Shiel’s house. On Mr. McKeon’s account he was only there to listen and almost all of the running was made by Mr. Shiel. It is common case that Mr. Shiel suggested that Mr. McKeon would purchase the whole property but in trust for Mr. Shiel as to the house and garden portion. It is further common case that when the parties went to visit the site some discussion as to the appropriate boundary between the property as it might be divided took place. In relation to this aspect of the matter, Mr. McKeon accepts that he suggested that the boundary would need to be placed somewhat nearer the house than it actually appeared on the ground (in line with the neighbouring rear boundary). It is also accepted that Mr. Shiel agreed that Mr. McKeon would be entitled to connect (for the purposes of his planned development) into the sewer passing through the garden at the back of the property (the proposed boundary would have left the sewer on the portion to be allocated to Mr. Shiel). Finally, so far as the substance of the arrangements being contemplated is concerned, it would be appear to be accepted by Mr. McKeon that Mr. Shiel suggested that he (Mr. Shiel) would pay €275,000 of the total purchase price together with a proportionate share of the expenses (including stamp duty) connected with the purchase.
4.8 Of some particular relevance to the issues which I have to decide is that it seems to be common case that Mr. Shiel put forward details as to the mechanism by which the transaction contemplated might be effected. In particular he made suggestions as to the execution of a declaration of trust on the completion of the sale from the Sproules to Mr. McKeon which would have the effect of saving an exposure to double stamp duty. It was also suggested that there would be appropriate wayleaves to provide for connections from Mr. McKeon’s development into the sewer.
4.9 There does not appear to be any dispute but that all of the above matters were referred to at the meeting between the parties. What is in contention is as to whether anything was agreed. Mr. Shiel’s case is that he made it clear that in the event that agreement was not reached it was his intention to engage in a further attempt to purchase the property on the following Monday. On his case all of the above matters were agreed subject only to one question. Mr. Shiel accepts that Mr. McKeon wanted to take expert advice on the question of connections into the sewer.
4.10 On Mr. McKeon’s case his only intervention in the discussions of any substance was to suggest that the line of the boundary between the portion which he was to retain (if agreement was reached) and the portion which was to go to Mr. Shiel was to be along the line of the back garden of the house on the left hand side of the property. In all other respects it is Mr. McKeon’s case that he simply listened to Mr. Shiel’s proposals. Indeed he goes further and says that in particular when Mr. Shiel began discussing the legal technicalities of how any arrangement might be implemented he indicated in strong terms that he did not understand such matters and that Mr. Shiel should discuss same with his (that is Mr. McKeon’s) solicitor.
4.11 In the context of the dispute between the parties two further aspects of what transpired are relevant. It is common case that Mr. Shiel went to get a pen and paper for the purposes of recording the arrangements but that Mr. McKeon declined to have matters so recorded. The only matter which was in fact written down was the particulars of Mr. Shiel’s solicitor. Mr. McKeon says that the reason why nothing was written down was because there was no agreement. Mr. Shiel is adamant that the absence of a written record does not in anyway imply that no agreement had been reached.
In the same vein Mr. Shiel contends that the parties shook hands on a number of occasions as Mr. McKeon was leaving. Mr. McKeon denies this.
4.12 While the case turns on whether any sufficient arrangement had been arrived at, at the meeting which I have just described, so as to make it inequitable for Mr. McKeon not to treat the relevant portion of the property as being held on trust for Mr. Shiel, some of the events which occurred subsequently are material to an assessment of which account of that meeting is, on the balance of probabilities, to be preferred.
4.13 Firstly it should be noted that on the following day, Mr. McKeon paid the booking deposit and thereafter a letter in a usual form issued from Sherry Fitzgerald (dated Monday 15th August, 2005) to the vendor’s solicitors indicating that the property had been sold subject to contract and specifying the terms.
4.14 On the same day, the 15th August, Mr. Shiel contacted Mr. Andrew Turner of Hamilton Turner Solicitors who was the person indicated by Mr. McKeon on the previous day as acting for him. That phone conversation was followed up exactly a week later by a letter of 22nd August, 2005 from David Fowler (whom, as I indicated, is a partner of Mr. Shiel) referring to the conversation had between Mr. Shiel and Mr. Turner the previous week, and setting out the understanding which Mr. Shiel (and through him Mr. Turner) had of the arrangement in the following terms:-
“I understand the arrangement is as follows:
1. Peter is conclude his negotiations with the vendor for the acquisition of the entire property on the basis that John had agreed that he will withdraw from his negotiations with the vendors for the acquisition of the property by him.
2. Peter’s acquisition of the entire property is in trust for John as to the house and the back garden. The back garden is to be along the line of the back gardens of the house on the left hand side of the house.
3. Peter is to transfer at no cost to John any portion of the garden area at the back of the house which may be on Peter’s title.
4. I understand there is a mains sewer passing through the garden at the back of the house and that Peter will require 1/2 connections into this pipe for the purpose of undertaking the apartment development on his adjoining site and possibly also for the purpose of undertaking a development on the site at the back of the house in sale. It is agreed that Peter shall be entitled to make two separate connections to the public sewer as it traverses the garden.
5. Peter has agreed that the upon completion of the connections to the public sewer he shall make good the garden and re-seed to John’s reasonable satisfaction. Upon the completion of the making of the connections to the sewer Peter will construct at his own expense a 2 metre wall to be capped and plastered on John’s side.
6. John will pay €275,000.00 of the total purchase price for the house and the site and Peter will pay the balance. John will discharge his proportion of the deposit upon the signing of the Contract and the balance upon completion.
7. At the time of the signing of the Contract Peter will enter into a Declaration of Trust in John’s favour in respect of the house and the garden.
8. Upon the completion of the acquisition of the property Peter will execute a Deed of Transfer of the house and the garden to John so that John may have the Deed of Transfer adjudicated exempt from stamp duty based upon the Declaration of Trust.
9. John has agreed that there will be executed and delivered to Peter the appropriate wayleaves and easements so that Peter has for the benefit of the adjoining site for the apartments and the site at the rear of the house rights to connect into the public sewer and thereafter to repair and maintain (sic). These easements will be registered as burdens on the title that John will hold to the property.”
4.15 It will be seen from that letter that the arrangements correspond with the matters which, it is common case, were raised by Mr. Shiel at the meeting some eight days earlier. It is clear that in both his initial phone conversation with Mr. Turner and the letter written on his behalf which I have just quoted, Mr. Shiel clearly asserts that an agreement or arrangement along those lines had been entered into.
4.16 The letter of the 22nd August was replied to by a letter of 30th August from Mr. Turner to Mr. Fowler, the operative part of which reads as follows:-
“From the discussion I had with your client and from the instruction received from my client it is apparent to me that no agreement is in existence in relation to the above mentioned property. Having regard to the content of your letter I am instructed that our client does not at this stage wish to proceed along the lines as indicated by you”.
Thereafter the proceedings commenced.
4.17 It is important to note that prior to the receipt of the letter of 22nd August Mr. McKeon went to meet with Mr. Turner, on Wednesday the 17th August. An attendance of that consultation was produced on discovery and Mr. Turner was called by the plaintiffs to give evidence in respect of it. No privilege was claimed in relation to the matter. The attendance gives an account which, insofar as concerns the lead up to the Sunday meeting, is consistent with the evidence of Mr. McKeon. In relation to that meeting itself the memorandum reads as follows:-
“He met him on Sunday. He instructed John that he did not wish any notes to be taken and didn’t want any agreements to be produced in writing. He said that he needed to discuss the matter with his solicitor and architect that they would discuss the property and the proposals for the property. They informally agreed to divide the property into two lots. Peter will take the land at the bank (sic). And John would take the house at the front. Peter would pay €160,000 and John Shiel would pay €275,000 for the house. There was a small section that would be transferred from Peter to John Shiel and John Shiel would in return grant rights for the easement and access to the sewage. The foregoing represents the basic leads (sic) of an agreement but subject to Peter taking legal advice and advice from his architect”.
4.18 One further matter noted in the memorandum of the consultation should be referred to. The memo ends with the following passage:-
“In relation to John Shiel I have been instructed to delay matters until the contract comes in but if he pushes me on the issue I have been advised that I should notify him that we intend to purchase the property in our own name and to indicate to him that we have no real designs on the house and it is our client’s view that he will on balance probably sell the property to him at a later stage”.
4.19 It should be pointed out that in evidence Mr. Turner indicated that the phrase “informally agreed” was his interpretation of the matter and did not represent a specific comment made by Mr. McKeon.
4.20 The second matter that transpired was that prior to the letter of rejection of 30th August, a signed contract for sale of the property became available to Mr. McKeon by, at the latest, the 29th. Thus by the time the formal letter of rejection was sent Mr. McKeon had in fact a binding contract.
4.21 In assessing the evidence I should firstly say that while Mr. McKeon questioned some aspects of the memorandum of his conversation with Mr. Turner, it seems to me that there is no basis for rejecting Mr. Turner’s account of the consultation. On that basis it seems to me that I must hold that whatever language was used by Mr. McKeon in describing the meeting on Sunday the 14th, same was such as conveyed to Mr. Turner an impression that there was at least an informal agreement. It is clear that Mr. Turner, correctly, advised Mr. McKeon that there was no binding contractual arrangement between Mr. McKeon and Mr. Shiel. However that is not the issue in this case. The issue is as to whether there was an arrangement between the parties such as would render it inequitable for Mr. McKeon not to treat the property as being held, as to the appropriate part, in trust for Mr. Shiel. In the circumstances it seems to me that I must, on balance, hold that whatever language was used by Mr. McKeon at the meeting of the 14th it was such as was likely to have reasonably led Mr. Shiel to the belief that there was at least an informal agreement between them. If Mr. McKeon gave that impression to his own solicitor at a meeting some time three days later then it seems to me to be equally likely that he conveyed the same impression to Mr. Shiel. It is also of note that the recorded description of the “informal agreement” corresponds, to a very large extent, with the contents of the letter subsequently received on behalf of Mr. Shiel.
4.22 I am therefore satisfied, as a matter of fact, that Mr. McKeon indicated a sufficient level of agreement to the arrangements proposed by Mr. Shiel at the meeting on 14th August to lead Mr. Shiel to believe, reasonably, that they had entered into an arrangement sufficient to permit Mr. Shiel to withdraw from a consideration of whether he would attempt to reactivate his bid for the property on the following Monday. While Mr. Shiel had not, I am satisfied, made up his mind as to whether to bid again on the Monday, I am satisfied that the arrangement reached on Sunday influenced his decision not to contact Ms. Feeney and attempt to re-activate his interest in the property.
I am also satisfied that Mr. McKeon was concerned about the legal and engineering consequences of what was proposed and indicated that he needed professional advice on those matters. However those issues were concerned with the method of implementation of the arrangements rather than their substance. While I am, therefore, satisfied that the matters agreed to be discussed professionally were wider than those contended for by Mr. Shiel (and extended to questions concerning the legal methods of implementation) I am nonetheless satisfied that Mr. McKeon conducted himself at the meeting in such a way as conveyed the impression that, subject to those issues of implementation being capable of satisfactory resolution, an arrangement would be entered into.
4.23 I am also satisfied that Mr. McKeon was aware that his position was not secure until he had a formal legally enforceable contract signed by the vendor. It seems clear that he wished to keep, if at all possible, Mr. Shiel from becoming aware of the fact that he did not wish to go through with the arrangement until after he had secured a signed written agreement. While in fairness it should be noted that there was no suggestion that, if pressed, Mr. Shiel would not be told the true position, nonetheless it is clear that the desired position was that Mr. Shiel would not discover the true position until it would have been too late for Mr. Shiel to seek to do anything about it. That such a matter is a factor in determining whether a Pallant v. Morgan equity may be said to exist can be seen from item (3) in the passage from Banner Homes referred to at para. 3.3 above. Also that fact is only consistent with knowledge on the part of Mr. McKeon that it was likely that Mr. Shiel would refrain from any further attempt to bid on the property until such time as Mr. Shiel was told that all bets were off. It can only be to that end that it was decided to attempt to delay Mr. Shiel receiving that knowledge until after a signed contract was available to Mr. McKeon.
4.24 In all the circumstances it seems to me that I must conclude that at least an informal arrangement was entered into between the parties which led Mr. Shiel to the reasonable belief that Mr. McKeon would in fact purchase the property in part trust on his behalf and which led Mr. McKeon to the belief that Mr. Shiel would refrain from actively pursuing the property.
5. Some Other Issues
5.1 In his closing submissions on behalf of Mr. McKeon, counsel sought to draw a distinction between the authorities following Pallant and the facts of this case by reference to the events which occurred on the Friday (and thus prior to the meeting on the Sunday). On that basis it was contended that Mr. Shiel was already out of the picture by the Sunday (by virtue of having failed to offer €500,000 by close of business on the Friday). However it does not seem to me that that fact is, of itself, necessarily decisive. The test as set out in Banner Homes is as to whether there was detriment to Mr. Shiel or benefit to Mr. McKeon. Mr. Shiel’s position was, undoubtedly, more difficult as of the Sunday than it had been at a time when he might reasonably be described as having been involved in negotiations. However he had already secured an entry into the negotiating process at a time after a sale had been agreed, subject to contract, with Mr. McKeon. The fact that Mr. Glen Sproule would, apparently, have been prepared to accept an offer of €500,000, notwithstanding there having being a previous agreement with Mr. McKeon at €435,000, shows that until such time as there were binding legal arrangements between Mr. McKeon and the Sproules, Mr. Shiel retained an opportunity to buy the property.
5.2 Whatever views may be held in relation to a party attempting to outbid a competitor whose offer has been accepted (and there has been much recent debate about so called “gazumping”), the fact remains that on the current state of the law in this jurisdiction a party is legally entitled to make a bid up and until the time when legally enforceable relations are entered into with another party. The very fact that Mr. McKeon was not anxious that Mr. Shiel be aware that he had no intention of going ahead with their arrangement until after he (Mr. McKeon) had in his possession a legally enforceable contract, shows that keeping Mr. Shiel off-side was considered by Mr. McKeon to be of some value to him. In the circumstances it seems to me that the test of benefit or detriment as set out in Banner Homes is met.
5.3 However it seems to me that I need to consider the undoubted fact that Mr. Shiel, in going into the meeting on the Sunday, was aware that his position had been significantly damaged by his failure to make the required bid by close of business on the previous Friday and, most importantly, that Mr. McKeon was not aware of that fact, under another heading.
5.4 Obviously so far as the formulation of contractual relations are concerned parties are not under any obligation to reveal facts which might place them at a negotiating disadvantage save in the limited exceptional cases in respect of which utmost good faith is required and subject to the requirement not to engage in misrepresentation. If this case were concerned with the specific performance of a contract then the fact that Mr. Shiel acted in that fashion would be of no relevance whatsoever. However in this case Mr. Shiel seeks to enforce an equitable remedy. It is an old adage that “he who seeks equity must do equity”. In the circumstances I have to consider whether it would be inequitable for Mr. McKeon not to comply with the informal arrangement which, I am satisfied, was arrived at on the Sunday. However in assessing whether that would be inequitable, I must also have regard to whether it would be inequitable to allow Mr. Shiel to benefit from such an arrangement where it was entered into by him in circumstances where he was aware that Mr. McKeon was under a misunderstanding as to Mr. Shiel’s negotiating position.
5.5 Under this heading I am satisfied that the distinction which counsel for Mr. McKeon sought to draw between this case and the other cases in which a Pallant v. Morgan equity have been found to exist, is correct. In all the other cases the parties were competing bidders at arms length where neither party had, apparently, any particular advantage in the negotiations or in respect of an upcoming auction. Indeed item (4) in the passage from Banner Homes referred to at para. 3.3 above speaks of a detriment to seeking to acquire the property on “equal terms”.
5.6 Where a party, such as Mr. Shiel, wishes to rely on equitable principles then it seems to me that he must also be shown to have done equity. While there may be reason to understand his attempt to gazump Mr. McKeon (on the basis that he was aggrieved at not being reverted to having been, at one stage, so far as he concerned, the highest bidder) it does not seem to me that he can invoke equitable principles when he procured the arrangement upon which he relies in circumstances where he was aware that Mr. McKeon was unaware of the fact that his position was far weaker than might otherwise be believed.
6. Conclusion
6.1 In all those circumstances I am satisfied that equity does not require that Mr. McKeon comply with the terms of the informal arrangement. That arrangement was procured in circumstances where one party was, to the knowledge of the other party, unaware of a significant weakness in that party’s position. While under no legal obligation to reveal that weakness, Mr. Shiel does not seek to enforce a legal entitlement. It seems to me that Mr. Shiel has lost his entitlement to resort to equity to pursue the matter by reason of his failure to disclose his weakened position at the meeting on Sunday 14th. While the parties were not, on any view, on equal terms prior to the meeting of the 14th the extent of that inequality was concealed by Mr. Shiel.
6.2 In all the circumstances of the case I therefore dismiss the plaintiff’s claim.
Esso Ireland Ltd & Ireland Roc Ltd
[2013] IEHC 514 (14 November 2013)
URL: http://www.bailii.org/ie/cases/IEHC/2013/H514.html
Cite as: [2013] IEHC 51
JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 14th day of November, 2013
1. In these proceedings, the plaintiff seeks injunctive relief against the defendant arising out of the defendant’s occupation of a number of garage premises pursuant to the terms of Operating Agreements and Licences (and in the case of one premises, a Concession Agreement) all of which the plaintiffs claim have now expired. The 32 business premises concerned are owned by the first named plaintiff (hereinafter “Esso”) and operated under Licence by the second named plaintiff (hereinafter “IROC”), both companies incorporated in the State.
2. The defendant is a company, incorporated in the State and engaged in the business of providing food services.
3. The plaintiffs and the defendant agreed, by way of an undated Concession Agreement in 2001, to enter into an arrangement whereby the defendant would provide hot food facilities at the Esso service station at Sandford Road, Ranelagh, Dublin 6 (hereinafter the “Belmont Premises”). Similar arrangements were entered into relating to 31 further service stations owned and operated by the plaintiffs by way of an Operating Agreement dated 21st June, 2002 (hereinafter the “Operating Agreement”), together with 31 licences issued pursuant thereto.
4. The nature of the facilities provided is defined in the Operating Agreement as that of a “food counter and equipment for the preparation and sale of hot and cold foods in Esso premises”. The facilities are operated under the brand name ‘On the Run’, with three different store types, referred to as ‘Big Box’, ‘Medium Box’ and ‘Small Box’ by reference to the size of the licensed areas within the premises. Common to all premises is a counter installed in the main floor of the service station where food is displayed and sold, as well as an area for food preparation, with larger premises also including associated seating. In all of the service stations, save the Belmont Premises, the plaintiffs provided the necessary equipment in the service stations including ovens, the food counter itself, refrigeration units and are responsible for maintenance of same.
5. The Operating Agreement was for a term of ten years, commencing on 21st June, 2002, while the Concession Agreement relating to the Belmont Premises, after an initial three-year term, continued on a rolling basis subject to termination by either party following a one-month notice period. In the absence of further agreement, the Operating Agreement was due to determine on 20th June, 2012. On 4th May, 2012, the parties executed a Supplemental Agreement, extending the term of the Operating Agreement for a further 12 months, which meant that the agreement would end on 20th June, 2013.
6. Under the terms of the Operating Agreement, the defendant pays “Operating Fees” including a Monthly Base Operating Fee and a percentage operating fee based upon the annual gross sales at the particular service station.
7. Between July and October 2012, the parties engaged in negotiations with a view to agreeing a further Operating Agreement. On 25th October, 2012, the plaintiffs issued a letter formally terminating negotiations between the parties. Accordingly, the extended term, pursuant to the Supplemental Agreement, ostensibly expired on 20th June, 2013. On 14th May 2013, the plaintiffs issued notice of termination of the Concession Agreement, also to expire on 20th June, 2013.
8. The defendant claims, for various reasons which will be addressed in depth infra, that the Operating Agreement has not been validly terminated, and has continued to operate the ‘On the Run’ food services as they had during the term of the Operating Agreement, as extended. The defendant also raises two separate counterclaims in damages for breach of contract.
9. These proceedings issued on 17th June, 2013 and were entered into the Commercial List on 18th June, 2013. The plaintiffs claim injunctive relief against the defendant on account of their alleged unlawful occupation of the garage premises which had previously been occupied on foot of the Concession Agreement, Operating Agreements and Licences. A claim for damages which had been pleaded by the plaintiffs was not maintained at trial. While the plaintiffs’ application for an interlocutory injunction was refused by Kelly J. on 4th July, 2013 (on the basis, inter alia, that the inadequacy of damages as a remedy had not been established), he fixed the matter for an expedited hearing, given the nature of the dispute.
Legal Issues Arising
10. The defendant submits that it is in possession of a tenement and is entitled to claim a new tenancy pursuant to the Landlord & Tenant (Amendment) Act, 1980. The defendant asserts, further, that the plaintiffs have failed to give reasonable notice of the termination of the Operating Agreement and claims that a notice period of twelve months should be implied. The defendant also claims that the plaintiffs have been in breach of contract in failing in their purported obligation, under Clause 4.1 of the Operating Agreement to negotiate in good faith with the defendant with a view to entering a new contract.
11. The plaintiff seeks an order directing that the defendant, its servants or agents vacate the premises, remove its equipment, and a permanent injunction restraining any further encroachment.
12. The facts arising in this case are largely agreed between the parties. The areas of dispute concern the interpretation of the Concession Agreement, the Operation Agreement and Licenses.
13. It seems to me, therefore, that the legal issues falling for consideration in this action are as follows:-
(a) Did the Licences, issued pursuant to the Operating Agreement, create a relationship of landlord and tenant between the parties? If such a relationship exists, is the defendant entitled to assert the right to a new tenancy pursuant to the Landlord & Tenant (Amendment) Act, 1980?
(b) Should a term be implied into the Operating Agreement and/or the Supplemental Agreement specifying a reasonable notice period?
(c) Is Clause 4.1 of the Operating Agreement enforceable on its terms, insofar as it purports to impose a duty upon the plaintiffs to negotiate in good faith? If so, is the defendant entitled to damages and/or specific performance on foot of same?
The Defendant’s Entitlement to a New Tenancy
14. Section 5(1) of the Landlord & Tenant (Amendment) Act, 1980 defines a “tenement” as follows:-
“In this Act ‘tenement’ means –
(a) Premises complying with the following conditions:
(i) they consist either of land covered wholly or partly by buildings or a defined portion of a building;
(ii) if they consist of land covered in part only by buildings, the portion of the land not so covered is subsidiary and ancillary to the buildings;
(iii) they are held by the occupier thereof under a lease or other contract of tenancy express or implied or arising by statute;
(iv) such contract of tenancy is not a letting which is made and expressed to be made for the temporary convenience of the lessor or lessee and (if made after the passing of the Act of 1931) stating the nature of the temporary convenience; and
(v) such contract of tenancy is not a letting made for or dependent on the continuance in any office, employment or appointment of the person taking the letting; or
(b) premises to which section 14 or 15 applies.”
15. Section 16(1) of the 1980 Act states:-
“Subject to the provisions of this Act, where this Part applies to a tenement, the tenant shall be entitled to a new tenancy in the tenement beginning on the termination of his previous tenancy, and the new tenancy shall be on such terms as may be agreed upon between the tenant and the person or persons granting or joining in the grant of the new tenancy or, in default of agreement, as shall be fixed by the Court.”
16. Section 28 of the 1980 Act provides for the right of a tenant to continue in occupation pending a decision as follows:-
“Where an application is pending under this Part for a new tenancy or to fix the terms of a new tenancy and the pre-existing tenancy was terminated otherwise than by ejectment or surrender the tenant may, if he so desires, continue in occupation of the tenement from the termination of the tenancy until the application is determined by the Court, or in the event of an appeal, by the final appellate court, and the tenant shall while so continuing be subject to the terms (including the payment of rent) of such tenancy, but without prejudice to such recoupments and readjustments as may be necessary in the event of a new tenancy being granted to commence from such termination.”
17. Section 85 of the Landlord & Tenant (Amendment) Act, 1980 states:-
“So much of any contract, whether made before or after the commencement of this Act, as provides that any provision of this Act shall not apply in relation to a person, or that the application of any such provision shall be varied, modified or restricted in any way in relation to a person shall be void.”
It is clear that what is meant by “contract” in that section is a contract of tenancy.
18. The Circuit Court has exclusive jurisdiction under the 1980 Act to deal with claims for new tenancies. In the 1980 Act, “the Court” means the Circuit Court (Section 3). In the case of Kenny Homes & Co. Limited v. Leonard, Costello P. (High Court, Unreported, 11th December, 1987) held that the High Court could have jurisdiction where there was particular urgency in a case. The Supreme Court confirmed the reasoning of Costello P. on the preliminary issue. Costello P. had decided “that because of the particular urgency in this case, the Court should not decline jurisdiction”. I am satisfied that in a case such as this, the court has power to decide the issues in dispute without first remitting the matter to the Circuit Court. The jurisdiction of the Circuit Court only arises in the event that I conclude the relationship between the parties is one of landlord and tenant.
19. Under Clause 1 of the Licences it was agreed as follows:-
“[IROC] agrees to permit the Licensee to use:
(a) The premises described in the Schedule A hererto (hereinafter called the Food Service Facility”) together with the use of (i) staff facilities which are to be provided by Esso/[IROC] which shall contain a toilet, hand basin and two clothes lockers in compliance with food hygiene regulations and (ii) access to the Food Service Facility 24 hours a day and if access is not possible Esso/[IROC] must provide a secure receptacle constructed to the required specifications of the Operator in order to store the delivery.
(b) The equipment and furniture thereon set out in an inventory in Schedule B attached hereto agreed between [IROC] and the Licensee (which equipment and furniture and all additions or substitutions is hereinafter called “the equipment”) is identified by the signature on the said inventory on behalf of the Licensee and of a representative of [IROC] both on its own behalf and on behalf of Esso.”
20. Under Clause 2(a) of the Licences it was agreed as follows:-
“This Licence shall commence on the [ ] day of [ ] and continue (subject as hereinafter provided) for a period of time to coincide with the term of the Operating Agreement.”
21. Under Clause 4 of each Licence it was agreed as follows:-
“(a) This Licence is personal to the Licensee and is not assignable.
(b) Nothing in this Licence is intended to have the effect of giving exclusive possession of the Food Service Facility to the licensee or of creating any tenancy between Ireland ROC Limited and the Licensee. Accordingly Ireland ROC Limited continue to have a right of possession. Although Ireland Roc Limited’s entitlement to possession is a general entitlement it would be its intention to exercise this right, save in exceptional circumstances, for the following stated purposes only:-
(i) the inspection of the Food Service Facility and state of repair thereof;
(ii) the erection and display of signs notices and advertisements and the removal and replacement thereof;
(iii) the carrying out of repairs, maintenance, decoration or other works to the Food Service Facility.
(c) This agreement is not intended to create the relationship of Landlord and Tenant and the Licensee acknowledges that the premises remain vested in the possession of Ireland ROC Limited.”
22. Finally, as noted above, under Clause 7 it was agreed:-
“The Licence is subject to the terms of the Operating Agreement and without prejudice to the foregoing may be terminated during its currency for any of the reasons set out in Clause 8 of the Operating Agreement and in any event this Licence will automatically terminate in the event of termination of the Operating Agreement.”
23. In determining whether an agreement is a licence or a tenancy, the Court has to look at the true nature of the agreement rather than the label given to it by the parties. Thus, in Smith v.Irish Rail (Unreported, High Court, 9th October 2002), Peart J. held an agreement which, on its face, was described as a 10-year licence was, as a matter of law, a tenancy. In the proceedings, the applicant claimed a new tenancy under s. 21 of the Landlord and Tenant (Amendment) Act 1980. The premises consisted of a shop premises at the Tara Street DART Station from which the applicant ran a news agency business. There were a large number of clauses in the agreement which were consistent with a tenancy rather than a licence. Peart J., in concluding that the agreement constituted a tenancy rather than a licence, and in distinguishing cases such as National Maternity Hospital v. McGouran [1994] 1 ILRM 521, stated as follows at p.22:-
“It is in essence a matter of law. For a tenancy to exist, there is no doubt that exclusive possession of the premises is a pre-requisite, but, as Mr. Gaffney pointed out in his submissions, the fact that there is exclusive possession does not preclude the agreement from being a licence. But in this case, it is the fact of exclusive possession which removes the case from the ambit of the McGouran case, which found on the facts of that case that a mere licence existed. “
24. The Court accepted that when the applicant took possession of the premises, he fitted them out as a newsagent’s shop. He was not required to give a set of keys to CIE. No cleaning services were supplied to the premises by CIE and it was accepted that CIE had never had to come into the premises for the purpose of repair. The Court accepted the evidence of the applicant that he was left alone for ten years by CIE apart from the occasions when he was called upon to desist from leaving rubbish on the station concourse and in relation to the parking of cars. The Court held that in all respects, this was a self-contained business, save that the applicant and his staff were able to avail of toilet facilities within the station complex. In that case, Peart J. also looked at other factors and said at p. 23:-
“Other features of the Agreement such as the payment of ‘a Licence Fee’ and being for a fixed period of ten years, the use of expressions such as licensor, licensee, license fee and licence, do not of themselves confine the Agreement to being a licence. For example, the fact that the annual payment is referred to as ‘a Licence Fee’ does not mean that it cannot be regarded as a rent simply because it bears a different label.”
25. It is clear, therefore, that the court will have to look at the true nature of the Concession Agreement, the Operating Agreement and the Licences to determine whether or not the defendant held the premises on foot of a contract of tenancy giving rise to rights under the 1980 Act.
What Notice was required to terminate the Operating Agreement?
26. The Operating Agreement was for a term of ten years, commencing on 21st June, 2002, and ending on 20th June, 2012. Clause 4.1 of the Operating Agreement provides as follows:
“The term of this Agreement shall be 10 years from the date hereof. Any Licence granted in pursuance of Clause 3.A.1 shall be for a term ending on the last day of the term of this Agreement. Each party shall notify the other before the end of the ninth year of this Agreement of its intention to negotiate a new Agreement or not, as the case may be. In the event of the parties entering into negotiations in relation to a new Agreement, both parties shall negotiate in good faith with a view to entering into the Contract.”
27. On 4th May, 2012, following negotiations, the parties entered in to a Supplemental Agreement, Clause 2.1 of which provides:
“For the purpose of Clause 4.1 of the Operating Agreement, the term is hereby extended for a period of 12 months from 21st June 2012.”
Clause 3.2 of the Supplemental Agreement stated:
“Save, as varied by the terms of this Agreement, the terms and conditions of the Operating Agreement shall continue to apply.”
33. In paragraph 6 of the defence in counterclaim, the defendant contends that there should be a term “. . . implied in the contract that in the event of the parties not reaching agreement following negotiation, a reasonable notice of time certain ought to be given prior to the start of the ultimate year of the term or if negotiations proceed into the ultimate year that a full year’s notice certain be given to allow a proper wind-down of operations and disengagement with existing suppliers and staff, and indeed the continued personal obligations of the Principal.” The defendant argues that such a clause should be implied to give business efficacy to the contract between the parties.
28. The law is quite clear on this topic. For a term to be implied, it must not just be reasonable but also necessary to give business efficacy to the contract, and be capable of formulation with reasonable precision.
29. Clause 4 of each Licence Agreement provides:-
“This Licence is subject to the terms of the Operating Agreement and without prejudice to the foregoing may be terminated during its currency for any of the reasons set out in Clause 8 of the Operating Agreement and in any event, this Licence will automatically terminate in the event of termination of the Operating Agreement.”
Accordingly, the plaintiff claims that each of the 31 Licence Agreements expired at midnight on 20th June, 2013, being the time of expiration of the Operating Agreement (as extended). With regard to the Concession Agreement for the Belmont Facility, the defendant was permitted to operate for a three-year period commencing on 23rd April, 2001, which was terminable by either party on the giving of not less than one calendar month’s written notice expiring on any day. By letter dated 14th May, 2013, the defendant was notified that the plaintiffs were exercising their right to terminate the Concession Agreement as and from midnight on 20th June, 2013. In the circumstances, the plaintiff argues that the Concession Agreement also expired as and from that time.
30. The defendant contends that having regard to the relationship between the parties and the facts of this case that the plaintiff should give twelve months notice of termination of the Operating Agreement and that it has not yet done so. It argues that if there are two possible constructions as to the meaning of the terms of the Agreement on this issue, that the court is entitled to prefer the construction which is most consistent with business commonsense. In this case, I must first decide whether or not the Agreements provided for a period of notice and if that notice period was complied with. If there was no notice period provided, I have to decide whether or not a reasonable period of notice should have been given and, if so, what that period should be.
31. The evidence clearly established that before the initial term of the Operating Agreement and Licence expired on 21st July, 2012, an extension of one year up to 20th June, 2012, was agreed. In my view, the position from that point on was, that unless further agreement could be reached, the Licence Agreement and Operating Agreement would terminate on 20th June, 2013. By letter dated 14th May, 2013, the defendant was notified that the plaintiffs were exercising their right to terminate the Concession Agreement as and from midnight on 20th June, 2013, which brought the termination of that agreement into conformity with the others. On 25th October, 2012, some months prior to such date, the plaintiffs issued a letter formally terminating negotiations between the parties. There can have been no doubt that, from that time on, the plaintiffs did not intend to renew the Operating Agreements, Licences or the Concession Agreement.
32. In those circumstances, it is clear that these agreements would have run their course by 20th June, 2013, and the defendant knew or ought to have known that that was the case. However, the defendant asserts that it was entitled to a further period of notice beyond that date. I do not agree. An extension of one year had been granted and it was clear that in the course of that year, the parties had reached an impasse in their negotiations. The agreements lapsed by effluxion of time. In those circumstances, it was not necessary for the plaintiffs to serve formal notice once they had made it clear to the defendants that they were not going to extend the Agreements further. In any event, they gave notice on 25th October, 2012, concerning the Licence and Operating Agreement which seems to me to be quite sufficient, having regard to the surrounding circumstances, where it was clear that the parties had not reached any agreement for a further extension of the relationship. So far as the Concession Agreement is concerned, the required one month’s notice was given on 14th May, 2013. The letter of 25th October, 2012, terminating negotiations between the parties was sufficient notice to the defendant that the other agreements would not be renewed. If the defendant had been allowed to remain on beyond 20th June, 2013, without objection, then, I think, an arguable case could be made for a period of notice to be implied, although, it seems to me, that that period would be well short of the one year contended for by the defendant. But that is not what happened in this case.
Duty to Negotiate in Good Faith
33. I must now consider the defendant’s assertion that the various arrangements imposed on the parties a binding duty to negotiate in good faith, and that this duty has been breached. Clause 4.1 of the Operating Agreement provides as follows, inter alia:-
“In the event of the parties entering into negotiations in relation to a new agreement, both parties shall negotiate in good faith with a view to entering into the Contract.”
33. The defendant, while acknowledging that negotiations did take place for a further extension of the term of the Operating Agreement, claims that the plaintiffs lacked good faith in their engagement with it. This assertion is supported by the claim that the plaintiffs had made overtures towards third parties in relation to the provision of hot food services at their service stations in advance of entering into negotiations with the defendant.
34. The law is well summarised in the case of Triatic Limited v. The County Council of the County of Cork [2007] 3 IR 57, wherein at p. 79 (para. 67) Laffoy J. considered the speech of Lord Ackner in Walford v. Miles [1992] 2 A.C. 128:-
“He distinguished an agreement to negotiate in good faith from an agreement to use best endeavours and continued (at p. 138):-
“The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. The uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for termination of negotiations? The answer suggested depends upon whether the negotiations have been determined ‘in good faith’. However, the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering improved terms. [Counsel for Walford], of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question — how is a vendor ever to know that he is entitled to withdraw from negotiations? How is the court to police such an ‘agreement’? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a ‘proper reason’ to withdraw. Accordingly a bare agreement to negotiate has no legal content.”
35. Referring to Rooney v. Byrne [1933] I.R. 609, and Fluid Power Technology Company v. Sperry (Ireland) Limited (Unreported, High Court, Costello J., 22nd February, 1985), Laffoy J. stated at p. 82 that:-
“In each of those cases, the court was concerned with a situation in which a contract existed. In the first, the contract was for the purchase of a house subject to the purchaser getting a mortgage. It was held that the purchaser was bound to make reasonable efforts to secure the necessary advance. The second concerned the exercise of a power to terminate a distributorship agreement in the context of an application for an interlocutory injunction. Costello J. held that the plaintiff, which was seeking the interlocutory injunction, had made out a fair case that there was an implied obligation to exercise the termination power in a bona fide manner, which he explained as meaning:
‘… that when they give reasons for termination these reasons must not be spurious ones, but it also means that if they honestly believe them to be valid, then even if they are subsequently proved to have been wrong the notice is valid. So, if honestly dissatisfied with the plaintiffs as distributors, this would mean that the notice of termination could be given.’”
36. Laffoy J., at p. 82, also addressed the case of Petromec Inc. & Ors. v. Petroleo Brasileiro SA Petrobras & Ors. [2005] EWCA Civ 891 in the following terms:-
“As was pointed out by Mance L.J. in his judgment in that case, at para. 120, the Court of Appeal was bound by the decision of the House of Lords for what it decided. He pointed out that the main distinction between Walford v. Miles and the Petromec case was that in the former there was no concluded agreement, since everything was ‘subject to contract’, and there was, moreover, no express agreement to negotiate in good faith. The comments of Mance L.J. in Petromec, which were clearly obiter, concerned the enforcement of an express provision in the contract under consideration, whereby the other contracting party agreed to negotiate certain extra costs with Petromec ‘in good faith’. Having quoted the last three sentences in the first quotation from Walford v. Miles set out above, Mance L.J. stated as follows (at para. 121):
‘That shows the difference from the present case. Clause 12.3 of the Supervision Agreement is not a bare agreement to negotiate. It is not irrelevant that it is an express obligation which is part of a complex agreement drafted by City of London solicitors … It would be a strong thing to declare unenforceable a clause into which the parties have deliberately and expressly entered. I have already observed that it is of comparatively narrow scope. To decide that it has ‘no legal content’ to use Lord Ackner’s phrase would be for the law deliberately to defeat the reasonable expectations of honest men . . .’”
The latter phrase was an adopted reference to the title of a lecture delivered by Lord Steyn on 24th October, 1966 (113 LQR 433 (1977)) in which, at p. 439, Lord Steyn expressed the hope that the House of Lords might reconsider Walford v. Miles with the benefit of fuller argument.
37. Laffoy J concluded:-
“For my part, I find the reasoning of Lord Ackner persuasive, particularly when applied to the facts of this case, in which the dealings and negotiations between the plaintiff and the defendant, the ultimate objective of which was to achieve agreement on terms for the development, subject to planning permission, and the acquisition by the plaintiff of Fort Camden, which the defendant could recommend to the elected members of the defendant, involved a considerably greater element of complexity, and, consequently, more scope for uncertainty than negotiations for the purchase of the shares of a company and a leasehold property or the purchase of a house.”
38. I similarly find Lord Ackner’s reasoning to be persuasive, given the facts before the court. Again, in this case, there is no subsisting concluded agreement. The parties agreed to furnish notice of an intent to negotiate, or otherwise, and if appropriate to hold negotiations “in good faith” with a view to agreeing a new arrangement between them. This is a matter entirely separate from the termination of the Operating Agreement by operation of its terms. I conclude that Clause 4.1 is insufficiently precise for this court to hold it to be enforceable, insofar as it stipulates that “both parties shall negotiate in good faith.” The court cannot interpose its opinion of what constitutes “good faith” in the context of “the adversarial position of the parties”, both legitimately pursuing their business interests.
39. A distinction must be drawn, as Lord Ackner did, between cases where the parties reached an agreement to employ best endeavours, such as Rooney v. Byrne, where the parameters of the contractual duties may be readily discernible to the court, and a duty to negotiate in good faith, which will almost inevitably lack precision and certainty. It should be added, also, that even where the clause falls into the former category, the court must embark upon a “fact specific” examination of its content in adjudicating upon its enforceability.
40. It is not necessary for the determination of the case before me to express a view as to whether an express agreement to negotiate “in good faith” is always “devoid of legal content” in Lord Ackner’s phrase. I would observe, however, that Mance LJ, in holding that Walford v. Miles need not be construed as entailing a “blanket unenforceability” of any such clause, concluded at para 117 that any loss arising from breach of the express duty to negotiate in good faith in that case would be “ascertainable with comparative ease”. That is not the case here.
41. But whether I am right or wrong in my conclusions on the law on this issue, the evidence in this case discloses a serious and purposeful engagement between the parties over an extended period of time, notwithstanding their failure to reach an agreement. In my view, it cannot be said that there was any neglect or want of bona fides on the part of the plaintiffs. It was simply a case that the parties could not reach consensus and thus negotiations terminated. Such engagement as did take place between the plaintiffs and third parties could not constitute a breach of the purported duty to negotiate in good faith, even if it were the case that such duty was deemed to be enforceable and interpreted in the most generous conceivable terms.
Does the Defendant have a Right to a New Tenancy?
42. I have already discussed the legal aspects surrounding the defendant’s entitlement to a new tenancy at paras. 14 to 25 above. I now look at the facts in this case to see whether, in fact, a tenancy existed as the defendant claims. In the absence of an existing tenancy, no right to claim a new tenancy would arise.
43. The Operating Agreement provided that it would be for a fixed term and that at the expiration of the term, the defendant would vacate the premises. Neither the Operating Agreement nor the Licence provided for exclusive possession by the defendant of the premises or any part thereof. Furthermore, the defendant did not, in fact, have exclusive possession of the licensed area or any part thereof. The defendant was permitted to use the garage premises to provide a food service for a period of time coinciding with the Operating Agreement, in consideration of which the defendant agreed to pay the second named plaintiff a monthly base operating fee and a percentage operating fee as provided for in the Licence.
44. The Licence Agreement clearly stated that no relationship of landlord and tenant existed or was intended to be created between the parties. While that does not, of itself, establish that there was no landlord and tenant relationship, the evidence in this case does not establish that the attributes of a tenancy agreement existed. The court should be slow to look behind the clear terms negotiated by the parties at arm’s length and in circumstances where each was legally represented. The terms of the Operating Agreement and Licence could not have been clearer.
45. The defendant argues that because it had a food preparation area in each garage which was accessible by a door containing an access code. It thereby had exclusive possession of that part of the premises. However, the evidence established that the reason for the security in that part of the premises was for the purpose of food hygiene and to protect the personal belongings of staff working on the premises. The defendant had access to all areas of the garage including the licensed areas, and in order to enter the licensed areas, the defendant was required to enter through the main store entrance in each garage. Outside the main customer opening hours, the defendant required the plaintiffs’ permission to access the food service facilities. If night-time deliveries were being made to the garages, the defendant would have to make arrangements with the plaintiffs to ensure access for delivery. The area of each garage licensed to the defendant was part of an open-plan shop floor, being part of the premises being operated as a filling station and garage. The facts of this case are quite different to those in Irish Shell and BP Ltd. v.John Costello Ltd. [1981] ILRM 66.
46. There are no facts surrounding the defendant’s occupation of the premises which would entitle the court to say this is a tenancy agreement, in circumstances where they have both agreed that no landlord and tenant relationship shall arise. The facts in this case completely accord with the nature of the relationship as stated by the parties in their written agreement. In the circumstances, I hold that there was no tenancy agreement and it follows that the defendant is not entitled to claim a new tenancy under the Landlord and Tenant (Amendment) Act 1980.
Is the Defendant Entitled to Recover for Historic Losses?
47. The defendant counterclaims against the plaintiffs for losses in respect of the period from November 2004 to October 2009 in the sum of €857,644.56, which it submits should be recoverable under the terms of Clause 2.9 of the Operating Agreement. The defendant further asserts that it is entitled to compensation on the basis that the plaintiffs have failed to discharge advertising costs which should have been set aside for that purpose from the annual fee paid to the plaintiffs under the Operating Agreement. The defendant claims that the annual fee paid to the plaintiffs, being 14.5% of gross sales, should, in fact, be taken as comprising 10% for rent, 3% for depreciation for shop fit-outs and 1.5% for advertising. The defendant claims that the plaintiffs have spent, at most, €150,000 in the 11-year duration of the Operating Agreement and claims damages in the sum of €602,063. These claims are described as the “historic losses”.
48. The entitlement to compensation for monies paid by the defendant to the plaintiffs and which should have been ring-fenced for advertising is not apparent from the terms of the Operating Agreement. There was no requirement in the agreement that the monies paid by way of annual fee be applied to any particular purpose. Clause 5.1 of the Operating Agreement sets out the operating fees to be payable, comprising a “Monthly Base Operating Fee” to be fixed by way of the Licence Agreement relating to the particular premises, together with a “Percentage Operating Fee” amounting to 14.5% of annual gross sales above a specified level. There is no indication of any agreement to apply these fees towards any particular purpose.
49. Further, Clause 16.2 of the Operating Agreement sets out the following:
“No representations or statements other than those expressly set forth in this agreement have been relied on by the parties in entering into this agreement. No modification or amendment of the terms of this agreement shall be effective unless reduced to writing and signed by authorised representatives of each party.”
50. The Supplemental Agreement contains an entire agreement clause in the following terms:-
“This agreement, including the Schedules appended to it, contains the entire agreement and understanding between the parties with respect to the subject matter.”
51. In my view, the defendant has failed to show any reason why these clauses should not be taken as conclusive evidence of the terms of the agreement between the parties. Even in the absence of the exclusionary clauses in the Operating Agreement and Supplemental Agreement, the ordinary operation of the Parol Evidence Rule confines the court to an examination of the terms of the contract as formalised in the written agreement. There is no basis in these agreements for concluding that the parties agreed any apportionment of the annual fee towards particular purposes. Accordingly, the defendant’s claim on this point fails.
52. Turning to the question of recovery pursuant to Clause 2.9 of the Operating Agreement referred to by the parties as the “loss-making store clause”, this term provides for the establishment of a Management Committee, consisting of two representatives of the plaintiffs and two representatives of the defendant, with the following stipulations with regard to the eventuality of certain premises being loss-making:
“In the event that the Management Committee decides to continue to continue in an Esso Premises where the operation of the Food Service Facility is loss making [IROC] will pay a contribution to [Nine One One] towards the on site costs such to render the on site operation break-even. In the event of a dispute as to whether the operation of a Food Service Facility is loss making or not, the matter shall be referred to and settled by the Management Committee.”
53. Clause 2.9 goes on to set out, inter alia, the method of calculation of profit or loss, and those costs that may legitimately be included, granting the casting vote on the Management Committee to the plaintiffs’ representative and setting out an appeals mechanism in respect of its decisions to the Chairperson of the first named plaintiff. It is common case that the defendant received contributions towards loss-making premises in the period between 2010 and 2013, pursuant to the operation of Clause 2.9. The plaintiffs assert that the Management Committee at this time provided “further assistance”, including allowances under costs headings not included in Clause 2.9 as a gesture of goodwill and without any admission of liability, in the context of the ongoing relationship between the parties.
54. The defendant asserts that, in 2010, it raised the question of its purported entitlement to compensation for “historic losses” pursuant to Clause 2.9, and claims to have been asked by representatives of the plaintiffs at this time to waive this claim in return for a 3% reduction to the Operating Fees, which offer was declined. It is admitted by the defendant, however, that no formal claim was lodged in this regard until 11th May, 2012. The first named plaintiff, by way of letter dated 12th October, 2012, stated its position with regard to the losses claimed by the defendant for the period between November 2004 to October 2009, as being that Clause 2.9 does not provide for the settlement of “historic claims”, its purpose being “to manage loss-making sites in real time”.
55. Nevertheless, following this request, the plaintiffs made an initial offer of €200,000 to the defendant in settlement of these claims, which offer was subsequently increased to €250,000, stated to be “on a without prejudice basis and as a gesture of goodwill and to facilitate our ongoing operational relationship”. Although this sum was not accepted on the terms on which it was offered, the parties agreed that evidence of the offer could be canvassed in the course of the trial.
56. The question of the defendant’s entitlement to recover monies pursuant to Clause 2.9 is a matter of contractual interpretation. The question is whether the term is capable of operating retrospectively or is intended only to apply contemporaneously on the assessment by the Management Committee in the broader context of reaching a decision to continue the operation of hot food services in a premises where it is loss-making.
57. The rules of contractual interpretation are well-established, having been recited by the Supreme Court in Analog Devices BV v. Zurich Insurance Company [2005] 1 IR 274, where the court adopted Lord Hoffman’s formulation in I.C.S. v. West Bromwich B.S. [1998] 1 WLR 896.
58. Applying these principles to the matter before the court, it is clear that Clause 2.9 must be interpreted as envisaging a contemporaneous appraisal of the operating situation on an ongoing basis, and the payment of monies to the defendant pursuant that appraisal. The business context in which the Management Committee may authorise a contribution is where it has “decide(d) to continue to operate in an Esso Premises where the operation of the Food Service Facility is loss-making”. This choice of words leads to the unavoidable conclusion that Clause 2.9 was designed as a forward-facing provision rather than one to be applied retrospectively.
59. Indeed, it appears that this clause was operated in this fashion in the period from 2010 to 2013, with the Management Board reviews being held with increasing frequency over this time. It seems to me that the defendant, in furnishing a significant number of claims to the plaintiffs in May 2012, anything up to eight years after the fact, has circumvented the core role of the Management Committee in assessing whether the premises is, in fact, loss-making, and taking appropriate steps to ameliorate further losses. In the absence of such a determination, there is no basis upon which a contribution could be made. Furthermore, the defendant did not appeal the Management Committee’s refusal to pay out, pursuant to the provisions of Clause 2.9 of the Operating Agreement, nor did it seek to invoke the arbitration clause contained therein.
Conclusion
60. In summary, having carefully considered the terms of the various arrangements entered into by the parties, I conclude, for the foregoing reasons, that the defendant is not entitled to assert a tenancy, nor is it appropriate in the circumstances for the court to hold that it is entitled to an additional or extended notice period in relation to the plaintiffs’ termination of the Operating Agreement.
61. The duty to negotiate in good faith contained at Clause 4.1 is not enforceable in the manner contended for by the defendant. Furthermore, the defendant has not demonstrated any want of good faith on the part of the plaintiffs. Accordingly, there has been no breach of Clause 4.1 and no relief will be granted, either in damages or by way of specific performance.
62. The defendant is not entitled to damages for breach of contract on the basis of the purported failure of the plaintiffs to apply monies comprising part of the fees paid by it pursuant to the arrangement between the parties towards advertising. Nor is the defendant entitled to damages for breach of Clause 2.9 of the Operating Agreement.
I will therefore give the plaintiffs the injunctive relief which they seek and I will dismiss the counterclaim.
Triatic Limited -v- Cork County Council
[2006] IEHC 111 (31 March 2006)
Judgment of Miss Justice Laffoy delivered on 31st March, 2006.
The factual background
The plaintiff was incorporated on 16th February, 1993 under the name Barevan Limited. Two brothers, James O’Brien and William O’Brien, own the entire share capital of the plaintiff and they are its sole directors. The claim being pursued in these proceedings arises out of dealings between the plaintiff and the defendant in relation to the proposed development and acquisition of Fort Camden at Crosshaven, County Cork in the mid-1990s. At the time, William O’Brien was working abroad and it was James O’Brien who primarily dealt with the defendant.
Fort Camden, which got its name from the Earl of Camden, the Lord Lieutenant of Ireland between 1795 and 1798, is described in an historical note which was put in evidence as being recognised internationally to be one of the world’s finest remaining examples of a classical Coast Artillery Fort. After it was handed over to the Irish government in 1938, it was renamed Fort Meagher in honour of Thomas Francis Meagher. However, the evidence indicates that it continued to be known as Fort Camden locally. It was handed over by the Department of Defence in late 1988 to the defendant on the basis that the defendant would develop it for tourism and amenity purposes. What emerged on the evidence was that “handed over” meant that physical possession of the property was given to the defendant. The ownership remained in the State, a fact of which James O’Brien was unaware until 31st August, 1995.
The defendant, being unable to identify a suitable source of funding the development work, decided to seek private sector involvement. In September 1989, the defendant placed advertisements in a number of publications, including the Cork Examiner, announcing the availability of “serviced development sites” for industrial, commercial and tourism development at a number of locations in Cork, including Crosshaven. Fort Camden was not specifically mentioned. The advertisement elicited no response in relation to Crosshaven. Subsequently a French enterprise expressed interest but withdrew. The defendant’s involvement with an Irish enterprise was somewhat more fruitful and on 7th April, 1993 the defendant issued a notification of decision to grant planning permission, subject to conditions, to Valcoast Limited to “convert and refurbish part of Fort Meagher (Camden) to a hostel, restaurant and lounge bar and ancillary activities”. James O’Brien’s involvement with the defendant in relation to Fort Camden commenced shortly after that.
In the Cork County Development Plan, 1996, which was published as a draft in 1994, the development of Fort Camden was addressed under the heading “Amenity & Tourism – Cork Harbour”. It was stated that the Fort Camden development would help develop Crosshaven’s tourist function; there were proposals at a fairly advanced stage to develop a substantial tourist hostel in the fort complex; and the possibility of developing water based activities at the lower levels would be examined in conjunction with its development as a stop-off point in the proposed harbour transport tourism initiative.
The plaintiff’s involvement with the defendant
By agreement between the parties the documents discovered by the defendant were admitted in evidence without formal proof. The following outline of the involvement of James O’Brien and the plaintiff and their advisers with the defendant in relation to the development of Fort Camden is drawn from those documents and from the plaintiff’s witnesses, namely: James O’Brien; William O’Brien; William Brady, an architect in the firm of W.H. Hill & Son, who was retained in connection with the plaintiff’s project for Fort Camden in 1994; Peter Roberts, an accountant in the firm of V.F. Nathan & Company, which firm was engaged by the plaintiff in August, 1996 to secure investment for the Fort Camden project and to assist in the preparation of an outline proposal to be submitted to the defendant; Brendan Cunningham, a solicitor in the firm of Barry C. Galvin & Son, which acted for the plaintiff; and Ian O’Leary, a partner in the firm of O’Leary Lehane & Co., Accountants, who became involved in the plaintiff’s project for Fort Camden at the beginning of March, 1995.
The plaintiff’s involvement with the defendant in relation to Fort Camden evolved as follows:
· James O’Brien was made aware of the development potential of Fort Camden in July, 1993 by an administrative officer in the planning department of the defendant when he brought in proposals to the defendant in relation to a proposed development at Ringaskiddy, which never came to fruition. Mr. O’Brien’s perception was that he was encouraged towards Fort Camden and, in particular, towards the development of the lower part of the fort, the wharfage, quays and such like. He visited the locus with officials of the planning department. At the time, planning permission had issued on foot of the notification of decision referred to earlier for the development of the upper part of the fort and agreement in principle had been reached between the Irish enterprise, which I will refer to as “Valcoast”, and the defendant, under which Valcoast was to raise £500,000 under a business expansion scheme to fund the development, carry out the development and secure Bord Fáilte approval for the project and the defendant was to grant a 35-year lease to Valcoast. Although James O’Brien kept in contact with the planning department throughout the remainder of 1993, he made little or no progress in relation to getting involved in a project at Fort Camden.
· In late March, 1994, James O’Brien and his solicitor, Barry Galvin, had a meeting with the personnel behind Valcoast at which a suggestion that Mr. O’Brien would develop the lower part of Fort Camden, the waterfront, was well received. This was followed by a letter dated 21st April, 1994 from Valcoast to Mr. Galvin, which proposed discussions to examine the possibilities of a joint venture with James O’Brien “to acquire and develop [Fort Camden] outright”. This letter disclosed that Valcoast was considering another location for a hostel project in Crosshaven because it perceived its efforts to make progress with the defendant were being frustrated by bureaucracy. Through his solicitors, James O’Brien responded that he would be interested in a joint venture.
· On 3rd June, 1994, the O’Briens, on behalf of the plaintiff, met with Brendan Kelleher, the Chief Planning Officer of the defendant, to discuss where they were in relation to Camden Fort. They were accompanied by their architect, Mr. Brady, and their solicitor, Mr. Cunningham. They learned that the defendant, which at one time was considering a heritage development within the Fort, was no longer interested in that project. A one-page document was presented to Mr. Kelleher, which illustrated the type of development which the O’Briens considered might be accommodated at Camden Fort involving: a heritage trail, hotel, holiday cottages, self-catering apartments, craft shops and a picnic area at the upper level; and, in addition to fishing, boat hire, sailing, diving and water skiing at the lower level, a heritage trail, bar and restaurant, fishermen’s cottages, and a fishing shop. Mr. Kelleher suggested that the plaintiff and Valcoast might discuss a joint development of the entire property and bring back a joint proposal to the defendant. However, it was emphasised by Mr. Kelleher that a heritage centre would have to be incorporated in the development. On the same day, an official of the defendant wrote to Valcoast seeking confirmation of its continued interest in the development of the Fort and enquiring whether its development proposals were being made jointly with James O’Brien. In response, the defendant was informed by Valcoast, by letter dated 24th June, 1994, that Valcoast had a continued interest in the development of Fort Camden and that the interest of James O’Brien would form part of the development plan. Agreement had already been reached whereby the architect for Valcoast, Stephen Hyde, in conjunction with the plaintiff’s architect, Mr. Brady, would draw up a development plan for Camden Fort to be submitted to the planning department for consideration.
· Very little progress was made between the plaintiff and Valcoast through June to November, 1994. As a result of a contact he initiated with an official in the planning department of the defendant in late November, 1994, James O’Brien was informed by letter dated 2nd December, 1994 that if an integrated development proposal for the fort was not forthcoming from the plaintiff and Valcoast, the defendant was “minded to seek further proposals by way of public advertisement.” Both the plaintiff and Valcoast were asked to revert to the defendant by 16th December, 1994. Arising out of that ultimatum, Valcoast informed the plaintiff that, due to the initial difficulties with the defendant in moving ahead with its proposal for Camden Fort, the project it had intended for Camden Fort had been moved to another location in Crosshaven and it was not then in a position to consider proceeding on Camden Fort. However, it remained interested in taking part in discussions with the plaintiff at a future date. It was made clear that it did not wish to hinder any proposal that the plaintiff might wish to independently submit. Valcoast wrote in similar terms to the defendant.
· The response of the plaintiff’s solicitors to the letter of 2nd December, 1994 was to seek an option to purchase the property at an agreed price, meaning at a price to be agreed, the option to provide that the plaintiff would have a period of up to two years to put together the full development plan, carry out necessary surveys, arrange for the necessary financing and obtain the appropriate planning permissions from the defendant. It was made clear that what motivated this suggestion was that the plaintiff had already expended considerable monies in drawing up draft plans in respect of the development of the property, and it was anticipated that the cost of putting together a full development plan would be in the region of £50,000 to £60,000.
· Following further correspondence from the plaintiff’s solicitors, representations made on its behalf by politicians, and a meeting between officials of the defendant, including the County Manager, and the O’Briens on 3rd March, 1995, by letter dated 10th March, 1995, James O’Brien was informed that the defendant was prepared “to deal exclusively” with him “in regard to the submission of a comprehensive development proposal for Fort Camden for a period of six months from the date of this letter”. It was stated that if such a proposal was not progressed to the defendant’s satisfaction by 8th September, 1995, the defendant would feel free to treat with other parties or to take such other action as it deemed appropriate.
· During the following six months, James O’Brien was involved in securing investors, progressing the plans for the development with the plaintiffs architect, and visiting heritage centres in Ireland and England to get ideas. There was a meeting with Council officials in mid March 1995 and there were two in June, one on site. On each occasion, professional advisors attended on behalf of the plaintiff. At a meeting in June, the plaintiffs architect was proposing a hotel for the upper portion of the Fort, but it is clear on the evidence that the Chief Planning Officer was not receptive to the idea.
· One of the issues which James O’Brien was pursuing with the defendants officials during this period was what the purchase price of the property would be. By letter dated 10th August, 1995, his solicitors were informed that the defendant’s “asking price” for Fort Camden was £500,000.
· The O’Briens and the plaintiff’s advisors, Mr. Brady, Mr. O’Leary and Mr. Cunningham and Liam Mullens, a former county engineer who had been retained by the plaintiff as a consulting engineer for the project, attended a meeting with the defendant’s officials on 31st August, 1995. It was at that meeting that James O’Brien learned that the defendant did not, in fact, have title to Fort Camden. What the documents put in evidence indicate is that in November, 1988 the Department of Defence agreed to transfer Fort Camden, comprising 33.8 acres, to the defendant, but it was to retain a seven acre field adjoining the fort. In May, 1995, the Department of Defence indicated that it was prepared to transfer the seven acre field to the defendant, to be used in conjunction with Fort Camden as a tourist amenity, at the price of £50,000. The title to the Fort and 33.8 acres was to be transferred at the same time as the title to the seven acres. At the meeting of 31st August, 1995, the Council officials dropped a bombshell: the O’Briens and their advisors were told that the defendant had been notified by the Department of Defence, which in turn had received a direction from the Department of Finance, to the effect that the defendant would have to advertise the property for sale. The outcome of what appears from the evidence to have been a rather fractious meeting was twofold. First, it was agreed on the defendant’s side that the possibility of not advertising would be investigated and the exclusivity clause contained in the letter of 10th March, 1995, would be extended for a further two-month period. Secondly, the plaintiff’s proposal in relation to land use seemed to have found favour with the personnel on the defendant’s side.
· Following that meeting, by letter dated 6th September, 1995 to the defendant, the plaintiff sought confirmation of the extension of the six-month period to 8th November, 1995, and also sought confirmation that no step would be taken by the defendant to deal with a third party in any manner relating to the property, without the prior written consent of the plaintiff. By letter dated 7th September, 1995, the defendant confirmed the extension of the six-month period by two months. However, in relation to the second point which the plaintiff had raised, the plaintiff was referred to the terms of the letter of 10th March, 1995 and, suggesting what the plaintiff sought appeared to be a significantly greater commitment from the defendant, the defendant indicated that it was not prepared to go beyond the terms already set out.
· By letter dated 25th October, 1995, the defendant informed the plaintiff that the extension of time to 8th November, 1995 had been given on the basis that, as of August, 1995, the defendant expected to have a number of issues about the Fort clarified with the Department of Defence well in advance of the November deadline. The relevant issues had not been clarified. Therefore the defendant was prepared to extend the period for a further three months or until the necessary clarifications were received from the Department, whichever was earlier.
· It is clear from the documents put in evidence that the issue on which the defendant was seeking clarification from the Department of Defence was the basis on which the defendant could involve a private developer in the development of the property it was acquiring from the Department of Defence, because, apparently, the conditions of sale as furnished by the Chief State Solicitor involved a special condition which inhibited this in some manner, which is not clear from the documents put in evidence. It is not necessary to record the various “twists and turns” which occurred in the interaction between the defendant, the Department of Defence and the Department of Finance and internally between the various organs of the defendant. Suffice it to say that, in putting the relevant evidence before the court in relation to the period before proceedings were threatened by the plaintiff, the defendant has been very open. The upshot was that it was recognised by all relevant parties that the responsibility for the decisions in relation to Fort Camden rested with the defendant. At a council meeting held on 12th February, 1996, the elected members of the defendant agreed to a proposal of the County Manager that, subject to no further developers showing an interest prior to the next council meeting, a proposal for the disposal of Fort Camden to the plaintiff would be put before the council on condition that the sale would be closed within three months. If any other party were to show an interest in purchasing the property prior to the next council meeting, or if the sale was not finalised within three months, the property was to be advertised for sale.
· In the meantime, the plaintiff accepted the three months’ extension. James O’Brien’s evidence was that he was awaiting the outcome of the clarification and he was endeavouring to keep the plaintiff’s financial backers in place. Mr. O’Brien was aware of the outcome of the meeting on 12th February, 1996 and he was aware that no other party emerged.
· The next significant event was a meeting of the plaintiff’s principals, the O’Briens, and its advisors, Mr. Mullins and Mr. O’Leary, with officials of the defendant, including the Chief Planning Officer, on 7th May, 1996. In the defendant’s own minute of this meeting it was stated that the defendant had satisfied itself that it could deal exclusively with the plaintiff on the preparation of an overall development proposal for Fort Camden, and it was proposed to do so for a period of six months. A document headed “draft briefing document” was produced by the defendant’s side and circulated for discussion. This document set out the terms of any disposal for development of Fort Camden by the defendant. The plaintiff’s representatives indicated that the plaintiff’s intention was to develop a hotel, holiday homes, restaurant, bar, marine activities and heritage developments. They were informed that that proposal would come within the “tourist amenity purposes” use stipulated in the briefing document. The defendant’s asking price was still at £500,000. The council’s minute records that the Chief Planning Officer stated that he was concerned about the reference to “hotel” in relation to the development components, where previous discussions had referred to the development of a “hostel”. The minute records that he was assured that there had been no change in the plaintiff’s plans in that regard. The evidence of James O’Brien was that, going back to 1995, what the plaintiff proposed was a hotel. The defendant’s minute records an agreement that the plaintiff would submit an offer for the property and a development package, which would include a business plan with full details of projected trading accounts, profit and loss accounts, balance sheet, cash flow statements for the first five years including working capital requirements and how the latter would be financed, and development proposals which would form the subject of further discussions. The plaintiff sought a letter that the defendant would deal exclusively with the plaintiff for six months from the date of the meeting and the defendant agreed to furnish the same.
· Following that meeting the following occurred:
o On 8th May 1995, the plaintiff’s solicitors wrote to the County Solicitor seeking various documents referred to in the draft briefing document, for example, a draft lease, a draft licence and so forth. This letter was headed “subject to contract/contract denied”. The response from the County Solicitor, which was dated 13th May, 1996, was that she had received no instructions in the matter.
o By letter dated 4th July, 1996, which was headed “without prejudice/subject to contract”, the defendant formally confirmed to the plaintiff that for a period of six months from the date of the meeting of 7th May, 1996, the defendant would deal exclusively with the plaintiff in regard to the submission of a comprehensive tourism/amenity development proposal for Fort Camden. By a further letter dated 16th August, 1996, which was also headed “without prejudice/subject to contract”, the defendant reminded the plaintiff that the exclusivity period would expire on 6th November, 1996. In a response dated 21st August, 1996, James O’Brien, on behalf of the plaintiff, informed the defendant that he was confident that a proposal would be before the defendant within the time allowed. He requested a response to the plaintiff’s solicitor’s letter dated 8th May, 1996.
o On 9th September, 1996, the plaintiff’s architect, Mr. Brady, furnished to the defendant two drawings showing the plaintiff’s proposals for the Fort along the lines which had been previously discussed to the Chief Planning Officer. Mr. Brady recognised that the proposals were subject to planning permission but, due to the size of the development, he sought the Chief Planning Officer’s views. By letter dated 4th October, 1996 from the defendant, which was headed “without prejudice/subject to contract”, the plaintiff was informed that the proposals were “regarded as generally acceptable subject to further elaboration on the leisure centre and its relationship to the existing buildings”. It was intimated that the defendant required substantial detail on the costings for the development, the proposed financial package and an indicative works programme. The plaintiff was again reminded that the exclusivity period would expire on 6th November, 1996 and was informed that consideration of extending it could only be contemplated on receipt of the required data.
o On 4th November, 1996, a document entitled “Proposal for the development of Fort Camden by Triatic Limited” prepared by V.F. Nathan & Company, Chartered Accountants, was submitted to the defendant.
· Obviously, James O’Brien was unaware at the time of how the plaintiff’s proposal was received by the defendant. The documents put in evidence disclose that the Chief Planning Officer found it very disappointing and, apart from the lack of details, he was concerned about the central emphasis on a one hundred bedroom hotel and whether it would be compatible with the overriding objective of retaining the heritage quality of the site. He listed other matters which had not been addressed or costed, for example, sewage disposal and treatment, water storage and distribution, and interpretative material in relation to the heritage element. An ad hoc group within the defendant known as the Fort Camden Development Advisory Group met on 9th December, 1996 to analyse the proposal submitted by V.F. Nathan & Company and found it inadequate. They recommended that the plaintiff be advised that the defendant would re-advertise in the public press seeking alternative development proposals. However, another internal group, the Planning Team, which met on 9th January, 1997, were of the view that, if the plaintiff were to revert to a hostel rather than a hotel as part of the proposed development package, discussions could continue.
· At the invitation of the defendant, the plaintiff’s representatives and advisers, including its accountants, its solicitor, its architect, and its engineers attended a meeting on 3rd February, 1997. Contemporaneously with that meeting the plaintiff’s solicitors were informed that, as the plaintiff’s proposal was incomplete, it would be premature for the defendant to provide contracts at that stage. Most of the difficulties which the defendant’s representatives perceived were addressed at the meeting. The matter was left on the basis that it would have to be discussed with the County Manager and put before the elected members and it was anticipated that this would take approximately one month.
· A further meeting took place between representatives of the defendant and Mr. O’Brien and the plaintiff’s engineer on 5th March, 1997. The defendant sought greater detail in relation to the hotel component before the matter was put before the elected members. The outcome was that it was agreed that the Chief Planning Officer and the plaintiff’s architect would meet to deal with the issues which had been raised. The evidence of James O’Brien was that his understanding from the meeting of 5th March, 1997 was that, from a planning point of view, the hotel component could be included without difficulty.
· The next meeting between the plaintiff’s representatives and the defendant’s representatives took place on 28th May, 1997. The purpose of the meeting was to update the plaintiff’s representatives on progress since the meeting on 5th March, 1997. The plaintiff’s representatives were informed that the Chief Planning Officer had recommended that an assessment “similar to an EIS” be undertaken with a view to assessing the impact the proposed hotel would have on the site and on the infrastructure of the area. The defendants own minute discloses that James O’Brien was astounded at this proposal. Mr. O’Brien’s evidence was that the plaintiff had no option but to agree to the defendant’s proposal.
· In mid-July 1997, the defendant retained CAAS Environmental Services Ltd. (CAAS) to carry out “an EIS type appraisal” of the proposal to build a 100 bedroom hotel at Fort Camden. The report of CAAS was submitted in August, 1997. It was considered at a meeting of the Planning Team on 20th August, 1997 and the minute of that meeting records that the conclusions from the appraisal were “favourable towards the concept of encouraging a hotel type development”. However, the Planning Team concluded that the inclusion of the hotel was a fundamental change and, accordingly, the defendant should be advised that it would be prudent to re-advertise, seeking new proposals incorporating a hotel, and that the plaintiff should be advised of the need to re-advertise. The decision of the defendant to re-advertise was conveyed to James O’Brien by telephone on 22nd August, 1997.
· The information was conveyed formally by letter dated 9th September, 1997.
· At a meeting of the Development Committee of the defendant on 17th October, 1997, the Deputy County Manager reported to the committee of elected members on the then current position in relation to Fort Camden. A proposal was put to continue negotiations with the plaintiff. However, the decision of the meeting was that the matter be adjourned until the opinion of senior counsel could be obtained on the position of the defendant vis-à-vis the plaintiff and, in particular, on the following issues: whether there was a contractual obligation on the defendant’s part to deal exclusively with the plaintiff; if the defendant should decide to continue dealing exclusively with the plaintiff, whether this could give rise to liability for non-compliance with public procurement procedures; and whether the defendant could decide to revalue Fort Camden and deal exclusively with the plaintiff on the basis of a revised valuation.
· On 17th November, 1997, the plaintiff’s solicitors wrote to the County Solicitor outlining their understanding that it was proposed to re-advertise Fort Camden. An undertaking was sought that the defendant would not re-advertise the property and would not place the property for sale without having completed negotiations with the plaintiff. An application for interlocutory injunction was threatened, if the undertaking was not forthcoming within seven days. By letter dated 24th November, 1997, the Acting County Solicitor informed the plaintiff’s solicitors that the plaintiff had made no decision to re-advertise the property and did not then presently intend to do so. Mr. Cunningham’s evidence was that it was hoped that the defendant would re-engage with the plaintiff. The defendant did not re-engage with the plaintiff.
It was against that background that the plenary summons in these proceedings was issued on 22nd January, 1998. In the intervening eight years, no steps have been taken by the defendant to re-advertise for proposals for the development or disposal of Fort Camden.
The plaintiff’s claim as pleaded
In its statement of claim delivered on 22nd April, 1998 the plaintiff asserted two alternative bases for its claim for declaratory relief, injunctive relief and damages.
The first was that the plaintiff had, and was entitled to, the legitimate expectation that the defendant would not, inter alia, advertise for or seek out potential purchasers, other than the plaintiff, for, or sell or otherwise alienate or deal with Fort Camden –
(a) pending its bona fide consideration of the plaintiff’s proposal for the purchase and development of the lands,
(b) pending its bona fide completion of negotiations with the plaintiff in respect of the plaintiff’s proposal,
(c) pending its bona fide completion of an assessment of whether or not it might or should properly contract with the plaintiff for the sale of the lands to the plaintiff,
(d) on the basis of the plaintiff’s proposals or any near or substantially similar variation of such proposals for the construction of a hotel on the lands,
(e) on the basis of any tender documentation incorporating the proposals referred to at (d) or any of them.
The second basis was that the factual circumstances were such as to constitute a contract between the plaintiff and the defendant in the terms of the legitimate expectations pleaded.
It was alleged that by its expressed intention to re-advertise Fort Camden with a view to securing tenders for the purchase and development thereof from persons other than the plaintiff, the defendant had acted wrongfully, unlawfully, in breach of contract and contrary to and in a manner inconsistent with the plaintiff’s legitimate expectations.
The declaratory relief which the plaintiff claimed were declarations that –
(a) the plaintiff had and was entitled to the legitimate expectations in the terms pleaded,
(b) that the defendant was estopped from acting in any manner contrary to or inconsistent with the plaintiff’s legitimate expectations or any of them, and
(c) that it would be unconscionable of the defendant to act or omit to act in any manner contrary to or inconsistent with the plaintiff’s legitimate expectations.
The claim for damages encompassed damages for breach of contract, breach of collateral contract and failure to respect the plaintiff’s legitimate expectations.
The defendant delivered a full defence to the plaintiff’s claim as pleaded. It denied that the plaintiff had or was entitled to the legitimate expectations pleaded by the plaintiff. It denied that the defendant ever contracted with the plaintiff. It also denied that the circumstances as pleaded in the statement of claim were such as to constitute a contract between the plaintiff and the defendant in terms of the legitimate expectations pleaded. The defendant asserted that the doctrine of legitimate expectation does not apply and has no application to the facts, matters or circumstances of this case or to any of the reliefs claimed by the plaintiff and that it does not extend to and cannot form the basis for the granting of the reliefs claimed.
The hearing
The hearing commenced on 4th October, 2005. There was no stenographer present and, consequently, there is no transcript available of the hearing on that morning, although there was a stenographer present for the hearing in the afternoon. Accordingly, I am basing my observations of what occurred when the case was being opened by counsel for the plaintiff on my own note, which I believe to be an accurate note.
In opening the case, counsel for the plaintiff indicated that the claim which was being pursued was for damages for breach of legitimate expectation. It was indicated that, while there was also a claim for breach of contract, it was accepted by the plaintiff that there was no concluded contract and that claim was not being pursued. In particular, it was stated that the paragraph of the statement of claim in which it was alleged that the circumstances therein set out were such as to constitute a contract in the terms of the legitimate expectations pleaded was not being relied on. In relation to the paragraph of the prayer in the statement of claim in which damages were sought, my understanding was that damages were being claimed only for failure to respect the plaintiff’s legitimate expectations.
When all of the pleadings had been opened, in response to my question as to what the legal basis of the claim was, counsel for the plaintiff stated that the defendant is a public body. The plaintiff was relying on the decision of this Court (McCracken J.) in Abrahamson v. The Law Society of Ireland [1996] 2 I.L.R.M. 481. He formulated the basis of the plaintiff’s claim as follows:
Having been induced to embark on the project on the basis of an exclusive arrangement and the defendant advancing it as being a development objective, it was to be expected that the defendant would deal with the plaintiff in a certain way; that it would treat the plaintiff fairly and not in a manner which was one of capriciously breaking off negotiations when the plaintiff had expended money.
The defendant had changed the “ground rules” in 1997. It moved from a situation where the plaintiff had an exclusive arrangement with the defendant for four years and was allowed to spend significant resources, of which the defendant knew. The defendant “changed the goal posts”. The plaintiff had a legitimate expectation to be dealt with on an exclusive basis. [If the defendant resiled and the plaintiff had expended sums to the benefit of the defendant] the plaintiff was entitled to reimbursement, having been induced to act to its detriment.
Counsel intimated that while McCracken J. had referred to the remedy of damages being available, what the plaintiff was claiming was reimbursement of expenditure it was induced to incur on foot of the legitimate expectation that it would be treated on an agreed basis by the defendant. The plaintiff was not seeking damages for loss of profits. Counsel adopted the obiter dictum of Fennelly J. in Glencar Exploration Plc. v. Mayo County Council (No. 2) [2002] 1 IR 84 at p. 162, to which I will return, as setting out what it is necessary to establish in order to succeed in a case based on failure of a public authority to respect legitimate expectations.
The plaintiff’s case was heard over three days. In relation to the quantum of the damages which it was contended the plaintiff should receive, evidence was adduced by the plaintiff to support an award in the region of €270,000, made up of sums in the region of €79,000 due to the plaintiff’s professional advisers and sums in the region of €191,000 claimed by the O’Briens in respect of their time and expenses incurred.
At the end of the plaintiff’s case, counsel for the defendant applied for a direction. He indicated to the court that the defendant did not intend to go into evidence. That being the case, the agreed position was that, following the decision of the Supreme Court in O’Toole v. Heavey [1993] 2 I.R. 544, the question for the court is whether the plaintiff has established as a matter of probability the facts necessary to support a finding in its favour. If it has, judgment should be entered in its favour; if it has not, the action should be dismissed.
The hearing was then adjourned to enable the parties to prepare and exchange written submissions, the defendant in support of its application for a direction and the plaintiff in response to the application.
When the hearing resumed, both parties furnished comprehensive written submissions to the court, which were supplemented by oral submissions.
Because of the course the hearing took, I consider it prudent to outline the submissions made on behalf of the parties in greater detail than might otherwise be the case.
The defendant’s submissions
In its written submissions the defendant proceeded on the basis that the plaintiff had indicated that it was not pursuing its claim based on contract. The defendant focused on its undertaking “to deal exclusively” with the plaintiff in regard to the submission of a comprehensive development for Fort Camden for a limited period, which initially had been given in the letter of 10th March, 1995, the duration of which it was acknowledged had been extended from time to time. The effect of the undertaking and the position of the plaintiff vis-à-vis the defendant arising from their dealings inter se were analysed as follows:
(1) It was submitted that the context in which the undertaking “to deal exclusively” was entered into was relevant in considering the nature and extent of any expectation which the plaintiff could have arising from it, the following factors being emphasised:
(a) That the plaintiff’s proposal was a continuation of the proposal of Valcoast, so that the exclusive right was granted in a context in which both parties already had an understanding of the type of proposal which would be submitted by the plaintiff, namely, a proposal which encompassed a hostel, not a hotel. I am not satisfied that that proposition accords with the evidence. In my view, it is clear on the evidence that, although the Chief Planning Officer had and expressed misgivings about a proposal which encompassed a hotel, neither the plaintiff’s principals nor its advisers considered the plaintiff restricted to a hostel, rather than a hotel, either before the meeting on 3rd March, 1995, which resulted in the letter of 10th March, 1995, or subsequently in their dealings with the defendant.
(b) That the defendant was constrained by certain public procurement obligations in relation to the sale of Fort Camden of which the plaintiff must be taken to have been aware, including the Department of Finance Guidelines on Public Procurement promulgated in 1994. It was submitted on behalf of the plaintiff that there is no evidence before the court in relation to the public procurement requirements. Apart from that, it is pertinent to ask why, in its letter of 10th August, 1995, the defendant intimated to the plaintiff’s solicitors that the “asking price” for Fort Camden was £500,000. At that stage the defendant had obtained a valuation from Hamilton Osborne King, Estate Agents, Auctioneers & Valuers, which was not put in evidence. However, the evidence indicates that the valuer had been furnished with a copy of the plan submitted by the plaintiff’s architect, Mr. Brady, at a meeting on 22nd June, 1995, so that the valuer would have been aware that a hotel was in contemplation by the plaintiff, even if the Chief Planning Officer was not receptive of the idea. It is clear on the evidence that the Department of Defence requirements, which became obvious in the summer of 1995, gave rise to concerns on the part of the defendant’s officials and compliance with the State’s public procurement requirements was also a concern.
(c) That the approval of the elected members of the defendant was necessary to any disposal of Fort Camden. That was undoubtedly the case and it was something which was known to the plaintiff’s principals. The plaintiff is not claiming, and could not claim, that it had a contract to acquire Fort Camden.
(d) That the defendant, as a local authority, must act in the public interest. That is undoubtedly the case and it is to be assumed that it is something to which the defendant’s officials gave consideration in their dealings with the plaintiff.
(e) That the County Development Plan for South Cork which was published in draft form in 1994 and adopted in 1996, envisaged a hostel development at Fort Camden. That is undoubtedly the case. However, it is clear on the evidence that the dealings between the plaintiff and the defendant proceeded on the basis that the plaintiff would have to submit an application for planning permission.
(f) That the title to Fort Camden would be subject to certain conditions which would be imposed by the Department of Defence, including a requirement that the lands were to be used for “tourist/amenity” purposes.
By way of general observation, I would comment that the extent to which the factors at (b) to (f) above constrained the defendant in its dealing with the plaintiff was, or should have been, known to the defendant’s officials who were dealing with the plaintiff in March, 1995 and thereafter and that it must be assumed that it was taken account of in the defendant’s dealings with the plaintiff. In the absence of evidence to the contrary, it is to be assumed that the defendant’s officials considered that the defendant was not breaching any statute, rule or principle which governed its conduct in such dealings.
(2) On the core issue as to the proper construction of the undertaking given in the letter of 10th March, 1995, it was submitted on behalf of the defendant that it amounted to an undertaking that the defendant would not engage with or assist any other party with regard to the submission of a proposal for the development of Fort Camden, but that it did not go so far as to amount to an exclusive entitlement to make such a proposal. Put another way, the exclusivity related to “dealing”, rather than to the exclusive right to submit a proposal, it was suggested. In my view, that submission is not correct. The wording of the letter is clear and unambiguous. The defendant was telling the plaintiff that the plaintiff would have an exclusive right to submit a comprehensive development proposal for Fort Camden during the period stipulated. However, the defendant is correct in submitting that the exclusivity was not open ended and that it did not extend to an exclusive right to deal until the completion of any negotiations, as claimed in the statement of claim, whenever that would be. Further, the defendant’s submission that the undertaking connoted a significant discretionary element on the part of the defendant, in that the exclusivity would come to an end where the defendant considered that the plaintiff’s proposal was not progressing to its satisfaction, is correct.
(3) In relation to the legal nature of what transpired between the parties after the right to deal exclusively was granted by the defendant to the plaintiff, it was submitted on behalf of the defendant that the parties were involved in a process of negotiations and that effectively what the plaintiff is claiming is that the legitimate expectations arose from the course of the negotiations. The law does not impose a duty to negotiate in good faith, it was submitted, and there are strong policy reasons why a court ought not extend the law on legitimate expectation to the conduct of negotiations. I will return to this issue later.
(4) In any event, any legitimate expectation which the plaintiffs could have had regarding its dealing with the defendant has been honoured and satisfied by the defendant. That is illustrated by any one of the following factors or a combination thereof:
(a) That the defendant dealt exclusively with the plaintiff until 6th November, 1996.
(b) That, despite being given more than ample opportunity to progress its proposal, the plaintiff did not produce comprehensive proposals and, in particular, the business plan submitted did not contain an offer price for Fort Camden. There is no doubt that detail was absent in relation to the business plan proposal and the actual development proposal, as the plaintiff’s witnesses acknowledged.
(c) That the proposal was in fact considered by the defendant and it was considered to be inadequate.
(d) That, given that the plaintiff made a very significant alteration to the proposal envisaged in March, 1995 in including a hotel rather than a hostel in the proposal, the plaintiff could not have had an expectation that the defendant would continue to deal exclusively with it. This change, it was submitted, brought into focus the defendant’s public procurement obligations, which require transparency and competition in the award of contracts. It was also submitted that the scale and location of the hotel, which became apparent in November, 1996, was significant and that the location raised questions as to whether the requirement of the Department of Defence that the land be used for “tourist/amenity” purposes would be fulfilled. I agree with counsel for the plaintiff that there is not before the court evidence to support that last submission.
(e) That the court should have regard to the fact that the defendant had committed considerable time and resources in its dealing with the plaintiff, with the end result that the plaintiff produced a deficient proposal, so that it would be unfair and inappropriate to find that the defendant was bound to continue to deal exclusively with the plaintiff.
(5) Even if the plaintiff had a legitimate expectation that the defendant would not re-advertise for development proposals for Fort Camden, which the plaintiff did not admit, the defendant was entitled to reverse such expectation having regard to the circumstances of the case. In developing this argument, it was submitted that, even if the defendant had represented by its communications or its conduct that it would continue to exclusively deal with the plaintiff, it was objectively justified in resiling from that position because the fundamental change arising from the inclusion of a hotel in the plaintiff’s proposal justified re-advertising to ensure that the defendant fulfilled its public duties of transparency and open competition in the sale of Fort Camden. In this context there was a suggestion that the inclusion of the hotel arguably amounted to a material contravention of the development plan. Even if that was the case, in my view, it was immaterial; as I have said, it was always envisaged that the plaintiff would have to obtain planning permission for the development.
It was further submitted that, if the plaintiff did have a legitimate expectation that the defendant would not seek to re-advertise, that merely entitled the plaintiff to a fair hearing, not to substantive relief. The plaintiff had been afforded ample opportunity to make its case. It was also submitted that it is not open to the court to compel the defendant to breach its public obligations, in particular its public procurement obligations. On this point I agree with counsel for the plaintiff that there is no evidence before the court that, by continuing to deal with the plaintiff on the basis it had been dealing hitherto, the defendant would have breached any statutory obligation, rule or principle. Counsel for the defendant did not pursue an argument advanced in its written submission that the defendant was not performing a public function in its dealings with the plaintiff, acknowledging, properly in my view, that it was a public function. However, the argument advanced that, because of the discretionary nature of the function, it could not give rise to a legitimate expectation, in my view, is not tenable.
(6) The plaintiff submitted that, by its nature, legitimate expectation is an equitable doctrine and that, as such, any relief granted by the court is discretionary. In this case, it was submitted that no relief should be granted for the following reasons:
(a) delay on the part of the plaintiff in prosecuting the proceedings;
(b) the existence of these proceedings has had a “chilling” effect, in consequence of which Fort Camden has never been developed;
(c) the proceedings were premature because the plaintiff was informed that it would get seven days’ notice prior to any re-advertising by the defendant; and
(d) it was only when the case was opened that it was disclosed by the plaintiff that it was not pursuing injunctive relief, which it was submitted manifested a position which is entirely inconsistent with the plaintiff’s claim for legitimate expectation and calls in question the plaintiff’s bona fides.
The plaintiff’s submissions in reply
Counsel for the plaintiff submitted that the court was entitled to draw the inference on the evidence that the defendant did not act bona fide in the course of its dealings with the plaintiff. Ascribing the inclusion of the hotel in the development plan as being a fundamental change in September, 1997 as a justification for disengaging from the negotiations with the plaintiff was spurious, it was submitted, given that a hotel featured in the plans produced by Mr. Brady from May, 1995 onwards. The complaint that the proposal lacked comprehensiveness and, in particular, the complaint of lack of financial information in the business plan, it was submitted, was not evinced as a reason for disengaging at the time and it was suggested that reliance on this factor was also spurious and disingenuous.
As to the basis of the claim, the plaintiff advanced not only the doctrine of legitimate expectation but reverted to the contention that there was a breach of contract or of a collateral contract. Counsel for the defendant, understandably in my view, vehemently objected to that course.
The contract or collateral contract contended for by the plaintiff was effectively an open-ended contract in the terms of the letter of 10th March, 1995, in other words, a contract by the defendant to deal exclusively with the plaintiff in relation to the submission of a comprehensive development proposal for Fort Camden. There was necessarily implied in that contract, it was argued, a term that the defendant was not entitled to arbitrarily resile from its commitment to treat with the plaintiff as it purported to do by the letter of 9th September, 1997. What gave rise to that necessary implication, it was argued, was that the plaintiff could derive no benefit, despite considerable input in terms of time and money and engagement of professional expertise, except by bringing the project to fruition. Having regard to the manner in which the contract or collateral contract was operated by the parties, it was an implied term thereof that the defendant would treat reasonably and fairly with the plaintiff “as the exclusive tenderor” and, provided all reasonable requests of the defendant were met, the arrangement would proceed to fruition in the form of a formal contract. Furthermore, as a matter of law, there was an obligation on the defendant to deal with the plaintiff in good faith.
Insofar as the plaintiff’s claim was founded on the doctrine of legitimate expectation, the plaintiff continued to rely on the obiter dictum of Fennelly J. in the Glencar case and asserted that the evidence established:
(1) that the defendant had made a statement and had adopted positions amounting to a promise or representation that it would deal with the plaintiff exclusively, not require public advertisement, and, if the plaintiff put forward plans according to its reasonable requirements, would continue negotiations with it;
(2) the representation was conveyed directly to the plaintiff, which acted on the faith of the representation to its detriment and incurred considerable expense of which the defendant would have been aware; and
(3) the representation created an expectation that the defendant would abide by it and would not seek to resile from it on spurious grounds.
The representation which the plaintiff asserted grounded the claim of legitimate expectation is, in substance, the same as the contract or collateral contract contended for: in plain language, that the negotiations between the parties would continue until a deal was done, in other words, until there was a concluded contract for the development by, and the sale to, the plaintiff by the defendant of Fort Camden. I surmise that the reason the plaintiff has reverted to reliance on the contract/contractual collateral contract basis of the claim is because of the observations of Kelly J. at first instance in the Glencar case, in which, in a passage quoted in the plaintiff’s written submission he states:
“The existence of a legitimate expectation was not established by the applicants; but even if it had been, damages would not be available in the absence of a subsisting contractual or equivalent relationship between the parties.”
The law: contract to negotiate in good faith?
Although, as I have stated, counsel for the defendant vehemently objected to the plaintiff seeking to rely on a contract or a collateral contract in its final submissions, the issue as to whether a contract of the type asserted by the plaintiff could, as a matter of law, exist was addressed in the defendant’s written submission and it was submitted that it could not. Therefore, I consider it proper to determine the issue.
The authority primarily relied on by the defendant was the decision of the House of Lords in Walford v. Miles [1992] 2 A.C. 128. The facts in that case were that in January, 1987 negotiations commenced between Walford, as purchaser, and Miles, as vendor, for the acquisition of a company and certain property, which was let to the company, from which it carried on a photographic processing business. On 17th March, 1987 Miles orally agreed to deal with Walford exclusively and to terminate any negotiations then current between Miles and any other competing purchaser, provided Walford furnished within three days a “letter of comfort” from his bankers confirming that the necessary financial resources were available to complete the purchase. The “letter of comfort” was furnished on the following day. It was not disputed that the discussion on 17th March was subject to contract. On 25th March, Miles ended negotiations which had been ongoing with a third party. However, on 27th March, Miles decided not to proceed with the negotiations to sell to Walford. The shares in the company and the property were eventually sold to the third party. The action by Walford was for damages for breach of contract and misrepresentation.
The case as pleaded is set out in the speech of Lord Ackner (at p. 134). The consideration for the oral agreement was twofold: Walford agreeing to continue negotiations; and the provision of the letter of comfort. The oral agreement as originally pleaded was that Miles would terminate any negotiations with any third party or consideration of any alternative with a view to concluding an agreement with Walford and further that, even if he received a satisfactory proposal from any third party prior to the close of business on 25th March, he would not deal with that third party or give consideration to any alternative. Lord Ackner described the agreement as pleaded as purporting to be what is known as a “lock-out” agreement, providing Walford with an exclusive opportunity to try and come to terms with Miles, but without expressly providing any duration for such opportunity. The statement of claim was amended to include an additional plea that it was a term of the collateral agreement necessarily to be implied to give business efficiency to it that, so long as Miles continued to desire to sell the property and shares, Miles would continue to negotiate in good faith with Walford. This was characterised by Lord Ackner as an allegation that Miles was “locked-in” to dealing with Walford for an unspecified period.
In considering the validity of the agreement alleged by Walford in the amended statement of claim, Lord Ackner made the point (at p. 137) that what had been orally agreed on 17th March was “subject to contract”, so that the parties were still in negotiation even in relation to those matters, and there were many other matters which still had to be considered and agreed. He distinguished an agreement to negotiate in good faith from an agreement to use best endeavours and continued (at p. 138):
“The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. The uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for termination of negotiations? The answer suggested depends upon whether the negotiations have been determined ‘in good faith’. However, the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering improved terms. [Counsel for Walford], of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question – how is a vendor ever to know that he is entitled to withdraw from negotiations? How is the court to police such an ‘agreement’? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a ‘proper reason’ to withdraw. Accordingly a bare agreement to negotiate has no legal content.”
Lord Ackner then went on to consider the validity of the agreement as originally pleaded, that is to say, without the additional allegation that it was an implied term that Miles would continue to negotiate in good faith with Walford. He made the following observations about a ‘lock-out’ agreement (at p.139):
“There is clearly no reason in the English contract law why A, for good consideration, should not achieve an enforceable agreement whereby B agrees for a specified period of time, not to negotiate with anyone except A in relation to the sale of his property. There are often good commercial reasons why A should desire to obtain such an agreement from B. B’s property, which A contemplates purchasing, may be such as to require the expenditure of not inconsiderable time and money before A is in a position to assess what he is prepared to offer for its purchase or whether he wishes to make any offer at all. A may well consider that he is not prepared to run the risk of expending such time and money unless there is a worthwhile prospect, should he desire to make an offer to purchase, of B, not only then still owning the property, but of being prepared to consider his offer. A may wish to guard against the risk that, while he is investigating the wisdom of offering to buy B’s property, B may have already disposed of it or, alternatively, may be so advanced in negotiations with a third party as to be unwilling, or for all practical purposes unable, to negotiate with A. But I stress that this is a negative agreement – B by agreeing not to negotiation for a fixed period with a third party, locks himself out of such negotiations. He has in no legal sense locked himself into negotiations with A. What A has achieved is an exclusive opportunity, for a fixed period, to try and come to terms with B, an opportunity for which he has, unless he makes his agreement under seal, to give good consideration. I therefore cannot accept [Walford’s counsel’s] proposition, which was the essential reason for his amending paragraph 5 of the statement of claim by the addition of the implied term, that without a positive obligation on B to negotiate with A, the lock-out agreement would be futile.”
On the facts of the case, Lord Ackner considered that the agreement as originally pleaded lacked one of the essential characteristics of a basic valid lock-out agreement, in that it did not specify for how long it was to last. Because of that deficiency it lacked the necessary certainty and was unenforceable.
The defendant cited an English authority in which a lock-out agreement was enforced: Pitt v. PHH Asset Management Limited [1993] 4 All ER 961. There, in a classic gazumping scenario, the Court of Appeal enforced against the defendant vendor an agreement by the defendant vendor to sell the property to the plaintiff for £200,000 and not to consider any further offers provided the plaintiff exchanged contracts within two weeks of receipt of a draft contract, in circumstances where the court considered the plaintiff had given consideration in withdrawing a threat to seek injunctive relief against the defendant and in committing to a time limit of two weeks for exchange of contracts.
In response to the defendant’s submissions, counsel for the plaintiff submitted that the court should not regard the decision of the House of Lords in Walford v. Miles as a persuasive authority. In any event, it was suggested, it is distinguishable on the facts, in that in the instant case the court is not concerned with a bare agreement to negotiate; through the course of dealings between the parties, the matter has progressed beyond that stage.
The plaintiff referred the court to the helpful commentary on good faith and fair dealing in a contractual context in McDermott on Contract Law (Butterworths, 2001)at paras. 7.41 to 7.44 inclusive. In particular, reference was made to the two Irish cases referred to in the commentary as examples of the Irish courts being prepared to enforce an express or implied obligation to use reasonable efforts to achieve some stipulated result: Rooney v. Byrne [1933] I.R. 609; and Fluid Power Technology Company v. Sperry (Ireland) Limited (Unreported, High Court, Costello J., 22nd February, 1985). In each of those cases, the court was concerned with a situation in which a contract existed. In the first, the contract was for the purchase of a house subject to the purchaser getting a mortgage. It was held that the purchaser was bound to make reasonable efforts to secure the necessary advance. The second concerned the exercise of a power to terminate a distributorship agreement in the context of an application for an interlocutory injunction. Costello J. held that the plaintiff, which was seeking the interlocutory injunction, had made out a fair case that there was an implied obligation to exercise the termination power in a bona fide manner, which he explained as meaning:
“… that when they give reasons for termination these reasons must not be spurious ones, but it also means that if they honestly believe them to be valid, then even if they are subsequently proved to have been wrong the notice is valid. So, if honestly dissatisfied with the plaintiffs as distributors, this would mean that the notice of termination could be given.”
A New Zealand authority, Livingstone v. Roskilly [1992] 3 NZLR 230, in which Thomas J. stated that he would not “exclude from our common law the concept that, in general, the parties to a contract must act in good faith in making and carrying out the contract”, which is referred to in McDermott, was also relied on by counsel for the plaintiff. It was submitted that the court should apply that dictum rather than following the approach adopted in Walford v. Miles. Like the Irish authorities cited by the plaintiff, that dictum is concerned with the implication of the concept of good faith and fair dealing on the part of the parties to an existing contractual relationship. No authority has been cited in which that concept was applied to negotiations, although McDermott does refer to extra-judicial and academic comment on the topic.
Counsel for the plaintiff also referred the court to a decision of the Court of Appeal of England and Wales in which Walford v. Miles was considered: Petromec Inc. & Ors. v. Petroleo Brasileiro SA Petrobras & Ors. [2005] EWCA Civ 891. As was pointed out by Mance L.J. in his judgment in that case (at para. 120), the Court of Appeal was bound by the decision of the House of Lords for what it decided. He pointed out that the main distinction between Walford v. Miles and the Petromec case was that in the former there was no concluded agreement, since everything was “subject to contract”, and there was, moreover, no express agreement to negotiate in good faith. The comments of Mance L.J. in Petromec, which were clearly obiter, concerned the enforcement of an express provision in the contract under consideration, whereby the other contracting party agreed to negotiate certain extra costs with Petromec “in good faith”. Having quoted the last three sentences in the first quotation from Walford v. Miles set out above, Mance L.J. stated as follows (at para. 121):
“That shows the difference from the present case. Clause 12.3 of the Supervision Agreement is not a bare agreement to negotiate. It is not irrelevant that it is an express obligation which is part of a complex agreement drafted by City of London solicitors … It would be a strong thing to declare unenforceable a clause into which the parties have deliberately and expressly entered. I have already observed that it is of comparatively narrow scope. To decide that it has ‘no legal content’ to use Lord Ackner’s phrase would be for the law deliberately to defeat the reasonable expectations of honest men, to adapt slightly the title of Lord Steyn’s … lecture delivered … on 24th October, 1996 (113 LQR 433 (1977)). At p. 439 Lord Steyn hoped that the House of Lords might reconsider Walford v. Miles with the benefit of fuller argument.”
For my part, I find the reasoning of Lord Ackner persuasive, particularly when applied to the facts of this case, in which the dealings and negotiations between the plaintiff and the defendant, the ultimate objective of which was to achieve agreement on terms for the development, subject to planning permission, and the acquisition by the plaintiff of Fort Camden, which the defendant could recommend to the elected members of the defendant, involved a considerably greater element of complexity, and, consequently, more scope for uncertainty than negotiations for the purchase of the shares of a company and a leasehold property or the purchase of a house. The fact that one of the parties to the dealings in this case was a public authority does not give rise to any special consideration in the context of the law of contract.
As I have already stated, I do not accept the defendant’s interpretation of the effect of the undertaking given in the letter of 10th March, 1995. While the issue of what, if any, consideration was given by the plaintiff for that undertaking was not addressed, it can be assumed that consideration was given, in that the plaintiff was prepared to commit time and resources to preparing and submitting a development proposal. On that basis, I am prepared to find that between March, 1995 and November, 1996 there was a contractual relationship between the defendant and the plaintiff created by the letter of 10th March, 1995 and the subsequent extensions of the exclusivity period. That agreement was in the nature of what Lord Ackner described as a “lock-out” agreement. What the plaintiff achieved under it was an exclusive opportunity for the extended period to submit a comprehensive development proposal for Fort Camden. The defendant complied with its obligations under that agreement. It dealt exclusively with the plaintiff in relation to the development of Fort Camden up to the expiry of the exclusivity period. It accepted and considered the development proposal presented to it by the plaintiff. In my view, on the evidence, it did so in a bona fide manner. The defendant’s contractual obligations terminated on the expiry of the exclusivity period.
What happened after November, 1996 was that, while the defendant considered the development proposal submitted by the plaintiff to be inadequate, on the initiative of the defendant, a new phase of negotiation commenced on 3rd February, 1997. In essence, the plaintiff’s case is that there was an agreement to continue those negotiations until they would come to fruition in the form of a formal contract, which, as a matter of law, can only mean until the defendant’s officials were prepared to recommend the agreed terms for the development, subject to planning permission, and the acquisition of Fort Camden by the plaintiff to the elected members. I have no doubt that, if a finding could be made on the evidence that there was such an agreement, it would be unenforceable for lack of certainty.
To take what, perhaps, would have been the simplest component of the transaction, the acquisition price, as an example, one is entitled to ask how a court could be expected to decide the point at which the negotiations on that component had come to fruition. By September, 1997, the point which had been reached in relation to the acquisition price was that the defendant had indicated an asking price of £500,000 some two years earlier. The plaintiff had neither indicated that the asking price was acceptable to it, nor had it made a counter offer. Although very little was offered by way of analysis of this aspect of the case, what happened in 1997 is that the plaintiff had adopted the position that there had been an agreement, that the defendant was in breach, and that the plaintiff was entitled to elect to enforce the agreement or consider that it was discharged from further performance. It was only at the hearing that the plaintiff elected to terminate the alleged agreement. The breach alleged is that the defendant was not entitled to disengage other than for bona fide and valid reasons and none such existed. But, if the dealings between the parties had not taken the turn they took in September, 1997 and negotiations had continued, and if the parties were unable to reach consensus on the acquisition price, how could it be said that one or other party could not withdraw? If the defendant persisted in an asking price of £500,000, and the plaintiff considered that the property was worth only half that price, would the plaintiff not have been entitled to withdraw? If there was to be a contract on the lines suggested by the plaintiff, both contracting parties would have to be locked into it. If either party withdrew because it considered the acquisition price proposed by the other to be unsatisfactory, to adopt the terminology of Lord Ackner, how could a court be expected to decide whether a proper reason existed for termination? Given that on the plaintiff’s case an obligation to deal in good faith is to be implied in the alleged agreement, which must be assumed to bind both contracting parties, a subjective, rather than an objective approach would be required in making that decision. In my view the court would be faced with an impossible task.
Accordingly, I find that from February, 1997 onwards, the plaintiff and the defendant were merely in negotiations and no contractual relationship existed between them.
For completeness, I should record that, in any event, I am not satisfied that it has been established on the evidence that the defendant failed to act in a bona fide manner in September, 1997, if one applies the test set out in the passage from the judgment of Costello J. in the Fluid Power Technology Company case quoted above. Even though the defendant did not go into evidence to explain its position, I do not think that it would be appropriate to find a lack of honesty on the part of the defendant’s officials.
Legitimate expectation
The formulation of the doctrine of legitimate expectation advanced by the plaintiff, as I have stated, was the obiter dictum of Fennelly J. in the Glencar case in the following terms (at p. 162):
“In order to succeed in a claim based on failure of a public authority to respect legitimate expectations, it seems to me to be necessary to establish three matters. Because of the essentially provisional nature of these remarks, I would emphasise that these propositions cannot be regarded as definitive. Firstly, the public authority must have made a statement or adopted a position amounting to a promise or a representation, express or implied as to how it will act in respect of an identifiable area of its activity. I will call this the representation. Secondly, the representation must be addressed or conveyed either directly or indirectly to an identifiable person or group of persons, affected actually or potentially, in such a way that it forms part of a transaction definitively entered into or a relationship between that person or group and the public authority or that person or group has acted on the faith of the representation. Thirdly, it must be such as to create an expectation reasonably entertained by the person or group that the public authority will abide by the representation to the extent that it would be unjust to permit the public authority to resile from it. Refinements or extensions of these propositions are obviously possible. Equally they are qualified by considerations of public interest including the principle that freedom to exercise properly a statutory power is to be respected …”
Counsel for the defendant accepted that formulation but emphasised its provisional nature and what he described as the overarching public interest saver.
The plaintiff also relied on the decision of this Court (McCracken J.) in the Abrahamson case as authority for the proposition that an award of damages is the appropriate relief for the defendant’s alleged failure to respect the plaintiff’s legitimate expectation. The decision of this Court (Hamilton P.) in Duggan v. An Taoiseach & Ors. [1989] 1 I.L.R.M. 710 was cited as a case in which an award of damages was made for breach of the applicants’ legitimate expectations.
It seems to me that the plaintiff’s claim based on legitimate expectation founders on the first precondition identified by Fennelly J. in the Glencar case. The core issue is whether the evidence establishes that the defendant promised or represented to the plaintiff that it would continue to deal exclusively with the plaintiff until a contract for the development and acquisition of Fort Camden by the plaintiff was concluded. As a matter of law, if there was a representation, it could be no more than a representation to recommend, subject to planning permission, agreed terms to the elected members of the defendant. In my view, the evidence does not establish that any such representation was given.
The letter of 10th March, 1995 undoubtedly contained a promise by the defendant that the plaintiff would have the exclusive right to submit a comprehensive development proposal for Fort Camden within the stipulated period, and that period was extended from time to time, so that the promise endured until November, 1996. The defendant accepted, and considered, the development proposal submitted by the plaintiff. Neither the letter of 10th March, 1995 nor any other representation made by, or conduct on the part of, the defendant is open to the interpretation that the defendant was promising that it would continue to deal with the plaintiff beyond the stipulated exclusivity period irrespective of the defendant’s assessment of the development proposal submitted. On the contrary, from the outset the defendant expressly reserved the right to treat with other prospective developers and purchasers if the submission was not to its satisfaction. On the evidence, the submission made by the plaintiff within the exclusivity period was not to its satisfaction. Notwithstanding that, it renewed its dealings with the plaintiff in February, 1997. However, in my view, there was no representation made, or promise given, by the defendant at that stage that it would continue to deal exclusively with the plaintiff until both sides came to an agreement.
It is instructive to consider whether, if the dealings between the parties had not taken the turn they took in September, 1997, the plaintiff would be entitled to an order of mandamus or a mandatory injunction to compel the defendant to bring the dealing between the parties to a point which would be permissible in law, namely, to agree in terms, subject to planning permission, for recommendation to the elected members. It seems to me that the very same problems which prevent giving recognition to the existence of an enforceable contract between the parties would prevent the court from making an order of mandamus or a mandatory injunction, particularly, the lack of certainty.
As I have indicated in outlining the defendant’s submissions, the defendant submitted that there are strong policy reasons why the court should not extend the law on legitimate expectation to the conduct of negotiations. It was submitted that to do so would lead to considerable uncertainty. That is so. It would also interfere with the free flow of negotiations in general. That may be so; it would inevitably lead to lack of predictability. But it seems to me that the most problematic outcome would be the virtual impossibility and the futility of the court’s position. If the plaintiff had pursued its claim for injunctive relief and the court were to order that the defendant could not withdraw from its dealings with the plaintiff, what would that achieve? I think the answer is nothing. In reality, a court cannot effectively order litigants or negotiating parties to agree the terms of a complex property development and acquisition transaction.
In my view, there is a large grain of truth in the suggestion made on behalf of the defendant that in this case the plaintiff is seeking to extend the notion of legitimate expectation to insulate it from the ordinary commercial risks which are inherent in negotiations. Counsel for the defendant referred to the following passage from the judgment of the European Court of Human Rights in Pine Valley Developments Limited v. Ireland [1992] 14 EHRR 319:
“The applicants were engaged on a commercial venture which, by its very nature, involved an element of risk and they were aware not only of the zoning plan but also of the opposition of the local authority, Dublin County Council, to any departure from it. This being so, the court does not consider that the annulment of the permission without any remedial action being taken in their favour can be regarded as a disproportionate measure.”
While the principle to which that quotation relates was not in point in this case, that passage is a useful reminder that the dealings between the parties in this case were essentially commercial in nature and that the doctrine of legitimate expectation could only come into play because one of the parties in the commercial negotiations was a public body.
For the foregoing reasons, I have come to the conclusion that the plaintiff has not made out a case on legitimate expectation.
Decision
The plaintiff’s claim is dismissed.