Illegal Contracts
Cases
Whitecross Potatoes (International) Ltd v Raymond Coyle
1976 No. 3761 P
High Court
23 February 1978
[1978] I.L.R.M. 31
(Finlay P)
delivered his judgment on 23 February 1978 saying: The sole issue arising on the question of liability in this case is as to whether the contract admittedly made between the plaintiff company and the defendant and dated 16 July 1976 is an illegal contract or not. This contract has undoubtedly been broken by the defendant without any justification and unless it is, as he asserts, an illegal contract there must be damages for its breach. I am satisfied as a matter of law that the onus is on the defendant to establish to my satisfaction as a matter of probability that the contract was, at the time of its formation, an illegal contract.
The plaintiff company is a company incorporated in England and carrying on business in Yorkshire whose business is the purchasing of potatoes and the re-selling of them to processors of potatoes in England such as fish and chip merchants. It is jointly owned by a Mr Gilchrist and a Mr David Kemp. The defendant is a grower of potatoes in an extensive fashion carrying on business at Kilbrew, Ashbourne in the County of Meath but he does not and has not, I am satisfied on the evidence, ever been a dealer in potatoes purchasing them and re-selling them, but purchases only such seed potatoes as are necessary for the purposes of growing on acreage which, at material times was as much as 900 acres of potatoes. After preliminary negotiations and discussions by telephone and letter Mr Gilchrist on behalf of the plaintiff company and the defendant on his own behalf signed a contract in writing on 16 July 1976 for the purchase by the plaintiff company from the defendant of a total amount of 700 tonnes of ware potatoes to be supplied at various dates scheduled to the agreement in various quantities over a period between August of 1976 and 7 January 1977. The price of the potatoes was fixed at £58 per tonne. The contract provides, inter alia, that the potatoes were to be collected by the plaintiff company from the defendant at the defendant’s premises at Ashbourne. At Clause 11 of the contract however it was provided as follows:
In the event of import, export controls by either Government the potatoes will be supplied from Northern Ireland and a supplement of £5.50p (five pounds fifty pence) will be paid by Whitecross Potatoes Limited in this event to Mr. Coyle.
Whilst the matter is not expressly provided for in the contract it was the agreed evidence of the parties before me that this was, undoubtedly, a contract for the export of potatoes by the defendant to the United Kingdom for use by the plaintiff company in the United Kingdom. It was never the intention of the parties that there should be any obligation on the plaintiff company to accept the potatoes for use or re-sale within the Republic of Ireland, and indeed on the evidence of the defendant, and this part of his evidence I undoubtedly accept, it was his intention to secure an export of potatoes so as in anticipation as he then had of a glut of potatoes on the Irish market he would have a readier sale for the balance of his crop.
Again on the agreed evidence of the parties at the time of the making of this contract it was the belief or estimate of Mr Gilchrist who negotiated the contract on behalf of the plaintiff company that potatoes would be in short supply both in the United Kingdom and in Ireland and that the price of potatoes would rise and he therefore feared that the Government of Ireland might introduce at some future date *33 a restriction or total ban on the export of potatoes from Ireland. It was the belief and expectation of the defendant on the other hand that there would be a glut of potatoes, that the price would fall and that there was a possibility that the United Kingdom Government would introduce to protect producers in their area a control or prohibition of import of potatoes into the United Kingdom.
Both these estimates or beliefs were discussed by Mr Gilchrist and Mr Coyle prior to the signing of the contract. The contract was created by a typed or printed form of contract in general use by the plaintiff company in England which left space for the provision of two additional paragraphs and after discussion into one of those additional paragraphs was introduced the clause which I have just quoted in full. This clause was actually introduced after the signing of the contract and was then initialled by both the parties and I satisfied in law became part of the contractual relationship.
The case on behalf of the plaintiff is that the defendant assured him that he had associations and contacts in Northern Ireland with whom he had dealt on previous occasions and that in the event of there being a restriction of the export or import of potatoes it would possible for him, the defendant, to sell the potatoes originally intended for the purpose of completing this contract in the Republic of Ireland and to purchase from these contacts or connections in Northern Ireland potatoes to fulfil his obligations under the contract.
The contention of the defendant on the other hand is that he, when the question of import and export control came up, expressly stated to Mr Gilchrist on behalf of the plaintiff company that he, the defendant, would be able to get men to run the potatoes which he, the defendant, was growing and had available for the completion of this contract across the border and so make them available to be collected in Northern Ireland by Mr Gilchrist. The defendant and the other witnesses on his behalf who were present at the discussions with regard to the making of this contract, that is to say his father, Mr Coyle Senior and Mr Dowling, the accountant attached to Mr Coyle’s business, both assert unequivocally that it was made clear to Mr Gilchrist that the form of running across the border would be a smuggling on behalf of Mr Coyle. With regard to the amount of supplement of £5.50p referred to in Clause 11 it is the contention of Mr Gilchrist that this resulted from an acceptance by both parties that there was a general differential between the price of potatoes in Northern Ireland and the price of potatoes in the Republic of Ireland of 10% that this was calculated in discussion on a price of £58 per tonne at £5.80 and that he jokingly remarked that he would not be prepared to deal in as small a sum as 30p and made the figure £4.50p. The defendant’s version of this figure is that he told the plaintiff that the cost of smuggling potatoes across the border was between £5 and £6 per tonne and that the figure of £5.50p arose from that estimate.
I am satisfied that the legal principles applicable to this conflict of evidence are relatively straightforward. If this was a contract which, on the apparent intention of the parties at the time of its formation, could be and would be carried out in a legal fashion then even though one of the parties, namely the defendant, in reality intended to carry it out in an illegal fashion it is enforceable. If, on the other hand, *34 the acknowledged and accepted intention of both the parties at the time of the formation of the contract was that in the event of this export or import control being imposed the contract would be carried out by a smuggling operation, it is unenforceable and is contrary to public policy and cannot be upheld by the court.
I have had the greatest possible difficulty in reaching a conclusion as to which of the two accounts of this transaction I should accept. I have ultimately come to the conclusion that the onus being on the defendant he has failed to discharge it and to establish to my satisfaction as a matter of probability that the agreed understanding between him and the plaintiff was that this contract should, in the event of a restriction on export, be carried out by a smuggling operation.
The transaction commenced significantly with a written reply coupled with a telephone call to an advertisement which had been inserted by Mr Gilchrist, on behalf of the plaintiff company, in the Farmer’s Weekly . That letter written on behalf of the defendant on 14 July 1976 contained the following statements:
We have many contracts with the processing industry and have a lot of experience of the ware trade. We are at present exporting potatoes to the United Kingdom and delivery charges are working out at £13 per tonne landed at Liverpool.
The first of these two statements was correct since the defendant’s firm had contracts with processing industry in the past, the second statement was, however, wholly false in that the defendant had never before and was not at that time exporting potatoes to the United Kingdom. Mr Dowling, who apparently dictated this letter although signed by the defendant, excused this falsity as being a mere commercial attempt to create an impression. This constitutes however, in my view, a serious lack of integrity on the part of the defendant for which he must accept responsibility and must colour the view I take of his account of the subsequent transaction.
Subsequent to the entering into of the contract the plaintiff supplied to the defendant a letter purporting to be dated 7 June 1976 referring to a visit by Mr Gilchrist to the defendant’s farm in the week before that date and indicating a general intention on the part of the plaintiff company to enter into long term contracts with the defendant. The purpose of this letter was to attempt to strengthen the hand of the defendant in seeking to obtain from the Irish Department of Agriculture an export licence for the potatotes. There was considerable conflict of evidence as to the circumstances under which this letter was written it being alleged on the part of the plaintiff’s Mr Gilchrist that it was entirely dictated by the defendant, Mr Coyle, to his, Mr Gilchrist’s secretary, and was signed by him unaware of the fact that it had been backdated. I do not accept this explanation of Mr Gilchrist and I think it improbable, having seen and heard the defendant, that he actually dictated this letter though the general terms of it and the backdating of it were undoubtedly carried out at his request. Whilst therefore on my view of the facts this constitutes another example of a somewhat reckless approach on the part of the defendant willing to mislead persons for the purpose of his business it indicates also to me an equally loose approach on the part of Mr Gilchrist coupled with the difficulty which must arise if, as I am, I am satisfied that he subsequently, *35 in considerable detail, invented in his evidence a false account of the writing of this letter in order to excuse himself from any charge of irresponsibility or falsity in his correspondence.
In the course of the cross-examination of Mr Coyle he gave a significant and in my view not an inadvertent answer when being asked as to whether he mentioned the word smuggling at the time when he had a discussion, as he alleged, with Mr Gilchrist concerning the special clause being inserted in the contract. He said he did not use that word as ‘he did not want to put the man off’. If that were the attitude of Mr Coyle at that time then, it seems to me, improbable that he was as explicit as he now asserts with regard to how he would get potatoes in Northern Ireland in the event of the imposition of an export or import ban. There must be, on the evidence as I heard it, very considerable suspicion that Mr Gilchrist could have speculated or guessed that the agreement to deliver potatoes in Northern Ireland in the event of the imposition of the ban might well involve some smuggling or attempt to smuggle on the part of Mr Coyle. Considerable evidence was given before me concerning an entirely separate transaction on the part of Mr Gilchrist and his partner Mr Kemp in relation to potatoes purchased from a Mr Rowan in Longford. Again I would have considerable difficulty in accepting in full the explanation of this transaction given by the plaintiffs which, in effect, was that the potatoes were purchased in the first instance by Mr Gilchrist, were subsequently sold by him as a separate deal outside the plaintiff company to his partner, Mr Kemp, and in turn were sold by Mr Kemp to a Mr Quigley whom the parties now appear to accept was involved in smuggling and were paid for, in effect, by Mr Quigley as a set- off. Counsel on behalf of the defendant strongly urged upon me the view that this was merely a cover-up account of a transaction which in reality was a straightforward purchase by Mr Gilchrist of potatoes from Mr Rowan which were subsequently smuggled by Mr Quigley across the border and became part of the plaintiff company’s supply of potatoes at the relevant time. In furtherance of this allegation however on the other hand the defendants called a Mr Rabbitt who gave evidence with regard to what he alleged was an offer on the part of Mr Gilchrist well after there was a total restriction on export to purchase potatoes from or through him, Mr Rabbitt, and in which he alleged that the entire transaction was on the basis that he, Mr Gilchrist, was confident that he could get them through the border into Northern Ireland and thus to the United Kingdom. If, as I do, I reject the evidence of Mr Rabbitt as not only being untrustworthy but as being actively false then I must be influenced in my view of the defendant’s case by the fact that he was called as a witness on behalf of the defendant. Having regard therefore to all these features I am not satisfied as a matter of probability that Mr Gilchrist, who is the vital person acting on behalf of the plaintiff company in this context at the time he entered into the contract and inserted the clause with regard to delivery in Northern Ireland, was agreeing to a smuggling contract and in the absence of being so satisfied I must hold the contract to be enforceable and the plaintiff company to be entitled to damages.
On the question of damages the evidence was that potatoes became so scarce in *36 the United Kingdom and indeed in Ireland as well, though that was irrelevant, after the date when the contract had been repudiated by the defendant that Mr Gilchrist on behalf of the plaintiff company was unable, even at the ruling high prices, to fill orders which he had committed himself to on a yearly basis for the supply to various members of the processing industry. The forward prices which he had agreed with these contracting purchasers made it wholly uneconomic to purchase at the market prices available to him after the repudiation of this contract. It was submitted on his behalf that I should in addition to or as a larger sum in substitution for the difference between the market price and the contract price at the dates of delivery award damages arising from the loss of profit and apparently certain liabilities in pending actions which the plaintiff company has incurred by reason of branches of their contract with the purchasers from them. I am not satisfied on the legal position that this is an appropriate way to approach the damages in this case and it does not seem to me that there are any grounds for departing from the prima facie measure of damages provided for in s. 51 of the Sale of Goods Act 1893.
Considerable difficulty on the evidence has been encountered by me in assessing the appropriate prices at the various delivery dates of the potatoes and the general unsatisfactory nature of some of the evidence adduced on behalf of the plaintiff, both in this and other contexts, makes me slow to accept figures being alleged on his behalf and largely proved by his partner Mr Kemp. I have, however, before me in evidence figures obtained officially of market prices in England and am prepared to rely upon them. Converting them from the figures in which they were put before me, which was at a price per two stone to tonnes, I have reached certain calculations with regard to the ruling price at the date of each of the delivery dates provided for in the Schedule to the contract. In so doing it has become apparent, though the matter was not dealt with or debated during the evidence before me, that the actual schedule of deliveries is a total of 14 tonnes in excess of the 700 tonnes provided for in the body of the contract. I am satisfied therefore that the last scheduled delivery of 42 tonnes must, for the purposes of assessing damages, be altered or reduced to a figure of 28 tonnes only.
On the evidence with regard to the cost of transport of potatoes either from Dublin or from Northern Ireland together with certain relatively minor costs for bags I am satisfied that of the market price ruling in England at the time of each delivery there should be deducted a sum of £10 or that, to put the matter in another way, the price of the potatoes to the plaintiff company in England should be calculated at £68 and not £58.
On all these principles I have come to a conclusion that the amount of damages to which the plaintiff is entitled is the sum of £59,218 calculated in the following manner:
*37
27th August ’76
3 tonnes
Market Price £163
less £68 i.e. £95 differential
Total £5,985
3rd September ’76
63 tonnes
Market Price £137
less £68 i.e. £69 differential
Total £4,347
10th September ’76
84 tonnes
Market Price £163
less £68 i.e. £95 differential
Total £7,980
17th September ’76
84 tonnes
Market Price £155
less £68 i.e. £87 differential
Total £7,308
24th September ’76
42 tonnes
Market Price £155
less £68 i.e. £87 differential
Total £3,654
3rd December ’76
84 tonnes
Market Price £148
less £68 i.e. £80 differential
Total £6,720
10th December ’76
84 tonnes
Market Price £148
less £68 i.e. £80 differential
Total £6,720
17th December ’76
84 tonnes
Market Price £148
less £68 i.e. £80 differential
Total £6,720
31st December ’76
84 tonnes
Market Price £148
less £68 i.e. £80 differential
Total £6,720
7th January ’76
28 tonnes
Market Price £181
less £68 i.e. £113 differential
Total £3,064
Grand Total £59,218
I accordingly give judgment for the plaintiff against the defendant for breach of contract for the sum of £59,218.