Implied Terms
Cases
Attorney General of Belize v Belize Telecom Ltd
2009] UKPC 10
Lord Hoffmann’s
“ 16. Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.
19. The proposition that the implication of a term is an exercise in the construction of the instrument as a whole is not only a matter of logic (since a court has no power to alter what the instrument means) but also well supported by authority. In Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, 609 Lord Pearson, with whom Lord Guest and Lord Diplock agreed, said:
“[T]he court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court’s function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves.”
20. More recently, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn said:
“If a term is to be implied, it could only be a term implied from the language of [the instrument] read in its commercial setting.”
21. It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson’s speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must “go without saying”, it must be “necessary to give business efficacy to the contract” and so on – but these are not in the Board’s opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?
22. There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is “necessary to give business efficacy” to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word “business”, is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman [2002] 1 AC 408 was decided. The second, conveyed by the use of the word “necessary”, is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.
23. The danger lies, however, in detaching the phrase “necessary to give business efficacy” from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case (at p 459) when he said that in that case an implication was necessary “to give effect to the reasonable expectations of the parties.”
24. The same point had been made many years earlier by Bowen LJ in his well known formulation in The Moorcock (1889) 14 PD 64, 68:
“In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men”
25. Likewise, the requirement that the implied term must “go without saying” is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean. Any attempt to make more of this requirement runs the risk of diverting attention from the objectivity which informs the whole process of construction into speculation about what the actual parties to the contract or authors (or supposed authors) of the instrument would have thought about the proposed implication. The imaginary conversation with an officious bystander in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227 is celebrated throughout the common law world. Like the phrase “necessary to give business efficacy”, it vividly emphasises the need for the court to be satisfied that the proposed implication spells out what the contact would reasonably be understood to mean. But it carries the danger of barren argument over how the actual parties would have reacted to the proposed amendment. That, in the Board’s opinion, is irrelevant. Likewise, it is not necessary that the need for the implied term should be obvious in the sense of being immediately apparent, even upon a superficial consideration of the terms of the contract and the relevant background. The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument. In such circumstances, the fact that the actual parties might have said to the officious bystander “Could you please explain that again?” does not matter.
26. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was “not… necessary to review exhaustively the authorities on the implication of a term in a contract” but that the following conditions (“which may overlap”) must be satisfied:
“(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’ (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract”.
27. The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of “necessary to give business efficacy” and “goes without saying”. As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant.
28. The Board therefore turns to consider the question raised by the articles of association. Two things are immediately apparent. The first is that the board has been constructed so that its membership will reflect the interests of the various participants in the company: the political interest of the Government, represented through its special share; the economic interest (if any) of the Government, represented by its holding of C shares; the economic interests of the ordinary B and C shareholders. The second is that the powers which the articles confer upon the Government (or its successor as special shareholder acting upon its written instructions: see article 11(A)) are carefully graduated according to its economic interest in the company at the relevant time. Thus, the power to block certain board resolutions in article 113 is exercisable “at any time at which the holder of the special share is the holder of C Ordinary shares amounting to 25% or more of the issued ordinary share capital”. The power to block certain shareholder resolutions in article 8 is likewise exercisable “at any time” when the special shareholder has a 25% or more holding. And the power to appoint and remove special C directors is exercisable “at any time” when the special shareholder has a 37.5% or more holding.
29. In the case of board and shareholder resolutions, the relevant time for determining whether a blocking power exists is of course the time at which the resolution is proposed. In the case of appointments to the board, the draftsman appears to have assumed that it would be the time at which the appointment was made or the director was to be removed. In some cases, that would be sufficient to ensure that the board at any given time reflected the appropriate shareholder interests. For example, articles 90(B) and (C) give a majority of B shareholders the right to appoint and remove two directors. This is enough to ensure that the B directors will at any given time represent the interests of a majority of the B shareholders. If the majority lose confidence in their directors, or if there is a transfer of B shares which results in a different majority, it will always be open to the majority to remove the directors in office and appoint others. The same is true of the ordinary C directors appointed and removable by a majority of C shareholders under articles 90(D)(i) and 90(E).
30. The situation with which the articles do not expressly deal is where a change in shareholding results in the board no longer reflecting the appropriate shareholder interests, but without enabling this to be corrected by exercise of the power to remove directors. Assume, for example, that the special shareholder exercises its power under article 11(E) to require redemption of the special share. What then happens to the Government Appointed Directors appointed under article 88(A)? They cannot be removed from office because there is no longer a special shareholder who has power to do so. Does that mean that they remain in office indefinitely? The Board considers that, if one considers the role of the Government Appointed Directors and the policy of giving the Government the power to require redemption of the special share, namely, to enable it to relinquish its influence over the conduct of the company’s business, the articles cannot reasonably mean that the Government Appointed Directors should remain in office after the special share has ceased to exist. They must be read as providing by implication that when the special share goes, the Government Appointed Directors go with it. In the opinion of the Board it is no answer to say that the special shareholder could have thought of the problem in advance and removed the Government Appointed Directors before redemption. No doubt he could, but the question is what the articles mean in the situation in which he has not done so. Nor is it relevant that the articles could be amended. They must be construed as they stand.
31. If, as the Board thinks, it would plainly be necessary to imply such a term in relation to the Government Appointed Directors, it must follow that upon the redemption of the special share, the special C directors will also cease to hold office. They are also there by virtue of the special share and when there is no longer a special share, there will again be no one who has power under the articles to remove them. That means that the whole basis upon which they are distinguished from ordinary C directors appointed by the majority of the C shareholders under article 90(D)(i) has ceased to exist. It is true that article 90(E) says that C directors shall hold office “subject only to article 112”, but that cannot in the Board’s opinion be construed as contradicting the proposed implied term, to which the draftsman plainly did not address his mind. In any case, the words “subject only” cannot be read literally because, for example, the provisions for retirement by rotation in article 94 are expressly applied to C directors (other than special C directors.)
32. If implication is necessary to prevent what would otherwise be absurd consequences following from redemption of the special share, the Board considers that there is no difficulty about applying the same principle to the case in which the special shareholder continues to exist but no longer has the 37.5% holding which would entitle him to appoint and remove special C directors. In such a case too, the implication is required to avoid defeating what appears to have been the overriding purpose of the machinery of appointment and removal of directors, namely to ensure that the board reflects the appropriate shareholder interests in accordance with the scheme laid out in the articles.
33. The Court of Appeal felt unable on the authorities to read the articles as having such a meaning. Morrison JA referred to Holmes v Keys [1959] Ch 199, 215, where Jenkins LJ said:
“I think that the articles of association of the company should be regarded as a business document and should be construed so as to give them reasonable business efficacy, where a construction tending to that result is admissible on the language of the articles, in preference to a result which would or might prove unworkable.”
34. Both Carey JA and Morrison JA thought that the meaning which the Chief Justice had adopted was not “admissible on the language of the articles” (“requires remarkable mental gymnastics”, said Carey JA). It should be noted, however, that Holmes v Keys was not a case about an implied term. It was a dispute over the meaning of a particular phrase in the articles, namely, whether, in an article which required a director to acquire qualifying shares “within two months after election”, the date of “election” meant the date of the general meeting or the date on which the result of the election was declared. In a case such as that, in which it is argued that language should be given a certain meaning, it is usually essential (unless there has been an obvious mistake) that the language should, according to ordinary conventional usage, be capable of bearing that meaning. In the case of an implied term, however, the question is not what any particular language in the instrument means but whether, without it having been expressly stated, that is the meaning of the instrument.
35. The other case to which Morrison JA referred was Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693. This was a case about the extent of the background which is admissible in construing articles of association. The company was set up to acquire and manage a property divided into flats which also included “amenity areas” (tennis courts, swimming pool, gardens). It was argued that there should be implied into the articles of association an obligation on the part of each flat owner/member to contribute to the expenses of maintaining the amenity areas. The implication was said to be derived from the circumstances in which the property was acquired and the terms of the conveyance to the company.
36. The decision of the Court of Appeal was that these background facts were not admissible to construe the meaning of the articles. Without them, there was not the slightest basis for implying such an obligation. Because the articles are required to be registered, addressed to anyone who wishes to inspect them, the admissible background for the purposes of construction must be limited to what any reader would reasonably be supposed to know. It cannot include extrinsic facts which were known only to some of the people involved in the formation of the company.
37. The Board does not consider that this principle has any application in the present case. The implication as to the composition of the board is not based upon extrinsic evidence of which only a limited number of people would have known but upon the scheme of the articles themselves and, to a very limited extent, such background as was apparent from the memorandum of association and everyone in Belize would have known, namely that telecommunications had been a state monopoly and that the company was part of a scheme of privatisation.
38. For these reasons the Board will humbly advise Her Majesty that the appeal should be allowed with costs before the Board and in the Court of Appeal and the declarations made by the Chief Justice restored.”
B.P. Refinery (Westernport) Proprietary Limited v Shire of Hastings (Victoria)
[1977] UKPC 13
LORD SIMON OF GLAISDALE delivered the majority judgment of their Lordships
This is an appeal from a judgment of the Full Court of the Supreme Court of Victoria upon a case stated by the County Court at Melbourne under s. 304 of the Local Government Act 1958 (Vict.), as amended. It involves the interpretation of an agreement (the rating agreement) made between the appellant company and the respondents on 7 May 1964, pursuant to the provisions of s. 390A of the Local Government Act. It will be necessary to set out later more fully the relevant provisions of that agreement and of s. 390A. At this stage it is sufficient to say that the agreement was concerned with the preferential rating of an oil refinery of which the appellant company was in occupation at the time both of the rating agreement and also of the application to the Court but of which it had been intermediately out of occupation. On any showing the agreement presents difficulties of construction. The Full Court construed it by holding that there was an implied term in the agreement that it should come to an end on the appellant company ceasing to be in occupation, notwithstanding subsequent reoccupation.
2. As Lord Wilberforce said in Prenn v. Simmonds (11): “In order for the agreement … to be understood, it must be placed in its context. The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations.”
(9) The Moorcock (1889), 14 PD, at p 68; Shirlaw v. Southern Foundries (1926) Ltd., (1939) 2 KB 206, at p 227.
(10 ) Heyman v. Darwins Ltd., (1942) AC 356, at p 361; Berger v. Boyles, (1971) VR 321, at p 324.
(11) (1971) 1 WLR 1381, at p. 1383; (1971) 3 All ER 237, at p. 239.
3. Such a consideration of the matrix of an agreement is particularly called for when it is sought to imply in it a crucial term which the parties have not expressed. In the instant case consideration of the context of the agreement is, in their Lordships’ opinion, essential.
…..
38. Their Lordships turn to the first issue – namely whether there was an implied term in the rating agreement that it should come to an end on the appellant company ceasing to be in occupation of the refinery site. The Full Court adopted the view expressed in B.P. Australia Ltd. v. Shire of Hastings (14): “.. . the agreement itself from its terms did not contemplate any assignment by the company of any rights and obligations thereunder, or indeed, any change in the company’s ownership or occupancy of the rated land . ..”
39. The Full Court carefully reviewed some of the authorities on the implication of terms in a contract – namely Taylor v. Caldwell (15), Turner v. Goldsmith (16), Measures Bros. Ltd. v. Measures (17), and Reigate v. Union Manufacturing Co. (18). These authorities led the Full Court to hold, in view of B.P. Australia Ltd. v. Shire of Hastings, that it was an implied condition in the rating agreement that it should subsist only so long as the appellant company remained in occupation.
40. Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the
(14) (1973) VR 194, at p. 196.
(15) (1863) 3 B and S 826, at p. 833 [1863] EngR 526; (122 ER 309, at pp. 312-313).
(16) (1891) 1 QB 544, at p. 550.
(17) (1910) 2 Ch 248, at pp. 258, 259.
(18) (1918) 1 KB 592, at p. 605.
parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
41. Their Lordships venture to cite only three passages – albeit they are familiar to every student of this branch of the law. In The Moorcock (19) Bowen LJ said:
“I believe if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found bat in El of them 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 effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men.
. . .”
It is because the implication of a term rests on the presumed intention of the parties that the primary condition must be satisfied that the term sought to be implied must be reasonable and equitable. It is not to be imputed to a party that he is assenting to an unexpressed term which will operate unreasonably and inequitably against himself.
In Reigate v. Union Manufacturing Co. (20), Scrutton LJ said:
“A term can only be implied if it is necessary in the business sense to give efficacy to the contract i.e., if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, ‘What will happen in such a case?’, they would both have replied: ‘Of course, so and so will happen; we did not trouble to say that; it is too clear.”‘
42. In Shirlaw v. Southern Foundries (1926) Ltd. (21), MacKinnon LJ said:
“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 their agreement, they would testily suppress him with a common, ‘Oh, of course.'”
(19) (1889) 14 PD 64, at p. 68.
(20) (1918) 1 KB 592, at p. 605.
(21) (1939) 2 KB 206, at p. 227.
43. The main thrust of the argument for the appellant company was that it was not necessary to give business efficacy to the rating agreement to imply a term in it that it should come to an end on the appellant company going out of occupation of the refinery site, notwithstanding reoccupation after however short an interval. Their Lordships feel the force of this contention. But the alleged implied term is, in their Lordships’ view, to be rejected on a simpler and clearer ground.
44. In their Lordships’ view the term which the Full Court held should be implied in We rating agreement must be rejected on the ground that, taking into account the matrix of facts in which that agreement was set, to imply such a term would be wholly unreasonable and inequitable. A group of companies such as the B.P. group may from time to time for good reasons wish to make changes in its corporate structure – particularly when a period of as long as forty years is envisaged. This possibility was, as has been said, recognized in the refinery agreement, and the identity of the member of the B.P. group occupying the refinery site cannot have been of the least importance to the respondents. If it was the case, as it must have been, that tripartite negotiations took place between the State, the Shire and representatives of the B.P. group before the refinery agreement was made and that the offer of substantial rating concessions for a period of more than forty years was an inducement to the B.P. group to enter into the refinery agreement and to incur the massive capital expenditure necessary to establish a refinery at Crib Point – and it may be that in the absence of that inducement the B.P. representatives would not have wanted and would not have agreed to establish one there – then it was, to say the least, inequitable to imply a term the application of which in the circumstances of this case means that the rating benefits conferred by the rating agreement were only enjoyed for five and a half years from 7 May 1964, to 31 December 1969, instead of for more than forty years. When the rating agreement itself contained no provision for its termination before the expiry of forty years from the commissioning date, to imply a term which operated to deprive those who had been induced to establish the refinery of the advantages of those rating concessions on the ground that those advantages were only to enure so long as the appellant company remained in occupation of the premises, cannot, in their Lordships’ opinion, be regarded otherwise than as unreasonable and inequitable.
45. In the light of the provisions of the refinery agreement to which attention has been drawn, it cannot have been the presumed intention of the parties that such a term should be included in the agreement. If an officious bystander had asked the appellant company at the time the rating agreement was negotiated whether andat was ,tat was intended, he would have been suppressed – well, “testily” will do – with “Of course not]”. Indeed, their Lordships doubt whether the reaction of the respondents at the time the agreement was being negotiated would have been any different, even though years later they sought to take advantage of the change of occupation of the site.
46. Whatever else be the outcome of the appeal, their Lordships are satisfied that it would not be legitimate to imply a term in the rating agreement involving that it should come to an end on assignment in accordance with the refinery agreement.
47. The Full Court, like the Court in B.P. Australia Ltd. v. Shire of Hastings, was naturally impressed by the difficulty of operating cl. 5 of the rating agreement on assignment: it was primarily this that caused the Full Court to imply the term they did. But a far more fundamental difficulty about the rating agreement emerged during the course of argument before their Lordships. It affects its very heart and substance – namely, the quantification of rates in cl. 2. Capital expenditure by some other company in B.P.’s Australia group would not enure to the respondents’ advantage by way of increase of rates over pounds 25,000 (representing, so their Lordships were told, relevant capital investment of pounds 15m., as against the pivotal figure in the formula of pounds 30m.). The appellant company might have transferred all its assets to B.P. Australia Ltd. and taken simultaneously an immediate lease back without ever going out of occupation. The implied term contended for by the respondents and upheld by the Full Court would not in such circumstances avail the respondents. The appellant company would continue to enjoy preferential rating, but without the capital expenditure by B.P. Australia being taken into account in the quantification of rates. In other words, the term implied by the Full Court not only operates inequitably; it fails to give business efficacy to a defective contract and vindicate the obvious intention of the parties.
48. Recognizing that a term has to be implied into the rating agreement to give it business efficacy and having reached the conclusion that the term the Full Court held should be implied must for the reasons stated be rejected, what term should be implied which satisfies the five conditions stated?
49. In their Lordships’ view in the light of the matrix of facts in which the rating agreement is set, the answer to that question is clear. It is to imply a term which would make the rating agreement accord with and not differ from the refinery agreement – to imply a provision that if the rights of the “company” (the appellant company under the agreement) were assigned or otherwise disposed of to a company in which the British Petroleum Co. of Australia Ltd. held thirty per cent or more of the issued share capital, “company” should mean that assignee company.
50. Such a term would be both reasonable and equitable. It is capable of clear expression. It does not contradict any express term of a contract, but adds to it; and it gives business efficacy to the contract. In the light of the provisions in the refinery agreement it was something so obvious that it went without saying, and if an officious bystander had asked whether that was the common intention of the parties the answer would have been “Of course”.
51. If such a term is implied, the difficulties about the operation of cl. 5 as well as of cl. 2 of the rating agreement, in the event of such an assignment by the appellant company and the occupation of the refinery by the assignee company, disappear.
52. Their Lordships now turn to the alternative ground on which the Full Court decided in favour of the respondents, namely, that the exchange of correspondence at the end of 1969 and the beginning of 1970 – specifically the appellant company’s letter of 15 December 1969, and the respondents’ letter of 9 February 1970 – constituted an agreement to terminate an ex hypothesi subsisting contract. Their Lordships venture to put it in this way, because a contract can only be terminated by agreement if there is manifested a bargain between the parties so to terminate it. The appellant company’s letter of 15 December 1969, cannot be read as a contractual offer to rescind; and the respondents’ letter of 9 February 1970, cannot be read as an acceptance of an offer – or even as a counter-offer. It is merely notice of a resolution which the council has passed. Their Lordships are therefore in no doubt that, unless the rating agreement came to an end by virtue of some such implied term as that proposed by the respondents, it did not terminate by agreement.
53. With regard to the respondents’ third contention on which the Full Court did not find it necessary to pronounce – namely, that the rating agreement was terminated by the repudiation or fundamental breach by the appellant company in going out of occupation – their Lordships are of opinion that the argument is untenable unless a term such as the Full Court held was to be implied is implied. In their view for the reasons stated no such term is to be implied.
54. The crux of their Lordships’ decision only emerged in the course of argument before the Board. While their Lordships naturally regret that the grounds on which they have reached their conclusion were not considered in the County Court or by the Full Court and that they accordingly have not had the advantage of the views of the learned Judges in those Courts thereon, the point having been taken before the Board, they must decide it. As it was not raised in the appellant company’s case their Lordships as at present advised feel that the fair order as to costs would be that the costs orders below should be undisturbed and that before their Lordships each side should bear its own costs. If either party wishes to make any further submissions about costs their Lordships will entertain them. These should be made in writing in the first ]stance addressed to the Registrar. If they considered it necessary to do so, their Lordships would reconvene to hear oral submissions from counsel about costs. Parties are requested to notify the Registrar within fourteen days if they will be making any further submissions.
55. Subject thereto their Lordships would allow the appeal and remit the case to the Melbourne County Court to make the appropriate order. They will humbly advise Her Majesty accordingly.
LORD WILBERFORCE AND LORD MORRIS OF BORTHY-y-GEST, dissenting:-
27. Another version of this argument appears in the majority judgment and consists in saying that a term ought to be implied that if the rights of the appellant company were assigned or otherwise disposed of to a company in which the British Petroleum Co. of Australia held thirty per cent or more of the issued share capital,”Company” should mean that assignee company.
28. Of this argument we would say:
1. It was not put forward in either court below, nor taken or hinted at in the appellant’s printed case.
2. It is inconsistent with the decision of the Full Court in the earlier case concerned with B.P. Australia Ltd., and involves contending that that unappealed decision was wrong. In our respectful opinion it was right.
3. It is inconsistent with the appellant’s own action in December
(23) See Turner v. Goldsmith, (1891) 1 QB 544, at p 550; Measures Bros. Ltd. v. Measures, (1910) 2 Ch 248, at p 258.
1969, when it requested that their rights and privileges vested in the appellants might be transferred to B.P. Australia Ltd.
4. It introduces a method of interpretation which is novel and unsound. We have referred above to the agreement of 7 May 1964, which contains its own definition of “the Company” – that is, the appellant. Every reference in that agreement to the Company – we have mentioned the main references above – is beyond doubt a reference to the appellant company and to no other entity. To vary an expressed definition agreed between the parties by reference to a recital of another agreement of a different character between different parties involves a process alien to normal methods of construction.
5. The introduction of the new “implied term” cannot be justified under the normal principles. It is not necessary in order to produce business efficacy, is inconsistent with the expressed terms of the rating agreement, and, in our opinion, is not authorized by s. 390A. In effect it would impose upon the Shire a contractual party to which the Shire has not assented.
6. The extended definition does not produce the result aimed at. For one of two things: either the extended definition means “any company in the B.P. Group” – but in that case it departs from the “incorporated” definition; or, if the “incorporated definition” is taken, it produces the wrong result, for the assignee company is B.P. Australia Ltd. to which alone the benefit of the State agreement has been transferred and which has not re-transferred it to the appellant. It cannot produce the appellant company which has parted with the State agreement and now has merely a three year lease of the site.
Creen v Wright
(1875-76) LR 1 CPD 591
Lord Coleridge CJ
This was an action tried before my Brother Lush at Liverpool in December, 1875, in which he directed a verdict to be entered for the defendant; and we have to determine whether that direction was correct.
The plaintiff had been the master of the ship City Camp , under a written contract dated the 28th of March, 1875, from that day until the 10th of August, 1875, when he was dismissed, not for misconduct, but without notice, the defendant contending that, by the terms of the contract between the plaintiff and himself, the plaintiff was not entitled to any notice before dismissal. Other points arose in the case, but were not discussed before us.
The action was brought for a dismissal wrongful in being without notice; and the sole question argued was, whether, under the contract, the plaintiff was entitled to notice before dismissal, and on this single point my Brother Lush directed the verdict for the defendant.
The contract, so far as it is material to set it out, was as follows:—“I hereby accept the command of the ship City Camp on the following terms: Salary to be at and after the rate of 180l. sterling per annum.” Then followed certain other terms not material, and then,—
“Should owners require captain to leave the ship abroad, his wages to cease on the day he is required to give up the command, and the owners have the option of paying or not paying his expenses travelling home. … Wages to begin when captain joins the ship.”
“Francis Creen, Master, City Camp .”
It was contended for the plaintiff that, under this contract, he was entitled to a reasonable notice before dismissal, at any rate if dismissed in this country; and my Brother Lush held that he was not: but, upon consideration, we are of opinion that he was.
The relation of the master of a ship to his employer, the shipowner, is not one in which, in the case of an indefinite hiring, the law has made, and there was no evidence of any custom making, the hiring a hiring for a year or for any other definite time, nor the notice by which the service is to be determined certain. As to the hiring, we adopt the language of Pollock CB, in delivering the judgment of the Court in Fairman v Oakford:,
“There is no inflexible rule that an indefinite hiring is a hiring for a year. Each particular case must depend upon its own circumstances.”
As to the notice, we think the sound construction of the contract before us is, that, except in the single case provided for by its terms, there must be a reasonable notice before it can be put an end to by either party. The rule of construction must be the same for both parties to the contract. If the ship-owner may dismiss the master without notice on the very eve of a voyage, the master may leave the ship without notice at the same point of time. But the great inconvenience and heavy loss which might be, and indeed in most cases would be, inflicted on the ship-owner, without any remedy, by such a construction of the contract if acted on by the master, lead us to believe that such is not and could not be the meaning of the contract nor the intention of the parties to it. The loss and inconvenience to the master following upon the construction contended for, though not positively so great, may be relatively very great indeed: and this consideration points to the same conclusion. The provision that the master’s wages shall cease instantly upon dismissal abroad, may well have been intended to prevent any question as to the ship-owner being liable to the whole expense of bringing the master back to the United Kingdom; and does not appear to us to permit an argument for construing the contract so as to enable either party to put an end to it at any time without notice of any kind. Indeed, upon the construction of the contract contended for by the plaintiff, and if no notice before putting an end to it was required at any time on the part of either master or ship-owner, it is not easy to assign a reason for the insertion of this particular provision into the contract. Nor was any satisfactory reason offered to us why the rule Expressio unius est exclusio alterius should not apply to it.
We think, therefore, that, under his contract, as the master could not, except under very unusual circumstances, be dismissed during the continuance of a voyage and while the vessel was at sea, so he was entitled to some notice, and that is to reasonable notice, before dismissal in this country.
There is some authority for saying that, as a proposition of general law, reasonable notice is to be implied as a term of such a contract of hiring as this. Sir John Byles so laid down the law at nisi prius in the case of Hiscox v Batchelor;[7] and the case of Fairman v Oakford,[8] already referred to, seems, if the facts of it be carefully considered, to be an authority to the same effect. For, in the absence of stipulation for any notice, a month’s notice was held reasonable to determine an indefinite hiring of a clerk, on the ground that the same clerk had accepted such a notice as sufficient to determine a former indefinite hiring also without stipulation for notice of any kind. It is nowhere suggested that the absence of stipulation made no notice necessary in either of the hirings, which would have been a short and simple ground, if a sound one, for upholding the verdict in that case.
But, without intending to throw any doubt whatever upon these cases, we decide the one before us upon its own circumstances, and upon considerations especially applicable to the contract on which the dispute arose. And we think that the order must be absolute for a new trial.
Liverpool City Council v Irwin
[1976] UKHL 1, [1977] AC 239
Lord Denning MR dissenting Court of Appeal
Was there an implied term?
It is often said that the courts only imply a term in a contract when it is reasonable and necessary to do so in order to give business efficacy to the transaction: see The Moorcock (1889) 14 PD 64, 68. (Emphasis is put on the word “necessary”: Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592, 605.) Or when it is obvious that both parties must have intended it: so obvious indeed that if an officious bystander had asked them whether there was to be such a term, both would have suppressed it testily: “Yes, of course”: see Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227.
Those expressions have been repeated so often that it is with some trepidation that I venture to question them. I do so because they do not truly represent the way in which the courts act. Let me take some instances. There are stacks of them. Such as the terms implied by the courts into a contract for the sale of goods – Jones v Just (1868) LR 3 QB 197: or the hire of goods – Asley Industrial Trust Ltd v Grimley [1963] 1 WLR 584: into a contract for work and materials – Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454: or into a contract for letting an unfurnished house – Hart v Windsor (1843) 12 M & W 68: or a furnished house – Collins v Hopkins [1923] 2 KB 617: or into the carriage of a passenger by railway: see Readhead v Midland Railway Co (1869) LR 4 QB 379 : or to enter on premises: see Francis v Cockrell (1870) LR 5 QB 501 : or to buy a house in course of erection: see Hancock v BW Brazier (Anerley) Ltd [1966] 1 WLR 1317.
If you read the discussion in those cases, you will see that in none of them did the court ask: what did both parties intend? If asked, each party would have said he never gave it a thought: or the one would have intended something different from the other. Nor did the court ask: Is it necessary to give business efficacy to the transaction? If asked, the answer would have been: “It is reasonable, but it is not necessary.” The judgments in all those cases show that the courts implied a term according to whether or not it was reasonable in all the circumstances to do so. Very often it was conceded that there was some implied term. The only question was: “What was the extent of it?” Such as, was it an absolute warranty of fitness, or only a promise to use reasonable care? That cannot be solved by inquiring what they both intended, or into what was necessary. But only into what was reasonable. This is to be decided as matter of law, not as matter of fact. Lord Wright pulled the blinkers off our eyes when he said in 1935 to the Holdsworth Club:
“The truth is that the court …. decides this question in accordance with what seems to be just or reasonable in its eyes. The judge finds in himself the criterion of what is reasonable. The court is in this sense making a contract for the parties – though it is almost blasphemy to say so.” (Lord Wright of Durley, Legal Essays and Addresses (1939), p259.)
In 1956, Lord Radcliffe put it elegantly when he said of the parties to an implied term:
“their actual persons should be allowed to rest in peace. In their place there rises the figure of the fair and reasonable man. and the spokesman of the fair and reasonable man, who represents after all no more than the anthropomorphic conception of justice, is and must be the court itself”: see Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, 728.
In 1969, Lord Reid put it simply when he said: “… no warranty ought to be implied in a contract unless it is in all the circumstances reasonable,” see Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454, 465: and Lord Upjohn echoed it when he said, at p471, that the implied warranty was “imposed by law.”
Is there a term to be implied in this tenancy about the lifts and staircases and other common parts? Mr. Francis said there was no contractual obligation on the landlord at all. He repeated the old clichés about “necessary to give business efficacy” and the “officious bystander,” and said there was no term to be implied at all.
He likened this to a lease of premises in which there is no implied covenant by the landlord to keep the demised premises in repair: or to the lease of a party wall in which there is no implied covenant to keep the party wall in repair: see Colebeck v Girdlers Co (1876) 1 QBD 234 . But in those cases the landlord did not retain occupation or control. Such cases have no application to blocks of flats when the landlord himself retains occupation and control of the roof, lifts, staircase, and so forth. No one has ever doubted that the landlord is under an implied contractual obligation to the tenant in respect of those common parts. The only question has been as to the extent of the obligation. In Miller v Hancock [1893] 2 QB 177 the court were referred to Colebeck v Girdlers Co, but quite rightly treated is as of no relevance. Both Lord Esher MR and Bowen LJ said that the landlord was under an absolute obligation to maintain the staircase. Bowen LJ said, at p181:
“It seems to me that it would render the whole transaction inefficacious and absurd if an implied undertaking were not assumed on the part of the landlord to maintain the staircase so far as might be necessary for the reasonable enjoyment of the demised premises.”
Later cases have shown, however, that it is not an absolute obligation: see Cockburn v Smith [1924] 2 KB 119, 133, by Scrutton LJ But it is certainly an implied obligation to use reasonable care. It was distinctly so held by Lush J. in Dunster v Hollis [1918] 2 KB 795 , and his ruling has never been doubted since. It has been accepted by all the textwriters and by the Law Commission [Report on Obligations of Landlords and Tenants (Law Com. No. 67)], paragraph 114 (c). In the latest edition of Woodfall, Landlord and Tenant, 27th ed. (1968), p. 657, it is stated thus:
…..
I would allow the appeal and give judgment for the city council.”
House of Lords Lord Cross
“ My Lords, I have had the advantage of reading the speeches of my noble and learned friends Lord Wilberforce, Lord Salmon and Lord Edmund-Davies. I agree with them that on the main point – the liability of the respondent council to pay damages to the appellants for failure to keep the staircases and chutes in repair and the lifts in working order – this appeal should be dismissed, but that it should be allowed so far as concerns the claim under section 32 of the Housing Act 1961 relating to the lavatory cistern inside the maisonette. I do not wish to add anything with regard to the latter claim, but in view of its general importance and because I am – with respect to him – unable to agree with a passage in the judgment of Lord Denning MR I will add a few words of my own on the main point.
When it implies a term in a contract the court is sometimes laying down a general rule that in all contracts of a certain type – sale of goods, master and servant, landlord and tenant and so on – some provision is to be implied unless the parties have expressly excluded it. In deciding whether or not to lay down such a prima facie rule the court will naturally ask itself whether in the general run of such cases the term in question would be one which it would be reasonable to insert. Sometimes, however, there is no question of laying down any prima facie rule applicable to all cases of a defined type but what the court is being in effect asked to do is to rectify a particular – often a very detailed – contract by inserting in it a term which the parties have not expressed. Here it is not enough for the court to say that the suggested term is a reasonable one the presence of which would make the contract a better or fairer one; it must be able to say that the insertion of the term is necessary to give – as it is put -‘business efficacy’ to the contract and that if its absence had been pointed out at the time both parties – assuming them to have been reasonable men – would have agreed without hesitation to its insertion. The distinction between the two types of case was pointed out by Viscount Simonds and Lord Tucker in their speeches in Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, 579, 594, but I think that Lord Denning MR in proceeding – albeit with some trepidation – to ‘kill off’ MacKinnon LJ’s ‘officious bystander’ (Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227) must have overlooked it. Counsel for the appellant did not in fact rely on this passage in the speech of Lord Denning. His main argument was that when a landlord lets a number of flats or offices to a number of different tenants giving all of them rights to use the staircases, corridors and lifts there is to be implied, in the absence of any provision to the contrary, an obligation on the landlord to keep the ‘common parts’ in repair and the lifts in working order. But, for good measure, he also submitted that he could succeed on the ‘officious bystander’ test.
I have no hesitation in rejecting this alternative submission. We are not here dealing with an ordinary commercial contract by which a property company is letting one of its flats for profit. The respondent council is a public body charged by law with the duty of providing housing for members of the public selected because of their need for it at rents which are subsidised by the general body of ratepayers. Moreover the officials in the council’s housing department would know very well that some of the tenants in any given block might subject the chutes and lifts to rough treatment and that there was an ever present danger of deliberate damage by young ‘vandals’ – some of whom might in fact be children of the tenants in that or neighbouring blocks. In these circumstances, if at the time when the respondents were granted their tenancy one of them had said to the council’s representative: ‘I suppose that the council will be under a legal liability to us to keep the chutes and the lifts in working order and the staircases properly lighted,’ the answer might well have been – indeed I think, as Roskill LJ thought [1976] QB 319, 338, in all probability would have been – ‘Certainly not.’ The official might have added in explanation- ‘Of course we do not expect our tenants to keep them in repair themselves – though we do expect them to use them with care and to co-operate in combating vandalism. The council is a responsible body conscious of its duty both to its tenants and to the general body of ratepayers and we will always do our best in what may be difficult circumstances to keep the staircases lighted and the lifts and chutes working, but we cannot be expected to subject ourselves to a liability to be sued by any tenant for defects which may be directly or indirectly due to the negligence of some of the other tenants in the very block in question.’ Some people might think that it would have been, on balance, wrong for the council to adopt such an attitude, but no one could possibly describe such an attitude as irrational or perverse.”
The Moorcock
(1889) 14 PD 64
Bowen LJ
“In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; not to impose on one side all perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events as it must have been in the contemplation of both parties that he should be responsible for in respect to those perils or chances. ”
Hutton v Warren
(1836) 1 M&W 460
Parke B
“ We are of opinion that this custom was, by implication, imported into the lease.
It has long been settled, that, in commercial transactions, extrinsic evidence of custom and usage is admissible to annex incidents to written contracts, in matters with respect to which they are silent. The same rule has also been applied to contracts in other transactions of life, in which known usages have been established and prevailed; and this has been done upon the principle of presumption that, in such transactions, the parties did not mean to express in writing the whole of the contract by which they intended to be bound, but a contract with reference to those known usages. Whether such a relaxation of the strictness of the common law was wisely applied, where formal instruments have been entered into, and particularly leases under seal, may well be doubted; but the contrary has been established by such authority, and the relations between landlord and tenant have been so long regulated upon the supposition that all customary obligations, not altered by the contract, are to remain in force, that it is too late to pursue a contrary course; and it would be productive of much inconvenience if this practice were now to be disturbed.
The common law, indeed, does so little to prescribe the relative duties of landlord and tenant, since it leaves the latter at liberty to pursue any course of management he pleases, provided he is not guilty of waste, that it is by no means surprising that the Courts should have been favourably inclined to the introduction of those regulations in the mode of cultivation which custom and usage have established in each district to be the most beneficial to all parties.
Accordingly, in Wigglesworth v Dallison,[1] afterwards affirmed in a writ of error, the tenant was allowed an away-going crop, though there was a formal lease under seal. There the lease was entirely silent on the subject of such a right, and Lord Mansfield said that the custom did not alter or contradict the lease, but only superadded something to it.
Southern Foundries (1926) Ltd v Shirlaw
[1940] AC 701
MacKinnon LJ Court of Appeal
“I recognize that the right or duty of a Court to find the existence of an implied term or implied terms in a written contract is a matter to be exercised with care; and a Court is too often invited to do so upon vague and uncertain grounds. Too often also such an invitation is backed by the citation of a sentence or two from the judgment of Bowen LJ in The Moorcock.[2] They are sentences from an extempore judgment as sound and sensible as all the utterances of that great judge; but I fancy that he would have been rather surprised if he could have foreseen that these general remarks of his would come to be a favourite citation of a supposed principle of law, and I even think that he might sympathize with the occasional impatience of his successors when The Moorcock is so often flushed for them in that guise.
For my part, I think that there is a test that may be at least as useful as such generalities. If I may quote from an essay which I wrote some years ago, I then said: “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 their agreement, they would testily suppress him with a common ‘Oh, of course!'”
At least it is true, I think, that, if a term were never implied by a judge unless it could pass that test, he could not be held to be wrong.
Applying that in this case, I ask myself what would have happened if, when this contract had been drafted and was awaiting signature, a third party reading the draft had said:
“Would it not be well to put in a provision that the company shall not exercise or create any right to remove Mr Shirlaw from his directorship, and he have no right to resign his directorship?”
I am satisfied that they would both have assented to this as implied already, and agreed to its expression for greater certainty. Mr. Shirlaw would certainly have said:
“Of course that is implied. If I am to be bound by this agreement, including the barring of my activities under clauses 11 and 12 when I cease to be managing director, obviously the company must not have, or create, the power to remove me at any moment from the Board and so disqualify me from that post”
… and the company, which must be presumed to have been then desirous of binding him to serve them as managing director for ten years, would, I think, with equal alacrity have said:
“Of course that is implied. If you were tempted by some offer elsewhere, it would be monstrous for you to be able to resign your directorship and, by so disqualifying yourself from being managing director, put an end to this agreement.”
In the result, I think that the learned judge came to a right decision and this appeal fails.”
Goddard LJ concurred with MacKinnon LJ
House of Lords
Lord Atkin
“My Lords, the question in this case is whether the appellant company have broken their contract with the respondent made in December, 1933, that he should hold the office of managing director for ten years. The breach alleged is that under the articles adopted by the company, after the agreement, the respondent was removed from the position of director of the company by the Federated Foundries, Ld. There can be no doubt that the office of managing director could only be held by a director, and that upon the holder of the office of managing director ceasing for any cause to be a director the office would be ipso facto vacated. Under the articles in existence at the date of the agreement, by art. 89 the office of a director could be vacated on the happening of six various events, bankruptcy, lunacy, etc., including the giving by the director of one month’s notice to resign; while by art. 105 the company by extraordinary resolution could remove him from his office. I feel no doubt that the true construction of the agreement is that the company agreed to employ the respondent and the respondent agreed to serve the company as managing director for the period of ten years. It was by the constitution of the company a condition of holding such office that the holder should continue to be a director: and such continuance depended upon the terms of the articles regulating the office of director. It was not disputed, and I take it to be clear law, that the company’s articles so regulating the office of director could be altered from time to time: and therefore the continuance in office of the managing director under the agreement depended upon the provisions of the articles from time to time. Thus the contract of employment for the term of ten years was dependent upon the managing director continuing to be a director. This continuance of the directorship was a concurrent condition. The arrangement between the parties appears to me to be exactly described by the words of Cockburn C.J. in Stirling v Maitland:[4] “If a party enters into an arrangement which can only take effect by the continuance of an existing state of circumstances”; and in such a state of things the Lord Chief Justice said: “I look on the law to be that …. there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative.” That proposition in my opinion is well established law. Personally I should not so much base the law on an implied term, as on a positive rule of the law of contract that conduct of either promiser or promisee which can be said to amount to himself “of his own motion” bringing about the impossibility of performance is in itself a breach. If A promises to marry B and before performance of that contract marries C, A is not sued for breach of an implied contract not to marry anyone else, but for breach of his contract to marry B. I think it follows that if either the company of its own motion removed the respondent from the office of director under art. 105, or if the respondent caused his office of director to be vacated by giving one month’s notice of resignation under art. 89, either of them would have committed a breach of the agreement in question. As Kennedy L.J. said in Measures Bros Ltd v Measures[5] in discussing this very question of the effect upon a contract of employment as managing director of the managing director resigning his office of director: “It is elementary justice that one of the parties to a contract shall not get rid of his responsibilities thereunder by disabling the other contractor from fulfilling his part of the bargain.” I cannot agree with the view of the contract taken by the Master of the Rolls that the parties must be taken to have agreed that the term, though expressed to be for ten years, was subject to be determined by any cause, including the will of either party expressed in accordance with the articles; and that such determination therefore could not constitute a breach. I should have construed the agreement as I do on the first two clauses alone, but the remaining clauses and particularly those dealing with the mutual obligations between the respondent and Sir Berkeley Sheffield in this tripartite agreement in my view strongly reinforce that construction. I agree, therefore, with the trial judge, with the majority of the Court of Appeal, and with I believe all your Lordships in thinking that if during the term the respondent had given a notice of resignation, or if the company had exercised its power of removal under art. 105, either would have committed a breach of the contract.
The question that remains is whether if the removal by the company would have been a breach by the company, the removal under the altered articles by the Federated Foundries, Ld., was a breach by the company. In this matter the Master of the Rolls agreed with the other members of the Court of Appeal; but all the members of this House are not agreed. My Lords, it is obvious that the question is not as simple as in the case just considered of the removal being by the Southern Foundries, Ld.; but I venture respectfully to think that the result must be the same. The office of director involves contractual arrangements between the director and the company. If the company removes the director it puts an end to the contract: and indeed the contract relations cannot be determined unless by events stipulated for in the contract, by operation of law, or by the will of the two parties. The altered art. 8 which gives power to the Federated Foundries, Ld., to remove from office any director of the company is, when analysed, a power to the Federated to terminate a contract between the Southern and its director. It is an act which binds the Southern as against its promisee; and if a wrong to the respondent if done by the Southern it surely must be a wrong to the respondent if done by the Federated who derive their power to do the act from the Southern only. If a landlord gives power to a tenant to discharge the landlord’s servants, gardener or gamekeeper; it is the master, the landlord, who is bound by the consequences of that discharge whether rightful, or whether wrongful, and so involving the payment of damages. If a man buys goods and contracts with a sub-purchaser to take delivery direct from his vendor, and contracts with his vendor to give delivery to the sub-purchasers, the latter’s recourse for breach of contract to deliver is against his own intermediate seller and not against the head vendor. If then the Federated of their own motion determine the concurrent condition it appears to me that necessarily they cause the Southern to break the contract. I can quite see that the position may be altered where the Federated remove a director from office for such reasons as those contained in the old art. 89 or in art. 72 of Table A, which was not incorporated in the new articles. In such a case it may well be said that the company is not acting of its own motion, but is reasonably moved to act by the acts or omissions of the director. But in the present case no such question arises. The action of the Federated was, I think I may say avowedly, taken for the sole purpose of bringing the managing director’s agreement to an end. I do not think that it could be said that the Southern committed any breach by adopting the new articles. But when the Federated acted upon the power conferred upon them in the new articles they bound the Southern if they acted in such a way that action by the Southern on the same articles would be a breach. It is not a question of agency but of acting under powers conferred by contract to interfere with a contract between the party granting the power and a third person. For these reasons I am of opinion that this appeal should be dismissed with costs.
”
Lord Wright
“ In my opinion the appellant company would beyond question have been guilty of a breach of contract sounding in damages if without just cause they had removed him from his directorship and thus terminated his tenure of office, as was done in March, 1937, in the circumstances which will appear later. The case would have been simply a case of wrongful dismissal of a servant or employee. The servant or employee is in such a case effectively dismissed. His employment is terminated but the termination is wrongful, and the employer has to answer in damages. The employers here are the appellant company, but for this purpose they are like any other employers. The articles may give them the power to dismiss, but the power to dismiss is to be distinguished from the right to dismiss. I do not think that in this particular case the fact that the office includes that of a director, affects this conclusion. It is said that it is impossible to accept that a company would guarantee to a director a ten years’ tenure of his office. But the answer is that they have actually done so, according to the terms of the contract, though subject to the express exceptions of the contract and to the general exceptions which the law reads into the contract. The word guarantee is inappropriate. No one, individual or company, can be compelled against his or their will, to employ a man, though, if the contract is broken, damages will have to be paid. When the respondent was appointed managing director for ten years, the contract necessarily meant that the appellant company would not without good cause remove him from his directorship during that period, because if they did so they would ipso facto terminate his employment. There is no question of implying a term that the appellant company would not remove the respondent from his directorship. He could not serve for the agreed term of ten years unless the appellant company continued him in his office. As Lord Blackburn said in Mackay v Dick:[7] “where in a written contract it appears that both parties have agreed that something shall be done” [as here that the respondent shall hold office for ten years] “which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing.” The agreement involved for its fulfilment the concurrence of the appellants and the respondent and imported that each should do its part in carrying it out. ”
Johnstone v Bloomsbury Health Authority
[1992] QB 333
Browne-Wilkinson VC
“ In my judgment there must be some restriction on the defendants’ rights. In any sphere of employment other than that of junior hospital doctors, an obligation to work up to 88 hours in any one week would be rightly regarded as oppressive and intolerable. But even that is not the limit of what the defendants claim. Since the plaintiff’s obligation is to be available “on average” for 48 hours per week, the defendants claim to be entitled to require him to work more than 88 hours in some weeks regardless of possible injury to his health. Thus the plaintiff alleges that he was required to work for 100 hours during one week in February 1989 and 105 hours during another week in March 1989. How far can this go? Could the defendants demand of the plaintiff that he worked 130 hours (out of the total of 168 hours available) in any one week even if this would manifestly involve injury to his health? In my judgment the defendants’ right to call for overtime under clause 4(b) is not an absolute right but must be limited in some way. There is no technical legal reason why the defendants’ discretion to call for overtime should not be exercised in conformity with the normal implied duty to take reasonable care not to injure their employee’s health. ”
Scally v Southern Health and Social Services Board
[1992] 1 AC 294
Lord Bridge
“ A clear distinction is drawn in the speeches of Viscount Simonds in Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 and Lord Wilberforce in Liverpool City Council v Irwin [1977] AC 239 between the search for an implied term necessary to give business efficacy to a particular contract and the search, based on wider considerations, for a term which the law will imply as a necessary incident of a definable category of contractual relationship. If any implication is appropriate here, it is, I think, of this latter type. Carswell J. accepted the submission that any formulation of an implied term of this kind which would be effective to sustain the plaintiffs’ claims in this case must necessarily be too wide in its ambit to be acceptable as of general application. I believe however that this difficulty is surmounted if the category of contractual relationship in which the implication will arise is defined with sufficient precision. I would define it as the relationship of employer and employee where the following circumstances obtain: (1) the terms of the contract of employment have not been negotiated with the individual employee but result from negotiation with a representative body or are otherwise incorporated by reference; (2) a particular term of the contract makes available to the employee a valuable right contingent upon action being taken by him to avail himself of its benefit; (3) the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention. I fully appreciate that the criterion to justify an implication of this kind is necessity, not reasonableness. But I take the view that it is not merely reasonable, but necessary, in the circumstances postulated, to imply an obligation on the employer to take reasonable steps to bring the term of the contract in question to the employee’s attention, so that he may be in a position to enjoy its benefit. Accordingly I would hold that there was an implied term in each of the plaintiffs’ contracts of employment of which the boards were in each case in breach. ”
Lord Roskill, Lord Goff, Lord Jauncey and Lord Lowry concurred.
Malik and Mahmud v Bank of Credit and Commerce International SA
[1997] UKHL 23
Lord Nicholls
“ The contrary argument of principle is that since the purpose of the trust and confidence term is to preserve the employment relationship and to enable that relationship to prosper and continue, the losses recoverable for breach should be confined to those flowing from the premature termination of the relationship. Thus, a breach of the term should not be regarded as giving rise to recoverable losses beyond those I have described as premature termination losses. In this way, the measure of damages would be commensurate with, and not go beyond, the scope of the protection the trust and confidence term is intended to provide for the employee.
This is an unacceptably narrow evaluation of the trust and confidence term. Employers may be under no common law obligation, through the medium of an implied contractual term of general application, to take steps to improve their employees’ future job prospects. But failure to improve is one thing, positively to damage is another. Employment, and job prospects, are matters of vital concern to most people. Jobs of all descriptions are less secure than formerly, people change jobs more frequently, and the job market is not always buoyant. Everyone knows this. An employment contract creates a close personal relationship, where there is often a disparity of power between the parties. Frequently the employee is vulnerable. Although the underlying purpose of the trust and confidence term is to protect the employment relationship, there can be nothing unfairly onerous or unreasonable in requiring an employer who breaches the trust and confidence term to be liable if he thereby causes continuing financial loss of a nature that was reasonably foreseeable. Employers must take care not to damage their employees’ future employment prospects, by harsh and oppressive behaviour or by any other form of conduct which is unacceptable today as falling below the standards set by the implied trust and confidence term.”
Lord Steyn
“ Such implied terms operate as default rules. The parties are free to exclude or modify them. But is common ground that in the present case the particular terms of the contracts of employment of the two applicants could not affect an implied obligation of mutual trust and confidence… It was a change in legal culture which made possible the evolution of the implied term of trust and confidence…
The motives of the employer cannot be determinative, or even relevant, in judging the employees’ claims for damages for breach of the implied obligation. If conduct objectively considered is likely to cause serious damage to the relationship between employer and employee a breach of the implied obligation may arise.
Equitable Life Assurance Society v Hyman
[2000] UKHL 39
Lord Steyn
“ It is necessary to distinguish between the processes of interpretation and implication. The purpose of interpretation is to assign to the language of the text the most appropriate meaning which the words can legitimately bear. The language of article 65(1) contains no relevant express restriction on the powers of the directors. It is impossible to assign to the language of article 65(1) by construction a restriction precluding the directors from overriding GARs. To this extent I would uphold the submissions made on behalf of the Society. The critical question is whether a relevant restriction may be implied into article 65(1). It is certainly not a case in which a term can be implied by law in the sense of incidents impliedly annexed to particular forms of contracts. Such standardised implied terms operate as general default rules: see Scally v Southern Health and Social Services Board [1992] 1 AC 294. If a term is to be implied, it could only be a term implied from the language of article 65 read in its particular commercial setting. Such implied terms operate as ad hoc gap fillers. In Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, 137 Lord Wright explained this distinction as follows:
“The expression ‘implied term’ is used in different senses. Sometimes it denotes some term which does not depend on the actual intention of the parties but on a rule of law, such as the terms, warranties or conditions which, if not expressly excluded, the law imports, as for instance under the Sale of Goods Act and the Marine Insurance Act. . . . But a case like the present is different because what it is sought to imply is based on an intention imputed to the parties from their actual circumstances.”
It is only an individualised term of the second kind which can arguably arise in the present case. Such a term may be imputed to parties: it is not critically dependent on proof of an actual intention of the parties. The process “is one of construction of the agreement as a whole in its commercial setting”: Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191, 212E, per Lord Hoffmann. This principle is sparingly and cautiously used and may never be employed to imply a term in conflict with the express terms of the text. The legal test for the implication of such a term is a standard of strict necessity. This is how I must approach the question whether a term is to be implied into article 65(1) which precludes the directors from adopting a principle which has the effect of overriding or undermining the GARs.
The enquiry is entirely constructional in nature: proceeding from the express terms of article 65, viewed against its objective setting, the question is whether the implication is strictly necessary. My Lords, as counsel for the GAR policyholders observed, final bonuses are not bounty. They are a significant part of the consideration for the premiums paid. And the directors’ discretions as to the amount and distribution of bonuses are conferred for the benefit of policyholders. In this context the self-evident commercial object of the inclusion of guaranteed rates in the policy is to protect the policyholder against a fall in market annuity rates by ensuring that if the fall occurs he will be better off than he would have been with market rates. The choice is given to the GAR policyholder and not to the Society. It cannot be seriously doubted that the provision for guaranteed annuity rates was a good selling point in the marketing by the Society of the GAR policies. It is also obvious that it would have been a significant attraction for purchasers of GAR policies. The Society points out that no special charge was made for the inclusion in the policy of GAR provisions. So be it. This factor does not alter the reasonable expectations of the parties. The supposition of the parties must be presumed to have been that the directors would not exercise their discretion in conflict with contractual rights. These are the circumstances in which the directors of the Society resolved upon a differential policy which was designed to deprive the relevant guarantees of any substantial value. In my judgment an implication precluding the use of the directors’ discretion in this way is strictly necessary. The implication is essential to give effect to the reasonable expectations of the parties. The stringent test applicable to the implication of terms is satisfied.
In substantial agreement with Lord Woolf MR I would hold that the directors were not entitled to adopt a principle of making the final bonuses of GAR policyholders dependent on how they exercised their rights under the policy. In adopting the principle of a differential policy in respect of GAR policyholders the directors acted in breach of article 65(1).”
Baird Textile Holdings Ltd v Marks & Spencer Plc
[2001] EWCA Civ 274
Vice Chancelloer
In his application of those principles to this case the judge said:
“13. On this head of the claim I am satisfied that Baird’s case in favour of an implied contract cannot succeed. In the first place, it would be unlikely that one could properly imply a contract when it is the pleaded case of Baird that M & S deliberately refrained from concluding any express contract because it could achieve greater flexibility without one. To imply a contract against such a party would seem to me to offend against the principle that the parties’ conduct must show an implied common intention to create legal relations by contract.
In any event, the alleged terms are far too imprecise to be capable of being enforced. [After referring by way of analogy to Blue Metal Ltd v Robert Frank Hughes & Others (1963) AC 74. Morison J continued] Mr. Field [counsel for Baird] could not say that so long as the implied contract continued with Baird, M & S were prevented from appointing principal suppliers. And I cannot understand how the various factors listed by him would work in practice. If M & S’s future requirements were for fewer and more expensive garments of a type which Baird was unable or unwilling to produce at an acceptable cost, what then? There is, in my judgment, no firm base upon which one could ascertain either a particular quantity or a particular share which should be attributed to Baird in the future. Were the alleged contract to have legal effect then the court would, to all intents and purposes, be making a bargain for the parties rather than seeking to enforce a bargain which they themselves had made.”
For Baird counsel submits that where, as alleged in paragraph 9, one party intentionally induces a particular belief in another, on which the other relies, such conduct attracts legal responsibility. The responsibility relied on is (1) to give reasonable notice to terminate the relationship and (2) during the subsistence of the relationship, to acquire garments from Baird in such quantities and at such prices as were in all the circumstances reasonable. More specifically he contends that the judge was wrong in three respects, namely (a) necessity is not the test for the implication of a contract from conduct, (b) there is a sufficient prospect of success in establishing an intention to create the legal relations relied on, and (c) the obligations are sufficiently certain to be enforceable as part of the alleged contract.
In connection with the wide proposition counsel referred to academic discussion with regard to “relational contracts” and the legal implications to which they may give rise. But the articles which he produced did not suggest that the normal rules as to the implication and formation of contracts or the usual requirements of certainty did not apply to “relational contracts”. Accordingly it is to those rules that I turn.
Counsel suggested that the requirement of necessity to which the judge referred was derived from the judgment of Bingham LJ in The Aramis [1989] 1 Ll.L.R 213. He submitted that it was either confined to the cases exemplified in that case or, at least, inapplicable to cases in which there had been a long continuing relationship or an intentional inducement such as Baird relies on in this case.
The Aramis [1989] 1 Ll.L.R 213 concerned the question whether a contract could be implied between the transferee of a bill of lading to whom the goods had been delivered and the carrier. Prior to the Carriage of Goods By Sea Act 1992 the implication of such a contract was necessary if the transferee and the carrier were to have rights enforceable between themselves in respect of, for example, damage to the goods or the payment of freight. Bingham LJ considered the authorities at some length to see how the implication of contracts in this field had grown and developed. He cited with approval from the judgment of May LJ in The Elli [1985] 1 Ll.R. 107, 115 that
“…no such contract should be implied on the facts of any given case unless it is necessary to do so: necessary, that is to say, to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist.”
Bingham LJ accepted that the authorities showed that “a contract will only be implied if it is necessary to do so”. In expressing his own view Bingham LJ said (page 224):
“…it would, in my view, be contrary to principle to countenance the implication of a contract from conduct if the conduct relied upon is no more consistent with an intention to contract than with an intention not to contract. It must, surely, be necessary to identify conduct referable to the contract contended for or, at the very least, conduct inconsistent with there being no contract made between the parties. Put another way, I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract.”
Counsel for Baird relied on the fact that in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195, a case concerning the implication of a contract from a request for tenders and a submission in response, Bingham LJ put the matter somewhat differently. In that case he referred (pp. 1201 and 1202) to the “confident assumptions of commercial men” and the need to “be able to conclude with confidence both that the parties intended to create contractual relations and that the agreement was to the effect contended for”.
For M&S it was submitted that it would be odd if the principle for the implication of a contract at all should be different or less onerous than the principle for the implication of a term in a contract. Reliance was placed on Wilson v Partenreederei Hannah Blumenthal [1983] AC 854 and The Gudermes [1993] 1 Ll.R.311. The former concerned the question whether a contract to abandon an arbitration might be implied from conduct, or more precisely lack of conduct. Lord Brandon of Oakbrook considered (p.914) that an actual abandonment, as opposed to an estoppel precluding an assertion of continuance, required proof of conduct of each party, as evinced to the other party and acted on by him, as “leads necessarily to the inference of an implied agreement” between them to abandon the contract. Lord Roskill referred (p.923) to “the only possible inference [being] that the agreement to arbitrate has been rescinded by mutual consent”. Though Lord Diplock made no similar observation both Lords Keith of Kinkel and Brightman agreed with Lords Brandon and Roskill. In The Gudermes the cargo owner sought to establish a further contract with the ship-owners arising out of arrangements made to cope with the situation arising from an unauthorised diversion to Malta rather than Ravenna. The judge, Hirst J, held that the appropriate test was that described by May LJ in The Elli [1985] 1 Ll.R. 107, 115. The Court of Appeal upheld that direction. Staughton LJ giving the judgment of the court considered (p.320) that
“..it is not enough to show that the parties have done something more than, or something different from, what they were already bound to do under obligations owed to others. What they do must be consistent only with there being a new contract implied, and inconsistent with there being no such contract.”
In my view the judge did not adopt the wrong test for the implication of a contract from conduct. It is apparent that the statements in The Aramis are not confined to the limited circumstances with which that case was concerned and are reflected in one form or another in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council, Wilson v Partenreederei Hannah Blumenthal and The Gudermes.
The second issue arises not only from the terms of paragraph 12(1) of the judgment of Morison J but also from the terms of paragraph 9.28 of the particulars of claim. Baird contends that the judge placed undue weight on that allegation and overlooked the references to “detailed contract or contracts”. It submitted that the wish to maintain flexibility and so to abstain from detailed contracts was not inconsistent with an intention to have a contractual umbrella to regulate the commercial relationship, more particularly given the belief M&S had intentionally induced in Baird as alleged in paragraph 9 of the Particulars of Claim. In this connection counsel relied on the speech of Lord Hoffmann in Carmichael v National Power plc [1999] 1 WLR 2042, 2050/1 to the effect that the subjective views of one party is some evidence as to what, objectively, the court should conclude to have been agreed.
Counsel for M&S pointed out that the allegation is that M&S “abstained from concluding any express contract…to regulate the parties on-going relationship..”. Nevertheless Counsel for M&S did not suggest that the allegation in paragraph 9.28 was conclusive, merely a serious impediment to the implication for which Baird contends. In my view it would be inappropriate at this stage to take too literal a view of the pleading. I am prepared to assume that in the passage I have quoted some reference to “detail” should be implied so as to reflect the later reference to the need to maintain flexibility by abstaining from detailed contracts. On that reading there is some force in this point. But it cannot be conclusive either way.
The crucial point, in my view, arises from the third issue, namely whether the obligations arising from the alleged implied contract would be sufficiently certain to be contractually enforceable. Counsel for Baird submitted that on questions of certainty the court takes a benevolent view and seeks to uphold the contract by so construing its terms as to produce certainty rather than the converse. He relied on the dictum of Steyn LJ in First Energy (UK) Ltd v Hungarian International Bank [1993] 2 Ll.R. 194, 196 on the need for the law to protect the reasonable expectations of honest men. He cited as examples Abrahams v Reiach Ltd [1922] 1 KB 477 and Paula Lee v Robert Zehil & Co Ltd [1983] 2 AER 390 in which problems of certainty were overcome by the implication of a requirement of reasonableness.
In relation to the facts Counsel for Baird suggested that there were a number of links in the relevant chain. He relied on a representation to Baird of a long term relationship to induce it to participate in the M&S supply base. He asserted that given that intentional representation M&S must have intended that Baird would get a reasonable level of M&S business year on year. He contended that not only did Baird so understand the representation but that was the way the relationship was in fact operated. Although, as I have already pointed out in paragraph 5, the proportion of business given by M&S to Baird remained relatively constant in percentage terms Counsel did not contend that M&S allocated its business amongst the four principal suppliers in accordance with any predetermined formula. He contended that the past could, with the assistance of experts, indicate what would be a reasonable allocation for the future.
Any debate about certainty of contractual terms and implications of reasonableness to avoid uncertainty must start with the decision of the House of Lords in Hillas v Arcos (1932) 147 LT 503. In that case the question was whether an option to buy “100,000 Standards for delivery in 1931” was sufficiently certain against the background of a contract concluded and performed the previous year for the purchase of “22,000 standards softwood goods of fair specification over the season 1930”. The House of Lords concluded that the contract was sufficiently certain. Lord Tomlin interpolated into the option the requirement of “fair specification” expressly required by the previous year’s contract. He considered that (p.512) in that context the words
“mean that the 22,000 standards are to be satisfied in goods distributed over kinds, qualities and sizes in the fair proportions having regard to the output of the season 1930, and the classifications of that output in respect of kinds, qualities and sizes. That is something which if the parties fail to agree can be ascertained just as much as the fair value of a property.”
Lord Wright (p.517) referred to the legal implication of reasonableness running through modern English commercial law and supplying the requisite degree of certainty in appropriate cases. The distinction between those cases in which the implication of reasonableness provides for certainty and those in which it does not appears most clearly from the speech of Lord Thankerton. He distinguished (p.513) between cases where the contract provides for an objective standard which the court applies by ascertaining what is reasonable and those where, there being no such standard, the test of reasonableness is being used to make an agreement for the parties which they have not made for themselves. He was impressed by the consideration that a commercial matter was involved and the parties themselves thought that they had made a contract.
The same principle is apparent from Australian Blue Metal Ltd v Hughes [1963] AC 74. That case concerned a mining lease containing a grant of the right to mine for magnesite in a specific area for an agreed royalty. The lease was silent as to the period for which it was to run, the means of its termination, the quantity of magnesite which might be mined and whether or not the right was exclusive. The issue was whether it was terminable at will or only on notice. The Privy Council considered that it was terminable at will. Lord Devlin giving the advice of the Board said (p.94/5)
“The second feature is that no express obligation was imposed on the appellants to do any mining at all, and in their Lordships’ opinion none can be implied. The only practical way of framing such an obligation with sufficient precision to make it enforceable is to do what was done in the 1942 agreement and specify a minimum quantity of material that has to be won in a given period. Their Lordships were referred to Hillas & Co Ltd v Arcos Ltd a case in which the House of Lords was able to use the implication of reasonableness to fill the gaps left by the parties. But in the present case there are no criteria which would enable a court of law to determine what would be a reasonable quantity. There would be too many uncertain factors to be taken into account, such as the profitability of mining in the future and the possibility of mining being done by other licensees…”
In both the cases relied on by Baird, namely Abrahams v Reiach Ltd [1922] 1 KB 477 and Paula Lee v Robert Zehil & Co Ltd [1983] 2 AER 390, the existence of a contract was not in doubt. The court was concerned with the assessment of damages for the breach of an undoubted obligation. The issue was how it was to be performed. I do not consider that either of them is of relevance to this case.
The issue of certainty arises, not with regard to the alleged obligation to give reasonable notice of termination, but with the allegation that
“..during the subsistence of the relationship Marks & Spencer would acquire garments from BHT in quantities and at prices which in all the circumstances were reasonable..”
Counsel for Baird accepted that this involved an obligation on Baird to supply such garments irrespective of whether it had accepted the order. It is not alleged that there was some objective criteria by which to assess what was a reasonable quantity or price. Counsel disclaimed any contention that M&S in fact allocated business from year to year in accordance with some formula of its own. The annual allocation was separately determined in each year in the light of the circumstances then prevailing.
I agree with the conclusion of the judge. The alleged obligation on M&S to acquire garments from Baird is insufficiently certain to found any contractual obligation because there are no objective criteria by which the court could assess what would be reasonable either as to quantity or price. This is not a case in which, the parties having evidently sought to make a contract, the court seeks to uphold its validity by construing the terms to produce certainty. Rather it is a case in which the lack of certainty confirms the absence of any clear evidence of an intention to create legal relations. The allegation in paragraph 9.28 also confirms the lack of intention to create legal relations for if there had been the requisite certainty because of the objective criteria then to that extent there would have been a detailed contract and a loss of flexibility. It cannot be said, let alone with confidence, that the conduct of the parties is more consistent with the existence of the contract sought to be implied than with its absence. The implication of the alleged contract is not necessary to give business reality to the commercial relationship between M&S and Baird. In agreement with the judge, I do not think that Baird has a real prospect of success on its claim in contract.
Whether there is some other compelling reason for requiring the contractual claim to be disposed of at a trial depends on the view one takes of the estoppel claim. If, as the judge thought, the estoppel claim has a real prospect of success then it may be inconvenient to preclude any consideration of a contractual claim. I turn, then, to consider the estoppel claim.
Daniel Sweeney v. Dennis Duggan;
Supreme Court
(Hamilton CJ , Barrington and Murphy JJ )
It was asserted on behalf of the plaintiff that the obligations aforesaid in so far as they fell upon the company derived primarily (and perhaps exclusively) from the contractual relationship between the employer and the employee. It was contended that the particular obligation to insure the company against liability (or in default to warn the plaintiff) was an implied term of the employment contract.
In the amended written submissions to this Court the plaintiff contended that such a term should be implied having regard to a variety of matters which included the following:
(I) The company’s business, quarrying, was said to be exceptionally dangerous.
(II) At the time of the accident, the company’s finances were precarious.
(III) The plaintiff had insured himself to a ‘small extent’ against loss covered by injuries sustained in the course of his employment.
Whilst there may be room for argument as to the degree of danger involved in the business carried on by the company or the extent of its financial difficulties in or around the time of the accident there is no doubt that evidence was adduced before the learned trial judge to the effect that the accident rate in quarries is approximately eight times the rate on building sites generally and furthermore there was evidence of substantial losses incurred by the company in the years immediately prior to the accident albeit due to no fault of the company or its management. Moreover it was asserted that the plaintiff was a man of modest means and education who was not represented by a trade union in any negotiations he had with the company or Mr Duggan. The question is whether in these circumstances, and accepting that each of the factors aforesaid existed and assuming that they existed to the highest degree for which the plaintiff might contend, a term such as that for which the plaintiff argues would be implied in the contract of employment.
There are at least two situations where the courts will, independently of statutory requirement, imply a term which has not been expressly agreed by the parties to a contract. The first of these situations was identified in the well-known Moorcock case (1889) 14 PD 64 where a term not expressly agreed upon by the parties was inferred on the basis of the presumed intention of the parties. The basis for such a presumption was explained by MacKinnon LJ in Shirlaw v. Southern Foundries (1926) Ltd [1939] 2 KB 206 at p. 227 in an expression, equally memorable, in the following terms:
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 their agreement, they would testily suppress him with a common, ‘Oh, of course’ .
In addition there are a variety of cases in which a contractual term has been implied on the basis, not of the intention of the parties to the contract but deriving from the nature of the contract itself. Indeed in analysing the different types of case in which a term will be implied Lord Wilberforce in Liverpool City Council v. Irwin [1977] AC 239 preferred to describe the different categories which he identified as no more than shades on a continuous spectrum.
The relevance of the presumed intention of the parties differs in different cases. This is dramatically illustrated in the Irwin case. In that case the court was asked to infer a term in a contract between the Liverpool City Council and its tenants to the effect that the council would maintain and repair the lifts and chutes in an apartment block. Roskill LJ speculated as to what the reaction of the Liverpool City Council would have been if one of the tenants had said: ‘I suppose that the council will be under a legal liability to us to keep the chutes and lifts in working order and the staircases properly lighted’ and he concluded that the answer in all probability would have been — ‘Certainly not’ . Whilst Lord Roskill’s assumption aforesaid was accepted in the House of Lords, they concluded that irrespective of the presumed intention of the parties a term must be implied from the very nature of the fact that the tenants had to gain access to their apartments by and through the common areas of a fifteen storey tower block that some party would have to keep them in repair. The question then was whether this obligation would fall on the tenants collectively or individually or else on the council. As Lord Salmon said at p. 262:
Unless the law, in circumstances such as these, imposes an obligation upon the council at least to use reasonable care to keep the lifts working properly and the staircase lit, the whole transaction becomes inefficacious, futile and absurd. I cannot go so far as Lord Denning MR and hold that the courts have any power to imply a term into a contract merely because it seems reasonable to do so. Indeed, I think that such a proposition is contrary to all authority. To say, as Lord Reid said in Young & Marten Ltd v. McManus Childs Ltd [1969] 1 AC 454 at p. 465 that ‘… no warranty ought to be implied in a contract unless it is in all of the circumstances reasonable’ is, in my view, quite different from saying that any warranty or term which is, in all of the circumstances, reasonable ought to be implied in a contract. I am confident that Lord Reid meant no more than that unless a warranty or term is in all the circumstances reasonable there is no question of implying it into a contract, but before it is implied much else besides is necessary, for example that without it the contract would be inefficacious, futile and absurd.
Whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable category of contract it must be not merely reasonable but also necessary. Clearly it cannot be implied if it is inconsistent with the express wording of the contract and furthermore it may be difficult to infer a term where it cannot be formulated with reasonable precision.
It seems to me clear that the contention that a term as to insurance by the company of its risk for liability to the plaintiff as its employee or an obligation to warn him of the absence of such insurance could not be implied in pursuance of the Moorcock doctrine. The contract of employment would and did operate effectively without any such term and if one postulated an inquiry by the ubiquitous and officious bystander as to whether such a term should be included I anticipate that it might have well been rejected and certainly would not have been accepted without considerable negotiation and discussion a result which would negative the existence of an implied term. In Spring v. National Amalgamated Stevedores & Dockers Society [1956] 1 WLR 585 the defendant trade union sought to expel the plaintiff from its membership and in doing so relied upon what they alleged was implied in the contract between the plaintiff and them. The term which it was said should be implied arose from an agreement which had been reached at Bridlington in 1939 and regulated the transfer of members from one union to another. That agreement was, in trade union circles, referred to as ‘the Bridlington Agreement ’ . What, therefore, the defendants sought to incorporate by implication in their agreement with the plaintiff was a provision that the plaintiff should comply with the ‘the Bridlington Agreement ’ . In his judgment the Vice Chancellor Sir Leonard Stone postulated the Moorcock test in the following terms (at p. 599):
If that test were to be applied to the facts of the present case and the bystander had asked the plaintiff at the time he paid his five shillings and signed the acceptance form, ‘Won’t you put into it some reference to the Bridlington Agreement ?’ I think (indeed, I have no doubt) the plaintiff would have answered ‘What’s that?’ In my judgment, that is sufficient to dispose of this case, …
Clearly the plaintiff in the present case would have little difficulty in appreciating the general concept of employer’s liability insurance but so far from an immediate acquiescence to any proposals in relation to such insurance I think it is reasonable to anticipate that a debate would have arisen as to the value of such insurance to the employee seeing that such insurance is primarily for the benefit of the employer and, if it were explained how it might also benefit the employee, further and useful discussion might well follow as to whether the interests of the plaintiff would not be better secured by some other arrangement which would be of immediate and direct benefit to the plaintiff. The parties to the negotiations might recognise, (as did their counsel) that a contractual obligation by the company to insure would add little protection to the plaintiff as default by the company would merely duplicate the plaintiff’s right to recover a judgment against the company with no greater prospect of recovering thereon. I would reject the contention that the term for which the plaintiff contends could be implied on the basis of the Moorcock doctrine.
Both parties referred to the decision of the Court of Appeal in England in two cases, namely, Reid v. Rush & Tompkins Group plc [1990] 1 WLR 212 and Van Oppen & Clarke v. Bedford Charity Trustees [1990] 1 WLR 235 on the issue as to whether the disputed provision with regard to insurance should be implied as a legal incident to the plaintiff’s contract of employment. Each of these cases has a similarity to the other and a relevance to the existing matter in as much as it was alleged (unsuccessfully) that the defendants in each case were under an obligation or duty to take out and maintain some form of insurance for the benefit of the plaintiff or at any rate to advise him in relation to such insurance.
In the Reid case the plaintiff was employed by the defendant to travel to Ethiopia as a quarry foreman. While in that country the plaintiff was injured in a motor car accident caused by the negligence of a third party whose identity was never discovered. In Ethiopia there was not, at the time, any compulsory third party motor insurance nor any scheme for compensating persons injured in accidents caused by the negligence of uninsured or untraced drivers. In those circumstances the plaintiff brought an action against his employer — the defendant — for damages in respect of the economic loss which he had suffered in being unable to recover such compensation. He alleged that the defendant was in breach of an implied term of his contract of employment to the effect that it would take out appropriate indemnity insurance cover for the plaintiff or, alternatively, that it would, prior to his departure for Ethiopia, advise him of any special risks so that he could obtain such insurance cover for himself. Alterna tively, the plaintiff argued, that the defendant was negligent in failing to discharge its duty of care as an employer to protect the plaintiff’s economic welfare by providing the appropriate insurance cover. Ralph Gibson LJ delivering the main judgment of the Court of Appeal declined to imply the term for which the plaintiff contended. He analysed the facts of the case and went on (at pp. 227–8) to state as follows:
It is, however, impossible, in my judgment, to imply in this case a term as a matter of law in the form contended for, namely, a specific duty to advise the plaintiff to obtain specific insurance cover. Such a duty seems to me inappropriate for incorporation by law into all contracts of employment in the circumstances alleged. The length of time during which the servant will work abroad and the nature of his work may vary greatly between one job and another and hence the extent to which the servant would be exposed to the special risk. Further, having regard to the many different ways in which a servant working abroad may run the risk of uncompensated injury caused by the wrong doing of a third party, apart from a traffic accident, it seems to me impossible to formulate the detailed terms in which the law could incorporate into the general relationship of master and servant a contractual obligation to the effect necessary to cover the plaintiff’s claim.
…..
Will the law then imply a term in the contract of employment imposing such an obligation on the employer? The implication cannot, of course, be justified as necessary to give business efficacy to the contract of employment as a whole. I think there is force in the submission, that since the employee’s entitlement to enhance his pension rights by the purchase of added years is of no effect unless he is aware of it and since he cannot be expected to become aware of it unless it is drawn to his attention, it is necessary to imply an obligation on the employer to bring it to his attention to render efficacious the very benefit which the contractual right to purchase added years was intended to confer.
I agree that a term may be implied independently of the intention of the parties where it is necessary as a matter of law and logic to enable the provisions of the agreement to have operative effect. No such necessity exists in the present case. The decision is also relevant in setting out the principles, with which I fully agree, which establish that the obligation as between the employer and employee in a case such as the present are to be found in contract and not in tort.
Accordingly, as to the first and crucial argument submitted on behalf of the plaintiff, I am satisfied that there is no basis for the implication in the contract of employment between the company and the plaintiff of a term that the employer should in any circumstances extract risk insurance cover or otherwise make special provision to ensure the payment of compensation to the plaintiff in the event of injury or to warn the plaintiff of the absence of such policy or such arrangement. Likewise I am satisfied that no such obligation or duty can be identified by reference to the law of tort. If the company has no liability in contract to the plaintiff then neither has Mr Duggan. The piercing of the corporate veil bestowed upon the company by law, or even its complete removal, cannot impose on Mr Duggan or the other shareholder in the company an obligation in contract to which the company itself was not subject.
Ward v. Spivack Ltd
[1957] IR 29
Davitt P. Supreme Court.
The President of the High Court has held that the relationship between the plaintiffs and the defendant Company was not that of master and servant. He found that when the contracts were being made “what was to happen if the agency was terminated was not discussed. It was a contingency which they did not deal with.” The plaintiff, Daniel Ward, accepts this finding. The plaintiff, James Fagan, contended that the words used should be construed as an agreement that commission was to continue to be paid notwithstanding the determination of his agency. I am unable to accept this contention. The question accordingly in both cases arises whether a term should be implied to this effect in the contract. Each plaintiff’s claim, as pleaded and put forward in the High Court, was that a term should be implied which would give him the right to continue to receive commission on all orders from customers in his area who did business with the defendant Company during the period of his agency. The President, while not accepting this contention that a term so wide should be read into the contracts, has held that a term should be implied that commission was to continue to be paid, limited, however, to orders from customers introduced by the plaintiffs. He stated the test, which he considered should be applied, in the following terms:”Let us envisage the parties at the moment they have agreed on the expressed terms of their contract. Then imagine one of them saying, with regard to the term sought to be implied:’Of course such and such is understood?’ If the probability is that the other would say:’Of course,’ then the term may be implied. If the probability is that he would say:’Certainly not, I will agree to nothing of the kind,’ then clearly the term cannot be implied no matter how desirable or reasonable it may seem, as the Court cannot make a contract for the parties; it can only determine what they agreed on, either expressly or impliedly.”
……
I turn to the question which would appear to be the only one argued in the High Court, whether a term should be implied in these contracts that on being determined a commission was to continue to be paid either on the basis originally claimed by both plaintiffs and still contended for by Mr. Fagan or on the narrower basis decided by the President.
It is settled law that a term may be implied in a contract to repair what Cheshire and Fifoot, (3rd ed., 1952, at p. 127) calls “an intrinsic failure of expression.” Where there has been such a failure the judge may supply the further terms which will implement their (the parties) presumed intention and in a hallowed phrase give “business efficacy”to the contract. “In doing this he purports at least to do merely what the parties would have done themselves had they thought of the matter. The existence of this judicial power was asserted and justified in The Moorcock(1).”In that case Bowen L.J. explained the nature of the implication in all the cases; he says where they were implied “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.” The test to be applied by the Court has been stated by several judges in much the same language: see Scrutton L.J., in Reigate v. Union Manufacturing Co. (Ramsbottom) (1); and MacKinnon L.J. in Shirlaw v.Southern Foundries (1926), Ltd. (2).
It will be seen from the language used in so stating the tests that something more is required than the probabilityof which the President speaks that the parties must have agreed to the term to be implied had the matter been mentioned. There must be something approaching certainty or as put by Jenkins L.J. in Sethia (1944) Ltd. v.Partabmull Rameshwar (3) it must be “clear beyond a peradventure that both parties intended a given term to operate, although they did not include it in so many words.”
Can it be said with the degree of confidence required that the parties must, had the matter been raised, have agreed to the continuance of commission on the basis contended for by Mr. Fagan? The President came unhesitatingly to the conclusion that it cannot be so said. With this I am in complete agreement. Whatever view one might take had the agency only related to orders obtained from customers introduced by the plaintiffs the fact that the contract was to pay commission on all orders with the exceptions mentioned suggests that Mr. Spivack was quite unlikely on behalf of his Company to agree to the continuance of commission beyond the period of the agency. What had happened with regard to Mr. Hardy supports this view strongly. Furthermore although it might have been a reasonable thing for Mr. Spivack to have agreed to continue to pay commission on orders from customers introduced by the plaintiffs at least for some time after the termination of the agency I am quite unable to hold as the President does that had the matter been raised Mr. Spivack must have agreed. To read such a term into the contract would in my view not be to make clear the intention of the parties unexpressed at the time but would be to make a new contract.
The plaintiffs’ case for commission, therefore, stands or falls on the submission that once they had been appointed sole selling agents commission at the agreed rate became payable when the defendants themselves sold during the currency of the sole agency. In answer to this submission, the defendants relied primarily on the decision of McCardie J. in Bentall, Horsley and Baldry v.Vicary .5 The head-note of that case reads as follows:”The defendant, the owner of property, appointed the plaintiffs, who were estate agents, his sole agents for the sale of the property for a stipulated period, it being agreed that, if the plaintiffs introduced a purchaser, they should receive a commission of 5 per cent. on the purchase price. During the period of the agency the defendant negotiated personally and quite apart from the plaintiffs with a purchaser who had never had any communication with the plaintiffs and whom the plaintiffs did not know. The result of the negotiations was that the property was sold to this purchaser. The plaintiffs thereupon claimed from the defendant damages for breach of contract on the ground that, in selling the property direct to the purchaser, he had acted in breach of his contract with them and had thereby deprived them of their commission:Held, that the plaintiffs were not entitled to damages, as the contract contained no express prohibition against a sale by the defendant himself, and the implication of such a prohibition was not necessary to give business efficacy to the transaction. Held further, on the terms of the contract, that the plaintiffs could not recover commission at the agreed rate on the purchase price received by the defendant, as they had failed to introduce the purchaser, nor could they recover on a quantum meruit.”
Murphy, Buckley & Keogh Ltd. v. Pye (Ir.) Ltd.
[1971] IR 57
It is also to be noted that the defendant does not say by the contract: ‘I give you the sole right to sell.’ He says only: ‘I appoint you sole agents for the sale’, which is, in my opinion, quite a different thing.”
It seems to me that these observations are fully applicable to the present case. In so far as I have been able to ascertain the terms of the contract from the conversations that led up to it, and from the correspondence and the conduct of the parties, there was nothing in the contract which gave the plaintiffs the sole right to sell; they were merely appointed sole agents to find a purchaser who would be ready to complete at a price acceptable to the defendants, and the defendants were to have the right to revoke the agency. It is clear that the contract precluded the defendants from selling through another agent during the currency of the plaintiffs’ agency; it is equally clear that the contract contained no express term which precluded the defendants themselves from selling. If I am correct in thinking that, in this respect, the contract in the present case is indistinguishable from that in the Bentall Case 6, then under authority of the latter case it is not possible to read into the contract in the present case an implied term precluding the defendants from selling.
Carna Foods Ltd and Edmund Mallon v. Eagle Star Insurance Co. (Ireland) Ltd;
[1997] 2 IR 193 Supreme Court
(Hamilton CJ , Keane and Lynch JJ )
Date: 28 May 1997
Conclusions
The plaintiffs say that one must imply a term into the policies of insurance issued by the defendant to the plaintiffs in this case to the effect that if a policy is cancelled or its renewal is declined the defendant must give its reasons for so doing. Apart from cases where the law implies some terms into certain kinds of contract, whether by statute or by common law (for example sale of goods, hire purchase, landlord and tenant, sale of lands etc. ) one can imply a term into a contract only when the implied term gives effect to the true intentions of all the parties to the contract who might be affected by such implied term. The learned trial judge in his judgment in this case which is now reported in [1995] 1 IR 526 ; [1995] 2 ILRM 474 quoted from the well known dictum of MacKinnon LJ in Shirlaw v. Southern Foundries (1926) Ltd [1939] 2 KB 206 at p. 227 and I also quote that dictum here:
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 provisions for it in their agreement, they would testily suppress him with a common ‘oh of course’ .
Here the evidence before the learned trial judge is quite clearly to the effect that if such a term were sought to be included in the insurance policies at the time when the plaintiffs were seeking insurance the defendant would not have contracted with the plaintiffs at all. If the officious bystander had interrupted in relation to condition 13 of the policies and had asked the defendant ‘If you do cancel, will you give your reasons for cancelling?’ The defendant’s answer would have been an emphatic ‘No’ whereas to imply such a term into the policies the answer would have to be by both parties ‘Yes, of course’ expressed rather testily to discourage the officious bystander from further interrupting.
It is also helpful to quote what Lord Pearson said in 1973 in the case of Trollope and Colls Ltd v. North West Metropolitan Regional Hospital Board [1973] 2 All ER 260 at p. 268:
An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which although tacit, formed part of the contract which the parties made for themselves.
These basic principles of law preclude the implication of a term into the policies to the effect that in the event of a declinature or cancellation the defendant must state its reasons therefor.
Specifically in relation to insurance law this question of an obligation to give reasons has long since been decided in the case of Sun Fire Office v. Hart referred to above. The relevant clause in that case read:
If by reason of such change, or from any other cause whatever, the society or its agents should desire to terminate the insurance effected by the said policy, it shall be lawful for the society or its agents so to do, by notice to the insured or to the authorised representatives of the insured and to require the policy to be given up for the purpose of being cancelled: provided that in any such case the society shall refund to the insured a rateable proportion for the unexpired term thereof of the premium received for the insurance.
A question arose as to whether the words ‘or from any other cause whatever’ were governed and restricted by the reference to ‘such change’ which had been described earlier in the clause. It was decided that they were not so governed or restricted and stood on their own. At p. 103 of the report of the judgment of Lord Watson he states as follows:
The condition does not involve the avoidance of the policy ab initio , or forfeiture of the premium paid to the insured. There may be many circumstances calculated to beget, in the mind of a fair and reasonable insurer, a strong desire to terminate the policy, which it would be inconvenient to state and difficult to prove: and it must not be forgotten that the whole business of fire insurance offices consists in the issue of policies, and they have no inducement, and are not likely to curtail their business, without sufficient cause. On the other hand the insured gets all the protection which he pays for, and when the policy is determined, can protect his own interests by effecting another insurance.
Of course the plaintiffs in this case say that having been refused renewal of three policies and had another two policies cancelled and not being aware of what the reasons are for such an attitude by the defendant it is not possible for them to effect alternative insurance. A curious feature of the case of course is that no effort was made either by the plaintiffs themselves or by their insurance brokers to negotiate with an alternative insurer with a view to getting insurance cover again. Undoubtedly it makes it more difficult to get alternative cover when policies have not been renewed or have been cancelled but that would have been so to some extent at any rate at the time of the Sun Fire Office case just as it is today.
If the court were to imply such a term into the contracts of insurance the consequences would be very far reaching. Supposing for example that in the present case the defendant although not having evidence to support its suspicions in fact genuinely believe that the fire in the abattoir and the meat factory at Castleblayney was a case of arson committed by or at the behest of the plaintiffs and that that is the real reason for its rejecting the plaintiffs as insured parties. This appears to be what the plaintiffs themselves are suggesting at question 187 of the transcript of 31 May and question 29 of the transcript of 1 June 1995. If the defendant is bound to give reasons it must do so truthfully. One can scarcely imagine the litigation that such a situation would spawn especially when one recalls the plaintiffs’ solicitors suggestion in their letter of 19 April 1994 that the defendant’s mere silence was defamatory of the plaintiffs.
For all the foregoing reasons I would reject the claim by the plaintiffs that a term that the defendant should give its reasons for a declinature and/or cancellation should be implied in the policies of insurance.
It is also claimed that the defendant in addition to stating reasons should have an implied obligation to put the plaintiffs back into the same position that the plaintiffs enjoyed regarding obtaining insurance cover before they entered into the contracts of insurance with the defendant. This is an impossibility. The fact is that the plaintiffs did contract with the defendant as its insurers and that the defendant cancelled two of the policies and declined to renew the other three policies and that will always be the position. One recalls the often quoted lines of the poet Edward Fitzgerald:
The moving finger writes: and having writ,
moves on: nor all thy piety nor wit
shall lure it back to cancel half a line,
nor all thy tears wash out a word of it.
I reject therefore the submission that such a term should be implied into the contracts between the parties.
Siney v. Corporation of Dublin
[1980] IR 400
O’Higgins C.J. 408
Breach of contract
The first question involves a consideration as to whether, in the particular letting of this flat to the plaintiff, a warranty can be implied as to its fitness or suitability for habitation by the plaintiff and his family. This is so because the document which was signed on the 23rd August, 1973, contains 32 conditions which either define the rights of the defendants or specify the obligations of the plaintiff tenant. There is no express warranty on the part of the defendants as to the suitability of the flat for any particular purpose, nor is such a warranty expressly excluded. Therefore, it becomes a question as to whether such a warranty can be implied in this particular letting in the circumstances. The law as to the circumstances under which a warranty may be implied in a contract was stated many years ago by Bowen L.J. in this wellknown passage from p. 68 of his judgment in The Moorcock 20 ;
“Now, an implied warranty, or, as it is called, a covenant in law, as distinguished from an express contract or express warranty, really is in all cases founded on the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side; and I believe if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found that in all of them 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.”
At once the question arises as to whether this principle of law has any application or relevance in a case such as the present. Counsel for the defendants submit very strongly that it has not. As this was a letting of an unfurnished flat or dwelling, they assert that no such warranty can be implied. In this respect they rely on a long line of authorities as illustrated by Sutton v.Temple 21 ; Hart v. Windsor 9 ; Brown v. Norton 7 and Chambers v. Cork Corporation. 14 Those authorities established the proposition that the mere letting of land, with or without an unfurnished dwellinghouse upon it, carried no such implication of a warranty with regard to fitness for any particular purpose. Those cases applied the rule of caveat emptor to all lettings of land, with or without a house thereon, in the same way as it was applied to contracts for the sale of land.
An exception, which is not relevant to this case, was recognised where a furnished house was let for occupation; in such a case a covenant on the part of the landlord that the premises would be fit for such occupation at the commencement of the tenancy is implied: Smith v. Marrable 8 ; Wilson v. Finch Hatton 10 ; Collins v. Hopkins 22 and Brown v. Norton. 7 A further exception was recognised where a lessor sold by way of lease a house under construction; in such circumstances terms could be implied with regard to the completion of the house, the suitability of the materials used, the quality of the workmanship and its fitness for habitation: Norris v. Staps 23 ; Pearce v.Tucker 24 ; G. H. Myers & Co. v. Brent Cross Service Co. 25 ; Hall v. Burke 26 and Brown v. Norton. 7
There can be no doubt that the authorities mentioned (and others which are too numerous to cite) do establish the proposition that a mere letting of land, with or without an unfurnished house thereon, carried with it no implication that either the land or the house would be fit for any particular purpose. This rule probably developed when the main subject of conveyances and leases was land, and when buildings and houses were often of secondary importance in a society that was thinly urbanised. To-day the application of such a rule in a society which is becoming more and more urbanised, and in which the building and sale of houses has become a major industry, may appear somewhat harsh and inappropriate. However, whether the rule has or has not survived changes in society is not in issue in this case. The issue is whether it can be applied, or ought to be applied, in the particular circumstances of this letting by the defendants to the plaintiff.
…..Accordingly, I have come to the conclusion that the letting made to the plaintiff by the defendants did include an implied warranty that the premises let would be reasonably fit for human habitation and, therefore, I would answer affirmatively the first question in the Case
Sean Tierney v. An Post;
Supreme Court [200] 1 IR 536
(Nem. Diss.) (Hamilton CJ , Keane and Lynch JJ )
….
Leave was given to the applicant to apply for an order of certiorari in respect of the decisions to terminate the contract and to reject the applicant’s appeal. He was also given leave to apply for an order of prohibition or an injunction prohibiting or restraining the respondent from terminating the contract. The applicant submitted that his contract was a contract of service containing an implied term that the disciplinary procedures provided for should be conducted in accordance with fair procedures. He alleged that fair procedures had not been complied with. The respondent replied that it was a contract for services and not a contract of service and that termination at any time was permissible provided that reasonable notice had been given. In the alternative, the respondent argued that fair procedures had been observed. In a judgment delivered on
There remains the question as to whether the contract, although a contract for services, should be construed as containing an implied term that the respondent was obliged to conduct the disciplinary machinery provided for in the contract in accordance with fair procedures.
Giving the judgment of the majority of this Court in Glover v. BLN Ltd [1973] IR 388 , Walsh J said at p. 425:
This Court in In re Haughey [1971] IR 217 held that [Article 40.3 ] of the Constitution was a guarantee of fair procedures. It is not, in my opinion, necessary to discuss the full effect of this article in the realm of private law or indeed of public law. It is sufficient to say that public policy and the dictates of constitutional justice require that statutes, regulations or agreements setting up machinery for taking decisions which may affect rights or impose liabilities should be construed as providing for fair procedures. It is unnecessary to decide to w2hat extent the contrary can be provided for by agreement between the parties.
That statement of the law is not confined to contracts of service. It is in accordance with the general principle laid down by the same learned judge in Meskell v. CIE [1973] IR 121 , that constitutional rights may be protected or enforced in proceedings between private citizens and not merely in proceedings against the State.
In the present case, the contract, although not a contract of service, provided a machinery for taking a decision which could result, and did in this case result, in the determination of the applicant’s tenure of the office of sub-postmaster. It is not in dispute that it had financial consequences for the applicant which could fairly be equated to those resulting from a dismissal from a particular employment.
As was pointed out by Barrington J giving the judgment of this Court in Mooney v. An Post [1998] 4 IR 288 , the two central maxims traditionally associated with the concept of natural justice — nemo iudex in causa sua and audi alteram partem — are not necessarily capable of application where an employer dismisses an employee. Similar considerations would apply to a contract for services of the nature now under consideration. But where, as here, the contract provides a disciplinary machinery which is invoked to determine whether the person should retain the office of sub-postmaster or be visited with a lesser sanction, the reasoning in the passage I have cited from Glover v. BLN is, in my view, fully applicable.
It is true that the disciplinary machinery provided under the Postmaster’s Manual does not expressly provide for an oral hearing. Where, however, the respondent by implication accepts, as it did here, that the matter was sufficiently serious to warrant an oral hearing, it follows inevitably that the applicant was entitled to fair procedures in the conduct of that oral hearing and the determination arrived at by the respondent following the hearing.
Unfortunately, as found by the learned High Court judge, such fair procedures were not observed in the present case. It follows that the applicant is entitled to the orders of certiorari and prohibition granted in the High Court.
I would dismiss the appeal and affirm the order of the High Court.
James Elliot Construction Ltd -v- Irish Asphalt Ltd
[2011] IEHC 269
Finlay Geoghegan J
Contractual Analysis
19. The resolution of the primary dispute between the plaintiff and the defendant as to whether the plaintiff’s Purchase Order conditions or the defendant’s terms and conditions as incorporated in the contract or contracts pursuant to which the defendant supplied aggregate to the plaintiff between March 2003 and May 2005, is dependent upon a conclusion as to when and how the contract or contracts between the parties came into existence. It is not in dispute that a contract came into being in March 2003, but the parties contend for differing dates and also differ in their submissions as to the relationship between that contract and the contract or contracts applicable to the subsequent deliveries.
…..
24. In my judgment, an oral agreement was reached between Mr. Regan and Mr. Tuite on the morning of 26th March, 2003, as to the terms upon which the defendant would supply aggregate to the plaintiff for the construction contract at Finglas. There is no requirement that such a contract be in writing. The express terms agreed are recorded on the Purchase Order then sent by fax on the same day at 13.09 hours, stated to be for the attention of “Terry”, who, it was stated, was Mr. Terry Lagan, a director of the defendant. The fax number given by Mr. Tuite, and to which the fax was sent, was that of the head office of the defendant at Rosemount, where Mr. Lagan worked. The express terms include the name of the purchaser, the plaintiff; the name of the vendor, the defendant; the place of delivery, Griffith Avenue, Finglas; the four types of aggregate or stone, the unit price of each type per tonne for collection and the delivery charge per tonne and the specification that the credit terms were 60 days and that it was “fixed price for duration of contract”.
25. On the evidence, I have concluded, as a matter of probability, that there were certain other implied terms. First, on the defendant’s evidence, it appears probable that a written Purchase Order signed by the plaintiff had to be communicated at least by fax to them. This was done on 26th March, 2003. Also, that a credit application had to be completed by the plaintiff and returned to the defendant. Such a form appears to have been faxed by the defendant and returned shortly thereafter by the plaintiff on the afternoon of 27th March, 2003. There were also implied terms as to the manner in which the contract would be performed, including the ordering system by oral “call offs” placed in a telephone call by the site manager or other operative from the plaintiff’s construction site at Finglas to the defendant’s operative on the weighbridge at Baylane, and the recording of the aggregate supplied by the use of delivery dockets in accordance with a well established practice between the quarry and construction industries.
26. In my judgment, accordingly, there was a concluded agreement between the plaintiff and defendant on 27th March, 2003, as to the terms on which the defendant would supply aggregate to the plaintiff for the duration of its construction contract at the site at Griffith Avenue, Finglas.
27. The plaintiff did not, on or before 26th March, 2003, bring to the attention of the defendant its Purchase Order conditions according to which it now submits that it agreed to purchase the aggregate from the defendant. Whilst they are printed on the reverse of the Purchase Order form, there is no reference on the front side to the Purchase Order conditions. Communication of that Purchase Order to the defendant by fax is, in my judgment, the latest point in time at which the concluded agreement came into being. It may have come into being when the oral communication was made by Mr. Regan to Mr. Tuite that he was placing the order with the defendant.
28. Similarly, it is an undisputed fact that the defendant had not drawn to the attention of the plaintiff its terms and conditions on or before 26th March, 2003.
29. It follows from the foregoing conclusions that insofar as the plaintiff relies upon a communication of its Purchase Order conditions on either 27th or 28th March, 2003, that it would have to establish a variation in the already agreed terms for the purchase and supply of aggregate for its construction contract at Finglas. Sensibly, no such submission was made by counsel on its behalf as there are not facts to support any agreed variation. Rather, the plaintiff’s only submission on the incorporation of its Purchase Order were upon a submission that the concluded contract did not come into existence until the first delivery was effected. This does not appear correct for the reasons already set out.
30. The defendant, in its wide-ranging submissions, places great emphasis on the incorporation of its terms and conditions by the signature by or on behalf of the plaintiff on each delivery docket. The defendant’s submission is that each individual delivery formed a distinct and unique contract between the plaintiff and the defendant, albeit part of the over-arching or master contract between them, and that its terms and conditions were incorporated into each such contract, either by the signature given on behalf of the plaintiff, by reasonable notice of the prior delivery documents or by a course of dealing.
31. It is well established that terms and conditions may be incorporated into a contract by signature, reasonable notice or by a course of dealing. (See, inter alia, McMeel, ‘Construction of Contracts’ (2nd Ed.) Oxford University Press 2011, at paragraph 15.53). On the question of signature, Denning L.J., in Curtis v. Chemical Cleaning and Dyeing Company [1951] 1 K.B. 805, at p. 808, as ever, put it pithily:
“If the party affected signs a written document, knowing it to be a contract which governs the relations between them, his signature is irrefragable evidence of his assent to the whole contract, including the exempting clauses, unless the signature is shown to be obtained by fraud or misrepresentation: L’Estrange v. Graucob [1934] 2 K.B. 394.”
It is important to note the condition of “knowing it to be a contract which governs the relations between them”.
32. Whether the incorporation is to be by signature, reasonable notice or course of dealing, the first question is whether the document which makes reference to the terms and conditions is a contractual document. McMeel, at paragraph 15.56, states:
“A first hurdle to overcome is whether the document is of a character that it could be reasonably expected would contain terms and conditions. Is it a contractual document? This can either be satisfied by actual knowledge of the receiving party that it contains terms or by an objective test: would the reasonable recipient expect it to contain conditions? This is relevant to all modes of incorporation. A distinction has to be drawn between documents which effect or form part of the background to the formation of the contract, and post-contractual documents. The former are an obvious source of terms, whereas a court may conclude that the latter came too late to prove an argument of incorporation. Auld L.J. has drawn this distinction:
‘A document may have a contractual purpose as a contract making document or in the execution of an existing contract. Documents such as a time sheet, an invoice or a statement of account are within the latter category. They do not normally have a contractual effect in the sense of the making or the varying of a contract’. (Grogan v. Robin Meredith Plant Hire [1996] C.L.C 1127, at 1130 CA).
That may be an appropriate distinction to draw so far as ‘one-off’ arguments about incorporation by signature or notice are concerned. It may go too far if the argument is that incorporation has arisen by a course of dealing or of industry-standard terms. In that context both invoices and other administrative documents are often the basis of an argument of incorporation based on the parties’ practice.”
33. It follows from my earlier conclusion that the terms agreed on 26th March, 2003, between the plaintiff and the defendant were the terms in accordance with which the defendant agreed to supply aggregate to the plaintiff. The delivery documents commencing on 27th March, 2003, are all post-contractual unless they had the effect either of making a new and distinct contract, or of varying the existing contract. Any analysis must be based upon the facts of this case. Counsel for both parties opened many authorities to me which, whilst helpful insofar as they state the principles, must be very carefully considered and applied, as each tend to turn on their own particular facts. Nevertheless, it does appear that the facts in Grogan, to which reference is made above, are sufficiently similar and that, in particular, the analysis of Auld L.J. in his judgment is of assistance to me on the facts before me. It also appears that quite similar arguments were advanced before the Court of Appeal to those advanced on behalf of the defendant to me in favour of incorporation by signature on the delivery dockets.
34. The facts in Grogan were that the first named defendant, a plant hire company, approached Triact, a civil engineering contractor, seeking work. It was orally agreed that Triact would hire from the defendant a driver and a machine for an all-in rate of £14.50 an hour from 27th January, 1992. Neither party mentioned any other terms. At the end of the first and second weeks, Triact’s site manager signed a timesheet recording the hours that had been worked by the first named defendant’s driver. Toward the bottom of the timesheet was printed, ‘All hire undertaken under CPA conditions. Copies available on request’. Under the CPA conditions, Triact was bound to indemnify the first named defendant against any liability incurred to third parties in the course of the hire. An accident occurred during the third week in which the plaintiff, Grogan, was injured, and ultimately, obtained judgment for damages against the first named defendant and Triact. The first named defendant claimed that the CPA conditions were incorporated into the contract by the signing of the driver’s timesheet and Triact was therefore liable to indemnify it against its liability to the plaintiff. The High Court held that the contract had been varied so as to incorporate the CPA conditions and the first named defendant entitled to succeed against Triact. Triact appealed. Auld L.J., delivering the leading judgment, rejected the submission that the court should only look at the words of a signed document and disregard its nature or function stating:
“I reject MT Turner’s proposition that the court should look only at the words of a signed document and disregard its nature or function. The central question, adopting and adapting the useful statement of principle in Chitty on Contracts (27th edn), vol. 1, para. 12/008, is whether the time sheet in this case comes within the class of a document which the party receiving it knew contained, or which a reasonable man would expect to contain, relevant contractual conditions. Another way of putting it, as Kerr J did in Bahamas Oil Refining Co v Kristiansands Tankrederie A/S (‘The Polyduke’) [1978] 1 LI Rep 211 at pp. 215-216, is whether ‘the document purport[ed] to have contractual effect’. It has to be borne in mind too that the circumstance to which the question relates, the presentation and signing of a time sheet for work done under an existing contract, is one of alleged variation, not the initial making of a contract.”
35. He later considered the different ways in which a document may have contractual purpose in stating:
“A document may have a contractual purpose as a contract making document or in the execution of an existing contract. Documents such as a time sheet, an invoice or a statement of account are within the latter category. They do not normally have a contractual effect in the sense of making or varying a contract. The purpose of time sheets is not normally to contain or evidence the terms of a contract, but to record a party’s performance of an existing obligation under a contract.”
36. He finally dealt with one further submission also made in these proceedings:
“I should not leave the matter without returning to the argument of Mr. Turner that the mere signature on a document which contains or incorporates by reference contractual terms has the effect of incorporating these terms into a contract. In my view, such a proposition is too mechanistic. The fact that a time sheet is signed by a person authorised to effect or vary a contract on behalf of his employer does not affect the basic question whether that person, or a reasonable man, would have understood that his signing of the document varied the contract already struck between the parties. The question in Chitty, to which I have already referred and have adopted, is whether the document purports to be a contract or to have contractual effect. The answer in each case requires consideration, not only of the nature and purpose of the document, but also the circumstances of its use as between the parties and their understanding of its purpose at the time.”
37. On the evidence given at the trial of this issue, I have concluded that there was already a concluded contract in being as to the terms upon which the aggregate would be supplied by the defendant to the plaintiff when the delivery dockets came into existence. The evidence given on behalf of both the plaintiff and the defendant was to the effect that delivery dockets are crucial dockets for both the construction and quarrying industry. However, in my judgment they are crucial as the written record of the amount and type of aggregate delivered and the time, date and place of delivery. They make no reference to price. The evidence given on behalf of the defendant was that a signed delivery docket was essential to enable the defendant obtain and enforce payment for the loads supplied or delivered. Similarly, the evidence given on behalf of the plaintiff was that they were crucial for the purpose of checking the plaintiff’s potential liability for payments to the defendant. Accounts and invoices supplied by the defendant were checked against the plaintiff’s copies of the delivery dockets.
38. The evidence was that delivery dockets were signed on behalf of the defendant by the weighbridge operator. The delivery dockets were signed on behalf of the plaintiff, either by a haulier sent to collect the aggregate and authorised to sign the delivery document on the plaintiff’s behalf or the site foreman or other site operative if delivered to the site. Further evidence on behalf of the plaintiff was that no such person had any authority to negotiate or agree to any contractual terms relating to the purchase of the aggregate. Whilst express evidence was not given of the absence of any such authority by the weighbridge operator, I have concluded from the evidence of Mr. Tuite, as to the operating systems, that a weighbridge operator of the defendant did not have any such authority. In my judgment on the facts herein, the delivery dockets had a contractual purpose in the sense of being a document used in the execution of the contract which came into existence on 26th March, 2003. They did not have contractual effect in the sense of making or varying a contract. Having regard to the system operated by both parties for the performance ofr the supply contract agreed on 26th March, 2003, neither a reasonable man nor any haulier or site operative signing a delivery docket on behalf of the plaintiff would have understood that his signing of the delivery docket potentially varied the terms of the contract already agreed according to which the aggregate was being supplied by the defendant to the plaintiff.
39. In Continental Tyre and Rubber Company Ltd. v. Trunk Taylor Company Ltd. [1985] S.C. 163, on quite different facts, a somewhat similar analysis was made by the Lord President in which he concluded on the facts of that case that the delivery note which expressly stated that “all offers and sales are subject to company’s current terms and conditions of sale . .” was a non-contractual document, in the sense that it was “a document the only purpose of which was to record performance of a particular transaction with a view to payment”. It appears to me on the facts of this case that the purpose of the delivery dockets was to record the particular supply with a view to payment. They were undoubtedly crucial documents, but in the administration or execution of the contract already agreed.
40. The defendant’s alternative submissions that its terms and conditions were incorporated by notice or a course of dealing by reason of the reference to them on prior delivery dockets is dependent upon a finding that each delivery potentially constituted a new and distinct contract between the plaintiff and the defendant. Unless each new call-off or order potentially gave rise to a new contract, in the sense of a contract with new terms of supply, the defendant’s terms and conditions, to which reference had been made in prior delivery dockets, could not be incorporated, either by notice or by a course of dealing. Such appears to have been the factual position in Circle Freight v. Medeast [1988] 2 Lloyd’s 427, upon which reliance was placed by the defendant.
41. The facts herein do not support the coming into existence of new and distinct contracts of supply to which potentially new terms applied upon the plaintiff’s site foreman or other operative making what was termed “a call-off” or placing an order for a specified quantity of aggregate of a type referred to in the Purchase Order, which was accepted by the defendant’s weighbridge operator, by either making the product available for collection or arranging the delivery of same to the plaintiff’s site. The evidence was that the terms of supply were negotiated between senior management, Mr. Regan and Mr. Tuite on behalf of the plaintiff and defendant, respectively. Each of those gentlemen gave evidence of the need to consult in each case with a superior, Mr. Murphy, and Mr. Lagan prior to reaching agreement between them. Further, the evidence was that the important price terms were not disclosed in the copy of the Purchase Order sent to the site foreman or it would appear to the weighbridge operator. The weighbridge operator was informed when an account was opened by Mr. Lagan and when he might commence delivery. Whilst counsel for the defendant placed much emphasis on the fact that only a limited number of the delivery dockets referred expressly to the number of the plaintiff’s Purchase Order, the evidence of Mr. Tuite was that all the deliveries were referable to the one Purchase Order.
42. I have concluded that on the facts herein, the system which operated between the plaintiff and the defendant was that the contractual terms applicable to supply were agreed at senior management level. Once agreed, they were to last for the duration of the plaintiff’s construction contract at the Finglas site. The single Purchase Order to which all deliveries related confirms this. The single supply contract was to be performed or executed by operatives who had no authority to negotiate any variation in the terms agreed. Insofar as individual contracts for sale may be considered to have come into existence they were all for sales on the terms of the single supply contract as I have termed it. The supply contract was executed or performed in accordance with a well-established practice that the site foreman or other operative would make “a call-off” or, in other words, place an order for a specified amount of a specified type of aggregate to be delivered. Such communication was conveyed orally to the weighbridge operator and would be acted upon by him by preparing the product for delivery and, when placed on either the defendant’s truck or the truck of a haulier sent by the plaintiff, a delivery docket would be generated recording the amount and type of aggregate supplied on that day. On supply, either at the quarry or delivery at the plaintiff’s site, a copy of the delivery docket was required to be signed on behalf of the plaintiff. The purpose of the delivery docket was to record the amount of type of aggregate delivered. The agreed supply terms, including price and credit upon which it was being sold, was not recorded in the delivery docket. Those terms were the terms which had been agreed on 26th March, 2003. The operatives placing the order and supplying the product had no authority to agree any new or different terms of supply.
Other Issues
43. Having regard to my conclusion that neither the plaintiff’s Purchase Order conditions nor the defendant’s terms and conditions were incorporated into the contract of supply according to which all sales were made, it is unnecessary for me to consider the submissions made by the parties in relation to the nature of the limitation of liability in clause 8 of the defendant’s terms and conditions and whether it was so onerous as to require special notice.
44. Each party, however, made an alternative submission as to relevant implied terms in the event that the Court determined, as I have now done, that neither the plaintiff nor the defendant’s terms and conditions were incorporated into the contract or contracts between the parties. The defendant, at para. 13 of the amended Defence, pleads that in the absence of incorporation of either party’s terms that certain terms were implied into the contract by virtue of the custom and practice within the industry. The alleged terms were stated to include “a term that in the event of goods being delivered which were defective, a vendor’s liability is limited to the cost of their replacement only, and a term that vendors are not liable for any other loss arising directly or indirectly from the supply of defective materials”.
45. The plaintiff, at para. 8 of the amended Statement of Claim, contends for implied terms and/or warranties in the agreement, including that the defendant would sell, supply and deliver aggregate of merchantable quality. At the hearing, the plaintiff only pursued the implied condition as to merchantable quality pursuant to s. 14(2) of the Sale of Goods Act 1892, as amended by s. 10 of the Sale of Goods and Supply of Services Act 1980.
46. The principles according to which terms will be implied in a contract by custom are not in dispute. McDermott on ‘Contract Law’ (Butterworth’s 2001) at para. 7.06, identifies the basic question in reliance upon Evans J. in Vitol S.A. v. Phibro Energy AG, the Maturaki [1990] 2 Lloyd’s Report 84, at 88, as being whether, “there was in the trade, a uniform . . . practice, so well defined and recognised that the contracting parties must be assumed to have had it in their minds when they contracted”. McDermott further identifies, at para. 7.07, the following as an non-exhaustive list of the requirements which must be fulfilled before a custom may be implied:
“(i) The custom must have acquired such notoriety that the parties must be taken to have known of it and intended it should form part of the contract.
(ii) The custom must be certain.
(iii) The custom must be reasonable, and the more unreasonable it is the harder it will be to prove that it exists.
(iv) Until the courts take judicial notice of a custom it must be proved by clear and convincing evidence.
(v) The custom must not be inconsistent with the express contract.”
47. The plaintiff relies on the statement of Maguire P. in O’Reilly v. Irish Press [1937] 71 ILTR 194, which has recently been confirmed by Hedigan J. in McCarthy v. Health Service Executive [2010] IEHC 75:
“[A] custom or usage of any kind is a difficult thing to establish. Before a usage such as is contended for here can be held to be established it must be proved by persons whose position in the world [being considered by the Court] entitles them to speak of with certainty and knowledge of its existence. I have to be satisfied that it is so notorious, well known and acquiesced in that in the absence of agreement in writing it is to be taken as one of the terms of the contract between the parties.”
48. The defendant adduced evidence from Mr. Kennedy, a person with significant experience in the quarry industry, including approximately five years as the Pits and Quarries Director for Roadstone Dublin Limited. He gave evidence of the custom and practice amongst the international and large family owned quarries of limiting liability for defective product in supply agreements to the replacement of defective product, or excluding consequential loss. He acknowledged, in the course of his evidence, that he had experience in negotiation with the construction industry of being asked for an indemnity, but expressed the view that he would never have agreed to such an indemnity. Mr. Tuite on behalf of the defendant also gave evidence of the custom or practice within the industry or a standard practice of including limitation of liability in terms and conditions by quarry owners.
49. Mr. Regan on behalf of the plaintiff, from his 25 years experience in the construction industry, disputed this evidence insofar as it related to supply by quarries to the construction industry. He also gave evidence of an example of purchases made by the plaintiff from another quarry owner of aggregate for the Finglas development on the plaintiff’s Purchase Order conditions, including the clause 17 indemnity. Mr. Murphy’s evidence also disputed the alleged custom.
50. In my judgment the evidence adduced by the defendant falls short of establishing a custom of a type which would permit the Court to find that where a contractor operating in the construction industry, such as the plaintiff, enters into a contract with a quarry operator for the supply of aggregate for a construction contract, it could be objectively determined that both parties must be taken to have known of it and intended that it should form part of the contract. On the evidence, I find that there may well have been a standard practice amongst the larger quarry owners of inserting, in their standard conditions of sale, a clause limiting liability to replacement of defective product, or excluding consequential loss and being unwilling to deviate therefrom. Nevertheless, in particular in the evidence of Mr. Kennedy, it appears to be acknowledged that a purchaser from the construction industry might well seek, albeit, perhaps, unsuccessfully, to obtain an indemnity against loss arising from defective product. I am not satisfied that there is evidence of a custom well known and according to which quarry operators were entitled to limit their liability for defective product to replacement product in the absence of the inclusion of an express contractual term to that effect. The practice, insofar as it existed, appears to have been of the inclusion of such an express contractual term.
51. Accordingly, in my judgment, there is no limitation of the liability of the defendant for defective product implied by custom into the contract of supply between the plaintiff and the defendant.
52. The plaintiff contends for an implied condition pursuant to s. 14(20 of the 1893 Act, as inserted by s. 10 of the Act of the Sale of Goods and Supply of Services Act 1980. Section 14 provides:
“14.—(1) Subject to the provisions of this Act and of any statute in that behalf, there is no implied condition or warranty as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.
(2) Where the seller sells goods in the course of a business there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition—
(a) as regards defects specifically drawn to the buyer’s attention before the contract is made, or
(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to have revealed.
(3) Goods are of merchantable quality if they are as fit for the purpose or purposes for which goods of that kind are commonly bought and as durable as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances, and any reference in this Act to unmerchantable goods shall be construed accordingly.
(4) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgement.
(5) An implied condition or warranty as to quality or fitness for a particular purpose may be annexed to a contract of sale by usage.
(6) The foregoing provisions of this section apply to a sale by a person who in the course of a business is acting as agent for another as they apply to a sale by a principal in the course of a business, except where that other is not selling in the course of a business and either the buyer knows that fact or reasonable steps are taken to bring it to the notice of the buyer before the contract is made.”
53. The plaintiff only contends that there is an implied condition that the aggregate and stone supplied under the contract by the defendant was of merchantable quality pursuant to section 14(2). There was some lack of clarity in the closing submissions as to whether counsel for the defendant continued to dispute the existence of such an implied condition in the event that neither party’s terms and conditions were incorporated into the contract. For the avoidance of any doubt at the full hearing of the action, and as this Court on the trial of this issue has to determine what were the relevant terms of the contract between the plaintiff and the defendant (express or implied), I propose holding that those terms include pursuant to s. 14(2) of the Act of 1893 as amended an implied condition that the goods supplied under the contract are of merchantable quality. There is no evidence to support any exclusion of such a condition pursuant to s. 14(2)(a) or (b) of the Act of 1893 as amended.
54. I wish to make clear that all issues relating to questions as to whether or not the aggregate and stone supplied by the defendant to the plaintiff pursuant to the contract of supply between March 2003 and May 2005 for the development at the Finglas site was or was not of merchantable quality are matters for the full hearing of the plaintiff’s claim herein.
Decision in Elliott Construction
55. Subsequent to the end of the hearing of the issue before me Charleton J gave judgment on 25 May 2011 in James Elliott Construction Limited v. Irish Asphalt Limited [2011] IEHC 269. The claim therein is for damages for breach of contract in relation to the supply by the defendant for aggregate alleged to contain pyrite for use in construction. The defendant had used similar delivery dockets to those used in the contract herein which contain a reference to its terms and conditions and sought inter alia to limit its liability in reliance on clause 8 thereof. The parties herein sought and were granted liberty to make further oral and written submissions in relation to the judgment of Charleton J. insofar as it relates to the incorporation of clause 8 of the defendant’s terms and conditions in the contracts at issue in the Elliott Construction case. I have also been informed that the judgment is under appeal.
56. I have reached my decision for the reasons set out above upon a full reconsideration of all the evidence, submissions and authorities (including those relating to the judgment in Elliott Construction) to which I was referred. The contractual analysis made is this judgment is primarily dependent on the evidence before me and hence it does not appear necessary to refer to the judgment of Charleton J. I have noted that we appear to have reached similar conclusions on the non-incorporation of clause 8 of the defendant’s terms and conditions albeit on different facts and contractual analysis.
Relief
57. Whilst the issue set down as the first issue is in terms “what were the terms of the contract between the plaintiff and defendant (express or implied) for the purchase and sale of the aggregate, the subject matter of these proceedings”, it does not appear to me necessary to set out exhaustively, in the form of a declaration, all the relevant terms and conditions. The terms and conditions relevant to the plaintiff’s claim in the proceedings and the defence thereof are those which relate to the plaintiff’s claim for declarations as to the incorporation of its Purchase Order conditions, the declaration of entitlement to an indemnity and the claim for damages for breach of contract. In accordance with this judgment, it appears sufficient that I would make declarations to the following effect. However, I will hear counsel as to the final form of the Order, having regard to the terms of this judgment. The proposed declarations are:
(i) A declaration that the contract of supply between the plaintiff and the defendant according to which the defendant supplied aggregate and stone from March, 2003 to May, 2005, for the plaintiff’s construction contract at Griffith avenue, Finglas did not include either the plaintiff’s Purchase Order conditions or the defendant’s terms and conditions.
(ii) A declaration that there is no limitation on the defendant’s liability for defective product (if any) supplied implied by custom into the said contract of supply between the plaintiff and the defendant.
(iii) There is an implied condition of merchantable quality pursuant to s. 14(2) of the Sale of Goods Act 1893, as inserted by s. 10 of the Sale of Goods and Supply of Service Act 1980, in the said contract of supply between the plaintiff and the defendant.
Jestdale Ltd. v. Millennium Theatre Company Ltd.
[2001] IEHC 233 (31 July 2001)
JUDGMENT of Mr. Justice Lavan delivered the 31st day of July, 2001
These proceedings arise out of an application by the defendant, Millennium Theatre Company Limited, to have the Court, pursuant inter alia to its inherent jurisdiction, strike out the within proceedings as an abuse of process on the basis that the plaintiffs claim must fail.
By agreement in writing dated the 10th December, 1999, made between the defendant and the plaintiff, Jestdale Limited, the defendant agreed to grant and the plaintiff to take a lease of the premises formerly known as the Rotunda Picture House and now known as the Ambassador Cinema. At all material times, the defendant held a leasehold interest in the property. It was an express term of the agreement at issue that the defendant would demise the property to the plaintiff upon completion of certain works carried out in accordance with planning permission obtained by the defendant prior to the signing of the agreement. The agreement also made express provision for a recission of the agreement (without a right to compensation for work done) in the event that the works were not completed by a certain date. Alternatively, the defendant was given the discretion to extend the due date for completion of the works or to take such steps as it deemed appropriate to enforce its rights.
The works were not completed on time, and the defendant refused to extend the completion date. The plaintiff claimed that it could not fulfill its obligations by virtue of the acts or omissions of the defendant, in particular due to the allegedly defective planning permission obtained. It was contended that the defects in the planning permission rendered it wholly inoperable for the plaintiffs intended purpose. The plaintiff also contends that the listing of the property as a Grade 1 Listed Building, the possibility of which was not alluded to at the time it entered into the agreement with the defendant further inhibited its ability to carry out its obligations under the agreement, and in particular delayed the submission of any new or alternative Planning Application.
The plaintiff addressed the problems relating to the planning permission to the defendant at a meeting on or about the 18th July, 2000, at which it indicated that it was necessary to submit new planning permission in order to progress the project. The defendant refused to accept the contention that the project could not proceed under the original planning permission and also refused to extend the completion date of 24th November, 2000, as fixed by the agreement The plaintiff did not pay mesne rates due for the month of July. The defendant served Notice of Recission of the Agreement on 29th August, 2000, and purported
to rescind the agreement on 8th September, 2000. The plaintiff has contested the validity of the purported recission and issued and served the Plenary Summons in these proceedings on 27th October, 2000.
In its Statement of Claim, the plaintiff alludes, inter alia, to the following implied terms of the Agreement:
“c) the defendant would if necessary, extend the completion date under the agreement in circumstances where the plaintiff could not fulfill its obligations by virtue of the acts or omissions of the defendant
d) the defendant would not unreasonably withhold its consent to extend the completion date under the agreement in circumstances where the plaintiff could not fulfill its obligations by virtue of the acts or omissions of the defendant”
The plaintiff seeks a declaration that the purported Recission Notice was invalid. It also seeks specific performance of the agreement with a declaration recognising its entitlement to relief from forfeiture under the equitable jurisdiction of the Court.
In its Defence, the defendant denies that it has breached any terms or representations as alleged in the Statement of Claim. The defendant draws particular attention to the clause in the agreement whereby the plaintiff admitted that it had inspected same and that it had entered into the agreement solely on the basis of that inspection and the terms thereof. The defendant asserts that the plaintiff is not entitled to rely upon any implied term in the aforesaid agreement nor upon any representation of the nature alleged (the existence of both of which the defendant in any event denies). Furthermore, the defendant denies that there were any defects in the planning permission as alleged, and also denies that same was rendered inoperable for the plaintiffs intended purpose. Even if defects in the planning permission were found to exist, the defendant denies that either it or the listing of the building delayed the submission of any alternative planning application.
The defendant denies that the plaintiff had incurred expense in connection with the aforesaid property or that it had been entitled to withhold any payment of mesne rates until any problems pertaining to the property had been addressed. The defendant asserts that the Notice of Recission served on the plaintiff had been valid and entitled it to terminate the agreement between the parties. While denying that any alleged loss or damage on the part of the plaintiff (if such is found to have been suffered by it) had been caused by any act or omission of the defendants, the defendant reserves the right to furnish further particulars of contributory negligence as same come to hand. The defendant claims that the plaintiff is estopped by agreement and/or by its representation on March 15th, 2000, that the works provided for in the said agreement were in progress and would be completed on the due date, from claiming the relief sought herein.
The defendant, in applying to have the present proceedings struck out as an abuse of process on the basis that the plaintiffs claim must fail, has drawn the Court’s attention to the following passage in the judgment of Hardiman J. in Supermacs v. Katesan (Naas) Limited [2001] 1 ELRM 401,405:
“The judge acceding to an application to dismiss must be confident that no matter what may arise on discovery or at the trial of the action the course of the action will be resolved in a manner fatal to the plaintiffs contention”.
It is submitted by the defendant in the instant proceedings that a construction of the agreement governing the relations between the parties admits only of the conclusion that the plaintiff cannot sustain the cause of action it has sought to maintain herein.
It is submitted by the defendant that, in failing to fulfill its obligations under the agreement, the plaintiff had lost its entitlement to the lease. The power of recission had been expressly granted in the agreement, and the failure of the plaintiff to fulfill its commitments entitled the defendant to validly rescind the agreement. On the question of whether an implied term or terms existed so as to disentitle the defendant from rescinding in the circumstances of the instant case, the Court’s attention was drawn to a passage from the Supreme Court judgment of Murphy J in Sweeney v. Duggan [1997] 21.R. 531,539-540: “Whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable character of contract, it must be not merely reasonable but also necessary. Clearly it cannot be implied if it is inconsistent with the express wording of the contract and furthermore it may be difficult to infer a term where it cannot be formulated with reasonable precision.”
It is submitted by the defendant that the implied terms alleged in the instant case fail this test on both counts.
It is submitted by the defendant that there is no conflict of fact in the instant situation which discloses a legal basis for dispute between the parties. There is no version of the facts as presented by the plaintiff, it is submitted, which would entitle it to the relief which it claims. The defendant draws attention to the ruling of McCarthy J. in Sun Fat Chan v. Osseous Limited [1992] 11.R. 425
“His claim to be given time … was based on an argument of an implied term of the contract. As I understand the law, to imply a term in a written contract, in its simple form, it requires the conclusion that if the parties had thought of it, they would have expressed such a term./ ….In my view, such a proposition is unacceptable.”
The defendant alludes in paragraph 12 of its legal submissions to what it terms the “undisputed facts of this case”. It lists them as follows:
“(a) The parties entered into, and agreed to be bound by the agreement of December 12,1999;
(b) The plaintiff knew that under the agreement it was compelled to completethe works by 24th November, 2000;
(c) By the time the plaintiff met the defendant’s representative on March 15, 2000, he had neither commenced the works nor – it would seem – even become aware of the deficiencies of which he now complains in the planning permissions;
(d) There was no communication of any of these alleged difficulties until a meeting held on July 18, by which time the plaintiff again had not yet
commenced any of the works;
(e) The plaintiff did not pay mesne rates due in the month of July.”
In its submissions, the plaintiff draws the Court’s attention to the ruling of Costello J. in Barry v. Buckley [1981] I.R. 306, 308 in which he examined the inherent jurisdiction of the Court to strike out a claim as being frivolous and vexatious:
“This jurisdiction should be exercised sparingly and only in clear cases whose outcome depends on the interpretation of a contract or agreed correspondence. If, having considered the documents, the Court is satisfied that the plaintiffs claim must fail, then it would be a proper exercise of its discretion to strike out proceedings whose continued existence cannot be justified and is manifestly causing irrevocable damage to a defendant.”
The plaintiff also drew the Court’s attention to the judgment of McCarthy J. in the previously cited case of Sun Fat Chan v. Osseous Limited, where the judge stated at p. 428:
“Generally, the High Court should be slow to entertain an application of this kind and grant the relief sought.
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; often times it may appear that the facts are clear and established but the trial itself will disclose a different picture. With that qualification, however, I recognise the enforcement of a jurisdiction of this kind as a healthy development in our jurisprudence and not one to be disowned for its novelty though there may be a certain sense of disquiet at its rigour. The procedure is peculiarly appropriate to actions for the enforcement of contracts, since it is likely that the subject-matter of the contract would, but for the existence of the action, be the focus of another contract.”
It is submitted on behalf of the plaintiff that the appropriate approach for the Court to adopt when assessing whether to strike out its claim is for the Court to assume that every fact pleaded by the plaintiff in the Statement of Claim is correct and can be proved at trial and that every fact asserted by the plaintiff on affidavit is also correct and can be proved at trial. Such an approach was conceded as being appropriate by counsel for the defendant in Ennis v. Butterly [1997] 1 ILRM 28, 31-33. This approach was considered by McCracken J. in Ruby Property Company Limited v. Kilty (Unreported, High Court, !st December, 1999):
“If there is a dispute on the facts on affidavit, which is not resolved by admitted document, then it will be virtually impossible for a defendant to have proceedings struck out as being unsustainable. The remedy sought by the defendant is a remedy which has the effect of shutting out a citizen’s right of access to the courts, which is a right which is very closely guarded and protected by the courts themselves, and by the Constitution. Therefore, if the defendants are to succeed in this motion, they must show that on facts which either are in dispute, or are disputed on grounds which can only be considered as frivolous or vexatious, the Court should allow the action to succeed.”
The Court’s attention was also drawn to the following observations of Barron J. in Jodifern Ltd. v. Fitzgerald (Unreported, Supreme Court, 21st December, 1999): (at pp.4-5).
“If the plaintiff’s 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 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 Where the plaintiffs claim is based upon a document as in the present case then clearly that 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 he other hand, if it does, it is hard to see how a defendant can dispute this prima facie construction of the document without calling evidence and having a trial of that question. /….
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 incontrovertible evidence as the defendant may adduce. If the claim could never have succeeded, then the proceedings should be struck out. /…. I am satisfied that the trial judge applied the correct test: whether the plaintiff could succeed rather than whether he would.”
It is submitted on behalf on the plaintiff that its inability to comply with its obligations under the agreement had been as a direct result of the defendant’s acts and/or omissions, in particular in its failure to obtain appropriate planning permission, preventing the plaintiff from effectively commencing the works. In urging the Court to deny the defendant’s application to have the current proceedings stricken out, the plaintiff submits that the disputes of fact can only be resolved at a full trial of the action and with the benefit of cross-examination.
Conclusions
The plaintiff in these proceedings provided no evidence that at any time from the date on which the parties entered into the agreement to the date on which the Notice of Recission was served, it retained the services of building expertise for the purpose of completing the works on or before the 24th November, 2000. The express terms of the contract with regard to recission and the relatively short time scale specified for completion of the works can have left the plaintiff in little doubt as to its obligations to act expeditiously in seeking to complete the works on time if it hoped to reap the benefits of the agreement from its perspective. The evidence before the Court clearly demonstrates that the plaintiff failed to honour its commitments under the agreement, and now seeks to frustrate the defendant’s attempts to extricate itself from the ensuing imbroglio. I accept that the Court ought not imply a provision into a contract which would have the consequence of contradicting the express terms of the contract agreed between the parties. I also find it difficult to infer the implied terms relied upon by the plaintiff on the grounds that they cannot be formulated with reasonable precision. I accept the “undisputed facts” as outlined by the defendant at paragraph 12 in its submissions.
Conscious of the principle that the inherent jurisdiction of the Court to strike out proceedings should be exercised sparingly, I have come to the conclusion that the defendant has reached the required threshold in these proceedings. I am satisfied that the plaintiffs claim must fail. The continued existence of these proceedings cannot be justified and is manifestly causing irrevocable damage to the defendant. I order accordingly that the plaintiffs claim be struck out.
Zurich Bank Plc
[2011] IEHC 26 (28 January 2011)
DEFENDANTS
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 28th day of January, 2011
1. The plaintiff seeks summary judgment against the defendants in the sum of €8,157,545.06, together with interest, pursuant to a loan facility letter dated 6th December, 2007, as amended by a loan facility letter dated 21st January, 2009. The defendants oppose the application for summary judgment and seek leave to defend and that the matter be remitted for plenary hearing.
2. The background facts to these proceeding are not in dispute. In June 2006, the defendants formed the Seafield Holdings Partnership to purchase and develop properties in Bantry, County Cork. They initially purchased premises known as Vickery’s Hotel in Bantry for the sum of €4.5 million, which was financed by a loan from AIB of €3.6 million. The defendants subsequently agreed to purchase two adjacent properties in Bantry known as Kiddycare and World Choice Travel for €2.9 million.
3. Following negotiations in 2007 between the plaintiff and certain of the defendants, the plaintiff issued a facility letter dated 6th December, 2007, offering a loan in the amount of €7,985,000. The defendants accepted the facility by each signing an acceptance attached to the facility letter on or before 17th December, 2007. The facility was expressed to be available for twelve months from drawdown, which was on 11th January, 2008. By a further facility letter of 21st January, 2009, accepted in writing by all the defendants on or before 24th February, 2009, there were two amendments made to the loan agreement. First, the term of the facility was extended and the final repayment date became 11th October, 2009. Secondly, there was an amendment in relation to the manner in which interest was to be paid, to which I will return.
4. Subsequent to 11th October, 2009, there were a series of meetings and communications between the plaintiff and certain of the defendants. The defendants appointed advisers to represent them in their dealings with the plaintiff. Ultimately, letters of demand dated 19th May, 2010 were sent to each of the defendants for the sum then allegedly owing to the plaintiff and, thereafter, these proceedings commenced.
5. The proceedings were admitted to the Commercial List by order of 12th July, 2010. Thereafter, the defendants were given an opportunity to file affidavits in response to the application for summary judgment. One affidavit of Mr. Richard Coffey, sworn on 13th September, 2010, was filed. He makes the affidavit on his own behalf and on behalf of all the other defendants. No replying affidavit was filed on behalf of the plaintiff.
6. The evidence on the application for summary judgment is that contained in the grounding affidavit of Mr. Kieran Gilmartin, filed on 30th June, 2010, grounding the application, and that of Mr. Coffey. In addition, submissions were made by counsel for the plaintiff and counsel for the defendants.
Test for summary judgment
7. It is common case that the test to be applied by the Court on this application is that set out by the Supreme Court in Aer Rianta cpt. v Ryanair Limited [2001] 4 IR 607. The judgments of McGuinness J. and Hardiman J. in that decision approve and explain further the test established by the Supreme Court in First National Commercial Bank plc. v. Anglin [1996] 1 IR 75. McGuinness J., in her judgment at p. 614, cites from the judgment of Murphy J. in First National Commercial Bank plc. v. Anglin, where he states, inter alia, at p. 79:
“. . . In my view the test to be applied is that laid down in Banque de Paris v. de Naray [1984] 1 Lloyd’s Law Rep. 21, which was referred to in the judgment of the President of the High Court and reaffirmed in National Westminster Bank Plc v. Daniel [1993] 1 W.L.R. 1453. The principle laid down in the Banque de Paris case is summarised in the headnote thereto in the following terms:—
‘The mere assertion in an affidavit of a given situation which was to be the basis of a defence did not of itself provide leave to defend; the Court had to look at the whole situation to see whether the defendant had satisfied the Court that there was a fair or reasonable probability of the defendants having a real or bona fide defence.’
. . .”
8. Hardiman J. at p. 623, having considered the judgment in National Commercial Bank Limited v. Anglin and the authorities referred to therein, stated:
“In my view, the fundamental questions to be posed on an application such as this remain: is it ‘very clear’ that the defendant has no case? Is there either no issue to be tried or only issues which are simple and easily determined? Do the defendant’s affidavits fail to disclose even an arguable defence?”
9. I was referred by counsel for the defendants to the more recent application of those principles by the Supreme Court in Danske Bank A/S trading as National Irish Bank v. Durkan New Homes [2010] IESC 22. Denham J., in the only judgment delivered, cites the above extract from the judgment of Hardiman J. in Aer Rianta cpt. She also refers with approval to the following from the judgment of Clarke J. in McGrath v. O’Driscoll [2007] 1 ILRM 203, at p. 210:
“So far as questions of law or construction are concerned the court can, on a motion for summary judgment, resolve such questions (including, where appropriate, questions of the construction of documents), but should only do so where the issues which arise are relatively straightforward and where there is no real risk of an injustice being done by determining those questions within the somewhat limited framework of a motion for summary judgment.”
In that appeal, the defence raised related to a question of law. Denham J. identified that the issue on the appeal was “whether the appellants have satisfied the court that they have an arguable defence”.
10. I propose applying the test above, set out in Aer Rianta cpt v. Ryanair Limited, to this application, bearing in mind the restriction on the resolution of questions of law as stated by Clarke J. in McGrath v. O’Driscoll and approved by the Supreme Court.
Defences
11. The defendants do not dispute that they entered into a written loan agreement on the terms of the facility letter dated 6th December, 2007, and that they agreed to the written variation of the loan facility by acceptance of the facility letter dated 21st January, 2009. Nor do they dispute that the amounts referred to were drawn down or that the amounts now claimed for interest remain unpaid by them.
12. The primary defence sought to be made is that the true nature of the loan agreement between the plaintiff and the defendants is not as set out in writing in the accepted facility letter of 6th December, 2007, as varied by the accepted letter of 21st January, 2009. The defendants seek to contend that the true nature of the agreement between the plaintiff and them was that the facility was a “non-recourse facility” in the sense that the defendants have no personal liability to the plaintiff for the repayment of the sums advanced to them or for the payment of interest thereon. Rather, the plaintiff is only entitled to look to the properties over which it held security for repayment of principal and interest.
13. The factual basis for this contention, as outlined in Mr. Coffey’s affidavit is, in summary, as follows. The purpose of the loan as set out in paragraph 6 of the facility letter of 6th December, 2007, is:
“The Facility shall be available and utilised by the Borrower as follows:
(a) €1,250,000 to purchase the property known as Kiddycare, New Street, Bantry, Co. Cork.
(b) €1,425,000 to purchase the property known as World Choice Travel, New Street, Bantry, Co. Cork.
(c) €4,155,000 to refinance current borrowings with AIB on Vickerys Hotel, New Street Bantry, Co. Cork.
(d) €241,000 Stamp Duty
(e) €840,000 to fund professional fees.
(f) €74,000 Loan Fee.”
14. Mr. Coffey avers that, in truth, the sum of €840,000 was not intended for professional fees. €550,000 of that sum was intended to meet a requirement set as one of the condition precedents to the loan in the facility letter, namely that €550,000 be placed on deposit by the plaintiff to be used towards the discharge of the interest payments due under the facility. Mr. Coffey, at paragraph 22 of his affidavit, states that he was told by Mr. Treston, the assistant lending manager with whom he was dealing, that the figure of €840,000 was going to be set out in the sanction letter in respect of professional fees of which €550,000 was to be placed on deposit to fund the interest on the loan for the first year of the facility. He further states that this sum of €550,000 was forwarded to the plaintiff’s own solicitor and then one month later, replaced on deposit out of which the interest payments were made. At the end of the first year, there was a shortfall in interest repayments of €37,019.09, and following a request from Mr. Treston, it appears that the defendants paid this interest shortfall.
15. Mr. Coffey has obtained internal documentation, pursuant to the Data Protection Act, from the plaintiff. It includes the Memoranda to the plaintiff’s credit committee, including two “Executive Summary” documents, which are different in material respects. At paragraphs 24 and 25 of his affidavit, Mr. Coffey states what, in fact, he believes occurred, and the probable understanding of the plaintiff’s credit committee.
“24. What did in fact occur is that, in the knowledge that the Defendants were not prepared to invest or fund the project and in the knowledge that the Defendants would only take the loan from the Plaintiff if it was 100% funded by the Plaintiff, Mr. Treston represented to the Credit Committee that the professional fees were €840,000 when in fact they were not and the figure of €550,000 included in the sum of €840,000 was to be set aside to service the interest payments on the loan in the first year.
25. Therefore, the Plaintiff was financing the interest payments to itself and it seems the Credit Committee of the Plaintiff were unaware of this, having been misinformed as to the true quantum of professional fees. I say and believe that from a review of documents I have now seen pursuant to the Data Protection Act disclosure made by the Plaintiff, the Plaintiff’s Credit Committee understood that the Defendants were servicing the payments of interest from their personal resources.”
16. For the purposes of this application for summary judgment, the defendants are entitled to have the Court assume that they will establish such facts at a full hearing. From those primary facts, Mr. Coffey, in his affidavit, draws certain inferences and conclusions and seeks to make out a defence at paragraphs 50 to 53 inclusive:
“50. In conclusion I say and believe that the Plaintiff’s Credit Committee approved the loan facilities in this matter in the mistaken belief that the Defendants were investing a further €550,000 in the project in the sense of their willingness to service the interest for the year after the draw-down of the loan.
51. I can only infer that Mr. Treston and Ms. Plunkett were unwilling to put the proposed interest roll-up before the Credit Committee as they would have known, from their internal experience, that such an application would not have been approved.
52. I say and believe that if the true facts of the situation had been made known to the Credit Committee by the Plaintiffs own lending executive the Credit Committee would not have approved the facility at all.
53. In those circumstances, where the Plaintiff, through its servants or agents, was fixed with the knowledge that the Defendants did not have the ability to service even the interest on the loan for its first year, I say and am advised that the Defendants have an arguable case that the Court ought to construe the conduct of the parties in relation to the matter generally as constituting an implied variation of the terms of the loan facility whereby as it was accepted by the Plaintiff, through the conduct of its servants or agents Mr. Treston and Ms. Plunkett in putting the disguised interest roll-up in place, that there was simply no reality to any personal recourse to the Defendants, and that the true commercial nature of the agreement between the parties was intended to be, and was a loan without recourse beyond the security provided.”
17. On the primary facts, which the Court accepts for the purpose of this application, it appears to me arguable that a Court would draw the inferences and reach the conclusions to which Mr. Coffey avers in paragraphs 50 to 53 inclusive of his affidavit.
18. However, even on an assumption that such inferences would be drawn and conclusions reached, it does not appear to me that such facts support an “arguable defence” in the sense used by Hardiman J. in Aer Rianta cpt. v. Ryanair Limited, that the true nature of the loan agreement between the plaintiff and the defendants was one in which the plaintiff has no recourse to the defendants personally and only recourse to the security provided for the repayment of principal and payment of interest.
19. It is beyond argument that the express written terms of the facility letter of 6th December, 2007, as varied by that of 21st January, 2009, both accepted in writing by the defendants after legal advice, make the defendants personally liable for the repayment of the principal, and pursuant to the variation in the letter of 21st January, 2009, liable for the payment of interest. The defendants are listed individually in paragraph one and referred to as the “Borrower”. Paragraph 4.1, as originally drafted and varied, provides:
“On the Final Repayment Date, the Borrower shall repay the Loan (together with any unpaid accrued interest on the Loan) and any other unpaid costs and expenses payable under this Facility Letter).”
20. Further, condition 10 of the plaintiff’s standard conditions, which it is not disputed were incorporated in the facility letter, provides:
“As the Borrower comprises more than one person, the liability of each such person under this Facility Letter and each Security Document to which the Borrower is a party, shall be joint and several. This means that each Borrower is fully responsible for all terms of this Facility Letter and the Security Documents.”
21. It is important, in considering the alleged arguable defence as to the true, non-recourse nature of the loan agreement, to note that Mr. Coffey does not contend that any express oral agreement was reached between the defendants and Ms. Plunkett and Mr. Treston on behalf of the plaintiff, that the loan would be “non-recourse” in the sense that the defendants would have no personal liability for repayment of the principal or payment of interest to the plaintiff. At paragraph 9 of his affidavit, he states:
“At that meeting both Brian O’Hagan and I made it perfectly clear that if the proposed financing with the Plaintiff was to proceed it would have to be on the basis of 100% financing by the Plaintiff with no funds being invested by the Defendants and no additional security over and above the properties being acquired, including Vickery’s Hotel which had already been acquired with the support of AIB facilities. I explained to Ms. Plunkett and Mr. Treston that AIB had refused to support the application on these grounds and that AIB required additional finance or security from the Defendants which was not available and it was for these reasons that the Defendants were looking for alternative funding. The Defendants also wanted the release of the other properties secured to AIB and Ms. Plunkett agreed that the Plaintiff would not require those other properties as security.”
Mr. Coffey does refer to an email which he sent to his co-defendants which refers to “non-recourse”, but, very properly, Mr. Coffey does not seek to rely on this as evidence of an agreement reached with the plaintiff. It appears to me that there may have been some confusion on Mr. Coffey’s part between the security which had to be provided and the use of the term “non-recourse” as meaning the defendants had no personal liability to the plaintiff.
22. The defendants contend that they have an arguable defence by reason of the misstatements relating to the amount for professional fees which was, in reality, provision for the rolling up of interest in the sum of €550,000, to imply a term that the plaintiff has no recourse to the defendants other than in relation to the security provided. Counsel for the plaintiff submits that there is no arguable basis for implying such a term into the loan agreement between the plaintiff and the defendants in accordance with the well established principles applied by Kelly J. in Ringsend Property Limited v. Donatex and McNamara [2009] IEHC 568. Commencing at p. 21, Kelly J. set out with approval and applied the two tests set out by Steyn J. (as he then was) in Associated Japanese Bank (International) Limited v. Credit du Nord S.A. [1988] 3 All E.R. 902:
“ . . . In that case, the judge considered the traditional and well-established test for implying a term into a commercial contract which is derived from the decision in the Moorcock [1889] 14 P.D. 64. He said this:
‘In the present contract, such a condition may only be held to be implied if one of two applicable tests is satisfied. The first is that such an implication is necessary to give business efficacy to the relevant contract i.e. the guarantee. In other words, the criterion is whether the implication is necessary to render the contract (the guarantee) workable. That is usually described as the Moorcock test. It may well be that this stringent test is not satisfied because the guarantee is workable in the sense that all that is required is that the guarantors who assumed accessory obligations must pay what is due under the lease’.
. . .
Steyn J. went on:
‘But there is another type of implication, which seems more appropriate in the present context. It is possible to imply a term if the court is satisfied that reasonable men, faced with a suggested term which was ex-hypothesi not expressed in the contract, would, without hesitation say: yes, of course that is ‘so obvious that it goes without saying’: see Shirlaw v. Southern Foundries [1939] 2 K.B. 206, 227 per Mackinnon L.J.
. . .
Although broader in scope than the Moorcock test, it is nevertheless a stringent test, and it will only be permissible to hold that an implication has been established on this basis in comparatively rare cases, notably where one side is dealing with a commercial instrument such as a guarantee for reward.
. . .”
23. Applying the Moorcock test to the present facts, I do not consider that there is any basis for the implication of a non-recourse term such as it intended. Similarly, applying the second test, which although broader in scope than the Moorcock test is, nonetheless, stringent, again, I can see no basis on the present facts for implying a non-recourse term based on that test. Accordingly, I have concluded that there is no arguable basis for the implication of a non-recourse term in the written loan facility between the plaintiff and the defendants.
Secondary defence
24. Counsel for the defendants submitted, in the alternative, that having regard to both the averments of Mr. Coffey as to representations made on behalf of the plaintiff to the effect that it was anxious to get involved in the Irish property market for “the long haul”, and positive discussions in relation to the construction phase of the development and the facts already referred to in relation to the misrepresentation of the purpose of part of the €840,000 expressed to be for the purpose of funding professional fees, that the defendants were entitled to have the full facts put before the Court on a plenary hearing prior to the Court construing the written loan agreement in its relevant factual matrix. It is not contended either that the representations as to the plaintiff’s intention in relation to the Irish property market were actionable misrepresentations, or that there was a binding agreement in relation to the provision of construction finance. I am not satisfied that the defendants have raised as an arguable defence any issue on the construction of the written loan facility (as amended), accepted in writing by each of them, which would provide a basis for this Court remitting the matter to plenary hearing for the purpose of ascertaining the factual matrix in which the written agreement should be construed. On the issue potentially in dispute i.e. whether or not it is an agreement which imposes personal liability on the defendants for repayment of principal and interest, the written agreement is clear in accordance with its express terms which do not require construction of this Court in any particular factual matrix.
25. Accordingly, I have concluded that the defendants do not have an arguable defence to the plaintiff’s claim. The plaintiff is entitled to judgment against the defendants jointly and severally in the sum of €8,157,545.06 as sought in the notice of motion.
Clarion Quay Management Company Limited by Guarantee v Dublin City Council, Pierce Contracting Unlimited Company, John McCormack, Brian McCormack, Niall McCormack, Alan McCormack and Patrick Kelly
[2018 No. 5619 P.], [2018 No. 172 COM.]
High Court [Approved]
21 December 2021
unreported
[2021] IEHC 811
JUDGMENT
A. Introduction
1. This is my judgment on a number of issues which were directed to be tried pursuant to O. 25, r. 1 RSC by order of the High Court (Quinn J.) made on 4th July, 2019 in these proceedings. The proceedings were commenced by the plaintiff, Clarion Quay Management Company Limited by Guarantee (referred to in this judgment as “Clarion” or the plaintiff), against Dublin City Council (“DCC”) in June, 2018. The remaining defendants, the second to seventh defendants who are sued as members of a partnership called the “Campshire Partnership” (referred to as “Campshire”) were joined as defendants on the application of the plaintiff on 12th October, 2018. Clarion is the owners’ management company in respect of a mixed-use development (apartments and retail) called Clarion Quay which is located north of the River Liffey in Dublin 1. DCC is sued as the statutory successor in title of the Dublin Docklands Development Authority (“DDDA”) and is the registered owner of the lands on which the Clarion Quay development has been constructed. DDDA entered into a joint venture agreement dated 21st March, 2000 (the “JVA”) with Campshire for the development of Clarion Quay. Clarion and DDDA (and another entity to which reference will be made later) entered into a Management Company Agreement dated 13th July, 2001 (the “MCA”) in respect of Clarion Quay. DCC has succeeded to the rights and obligations of the DDDA under that agreement. Clarion Quay was constructed under the JVA. In the proceedings, Clarion contends that there are multiple defects in Clarion Quay for which it contends that DCC and Campshire are liable.
B. Issues Directed to be Tried
2. On the consent of the parties, the High Court (Quinn J.) made an order on 4th July, 2019 (the “Order”) directing the following issues to be tried in advance of the trial of the action:-
(1) Whether DCC (and its predecessor) is bound by the provisions of general condition 36(d) of the Law Society General Conditions of Sale (1995 ed.);
(2) Whether the terms pleaded at para. 20 of the statement of claim are implied terms of the MCA;
(3) Whether the plaintiff is entitled to rely on the Multi-Unit Developments Act, 2011 (the “MUDs Act”) in these proceedings; and
(4) If so, whether the defendants, as developers within the meaning of the MUDs Act, are obliged to complete the development of the common areas of Clarion Quay in accordance with, (inter alia), the Building Regulations, and to indemnify the plaintiff in respect of all claims made against the plaintiff of whatever nature or kind in respect of acts or omissions by the defendants in the course of works connected with the Clarion Quay development.
3. The Order further provided that those issues were to be determined on the pleadings already delivered, including the documents appended to the plaintiff’s replies to particulars dated 15th January, 2019 (which were listed in schedule 1 to the Order) and on the basis of the facts pleaded in the statement of claim which was delivered on 17th October, 2018. The Order further noted that the defendants were fully reserving their position as to the facts alleged in the statement of claim and that those alleged facts were being accepted only for the purposes of the trial of the preliminary issues.
4. The parties exchanged detailed and helpful written submissions in advance of the hearing of these issues. However, I found it difficult to follow precisely what facts were being accepted by the defendants for the purposes of the trial of these preliminary issues. Consequently, I directed that the parties agree a statement of facts. The parties did agree a statement of facts which was provided to me following the conclusion of the hearing on the issues directed to be tried. I set out below the facts set out in that statement. However, the facts set out in that statement are not the only relevant facts for the purposes of the trial of these issues. It was apparent to me that there are other relevant facts which must be taken either to have been agreed by the parties for the purposes of the trial of the preliminary issues or, alternatively, which could not be disputed, such as the existence of other relevant proceedings. I will refer to those other facts after I set out the facts expressly agreed by the parties in the statement of agreed facts.
C. Facts Agreed by the Parties for the Purposes of the Trial of the Preliminary Issues Only
5. The following facts were agreed by the parties for the purposes of the trial of the preliminary issues the subject of this judgment.
6. The plaintiff, Clarion, is the owners management company (“OMC”) with respect to the Clarion Quay development in Dublin 1 (the “development”). The development is a mixed-use development comprising 184 apartments and twelve retail units spread over twelve blocks together with car parking. It is located between Mayor Street Lower, Alderman Way and Excise Walk, in Dublin 1.
7. The first defendant, DCC, succeeded to the rights and obligations of DDDA as of 1st March, 2016 pursuant to the Dublin Docklands Development Authority (Dissolution) Act, 2015.
8. The second to seventh defendants are partners in a partnership known as the “Campshire Partnership”. At all material times, DCC (after 1st March, 2016), or its predecessor, DDDA, (prior to 1st March, 2016), is or was the registered owner of the lands upon which the Clarion Quay development has been constructed. Legal title to the reversionary interests, the common areas and any of the unlet areas is currently vested in DCC.
9. Of the twelve blocks comprising Clarion Quay, there are retail units on the ground floor of blocks 1 to 6 and 9 to 11. Campshire claims beneficial ownership over units 1A, 1B, 2, 3A, 3B, 4A and 6 and 37 car parking spaces.1 North Wall Quay Partnership (in respect of the membership of which there is an overlap with the membership of Campshire) is the legal owner of unit 5A under a 200 year lease dated March, 2001. The remaining retail units are owned by unconnected parties.
10. The first two preliminary questions raised for the court’s determination relate to the interpretation of the MCA entered into between Clarion, DDDA and North Wall Quay/Mayor Street Management Company on 13th July, 2001. The MCA was executed by the parties as a deed under seal. The signatories to the MCA on behalf of Clarion were members of Campshire. In the MCA, DDDA is described as the grantor, Clarion is described as the grantee and North Wall Quay/Mayor Street Management Company Ltd is described as the “management company”.
11. Scheduled to the MCA are:-
(a) a draft form of fee farm grant to be made between the parties to the MCA; and
(b) in the fifth and sixth schedules, an example of an apartment lease and a retail unit lease in respect of the relevant apartments and retail units in the Clarion Quay development.
12. For the purposes of these proceedings, the parties agreed that the court may have regard to the following leases as sample apartment and retail unit leases:-
(a) Lease of apartment 6, block 3, Clarion Quay dated 26th October, 2001 between DDDA, Campshire, North Wall Quay/Mayor Street Management Ltd, Clarion and the named lessee; and
(b) Lease of unit 4B, Excise Walk, Clarion Quay dated 16th January, 2003 between DDDA, North Wall Quay/Mayor Street Management Company Ltd, Clarion and John Walsh and Tadgh Campion t/a C&W Partners.
13. Clause 10 of the MCA provides:-
“Save insofar as same are inconsistent herewith that the Law Society General Conditions of Sale (1995 edition) shall apply to this sale. In the event of any inconsistency between presents and the said General Conditions these presents shall prevail.”
14. The Law Society General Conditions of Sale (1995 ed.) were included in a book of core documents provided to the court.
15. As at 13th July, 2001, being the date of execution of the MCA, the Clarion Quay development had commenced but was not completed. The exact state of construction or progress will be a matter for evidence in any future trial but certificates for practical completion of the various blocks issued from August, 2002 onwards.
16. The residential units were sold on various dates between 2001 and June, 2006. One retail unit was sold in January, 2003. It appears from the facts agreed (and referred to at para. 9 above) that most, if not all, of the retail units have been sold.
17. For the purposes of the trial of the preliminary issues the subject of this judgment, the parties agreed that the court may accept the existence of the alleged defects pleaded in para. 23 of the statement of claim (as further set out in the plaintiff’s replies to particulars).
18. The relationship between DDDA and Campshire is governed by an agreement entitled “Joint Venture Agreement – Residential and Retail Development” dated 21st March, 2000 (i.e. the JVA). In the JVA, DDDA is described as the “Authority” and Campshire is described as the “Developer” . The parties agreed that the court should note in that regard that reference is made in the JVA to the “Estate Management Company” and to the “Management Company” and that these are, respectively, Clarion and North Wall Quay/Mayor Street Management Company Ltd.
19. Clarion was incorporated by Campshire pursuant to its obligations under the JVA. The original subscribers to the memorandum of association of Clarion were nominees of Campshire. The subscriber members stepped down from the board of Clarion in 2011.
20. In addition to these facts which were set out in the statement of agreed facts, there are also other relevant facts which are either agreed between the parties or which cannot be disputed. The first of those is that, in addition to commencing these proceedings in the High Court, Clarion also commenced proceedings in the Circuit Court on 1st May, 2018 (the “Circuit Court proceedings”) seeking orders pursuant to s. 24 of the MUDs Act against a number of respondents who were, or who claimed to be, “subscriber members” of Clarion and who had purported to submit a proxy, qua subscriber member, for the purposes of Clarion’s Annual General Meeting in 2018. DCC is not a party to the Circuit Court proceedings. There is an overlap between some of the respondents to those proceedings and four of the partners of Campshire named as defendants in these proceedings. Clarion seeks various remedial orders in the Circuit Court proceedings pursuant to s.24 of the MUDs Act.
(b) Clarion’s case on issue (2): Summary
(i) Terms implied by law
140. In support of its contention that these terms are to be implied by law in the MCA, Clarion relies on a series of Irish and other cases in which certain terms are implied into a contract for the sale of a dwelling house which is to be constructed or is in the course of construction. It relies, in particular, on the judgment of Davitt P. in Brown v. Norton[1954] IR 35 (“Brown”) (and on the earlier English decision referred to in Brown and, in particular, Lawrence v. Cassell[1930] 2 KB 83 (“Lawrence”) and Miller v. Cannon Hill Estates Ltd[1931] 2 KB 113 (“Miller”)), the decision of the Court of Appeal of England & Wales in Hancock & ors v. BW Brazier (Anerley) Ltd (“Hancock”) and that of Lowry L.C.J. in the High Court of Northern Ireland in McGeary v. Campbell[1975] NI 7 (“McGeary”).
141. Clarion contends that Brown and the other cases referred to are authority for the proposition that an agreement to purchase a dwelling house in the course of construction, where it is clearly understood that the purchaser is intending to live in the house as soon as it is completed by the vendor, in the absence of negativing circumstances, contains the following implied terms that (a) the vendor will complete the building of the house; (b) that as regards work already done at the date of the agreement, as regards what remains to be done, the quality of the work and the materials are and will be such that, when completed, the house will be reasonably fit for immediate occupation as a residence; and (c) that as regards the work which remains to be done, such work will be carried out in a good and workmanlike manner and with sound and suitable materials.
142. While Clarion accepts that both Brown and Hancock (and the other cases on which it relies) involved the sale of a dwelling house in the course of construction, it contends that the same principles apply to the MCA which provides for the sale of the common areas of a mixed use multi-unit development with 184 residential apartments, as the common areas of the residential part of the development are intended for human occupation and use, are ancillary to the residential units themselves and include parts of the apartments such as the balconies. Although Clarion concedes that the court might come to a different view in the case of a purely commercial development, it contends that the principles set out in Brown do apply to the common areas referable to the residential parts of the Clarion Quay development in the absence of any negativing circumstances and that there are no such negativing circumstances. On the contrary, it contends that the factual matrix clearly supports an obligation on DCC, as the successor to DDDA, to build out the development in a good and substantial manner and, in accordance with the Building Regulations, having regard to the obligation on Clarion to keep the whole of the development in “first class decorative repair and condition” after completion of the MCA.
143. Clarion accepts that there is no direct authority on the point but argues that its case for the implication of these terms in the MCA in the case of Clarion Quay does not really amount to an extension of the principles in Brown. It further argues that it would be unreal if the terms referred to in Brown were to be implied in the contracts for the sale of the apartments themselves but not to the sale of the common areas around them and the reversions.
144. Insofar as DCC and Campshire have contended that there are several negativing circumstances, including clause 4 of the MCA and certain of the general conditions, such as general conditions 16(a), 43 and 44, Clarion submits that those provisions are not negativing circumstances at all. With respect to clause 4 of the MCA, Clarion maintains that there is nothing in clause 4 of the MCA which is inconsistent with any of the implied terms. It further asserts that the express inclusion of general condition 36(d) of the general conditions supports the implication of these additional terms. Clarion submits that clause 4 of the MCA is a standard estate variation clause and does not mean that the developer can choose to carry out the development in a defective manner or in a manner which does not comply with the Building Control Act or with the Building Regulations.
(ii) Terms implied on the facts
145. The second basis on which Clarion seeks to imply these terms in the MCA, is that they should be implied as a matter of fact. It relies on the principles discussed in McDermott “Contract Law” (2nd Ed.) (paras. 8.49-8.96), on the judgment of McCarthy J. in Tradax (Ireland) Ltd v. Irish Grain Board[1984] IR 1 (“Tradax”), the decision of the Privy Council in BP Refinery (Western Port) PTY Ltd v. Shire of Hastings(1977) 180 CLR 266 (“BP Refinery”) and the decision of the Court of Appeal in Flynn v. Breccia[2017] IECA 74 (“Flynn”). It contends that the disputed implied terms satisfy the five-point test for the implication of terms set out by Lord Simon in BP Refinery and that the terms are (a) reasonable and equitable; (b) necessary to give business efficacy to the contract; (c) so obvious that it goes without saying; (d) capable of clear expression; and (e) do not contradict any express term of the contract.
146. In support of its case that these terms are implied in the MCA. Clarion asks the court to have regard to:-
(a) the express obligation in the JVA that Campshire would build in a good and substantial manner and in accordance with the building regulations (clause 5.1 of the JVA);
(b) the intention to sell the apartments in the development as residences;
(c) the obligation on Clarion in the retail leases to keep the retained parts in a “good and tenantable state of repair, decoration and condition” (para. 6 of part 2 of the fourth schedule to the retail lease);
(d) the equivalent obligation on Clarion and Campshire in the residential leases (clause V and para. 4 of the seventh schedule to the residential lease);
(e) the intention to convey the common areas to Clarion after the sale of the apartments and retail units upon which an immediate obligation would fall on Clarion to “well and sufficiently repair and keep in repair and first class decorative condition” the “premises and all buildings for the time being thereon” (para. 5 of the fourth schedule to the deed of fee farm grant);
(f) the right of DCC to enforce the obligation at ((e) above) and even to forfeit the fee farm grant in the event of its breach (p. 4 of the deed of fee farm grant); and
(g) the obligations under Irish law to comply with the Building Regulations.
147. Clarion contends that if these terms were not implied in the MCA, DCC and its predecessor DDDA would be entitled to build the development in a defective manner, to convey to Clarion the common areas and other areas to be assured under the MCA and then immediately require Clarion to remedy the defects, failing which proceedings could be issued against Clarion or the right to determine the fee farm grant could be exercised in accordance with its terms. On that basis, Clarion submits that the implication of these terms is “so obvious that it goes without saying” and that the “officious bystander” , or the reasonable person in the position of the parties at the time, would clearly have said that the common areas and other areas to be assured under the MCA had to be built properly.
148. It submits that having regard to the obligations on Clarion under the deed of fee farm grant to keep the common areas and other parts of the development to be assured under the MCA in repair and in “first class decorative condition” , it would make no sense for Clarion to accept that obligation if it were not taking the areas to be transferred in that state in the first place.
149. While DCC and Campshire rely on the judgment of Kenny J. in Whelan v. Madigan[1978] ILRM 136 (“Whelan”) as authority for the proposition that Clarion’s obligations would not extend to defects caused by a structural defect which was present at the time of the completion of the MCA, Clarion relies on the dicta of Black J. in the Supreme Court in Groome v. The Fodhla Printing Company Ltd[1943] IR 380 (“Groome”) and the discussion of those cases in Wylie “Landlord and Tenant Law” (3rd Ed.) (at paras. 15.26-15.30) to the effect that the covenant to repair to which Clarion is subject could well involve an obligation on Clarion to put the premises into repair by remedying defects, even where the defects exist at the time of the completion of the MCA. Clarion argues that Whelan can be distinguished by reference to its unusual and rather particular facts. On that basis, Clarion submits that there is a real risk that DCC could seek to enforce the covenant under the deed of fee farm grant against Clarion and seek to determine the grant for breach of covenant.
(c) DCC’s and Campshire’s case on issue (2): Summary
(i) Terms implied by law
150. In response to Clarion’s case that these terms should be implied as a matter of law by reason of the nature of the MCA, DCC contends that the terms of the MCA are clear and unambiguous and that there is no necessity to imply the disputed terms in the MCA. It asks the court to have regard to the nominal level of consideration provided for in the MCA (£10) which it says is inconsistent with the obligation on DCC to build at all, let alone to be subject to the obligations and terms of the quality of workmanship and materials or fitness for habitation of the property.
151. DCC submits that Clarion’s reliance on Brown, Hancock and McGeary is misplaced. The common features of those cases, it submits, is that the properties under construction which were the subject of the contracts at issue in those cases were being purchased by a person who intended to purchase a dwelling house which he or she intended to occupy as such and, in those circumstances, the court was prepared to imply terms as to the quality of the building work and materials and so on. DCC stressed that the agreements in those cases all involved a building element in which a building to be used as a dwelling house was to be constructed. That is not so, it submits, in the case of the MCA.
152. DCC contends that in order for implied terms to arise on foot of the Brown line of authority, certain conditions must be satisfied:-
(a) the contract in question must be for the construction and acquisition of a dwelling house;
(b) the purchaser under the contract must be intending to live in the dwelling house himself or herself; and
(c) the terms sought to be implied must not have been negatived by other circumstances or by an express term of the contract.
It submits that those conditions are not satisfied in the present case. The MCA does not have a construction element to it. Clarion was not agreeing to purchase a dwelling house with the intention of living in it. Also, DCC submits that there are negativing circumstances, including clause 4 of the MCA.
153. Therefore, DCC sought to distinguish Brown, Hancock and McGeary (and the other English cases referred to in those cases) and relied on the decision of the Court of Appeal of England & Wales in Lynch v. Thorne[1956] 1 WLR 303 (“Lynch”) to demonstrate that the existence of an express term in the agreement can exclude the operation of an implied term of the type sought to be implied here. In that regard, DCC places great reliance on the provisions of clause 4 of the MCA as negativing the implication of any of these terms.
154. DCC also relies on the judgment of Kenny J. in Whelan in response to Clarion’s case that its repairing covenant in the fee farm grant could impose an obligation on it to repair structural defects which exist at the time of the completion of the MCA. On that basis, DCC maintains (as does Campshire) that Clarion will not be obliged to put the property in a better position than it was at the time of completion.
155. Campshire adopts a similar position to DCC in response to Clarion’s case that these terms should be implied as a matter of law by reason of the nature of the MCA. It also seeks to distinguish Brown and Hancock from the present case on the basis that the MCA is not a contract for the construction of a residential house. Clarion is not a residential purchaser but, rather, a company incorporated by Campshire specifically to assume the role of the management company in respect of the development. Effectively, Campshire submits, the plaintiff seeks, by making its case for the implication of these terms on this basis, to convert or elevate the MCA (which is essentially the transfer of the common areas and other areas referred to in the fee farm grant) into a new building contract. In response to Clarion’s case that the common areas are themselves intended for human occupation or are ancillary to the occupation of the apartments, Campshire queries where the line can be drawn since those areas include the roads and car parks in the development. Campshire maintains that this supports the position of the defendants that the circumstances in which the Brown-type terms can be implied in a contract are limited to the type of situation at issue in Brown and Hancock. On that basis, both DCC and Campshire contend that there is no basis for implying these terms as a matter of law by reason of the nature of the MCA.
(ii) Terms implied on the facts
156. In response to the second basis on which Clarion says that these terms should be implied, namely, as a matter of fact, DCC and Campshire maintain that the conditions for the implication of terms as a matter of fact are not satisfied in this case.
157. DCC relies on cases such as The Moorcock(1889) 14 P.D. 64, Carna Foods Ltd v. Eagle Star Insurance Company (Ireland)[1997] 2 IR 193 (“Carna”), Sweeney v. Duggan[1997] 2 IR 531 (“Sweeney”), Meridian Communications Ltd v. Eircell Ltd[2002] IR 17 (“Meridian”), O’Donnell v. Ryan[2017] IEHC 607 (“O’Donnell”) and Flynn. It submits that the five-point test of Lord Simon in BP Refinery, which was endorsed by the Court of Appeal in Flynn, is not satisfied, and that the disputed implied terms would be in conflict with express provisions of the MCA and, in particular, with clause 4 and with a number of the general conditions incorporated in the MCA, in particular, general conditions 16(a), 43 and 44.
158. It submits that, by reference to the five-point test in BP Refinery, as adopted by the Court of Appeal in Flynn, the disputed implied terms (a) are not reasonable; (b) are not necessary to give business efficacy to the transfer the subject of the MCA, the principal object of which is to transfer the common areas to Clarion (and it is, therefore, unnecessary to import terms as to the quality of the building works to be carried out); (c) are not so obvious that it goes without saying that the parties intended to agree them; (d) are not capable of clear expression, in that there is no clear identification of the building works intended to be subject to the disputed implied terms; and (e) contradict express terms in the MCA and, in particular, clause 4.
159. Campshire takes a similar position to DCC but makes the additional point that the disputed implied terms breach the rule of privity of contract in that one of the sources for the terms which Clarion claims are implied in the MCA is the JVA between DCC and Campshire to which Clarion is not a party. It submits that the express incorporation of certain terms in the JVA demonstrates the knowledge and awareness of DCC (or, rather, its predecessor DDDA) and Campshire of those terms and, yet, nonetheless DCC/DDDA did not include them in the MCA. It further submits that individual tenants were in a position to incorporate a clause as to the quality of the works into their respective leases or building agreements, as the case may be, and that a number of the units sold prior to or during construction involved building contracts with stipulated terms as to construction standards (para. 3.24 of Campshire’s written submissions, although I note that there was no evidence before me and no agreed facts to support that submission).
160. Campshire also maintains that the five-point BP Refinery test is not satisfied in the case of the disputed implied terms pointing to the lack of clarity of those terms and querying the standard with which it is suggested the works were supposed to comply. It contends that the uncertainty in the terms means that it could not be so obvious that those terms would have been agreed had they been adverted to by the parties when agreeing the terms of the MCA. Campshire makes the additional point that certain of the apartments would have been bought off the plans and some during or after construction and points to the difficulty of implying those terms bearing in mind those different situations.
161. As noted earlier, both DCC and Campshire rely on Whelan in response to the concern expressed by Clarion that, if the disputed terms are not found to be implied in the MCA, it would be at risk of being in breach of its covenant to repair under the deed of fee farm grant and at risk of the grant being determined by DCC. Both DCC and Campshire, in their written submissions, and Campshire in its oral submissions to the court, disputed the existence of the risk relied on by Clarion and maintained that it would not be obliged to put the property into a better position, or to maintain the property to a better condition, than it was when demised or assured to it.
162. They submit, therefore, that the conditions for the implication of terms as a matter of fact has not been satisfied here and, therefore, the terms pleaded at para. 20 of the statement of claim are not implied terms of the MCA.
(d) Decision on issue (2)
163. The parties are agreed that terms can be implied into agreements in a variety of different ways. Leaving aside the implication of terms by statute or by custom or usage (neither of which is relevant in this case), terms may be implied (i) as a matter of law arising from the nature of the agreement at issue and (ii) as a matter of fact based on the presumed intention of the parties on the facts.
164. In Sweeney, Murphy J. stated:-
“There are at least two situations where the Courts will, independently of statutory requirement, imply a term which has not been expressly agreed by the parties to a contract. The first of these situations was identified in the well-known Moorcock case (1889 14 P.D. 64) where a term not expressly agreed upon by the parties was inferred on the basis of the presumed intention of the parties…
In addition there are a variety of cases in which a contractual term has been implied on the basis, not of the intention of the parties to the contract but deriving from the nature of the contract itself…” (per Murphy J. at p. 538)
165. In Society of Lloyd’s v. Clementson[1995] C.L.C. 117, Steyn L.J. in the Court of Appeal of England & Wales described the distinction between terms implied as a matter of law and those implied in fact as follows:-
“Terms implied in fact are individualised gap-fillers, depending on the terms and circumstances of a particular contract. Terms implied by law are in reality incidents attached to standardised contractual relationships, or, perhaps more illuminatingly, such terms can in modern US legal terminology be described as standardised default rules.”
166. Clarion contends that the five terms pleaded at para. 20 of the statement of claim are implied (i) as a matter of law and, also or, alternatively, (ii) as a matter of fact. As I explain below, I do not accept that those terms are implied in the MCA on either of those two bases.
(i) Terms implied by law
167. The starting point when considering whether the terms are implied by law by virtue of the nature of the agreement comprised in the MCA is the decision of Davitt P. in Brown, which in turn relied on two earlier English cases, Lawrence and Miller. In order to understand the principle identified and applied by Davitt P. in Brown, it is necessary briefly to mention the facts of the case. There were three plaintiffs. Two of the plaintiffs (Mr. Brown and Mr. Burgess) entered into contracts with the defendants for the purchase of two dwelling houses which were then in the course of construction. The third plaintiff (Mr. O’Connor) entered into a contract with the defendants for the purchase of another house at a time when construction of the house had been completed. The sale in each case was effected by way of sublease. Each of the plaintiffs alleged that there were defects in the houses which they claimed were in breach of certain implied terms of their agreements with the defendants.
168. Davitt P. held that there were defects in all three houses. He then turned to consider whether terms should be implied into the agreements. Having considered the English decisions of Lawrence and Miller and various other cases, Davitt P. summarised the legal position as follows:-
“I think that the law which I have to apply in these cases may be stated thus: where there is an agreement to purchase a house in the course of erection, and it is clearly understood by the parties that what the purchaser is contracting to buy and the vendor is contracting to sell is a dwelling-house in which the purchaser can live as soon as it is completed by the vendor, the Court may hold, in the absence of any circumstances negativing such an implication, that the vendor impliedly agrees (1) that he will complete the building of the house; (2) that as regards what has already been done at the date of the agreement the quality of the work and materials is such, and as regards what then remains to be done the quality will be such, that the house when completed will be reasonably fit for immediate occupation as a residence; and (3) that as regards what then remains to be done the work will be carried out in a good and work-manlike manner and with sound and suitable materials.”
(per Davitt P. at p. 56)
169. These are more or less the terms which Clarion says should be implied in the MCA (with an additional term not mentioned in Brown but, according to Clarion, to be implied on the basis of the specific obligation on Clarion under the deed of fee farm grant to keep the premises in a “first class state of decorative repair and condition” ).
170. Davitt P. went on to state that:-
“The expressions, ‘completed house’ and ‘house in course of erection,’ so frequently used in cases of this kind are not, of course, to be treated as if they were expressions used in an enactment of the Legislature. In no case has it been sought to define them nor would it be advisable to make an attempt at definition.”
(per Davitt P. at p. 56)
Clarion relies on this passage in an attempt to persuade the court that the implied terms referred to in Brown can also arise in the case of a development such as Clarion Quay.
171. Having identified the relevant principles, Davitt P. went on to apply them to the facts of each of three plaintiffs. In the case of Mr. Brown, he held that the terms were implied in his contract with the defendants and that a number of them were breached. In the case of Mr. Burgess, again he found that the terms were implied in his agreement with the defendants and that a number were breached. However, in his case, some walls were already built at the time of the agreement. Unlike the other plaintiffs, his agreement contained a clause stating that he had inspected the building as it stood and would be taken to be “satisfied” with it. The court held that, as regards walls which were already built at the time of the agreement, that clause negatived the implication of any warranty in respect of them. With respect to Mr. O’Connor, the court held that on the evidence the house the subject of his agreement was not in the course of erection at the time of the agreement and that it was, at that stage, almost complete. His agreement was, therefore, a contract for the sale of a completed house and did not, therefore, include the implied terms applicable to the other agreements.
172. What can be seen from the summary of the applicable legal principles outlined by Davitt P. in Brown and by his exclusion of the implied terms with respect to the walls in Mr. Burgess’ case, that the terms will not be implied where there are circumstances which negative their implication. While DCC and Campshire primarily contend that the implied terms set out in Brown do not apply at all in this case as the MCA is not the type of agreement in which those implied terms can arise, they also rely on the existence of negativing circumstances, principally the existence of clause 4 in the MCA, and, in that context, they rely on the decision of the Court of Appeal of England & Wales in Lynch. In that case, the court held that there were express terms in the relevant contract as to the way in which the house was to be built and the builder had precisely and exactly complied with its obligations under the contract. The court held on that basis that there could be no implied term in the contract for sale that the dwelling house, when completed, should be reasonably fit for human habitation. Therefore, the implied terms were negatived by the express terms of the contract with which the builder had complied.
173. A somewhat similar argument was rejected by the court in Hancock. The Court of Appeal held that the terms to be implied on the basis of Lawrence and Miller were not excluded by a clause in the relevant agreements which provided that the builders would build and complete the houses at issue “in proper and workmanlike manner” and in accordance with a particular plan and specification, which required a specified size of hardcore on the basis that that clause only dealt with workmanship and not with materials. The court held that the quality of the materials was left to be implied and the necessary implication was that they should be good and suitable for the work. Therefore, the clause relied on by the builders did not negative the implied terms. Another relevant point in that case is that the defendant sought to rely on a provision in the UK National Conditions of Sale (condition 12(3)) which was similar to general condition 16(a) of the general conditions. The court held that that condition applied merely to the contract for conveyance and not to the contract to erect the building and did not, therefore, apply to the building work or derogate from the implied term “that the builder would do his work well and with proper materials and be fit for human habitation” (per Lord Denning MR at p. 1333). Clarion relies on Hancock to defeat the case made by DCC and Campshire that the express terms of the MCA (and, in particular, clause 4) and general condition 16(a) negatived the implication of the implied terms for which Clarion contends.
174. Clarion also relies on the judgment of Lowry L.C.J. in the Northern Ireland case of McGeary, where the court held that the implied term in a contract for the purchase of a house which is to be erected or is in the course of erection that the house be well built and fit for human habitation arose where, at the time the agreement was made, any work remained to be done and applied to the house in every respect (including the work already done at the time of the agreement).
175. In O’Donnell, Baker J. in the High Court held that the implied terms referred to in Brown had no application in the case of the contract at issue in that case between a partnership which owned land and a development company which carried out an apartment development on the partnership’s lands under a licence with the partnership, under which the partnership agreed to execute an assurance of the finished apartments to purchasers nominated by the developer and, following the sale of the last unit, to assure the common areas and the reversion in the leases to a management company. The court held that the contract between the partnership and the developer did not contain any of the indicia of a building contract and, therefore, the implied terms referred to in Brown did not arise.
176. Having carefully considered the parties’ submissions and the authorities on which they rely, I have come to the conclusion that the terms pleaded at para. 20 of the statement of claim should not be implied in the MCA as a matter of law by reason of the nature of the MCA. It is clear from Brown and from the other authorities relied on by Clarion that terms of that type will only be implied in very limited circumstances, i.e. where there is an agreement to purchase a house which is in the course of being built and where it is clearly agreed and understood by the parties that what the purchaser is agreeing to buy and what the vendor is agreeing to sell is a dwelling house in which the purchaser can live as soon as the house is completed by the vendor. Davitt P. in Brown made clear that those are the particular circumstances in which the three implied terms which he identified (which broadly correspond with three of the implied terms pleaded by Clarion at para. 20 of the statement of claim) may arise, in the absence of negativing circumstances.
177. Self-evidently, the MCA is not an agreement between a purchaser and a vendor to sell a house in the course of construction. Clarion, which was incorporated by Campshire pursuant to its obligations under the JVA, was entering into the MCA for the purpose of acquiring the common areas and other areas set out in the first schedule to the deed of fee farm grant and the reversionary interest in the retail and residential leases to carry out its obligations as the estate management company for the development. In no sense could it be said that under the MCA Clarion and DCC were agreeing that Clarion was purchasing a dwelling house or houses in which it could live when completed. To apply the principle in Brown (and in the other cases in which similar implied terms were held to exist) would be stretching the principle well beyond breaking point. I agree with DCC and Campshire that the circumstances in which implied terms of the kind relied on by Clarion can arise as a matter of law are limited to the type of situation considered in Brown (and in all of the other cases relied on by Clarion such as Lawrence, Miller, Hancock and McGeary).
178. In order for terms to be implied on the basis of Brown and the other cases, the contract in question must be for the construction and acquisition of a dwelling house which is in the course of construction and it must be clearly agreed and understood between the parties that the purchaser can live in the dwelling house when it is completed. The MCA is clearly not such a contract. It does not have a construction element to it. It is not a contract for the acquisition of a dwelling house in the course of construction and, quite obviously, it is not a contract under which the parties agree that Clarion can reside in the development when completed. It is the estate management company. The common areas and other areas to be transferred to Clarion under the MCA and pursuant to the deed of fee farm grant can not to be equated to a dwelling house in the course of construction. As I have indicated, they include driveways, paths and forecourts and car parks. The development includes retail units and Clarion can point to no authority which establishes that such implied terms can be implied in agreements for the construction of retail units, still less in agreements for the transfer of the common areas relevant to those units.
179. I mentioned earlier the judgment of Baker J. in the High Court in O’Donnell. While that case involved a different factual scenario to that at issue here and the issue there was not whether the Brown implied terms could be implied in the management agreement in that case, but rather in an agreement between the purchasers of units in the development and the partnership which owned the lands, Baker J. held that that agreement did not contain any of the indicia of a building contract and, therefore, the Brown terms could not be implied. Nor, in my view, does the MCA.
180. In my view, Clarion’s case that the terms pleaded at para. 20 of the statement of claim should be implied in the MCA as a matter of law in reliance on Brown and the other cases referred to does not even get off the ground as the MCA is not a contract to which that case law applies for the reasons I have mentioned. That is certainly the case in respect of the second, third and fourth implied terms pleaded at para. 20 of the statement of claim The first alleged implied term pleaded, namely, that DCC would ensure completion of the Clarion Quay development does not arise from Brown or the other cases relied on under this heading. It is also inconsistent with clause 4 of the MCA. Clause 4 expressly provides that DCC is not under any obligation to complete or cause the development to be completed and that DCC has the entitlement to discontinue developing the estate. Even if this implied term could be said to derive from Brown (and I don’t believe that it does), Clause 4 would, in any event, be, having to effect a negativing circumstance described by Davitt P. in Brown and it would have a similar effect in law to the clause at issue in Lynch.
181. The final implied term relied on by Clarion (and referred to at para. 20(vii) of the statement of claim), that the development would be constructed in “first class state of decorative repair and condition” , similarly does not arise from Brown or the other cases relied on by Clarion. Clarion made clear in replies to particulars that that implied term is said to arise from the use of that phrase in para. 5 of the fourth schedule to the draft deed of fee farm grant attached to the MCA. It does not, therefore, arise from Brown. If it is to be implied, it can only be on the basis that such implication arises on the facts based on the presumed intention of the parties and not as a matter of law. I will consider it, therefore, in that context. Suffice to say at this point that the term is not to implied in the MCA as a matter of law.
182. For these reasons, I am satisfied that the terms pleaded at para. 20 of the statement of claim are not to be implied in the MCA as a matter of law based on Brown and the other cases relied on by Clarion.
(ii) Terms implied on the facts
183. The test for determining whether a term should be implied into a contract as a matter of fact based on the presumed intention of the parties and the legal principles relevant to that test are well established and are not significantly in dispute between the parties. The principles can be traced back to cases such as The Moorcock, Shirlaw v. Southern Foundries (1926) Ltd[1939] 2 K.B. 206 (“Shirlaw”), Trollope & Colls Ltd v. Northwest Metropolitan Regional Hospital Board[1973] 1 WLR 601 (“Trollope”) and BP Refinery in England and have been applied by the Irish courts in the leading cases such as Sweeney, Carna and Meridian and, most recently, by the Court of Appeal in Flynn.
184. In BP Refinery, Lord Simon (speaking for the majority in the Privy Council) said that:-
“… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.” (per Lord Simon at p. 283)
185. This summary was approved by Finlay Geoghegan J. in her lead judgment for the Court of Appeal in Flynn, although she noted that the parties in that case were in agreement that the possibility that conditions (2) and (3) might be alternatives, and not necessarily cumulative, was consistent with the law in this jurisdiction as set out in Sweeney (para. 77). Finlay Geoghegan J. accepted the submission of the appellant in that case that “…obviousness requires the Court to be satisfied that, firstly, reasonable people in the position of the parties would all have agreed to make provision for the contingency in question, and second, that they would ‘without doubt’, or with something approaching certainty, have accepted the term proposed by the officious bystander” (per Finlay Geoghegan J. at p. 86). She found support for that submission in the judgment of Lord Neuberger in the UK Supreme Court in Marks & Spencer plc v. BNP Paribas Securities Services[2016] AC 742 (“Marks & Spencer”). She noted that Lord Neuberger summarised and, in part, quoted from the judgment of Sir Thomas Bingham MR in Philips Electronique Grand Public SA v. British Sky Broadcasting Ltd.[1995] EMLR 472, 481 (“Philips”) where he, Lord Neuberger stated at para. 19:-
“…Sir Thomas Bingham MR set out Lord Simon’s formulation, and described it as a summary which ‘distil[led] the essence of much learning on implied terms’ but whose ‘simplicity could be almost misleading’. Sir Thomas then explained that it was ‘difficult to infer with confidence what the parties must have intended when they have entered into a lengthy and carefully-drafted contract but have omitted to make provision for the matter in issue’, because ‘it may well be doubtful whether the omission was the result of the parties’ oversight or of their deliberate decision’, or indeed the parties might suspect that ‘they are unlikely to agree on what is to happen in a certain … eventuality’ and ‘may well choose to leave the matter uncovered in their contract in the hope that the eventuality will not occur’. Sir Thomas went on to say this at p 482:
‘The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong. [He then quoted the observations of Scrutton LJ in Reigate 3, and continued] [I]t is not enough to show that had the parties foreseen the eventuality which in fact occurred they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred …’”
(quoted by Finlay Geoghegan J. in Flynn at para. 88)
186. These observations by Sir Thomas Bingham MR in Philips, which were approved by Lord Neuberger in Marks & Spencer and by Finlay Geoghegan J. in Flynn, are helpful in identifying what Finlay Geoghegan J. described as the “difficult task facing the court when asked to imply a term in relation to a matter for which no provision has been made in the contract” (also at para. 88).
187. It is also, I think, helpful to refer to some additional comments made by Lord Neuberger in Marks & Spencer to supplement Lord Simon’s summary in BP Refinery as extended by Bingham MR in Philips. He made the following six supplementary or additional comments:-
“First, in Equitable Life Assurance Society v Hyman[2002] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was ‘not critically dependent on proof of an actual intention of the parties’ when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon’s first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd[2009] 1 WLR 1988, at para 27 , although Lord Simon’s requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where one only of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is ‘vital to formulate the question to be posed by [him] with the utmost care’, to quote from Lewison, The Interpretation of Contracts 5th ed (2011), p 300, para 6.09 . Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of ‘absolute necessity’, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is… that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”
(per Lord Neuberger at para. 21)
188. I accept that those additional comments of Lord Neuberger are of assistance and also reflect the law in this jurisdiction. The first of those additional comments was expressly quoted with approval by Finlay Geoghegan J. in Flynn (at para. 87).
189. Those are the principles, therefore, which I will apply in determining whether the terms pleaded at para 20 of the statement of claim should be implied as a matter of fact. Before setting out my conclusions on the submissions advanced by the parties on this issue, I should refer to how the principles were applied in two of the cases to which my attention was drawn by the parties. In O’Donnell, a claim was made that certain obligations were to be implied into the long lease by which the apartments in the development were sold. The partnership which owned the lands was the lessor under the lease and its role was expressly to act and to be engaged at the request of the developer and to hold the legal title pending the sale of the last unit until the reversion in the leases and the title to the common areas would be assured to the management company, which is what happened. It was argued that certain obligations were to be implied in the lease concerning the quality of the construction of the apartments and their compliance with the Building Regulations. Baker J. rejected that argument and held that no such term could be implied on the ground that the entire substance and form of the sale, when objectively ascertained, was inconsistent with the implication of such terms. The court, therefore, struck out the claim against the first defendant (representing the partnership), which was based on the claimed implied terms of good workmanship and structural soundness, on the basis that it was bound to fail.
190. In Grehan, the Court of Appeal reversed the finding of the High Court that there was an implied term in the management agreement that the receivers had to serve a 28-day completion notice as soon as was practicable after the sale of the last unit in the estate on the basis that the parties had agreed an express term governing the completion of the transfer of the lands to the management company. On the basis, the court concluded that the principles derived from The Moorcock did not dictate that the express term dealing with that issue and agreed between the parties should be supplemented by such an implied term (para. 103). The court disagreed with the trial judge’s emphasis upon business efficacy as a basis for implying the term in question and noted that, since all of the parties to the relevant management agreement were connected and working together in relation to the development of the business campus, it was not an arm’s length sale to a third party. The court concluded that the implied term relied on did not satisfy the legal test (referring to Meridian), in that it was not necessary to imply the term in the agreement and the term was not necessary to give business efficacy to it. Nor was it a term which could be presumed to reflect the common intention of the parties. The application of such a term would have involved the court in rewriting the agreement actually entered into between the parties. The court did, however, uphold the trial judge’s conclusion that a different term should be implied elsewhere in the management agreement concerning the obligation on the defendant to execute a lease of easements with the developer and with each purchaser of the unit. The court agreed with the trial judge’s conclusion that such a term was to be implied, having regard to the terms of the management agreement itself and its interconnection with other documents (such as the draft lease of easements) and that it was necessary to give business efficacy to the agreement (para. 114). The court concluded that the implication of such a term did come within the principles in The Moorcock and reflected the intention of the parties at the time of the agreement.
191. I have carefully considered the agreed facts, the agreed documents, the submissions of the parties (which I have attempted to summarise earlier) and the principles which I have just set out and, having done so, I am not persuaded that the terms pleaded at para. 20 of the statement of claim should be implied as a matter of fact in the MCA on the basis of the test summarised by Lord Simon in BP Refinery and approved of and applied by the Court of Appeal in Flynn, taking account of the additional comments and observations of Lord Neuberger in Marks & Spencer.
192. Starting with the first condition referred to by Lord Simon in BP Refinery, I take the point made by Lord Neuberger in Marks & Spencer (at para. 21) that it is questionable whether the requirement that the term be “reasonable and equitable” will usually, if ever, add anything to the other conditions or elements of the test as, if the term does satisfy those other conditions or elements, it is difficult to see how it would not also be reasonable and equitable. I would prefer, therefore, to consider those other conditions or elements first. I turn then to the second condition, namely, that the term or terms in question must be “necessary to give business efficacy to the contract” such that “no term will be implied if the contract is effective without it” . I am not satisfied that the terms pleaded at para. 20 of the statement of claim are necessary to give business efficacy to the MCA. The MCA can work or, to use the term used in the condition, can be “effective” without any of the disputed implied terms. While it may be the case, as Lord Neuberger said in Marks & Spencer, that it is not necessary to establish the “absolute necessity” of the term in order to demonstrate that it should be implied to give business efficacy to the contract, I do not accept that Clarion has demonstrated that if the disputed terms were not implied in the MCA, the MCA would lack “commercial or practical coherence” (being the alternative formulation suggested by Lord Neuberger). Without the disputed implied terms, the MCA will do what it was intended to do and will not be ineffective without them. The common areas and other areas to be conveyed to Clarion, together with the reversionary interests in the retail and residential leases, can be conveyed without the implied terms. On its proper interpretation, the MCA will do what, on its face, it was intended to do without the implied terms and will not lack “ commercial or practical coherence ” without them.
193. I accept, as did Finlay Geoghegan J. in Flynn and Lord Neuberger in Marks and Spencer, that the second and third conditions, namely, the necessity to give business efficacy to the contract and the obviousness of the term may be alternatives. However, I do not accept that Clarion has established that either of the alternative conditions has been satisfied here. With respect to the third contention, I am not persuaded that the disputed implied terms are so obvious that “it goes without saying” that they ought to be implied in the MCA. I bear in mind the observations of Sir Thomas Bingham MR in Philips, quoted by Lord Neuberger in Marks & Spencer and by Finlay Geoghegan J. in Flynn, that while it might be tempting to fashion a term which might be said to reflect the merits of the situation when a dispute or crisis has arisen, it would be wrong to do so. I also bear in mind, and agree with, the point made by Sir Thomas Bingham MR made the point that it is not enough to show that had the parties foreseen the eventuality which in fact occurred, they would have wished to make provision for that eventuality, unless it could also be shown that there was “only one contractual solution or that one of several possible solutions would without doubt have been preferred…” . I find it very difficult on the agreed facts and on the basis of the agreed documents to conclude that, had the parties to the MCA foreseen the eventuality which has occurred here (being the defects which are admitted for the purposes of the determination of these issues) that it is clear that the only contractual solution is that the disputed implied terms formed part of the MCA. In considering this issue, I must bear in mind that as was said by Lord Neuberger in Marks & Spencer and by Finlay Geoghegan J. in Flynn that the question has to be approached by reference to “notional reasonable people in the position of the parties at the time at which they were contracting” and not by reference to the “hypothetical answer of the actual parties” .
194. It must be recalled that the JVA was agreed by the parties (DCC and Campshire) in March, 2000. The JVA imposed significant obligations on Campshire, including those set out in clause 5.1 concerning the quality of the works and materials and compliance with the Building Control Acts and the Building Regulations, on which Clarion places great weight in support of its case that the disputed terms should be implied in the MCA. The MCA was entered into by the parties (DCC and Clarion, as well as The North Wall Quay Management Company) in July, 2001, well over a year after the JVA. At the time the MCA was agreed (and the agreed facts do not mention the fact or extent of the negotiations which may have taken placed between the parties to the MCA before agreeing to its terms), DCC and Clarion (which was incorporated by Campshire in accordance with its obligations under the JVA) would have been well aware of the terms of the JVA which imposed those obligations on Campshire. They agreed the terms of the MCA, including the terms imposing obligations on Clarion in the draft deed of fee farm grant and providing for the application of the general conditions (including general condition 36(d)). The parties were presumably also aware of the terms of the retail and residential leases at that stage since they are referred to throughout the MCA. While it is not expressly agreed in the agreed facts that draft leases were available at the time the MCA was agreed, it would be surprising if they were not given the references to the leases in the MCA (such as in clause 1). I also note from the agreed facts that residential units were sold between 2001 and June, 2006. Those sales would have been effected by the residential leases. While it is not critical to my conclusion on this issue, which stands without this assumption, I believe that it is reasonable to assume that the terms of the leases, both retail and residential, were available when the MCA was agreed between DCC and Clarion (as well as The North Wall Quay Management Company) in July, 2001.
195. The parties could have, but plainly did not, expressly agree the terms now said by Clarion to be implied terms in the MCA, if they had intended them to apply. Because of the timing of the entering into of the JVA and the MCA, the fact that Clarion was incorporated by Campshire in accordance with its obligations under the JVA and the fact that those who signed the MCA on behalf of Clarion were members of Campshire, I must conclude that those entering into the MCA were aware of the JVA and must also have been aware of the terms of the draft fee farm grant which imposes obligations on Clarion (including the covenant in para. 5 of the fourth schedule which refers to the obligation to repair and keep in repair and “first class decorative condition” the premises and the buildings).
196. It is much more likely, therefore, not that the parties omitted the terms now sought to be implied in the MCA due to an oversight or omission but rather that the parties did not regard it as necessary or appropriate to include those terms in the MCA, having regard to the nature of that agreement. The purpose of the agreement was to convey the common areas and other areas to Clarion as a management company as well as the reversionary interests in the retail and residential leases. I find it impossible to see, in the circumstances, how the condition requiring the relevant term or terms to be “so obvious that ‘it goes without saying’” can be satisfied on these facts.
197. I am concerned with what notional reasonable people in the position of the parties at the time they were agreeing the MCA would have said and not what one side might argue best reflects the merits of the situation as it now appears. I am, of course, not permitted to rewrite the contract that the parties made by implying these disputed implied terms. If I were to find that these terms were implied in the MCA, I believe that I would be doing just that. I am not in a position to say that if the notional “officious bystander” or nosey parker standing beside the parties when they were agreeing terms of the MCA had said “surely, you all intend to include these implied terms” , the parties would have testily responded with a common “oh, of course!” (as MacKinnon L.J. observed in Shirlaw). I am not persuaded that they would have said that, bearing in mind what they agreed in the MCA. Clause 4 of the MCA is certainly inconsistent with the first of the disputed implied terms, namely, that DCC would ensure completion of the development in circumstances where the clause made clear that DCC was not under any obligation to complete the development as I have already mentioned.
198. It also seems to me that the other implied terms are not consistent with the type of contract which the parties were agreeing by means of the MCA, particularly where Campshire had incorporated Clarion to be the management company and had nominated the original subscribers who remained in their positions until 2011. Nor could the last of the disputed implied terms satisfy the test of obviousness, in circumstances where considerable reliance is placed by Clarion on the covenant contained in para. 5 of the fourth schedule to the draft deed of fee farm grant to which I have referred. The parties must have been aware of what was expressly contained in that paragraph which would impose obligations on Clarion and yet they did not include any of the disputed implied terms in the MCA. They did, however, include reference to the general conditions, including general condition 36(d) with which DCC will have to comply at the relevant time.
199. That leads me to the next condition in Lord Simon’s list. The disputed implied terms must be “capable of clear expression” . While three of those implied terms are taken from Brown and while, having regard to the restricted scope of application of Brown (as I have concluded earlier), those terms may not have been regarded as unclear or uncertain in that particular context, it seems to me that the position is somewhat different when one considers the potential scope of application of the terms if Clarion is correct in its case that they should be implied in the MCA. It is sought to imply those terms to cover all of the common areas and other areas which are to be conveyed to Clarion under the MCA by means of the deed of fee farm grant attached to the agreement. The areas covered are set out in the first schedule to the draft deed and it is unnecessary to list them again, suffice to say that they include things like the driveways, paths and forecourts, staircases, landings and lifts, roofs, rooftop patios, foundations and basements and car parks. It is difficult to reconcile some of the disputed implied terms with the object and scope of application of the terms. Two of them (the second and third terms) expressly refer to fitness for “immediate occupation” . I agree with the submission made by Campshire that it is difficult to envisage how those terms could apply to the common areas and other areas which I have just mentioned with which the proceedings are concerned. I accept that in respect of those two implied terms, it is difficult to envisage their application to the areas with which we are concerned and to the defects which are admitted in respect of those areas for the purposes of the determination of these issues.
200. The final condition in Lord Simon’s list is that the terms sought to be implied in the agreement must not contradict any express terms of the contract. I have already indicated that, in my view, the first of the implied terms contradicts clause 4 of the MCA which makes clear that DCC did not have an obligation to complete the development. In light of my conclusions in respect of the other conditions in Lord Simon’s list, it is perhaps unnecessary to consider this condition further. However, in case I am wrong in my earlier conclusions that the implied terms are not necessary to give business efficacy to the contract and do not satisfy the test of obviousness, I should say that I agree with Clarion that, with the exception of the first implied term relied on, the other implied terms do not necessarily contradict and are not necessarily inconsistent with clause 4 of the MCA which, as I have concluded earlier in respect of issue (1), is a relatively standard type of estate variation clause. It would not, in my view, be inconsistent with clause 4 for those implied terms (with the exception of the first such term) to be implied in the MCA, if it were otherwise appropriate for the terms to be implied (and I do not believe that it is appropriate for them to be implied, for the reasons I have just explained). The entitlement to vary the location, layout and extent of the development, to include additional lands or even to discontinue developing the estate or to exclude certain works from it is not inconsistent with terms with respect to the quality of the work and with the materials used. That having been said, however, I am not satisfied that these terms can be implied at all as I am not persuaded that Clarion has satisfied the conditions with respect to business efficacy and obviousness.
201. I do not think that it is necessary for me to address the argument made, particularly by DCC, in reliance on clause 16(a) of the general conditions. DCC sought to distinguish between the physical property itself and an interest in the property and argued that general condition 16(a) provided that Clarion was deemed to buy “with full notice of the actual state and condition” of the physical property itself and that this was inconsistent with implied terms as to quality of work and workmanship. I have to confess that I found it somewhat difficult to follow DCC’s argument on this issue and I do not think that it is necessary for me to reach a conclusion on the point as I have decided for other reasons that the terms should not be implied in the MCA.
202. Nor is it necessary for me to express a conclusion on Clarion’s reliance on Hancock and the distinction drawn in that case by Lord Denning MR between the contract for the conveyance and the contract for the erection of the building to defeat the case made by the builder against the implication of the disputed implied terms in reliance on condition 12(3) of the National Conditions of Sale. It is unnecessary because I am satisfied that the disputed terms cannot be implied on either of the two bases put forward by Clarion. They do not arise as a matter of law by virtue of the nature and type of agreement provided for in the MCA and they do not arise as a matter of fact, as the conditions for their implication are not satisfied.
203. Finally, in respect of this issue, I must address the point made by Clarion that, if the terms are not implied in the MCA, and if the common areas and other areas referred to in the MCA and the fee farm grant are conveyed to Clarion with the defects as are alleged to exist, Clarion could well be under an obligation to remedy the defects by reason of the covenants contained in the fourth schedule to the deed of fee farm grant (and, in particular, the covenant in para. 5) and the failure to do so could leave Clarion open to proceedings by DCC and the potential for the grant to be determined by DCC for breach of covenant by Clarion.
204. In answer to that point, DCC and Campshire both rely on the decision of Kenny J. in Whelan. DCC maintains that Clarion is not bound to maintain a better property than the one demised or assured. Campshire contends that Clarion is mistaken in claiming that it will be obliged to put the property in a better condition than it was when it contracted to take it (under the MCA). Both rely on the statement by Kenny J. in Whelan where, having referred to a number of cases, including what Kenny J. referred to as the “elaborate judgment” of Black J. (in the Supreme Court) in Groome, Kenny J. stated that those cases “establish that a covenant by the tenant to repair does not extend to defects caused by a structural defect which was present in the premises when they were let to the tenant” (at 145). In response, Clarion relies on the discussion of Groome in Wylie “Landlord and Tenant Law” (3rd Ed.) (paras. 15.26-15.30). In commenting on the terms of an agreed covenant to repair, Wylie noted:-
“…there is a clear difference between repairs, which are designed to cure defects in the existing demised premises, and improvements, which add to what were previously the demised premises.” (para. 15.30) (footnoted references omitted)
205. However, the author noted that that is often a difficult distinction to draw in practice. He referred to what Black J. stated in Groome where he said:-
“It has often been said that the covenanting lessee is not bound to give back a better house than the one demised to him. I regard this as one of those treacherous generalisations that are true in one sense and not in another. It is true in the sense that the lessee cannot be made do improvements in the guise of repairs. But if genuine repair involves, as it often does, inevitable improvement, that does not enable the covenantor to say he will not do the repair. He is often obliged in this way to give back a better house than the one he got.” (per Black J. at pp. 414-415)
206. Wylie also noted (at para. 15.30) that it is often stated that a tenant subject to a repairing covenant is not responsible for repairs to the “structure” of the premises, Black J. was “equally cautious of this proposition” in Groome noting that “[a] defect in structure seems to me a relative term” (at p. 415). The author then referred to Whelan and to the extract from Kenny J.’s judgment which I have just quoted and on which both DCC and Campshire rely. He noted, however, that in that case the repairing covenant imposed an obligation on the particular tenant in respect of the interior only of the flat and that Kenny J.’s remarks should be read in that context. Wylie continued:-
“The position remains, however, one of construction of the agreement and tenants should understand that many repairing covenants may involve them in major expenditure on the demised premises. The Groome case involved major work like taking down and rebuilding half of a wall and just over half of the roof of a building and the Supreme Court held that this came within the repairing covenant. Over the years the courts have recognised that major parts of buildings will wear out or come to the end of their natural life and that replacing these parts with modern parts, using the latest building techniques, will necessarily bring about an ‘improvement’; nevertheless such work is likely to be regarded as coming within a full repairing covenant. Indeed, such ‘improvement’ will often be inevitable if compliance with current building regulations is to be met.” (para. 15.30 (footnotes excluded))
207. While the covenants in the fourth schedule to the fee farm grant on which Clarion relies in support of its case that the disputed terms should be implied in the MCA are broad and extensive in their scope, that is particularly so in the case of para. 5 which refers to the covenant by Clarion “from time to time and at all times during the said grant [to] well and sufficiently repair and keep in repair and first class decorative condition the premises and all buildings for the time being thereon” . If the common areas and other areas to be conveyed to Clarion under the MCA contain the defects set out in the statement of claim which are set out in the reports of Michael Slattery & Associates and Aecom Ireland Ltd, which are referred to in the statement of claim, it is difficult to see how the covenants (including that contained at para. 5) would be interpreted as imposing an obligation on Clarion, post the assurance of the relevant areas to it under the MCA, to remedy and repair the defects. To that extent, it seems to me more likely that a court would apply the dictum of Kenny J. in Whelan as covering the defects referred to. However, I do not need to reach a decision on this point and do not need to reconcile Whelan with Groome as both DCC and Campshire have expressly confirmed in their written submissions (and Campshire in its oral submissions to the court) that Clarion would not be obliged to repair defects caused by structural issues, which exist at the time of the assurance to Clarion, or obliged to put the property in a better position than it was in when it was demised or assured to Clarion (para. 4.2 of DCC’s submissions and para. 3.23 of Campshire’s submissions). Those submissions were made in response to the point made by Clarion that it would be subject to onerous duties under the covenant if the disputed terms were not implied in the MCA and that DCC could take action to enforce the covenant and potentially to determine the grant.
208. In light of the submissions made by DCC and Campshire in response, it is very difficult to see how DCC could make the case that the covenant to repair extends to the defects complained of and that the grant could be determined by reason of a failure by Clarion to repair or remedy the defects which exist at the time of the assurance to Clarion. It is also significant that, as I have concluded in respect of issue (1), general condition 36(d) applies and Clarion has the benefit of the warranty from DCC contained in that general condition concerning substantial compliance with the Building Control Acts and the Building Regulations and an entitlement to a certificate or opinion certifying such substantial compliance. For these reasons, therefore, I do not accept that Clarion’s concerns that it would be subject to onerous repairing covenants under the grant which might compel it to remedy the existing alleged defects and leave open the possibility that DCC could determine the grant if Clarion failed to do so, provide any support for the implication of the disputed terms.
209. In conclusion, therefore, I do not accept that the terms pleaded at para. 20 of the statement of claim are implied terms of the MCA on either of the grounds advanced by Clarion. Accordingly, I must answer the question posed in issue (2) in the negative.
Jestdale Ltd. v. Millennium Theatre Company Ltd. [2001] IEHC 233 (31 July 2001)
URL: http://www.bailii.org/ie/cases/IEHC/2001/233.html
Cite as: [2001] IEHC 233
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THE HIGH COURT
2000 No. 12066P
BETWEEN/
JESTDALE LIMITED
Plaintiff
– and-
MILLENNIUM THEATRE COMPANY LIMITED
Defendant
JUDGMENT of Mr. Justice Lavan delivered the 31st day of July, 2001
These proceedings arise out of an application by the defendant, Millennium Theatre Company Limited, to have the Court, pursuant inter alia to its inherent jurisdiction, strike out the within proceedings as an abuse of process on the basis that the plaintiffs claim must fail.
By agreement in writing dated the 10th December, 1999, made between the defendant and the plaintiff, Jestdale Limited, the defendant agreed to grant and the plaintiff to take a lease of the premises formerly known as the Rotunda Picture House and now known as the Ambassador Cinema. At all material times, the defendant held a leasehold interest in the property. It was an express term of the agreement at issue that the defendant would demise the property to the plaintiff upon completion of certain works carried out in accordance with planning permission obtained by the defendant prior to the signing of the agreement. The agreement also made express provision for a recission of the agreement (without a right to compensation for work done) in the event that the works were not completed by a certain date. Alternatively, the defendant was given the discretion to extend the due date for completion of the works or to take such steps as it deemed appropriate to enforce its rights.
The works were not completed on time, and the defendant refused to extend the completion date. The plaintiff claimed that it could not fulfill its obligations by virtue of the acts or omissions of the defendant, in particular due to the allegedly defective planning permission obtained. It was contended that the defects in the planning permission rendered it wholly inoperable for the plaintiffs intended purpose. The plaintiff also contends that the listing of the property as a Grade 1 Listed Building, the possibility of which was not alluded to at the time it entered into the agreement with the defendant further inhibited its ability to carry out its obligations under the agreement, and in particular delayed the submission of any new or alternative Planning Application.
The plaintiff addressed the problems relating to the planning permission to the defendant at a meeting on or about the 18th July, 2000, at which it indicated that it was necessary to submit new planning permission in order to progress the project. The defendant refused to accept the contention that the project could not proceed under the original planning permission and also refused to extend the completion date of 24th November, 2000, as fixed by the agreement The plaintiff did not pay mesne rates due for the month of July. The defendant served Notice of Recission of the Agreement on 29th August, 2000, and purported
to rescind the agreement on 8th September, 2000. The plaintiff has contested the validity of the purported recission and issued and served the Plenary Summons in these proceedings on 27th October, 2000.
In its Statement of Claim, the plaintiff alludes, inter alia, to the following implied terms of the Agreement:
“c) the defendant would if necessary, extend the completion date under the agreement in circumstances where the plaintiff could not fulfill its obligations by virtue of the acts or omissions of the defendant
d) the defendant would not unreasonably withhold its consent to extend the completion date under the agreement in circumstances where the plaintiff could not fulfill its obligations by virtue of the acts or omissions of the defendant”
The plaintiff seeks a declaration that the purported Recission Notice was invalid. It also seeks specific performance of the agreement with a declaration recognising its entitlement to relief from forfeiture under the equitable jurisdiction of the Court.
In its Defence, the defendant denies that it has breached any terms or representations as alleged in the Statement of Claim. The defendant draws particular attention to the clause in the agreement whereby the plaintiff admitted that it had inspected same and that it had entered into the agreement solely on the basis of that inspection and the terms thereof. The defendant asserts that the plaintiff is not entitled to rely upon any implied term in the aforesaid agreement nor upon any representation of the nature alleged (the existence of both of which the defendant in any event denies). Furthermore, the defendant denies that there were any defects in the planning permission as alleged, and also denies that same was rendered inoperable for the plaintiffs intended purpose. Even if defects in the planning permission were found to exist, the defendant denies that either it or the listing of the building delayed the submission of any alternative planning application.
The defendant denies that the plaintiff had incurred expense in connection with the aforesaid property or that it had been entitled to withhold any payment of mesne rates until any problems pertaining to the property had been addressed. The defendant asserts that the Notice of Recission served on the plaintiff had been valid and entitled it to terminate the agreement between the parties. While denying that any alleged loss or damage on the part of the plaintiff (if such is found to have been suffered by it) had been caused by any act or omission of the defendants, the defendant reserves the right to furnish further particulars of contributory negligence as same come to hand. The defendant claims that the plaintiff is estopped by agreement and/or by its representation on March 15th, 2000, that the works provided for in the said agreement were in progress and would be completed on the due date, from claiming the relief sought herein.
The defendant, in applying to have the present proceedings struck out as an abuse of process on the basis that the plaintiffs claim must fail, has drawn the Court’s attention to the following passage in the judgment of Hardiman J. in Supermacs v. Katesan (Naas) Limited [2001] 1 ELRM 401,405:
“The judge acceding to an application to dismiss must be confident that no matter what may arise on discovery or at the trial of the action the course of the action will be resolved in a manner fatal to the plaintiffs contention”.
It is submitted by the defendant in the instant proceedings that a construction of the agreement governing the relations between the parties admits only of the conclusion that the plaintiff cannot sustain the cause of action it has sought to maintain herein.
It is submitted by the defendant that, in failing to fulfill its obligations under the agreement, the plaintiff had lost its entitlement to the lease. The power of recission had been expressly granted in the agreement, and the failure of the plaintiff to fulfill its commitments entitled the defendant to validly rescind the agreement. On the question of whether an implied term or terms existed so as to disentitle the defendant from rescinding in the circumstances of the instant case, the Court’s attention was drawn to a passage from the Supreme Court judgment of Murphy J in Sweeney v. Duggan [1997] 21.R. 531,539-540: “Whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable character of contract, it must be not merely reasonable but also necessary. Clearly it cannot be implied if it is inconsistent with the express wording of the contract and furthermore it may be difficult to infer a term where it cannot be formulated with reasonable precision.”
It is submitted by the defendant that the implied terms alleged in the instant case fail this test on both counts.
It is submitted by the defendant that there is no conflict of fact in the instant situation which discloses a legal basis for dispute between the parties. There is no version of the facts as presented by the plaintiff, it is submitted, which would entitle it to the relief which it claims. The defendant draws attention to the ruling of McCarthy J. in Sun Fat Chan v. Osseous Limited [1992] 11.R. 425
“His claim to be given time … was based on an argument of an implied term of the contract. As I understand the law, to imply a term in a written contract, in its simple form, it requires the conclusion that if the parties had thought of it, they would have expressed such a term./ ….In my view, such a proposition is unacceptable.”
The defendant alludes in paragraph 12 of its legal submissions to what it terms the “undisputed facts of this case”. It lists them as follows:
“(a) The parties entered into, and agreed to be bound by the agreement of December 12,1999;
(b) The plaintiff knew that under the agreement it was compelled to completethe works by 24th November, 2000;
(c) By the time the plaintiff met the defendant’s representative on March 15, 2000, he had neither commenced the works nor – it would seem – even become aware of the deficiencies of which he now complains in the planning permissions;
(d) There was no communication of any of these alleged difficulties until a meeting held on July 18, by which time the plaintiff again had not yet
commenced any of the works;
(e) The plaintiff did not pay mesne rates due in the month of July.”
In its submissions, the plaintiff draws the Court’s attention to the ruling of Costello J. in Barry v. Buckley [1981] I.R. 306, 308 in which he examined the inherent jurisdiction of the Court to strike out a claim as being frivolous and vexatious:
“This jurisdiction should be exercised sparingly and only in clear cases whose outcome depends on the interpretation of a contract or agreed correspondence. If, having considered the documents, the Court is satisfied that the plaintiffs claim must fail, then it would be a proper exercise of its discretion to strike out proceedings whose continued existence cannot be justified and is manifestly causing irrevocable damage to a defendant.”
The plaintiff also drew the Court’s attention to the judgment of McCarthy J. in the previously cited case of Sun Fat Chan v. Osseous Limited, where the judge stated at p. 428:
“Generally, the High Court should be slow to entertain an application of this kind and grant the relief sought.
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; often times it may appear that the facts are clear and established but the trial itself will disclose a different picture. With that qualification, however, I recognise the enforcement of a jurisdiction of this kind as a healthy development in our jurisprudence and not one to be disowned for its novelty though there may be a certain sense of disquiet at its rigour. The procedure is peculiarly appropriate to actions for the enforcement of contracts, since it is likely that the subject-matter of the contract would, but for the existence of the action, be the focus of another contract.”
It is submitted on behalf of the plaintiff that the appropriate approach for the Court to adopt when assessing whether to strike out its claim is for the Court to assume that every fact pleaded by the plaintiff in the Statement of Claim is correct and can be proved at trial and that every fact asserted by the plaintiff on affidavit is also correct and can be proved at trial. Such an approach was conceded as being appropriate by counsel for the defendant in Ennis v. Butterly [1997] 1 ILRM 28, 31-33. This approach was considered by McCracken J. in Ruby Property Company Limited v. Kilty (Unreported, High Court, !st December, 1999):
“If there is a dispute on the facts on affidavit, which is not resolved by admitted document, then it will be virtually impossible for a defendant to have proceedings struck out as being unsustainable. The remedy sought by the defendant is a remedy which has the effect of shutting out a citizen’s right of access to the courts, which is a right which is very closely guarded and protected by the courts themselves, and by the Constitution. Therefore, if the defendants are to succeed in this motion, they must show that on facts which either are in dispute, or are disputed on grounds which can only be considered as frivolous or vexatious, the Court should allow the action to succeed.”
The Court’s attention was also drawn to the following observations of Barron J. in Jodifern Ltd. v. Fitzgerald (Unreported, Supreme Court, 21st December, 1999): (at pp.4-5).
“If the plaintiff’s 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 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 Where the plaintiffs claim is based upon a document as in the present case then clearly that 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 he other hand, if it does, it is hard to see how a defendant can dispute this prima facie construction of the document without calling evidence and having a trial of that question. /….
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 incontrovertible evidence as the defendant may adduce. If the claim could never have succeeded, then the proceedings should be struck out. /…. I am satisfied that the trial judge applied the correct test: whether the plaintiff could succeed rather than whether he would.”
It is submitted on behalf on the plaintiff that its inability to comply with its obligations under the agreement had been as a direct result of the defendant’s acts and/or omissions, in particular in its failure to obtain appropriate planning permission, preventing the plaintiff from effectively commencing the works. In urging the Court to deny the defendant’s application to have the current proceedings stricken out, the plaintiff submits that the disputes of fact can only be resolved at a full trial of the action and with the benefit of cross-examination.
Conclusions
The plaintiff in these proceedings provided no evidence that at any time from the date on which the parties entered into the agreement to the date on which the Notice of Recission was served, it retained the services of building expertise for the purpose of completing the works on or before the 24th November, 2000. The express terms of the contract with regard to recission and the relatively short time scale specified for completion of the works can have left the plaintiff in little doubt as to its obligations to act expeditiously in seeking to complete the works on time if it hoped to reap the benefits of the agreement from its perspective. The evidence before the Court clearly demonstrates that the plaintiff failed to honour its commitments under the agreement, and now seeks to frustrate the defendant’s attempts to extricate itself from the ensuing imbroglio. I accept that the Court ought not imply a provision into a contract which would have the consequence of contradicting the express terms of the contract agreed between the parties. I also find it difficult to infer the implied terms relied upon by the plaintiff on the grounds that they cannot be formulated with reasonable precision. I accept the “undisputed facts” as outlined by the defendant at paragraph 12 in its submissions.
Conscious of the principle that the inherent jurisdiction of the Court to strike out proceedings should be exercised sparingly, I have come to the conclusion that the defendant has reached the required threshold in these proceedings. I am satisfied that the plaintiffs claim must fail. The continued existence of these proceedings cannot be justified and is manifestly causing irrevocable damage to the defendant. I order accordingly that the plaintiffs claim be struck out.
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URL: http://www.bailii.org/ie/cases/IEHC/2001/233.html
Zurich Bank Plc [2011] IEHC 26 (28 January 2011)
URL: http://www.bailii.org/ie/cases/IEHC/2011/H26.html
Cite as: [2011] IEHC 26
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Judgment Title: Zurich Bank Plc
Neutral Citation: [2011] IEHC 26
High Court Record Number: 2010 3061 S
Date of Delivery: 01/28/2011
Court: High Court
Composition of Court:
Judgment by: Finlay Geoghegan J.
Status of Judgment: Approved
Neutral Citation Number: [2011] IEHC 26
THE HIGH COURT
COMMERCIAL
[2010 No. 3061 S]
BETWEEN
ZURICH BANK
PLAINTIFF
AND
RICHARD COFFEY, BRIAN O’HAGAN, DONAL HUNT, RORY O’CALLAGHAN AND VIV O’CALLAGHAN TRADING AS SEAFIELD HOLDINGS PARTNERSHIP
DEFENDANTS
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 28th day of January, 2011
1. The plaintiff seeks summary judgment against the defendants in the sum of €8,157,545.06, together with interest, pursuant to a loan facility letter dated 6th December, 2007, as amended by a loan facility letter dated 21st January, 2009. The defendants oppose the application for summary judgment and seek leave to defend and that the matter be remitted for plenary hearing.
2. The background facts to these proceeding are not in dispute. In June 2006, the defendants formed the Seafield Holdings Partnership to purchase and develop properties in Bantry, County Cork. They initially purchased premises known as Vickery’s Hotel in Bantry for the sum of €4.5 million, which was financed by a loan from AIB of €3.6 million. The defendants subsequently agreed to purchase two adjacent properties in Bantry known as Kiddycare and World Choice Travel for €2.9 million.
3. Following negotiations in 2007 between the plaintiff and certain of the defendants, the plaintiff issued a facility letter dated 6th December, 2007, offering a loan in the amount of €7,985,000. The defendants accepted the facility by each signing an acceptance attached to the facility letter on or before 17th December, 2007. The facility was expressed to be available for twelve months from drawdown, which was on 11th January, 2008. By a further facility letter of 21st January, 2009, accepted in writing by all the defendants on or before 24th February, 2009, there were two amendments made to the loan agreement. First, the term of the facility was extended and the final repayment date became 11th October, 2009. Secondly, there was an amendment in relation to the manner in which interest was to be paid, to which I will return.
4. Subsequent to 11th October, 2009, there were a series of meetings and communications between the plaintiff and certain of the defendants. The defendants appointed advisers to represent them in their dealings with the plaintiff. Ultimately, letters of demand dated 19th May, 2010 were sent to each of the defendants for the sum then allegedly owing to the plaintiff and, thereafter, these proceedings commenced.
5. The proceedings were admitted to the Commercial List by order of 12th July, 2010. Thereafter, the defendants were given an opportunity to file affidavits in response to the application for summary judgment. One affidavit of Mr. Richard Coffey, sworn on 13th September, 2010, was filed. He makes the affidavit on his own behalf and on behalf of all the other defendants. No replying affidavit was filed on behalf of the plaintiff.
6. The evidence on the application for summary judgment is that contained in the grounding affidavit of Mr. Kieran Gilmartin, filed on 30th June, 2010, grounding the application, and that of Mr. Coffey. In addition, submissions were made by counsel for the plaintiff and counsel for the defendants.
Test for summary judgment
7. It is common case that the test to be applied by the Court on this application is that set out by the Supreme Court in Aer Rianta cpt. v Ryanair Limited [2001] 4 IR 607. The judgments of McGuinness J. and Hardiman J. in that decision approve and explain further the test established by the Supreme Court in First National Commercial Bank plc. v. Anglin [1996] 1 IR 75. McGuinness J., in her judgment at p. 614, cites from the judgment of Murphy J. in First National Commercial Bank plc. v. Anglin, where he states, inter alia, at p. 79:
“. . . In my view the test to be applied is that laid down in Banque de Paris v. de Naray [1984] 1 Lloyd’s Law Rep. 21, which was referred to in the judgment of the President of the High Court and reaffirmed in National Westminster Bank Plc v. Daniel [1993] 1 W.L.R. 1453. The principle laid down in the Banque de Paris case is summarised in the headnote thereto in the following terms:—
‘The mere assertion in an affidavit of a given situation which was to be the basis of a defence did not of itself provide leave to defend; the Court had to look at the whole situation to see whether the defendant had satisfied the Court that there was a fair or reasonable probability of the defendants having a real or bona fide defence.’
. . .”
8. Hardiman J. at p. 623, having considered the judgment in National Commercial Bank Limited v. Anglin and the authorities referred to therein, stated:
“In my view, the fundamental questions to be posed on an application such as this remain: is it ‘very clear’ that the defendant has no case? Is there either no issue to be tried or only issues which are simple and easily determined? Do the defendant’s affidavits fail to disclose even an arguable defence?”
9. I was referred by counsel for the defendants to the more recent application of those principles by the Supreme Court in Danske Bank A/S trading as National Irish Bank v. Durkan New Homes [2010] IESC 22. Denham J., in the only judgment delivered, cites the above extract from the judgment of Hardiman J. in Aer Rianta cpt. She also refers with approval to the following from the judgment of Clarke J. in McGrath v. O’Driscoll [2007] 1 ILRM 203, at p. 210:
“So far as questions of law or construction are concerned the court can, on a motion for summary judgment, resolve such questions (including, where appropriate, questions of the construction of documents), but should only do so where the issues which arise are relatively straightforward and where there is no real risk of an injustice being done by determining those questions within the somewhat limited framework of a motion for summary judgment.”
In that appeal, the defence raised related to a question of law. Denham J. identified that the issue on the appeal was “whether the appellants have satisfied the court that they have an arguable defence”.
10. I propose applying the test above, set out in Aer Rianta cpt v. Ryanair Limited, to this application, bearing in mind the restriction on the resolution of questions of law as stated by Clarke J. in McGrath v. O’Driscoll and approved by the Supreme Court.
Defences
11. The defendants do not dispute that they entered into a written loan agreement on the terms of the facility letter dated 6th December, 2007, and that they agreed to the written variation of the loan facility by acceptance of the facility letter dated 21st January, 2009. Nor do they dispute that the amounts referred to were drawn down or that the amounts now claimed for interest remain unpaid by them.
12. The primary defence sought to be made is that the true nature of the loan agreement between the plaintiff and the defendants is not as set out in writing in the accepted facility letter of 6th December, 2007, as varied by the accepted letter of 21st January, 2009. The defendants seek to contend that the true nature of the agreement between the plaintiff and them was that the facility was a “non-recourse facility” in the sense that the defendants have no personal liability to the plaintiff for the repayment of the sums advanced to them or for the payment of interest thereon. Rather, the plaintiff is only entitled to look to the properties over which it held security for repayment of principal and interest.
13. The factual basis for this contention, as outlined in Mr. Coffey’s affidavit is, in summary, as follows. The purpose of the loan as set out in paragraph 6 of the facility letter of 6th December, 2007, is:
“The Facility shall be available and utilised by the Borrower as follows:
(a) €1,250,000 to purchase the property known as Kiddycare, New Street, Bantry, Co. Cork.
(b) €1,425,000 to purchase the property known as World Choice Travel, New Street, Bantry, Co. Cork.
(c) €4,155,000 to refinance current borrowings with AIB on Vickerys Hotel, New Street Bantry, Co. Cork.
(d) €241,000 Stamp Duty
(e) €840,000 to fund professional fees.
(f) €74,000 Loan Fee.”
14. Mr. Coffey avers that, in truth, the sum of €840,000 was not intended for professional fees. €550,000 of that sum was intended to meet a requirement set as one of the condition precedents to the loan in the facility letter, namely that €550,000 be placed on deposit by the plaintiff to be used towards the discharge of the interest payments due under the facility. Mr. Coffey, at paragraph 22 of his affidavit, states that he was told by Mr. Treston, the assistant lending manager with whom he was dealing, that the figure of €840,000 was going to be set out in the sanction letter in respect of professional fees of which €550,000 was to be placed on deposit to fund the interest on the loan for the first year of the facility. He further states that this sum of €550,000 was forwarded to the plaintiff’s own solicitor and then one month later, replaced on deposit out of which the interest payments were made. At the end of the first year, there was a shortfall in interest repayments of €37,019.09, and following a request from Mr. Treston, it appears that the defendants paid this interest shortfall.
15. Mr. Coffey has obtained internal documentation, pursuant to the Data Protection Act, from the plaintiff. It includes the Memoranda to the plaintiff’s credit committee, including two “Executive Summary” documents, which are different in material respects. At paragraphs 24 and 25 of his affidavit, Mr. Coffey states what, in fact, he believes occurred, and the probable understanding of the plaintiff’s credit committee.
“24. What did in fact occur is that, in the knowledge that the Defendants were not prepared to invest or fund the project and in the knowledge that the Defendants would only take the loan from the Plaintiff if it was 100% funded by the Plaintiff, Mr. Treston represented to the Credit Committee that the professional fees were €840,000 when in fact they were not and the figure of €550,000 included in the sum of €840,000 was to be set aside to service the interest payments on the loan in the first year.
25. Therefore, the Plaintiff was financing the interest payments to itself and it seems the Credit Committee of the Plaintiff were unaware of this, having been misinformed as to the true quantum of professional fees. I say and believe that from a review of documents I have now seen pursuant to the Data Protection Act disclosure made by the Plaintiff, the Plaintiff’s Credit Committee understood that the Defendants were servicing the payments of interest from their personal resources.”
16. For the purposes of this application for summary judgment, the defendants are entitled to have the Court assume that they will establish such facts at a full hearing. From those primary facts, Mr. Coffey, in his affidavit, draws certain inferences and conclusions and seeks to make out a defence at paragraphs 50 to 53 inclusive:
“50. In conclusion I say and believe that the Plaintiff’s Credit Committee approved the loan facilities in this matter in the mistaken belief that the Defendants were investing a further €550,000 in the project in the sense of their willingness to service the interest for the year after the draw-down of the loan.
51. I can only infer that Mr. Treston and Ms. Plunkett were unwilling to put the proposed interest roll-up before the Credit Committee as they would have known, from their internal experience, that such an application would not have been approved.
52. I say and believe that if the true facts of the situation had been made known to the Credit Committee by the Plaintiffs own lending executive the Credit Committee would not have approved the facility at all.
53. In those circumstances, where the Plaintiff, through its servants or agents, was fixed with the knowledge that the Defendants did not have the ability to service even the interest on the loan for its first year, I say and am advised that the Defendants have an arguable case that the Court ought to construe the conduct of the parties in relation to the matter generally as constituting an implied variation of the terms of the loan facility whereby as it was accepted by the Plaintiff, through the conduct of its servants or agents Mr. Treston and Ms. Plunkett in putting the disguised interest roll-up in place, that there was simply no reality to any personal recourse to the Defendants, and that the true commercial nature of the agreement between the parties was intended to be, and was a loan without recourse beyond the security provided.”
17. On the primary facts, which the Court accepts for the purpose of this application, it appears to me arguable that a Court would draw the inferences and reach the conclusions to which Mr. Coffey avers in paragraphs 50 to 53 inclusive of his affidavit.
18. However, even on an assumption that such inferences would be drawn and conclusions reached, it does not appear to me that such facts support an “arguable defence” in the sense used by Hardiman J. in Aer Rianta cpt. v. Ryanair Limited, that the true nature of the loan agreement between the plaintiff and the defendants was one in which the plaintiff has no recourse to the defendants personally and only recourse to the security provided for the repayment of principal and payment of interest.
19. It is beyond argument that the express written terms of the facility letter of 6th December, 2007, as varied by that of 21st January, 2009, both accepted in writing by the defendants after legal advice, make the defendants personally liable for the repayment of the principal, and pursuant to the variation in the letter of 21st January, 2009, liable for the payment of interest. The defendants are listed individually in paragraph one and referred to as the “Borrower”. Paragraph 4.1, as originally drafted and varied, provides:
“On the Final Repayment Date, the Borrower shall repay the Loan (together with any unpaid accrued interest on the Loan) and any other unpaid costs and expenses payable under this Facility Letter).”
20. Further, condition 10 of the plaintiff’s standard conditions, which it is not disputed were incorporated in the facility letter, provides:
“As the Borrower comprises more than one person, the liability of each such person under this Facility Letter and each Security Document to which the Borrower is a party, shall be joint and several. This means that each Borrower is fully responsible for all terms of this Facility Letter and the Security Documents.”
21. It is important, in considering the alleged arguable defence as to the true, non-recourse nature of the loan agreement, to note that Mr. Coffey does not contend that any express oral agreement was reached between the defendants and Ms. Plunkett and Mr. Treston on behalf of the plaintiff, that the loan would be “non-recourse” in the sense that the defendants would have no personal liability for repayment of the principal or payment of interest to the plaintiff. At paragraph 9 of his affidavit, he states:
“At that meeting both Brian O’Hagan and I made it perfectly clear that if the proposed financing with the Plaintiff was to proceed it would have to be on the basis of 100% financing by the Plaintiff with no funds being invested by the Defendants and no additional security over and above the properties being acquired, including Vickery’s Hotel which had already been acquired with the support of AIB facilities. I explained to Ms. Plunkett and Mr. Treston that AIB had refused to support the application on these grounds and that AIB required additional finance or security from the Defendants which was not available and it was for these reasons that the Defendants were looking for alternative funding. The Defendants also wanted the release of the other properties secured to AIB and Ms. Plunkett agreed that the Plaintiff would not require those other properties as security.”
Mr. Coffey does refer to an email which he sent to his co-defendants which refers to “non-recourse”, but, very properly, Mr. Coffey does not seek to rely on this as evidence of an agreement reached with the plaintiff. It appears to me that there may have been some confusion on Mr. Coffey’s part between the security which had to be provided and the use of the term “non-recourse” as meaning the defendants had no personal liability to the plaintiff.
22. The defendants contend that they have an arguable defence by reason of the misstatements relating to the amount for professional fees which was, in reality, provision for the rolling up of interest in the sum of €550,000, to imply a term that the plaintiff has no recourse to the defendants other than in relation to the security provided. Counsel for the plaintiff submits that there is no arguable basis for implying such a term into the loan agreement between the plaintiff and the defendants in accordance with the well established principles applied by Kelly J. in Ringsend Property Limited v. Donatex and McNamara [2009] IEHC 568. Commencing at p. 21, Kelly J. set out with approval and applied the two tests set out by Steyn J. (as he then was) in Associated Japanese Bank (International) Limited v. Credit du Nord S.A. [1988] 3 All E.R. 902:
“ . . . In that case, the judge considered the traditional and well-established test for implying a term into a commercial contract which is derived from the decision in the Moorcock [1889] 14 P.D. 64. He said this:
‘In the present contract, such a condition may only be held to be implied if one of two applicable tests is satisfied. The first is that such an implication is necessary to give business efficacy to the relevant contract i.e. the guarantee. In other words, the criterion is whether the implication is necessary to render the contract (the guarantee) workable. That is usually described as the Moorcock test. It may well be that this stringent test is not satisfied because the guarantee is workable in the sense that all that is required is that the guarantors who assumed accessory obligations must pay what is due under the lease’.
. . .
Steyn J. went on:
‘But there is another type of implication, which seems more appropriate in the present context. It is possible to imply a term if the court is satisfied that reasonable men, faced with a suggested term which was ex-hypothesi not expressed in the contract, would, without hesitation say: yes, of course that is ‘so obvious that it goes without saying’: see Shirlaw v. Southern Foundries [1939] 2 K.B. 206, 227 per Mackinnon L.J.
. . .
Although broader in scope than the Moorcock test, it is nevertheless a stringent test, and it will only be permissible to hold that an implication has been established on this basis in comparatively rare cases, notably where one side is dealing with a commercial instrument such as a guarantee for reward.
. . .”
23. Applying the Moorcock test to the present facts, I do not consider that there is any basis for the implication of a non-recourse term such as it intended. Similarly, applying the second test, which although broader in scope than the Moorcock test is, nonetheless, stringent, again, I can see no basis on the present facts for implying a non-recourse term based on that test. Accordingly, I have concluded that there is no arguable basis for the implication of a non-recourse term in the written loan facility between the plaintiff and the defendants.
Secondary defence
24. Counsel for the defendants submitted, in the alternative, that having regard to both the averments of Mr. Coffey as to representations made on behalf of the plaintiff to the effect that it was anxious to get involved in the Irish property market for “the long haul”, and positive discussions in relation to the construction phase of the development and the facts already referred to in relation to the misrepresentation of the purpose of part of the €840,000 expressed to be for the purpose of funding professional fees, that the defendants were entitled to have the full facts put before the Court on a plenary hearing prior to the Court construing the written loan agreement in its relevant factual matrix. It is not contended either that the representations as to the plaintiff’s intention in relation to the Irish property market were actionable misrepresentations, or that there was a binding agreement in relation to the provision of construction finance. I am not satisfied that the defendants have raised as an arguable defence any issue on the construction of the written loan facility (as amended), accepted in writing by each of them, which would provide a basis for this Court remitting the matter to plenary hearing for the purpose of ascertaining the factual matrix in which the written agreement should be construed. On the issue potentially in dispute i.e. whether or not it is an agreement which imposes personal liability on the defendants for repayment of principal and interest, the written agreement is clear in accordance with its express terms which do not require construction of this Court in any particular factual matrix.
25. Accordingly, I have concluded that the defendants do not have an arguable defence to the plaintiff’s claim. The plaintiff is entitled to judgment against the defendants jointly and severally in the sum of €8,157,545.06 as sought in the notice of motion.
Barry v. Medical Defence Union Ltd. [2004] IEHC 62 (31 March 2004)
URL: http://www.bailii.org/ie/cases/IEHC/2004/62.html
Cite as: [2004] IEHC 62
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THE HIGH COURT
2001 No 1991P
BETWEEN
JAMES M. BARRY
PLAINTIFF
AND
MEDICAL DEFENCE UNION LIMITED
DEFENDANT
JUDGMENT of Ms. Justice Carroll delivered the 31st day of March, 2004.
The Plaintiff who is a medical doctor issued a plenary summons in this matter on 9th February, 2001. In his statement of claim delivered 23rd February, 2001 the Plaintiff claims that he purchased professional indemnity insurance from the Defendant (referred to as the MDU) for over twenty seven years until his retirement in 1995, by way of annual sums, entitling him to an indemnity in respect of any order for damages or costs obtained by a patient or former patient in respect of negligence or breach of duty of the Plaintiff as a medical practitioner; also for costs incurred in defending any such claim or in defending any disciplinary proceedings brought against him under Part 5 of the Medical Practitioners Act, 1978. He claims that he was entitled to the exercise of good faith by the MDU in its dealings with him and that in making any determination in such dealings the MDU would act in accordance with the requirements of natural and constitutional justice.
In the alternative he claims there was a contract preliminary or collateral to his becoming a member of the MDU whereby the MDU bound itself to provide the same entitlements.
Alternatively the Plaintiff claims that the MDU made warranties and representations to the Plaintiff in the terms already stated in order to induce the Plaintiff to pay sums to the MDU.
The Plaintiff was sued by three former patients in the Circuit Court, which actions were defended by the Plaintiff’s solicitors, Messrs. Denis O’Sullivan & Co. He was also sued by thirty six other Plaintiffs, former patients, in the Circuit Court, in the years between 1995 and 1999. The Plaintiff also took judicial review proceedings in two of those cases (E309/96 and E388/95). In addition, three High Court actions were initiated against him by former patients in 1995 and 1996.
Notice of Inquiries under Part 5 of the Medical Practitioners Act, 1976 dated 17th November, 1995 and 21st February, 1996 were served and judicial review proceedings in respect of those inquiries were brought (ultimately unsuccessfully).
A claim for personal injuries was not pursued.
By way of relief the Plaintiff claims inter alia a series of declarations that he is entitled to be indemnified for any damages or costs obtained against him in any of the actions mentioned, including the judicial review proceedings, and also for the costs incurred in defending any of the civil actions or prosecuting the related judicial review actions. He also claims the costs of defending the disciplinary proceedings and prosecuting the related judicial review proceedings.
The MDU in its defence delivered 21st June, 2001 denies the Plaintiff purchased professional indemnity insurance or that the Plaintiff is entitled to any indemnity as claimed. It also denies any preliminary or collateral contract. The defence says that the Plaintiff was a member of the MDU and his entitlements were subject to the terms and conditions set out from time to time in the Memorandum and Articles of Association. It claimed the MDU could give to a member advice or legal assistance or defend any matter affecting the professional character or interests or conduct in a professional capacity or raising a question of professional principle. The person making a request was bound to abide absolutely by every decision of the Board of Management of the MDU (or other authorised person or committee) on the conduct or defence of the matter and should not without prior consent take any steps with reference to such matter.
The MDU claims that under Article 48 (which is set out in its material parts, in the Defence) an indemnity may be granted in whole or in part with regard to actions affecting the professional character or interests or conduct in a professional capacity of a member raising a question of professional principle but only on such terms and conditions as the Board of Management should think proper, the Board of Management (or other authorised person or committee) to have an absolute discretion to limit or restrict the grant of such indemnity or altogether to decline to grant the same or to determine any indemnity granted without giving any reason.
The MDU claims that while the Plaintiff requested indemnity in respect of the civil actions, it has not to date agreed to provide the indemnity. It claims the Plaintiff has to date failed to co-operate by providing information and instructions in relation to the proceedings and the circumstances giving rise to them, in spite of repeated requests. The MDU denies that it acted otherwise than in good faith and also denies that the rules of natural and constitutional justice have any application to the dealings between the parties, their relationship being governed by the terms of the Memorandum and Articles of Association.
The MDU admits the Plaintiff through his agent (i.e. his solicitors) sought an indemnity in respect of the disciplinary proceedings under the Medical Practitioners Act, 1978 and said it agreed by letter dated 29th April, 1997 that it was prepared to offer advice and legal assistance subject to conditions that the legal assistance would be provided by solicitors and counsel appointed by the MDU, that the Plaintiff would provide full co-operation by means of a full disclosure of the facts and that his instructions would be given directly to those appointed. The MDU said it could not grant assistance in relation to costs and expenses incurred to date. That offer was not accepted by the Plaintiff.
The MDU also said that while a request was made for indemnity in respect of the costs incurred as a result of the judicial review proceedings in relation to the disciplinary proceedings, the MDU declined to grant indemnity, as it was entitled to do.
It denied it acted wrongfully or in breach of contract or otherwise than in good faith in its dealings with the Plaintiff and claims that all requests by the Plaintiff for advice, assistance or indemnity were properly and fairly considered by the MDU on the basis of the information and material furnished by or on behalf of the Plaintiff.
It claims it reconsidered the matter on 24th July, 2001 and told the Plaintiff it would assist his request for assistance if specified information was provided by him.
In his reply the Plaintiff joins issue with the MDU, claiming the MDU is estopped from denying their liability and by amendment he claims the decisions of 31st May, 2000 and 18th July, 2001 were made in bad faith and in violation of natural and constitutional justice and used as a device in litigation and were unfair in that the MDU refused an offer of the Plaintiff to personally attend its office for interview when the MDU attributed pre-eminent importance to such interview in deciding whether to allow an indemnity. In relation to the decision of 31st May, 2000 the Plaintiff claims it was unfair as it was kept secret from the Plaintiff. In relation to the decision of 18th July, 2001 the Plaintiff claims it must be regarded as tainted by the MDU’s own concerns and that the persons making the decision were affected by bias.
There are certain matters that can be disposed of at the start.
The Plaintiff did not give any evidence at all and as far as the court is aware did not attend the trial.
Evidence by Mr. Thomas Russell, a Consultant Neurosurgeon in Edinburgh, was offered. He said that he heard of the MDU when he was at university in 1975 and he was going to say what was said to him. I ruled that what was said to him about the MDU was irrelevant.
The other witness on behalf of the Plaintiff was Mr. Brendan Phelan, a civil servant in the Department of Health. He said he was responsible for medical insurance since 1990.
A group scheme was put out to tender in 1992 and the MDU did not tender. The MDU tendered in 1995. He was familiar with the Memorandum and Articles of association of the MDU and the absolute discretion provided for. He raised the issue of the discretionary nature of the indemnity. Three insurance companies and the MDU tendered and the MDU was the preferred supplier. There was a medical indemnity agreement concluded on 12th June, 1996 subject to the MDU’s Memorandum and Articles of Association. He agreed the MDU was not an insurance company and was not covered by insurance legislation.
Apart from that evidence which did not advance the Plaintiff’s claim one whit, the evidence on behalf of the Plaintiff consisted of agreed correspondence and the Memorandum and Articles of Association.
Since there was no evidence given by the Plaintiff, the question of a contract preliminary or collateral to the Plaintiff becoming a member of the MDU or of implied terms simply does not arise. This is quite apart from the question of whether there could be implied terms which would contradict the provisions of the Memorandum and Articles of Association. Therefore, the only contract which falls to be interpreted is the Memorandum and Articles of Association of the MDU. It was admitted that the Plaintiff was a member of the MDU.
Another question which can be dealt with at this stage is whether the rules of natural and constitutional justice are applicable in this case. The Plaintiff relies on Glover v BLN [1972] I.R. 388 and Garvey v Ireland [1981] I.R. 75. These are representative of a type of case relating to employment law and dismissal. The MDU relies on Carna Foods Limited v Eagle Star Insurance Company Ireland Limited [1995] 1 I.R. 526 (affirmed on appeal to the Supreme Court [1997] 2 I.R. 193). In the High Court, McCracken J. held (at p. 531) that he did not consider that any principle of natural justice or constitutional justice applied to a decision of an insurance company to give reasons for its decision to cancel a policy of insurance. He said that to decide otherwise would be a serious interference in the contractual position of parties in a commercial contract and with very wide-ranging consequences.
In my opinion there is no justification for extending what is essentially public law to the area of private contract. The principles of natural law do not lie easily in private contract law. For example concerning the principle “nemo iudex in causa sua”, it may well be that someone who has to make a decision at a lower level may also be involved at a higher level, for example, a bank manager who refuses a loan or an insurance official who refuses to pay out on a policy, may also take part in a discussion and decision at a higher level. Likewise the submission on behalf of the Plaintiff concerning the principle audi alteram partem, that the Plaintiff had to have a person represent him at the various levels which dealt with his case, is unsustainable. The MDU was entitled to reach a decision on the information furnished by the plaintiff.
Constitutional justice, as represented by fair procedures, concerns public matters. As McCracken J. points out in Carna Foods, where a decision is taken to exercise a function in the public realm, the person affected is entitled to know the reasons for the decision. This is because statutory powers must be determined and exercised reasonably. The same principle does not apply to private contract matters.
What is not disputed by the MDU is that it must deal fairly in considering the Plaintiff’s application. This however is on the basis that it may not act unreasonably in carrying out its obligations under its contract with the Plaintiff rather than that it was constrained by the Constitution to apply fair procedures.
Another plea which does not arise relates to estoppel. Since there was no evidence given by the Plaintiff, there is no evidence of any representation relied on by the Plaintiff to his detriment.
The issues which are left are, what are the parameters of the Plaintiff’s entitlements under the Memorandum and Articles of Association and, as conceded by the MDU, whether the Plaintiff was treated fairly by the MDU in its dealings with him or whether there was absence of good faith on its part.
The MDU is a company limited by guarantee incorporated in the UK. It has a large number of medical practitioners in this State who are members. Each member pays an annual subscription, the amount depending on which category of subscriber they belong to.
Article 47 and Article 48 of the current Articles of Association, which are materially identical to earlier editions of the Articles provide as follows.
Article 47
“The Board of Management or any member of the Board of Management or employee or agent or committee of the MDU authorised by the Board of Management for the purpose may subject to the limits of any such authority give advice or legal assistance or defend or take part in advising, assisting or defending in respect of any matter cause or proceeding, concerning or affecting whether directly or indirectly the professional character or interests or conduct in a professional capacity of any member, any applicant for election to membership, any former member, or any deceased member (who was at the date of his death a member or who was not at the date of his death a member but had formally being a member and had ceased to be such) or in respect of any matter cause or proceeding which raises directly or indirectly a question of professional principle;
provided that –
(1) The Board of Management or such member of the Board of Management or employee or agent or committee shall be satisfied that in a case involving a member, applicant for election to membership, former member or deceased member the matter originated or the cause or proceedings arose during the period when the person concerned was a member of the MDU or an applicant for election to membership.
(2) If the Board of Management or such member of the Board of Management or employee or agent or committee decides to act in accordance with this Article the person making a request that it do so shall abide absolutely by every decision of the Board of Management or any such member of the Board of Management or employee or agent or committee on the conduct or defence of the matter and shall not himself without prior consent of the Board of Management or any such member of the Board of Management or employee or agent or committee take any steps with reference to such matter or the determination thereof.
For the purpose of proviso (1), in the case of an application by a former member for reinstatement on any register or for restoration of a licence or entitlement to practice the profession previously carried on by him or the lifting of a suspension the matter shall be deemed to have originated immediately before the date upon which his name was erased from such register or his licence or entitlement so to practice was withdrawn or cancelled or upon which his registration in such register, licence or entitlement was suspended as the case may be.
Article 48
(1) The Board of Management or any member of the Board of Management or employee or agent or committee of the MDU authorised by the Board of Management for the purpose may subject to the limits of any such authority and subparagraph (3) of this Article and subject also to the like conditions as are specified in the provisos of the proceeding Article, grant from the funds of the MDU to any member or any applicant for election to membership or former member or the personal representatives of any deceased member, an indemnity wholly or in part with regard to any action proceeding claims or demands by or against them in respect of any matter concerning or affecting whether directly or indirectly the professional character or interests or conduct in a professional capacity of any such member, applicant for election to membership or former member or deceased member as the case may be or which raises directly or indirectly a question of professional principle and such indemnity may extend to all incidental or consequential losses, damages, costs, charges and expenses but excluding fines and penalties.
(2) The Board of Management or any authorised committee or agent may determine any such indemnity at any time by notice in writing to the member or applicant for election to membership or former member (or if the member, applicant or former member dies subsequent to the granting of the indemnity, his personal representatives) or the personal representatives of the deceased member concerned as the case may be.
(3) Any such indemnity may be granted or determined by resolution of the Board of Management or any authorised committee or decision of any authorised agent and the grant of indemnity in every case shall be made only upon such terms and conditions as the Board of Management committee or agent shall think proper and it shall rest only in the absolute discretion of the Board of Management, committee or agent in every case to limit or restrict the grant of such indemnity or altogether to decline to grant the same or to determine any indemnity so granted without assigning any reason.
By virtue of Section 14 of the UK Companies Act 1985 (equivalent to Section 25 of the Companies Act 1963) the Memorandum and Articles of Association bind each member as if they respectively had been signed and sealed by each member and contained covenants on the part of each member to observe all the provisions of the Memorandum and Articles.
The question of whether the MDU was an insurer was considered in the case of MDU v. Department of Trade [1980] CH 82. It was held by McGarry V.C. that the MDU was not an insurance company which carried on any class of insurance business for the purposes of the Insurance Companies Act 1974.
In Rafter v. Solicitors Mutual Defence Fund Limited ([1999] 2 I.L.R.M. 305) it was held by McCracken J.(approving MDU v. Department of Trade) that the Solicitors Mutual Defence Fund Limited (which was modelled on the MDU scheme) did not provide policies of insurance to its members. He said (at p. 313) “An obligation to pay on the happening of a specified event is essential to the existence of a contract of insurance”. He was also satisfied that no contract of indemnity existed. The indemnity was discretionary.
I am satisfied that the plaintiff’s rights were limited to those expressly set out in the Memorandum and Articles of Association. In MDU v. Department of Trade McGarry V.C. said at p. 693 … “the right of a member in relation to both proceedings and to indemnities is merely a right to have his request fairly considered by the council or one of its committees. Only if the request is granted is a member is entitled to have the proceedings conducted by the Union and to have an indemnity; subject to the provisions of the Articles and not least Article 44(3)” (equivalent to Article 48(3)) “for the purposes of this case I do not think it matters whether the right is a right to have the request heard and determined “fairly” or “in good faith”. It is common ground that it must not be dealt with by whim or caprice and it is not contended that such a right is valueless”.
Therefore the entitlement of the plaintiff as a member of the MDU under the Memorandum and Articles of Association was to have his request for assistance and indemnity fairly considered by the Board of Management or the person or committee duly authorised. The plaintiff on his part was obliged to abide absolutely by every decision on the conduct or defence of the matter and not to take any steps with reference to the matter without the prior consent of the Board (or other authorised person or committee). (See Article 47 (2))
The agreed correspondence which is proffered by the Plaintiff as evidence in his behalf, extended over a number of years and I have attempted to summarise it.
31st July 1995 The Plaintiff’s solicitor wrote to the MDU enclosing copies of two letters (dated 18th July 1995) from Messrs Cuddigan Joyce and Co. Solicitors on behalf of two ex-patients of the Plaintiff making a claim for damages. The Plaintiff’s solicitor said that they had taken no steps in the matter in accordance with the Plaintiff’s policy of insurance.
4th August 1995 The MDU (per Dr. Catherine E. James) wrote directly to the Plaintiff acknowledging receipt of these letters. She said she would ask Messrs McCann Fitzgerald (who were their nominated solicitors) to liaise with him and Messrs Cuddigan Joyce & Co in respect of the two ex patients. She said they needed considerably more information than was in Messrs Cuddigan Joyce & Co’s letter. She said a solicitor in Messrs McCann McFitzgerald would get in touch with him. She asked if he would provide her with a full copy set of notes relating to both patients as soon as possible. A copy of this letter was sent to the Plaintiff’s solicitors.
22nd August 1995 Messrs McCann Fitzgerald wrote directly to the plaintiff asking for a statement and copy of the relevant medical records relating to the treatment of the two ex patients.
22nd August 1995 Messrs McCann Fitzgerald wrote to the Plaintiff’s solicitor asking for any further documents in the matter.
30th August 1995 The Plaintiff’s solicitors wrote to Messrs. McCann Fitzgerald to say they had received the original medical file of the two patients and asked for confirmation that it was in order to furnish it to them.
4th September 1995 This confirmation was given
6th September 1995 Messrs McCann Fitzgerald wrote to the Plaintiff’s solicitor asking for the original file and to contact them to discuss the claims being made against the plaintiff.
6th September 1995 Messrs McCann Fitzgerald wrote directly to the Plaintiff to tell him plenary summonses had been served and they expected the statements of claim would shortly be served. They would send a copy for his comments and asked him to contact them if he wished.
11th September 1995 The Plaintiff’s solicitors sent the files of the two patients to Messrs McCann Fitzgerald.
18th September 1995 Messrs McCann Fitzgerald wrote to the Plaintiff to say they had difficulty deciphering his clinical notes and asking could he have them typed up.
9th October 1995 The Plaintiff’s solicitor wrote to say the Plaintiff had retired from practice and was a patient in St. Gabriel’s Hospital in Dublin. If they required further information from the Plaintiff they could contact him at the hospital. He was under the care of Dr. Peter Fahy, Psychiatrist.
13th October 1995 This letter was acknowledged by Messrs McCann Fitzgerald.
25th October 1995 The MDU (per Melissa Hackett, Claims Handler) wrote to the Plaintiff’s solicitor to say his letter of 9th October had been passed to the MDU and they did not wish to harm the plaintiff’s recovery. She asked if he could advise if it would be appropriate to contact the Plaintiff.
8th November 1995 The MDU (per Dr. D.N.L. Beresford) again wrote to the Plaintiff’s solicitor confirming that the Plaintiff was a member and had been since December 1963. He said, subject to being instructed by the Plaintiff, he would be entitled to the discretionary benefits of membership. Dr. Beresford said the MDU was not an insurance company but a non profit making mutual association and he promised to forward the Memorandum and Articles of Association. He mentioned the numerous allegations by patients reported in the press and said in order to offer assistance within the terms of membership, they required a personal approach from the plaintiff seeking assistance and providing the necessary instructions. He asked the Plaintiff’s solicitor if they would indicate whether or not a direct approach to the Plaintiff by the MDU to seek instructions would be appropriate. He said they were unable to approach Dr. Peter Fahy because of professional confidentiality. He finished by saying they did not intend to take any further action on behalf of the Plaintiff before hearing from him or his solicitor on his behalf.
13th November 1995 The Plaintiff’s solicitor replied that there was no question of the Plaintiff being in a position to give the detailed instructions which the MDU obviously required. He said they (i.e. his firm) were satisfied they had authority which pre-dated his recent collapse authorising them to defend any proceedings for malpractice. He assured the MDU that each and every claim was being fully defended and the MDU’s position would in no way be affected. The letter concluded by saying he presumed the MDU had caused their solicitors to deliver a full defence in the actions by the two patients.
23rd November 1995 The Plaintiff’s solicitor asked for a reply to his letter of 13th November. He said proceedings had been served in relation to claims by former patients of the Plaintiff and were being defended. If further details were required he asked the MDU to advise.
31st January 1996 The Plaintiff’s solicitor sent a reminder to the MDU about the letter of 23rd November 1995. This was copied to Messrs McCann Fitzgerald with a covering letter of the same date.
7th February 1996 Messrs McCann Fitzgerald acknowledged the letter of 31st January. They said before they could take any further steps on behalf of the Plaintiff they must have authority from him personally and must meet him to take proper instructions.
14th February 1996 Dr. Beresford on behalf of the MDU replied to the Plaintiff’s solicitor, apologising for the delay. He said before they could consider the grant of discretionary assistance they required a personal approach from the Plaintiff seeking assistance and providing necessary instructions. He said the Plaintiff’s solicitor had not answered his request in the letter of 8th November. He said without the Plaintiff’s personal instructions or at least some explanation from his solicitor why he was not in a position to give instructions, the MDU could not offer discretionary assistance. If he was incapable of providing instructions, they required an explanation of the Plaintiff’s solicitor’s authority to provide those instructions on his behalf to defend any proceedings for malpractice brought against the Plaintiff. He asked for details of the dates of the alleged incidents and the context of the claims already known to them. In addition he required details of other proceedings which the Plaintiff’s solicitor had indicated in his letters of the 13th and 23rd November had been served and in respect of which they had gone on record.
He said that without substantive replies to the points raised, the MDU would not be responsible for any costs incurred by the Plaintiff’s solicitor on his behalf. He also said that in the absence of specific and satisfactory replies, their solicitors would take steps to come off record on the grounds that the Plaintiff was not in a position to provide instructions. He referred to newspaper accounts of defamation proceedings issued against a newspaper on behalf of the Plaintiff when it appeared the Plaintiff was not available to give instructions. He looked for clarification.
15th March 1996 Dr. Beresford (for the MDU), reminded the Plaintiff’s solicitor that no reply had been received to his letter of the 14th February. He referred to a newspaper report that the Plaintiff had returned to the jurisdiction and would be likely to be in a position to provide instructions. He reiterated that while they were willing to offer assistance subject to the absolute discretion of the Board, they did require the Plaintiff’s personal written instructions and an undertaking to accept the MDU’s advice and that of his lawyers and to offer all necessary co-operation by the provision of full information.
21st March 1996 The Plaintiff’s solicitor served notice of change of solicitor on Messrs McCann Fitzgerald.
9th July 1996 The Plaintiff’s solicitor wrote this letter which I consider to be very intemperate, accusing the MDU that at no stage were they willing to offer assistance and further accusing the MDU, concerning the reference in the letter of the 14th February about proceedings in defamation having being issued when it appears the Plaintiff was not available to give any instructions, as putting in issue the integrity of the writer and his firm with a scandalous allegation. The Plaintiff’s solicitors said the reports of numerous actions against their client were untrue. There were three actions in the High Court which he described as moribund and three actions in the Circuit Court which were being defended. He enclosed copy of these proceedings.
He then mentioned an inquiry to be conducted by the Medical Council. He said their firm and counsel retained by them were committed to defending all proceedings brought against the Plaintiff and thus far had been successful. He claimed that if the MDU had been involved hundreds of thousands of pounds would have been distributed on foot of false allegations.
He said they were instructed by the Plaintiff to apply for discretionary assistance in relation to costs and expenses in relation to defences in relation to each matter and which they would continue to sustain even if the MDU did not offer suitable support. He enclosed authority from the Plaintiff authorising the firm to make the communication.
The authority enclosed reads as follows:-
Authority.
“I Dr. J.M. Barry MB PhD confirm that the firm of Messrs Denis O’Sullivan & Co Solicitors at St. Patrick’s Buildings, 64 Patrick Street, in the City of Cork, have at all times acted with my complete authority in relation to all proceedings commenced or defended by me and I authorise and request my said solicitors to make an application for discretionary assistance in the terms of the letter dated 9th July 1996.
Dated this 9th day of July 1996.
Signed James Barry 12 Sydney Place Cork.”
14th January 1997 The Plaintiff’s solicitor wrote asking for a reply to the letter of 9th July.
29th January 1997 Dr. Beresford replied apologising for his serious omission in failing to reply. He took issue over the assertion of bad faith and reviewed the correspondence to date. He pointed out the Plaintiff’s solicitors were aware of the condition which applied to MDU discretionary assistance when they said they had taken no action in accordance with the Plaintiff’s “policy of insurance”. He said the letter of 13th November 1995 was received with surprise and concern. Their letter of 14th February 1996 set out the MDU’s position clearly and sought urgent clarification. He said it was reasonable to interpret service of notice of change of solicitor on Messrs McCann Fitzgerald that the Plaintiff no longer desired the assistance of the MDU.
With regard to the new matter, the inquiry by the Medical Council, he said they did not get copies of the correspondence with the Medical Council. He said the MDU was willing to consider discretionary assistance within the benefits of membership. He asked for full documentation to date, full details of the allegations, supporting statements and details of any High Court applications. He stressed they would require full instructions from the Plaintiff in respect of the allegations. He would then bring it before the Board of Management to seek confirmation of discretionary assistance. He said he would at the same time place before the committee the renewed request for assistance in civil proceedings but stressed it was likely to be a requirement that the Plaintiff instructed the MDU’s specialist solicitor and lawyers and that it was not the usual practice to assist with legal fees incurred without authority.
3rd February 1997 The Plaintiff’s solicitor replied stating that the MDU was willing to abandon the Plaintiff. He said he rejected the suggestion in the letter that his firm and its lawyers were not qualified. He rejected the innuendo about the competence and abilities of the senior counsel retained. He said there were no criminal proceedings pending against the Plaintiff and that the High Court proceedings had not been further prosecuted. He said three actions in the Circuit Court were set down for hearing, another commenced and more threatened. He also said they were taking judicial review in relation to the anonymity granted in these actions. He enclosed a full set of papers relating to proceedings before the Medical Council, the High Court, the Supreme Court and the President of the High Court. He asked the MDU to specify how his firm’s conduct and that of counsel were “substandard” having regard to its “specialist” requirements.
14th February 1997 In the absence of Dr. Beresford the receipt of this letter was acknowledged.
10th March 1997 The Plaintiff’s solicitors again wrote giving details of the outcome of two applications for certiorari, one refused, one granted.
14th March 1997 Dr. Beresford replied to the letter of 3rd February, thanked the Plaintiff’s solicitor for the enclosures and said he would present the Plaintiff’s request for discretionary assistance to the committee of the Board of Management (likely to be heard on 15th April). He refuted the allegations about the MDU. He referred to the state of the various actions against the Plaintiff and reminded the Plaintiff’s solicitors that discretionary assistance was not sought until the letter of the 19th July 1996; he said he would seek this at the committee of the Board of Management but was not optimistic.
He then reviewed the course of events in relation to the Medical Council’s enquiries, noting the Plaintiff sought voluntary removal of his name from the Medical Register on 31st July 1995 after which the Medical Council was alerted to the Plaintiff’s conduct. A preliminary notice of inquiry was sent to the Plaintiff on 13th October 1995. Further complaints were raised, resulting in another notice of inquiry dated 21st February 1996.
Dr. Beresford said it was difficult to understand why these matters were not drawn to the attention of the MDU and its assistance sought. The response of the Plaintiff’s solicitor to the letters of 14th February 1996 and 15th March 1996 was to serve notice of change of solicitors upon Messrs McCann Fitzgerald. He said clearly the Plaintiff’s solicitor were at this stage able to obtain the Plaintiff’s instructions on these matters. He referred to a judicial review proceeding and requested clarification. He said he presumed that at a resumed hearing before the Medical Council Fitness to Practice Committee the Plaintiff would wish that his solicitors and senior and junior counsel already instructed to continue the conduct of the case. He asked for confirmation that that presumption was correct as he would need to place that particular request specifically before the committee. He said he would ask consideration to be given to retrospective reimbursement of costs incurred since formal application for assistance in July 1996. But he referred to the Articles of Association and said it would be unlikely, that if granted, payment of costs would not extend from the beginning to July 1996 nor would the costs of the judicial review necessarily be considered. He thought it likely the committee would bear in mind the second proviso contained in Article 47. He asked for observations before 15th April.
8th April 1997 The Plaintiff’s solicitor replied expressing their outrage and saying that proceedings against the MDU were contemplated. He confirmed they had not received a statement of claim in any High Court proceeding. He enclosed 31 Civil Bills served in March 1997 saying appearances were being entered and notice for particulars being served. The judicial review against the Medical Council was refused in the High Court and was being appealed to the Supreme Court. He enclosed a further copy of a conditional order of certiorari in judicial review proceedings.
11th April 1997 Dr. Beresford replied referring to previous correspondence and documents which had either been sent or not sent. He referred to the forthcoming committee of the Board of Management on 15th April and said in the absence of any comment on the detailed chronology of their correspondence set out in his letters of 29th January, 1997 and 14th March, 1997 he took it that the Plaintiff’s solicitor accepted its factual accuracy. If this was not so he asked for a reply by fax. He also asked the Plaintiff’s solicitor to address the question of the Plaintiff’s wishes in respect of representation before the Medical Council Fitness to Practice Committee which he would need to specifically place before the committee.
14th April 1997 The Plaintiff’s solicitor replied that he did not accept allegations made in the letter of 14th March 1997. He said the proceedings before the Medical Council stopped because of the Plaintiff’s health and because criminal charges were pending. He accused the MDU of evading its responsibility. He said he advised on 9th July when Medical Council proceedings were about to be reactivated of their continued existence and did not get a substantive reply until 14th March, 1997. He enclosed a further copy of proceedings against the Plaintiff and quoted from his letter of 9th July concerning his request for discretionary assistance and enclosing the Plaintiff’s authority.
29th April 1997 Dr. Beresford replied to say the committee of the Board of Management considered the Plaintiff’s request for assistance on 15th April. The committee’s recommendations were adopted by the Board of Management which met on 22nd April. In relation to the inquiry before the Medical Council Fitness to Practice Committee the Board of Management was prepared to offer advice and legal assistance subject to the following conditions which were required in the Board’s absolute discretion in accordance with the Memorandum and Articles of Association. The conditions were (a) that legal assistance would be provided by the solicitor and counsel appointed by the MDU and (b) that the Plaintiff provide full co-operation by means of full disclosure of the facts and his instructions directly to those appointed. The Board decided in its absolute discretion not to grant assistance in relation to costs and expenses incurred in respect of these matters to date.
In respect of the three Circuit Court actions by named Plaintiffs and 31 further proceedings the Board of Management was prepared to consider the question of future discretionary assistance within the benefits of membership. The MDU required full information directly from the Plaintiff in respect of each of his patients including full disclosure of clinical records and full co-operation in meeting with the lawyers appointed by the MDU to secure his full instructions.
7th May 1997 The Plaintiff’s solicitor replied to say proceedings were being drafted against the MDU for breach of contract, breach of trust, negligence, fraud and other breaches of duty and asked for solicitors to be nominated within the jurisdiction to accept service.
14th May 1997 The Plaintiff’s solicitor again wrote and asked for a firm of solicitors to be nominated. He also enclosed papers in a judicial review proceeding in an action by one of the Plaintiff’s patients.
19th May 1997 Dr. Beresford replied to say he was awaiting senior management advice concerning the nomination of solicitors and acknowledged receipt of the document.
4th June 1997 Messrs Arthur Cox, Solicitors on behalf of the MDU, wrote asking the Plaintiff’s solicitor to specify what complaints the Plaintiff had against the MDU and saying any proceedings would be fully defended.
6th June 1997 The Plaintiff’s solicitor wrote to the MDU asking for solicitors to be nominated to accept service.
23rd July 1997 The Plaintiff’s solicitor wrote concerning an approach from the solicitor (Mr. Martin Harvey) acting for 35 of the patients who were suing the Plaintiff. He forwarded “without prejudice” proposals given to Mr. Harvey which included an opening offer of contribution to the ex-patients’ costs of £18,500. He asked for a reply as a matter of urgency.
25th July 1997 Messrs Arthur Cox replied to this letter on the behalf of the MDU saying the position was set out clearly in the letter of 29th April. Full information had not been forthcoming and accordingly the MDU were not in a position to consider future discretionary assistance in relation to civil claims. It was therefore a decision that Dr. Barry and not the MDU would have to make in relation to the proposed settlement.
28th July 1997 The Plaintiff’s solicitor acknowledged receipt and suggested the MDU had abandoned the plaintiff and refused to reply to correspondence.
23rd September 1999 The Plaintiff’s solicitor wrote to the MDU saying he understood it represented the Plaintiff as insurers. He enclosed a letter dated 6th September, 1999 addressed to the Plaintiff by Messrs Eugene Carey and Company, Solicitors on behalf of an ex patient claiming the Plaintiff behaved in a negligent unsuitable and inappropriate manner towards their client and threatening proceedings in the absence of an adequate offer of compensation. The Plaintiff’s solicitor also enclosed a statement of the Plaintiff dated 10th March 1999 in relation to the said patient.
On the same date a copy of the correspondence was sent to Messrs McCann Fitzgerald.
28th September 1999 Messrs McCann Fitzgerald replied to say they had no instructions to act on the Plaintiff’s behalf in this matter.
4th October 1999 The Plaintiff’s solicitor sent to the MDU a similar letter from the same firm of solicitors, Messrs Eugene Carey & Co., dated 21st September 1999 on behalf of another patient. He enclosed a statement by the Plaintiff in relation to the said patient dated 10th March, 1999
A copy of this correspondence was also sent to Messrs McCann Fitzgerald.
4th October 1999 The Plaintiff’s solicitors sent to the MDU a copy of a Civil Bill
served on the Plaintiff and asked for acknowledgement of the letter of 23rd September 1999.
He also sent a copy of the Civil Bill to Messrs McCann Fitzgerald.
7th October 1999 Dr. David Morgan on behalf of the MDU replied to the letter of 23rd September. He asked if the plaintiff’s solicitor could confirm whether he represented the Plaintiff, what was the nature of his instructions and what assistance was being requested.
8th October 1999 Dr. David Morgan again wrote to the Plaintiff’s solicitor in reply to the letter of 4th October. He said the statement of the patient referred to by the Plaintiff in his statement of 10th March was not included and asked for it to be forwarded.
22nd October 1999 The Plaintiff’s solicitor replied to the letter of 7th October, 1999 he referred to the issue of proceedings against the Plaintiff and said that Dr. Morgan might not be aware of their previous requests for assistance on behalf of the Plaintiff and would be obliged if he would consult their files. He said the assistance they required on behalf of the Plaintiff was indemnity in respect of any relevant damages, judgments and in respect of the costs of defending himself against civil disciplinary or criminal proceedings arising out of his practice. He regretted that previous correspondence ended on an acrimonious note and said their involvement in the matter was forced on them by the fact that the Plaintiff was a longstanding client of the office who suffered a nervous breakdown and they bore the burden of protecting his interests in circumstances where he had no hope of being able to pay them for their services. He had no difficulty in handing over all civil files to their nominated solicitors if they would to agree to indemnify Dr. Barry. They would expect to be paid a reasonable remuneration in respect of work done to date. He referred to a doctor whose services they had obtained and also the doctor who had advised 33 claimants referred to and the investigation of her conduct by the medical council.
In relation to the disciplinary and criminal proceedings he said the plaintiff had the right to have lawyers of his personal choice retained. He added if there was any step or thing which the MDU required them to do, which they could properly do for the purpose of meeting their requirements for indemnity for the Plaintiff, they would comply with such requirements.
5th November 1999 Dr. Morgan replied on behalf of the MDU saying Dr. Beresford had retired and he was dealing with the matter. He said he had been able to access previous files. He referred to the assistance required for the Plaintiff. He said his colleague Dr. Beresford had carefully explained the MDU’s position in the letter dated 14th February 1996 and he said for the avoidance of doubt he reiterated the essential of what he wrote at the time. In order that the Board of Management could consider a grant of discretionary assistance they required a personal approach from the Plaintiff seeking assistance and providing necessary instructions. If the Plaintiff was not capable of providing instructions, the MDU wished to have authorisation from a valid power of attorney in respect of the Plaintiff’s affairs. The MDU required details of the individual cases and details of the dates of the alleged incident or incidents to consider any request. The MDU also required details in relation to the Medical Council and criminal matters. He said at that stage the MDU was unable to indicate what discretionary benefit (if any) could be provided. The MDU would expect not only to instruct solicitors but experts of their own choice and no undertaking could be given to pay for previous legal costs incurred. The MDU was unable to fund the work involved in the provision of the details mentioned and he reiterated the importance of receiving the Plaintiff’s instructions.
15th December 1999 The Plaintiff’s solicitor replied to the letter of 5th November 1999. In relation to civil proceedings he said they had prepared copies of the files of the 36 actions in the Circuit Court, three actions in the High Court and an action which they had successfully defended. They prepared photocopies where initiating letters had been written and files where proceedings were commenced but where notice of discontinuance was served.
In relation to judicial review, proceedings in respect of anonymity orders had been adjourned pending the outcome of criminal prosecution. He said copies of the files were being forwarded by surface mail. He considered the disclaimer by the MDU of responsibility for expenses incurred in providing information as mean and petty. He noted the requirement that it was a condition of the MDU being willing to indemnify the Plaintiff that its nominated solicitors should act and said that was a reasonable requirement. They would advise the Plaintiff to comply with any requirement that the civil matters be dealt by Messrs McCann Fitzgerald subject to the MDU accepting responsibility to indemnify the Plaintiff in respect of any judgment obtained against him and in respect of his costs of defending these actions including his costs incurred to date. He said they were in possession of considerable background information which they were willing to share. He said if a satisfactory accommodation could not be reached with the MDU they would issue third party proceedings claiming indemnity in respect of any judgment obtained and payment in respect of their costs of defending the action.
Re the disciplinary proceedings, he said they had been adjourned pending the outcome of the criminal prosecutions brought against the Plaintiff. Also he said the decision of the Medical Council upheld by the Supreme Court in judicial review proceedings to hold their inquiry in private was being considered by the European Court of Human Rights.
Re criminal prosecutions he referred to the letter dated 9th July 1996 that certain criminal prosecutions had been successfully defended by the Plaintiff. In November 1997 the State brought a series of prosecutions for indecent assault (247 incidents alleged against 43 women over a 30 year period) against the Plaintiff. This was met with judicial review proceedings still pending before the High Court. They were forwarding a full set of papers in these proceedings.
He said that pending the outcome of the criminal prosecutions, neither the disciplinary proceedings nor the civil proceedings could proceed because of the danger of prejudicing the outcome of the criminal prosecutions. In regard to the requirement of a “personal approach” he said they were at a complete loss to understand what they meant when they said they required a personal approach from the Plaintiff seeking their assistance and providing necessary instructions. He said as solicitors acting on behalf of the Plaintiff they had his instructions which they had consistently communicated to the MDU. He said other judicial authorities accepted their authority and their instructions from the Plaintiff but the MDU consistently failed to do so. He said the MDU was acting under some misconception which they could not fathom. He referred to the written authority from the Plaintiff sent with the letter of 9th July 1996 and he said if by “personal approach” the MDU wished Dr. Barry to attend at its offices then this could be arranged. But if this was what was required to specify the same. Concerning information in the Plaintiff’s possession he said there are his medical files but nothing else. He said that the matter must be brought to a conclusion and if it would be of assistance the writer (i.e. the Plaintiff’s solicitor) would be willing to travel to England for discussions on an entirely “without prejudice” basis. He concluded by stressing the seriousness of the situation from the Plaintiff’s point of view.
5th January 2000 Dr. Karen Dalby Senior Medical Claims Handler replied on behalf of the MDU to the letter of the 15th December. Concerning their request for direct contact from the Plaintiff, she said this is a requirement of the MDU when considering offering assistance and is set out in the Memorandum and Articles of Association as previously advised. She noted they were authorised to act on behalf of Dr. Barry and she suggested they leave matters as they are for the moment. In due course they might require an alternative form of contact. She noted the civil cases were on hold awaiting the outcome of the criminal prosecutions and judicial review proceedings were pending. She said the work on the criminal cases would be at the Plaintiff’s own expense. As a result she understood there was little active work that could be undertaken on the civil claims until these proceedings were concluded. She said they would be able to advise of the MDU’s position regarding its assistance in respect of the civil claims when the outcome of the criminal prosecutions were known and she asked to be advised when the information was to hand.
13th January 2000 The Plaintiff’s solicitor, further to the letter of 15th December 1999, enclosed a copy of a civil bill received by the Plaintiff from another litigant. They had asked for a full and complete statement from the plaintiff and for a copy of the medical file. When they received the documents they would forward them.
19th January 2000 Dr. Dalby asked for confirmation that the letter of 5th January 2000 had been received.
8th March 2000 The Plaintiff’s solicitor acknowledged the letter of 5th January 2000. He said they were pleased at what they felt was a conciliatory tone of the letter. They were disposed to allow the matter to rest provided the MDU agreed that the withholding of proceedings against the MDU would not afford any defence based on the Statute of Limitations or laches. He said they did not accept that the work on the criminal cases would be at the Plaintiff’s expense. He said there was necessary ongoing management of the civil cases and he asked if the MDU required to be kept appraised or would a report on inquiry be sufficient.
21st March 2000 Dr. Dalby replied that their position was as set out in the letter of 5th January and said it was a matter for the Plaintiff’s solicitor to decide the extent to which he wished to continue investigating civil cases.
7th April 2000 The Plaintiff’s solicitor replied to that letter saying they had no alternative but to issue proceedings to prevent the MDU being able to raise a defence of laches or the Statute of Limitations and he also enquired about solicitors to accept service of proceedings.
10th April 2000 Dr. Frances Szekely, Senior Medical Claims Handler, replied on behalf of the MDU. She indicated they were disappointed with the position taken as previous correspondence indicated the Plaintiff’s solicitor was content to await the outcome of criminal proceedings. She asked if it was the intention to issue proceedings against the MDU in respect of their position on assisting the Plaintiff with the criminal proceedings. She confirmed in open correspondence that the MDU would not take any point on limitation in any subsequent proceedings issued on this matter. She asked for clarification.
18th May 2000 The Plaintiff’s solicitor reiterated that the liability of the MDU to the Plaintiff extended to indemnities in respect of the costs and expenses of defending civil proceedings and of the disciplinary proceedings, before the Medical Council and of criminal prosecutions and also indemnity in respect of liability of the Plaintiff for compensation costs or expenses incurred in the civil proceedings. He said they did not propose to litigate the issue of the MDU’s liability at that time on the understanding that the MDU would not raise a defence of limitation or delay in respect of any of the identified claims. They did not accept the MDU’s contention that they were entitled to defer assistance pending the outcome of criminal proceedings.
2nd June 2000 Dr. Szekely replied on behalf of the MDU. She said the position of the MDU had been clearly stated on a number of previous occasions. With respect to civil claims they would not indemnify the Plaintiff for any legal costs incurred to date. They would only consider providing assistance if they were provided with full, frank and unrestricted co-operation by the Plaintiff. This would be direct co-operation and not through any third party. It would involve a disclosure of all materials relevant to the claims including documents photographs and video tapes. The Plaintiff would be required to give his full and open co-operation to any legal representative they appointed on his behalf. They were not of opinion that such co-operation had been forthcoming in the past and they would require immediate direct contact from the plaintiff. She said they should note that in the event of it being decided that the circumstances which gave rise to the claims fell outside the provision of ordinary medical services, they would normally withdraw their assistance and not indemnify members for damages which would arise as a result of such claims. She asked that they would acquaint the Plaintiff with the contents of the letter without delay. If the plaintiff’s solicitor was instructed to issue proceedings, she asked to be advised so they might nominate solicitors to accept service.
24th January 2001 The Plaintiff’s solicitor said they had been instructed to commence proceedings against the MDU and setting out the headings of such claims.
13th February 2001 The plenary summons in this matter was served on the MDU’s solicitors Messrs Arthur Cox & Co.
Correspondence relating to particulars and discovery ensued.
14th June 2001 Messrs Arthur Cox wrote to the Plaintiff’s solicitor referring to correspondence regarding requests for assistance made to the MDU on behalf of the Plaintiff. They said the MDU’s position was clearly stated on a number of occasions in previous correspondence. Before the Plaintiff’s request for assistance could properly be considered by the Board of Management direct personal co-operation and instructions of the Plaintiff with the MDU was essential. He said unfortunately such
co-operation and instructions had not been forthcoming to date. Entirely without prejudice to its powers and entitlements under its Memorandum and Articles of Association and without prejudice to its defence of the proceedings already instituted, the MDU was prepared to offer the Plaintiff a further opportunity to co-operate in the matter and to put his clients request for assistance before the Board of Management. The appropriate committee of the Board of Management would consider the Plaintiff’s request at its meeting on 17th July 2001 with its recommendation being put before the Board for approval at its meeting on 24th July 2001. They asked that the following would be provided to Dr. Julia Nield, the Head of Claims Handling, in advance of the committee meeting and no later than 13th July 2001 as follows
1. The Plaintiff’s personal instructions as to the matters giving rise to the various proceedings in respect of which assistance was sought.
2. The present status of the criminal proceedings
3. Whether any civil claims have been successful
4. The total number of civil claims now outstanding
5. The status of any disciplinary proceedings
6. Confirmation of full and unrestricted access by the MDU to the Plaintiff.
She said even if the above was not forthcoming it was still intended to put the matter before the Board of Management on 24th July 2001 but it would be in the Plaintiff’s interests to provide the information as requested. If there was any additional matter which he wished to draw attention to, it would be put before the Board.
25th June, 2001 The Plaintiff’s solicitor replied to Messrs. Arthur Cox to say the letter of 14th June, 2001, was unusual in that it ignored the existence of litigation and that it was a device in that litigation. He alleged that reconsideration of their position could only be regarded as tainted by their own concerns in the present litigation. He said it was scandalous to assert the plaintiff’s co-operation and instructions were not forthcoming. When they said the plaintiff was willing to travel to England to meet the MDU’s representatives they rejected the offer. As to the six items listed he said the MDU had been given full particulars of or co-operation in the same. He confirmed there was no change in this status of the criminal proceedings and disciplinary proceedings and no civil claim had succeeded.
3rd July, 2001. Messrs Arthur Cox replied saying it was clear no useful purpose could be served by further correspondence but rejected the allegations in a letter. They said the plaintiff’s request for assistance would be considered at the appropriate committee of the Board of Management on 17th July, 2001 and its recommendations put before the Board on 24th July. The decision would be communicated.
5th July, 2001 The plaintiff’s solicitor acknowledged receipt and made further allegations.
1st August, 2001 Messrs Arthur Cox wrote to the plaintiff’s solicitors to say the Board of Management on 24th July, 2001, adopted the recommendation of the Advisory Management Committee made on 18th July, 2001, that the plaintiff be not assisted with his case.
It can be seen from this correspondence that the plaintiff never made personal contact with the MDU to give instructions or with Messrs McCann Fitzgerald, despite that being a key requirement of the MDU. Requests for the plaintiff to make personal contact and to give personal instructions were mentioned in the letter to the plaintiff from Messrs McCann Fitzgerald, dated 22nd August, 1995, (to which no reply was received) and thereafter to the plaintiff’s solicitor in letters dated 8th November, 1995, 7th February, 1996, 14th February, 1996, 15th March, 1996, 29th January, 1997, 29th April, 1997, 25th July, 1997, 5th November 1999, and 2nd June, 2000.
Much emphasis has been laid by the plaintiff that in the letter of 15th December, 1999, the plaintiff’s solicitor (having said he was at a complete loss to understand what the MDU meant when they said they required a personal approach from the plaintiff providing the necessary instructions) said if the MDU wished the plaintiff to attend its offices it could be arranged. In reply dated 5th January, 2000, the MDU (Dr. Karen Dalby) said the request for direct contact was a requirement of the MDU when considering offering assistance. Her suggestion that they leave matters as they were for the moment was made in the context that her understanding was that little active work could be undertaken on the civil cases until the outcome of the criminal prosecution was known. She also said in due course they might require an alternative form of contact. In due course on 2nd June, 2000, the MDU did require direct co-operation by the plaintiff and not through a third party. This was never forthcoming. There is not a single letter written by the plaintiff himself. The only communication from him was the authority signed by him on 9th July, 1996, authorising his solicitor to make an application for discretionary assistance.
It is difficult to understand the attitude of the plaintiff’s solicitor. How could a solicitor not understand what was meant by requiring a personal approach from the plaintiff to give necessary instructions? He was obviously aware at the very start (see letter of 31st July, 1995) that it was not appropriate for his firm to take any steps because he mentions the plaintiff’s “policy of insurance”. It would be very normal in insurance cases that the insurance companies want to brief their own solicitor and counsel. Even though the MDU was not an insurance company it followed the same practice. It reacted promptly to that first letter by appointing Messrs McCann Fitzgerald as the solicitors to represent the plaintiff. But it never received direct instructions or co-operation from the plaintiff at any time. Also the plaintiff never received authority from the MDU to engage his own solicitor and counsel.
On behalf of the MDU evidence was given by Mr. David Eric Markham, an orthopaedic surgeon. He qualified in 1961 and became a member of the Medical Protection Society. In 1977 he was invited to join the council of the MDU and he moved his membership to the MDU. He said the MDU had been formed 125 years ago and it was always a discretionary mutual members’ company. He was a member of the Cases Committee in 1977, he became the chairman in 1992 for five years, then he became vice chairman of the company and was then elected chairman and president in 2001 and he still holds those offices. When he was chairman of the Cases Committee it met once a month. Papers were circulated to 40 or 50 members who were across all specialities. He would have a briefing meeting for one hour before the meeting with the staff who were to present the cases. There would be 24 to 25 case summaries with additional papers. Some cases were straightforward and others clinically complex. It would be impossible to predict which cases would generate discussion. In this case there had been difficulty in getting to first base, namely getting basic information from the member. They needed records and correspondence. There had to be dialogue in full detail so that the committee could assess if the case merited assistance. They do not want contact through a third party. It has to be directly with a member unless there is a death. Even there they would insist on disclosure of all records. The MDU would regard steps taken on a member’s behalf before there was recourse to the MDU, as a worry. The Articles state “take no step” (this is a reference to article 47 proviso 2). He said there was no summary judgment made. They look as hard as they can to see if they can assist and do not look to refuse assistance. They would not pay costs incurred here because they had no input into that solicitor. They would assist with the disciplinary body if the member co-operated and gave all the facts. It was normal protocol to instruct solicitors appropriate to those facts. The MDU orchestrate from beginning to end. Only by getting the right solicitor with competence in the field could they be doing their best for the member and for the membership as a whole.
There was the Cases Committee meeting on 15th April, 1997, at which Mr. Markham was in the chair and Dr. Beresford was present. The case summary sets out the details of the correspondence and records the recommendation to the Board of Management as:
(a) do not pay legal costs to date,
(b) assist with IMC if member co-operates and gives full disclosure of the facts,
(c) if (b) not achieved, withdraw assistance,
(d) if assistance provided to do so with MDU appointed solicitors only and
(e) seek further information in relation to civil claims.
The decision of the Board of Management on 22nd April, 1997, records that the Cases Committee recommendation be approved. Mr. Markham was present at the Board of Management meeting as a board member.
Between 1997 and 2000 there was a reform of the decision-making apparatus of the MDU. Two additional committees were set up, the Claims Management Committee (CMC) and the Advisory Management Committee (AMC). The old Cases Committee which met once a month had a very large caseload and was not able to process cases as quickly as the rules required. The new CMC met once a week and discussed clinical aspects. It would decide if further information was needed or if solicitors would be instructed. The AMC met once a week. It was a telephone committee and dealt with disciplinary and criminal matters. He said the plaintiff’s case bridged both systems and was dealt with by the AMC. The Cases Committee continued but with a smaller number of complex cases.
There was an AMC meeting on 31st May, 2000. (This is the one to which the plaintiff objected because he had not been notified. This was after the plaintiff threatened to sue the MDU and the letter of 18th May 2000 from the plaintiff’s solicitor setting out what indemnity he required.)
There was a case summary. It was not considered in isolation, but with the earlier case summary. The whole matter was revisited that the member had not co-operated. They were taken through the facts of the case with reference to the previous committee. He said there was discussion and Dr. Szekely presented the case. The recommendation of the AMC to the Board of Management was:
(a) do not assist with civil claim/criminal charges,
(b) do not assist with legal costs to date and
(c) inform member’s solicitor that MDU assistance cannot be considered unless full details are provided.
Mr. Markham said that paragraph (c) left the door open if full details were provided. Dr. Szekely’s letter of 2nd June, 2000 set out their concern that their member would know and that they were saying please ensure that the plaintiff knows what is required of him.
The recommendation of the AMC of 31st May, 2000, was approved by the Board of Management meeting on 27th June, 2000. Mr. Markham was present.
In cross examination following a weekend interval Mr. Markham said he could not say if he was present at the AMC meeting on 31st May 2000.
When this aspect was revisited the next day he was asked how he could give evidence about what happened at a meeting he had not attended. Mr. Markham said he could now say he had chaired the AMC meeting on 31st May 2000. He had had time to reflect and he could assure the court he had chaired the meeting.
He was criticised strongly by counsel for the defence, however I am satisfied he gave his evidence in good faith and to the best of his ability and I accept his explanation.
The next meeting of the AMC in relation to this matter was the 18th July, 2001. It was noted that proceedings had been served on 19th February, 2001, against the MDU and that the MDU had recently written to the plaintiff’s solicitors requesting information and the deadline for receipt of this information was 13th July, 2001. The reason for the reference was to ask the AMC to consider the plaintiff’s request for assistance in the light of the above and any response received. Jill Harding presented the background detail. In the summary it is recorded that when asked if there was any reason why the plaintiff could not provide instructions personally, Jill Harding replied that the plaintiff had recently attended a conference with counsel on a case with which he was being assisted by the MDU. The AMC recommendation to the Board of Management was not to assist.
The matter was considered by the Chairman’s Committee on 24th July, 2001. This committee had delegated authority from the Board of Management to review all cases from the AMC. It could approve and send on to the Board or could send back to the AMC. It was another check. It vets and filters and then passes on to the Board matters for final consideration.
The Board of Management met on 18th September, 2001, and accepted the recommendation. Mr. Markham was present. He said he had not seen the letter of 23rd July, 1997 concerning a possible compromise of the cases but he said it was irrelevant. The plaintiff had never complied with their requests.
He said the MDU had no pecuniary interest in the outcome of the disciplinary proceedings and he denied there was any conflict of interest. He said a solicitor who is instructed, when giving an opinion in an individual case, would not take into consideration the membership as a whole.
Dr. Beresford who was a member of the Medical Secretariat from 1987 to 1999, went through the correspondence he had with the plaintiff’s solicitor. He confirmed that he prepared a written summary to place before the Cases Committee on 15th April, 1997. He was not present at the meeting of the Board of Management. He said that after receiving the letter of 7th May, 1997, threatening proceedings against the MDU he passed the correspondence to his manager as he could not deal with it.
He accepted that there was a six month delay in replying to the plaintiff’s solicitor’s letter of the 9th July, 1996. But he said in fairness, the point that the MDU should be responsible for the period of delay was put to the Committee. He also said to the Committee that the plaintiff wanted his own lawyers to continue.
Dr. Cathy James, also a medical doctor, joined the MDU in 1987. She wrote the initiating correspondence to the plaintiff to establish contact with him. There had been several previous contacts with the plaintiff. One was a medical council enquiry. The plaintiff had initiated contact personally. The MDU instructed solicitors in Ireland to assist him. There was communication directly with the plaintiff who was assisted in drafting a reply to the medical council, who took it no further. She went through the correspondence she had in this matter. She said Melissa Hackett was a non medical claims handler who wrote the letter of 25th October, 1995, after discussing the case with her.
She (Dr. James) next became involved as Head of Case Decisions at the AMC meeting of 3rd May, 2000. She participated in that decision. There was full discussion before the recommendation. She said co-operation is essential. It is first base. She was also at the AMC meeting on 18th July, 2001, at which Jill Harding presented the case. She said the plaintiff had applied in June, 2001, for assistance in another matter. He gave clinical details and co-operation. He was assisted in the usual way. A formal decision was not required. He had also attended a conference with counsel in relation to another claim. There were two existing matters in which he was co-operating fully.
Regarding the decision of 18th July, 2001, she said they wished to look again notwithstanding litigation. She said litigation is not a bar to giving legal assistance. It was not the motivating factor. She refuted the suggestion that there was a conflict of interest for solicitors appointed by the MDU. She said they are there for the benefit of the member involved. Their sole duty is to assist the member with that matter.
Dr. Joseph Smith, a consultant urologist joined the council of the MDU in 1969. He as a member of the council from 1969 to 1987. In 1987/88 he chaired the Cases Committee. From 1988 to 1992 he was Treasurer. He became a member of the Board of Management in 1990, vice-president in 1996 and chair of the Board of Management and president of the MDU from 1997 to 2001. Now Mr. Markham is chair and president. At the board meeting on 18th July, 2001, he retired and
Mr. Markham took over. He could not see any conflict of interest in the appointment of solicitors and counsel by the MDU. He said they are doctors for doctors and lean over backwards to give assistance.
In my opinion what is provided by the MDU under its Memorandum and Articles of Association and what the plaintiff was entitled to was discretionary assistance. As a first step the MDU required direct access to them by the plaintiff and full co-operation. This was the first base referred to by MDU and the plaintiff never got there. The Department of Health accepted the MDU as the preferred supplier by agreement of 12th June, 1996, knowing of the absolute discretion and knowing it was not an insurance company.
It was submitted that the decision of April, 1997, was not taken in good faith. As I have already held the principles of natural and constitutional justice do not apply. The decision of April, 1997, was taken first by the AMC on 15th April and their recommendation was approved by the Board of Management on 22nd April.
The failure of Dr. Beresford to reply to correspondence for six months between July, 1996, and 29th January, 1997, can certainly be criticised but it is also to be noted that the plaintiff’s solicitor sent no reminder until 4th January, 1997. No doubt if he had, six months would not have elapsed. The delay in replying is not evidence of bad faith. Dr. Beresford did make the submissions to the AMC he promised. It was the AMC not Dr. Beresford who reached the decision. The recommendation of 15th April, and decision of 22nd April, was not arbitrary because it required assistance to be provided by their appointed solicitor and counsel. In this they have been completely consistent with their practice. The plaintiff did not have any right of choice of his own solicitor and counsel.
The defence alleges in written submissions that “there may be a conflict of interest involved because the defendants might attempt to use an adverse result in the disciplinary proceedings for the purpose of evading their liability to indemnify the civil proceedings and lawyers retained by the defendants would owe a duty to their employer which might be in conflict with that owed to the member”.
I reject this contention completely. I have no doubt that the solicitors and counsel appointed by the MDU would act for the benefit of the client they are representing not for the benefit of the MDU, as indeed Dr. James said. Mr. Markham specifically rejected the suggestion that the MDU had a pecuniary interest in the outcome of the disciplinary proceedings. I fully accept that this is indeed the case.
The plaintiff’s submissions in relation to the significance of the offer in the plaintiff’s solicitor’s letter of 15th December, 1999, that a visit of Dr. Barry to the MDU’s office could be arranged, has been blown out of all proportions. The MDU never resiled from its requirement that there must be a personal approach and co-operation by the plaintiff. The reply of Dr. Dalby of 5th January, 2000, emphasised that direct contact is a requirement of the MDU when considering offering assistance. All she suggested was to leave matters on hold to await the outcome of the criminal proceedings. There was never any suggestion that a direct approach was no longer required. The letter of 2nd June, 2000 from Dr. Szekely again required direct co-operation and not through a third party. There was no response to this until 24th January, 2001, when the plaintiff’s solicitors said they were instructed to sue the MDU.
Mr. Markham had no doubt that the letter of 15th December, 1999, was drawn to the attention of the AMC. But whether it was or not, is neither here nor there. The subsequent action of the plaintiff in not making direct contact when required to do so by letter of 2nd June, 2000 throws doubt on the genuineness of the offer to attend the MDU’s offices.
The suggestion that the Board of the MDU could not meet to consider the situation when litigation was threatened without notifying the defendant in advance, bears no basis in reality. The plaintiff’s solicitor threatened legal proceedings on 7th April, 2000. In answer to a request for clarification, he sets out in a letter of 18th May, 2000, all the indemnities which were required but said they did not propose to litigate at that time on the basis that the MDU would not raise a defence of the Statute of Limitations or delay in respect of any of the identified claims. Of course the Board of Management were entitled to consider the matter without first notifying the plaintiff. They did consider it and the letter from Dr. Szekely of 2nd June, 2000, fairly sets out the decision of the Board of Management. The decision is totally consistent with the attitude of the MDU all along: namely requiring direct contact and full co-operation. There was nothing unfair in the way the Board of Management reached their decision.
The decision of 18th July, 2001 which has been categorised by the plaintiff as “a device in litigation” adds nothing to the situation. It is totally consistent with everything that had gone before. The reason given by Dr. James for holding the AMC meeting on 18th July, 2001 was to look again at the matter notwithstanding the litigation, because the plaintiff had applied in June, 2001 for assistance in another matter and had co-operated and was given assistance in the usual way. As it turned out the decision was totally consistent with the previous decisions.
There is no evidence that the decision was tainted by the MDU’s concerns with litigation, was made for their own benefit and was affected by bias. Nothing changed as a result of this decision and no advantage was obtained. If this decision had not been made, the outcome of the litigation would be identical.
The plaintiff has failed to prove his case. The action is dismissed.
R -v- R & Ors HC
[2006] IEHC 221 (18 July 2006)
JUDGMENT of the Hon. Mr. Justice Brian McGovern delivered the 18th day of July, 2006
This case concerns the fate of three frozen embryos created by in vitro fertilisation. The plaintiff and the first named defendant married on the 5th March, 1992. They are now separated but remain husband and wife. In 1994, they sought fertility advice from their general practitioner and were referred to Holles St. Hospital. Tests and examinations were carried out on the plaintiff and no obvious problem of fertility was found. In March, 1996, the plaintiff was checked out for a possible ovarian cyst. The plaintiff received some medical treatment and became pregnant and gave birth to a son in October 1997. Shortly thereafter the plaintiff had surgery for an ovarian cyst and she lost two thirds of her right ovary. As she wished to become pregnant again, she was referred to a doctor in Holles St. and had further investigation and treatment which was unsuccessful. She was then seen by Dr. Helen Spillane in July, 2001 and was referred for IVF treatment. The plaintiff and the first named defendant decided to undergo that treatment at the Sims Clinic in Rathgar, Dublin. Their first appointment in the clinic was in October, 2001. On 29th January, 2002, the plaintiff signed a form entitled “CONSENT TO TREATMENT INVOLVING EGG RETRIEVAL”. In that form she gave her consent inter alia to the removal of eggs from her ovaries and the mixing of the eggs with the sperm of her husband. On the same date a consent form was signed by the plaintiff and the defendant entitled “CONSENT TO EMBRYO FREEZING.” In this document the plaintiff and the defendant agreed to the cryopreservation of their embryos and to take full responsibility on an ongoing basis for these frozen embryos. Also on the 29th January, 2002, the first defendant signed a document entitled “HUSBANDS CONSENT” whereby he acknowledged that he was the husband of the plaintiff and consented to “the course of treatment outlined above”. The agreement also expressed his understanding that he would become the legal father of any resulting child. A final consent document was signed by the plaintiff on the 1st February, 2002. This was entitled “CONSENT TO EMBRYO TRANSFER” by which the plaintiff consented to the placing in her uterus of three embryos. It appears from the evidence that the treatment involving egg retrieval is difficult and painful so a practice has evolved in fertility clinics whereby they try to collect a sufficient number of eggs for fertilisation so as to avoid the possibility of the woman having to undergo egg retrieval if the first attempt at implantation of embryos is unsuccessful. In this particular case after the plaintiffs ova were mixed with the first defendant’s sperm six viable embryos were created. Three were immediately implanted into the plaintiff’s uterus and the remaining three were frozen.
The implantation of the three embryos in the plaintiff’s uterus was successful because she went on to become pregnant and delivered a daughter on 26th October, 2002. Unfortunately towards the end of that pregnancy marital difficulties arose between the plaintiff and the first named defendant as the first named defendant had entered into another relationship. Attempts at reconciliation failed and the plaintiff and the first named defendant are now living apart.
An issue has arisen as to what should happen to the three cryopreserved or frozen embryos. The plaintiff wishes to have the three frozen embryos implanted in her uterus in the hope of becoming pregnant and having a further child or children as the case may be. The first defendant, for his part, does not want the three frozen embryos implanted in the plaintiff’s uterus. He says he never agreed to this and that it would be unreasonable and in breach of his rights to put him in the position that he may become father to a child that he doesn’t want and in circumstances where he is now separated from the plaintiff. The plaintiff maintains that the first named defendant had expressly or impliedly consented to the three frozen embryos being used for implantation into her uterus.
She commenced these proceedings on the 11th June, 2004 and in the proceedings she claims (at paragraph 7 of the Statement of Claim) that the first named defendant withdrew his consent to the release of the frozen embryos and to the further implantation of any of the frozen embryos in the plaintiff’s uterus. The pleadings raise many other issues including a claim that the plaintiff is entitled to an order vindicating the right to life of the three embryos, an order vindicating both the plaintiff’s and the embryos right to family life, the return of the frozen embryos to the plaintiff and an order preventing the destruction of the embryos.
Having heard argument from Counsel for the parties to this Action I have ruled that the first issue which should be decided in this case is an issue of private law, namely whether the plaintiff and the first named defendant had agreed that the said embryos would be returned to the plaintiffs uterus and, if so, whether the said agreement still binds the parties irrespective of the subsequent marital separation. That is the issue which I am deciding today. The resolution of that issue depends on identifying whether there was an agreement, expressed or implied, between the plaintiff and the first named defendant as to what should happen the frozen embryos in the circumstances that have arisen.
EXPRESS AGREEMENT
A number of consents were signed by either the plaintiff or the first named defendant and one was signed by both. On the 29th January, 2002, three documents were signed. The first was a consent signed by the plaintiff entitled “CONSENT TO TREATMENT INVOLVING EGG RETRIEVAL”. In this document the plaintiff agreed to the removal of eggs from her ovaries and a mixing of the eggs with the sperm of the first named defendant.
The plaintiff and the first named defendant signed a document entitled “CONSENT TO EMBRYO FREEZING.” In that document they stated “We consent to the cryopreservation (freezing) of our embryos and take full responsibility on an on-going basis for these cryopreserved embryos.”
The first named defendant signed a document entitled “HUSBAND’S CONSENT” in which he acknowledged “I am the husband of M. R. and consent to the course of treatment outlined above. I understand that I will become the legal father of any resulting child.”
Also on the 29th January, 2002, the first named defendant signed a Semen Collection Form confirming that the sample produced was his.
On the 1st February, 2002, the plaintiff signed a form entitled “CONSENT TO EMBRYO TRANSFER.” In this she agreed to the placing in her uterus of three embryos and the administration of any drugs or anaesthetics that might be found necessary in the course of the procedure.
It is clear from the evidence that the three embryos referred to in that consent form were the embryos which were not frozen and that the purpose of freezing the other embryos was to use them if the first implantation failed. (See evidence of plaintiff, book 2 answer 561 and evidence of the first defendant book 3 answer 139). By good fortune the first implantation of three embryos was successful in that the plaintiff became pregnant and had a successful outcome to the pregnancy. That left the question as to what was to happen to the remaining three embryos which had been frozen.
In the course of her evidence the plaintiff stated that the first discussion that took place between her and her husband about the frozen embryos was before he left for the second time. (See book 2 answer 157). The first defendant says that the issue as to what was to happen to the frozen embryos if the first implantation was successful was never discussed. See (book 3 answer 140). He said that it never entered their minds that they would use the frozen embryos if the first procedure succeeded. The plaintiff was asked if there was any specific agreement between herself and her husband about what should happen to the frozen embryos or whether there was any implicit agreement or understanding and she replied “I believe that we would use the embryos at a later date. If we were still happily married, we would have used them.” (Book 2 page 212). The first named defendant disputes this and says that there was simply no agreement as to what was to be done.
One of the curious features about this case is that there was no document furnished to the plaintiff and the first named defendant by the clinic setting out what was to happen to any frozen embryos, either in the event that the plaintiff became pregnant from the first implantation or in the event of their circumstances changing such as on the death of either party or a separation or a divorce. What is quite clear is that neither the plaintiff nor the first named defendant adverted to the issue until their marriage broke down. I am satisfied therefore that in the absence of the consent forms indicating agreement, either expressly or by implication, there was no agreement as to what was to happen to the three frozen embryos in the circumstances which have arisen and in particular the first named defendant did not give his consent to the use of those embryos for implantation into the plaintiffs uterus.
The consent forms which were signed by the plaintiff and the first named defendant are, in my view, unsatisfactory when taken together because:
(a) they were vague in certain important aspects and
(b) they did not cover contingencies which might arise.
One of the contingencies which might have been provided for has arisen in this case namely the separation of the plaintiff and the first named defendant. The form entitled “HUSBAND’S CONSENT” is a document in which the first named defendant consents “…to the course of treatment outlined above.” It is not specified what the “treatment outlined above” is. I have seen the original documents and the consent forms are separate and distinct documents. The plaintiff was asked what was the meaning of “the treatment outlined above” in that document and replied that it referred to in vitro fertilisation outside the uterus. (See book 2 answers 367 – 370). The first named defendant agreed that the “treatment outlined above” meant IVF and went on to elaborate and say that it was “the fertilisation of the eggs and the implantation of three of them.” (See book 3 questions 131 and 133). It was quite clear that the three eggs he was referring to were the three embryos initially implanted and not those that were being frozen because he went on to describe how the other three eggs would be frozen and harvested to be used if the implantation failed. He was using the term “eggs” when in fact he appears to have been referring to embryos but nothing turns on that. There is nothing in that document which establishes that the first defendant expressly gave his consent to the implantation of the three frozen embryos in the uterus of the plaintiff. Looking at the other documents it is clear that the consent to embryo transfer refers to the placing in the plaintiff’s uterus of the three embryos which were not frozen. The first defendant did not sign that document and it cannot in my view constitute an express consent or agreement by the first named defendant to the transfer of the three frozen embryos into the uterus of the plaintiff. The consent to embryo freezing signed by both parties and the semen collection form signed by the first named defendant are not relevant to the question as to whether or not the first defendant gave his express consent to the implantation of the three frozen embryos in the uterus of the plaintiff.
Accordingly I hold that there is no evidence that the first named defendant gave his express consent to the implantation of the three frozen embryos in the plaintiff’s uterus. I now go on to consider whether the first defendant’s consent can be implied.
A term might be implied in a contract because of the presumed intent of the parties or because of a rule of law. It has been argued on behalf of the Attorney General that there is no rule of law that governs this issue and I accept that submission. The question which arises is whether there can be said to be presumed intent. The courts have no power to imply a term into a contract merely because it appears reasonable to do so. In Sweeney v. Duggan [1997] 2 I.R. 531, the Supreme Court explained the law relating to implied terms. Murphy J. stated:
“There are at least two situations where the court will, independently of statutory requirement, imply a term which has not been expressly agreed by the parties to a contract. The first of these situations was identified in the well-known case, The Moorcock (1889) 14 P.D. 64 where a term not expressly agreed upon by the parties was inferred on the basis of the presumed intention of the parties.”
He went on to add:
“In addition there are a variety of cases in which a contractual term has been implied on the basis, not of the intention of the parties to the contract but deriving from the nature of the contract itself.”
On the question of presumed intention of the parties Murphy J. quoted from the judgment of MacKinnon L.J. in Shirlaw v. Southern Foundries (1926) Ltd. [1939] 2 K.B. 206 where at page 227 he said:
“Prima facie that which in any contract is left to be implied and need not be expressed is some thing 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 their agreement, they would testily suppress him with a common, ‘oh of course’.”
In the light of the evidence in this case and the documents which have been produced it cannot be said that it was the presumed intention of the parties that the three frozen embryo would be implanted in the plaintiffs uterus in the circumstances which have arisen, namely following the success of the first implantation procedure and the legal separation of the plaintiff and the first defendant.
The other issue to be considered is whether a contractual term is to be implied from the nature of the contract itself. I have been referred to the case of Liverpool C.C. v. Irwin [1997] A.C. 239. When one looks at the consent form signed in this case, it is clear that the parties agreed to the freezing of three embryos. But it has not been established, in my view, that to give effect to the agreement between these parties it is necessary to imply a term that the frozen embryos will be implanted in the plaintiff’s uterus. The agreement of the plaintiff and the first named defendant to participate in the IVF treatment indicates that the three frozen embryos would be used if the first implantation failed. But even in that event there were other possibilities which had not been considered namely what would happen to the frozen embryos in the event that one of the parties died or the parties became separated or divorced. It is clear from the evidence which has been given so far in this case that these are matters which were never discussed at the time when the parties entered into the agreement to have the IVF treatment. It seems to me, from the evidence in this case and from the authorities which have been outlined in other jurisdictions, that there are a wide variety of possibilities when it comes to deciding what should happen to the frozen embryos. Looking at all the consent forms signed by the plaintiff and the first defendant and having regard to the evidence I am not satisfied that a term requiring that the frozen embryos should be implanted in the uterus of the plaintiff, derives from the nature of the agreement itself. I accept the submission of the Attorney General that to imply a term, the contractual provisions alleged must be necessary, they must be capable of being formulated with precision and they must be terms both parties would have agreed if suggested at the time of the conclusion of the contract. These principles have been re-stated by the Supreme Court in Carna Foods v. Eagle Star Insurance [1997] 2 I.L.R.M. 299 and Sweeney v. Duggan [1997] 2 I.L.R.M. 211.
For the reasons outlined above I hold that there was no agreement either expressed or implied as to what was to be done with the frozen embryos in the circumstances that have arisen and I further hold that the first named defendant has not entered into an agreement which requires him to give his consent to the implantation of the three frozen embryos in the plaintiff’s uterus.
McGrath v. Trintech Technologies Ltd. & Anor
[2004] IEHC 342 (29 October 2004)
Judgment of Miss Justice Laffoy delivered on 29th October, 2004.
Factual background to the proceedings in outline
These proceedings arise out of the employment by the plaintiff, who is approaching 38 years of age, with the first defendant, which, as I understand it, is a subsidiary of the second defendant. The second defendant was originally joined in these proceedings because it was apprehended that it purported to terminate the plaintiff’s employment with effect from September, 2003. The second defendant, with its subsidiaries and associated companies, is involved in information technology on a worldwide basis, in particular, the development of software for processing credit card transactions and other financial payment solutions. It is listed on the Nasdaq in New York and in the Neuermarkt in Frankfurt. Its main office is in Dublin but it also has offices in Dallas, in Potters Bar in the United Kingdom, in Frankfurt and in Montevideo. In reality, there is only one defendant in these proceedings: the company which employed the plaintiff.
During the period 1988 to 1998 the plaintiff lived in the United States of America and worked in the information technology sector, where he gained considerable experience. On his return to Ireland in 1998 he worked on a consultancy basis for various financial institutions and companies involved in information technology.
The plaintiff’s initial working relationship with the defendant was on contractual basis. In April, 2000 he was retained on contract as a project manager. That relationship changed in July, 2000, when he became an employee in the role of Senior Project Manager on the terms of a written contract of employment to which I will refer later. In December, 2001 the plaintiff was promoted to the position of Director of Professional Services. His immediate superior between July, 2000 and December, 2001 was Martin Downes, who was then the Director of Professional Services. Thereafter, he continued to report to Mr. Downes, who had been promoted to the position of Vice-President of Professional Services, until January, 2003.
While contracted as a project manager and employed as a senior project manager, the plaintiff worked on projects which took him on foreign assignments. During his first two and a half years with the defendant he suffered bouts of ill health of a physical nature, in particular, in the autumn of 2000, following an assignment in Korea, in April, 2001, while on assignment in South Africa, and in October and November, 2002.
While on sick leave in October/November, 2002, he was requested by the defendant to go on an assignment to Uruguay to work in a Uruguayan company, Sursoft SA, which had been acquired by the defendant in 1999. He acceded to the request and was working in Uruguay from mid-January, 2003 until the end of June, 2003, a period slightly in excess of five months. One aspect of the plaintiff’s claim is that he alleges that during this period he was subjected to grave work related stress and pressure which resulted in injury to his psychological health and well-being. Another is that the terms of his employment were varied when he took up the assignment to Uruguay.
Following his return from Uruguay in late June, 2003, the plaintiff did not return to work. He was absent on certified sick leave.
On 26th August, 2003, the plaintiff was informed by Mr. Downes and by Mr. Gerry Cleary, the Director of Human Resources, that he was being made redundant with effect from 26th September, 2003. He was one of twelve out of one hundred and thirty employees in the Dublin office whom the defendant decided to make redundant at that time with the objective, according to the defendant, of cost-cutting against the background of a sluggish global market for the defendant’s products and services. On the same day written details of the “redundancy package” were furnished to him. The package envisaged the plaintiff receiving a total payment of €27,536.52 to cover one month’s pay in lieu of notice, four weeks’ pay per year of service worked “including statutory redundancy” and holidays owing. The plaintiff would be required to sign a disclaimer acknowledging that the payment was in full and final settlement of all claims at common law or under statute arising from his employment and its termination.
The plaintiff did not accept that the defendant was entitled to make him redundant. His case was that when he took up the assignment to Uruguay he had been guaranteed that the company would retain him for a year in the post of Director of Professional Services following his return. He was also of the view that the method of his selection for redundancy was unfair and invalid.
These proceedings were instituted on 11th September, 2003. On 24th September, 2003, on an interlocutory application, the plaintiff obtained an order from this court (O’Donovan J.) restraining the defendant from dismissing or attempting to dismiss him on grounds of redundancy or for any other grounds pending the trial of the action. The effect of the order I s that the defendant has continued to pay the plaintiff’s basic salary.
The relief claimed in the proceedings
In these proceedings the plaintiff claims, inter alia, the following reliefs:
“1. A declaration that the purported removal of the plaintiff from his employment with the defendant employer on the ground of redundancy is wrongful and/or unfair.
2. A declaration that the selection of the plaintiff for dismissal on the grounds of purported redundancy in his employment with the defendant herein is unfair, unreasonable, discriminatory and not made in a bona fide manner.
3. A declaration that the removal and/or attempted removal and/or dismissal of the plaintiff on the grounds of purported redundancy is in breach of the express and/or implied contractual terms between the parties in the employment contract.
4. A declaration that the notice of redundancy served on the plaintiff claiming redundancy with effect from 26th September is null, void and of no effect.
5. Damages for breach of contract.
6. Damages for wrongful dismissal.
7. An order directing the re-engagement or reinstatement of the plaintiff with the defendant company if necessary.
8. Damages for personal injury and loss of good health, damage and expense.
9. Damages for breach of trust . . . “
The bases on which the plaintiff claims to be entitled to the declaratory reliefs sought, as pleaded and as are to be deduced from the comprehensive written submissions put before the court by counsel for the plaintiff, may be summarised as follows:
(a) that it was expressly or impliedly provided in the plaintiff’s contract of employment that the defendant –
(i) would not dismiss or attempt to dismiss him without due cause and without reasonable notice or consultation,
(ii) would act fairly and reasonably towards him in any review and selection process in relation to consideration for dismissal or redundancy, and
(iii) would adopt fair procedures in any review or selection process for dismissal or redundancy;
(b) that there was an express or an implied contractual term that if the plaintiff was on certified sick leave, reliant on the prospect of permanent health insurance cover, the defendant would not dismiss him in those circumstances thereby depriving him of the benefit of the permanent health insurance benefit should the need arise; and
(c) that it was expressly agreed in January, 2003 that if the plaintiff accepted the assignment in Uruguay, he would be guaranteed twelve months’ security of tenure as Director of Professional Services on his return.
The defendant denies that any such terms were part of the contractual relationship between the plaintiff and the defendant. Aside from that, it is contended on behalf of the defendant that whether or not the plaintiff’s position was redundant on 26th August, 2003 is irrelevant to the right of the defendant to terminate the plaintiff’s contract of employment and that, as a matter of legal principle, the plaintiff is not entitled to the declaratory relief claimed in relation to redundancy.
Redundancy: the legal principles
It is the defendant’s case that the concept of “redundancy” is a creature of statute – the Redundancy Payments Act, 1967 and the Unfair Dismissals Act, 1977, as amended. The legislative scheme prescribes the circumstances in which a redundancy can be challenged and the remedies available. Courts only have jurisdiction in the circumstances prescribed by the legislation. The remedies provided under the legislation for unfair dismissal are not remedies available to a plaintiff in an action at common law for wrongful dismissal.
The defendant relies on a number of authorities in support of these propositions.
In Parsons v. Iarnród Éireann [1997] E.L.R. 203, the issue was whether the plaintiff was precluded, by virtue of the provisions of s. 15 of the Act of 1977, from bringing an action at common law in respect of a dismissal which had previously been the subject of a claim to a Rights Commissioner under the Act of 1977. Explaining the relationship of the statutory code to the common law jurisdiction, in delivering judgment in the Supreme Court, Barrington J. stated as follows (at p. 207):
“What the Unfair Dismissals Act, 1977 does is to give the worker who feels that he has been unfairly dismissed an additional remedy which may carry with it the very far-reaching relief of reinstatement in his previous employment. It does not limit the worker’s rights, it extends them. At the same time, s. 15 of the Unfair Dismissals Act provides that the worker must choose between suing for damages at common law and claiming relief under the new Act. Sub-section (2) accordingly provides that if he claims relief under the Act he is not entitled to recover damages at common law; while sub-section (3) provides that where proceedings for damages at common law for wrongful dismissal are initiated by or on behalf of an employee the employee shall not be entitled to redress under the Unfair Dismissals Act in respect of the same dismissal.
The traditional relief at common law for unfair dismissal was a claim for damages. The plaintiff may also have been entitled to declarations in certain circumstances such as, for instance, that there was an implied term in his contract entitling him to fair procedures before he was dismissed. But such declarations were in aid of the common law remedy and had no independent existence apart from it. If the plaintiff loses his right to sue for damages at common law the heart has gone out of his claim and there is no other free-standing relief which he can claim at law or in equity.”
In Sheehy v. Laurence Ryan and James Moriarty (an unreported judgment of this court (Carroll J.) in which judgment was delivered on 3rd February, 2004) the plaintiff sought, inter alia, a declaration that the purported termination of her tenure by the defendant was invalid and unlawful on the ground, inter alia, that it was without efficacy in that it had been embarked upon in breach of the tenets of natural and constitutional justice and was predicated on an invalid invocation of the provisions of the Redundancy Payments Act, 1967 (as amended). She also sought an injunction restraining the termination of her employment. In dismissing her action, Carroll J. stated as follows:
“The plaintiff has chosen to sue at common law. There were other possibilities open to her. She could have initiated proceedings under the Unfair Dismissals Act, 1977 claiming unfair dismissal or under the Redundancy Payments Act claiming that there was no valid redundancy or that she was unfairly chosen to be redundant. If successful she would have been awarded statutory compensation.
The position at common law is that an employer is entitled to dismiss an employee for any reason or no reason, on giving reasonable notice.”
In relation to the plaintiff’s claim that the principles of natural and constitutional justice applied to the decision to dismiss her, Carroll J. referred to the decision of Gannon J. (affirmed on appeal by the Supreme Court) in Hickey v. Eastern Health Board [1991] 1 I.R. 208 where it was held that the rules of natural justice regulating dismissal for misconduct had no application where the dismissal was for reasons other than misconduct.
Counsel for the defendant also referred to the decision of the House of Lords in Johnson v. Unisys Limited [2001] 2 All ER 801. In that case, the plaintiff, who had been the beneficiary of an award from a statutory industrial tribunal, which had upheld his complaint that he had been unfairly summarily dismissed, initiated a civil action against his employer for breach of contract and negligence alleging that the manner of his dismissal had caused him to suffer a nervous breakdown and had made it impossible to find work. He relied, inter alia, on the implied term of mutual trust and confidence between an employer and an employee, which was endorsed by the House of Lords in Malik v. BCCI [1997] 3 All ER 1, contending that the employer had breached that term by failing to give him a fair hearing and by breaching its disciplinary procedure. The employer applied to have the particulars of claim struck out on the ground that they disclosed no reasonable cause of action at common law. The House of Lords held that an employee had no right of action at common law to recover financial losses arising from the unfair manner of his dismissal. In a short speech, which was quoted in part with approval by Carroll J. in Orr v. Zomax Limited (unreported judgment delivered on 25th March, 2004), Lord Nicholls of Birkenhead stated:
“On this appeal the appellant seeks damages for loss he claims he suffered as a result of the manner in which he was dismissed. He uses as his legal foundation the decision of the House in Malik . . . , although this was not a manner of dismissal case. In principle the appellant’s argument has much to commend it. I said so in my obiter observations in Malik’s case . . . but there is an insuperable obstacle: the intervention of Parliament in the unfair dismissal legislation. Having heard full argument on the point, I am persuaded that a common law right embracing the manner in which an employee is dismissed cannot satisfactorily co-exist with the statutory right not to be unfairly dismissed. A newly-developed common law right of this nature, covering the same ground as the statutory right, would fly in the face of the limits Parliament has already prescribed on matters such as classes of employees who have the benefit of the statutory right, the amount of compensation payable and the short time limit for making claims. It would also defeat the intention of Parliament that claims of this nature should be decided by specialist tribunals, not the ordinary courts of law . . .”
On the basis of the foregoing authorities, it was submitted by counsel for the defendant that it is quite clear that in these proceedings the plaintiff has no right to claim any remedy other than damages at common law and, in particular, has no right to invoke statutory rights or claim declaratory relief in the form sought.
The first point to be made in relation to that submission is that the plaintiff has not invoked any statutory provision in support of his claim. Although decisions of the Employment Appeals Tribunal were cited, I did not understand the plaintiff to argue that the principles applicable under the statutory scheme should be imported into common law. On the authority of the judgment of Carroll J. in the Orr case, it would not have been open to them to do so. His claim is grounded entirely in the common law – in contract and tort. In particular his claims for declaratory relief are based on the express or implied terms which he contends for, not on any statutory protection. On the authority of the decision of the Supreme Court in the Parsons case, however, the plaintiff is not entitled to any declaration which extends beyond the ambit of the contractual rights which he establishes and the breach of those rights. On the same authority, the only other remedy to which he is entitled, if he establishes his claim in contract, is damages.
The Issues
Accordingly, in my view, in broad terms, the issues for determination on liability are as follows:
(1) Whether the plaintiff has established a claim in contract for wrongful dismissal and other breaches of the terms of his contract?
(2) Whether the plaintiff has established a claim in tort for personal injuries?
These are discrete issues which will be dealt with separately.
The contract of employment
The plaintiff’s contract of employment with the defendant was dated 6th July, 2000. It was in the form of a letter offering him the position of project manager and setting out the details of the remuneration package which consisted of a base salary, performance-related bonus, stock options and VHI cover. Attached to the letter was “a Statement of Terms and Conditions of Employment”. The plaintiff was also required to sign a Confidentiality Agreement, but nothing turned on that in these proceedings.
The provisions of the Statement of Terms and Conditions of Employment which are pertinent to the issues in these proceedings were as follows:
? The provision in relation to sick leave and pay, which provided that absence due to illness should be notified as early as possible, a medical certificate was required for an absence in excess of two consecutive days, and the management reserve the right to request a medical certificate for any absence irrespective of duration. Further details were to be found in the defendant’s staff handbook in the section on medical leave. The handbook was not put in evidence. However, the evidence of the prevailing policy in 2003 was that, subject to production of medical certificates as required, salary would be paid for twenty six weeks while on certified sick leave, whereupon the PHI benefit referred to later would become operative.
? Under the heading of transferability, it was provided that the company reserved the right to transfer staff between Head Office, branches and subsidiary companies.
? Under the heading of Termination of Employment, it was provided as follows
“One month’s notice will be required for the termination of employment. Employees are requested to confirm a resignation in writing, confirming the date when he/she shall cease.”
The terms and conditions of employment were augmented in January, 2001 when a scheme for long-term disability benefit was introduced. On 29th January, 2001 the plaintiff and all other employees were notified that the defendant was introducing Permanent Health Insurance (PHI) to its current list of benefits for all full-time, permanent employees of the defendant in Ireland. There was attached to the notification an Explanatory Booklet. The booklet disclosed that the defendant paid the full cost of the scheme. Subject to exclusions and limitations, where an employee was disabled for a period in excess of 26 weeks continuous absence, he or she would be entitled to be considered for a benefit under the scheme. Where eligible, the benefit was equivalent to 50% of salary less the annual rate of State disability pension payable to a single person. Disability benefit would increase during payment at the rate of 3% per annum compound, subject to a maximum of the increase in the Consumer Price Index over the same period. In relation to when the benefit would cease, the booklet provided as follows:
“The payment, once granted, will continue while disability lasts or until one of the following occurs:
(i) Attainment of age 65
(ii) Death
(iii) Recovery
(iv) Termination of Employment”
It was provided that the scheme could be amended or discontinued by the defendant at any time and that the defendant might, at its discretion, change the insurer and the policy terms through which the scheme was insured and by which it was governed. It was further stated that the insurer also reserved the right to amend or cancel the terms of the policy. When the scheme commenced on 1st February, 2001, the insurer was Eagle Star Assurance Company Limited. By September, 2003 the insurer had been changed to Friends First which, following Mr. Cleary’s intervention on behalf of the plaintiff, quoted a premium for continuation of the PHI cover, which the plaintiff did not pursue.
There is no other documentation evidencing the terms and conditions on which the plaintiff was employed by the defendant. However, it is necessary to consider whether, as pleaded by the plaintiff, his contract was subject to implied terms on the lines set out earlier. As the question whether the existence of the PHI cover gave rise to an implied term on the lines contended for necessitates consideration of authorities directly in point cited on behalf of the plaintiff, I will deal with that issue separately. It is also necessary to consider whether, on the evidence, the plaintiff has established that the additional terms he contends were agreed in January, 2003 prior to his departure for Uruguay were in fact expressly agreed.
Implied terms: dismissal/redundancy
In support of their submission that it is settled law that the employment relationship is governed by an implied term of mutual trust and confidence, counsel for the plaintiff referred to Redmond on Dismissal Law in Ireland (2nd Edition, 1998, Butterworth’s) at para. 2.11 where the evolution of the implied terms of mutual trust and confidence in a contract of employment is analysed. It is stated that the modern approach is prescriptive: the mutual duty of trust and confidence obliges the parties in the contract of employment to behave towards one another in a way which respects trust and confidence and enables it to flourish between them. On the employer’s side, it is suggested, his prescriptive duty not to do anything to destroy the relationship of confidence translates, inter alia, into a duty to provide fair procedures in disciplinary matters, a prescriptive duty already endorsed in this jurisdiction in the Constitution.
The question which arises here is whether that broad principle can accommodate the implication in the contractual relationship of the plaintiff and the defendant of terms that the plaintiff would not be dismissed without due cause or without reasonable notice or consultation and that the defendant would adopt fair procedures in any review or selection process for dismissal or redundancy, the breach of which would give rise to an action at common law. In contending that it cannot do so in such a manner as to give rise to an inconsistency or conflict with another contractual term governing the relationship of the parties, the defendant referred to the speech of Lord Hoffman in the Johnson case. In his speech (at p. 816), having acknowledged that the contribution of the common law to the employment revolution has been by the evolution of implied terms in the contract of employment, the most far-reaching being the implied term of trust and confidence, Lord Hoffman went on to say:
“The problem lies in extending or adapting any of these implied terms to dismissal. There are two reasons why dismissal presents special problems. The first is that any terms which the courts imply into a contract must be consistent with the express terms. Implied terms may supplement the express terms of the contract but cannot contradict them. Only Parliament may actually override what the parties have agreed . . .”
On the facts of the Johnson case, Lord Hoffman stated that, in the face of the express provision in Mr. Johnson’s contract that Unisys was entitled to terminate his employment at four weeks’ notice without any reason, it was very difficult to imply a term that Unisys should not do so except for some good cause and after giving reasonable opportunity to demonstrate that no such cause existed.
Lord Steyn, who dissented on the issue as to whether Mr. Johnson had a reasonable cause of action based on breach of the implied obligation of trust and confidence, took a different view. Commenting on the argument by counsel for Unisys that to apply the implied obligation of mutual trust and confidence in relation to a dismissal was to bring it into conflict with the express terms of the contract, he said:
“Orthodox contract law does not permit such a result. His argument approached the matter as if one was dealing with the question whether a term can be implied in fact in the light of the express terms of the contract. The submission loses sight of the particular nature of the implied obligation of mutual trust and confidence. It is not a term implied in fact. It is an over-arching obligation implied by law as an incident of the contract of employment. It can also be described as a legal duty imposed by law – Treitel The Law of Contract (10th Edn, 1999) at p.190. It requires at least express words or a necessary implication to displace it or to cut down its scope. Prima facie it must be read consistently with the express terms of the contract. . . . The interaction of the implied obligation of trust and confidence and express terms of the contract can be compared with the relationship between duties of good faith or fair dealing with the express terms of notice in a contract. They can live together.”
However, Lord Steyn went on to state that the notice provision in the contract was valid and effective, but the employer may become liable in damages if he acts in breach of the independent implied obligation by dismissing the employee in a harsh and humiliating manner. That would give rise to no conflict between the express and implied terms.
The essence of the plaintiff’s case, however, is that there should be implied into his contract with the defendant a term that mere compliance with the express notice provision in the contract would not validly and effectively terminate the contractual relationship at common law. There is no authority for this proposition. I am persuaded by the authorities cited by the defendant’s counsel that the proposition is not sound in principle. Accordingly, I have come to the conclusion that terms in relation to dismissal and redundancy on the lines pleaded by the plaintiff cannot be implied into the plaintiff’s contract of employment with the defendant so as to give rise to a cause of action at common law. Such protection and remedies as are afforded by statute law to the plaintiff in the circumstances which prevailed in August, 2003 cannot be pursued at first instance in a plenary action in the High Court.
Implied term: PHI
In support of the contention that it was an implied term of the plaintiff’s contract of employment that the defendant would not make the plaintiff redundant in circumstances that would deprive him of the benefit of the permanent health insurance, counsel for the plaintiff cited a number of authorities of courts in the United Kingdom, which it was submitted should persuade the court that it is appropriate to imply such a term. The authorities in question are:
• the decision of the High Court of England in Aspden v. Webbs Poultry and Meat Group (Holdings) Limited [1996] I.R.L.R. 521;
• the decision of the Outer House of the Court of Session in Scotland in Hill v. General Accident Fire & Life Assurance Corporation [1998] IRLR 641;
• the decision of the High Court of England in Villella v. MFI Furniture Centres Limited [1999] I.R.L.R. 468;
• the decision of the Court of Appeal in Briscoe v. Lubrizol Limited [2002] IRLR 607.
Counsel for the defendant referred the court to the decision of the English High Court in Jenvey v. Australian Broadcasting Corporation [2002] IRLR 520. That case is not directly in point, although it did contain a summary of the earlier decisions in the so called “long-term sickness cases”.
In essence, all of the cases were concerned with ascertaining what the agreement between the employer and the employee was. This gave rise to particular difficulties in the Aspden case, which is regarded as the source of the jurisprudence. As was pointed out by Sedley J. in his judgment, the written contract of employment presented two peculiarities. First it was entered into during the currency of an established employment relationship which it was not designed to alter and which, at least, de facto, included income replacement insurance for senior staff. Secondly, it had been based on a form of contract drawn for another senior member of staff in a situation which did not include income replacement insurance. In the circumstances Sedley J., considered that there was legitimacy in asking what the parties would have inserted if they had not simply overlooked, as they clearly did, the existence of the insurance scheme, since the contract was not drafted with the scheme in mind. He found that the justice of the case required that there be implied in the contract that, save for summary dismissal, the employer would not terminate the contract while the employee was incapacitated for work.
In the Hill case, Mr. Hill had commenced employment with General Accident in 1988. In March, 1994 he became ill and remained absent from work on medical grounds until his employment was terminated by the employer on grounds of redundancy in November, 1995. The employer’s contractual scheme, as set out in the staff manual (Section B8), provided that employees would receive full salary for the first 104 weeks of sickness absence, subject to proper notification, evidence and such like. After 104 weeks absence, employment would be terminated and, dependent upon eligibility, the employer would receive either an ill health retirement pension or sickness and accident benefit. While the staff manual contained provisions regulating procedural arrangements in respect of redeployment and redundancy, neither these provisions nor the provisions in relation to termination contained any express qualification in respect of employees in receipt of sick pay. When Mr. Hill was made redundant he was still in receipt of sickness pay and was some four months away from qualifying for long-term sickness provision. He contended that General Accident were in breach of contract in dismissing him, contending that it was an implied term of his contract of employment that General Accident would not use their contractual powers of dismissal where their use would frustrate an accruing or accrued entitlement under the sickness benefit or health retirement pension scheme. The Outer House of the Court of Session rejected that contention. Lord Hamilton, in his opinion, commented on the Aspden case as follows:
“Insofar as Sedley J.’s conclusion is to be understood as laying down a general proposition that gross misconduct is the only circumstance in which the employer could lawfully dismiss an employee in receipt of sick pay and with the prospect of permanent sickness provision, I must respectfully disagree. No question of a redundancy situation, however arose in that case . . . .”
On the facts before him, Lord Hamilton went on to find as follows:
“In my view, on a sound construction of the pursuer’s contract read as a whole, including the implied term of trust and confidence, the defenders were, notwithstanding that the pursuer was at 30 November, 1995 absent from work on grounds of sickness and properly in receipt of full salary under section B8, entitled to dismiss him by reason of redundancy. I reach this conclusion not by according ‘a higher priority’ to the employer’s right of dismissal than to the employee’s rights and prospective rights but by declining to afford to the employee’s rights under section B8 the absolute character urged by [the pursuer’s counsel]. I should add, however, that I do not accept [the defenders’ counsel] submission that there is a relevant distinction between the situation [as in Aspden . . . ] where the benefit of the scheme is covered by insurance and the situation [in the present case] where the employer carries out that burden directly.”
The judgment of the High Court in the Villella case also illustrates that the task of the court is to ascertain the terms of the employment contract. In that case, the employer’s memorandum of the terms of the permanent health insurance scheme was at variance with the insurance policy by which the scheme was underwritten, in that the latter prescribed that entitlement to benefit would cease on the employee leaving service, whereas in the former provision was made for cover under the scheme to terminate if an employee left service when not disabled. Judge Green QC held that the provision of the policy did not form part of the plaintiff’s contract as there was no evidence that he was shown or saw the policy or had it drawn to his attention that he could or should read it. On an alternative argument made on behalf of the plaintiff that it was an implied term that the plaintiff would not terminate his contract in the circumstances depriving him of long-term disability benefit in course of payment or due to him, it was held that such an implied limitation on the express power to dismiss was necessary to give business efficacy to the contract to provide disability benefit. On this point, the decision of Sedley J. in Aspden was followed. However, Judge Green QC added that, although it was of no direct relevance to the case before him, he agreed with the observations of Lord Hamilton in the Hill case. The matter was left so that the defendant had power to terminate for redundancy.
The Briscoe case was the first occasion on which the issue was pronounced on by the Court of Appeal, although, as was pointed out by Elias J. in the Jenvey case, in Brompton v. AOC International Limited and UNUM Limited [1997] I.R.L.R. 639, Staughton L.J. expressed the view, obiter, that there was a “good deal to be said” for the view that the employee could not be dismissed save for cause after becoming entitled to receive benefits under a long-term sick scheme. Briscoe was a case in which the issue was whether Mr. Briscoe was entitled to be dismissed for cause – whether he had been guilty of repudiatory conduct justifying his summary dismissal in failing, without explanation or excuse, to attend a meeting with his employers to discuss his position following the insurers’ refusal of his claim for benefit under a long-term disability scheme, and in thereafter failing to reply to the employers’ request to contact them. The Court of Appeal upheld the decision of the High Court judge that Mr. Briscoe had been guilty of repudiatory conduct and that he had been lawfully dismissed. Ward L.J. considered the scope of the implied term in the context that it was agreed on the pleadings that after Mr. Briscoe had become entitled to receive benefit under the terms of the relevant scheme, his employer, the defendant, would maintain his employment and membership, save that the defendant was contending that since the claimant was in repudiatory breach, he was not entitled to benefit under the scheme. As to the scope of the implied term, he stated as follows:
“It derives from Sedley J.’s judgment in Aspden. He found there was a mutual intention that the provisions for dismissal would not be operated ‘otherwise than by reason of the employee’s own fundamental breach’. In paragraph 21 he expressed the mutual intention in these terms:
‘The mutual intent did not impinge at all upon the ability of the company at any time to accept the employee’s repudiatory conduct – for example malingering – as putting an end to the contract and with it the entitlement to insurance benefit.’
However, I agree with Lord Hamilton in Hill . . . at paragraph 34 that:
‘Insofar as Sedley J.’s conclusion is to be understood as laying down a general proposition that gross misconduct is the only circumstance in which the employer could lawfully dismiss an employee in receipt of sick pay and with the prospect of permanent sickness provision, I must respectfully disagree.’
To limit dismissal to gross misconduct is to circumscribe the right to dismissal too narrowly. I do not believe Sedley J. had that in mind. I do not believe he would disagree with Lord Hamilton’s broader proposition in paragraph 20 of his judgment that
‘I accept that the defender’s power to dismiss is subject to limitation. Where provision is, as here, made in the contract for payment of salary or other benefit during sickness, the employer cannot, solely with a view to relieving himself of the obligation to make such payment, by dismissal bring the sick employee’s contract to an end. To do so would be, without reasonable and proper cause, to subvert the employee’s entitlement to pay while sick.’
In my judgment, the principle to emerge from those cases is that the employer ought not to terminate the employment as a means to remove the employee’s entitlement to benefit but the employer can dismiss for good cause whether that be on the ground of gross misconduct or, more generally, for some repudiatory breach by the employee.”
I am not persuaded by the authorities cited that there should be implied into the plaintiff’s contract of employment a term on the lines pleaded. What is suggested is that it was an implied term of the contractual relationship that the defendant would not terminate the plaintiff’s contract of employment by notice if two conditions existed: that he was on certified sick leave; and that he was reliant on the prospect of PHI cover. To imply such a term would be inconsistent with the express terms of the contract of employment, in that it was expressly provided that the plaintiff’s employment could be terminated on one month’s notice and that, even where payment had commenced under the PHI scheme, it would cease on the termination of the employment.
It is instructive to consider what would have been the position at 26th August, 2003 which, in my view, is the relevant date, if the plaintiff had the benefit of such an implied term. On that date the plaintiff had been absent from work on certified sick leave for approximately nine weeks. If he could establish that he was reliant on the prospect of permanent health insurance, his employment could not be terminated and he would require to be excluded from the pool of employees from whom persons might be selected for dismissal on the ground of redundancy. As stated by Lord Hamilton in the Hill case (at para. 22) that would be grossly disadvantageous to fellow employees who were well at the material time.
I appreciate that, unlike the Hill case, which proceeded on the assumption that Mr. Hill’s selection for redundancy was genuine, it was the plaintiff’s case that his redundancy was not genuine and that his selection was a device to rid the defendant of an employee who was likely to prove to be a liability in the future because of the likelihood of him being on sick leave. That leads back to the question whether the plaintiff can challenge the genuineness of the redundancy in these proceedings. It is clear on the authorities referred to earlier and, in particular, on the authority of the decision of the Supreme Court in Parsons v. Iarnród Éireann that he cannot. Any such challenge is a matter for another forum.
Additional terms agreed in January, 1993?
On his posting to Uruguay the plaintiff was effectively seconded to John Cahill, who, at the time, was the Executive Vice President of Operations in the Enterprise Division of the defendant. Mr. Cahill reported directly to the Chief Executive Officer, Mr. Cyril McGuire. For the duration of the posting, Mr. Downes ceased to be his line manager. It is common case that Mr. Downes told the plaintiff that he should deal directly with Mr. Cahill in relation to the terms of his posting and that the details should be discussed with Mr. Cahill. Mr. Cahill vacated his position with the defendant with effect from 31st March, 2003 and is now operating his own software company in the United States of America.
The plaintiff’s evidence was that at a meeting with Mr. Cahill on 15th January, 2003, the day before his departure for Uruguay, he raised with Mr. Cahill certain matters in relation to his personal position. This meeting took place against the background that a process of restructuring had been taking place in the defendant’s companies in the then recent past resulting in redundancies.
The plaintiff’s evidence was that he raised a number of points with Mr. Cahill among them the following:
(1) that his bonus, which was performance related, would be guaranteed for the ensuing quarters;
(2) that his posting would be for no longer than six months;
(3) that he would be given an assurance that he was guaranteed in the role of Director of Professional Services for one year from the end of his assignment to Uruguay, which was to run from the end of the four weeks’ leave referred to at (4), and
(4) that he would be given an additional two weeks (ten days) leave on top of his contractual annual leave at the end of the assignment and that he would be allowed to take four weeks’ leave together at that time, two of which would come from his original contractual quota.
The plaintiff’s evidence was that Mr. Cahill agreed to all of the foregoing matters.
Mr. Cahill’s evidence was that the only matter he agreed with the plaintiff was that he was to be ‘made good’ on his bonus and his evidence was that that matter was agreed prior to 15th January, 2003. My understanding of the evidence was that this was not disputed. As to the other matters, he did not recall any discussion about the plaintiff getting an extra ten days’ leave. His evidence was that the issue of four weeks’ vacation on the plaintiff’s return was not raised at all. On the question of security of tenure, Mr. Cahill’s evidence was that the plaintiff did ask for a guarantee of one year’s salary after coming back or a job guarantee of one year. Mr. Cahill’s evidence was imprecise as to what the plaintiff asked for – whether it was one year’s guaranteed employment or one year’s severance. At any rate he categorically testified that he told the plaintiff that he was not in a position to give him any such guarantee and that the plaintiff did not mention it again. He did not have authority to give such commitment without the imprimatur of the Chief Executive Officer, Mr. McGuire. Mr Cahill’s evidence was that he ‘actioned’ the plaintiff’s bonus by talking to Mr. Downes. There is documentary evidence that Mr. Downes made arrangements which ensured that the plaintiff would receive his quarterly bonus notwithstanding that he was involved in activities in Uruguay which were not directly revenue generating. It is not in dispute that the duration of the plaintiff’s posting was to be no longer than six months. Mr. Cahill’s evidence was that by 15th January, 2003 he considered that the plaintiff was going to Uruguay, that he did not expect that the plaintiff’s personal terms would be raised at the meeting on that day and that his expectation was that the meeting was to deal with operational matters.
As I have stated, the defendant denies that it was represented to the plaintiff that he would have twelve months job security. Further, it contends that, in any event, because of the transferability provision in the plaintiff’s contract, any such representation would not be supported by consideration and could not give rise to any action at law. In my view that argument is not sustainable. If there were representations which were intended to vary or add to the terms and conditions of the plaintiff’s employment, which were acted on by the plaintiff, they give rise to contractual liability.
The real difficulty in this case is the factual conflict which has arisen between the plaintiff and Mr. Cahill. Mr. Cleary testified that he was unaware of any representation or assurance having been given by Mr. Cahill. Any assurance as to tenure with the defendant required the authority of Mr. McGuire and required to be ‘signed off’ on by Mr. Cleary as Director of Human Resources. However, the employees had not been notified of these requirements. Mr. Downes testified that he did not recollect the plaintiff’s contention that he was given a job guarantee by Mr. Cahill coming up until after he was notified that he was to be made redundant. Further, he did not hear anything about the plaintiff’s contention that Mr. Cahill had guaranteed him two extra weeks leave, or that he was promised that he could take four weeks leave on his return from Uruguay, until he had a meeting with the plaintiff during that last week in June of 2003
Apart from the documentary evidence in relation to the payment of the performance bonus to the plaintiff, to which I have already alluded, there is no documentary evidence emanating from the defendant which corroborates the plaintiff’s evidence. There is one e-mail from the plaintiff to Mr. Downes dated 20th March, 2003, in which the plaintiff complained bitterly about having to postpone a trip home and in the course of which he stated that the only two conditions that he had asked for were a trip home once a month and a fixed term of six months. The plaintiff explained the reference to two conditions as meaning conditions relating to his actual stay in Uruguay.
The long hearing in this matter, which lasted twelve days, was frequently punctuated by complaints by each side in relation to compliance with the other of orders for discovery made in the matter. In relation to complaints made concerning compliance by the defendant, in closing the case counsel for the plaintiff properly recognised that these matters had not been the subject of motions for further and better discovery prior to the hearing. However, he urged that the manner in which the defendant dealt with the discovery went to the credibility of the defendant.
This submission has to be put in context. On 13th January, 2004 this court (O’Sullivan J.) made an order for discovery against the plaintiff. An unusual feature of the order was that the court acceded to an application by the defendant, on its undertaking to bear the costs of the expert, that the plaintiff deliver up to an independent expert nominated by the defendant, two lap-top personal computers, which were the property of the defendant but were in the possession of the plaintiff, for the purpose of reconstituting documents contained on the hard drives. This order was complied with. Subsequently, on 9th February, 2004, on an application by the plaintiff, I made an order for discovery against the defendants which related to, inter alia, all deleted documents relating to matters in issue in the proceedings on the defendant’s computers in the possession of Mr. Downes, Mr. Cleary, Mr. Cahill, Paul Byrne, the Finance Director of the defendant, John Doran, who took over as General Manager in Uruguay when the plaintiff’s posting was completed, and Mr. McGuire.
The manner in which that discovery order was complied with is of relevance. First, it was not until the eleventh day of the hearing that relevant data which had been archived on to the hard drive of Mr. McGuire’s computer was discovered. Secondly, Mr. Byrne in the course of his evidence testified that in the summer of 2003 the hard drive of his lap-top was damaged when it fell out of the baggage compartment in an aircraft, resulting in the loss of data. Mr. Byrne further testified that at the time the policy of the defendant in relation to “backing-up” data did not apply to lap-tops. That relevant data had been lost in this manner was not deposed to in the affidavit of discovery filed on behalf of the defend ant and it only became apparent in the course of the hearing. The defendant’s final position on this was that, despite the best efforts of the MIS department of the defendant to reconstitute the hard drive of Mr. Byrne’s lap-top, not all documents were restored. While these failures on the part of the defendant have been explained on the basis that they were due to inadvertence, that explanation has to be viewed against the background of the measures to which the defendant resorted to get discovery against the plaintiff. Further, in the context of the factual dispute between the plaintiff and Mr. Cahill, Mr. Cahill deposed to the fact that on leaving his employment with the defendant he wiped his lap-top computer of all files as a security measure. Finally, the discovery made by the defendant revealed an extraordinary paucity of electronic or documentary records in relation to the selection process for the redundancies which were effected in the summer of 2003.
The relevance of all of the foregoing factors, in my view, to the resolution of the factual conflict between the plaintiff and Mr. Cahill is that the absence of any electronic or documentary record corroborative of the plaintiff’s account cannot be a significant consideration.
In the final analysis, on the factual conflict, the question is whether the plaintiff’s account or Mr. Cahill’s account is to be accepted as representing what transpired between them. In general, I found the plaintiff to be a precise and consistent witness and unaffected by loss of memory as suggested by the defendant’s counsel. He was very open and frank in court. In making this finding I have borne in mind the complaints made on behalf of the defendant in relation to the manner in which the plaintiff discovered a report of, and communications with, the Amen Clinic to which I will refer later. The case was made on behalf of the defendant that Mr. Cahill, who returned from the USA to testify, was not an interested party in the sense that he swore that he had no ongoing commitment to the defendant. Be that as it may, there was considerable lack of candour on the part of Mr. Cahill and of the defendant’s witnesses who were aware of the situation, Mr. Byrne and Mr. Cleary, of the circumstances in which Mr. Cahill first went on holidays in the middle of a serious industrial relations crisis in Uruguay and then left the defendant’s employment at the end of March, 2003. The evidence as a whole does not indicate a strict protocol in the defendant companies in relation to the tenure of employees requiring the involvement of the Director of Human Resources and the Chief Executive Officer. The thrust of the evidence was that in the matter of terminating employment, which may involve not inconsiderable financial liability for statutory and extra-statutory redundancy payments, the relevant decisions are made by the Vice President of the relevant division, and while requiring the approval, apparently verbal, of the Director of Human Resources, are made without reference to the Chief Executive Officer.
Having considered the possibility that the plaintiff may have a mistaken perception of what transpired between himself and Mr. Cahill, I have come to the conclusion that the plaintiff was given the guarantee, which became a term of his contract, that his employment with the defendant in the role of Director of Professional Services would continue for one year after his return. The purported termination of his contract was in breach of that guarantee. I will deal with the quantum of damages to which the plaintiff is entitled later.
Orr v. Zomax Ltd.
[2004] IEHC 47 (25 March 2004)
JUDGMENT of Carroll J. delivered the 25th day of March, 2004.
The plaintiff is an engineer by profession. He originally joined KAO Information Systems (KAO) in 1995. There was a transfer of undertaking by KAO to the defendant in 1999 and the plaintiff’s employment continued pursuant to the EU Acquired Rights Directive. With KAO he was Programme Manager assigned to the new Microsoft account. In 2000 he was appointed Client Services Manager-Microsoft Business, by the defendant pursuant to contract dated 16th May, 2000.
The contract provided his employment commenced 1st June 2000.
Clause 12 deals with termination of employment and provides:-
“Notice periods
After the successful competition of the probationary period this contract may be terminated by either party giving written notice of not less than the following:
– Less than four years service 1 month
– Four years but less than nine years service 2 months
– Nine years service and over 3 months
The company may terminate the contract without notice if you are in serious breach of contract, are guilty of gross misconduct or any conduct likely to bring yourself or the company into disrepute, including any conduct which renders you unsuitable to perform the duties required of your position.”
The contract also provides
“This contract supersedes any other contract or arrangement which may have been entered into by the parties.”
The plaintiff’s grounding affidavit contains an enormous amount of unnecessary detail. He refers to negative feedback from Microsoft which he says was not due to deficiencies on his part.
At a meeting on 6th November, 2003 the defendant announced a re-organisation whereby a new Business Relationship Manager role was to be created amalgamating the plaintiff’s role as Client Services Manager and the position of Contract Centre Manager. The plaintiff applied for the job and was interviewed and short listed.
On 18th November, 2003 he was informed that he had not got the job. At a meeting on 19th November, 2003 the plaintiff was given a letter from Mr. Dignam, Director of the defendant company, referring to the meeting on 6th November, 2003 and the company restructuring and also referring to the job selection process.
He continued
“Your contract of employment provides for two months notice on the termination of your employment. In addition you are entitled to statutory redundancy and I am attaching a schedule to this letter outlining your entitlements. As we appreciate that this is not an easy thing for you to deal with we are anxious that you should be treated with consideration. Accordingly if you would prefer to receive pay in lieu of notice we can agree to that and in addition we will make an ex gratia payment equivalent to another month’s salary.
In addition I enclose for your attention your RP1 form which gives formal notice of your redundancy. If you decide to take pay in lieu of notice then the termination of your employment will take effect on 3rd December, 2003″.
Mr. Dignam again wrote on 25th November outlining the options available in the light of the recent restructuring and included a list of current open positions although at a lower level.
On 8th December, 2003 Mr. Dignam wrote referring to a meeting at which the plaintiff confirmed he would be returning to work on 9th December to work out his notice. This would bring him to 3rd March, 2004. He said he (the plaintiff) would take up a project management role reporting to him for the duration of his notice.
On 12th December, 2003 the plaintiff replied disagreeing with Mr. Dignam in several matters and concluded by saying “The purported redundancy is not accepted by me and I continue to reserve my position pending the outcome of further negotiations.”
Having had a meeting, Mr. Dignam replied on 19th December, 2003 to clarify the situation and outline the options. He said that with immediate effect he (the plaintiff) was “on garden leave” and would be paid through the pay roll until 3rd March unless they heard otherwise. He would then be paid statutory redundancy. If he decided on pay in lieu of the remaining part of his notice, he would be paid the remainder tax free. He referred to the plaintiff’s statement at the meeting that he had not decided whether to accept redundancy or not and he said this was not an option. He asked him to take time to consider and if he would like to return to work out his notice to contact him to discuss this option further but this would require clear ground rules.
The plaintiff did not return to work and a plenary summons was issued on 3rd February, 2004 claiming the following relief
1. A declaration that the purported termination of the plaintiff’s tenure by the defendant for reasons of redundancy is invalid and without efficacy in that it “(a) constitutes an unlawful repudiation of the plaintiff’s appointment which is not being accepted by the plaintiff
(b) is predicated on an invalid invocation of the concept of redundancy alternatively the plaintiff’s purported redundancy is bogus and contrived
(c) is ultra vires
(d) is discriminatory
2. An order that the defendant pay to the plaintiff all his salary as accruing from the month of March 2004 to the trial of the action or until further Order of this Honourable Court.
3. An order requiring the defendant to fund and maintain the plaintiff’s pension and life assurance benefits by paying all instalments of premium together with such further or order restraining the defendant its servants and agents from reducing the plaintiff’s pension benefits in any mode whatsoever.
4. An order preserving all the plaintiff’s perquisites and entitlements including share options and allowances.
5. An injunction restraining the purported termination of the plaintiff’s employment and if necessary an order permitting the performance of his functions and duties by the plaintiff.
6. An injunction restraining the performance of the plaintiff’s functions and duties by any person other than the plaintiff.
7. Damages for breach of the plaintiff’s constitutional right to work.
8. Damages for the reckless infliction of nervous shock and emotional suffering.
9. Damages for misrepresentation and negligent mis-statement.
On the 4th February the plaintiff issued a notice of motion claiming
1. An order that the defendant pay to the plaintiff all salary as accruing from the month of March 2004 to the trial of the action or until further order of this Honourable Court.
2. An order requiring the defendant to fund and maintain the plaintiff’s pension and life assurance benefits by paying all instalments of premium together with such further or other order restraining the defendant its servants or agents from reducing the plaintiff’s pension benefits in any mode whatsoever.
3. An order preserving all the plaintiff’s perquisites and entitlements including share options and allowances.
4. An injunction restraining the purported termination of the plaintiff’s employment and if necessary an order permitting the performance of his functions and duties by the plaintiff.
5. An injunction restraining the performance of the plaintiff’s functions and duties by any person other than the plaintiff.
The plaintiff submits in his grounding affidavit that there is no valid reason why he should not remain in employment with the defendant and seeks the relief sought. He claims this is not a redundancy.
Mr. Shanahan, the Managing Director of the defendant, avers that there is no role for the plaintiff to occupy with the defendant and any order directing his reemployment with the defendant would significantly disrupt the defendant’s management and cause irreparable harm. He claims the plaintiff can be adequately compensated in damages and what is required in an early trial.
Mr. Dignam avers that no job exists for the plaintiff. There is no alternative role for him and the defendant should not be required to accept his return for work.
In a replying affidavit the plaintiff says that the criticisms made of him are the real reason for the defendant’s purported decision to remove him from his post under the guise of redundancy. He said there is no reason why his return to employment would impact adversely on the defendant’s business.
The plaintiff in a second replying affidavit says there is no basis for Mr. Shanahan’s alarmist and offensive contention about irreparable harm if he returned to work. He says he is at a loss to understand how the loss of his career and the resultant suffering and financial hardship which his family and he would suffer can adequately be compensated by an award of damages. He said his undertaking as to damages has been given in good faith and he is joint beneficial owner with his wife of a family home subject to a mortgage.
In deciding whether to grant interlocutory injunctive relief the guiding principles are set out in Campus Oil v. Minister for Industry (No. 2) [1983] I.R. 102. There must be a fair issue to be tried, damages must not be an adequate remedy and the balance of convenience must favour the granting of the injunction.
The plaintiff claims that the issue to be tried is that he was unfairly dismissed because there was no valid redundancy and he was really dismissed because of criticisms made about him. It is claimed that there must be an implied term in the contract that the employer must act reasonably and fairly.
The defendants submit that this is not a fair issue to be tried as unfair dismissal is governed by the Unfair Dismissals Acts, which provide a statutory remedy which is mutually exclusive to the common law remedy for damages. In the case of Parsons v. Iarnród Éireann [1997] E.L.R. 203 where a plaintiff pursued a claim for wrongful dismissal under the Unfair Dismissals Act, 1977, and it had been unsuccessful, he then initiated proceedings in the High Court but did not seek damages. The defendant made a preliminary objection that the claim contravened s. 15 (2) of the Unfair Dismissals Act, 1977, which was successful. The plaintiff appealed but the Supreme Court dismissed the appeal.
Barrington J. said at p. 207 ” What the Unfair Dismissals Act, 1977 does is to give to the worker who feels that he has been unfairly dismissed an additional remedy which may carry with it the very far reaching relief of re-instatement in his previous employment. It does not limit the worker’s rights, it extends them. At the same time s. 15 of the Unfair Dismissals Act, provides that the worker must choose between suing for damages at common law and claiming relief under the new Act. Subsection 2 accordingly, provides that if he claims relief under the Act, he is not entitled to recover damages at common law; while subs. 3 provides that where proceedings for damages at common law for wrongful dismissal are initiated by or on behalf of an employee, the employee should not be entitled to redress under the Unfair Dismissals Act in respect of the same dismissal.”
In Johnson v. Unisys Limited [2001] 2 A.E.R. 801, the House of Lords dealing
with the statutory regime of unfair dismissal introduced in its original form by the Industrial Relations Act, 1971 and subsequently in force under the Employment Rights Act, 1996, held that an employee had no right of action at common law to recover financial loss arising from the unfair manner of his dismissal. A conclusion to the contrary would be inconsistent with the statutory system for dealing with unfair dismissals established by Parliament in 1971 to remedy deficiencies in the laws that then stood. The remedy adopted by Parliament was not to build on the common law by creating a statutory implied term that the power of dismissal should be exercised fairly or in good faith leaving the courts to give a remedy on general principles of contractual damage. Instead it set up an entirely new system outside the ordinary courts at which tribunals applied new statutory concepts and offered statutory remedies. For the judiciary to construct a general common law remedy for unfair circumstances attending dismissal would be contrary to the evident intention of Parliament that there should be such a remedy but that it should be limited in application and extent.
Lord Nichols put it succinctly when he said at p. 803 “I am persuaded that a common law right embracing the manner in which an employee is dismissed can satisfactorily co-exist with the statutory right not to be unfairly dismissed. A newly developed common law right of this nature covering the same ground as the statutory right would fly in the face of the limits Parliament has prescribed on matters such as the classes of employees who have the benefit of a statutory right, the amount of compensation payable and the short lived time limits for making claims. It would also defeat the intention of Parliament that claims of this nature should be decided by specialist tribunals and not the ordinary courts of law”.
Lord Millet said at p. 825 “If this right (i.e. the statutory right not to be unfairly dismissed) had not existed, however, it is possible that the courts would have fashioned a similar remedy at common law though they would have proceeded by implying appropriate terms into the contact of employment. It would have been a major step to subject the employer’s right to terminate the relationship on proper notice to an obligation not to exercise the right in bad faith and a still greater step to subject it to an obligation not to exercise it without reasonable cause (a difficult distinction, but one drawn by McLachlin J. in Wallace’s case (at 44)). Even so, these are steps which in the absence of the statutory right the courts might have been prepared to take though there would have been a powerful argument for leaving the reform to Parliament”.
Later at p. 826 he says “But the creation of the statutory right has made any such development of the common law both unnecessary and undesirable. In the great majority of cases a new common law right would merely replicate the statutory right; and it is obviously unnecessary to imply a term into a contract to give one of the contracting parties a remedy which he already has without it. In other cases where the common law would be giving a remedy in excess of the statutory limits or to excluded categories of employees, it would be inconsistent with the declared policy of Parliament. In all cases it would allow claims to be entertained by the ordinary courts when it was the policy of Parliament that they should be heard by specialist tribunals with members drawn from both sides of industry. And even more importantly the co-existence of two systems, overlapping but varying in matters of detail and heard by different tribunals would be a recipe for chaos. All coherence in our employment laws would be lost”.
It has therefore been held by the Supreme Court that the common law claim for damages for wrongful dismissal and the statutory claim for unfair dismissal are mutually exclusive. The House of Lords decision in Johnson v. Unisys Limited underlines this. What the plaintiff is seeking to do is to introduce a new obligation under the common law on the employer to act reasonably and fairly in the case of dismissal. As the law stands, at common law an employer can terminate employment for any reason or no reason provided adequate notice is given. In cases involving dismissal for misconduct the principles of natural justice also apply, but that does not arise here.
In this case the defendant gave notice in accordance with the plaintiff’s contract plus an additional month. There is no allegation that notice was inadequate in this case.
Therefore, in my opinion in light of the Supreme Court decision in Parsons v. Iarnrod Eireann and underlined by the House of Lords in Johnson v. Unisys Limited, it is not open to the plaintiff to argue that the principles applicable under the statutory scheme should be imported into the common law.
In the event that I am wrong to hold that this issue is not a fair issue, despite the decision of the Supreme Court, I will go on to consider whether damages are an adequate remedy. In my opinion they are. The plaintiff cannot seriously hope that he will be re-instated in employment where the defendants are unwilling to take him back and have no place for him. Therefore his remedy, if he is successful, is in damages.
Again on the assumption that I may be wrong in this, I will consider whether a mandatory injunction requiring the defendant to pay him his salary over and above the period of notice should be made. It is argued on behalf of the plaintiff that the application for interlocutory relief for payment of salary and benefits was common place and a number of authorities were provided to that effect. However, as far as I could ascertain the vast majority of these settled.
Having recently heard the case of Sheehy v. Ryan (unreported 3rd February, 2004) where an interlocutory order for the payment of salary was made on 29th August, 2002, the plaintiff who had been made redundant and dismissed with effect from 19th September, 2002, did not succeed in a claim to be entitled to be employed for life or until 65. The plaintiff, Mary Sheehy had sued at common law where the employee’s right to damages depends on whether reasonable notice was given. Since reasonable notice was given in that case, there was no entitlement to damages.
In this case the plaintiff was given one month’s extra notice (and pay) over and above the two months provided in his contract. I do no see how any issue can arise that notice was not reasonable. If the plaintiff does not succeed there will be a real injustice to the defendant if it is obliged to pay him salary until the date of the trial.
The first case in which a mandatory order for the payment of salary pending trial was made by Costello J. in Fennelly v. Assicurazioni Generali SPA (12th March, 1985). Here the evidence established that the plaintiff left a permanent and pensionable post and obtained a letter that the contract was for the fixed term of 12 years. Costello J. said he was entitled to conclude that there was a fair question to be tried that the contract was determined invalidly. He approached the case on general principles that the courts would not give specific performance of an employment contract (subject to the exception as in Hill v. Parsons). Costello J. said the court might conclude at trial that damages were an adequate remedy but at that stage he still had to consider the balance of convenience until the trial. He said in the meantime the plaintiff would be left without a salary and nothing to live on. The situation in which he found himself would be little short of disastrous. He said that he should not be left in the situation in which he would be virtually destitute with the prospect of damages at the action. That seemed an unjust situation. He said “In view of the very special circumstances in this case I will require the plaintiff to be paid his salary and I order that until the trial of the action the defendant should continue to pay the plaintiff’s salary and bonus under his present contract. I accept that the court should not require an employer to take on an employee where serious difficulties have arisen between them or where there is no work for the employee but in this case the parties have obviously the highest regard for one another. I will take an undertaking that the plaintiff will be prepared to carry out such duties that the defendants will ask of him until the trial. If they would make use of him until the trial of the action the plaintiff should attend and carry out such duties he has been given. They might prefer not to give him any duties and put him on leave of absence. That is for the defendant but they must continue to pay his salary until the trial.”
I am told that on appeal to the Supreme Court payment of salary was limited to six months.
In the English case of Hill v. CA Parsons & Co Limited [1972] 1 Chancery 305 (which predated the Fennelly case) the plaintiff was given one month’s notice to join a trade union and did not do so. He was then given one months notice of termination. He claimed an injunction restraining the defendants from implementing their notice of termination. It was held by the Court of Appeal that he was entitled to at least six months notice and in the exceptional circumstances of the parties’ relationship and the plaintiff’s likely protection by the coming into operation of Part II of the Industrial Relations Act, 1971 before a fresh notice could take effect, his contract of employment was still subsisting and, damages not being at all an adequate remedy, he was entitled to the interim injunction sought.
In both these cases it was emphasised that there were either “special” or “exceptional” circumstances and also there was no loss of trust in the employee.
In Harte v. Kelly [1997] E.L.R. Laffoy J. went further and held that the entitlement to the type of order granted in the Fennelly case was not limited to situations where the plaintiff could establish that he would face penury if such an order was made. She said “The rationale of the decision is that it is unjust to leave a person who alleges his dismissal has been wrongful, without his salary pending the trial of the action and mainly with his prospect of an award of damages at the trial of the action.”
In GEE v. Irish Times (Unreported 27th June, 2000) McCracken J. referred to the “well established practice” to continued payment of salary pending trial.
So the position apparently has moved from being appropriate in either special or exceptional circumstances to being a “well established practice”.
In my view the cases where there is no suggestion of any breakdown of trust or confidence have no relevance to this case; likewise where there is alleged breach of a fixed term contract. Here the defendants claim they would suffer irreparable harm if forced to re-employ the plaintiff. The plaintiff in his grounding affidavit seeks re-instatement only. It is only in his second replying affidavit that he mentions money and then only in oblique terms. He refers to the claim by Mr. Shanahan that the loss of his career and the resultant suffering and financial hardship which he and his family would suffer, would adequately be compensated by damages. He does not allege irreparable loss and damage if deprived of his salary. In my view the plaintiff has not made out a case on the balance of convenience that he should be paid his salary after the period of notice has expired. It would constitute a serious injustice for the defendant if it was obliged to pay the plaintiff’s salary until trial of the action. The same applies to the application to maintain his pension and life assurance benefits or preserving his perquisites and entitlements. It follows that there is no justification for permitting the performance of functions and duties by the plaintiff or restraining the performance of those functions and duties by any person other than the plaintiff.
In my view the most appropriate course is to have an early trial. Provided the pleadings are complete and the case is ready for trial it can be given priority in the list to fix dates at the end of next term. This should give a trial to the plaintiff during the coming summer term.
Scaife -v- Falcon Leisure Group
[2007] IESC 57 (04 December 2007)
Judgment delivered on the 4th day of December 2007 by Macken, J.
This is an appeal from a judgment of the High Court of the 23rd February 2005, and from the Order made thereon by which the High Court found in favour of the Plaintiff against the Defendant in respect of personal injuries sustained by the plaintiff in the course of a holiday in Spain contracted for with the Defendant in the State.
The Background Facts
The plaintiff/respondent entered into an agreement (“the agreement”) with the defendant/appellant, a company registered in the United Kingdom and having a place of business in the State, and who is a provider of, inter alia, package holidays. The agreement in writing was made through a travelling companion of the plaintiff on 29th January 1998. By the terms of the same the defendant agreed, in consideration of the payment of an appropriate sum, to supply to the plaintiff/ respondent and others in a small group travelling with her, a “package holiday”, including flights and hotel accommodation, the latter in the present case comprising what is known as “half board”, that is, breakfasts and evening meals, at Cambrils Princess Hotel in Salou, Spain. The High Court judge found, as a fact, that the hotel itself was of a good standard, since the plaintiff and others in her group had previously stayed there and had chosen to return to that particular hotel.
On the 21st May 1998 during the course of an evening meal, taken towards the end of the serving period, the plaintiff was injured. The injury occurred when the plaintiff, while walking past a pillar on her way to the buffet table to serve herself, fell on liquid foodstuff which had fallen on the floor behind a pillar in circumstances where, it was found by the High Court, she could not have seen the spillage and had no warning of its existence until she fell in it. She suffered physical injuries as a result, and these are not disputed by the defendant.
Although in the course of the High Court proceedings the defendant alleged that the Plaintiff had caused or contributed to her injuries, this defence was rejected by the High Court judge as being without foundation, and the defendant does not seek to maintain that defence in this appeal. In the High Court evidence was tendered by and on behalf of the Plaintiff. The Defendant did not go into evidence, relying instead on legal submissions as to liability.
The High Court proceedings, the argument and the legal findings
In the High Court the plaintiff relied on the provisions of the Package Holidays and Travel Trade Act of 1995 (“the Act of 1995”), an Act which transposed into Irish law Council Directive 91/314/EEC of 13 June 1990 on package travel, package holidays and package tours (OJ 190 L 158) (“the Directive”). The defendant/appellant has accepted that it is an “organiser” that the plaintiff/respondent is a “consumer” the hotel proprietor in Spain a “service supplier”, and that the holiday was a “package holiday” all within the meaning of S.20 of the Act of 1995, which Section corresponds to Article 5 of the Directive.
By an ex-tempore judgment of the High Court (Herbert, J.) delivered after an oral hearing, it was held that the plaintiff was entitled to succeed against the Defendant under S. 20 of the Act of 1995. The High Court judge found that there was a legal duty on a hotel proprietor to take reasonable care to ensure that his hotel was reasonably safe and was maintained in a reasonably safe condition for visitors to the hotel. He determined that S.20 of the Act was not to be given a restrictive meaning, but that the hotel proprietor was not, under the Act of 1995 and contrary to the argument of counsel for the defendants, an insurer to the plaintiff, or bound to foresee or forefend against every possible event. It was only obliged to take reasonable care in respect of an event which was reasonably foreseeable, such as the event which befell the plaintiff. He found that even if the hotel ordinarily operated to a satisfactory standard, there was no evidence to suggest that any appropriate system for avoiding the accident or for warning of the existence of the liquid was in place on the evening in question. Rather on the contrary, it had not acted with reasonable skill and care on the evening in question.
As concerns the Act of 1995, the learned High Court judge held that the clear intention of the legislature, on the plain meaning of the words used, was to give effect to the intention behind the Directive. This intention was to:
“facilitate citizens of Member States who have accidents while on a package holiday abroad by allowing them to sue, so to speak, a central person, [so] that they do not have to sue the supplier of the particular service, in this case the hotel in the country of domicile of the hotel which in this case would have been Spain. They can sue the organiser. And the Section says that the remedy or right of action the organiser may have against the retailer or other supplier of services is not in any way affected”.
He found that the Directive was sufficiently clear on its wording so as not to require him to embark on a purposive interpretation of it. He continued:
“So although in this case Falcon Leisure Group (Overseas) Ltd could be said to have done nothing wrong whatsoever [nevertheless] because of the business which they are in, that is organising and selling package tours, they have to accept as one of the downsides of that, that they will be responsible if somebody providing a [service] does not properly perform the contract. In this case it would have been clearly an implied term of the contract, if not an express term, that the place provided where the ladies were to stay under the package holiday would be safe and would be kept safe”
The High Court judge found that the legislative scheme has as its consequence that the organiser “though not in any way to blame himself, must shoulder the position of defendant to the plaintiff and then recoup their losses from the actual tortfeasor or the person who is the contract breaker, in this case the provider of the service”.
The High Court judge determined that according to the Act of 1995, the defendant was liable for the wrongful acts of the hotel owner, being the latter’s improper performance of one of the obligations under the package holiday agreement and that the plaintiff was entitled to recover from the defendant, by virtue of Section 20 of the Act of 1995, damages in respect of the injuries sustained by her. From that judgment the defendant has appealed to this court.
The Appeal
Senior counsel Mr Counihan, on behalf of the appellant argues that Article 5 of the Directive, and therefore S. 20 of the Act of 1995, and was never intended to harmonise the law of torts relating to accidents causing injury, but only the law relating to obligations arising under a “package holiday” contract itself, so as to ensure the proper performance of the obligations undertaken. Section 20 of the Act of 1995 does not equate the proper performance of those obligations with their perfect performance. He submits that the learned High Court judge misdirected himself in law in holding the appellant was liable, because Section 20 of the Act of 1995 does not cover what he calls an event of “casual” negligence, such as occurred in the present case and about which the appellant could have no knowledge and over which it could have no control, within the meaning of S.20(2)(C)(ii) of the Act of 1995. Although he accepts that, according to the scheme provided for in the Directive and the Act of 1995, in which there is an organiser, a consumer, and other suppliers of services which the organiser has undertaken contractually to provide to the consumer, the correct interpretation of Section 20 of the Act of 1995, he argues, is to make the appellant liable to the respondent only where the supplier of the service, that is to say, the hotel owner in Spain, would have been liable to the respondent were it not for the existence of the scheme established by the Directive and the Act of 1995. It follows that the Act of 1995 cannot be understood as providing that the appellant is to be made liable to the respondent merely because the former’s right of action over against a non performing service supplier, such as the hotel, is enshrined in the Act of 1995.
Further, counsel submits that none of the recitals to, nor Article 5 of, the Directive provides that the protection afforded to a consumer is to constitute a form of insurance or guarantee on the part of an organiser. Therefore the principle of strict or absolute liability which he argues the High Court judge adopted, cannot apply to the appellant in respect of every injury howsoever caused to a consumer such as the respondent who undertakes a package holiday. The Act of 1995 must be understood as providing for liability on the part of the appellant only if there has been fault on the part of the hotel owner in Spain leading to the improper performance of the particular obligation in the contract. The respondent must first therefore establish that there was such a failure on the part of the hotel owner or operator in this case to perform an obligation under the contract. The mere fact that there was a spillage of food upon which the respondent then fell does not, ipso facto, establish that either the hotel failed properly to perform obligations arising under the contract. Counsel for the appellant argues that, for the purposes of determining the liability imposed on him for wrongful acts of a service supplier such as the hotel pursuant to Section 20 of the Act of 1995, it is not possible to discern whether the standard to be imposed on the hotel owner or proprietor for whose acts the appellant is being sought to be made liable, is the Irish legal standard or the Spanish legal standard, but that it must be the latter, being the standard governing the place where the accident occurred.
Senior Counsel Mr McGovern for the respondent, clarifies that he does not contend that S.20 of the Act of 1995, and by implication, Article 5 of the Directive, imposes strict liability on an organiser such as the appellant for the breach of obligations by a service supplier, in all circumstances. He submits that the effect of Section 20 of the Act of 1995 implementing the Directive is to place primary liability on the appellant for the proper performance of the obligations comprised in the contract “package”, whether the obligations are to be performed by him or by others, such as the hotel owner in Spain. The appellant can escape liability only in the limited circumstances identified in Section 20(2) of the Act of 1995, that is to say, only if the events in question could not have been foreseen or forestalled by the appellant or the hotel owner. He submits that the intention to protect the consumer in circumstances such as the present is reinforced by the provisions of Section 20(2) of the Act of 1995.
Finally, he argues that, since the contract provided for travel, accommodation, and the provision of meals on a half board basis, it was an implied term of the contract between the appellant and the respondent that all services and facilities would be provided with reasonable skill and care and to a reasonable standard, and they were not. He reminded this Court that the High Court judge had found that, on the evidence, the hotel had been very satisfactory in all respects on an earlier occasion when the respondent had stayed there, but not on the occasion in question, in that any system which might ordinarily have operated in the hotel to avoid or minimize accidents, had not operated appropriately or properly on the occasion in question, for which the appellant, as organiser, was liable under the Act of 1995.
Each of the parties to the proceedings has invoked Irish and United Kingdom case law in support of their respective submissions. This case law is considered further below.
Conclusion
For the purposes of this judgment, it is essential first to set out the provisions of Section 20 of the Act of 1995 which transposed into Irish law the relevant corresponding provisions of the Directive.
The Act of 1995 has as its long title, the following:
“An Act to enable effect to be given to Council Directive No. 90/314/EEC of 13 June 1990 of the European Communities on package travel, package holidays and package tours, to amend the Transport (Tour Operators and Travel Agents) Act 1982, and to provide for connected matters”.
Article 5 of the Directive is transposed by the provisions of S.20 of the above Act which in its relevant part reads as follows:
“20.—(1) The organiser shall be liable to the consumer for the proper performance of the obligations under the contract, irrespective of whether such obligations are to be performed by the organiser, the retailer, or other suppliers of services but this shall not affect any remedy or right of action which the organiser may have against the retailer or those other suppliers of services.
(2) The organiser shall be liable to the consumer for any damage caused by the failure to perform the contract or the improper performance of the contract unless the failure or the improper performance is due neither to any fault of the organiser or the retailer nor to that of another supplier of services, because—
( a ) the failures which occur in the performance of the contract are attributable to the consumer,
(b ) such failures are attributable to a third party unconnected with the provision of the services contracted for, and are unforeseeable or unavoidable, or
( c ) such failures are due to—
(i) force majeure, that is to say, unusual and unforeseeable circumstances beyond the control of the organiser, the retailer or other supplier of services, the consequences of which could not have been avoided even if all due care had been exercised, or
(ii) an event which the organiser, the retailer or the supplier of services, even with all due care, could not foresee or forestall.
…
(8) The provisions of this section are without prejudice to the provisions of the Hotel Proprietors Act, 1963.” (emphasis added)
The Hotel Proprietors Act 1963, referred to in S.20(8) is an Act which legislates for certain rights and obligations concerning hotel proprietors and guests of a hotel. The relevant provision of this Act is the following:
“4(1) Where a person is received as a guest at a hotel, whether or not under special contract, the proprietor of the hotel is under a duty to take reasonable care of the person of the guest and to ensure that, for the purpose of personal use by the guest, the premises are as safe as reasonable care and skill can make them”.
The Occupiers Liability Act 1995 is an Act which legislates for certain rights and obligations concerning occupiers of premises and visitors to those premises. Section 3 of that Act provides as follows:
(1) An occupier of premises owes a duty of care (“the common duty of care”) towards a visitor thereto except in so far as the occupier extends, restricts, modifies or excludes that duty in accordance with section 5.
(2) In this section “the common duty of care” means a duty to take such care as is reasonable in all the circumstances (having regard to the care which a visitor may reasonably be expected to take for his or her own safety and, if the visitor is on the premises in the company of another person, the extent of the supervision and control the latter person may reasonably be expected to exercise over the visitor’s activities) to ensure that a visitor to the premises does not suffer injury or damage by reason of any danger existing thereon.”
As concerns the Directive itself, since Section 20 of the Act of 1995 faithfully transposes the provisions of Article 5 of the Directive, it is not necessary to set out the terms of that Article separately. It is, however, relevant to cite Article 8 of the Directive which reads:
“Member States may adopt or retain more stringent provisions in the field covered by this Directive to protect the consumer.”
It seems to me that the provisions of the Hotel Proprietors Act 1963 are within the ambit of Article 8 of the Directive since the obligation concerning the state of hotel or other premises, as well as the safety of guests, are provisions protecting the consumer which are or may be, more stringent than the provisions of the Directive. Similarly, apart from the statutory protection given to hotel guests as set forth above, and as specifically retained by the Act of 1995, an occupier’s common law liability to visitors, now enshrined in S.3 of the Occupiers Liability Act 1995, may well also fall within Article 8 of the Directive, even if not specifically referred to in the Act of 1995. Having regard to Mr. Counihan’s argument for the appellant, that the appropriate standard for the High Court to have applied is the standard operating in Spain and not the standard in Ireland, the question arises as to whether the High Court judge was entitled to invoke the standard operating by virtue, inter alia, of the above sections of the above Acts or the established common law tests.
Section 20 of the Act of 1995
Section 20(1) of the Act of 1995 expressly makes the organiser primarily liable to the consumer, and maintains a right of action over in favour of the organiser against the service supplier, in the present case a supplier with whom the appellant entered into arrangements for the provision to the respondent of hotel accommodation in Spain on a half board basis. What requires to be determined is what is meant by “improper performance” of an obligation, and the consequent extent or scope of the liability of the appellant, as organiser, to the respondent, as consumer.
First, it is appropriate to have regard to the wording of the legislation. On a plain reading of this, it seems to me that the correct meaning to be attached to the combination of subsections 20(1) and (2) of the Act of 1995 is that when contractual obligations are assumed by an organiser – the appellant in this case – as part of a “package holiday” contract entered into with a consumer, such as the respondent in the present case, those obligations to the consumer remain the organiser’s obligations, and do not become the independent obligations of the service supplier, such as the hotel in Spain, to the consumer. The Section speaks of (a) the obligations under the contract; (b) irrespective of whether those obligations i.e. the organiser’s obligations, are to be performed by the organiser himself, or (whether such obligations) are to be performed by other suppliers of services; and (c) a right of action over is maintained by the organiser against such other supplier(s) for the latter’s failure to perform the organiser’s contracted for obligations. Thus, when the consumer – the respondent in this appeal – enters into the agreement, it may well be that some of the organiser’s contractual obligations will be performed by other persons, such as hotel proprietors, even in another Member State. That, however, does not change the relationship between the organiser and the consumer, who frequently will not even know the name of the supplier of the services not being performed by the organiser himself.
This is why, when considering the meaning of Section 20(2) of the Act of 1995 (Article 5.2 of the Directive), that organiser’s liability continues to exist “unless” there is to be no fault on his part “because” the failure was due to an event which “the organiser or the supplier of service, even with all due care, could not foresee or forestall.” Apart from such excusing circumstances, it seems to me that the organiser remains at all times liable to the consumer for the wrongful acts in question. If it be the case that the organiser wishes to invoke the defence available in subsection 20(2)(c)(ii) of the Act of 1995, it is for him to establish that there was no such fault either on his own part or on the part of a supplier of the service which he has engaged, once a failure to perform is established by the consumer.
On the questions raised by Mr. Counihan as to the standard to be applied and as to whether the respondent discharged the burden of proof in this case, it is useful first to consider the Irish and United Kingdom cases on the appropriate test or standard to be applied, and which have been invoked by both parties. In Ireland, prior to the passing of the Act of 1995, the case law establishes that the standard of reasonable skill and care is appropriate in assessing the performance of services for the purpose of establishing whether there has been a breach of contract or that a party is liable to another in tort. In McKenna v Best Travel Ltd. [1998] I.R. 57, a case whose events predated the transposition of the Directive, an appeal was taken to the Supreme Court on a limited point of law as to whether the defendant tour organiser was liable in tort for failure to give a warning in respect of conditions in Israel which the customer was visiting as part of a holiday. The claim was originally founded both in contract and in tort. The High Court judge had found that there had been no breach of contract but a breach of duty in tort to the customer. In the course of his judgment on the appeal to this court, Barron, J. stated:
“The duty of care in tort arises from the proximity creased by the contractual relationship. The duty extends to all matters concerning the safety, well being and comfort of the tourists which by the nature of the relationship between the tourists and those providing the service would or should be known to the latter but not to the former. … The defendants in this case were not insurers that nothing would happen to injure the plaintiff. Their obligation stops at taking all reasonable steps to ensure the safety and well being of their customers. … The test is what a reasonably prudent tour operator exercising reasonable care would consider necessary to inform those travelling with it.”
The first of the English cases cited to this court is Hone v Going Places Leisure Travel, unreported, 13 June 2001, [2001], a decision of the English Court of Appeal. There the plaintiff, in the course of an emergency crash landing in which passengers had to disembark from the aeroplane by emergency chute, being unable to avoid colliding into another passenger who was stationery at the bottom of the chute, was in turn struck by the next passenger exiting the aeroplane, and suffered damage to his spine. He sued the defendant under United Kingdom legislation corresponding to the Act of 1995. He alleged there was a failure to perform, or an improper performance, of the contract because, inter alia, there was no trained personnel at the top or bottom of the emergency chute and no instructions to passenger to remove footwear or to use the chute only when it was clear of other passengers. He also claimed that the United Kingdom Regulations, which transposed the Directive more or less verbatim, imposed a strict liability test on the organiser, subject only to the defences found in the Regulations, which mirror those in Section 20(2) of the Act of 1995.
The High Court judge held there that it was for the plaintiff to show that there was improper performance, and in the context of that case, this meant he had to show that his injuries were attributable to the fault of someone supplying services in relation to the package tour. Liability was thus not absolute or strict, subject to certain exceptions. The judge also held that the plaintiff had, in that case, wholly failed to establish that the accident was anyone’s fault. The plaintiff was given leave to appeal to the Court of Appeal on the single question whether the English Regulations transposing the Directive imposed strict liability.
In the Court of Appeal, Longmore, L.J. found that it is necessary frequently to imply a term as to the standard of performance, since the requirement will not normally be set out in any detail in a contract, and that the normal implication will be that the service contracted for will be rendered with reasonable skill and care, unless absolute obligations are assumed (for example the provision of a hotel specifically with a swimming pool). Whereas previously at common law it was controversial as to whether a travel agent himself assumed the relevant contractual responsibility, or only agreed to put the customer into contractual relations with the actual provider of the service, this situation is now resolved by the Regulations. The United Kingdom Regulations do not give any guidance as to the extent of the obligation. However the judge found that the case of Wong Wee Wan v Kwan Kin Travel Services Ltd [1996] 1 WLR 38 was a good example of the approach of the common law on both questions. In that case it was held that a term was to be implied into the contract that reasonable skill and care would be used in the rendering of the services which the travel agent had contracted to provide, whether carried out by him or by someone else.
Longmore, L.J. stated that it was not possible to determine whether a particular complaint founds improper performance, by reference to the Regulations themselves. He stated:
“To my mind Regulation 15(2) does not give the answer to the question “What is improper performance?” Rather it is a requirement of the application of Regulation 15(2) that there should be improper performance. That can only be determined by reference to the terms of the contract. There may be absolute obligations …, but in the absence of the assumption of an absolute obligation, the implication will be that reasonable skill and care will be used in the rendering of the relevant service. There will thus be no improper performance of the air carriage unless there is an absence of reasonable skill and care in the provision of that service. If, as here, it is the claimant who seeks to rely on regulation 15(2), then he has to show that there has been improper performance.
Mr. Dean submits that there was improper performance because the parties expected that the air carriage would be safely executed. That would only be the position if there were a term of the contract that the air carriage would be safely executed. For my part, I do not consider that there was any such absolute term. In the absence of an express agreement, the implication was that the air carriage would be performed with skill and care.” (emphasis added)
The above case of Wong Mee Wan v Kwan Kin Travel Services Limited & Ors, supra., also cited by both parties before this court, was a case which came on appeal from the Hong Kong Court of Appeal to the Privy Council, and concerned the appropriate standard to be applied in a contract of service, being a package tour of part of mainland China offered by a Hong Kong travel company at an all inclusive price. The main purpose of the tour was to visit a lake in China, and part of the tour consisted of a lake crossing, during which crossing the plaintiff was injured. The Privy Council held that there was an implied term of the contract that the services would be carried out with reasonable skill and care. This term did not mean that the defendant undertook to ensure the safety of the plaintiff or of the component parts of the package, or that the plaintiff’s daughter would be reasonably safe. It was a term that reasonable skill and care would be used in rendering the services to be provided. The trip had not been carried out with reasonable skill and care in that no steps had been taken to see that the driver of the speedboat was of reasonable competence and experience and the first defendant was liable for such breach of contract.
On the question that such a term would impose an intolerable burden on package tour operators, Lord Slynn of Hadley. stated:
“It must be borne in mind that the tour operator has the opportunity to seek to protect himself against claims made against him in respect of services performed by others by negotiating suitable contractual terms with those who are to perform those services. He may also provide for insurance cover. … It also has to be borne in mind, in considering what is ‘tolerable’ or reasonable between the parties, that the traveller in the position of Miss Ho Shui Yee could have no influence on the terms negotiated by the tour operator with third parties, and if injured by their lack of care would, if having no right against the package tour operator, be obliged to pursue a claim in a foreign country. The difficulty involved in doing so does not need to be elaborated. In considering what is or is not tolerable as between traveller and tour operator it is of some relevance to note the Package Travel, Package Holiday and Package Tours Regulation 1992 … made pursuant to Council Directive 90/314 (EC). The organiser or retailer of the package tour –
‘15(1) … is liable to the consumer for the proper performance of the obligations under the contract, irrespective of whether such obligations are to be performed by that other party or by other suppliers of services but this shall not affect any remedy or right of action which that other party may have against those other suppliers of services.
(2) The other party to the contract is liable to the consumer for any damage caused to him by the failure to perform the contract or the improper performance of the contract …’
…
These terms do not of course apply to the present contract but they do throw some light on the contention that an unreasonable burden would be imposed if the contract were held to contain a term that reasonable skill and care would be used. …”
The case of Healy v Cosmoair Plc [2005] All E.R. 432), invoked by Mr. Counihan on behalf of the Appellant, also proceeded on the basis that the standard was that of reasonable skill and care. The technical issue in that case, which depended on Spanish standards applicable to them, concerned only the question of slippiness of tiles. There is no true comparison between the position in the present case and the facts in that latter case. The Respondent invokes that case apparently on the hypothesis firstly that there may be a difference between Irish and Spanish law on the appropriate legal standards governing the safety of hotels for visitors or guests, and on the further hypothesis that it may be the case that the Spanish standard governing the safety of hotel premises is lower than that which is applicable in Irish law, and more easily met by the hotel owner, for there would be no point in the appellant raising such an issue unless that were the case. Apart from the fact that this does not appear to have been an issue in the High Court, there was no evidence to support either hypothesis. Further, the application of a lower standard, if such exists in respect of the safety of hotels in Spain, might not necessarily comply with the provisions of the Directive. In that regard, the following extract from the Opinion of Advocat General Tizzano in the case of Leitner v TUI Deutschland GmbH & Co. KG, a case invoked by both parties, is telling:
“More specifically, I note that, in the event of any doubt, the provisions of the Directive in question must be interpreted in the manner most favourable to the person whom they are intended to protect, namely the consumer of the tourism service. That may be inferred not only from the systematic analysis of the text and aims of the Directive, but also from the abovementioned fact that it was adopted pursuant to Article 100a, paragraph 3 of which requires that harmonisation measures in respect of consumer protection should be based on a high level of protection.”
The conclusions to be drawn from all of the above cited cases are that, both before and after the coming into force of the Directive and its transposition in national law, the established principle is that the organiser is not an insurer to the customer. The learned High Court judge correctly found that the hotel proprietor was not such an insurer under the legislation. The above cases also establish the principle that the test is not one of strict liability, and in that regard I am satisfied also that the High Court judge’s finding, when correctly read, was not that strict liability applied. The final principle clearly established by those cases is that the standard by which the acts in question are to be judged is that of reasonable skill and care, which standard, if not expressed in a contract will be readily implied into it. In the circumstances, I am satisfied that the reasonable skill and care test generally applicable according to the above case law and by statute, and applied by the learned High Court judge, was the correct test in law.
There remains only the question as to whether the plaintiff established that there was a failure to perform an obligation under the contract on the part of the hotel proprietor in Spain by reference to that test of reasonable skill and care. I reject the appellant’s argument that the extent of the liability on the organiser under a contract of this nature is confined, so far as hotel premises are concerned, to ensuring that the structure itself is safe. The contract here was for travel and hotel accommodation on a half board basis, and the latter clearly included the provision of an evening meal as a necessary ancillary part of the accommodation service provided. An implied term that the same would be furnished with reasonable skill and care follows from my earlier findings. The learned High Court judge heard and accepted the evidence of the plaintiff and others as to the following facts: (b) there was evidence of a liquid substance being on the hard marble floor measuring about 30 inches in diameter which, from its description, could properly be found by him to be a soup or a sauce which had fallen on the floor and on which the plaintiff slipped; (c) the nature of the spillage was such that it must have been caused by staff clearing away foodstuffs, it being evident that they were doing just that when the accident occurred; (d) it was not possible for the plaintiff, while navigating past a pillar where the spillage had occurred, to have seen it or to have had any opportunity to avoid it, (a fact now accepted by the defendant); (e) the spillage had not been removed when the respondent went towards it; (a) there was no warning or other indication by means of any crash of utensils, for example, such that might have put the plaintiff on notice that something untoward had occurred; and (f) there was no barrier or tape or other item placed around the area, if there had been insufficient time for the hotel staff to remove the spillage before the Plaintiff suffered the accident . Moreover, when the accident did occur, it is unchallenged that there was an immediate direction to the staff to bring buckets of sawdust or some such absorption material, to where the spillage took place to cover it and sweep away the debris. It is telling that this was done on the instructions of the Manager of the hotel, for it clearly follows that the spillage could have been readily taken care of, and that the hotel had a system in place for dealing with just such an event, and was able to do in the normal course of events, but had not done so on the occasion in question, prior to the respondent falling.
Having regard to the foregoing, the learned trial judge had before him evidence that the accident was a wholly foreseeable event on the part of the service supplier, the hotel in Spain, that they had in place a system which could have warned of the hazard and/or prevented the accident, but had not operated that system on the evening in question. In the circumstances, the learned High Court judge was entitled to find that the service in question was not supplied with reasonable skill and care. He was therefore correct to find for the Plaintiff.
I would dismiss the appeal and affirm the order of the High Court.
Vavasour v. O’Reilly & Ors
[2005] IEHC 16 (28 January 2005)
JUDGMENT of Mr. Justice Clarke delivered 28th January, 2005.
The plaintiff in these proceedings makes a number of complaints about the circumstances in which he ceased to be involved in aspects of the car hire rental business being conducted under the auspices of the Windsor Motor Group. The plaintiff has represented himself at all recent times in the course of these proceedings.
The proceedings commenced in 1993 in the immediate aftermath of the termination of the plaintiff’s contract of employment with the third named defendants (“Windsor Rent a Car”). An immediate application for interim relief was granted by Lardner J. on 5th February, 1993 which restrained the then defendants (that is the first and second named defendants) from carrying on the business of a franchise arrangement, from terminating the employment of a Ms. Collins in relation to that franchise business or from procuring any alteration in the telephone or facsimile numbers of that business. The matter subsequently came before Costello J. (as he then was who delivered judgment in respect of an interlocutory application on 3rd March, 1993. There is extant an agreed counsel’s note of the ex tempore judgment delivered by the court. From same it is clear that Costello J. was satisfied that the plaintiff had established a prima facie case to the effect that a contract existed between the plaintiff and the first named defendant whose terms included a provision that the profits of the franchise arrangements (to which I will refer in more detail later on in the course of this judgment) were, after deduction of all appropriate expenses, to be divided equally. Costello J. was also satisfied that a prima facie case had been established to the effect that there was an implied term in the aforementioned arrangements to the effect that the plaintiff’s employment with Windsor Rent a Car would be retained during the currency of the franchise agreement. The court was not satisfied that there had been established a prima facie case to the effect that there was a breach of that agreement in various other respects which were then argued including in respect of the termination of Ms. Collins employment and the moving of the phone and fax lines. No order, in respect of these latter matters was, therefore, was made. In those circumstances Costello J. was not persuaded that he could make an order requiring the defendants to maintain the plaintiff in employment pending the trial of the action but by virtue of being satisfied that there was a prima facie case in respect of an entitlement on the part of the plaintiff to a 50% share in the net profits of the franchise the court ordered the first named defendant to account to the plaintiff’s solicitors on a monthly basis “in respect of the turnover of the business of Holiday Autos Ireland Limited both in respect of the incoming and outgoing business the accounts to commence on 1st day of May, 1993 until the trial of the action or until further order”.
For reasons some of which will be touched upon in the course of this judgment it has taken a very long time indeed for this action to come on for trial. It should be noted that the matter came on for hearing on 22nd June, 2004 before Kelly J. As I understand it by that stage the plaintiff was conducting the case himself. In the course of his presentation of the case to Kelly J. it became clear that some of the matters which he wished to pursue as part of his claim to damages were not pleaded. In that context Kelly J. considered an application made by the plaintiff for leave to amend his pleadings. I have had the opportunity of reading a transcript of the ex tempore ruling made by Kelly J. on 22nd June as a result of which such leave was granted.
It is therefore on foot of the amended pleadings authorised by that order of Kelly J. that this matter finally came on for hearing before me.
THE FACTS
The plaintiff left school in 1970 with what he described as a “good” leaving certificate. During the 1970s he had a successful and rising career. However he suffered a reversal in the early 1980s when, as a result of a change of direction in a major firm by whom he had been headhunted he was effectively left with no job to do. Thereafter the 1980s proved to be a most difficult period for him. He candidly outlined in evidence that he would have been, in effect, unemployed for three to four years of that decade and had also been involved in what ultimately turned out to be a failed hotel business venture. He also very candidly informed the court that he began, during that period, to suffer from serious alcohol problems. Ultimately those problems led him to seek, successfully, the assistance of a charitable agency experienced in dealing with such problems. Having come through those difficulties the plaintiff assisted in fundraising for that agency and it was in that context that he first met the first named defendant (“Mr. O’Reilly”). For those reasons it was common case that Mr. O’Reilly was well aware of the plaintiff’s background at all material times.
Mr. O’Reilly had been the proprietor of a successful motor group for a significant period of time prior to the early 1990s. The primary business of the group was concerned with the sale of motor cars through, I am informed, a series of subsidiary companies which operated separate outlets. These companies were under the umbrella of the second named defendant. A further limb to the business was Windsor Rent a Car which carried on a relatively traditional car hire business.
It is again common case that Mr. O’Reilly offered the plaintiff a job whose principal initial focus was intended to be to bring marketing skills (an area in which the plaintiff had an established expertise) to bear on the car hire business. It is common case that his contract of employment was with Windsor Rent a Car.
The plaintiff and Mr. O’Reilly had first met during 1990 and the plaintiff joined Windsor Rent a Car in March 1991.
THE HOLIDAY AUTOS CONNECTION
Holiday Autos is a large company based in the United Kingdom. No representative from the company gave evidence in the proceedings before me. However it would appear that its principal business is concerned with facilitating arrangements for the international hire of motor cars. To that end it operates through agents or franchisees in many countries. So far as material to these proceedings there are two elements of that business which require further consideration.
The first (“inward business”) consists of the appointment of an agent within a country who will supply cars to the order of international clients of the Holiday Autos network. The second (“outward business”) may involve the appointment of an agent or franchisee who will take bookings from within a country for the rent of cars in a second country. The arrangements would be challenged through Holiday Autos who would arrange to have a car in the appropriate country made available by its agent in that jurisdiction.
While there were minor discrepancies of an immaterial nature in the respective accounts given by the plaintiff and Mr. O’Reilly as to the precise circumstances in which a business relationship between Holiday Autos and either or both of them emerged it seems clear that in general terms the initial idea came about as a result of Mr. O’Reilly noticing a Holiday Autos outlet while on other business in London while much of the detailed work in setting up the arrangements between Holiday Autos and the Windsor Group and/or the plaintiff was in fact conducted by the plaintiff himself.
Initially the business consisted of inward business as a result of which Windsor Rent a Car as was appointed as the entity which would supply cars in Ireland for Holiday Autos international customers. There is no dispute but that those arrangements were with Windsor Rent a Car rather than with the plaintiff and/or Mr. O’Reilly. As this business was in the course of being established it would appear that the plaintiff broached with Holiday Autos the possibility that the outward business might also be secured. The plaintiff gave a clear account of being told by the representatives of Holiday Autos that as a matter of policy they did not consider it appropriate to allow the same entity to act as an agent or franchisee for both outward and inward business within the same jurisdiction. I did not understand Mr. O’Reilly to differ significantly from that evidence. There is no doubt but that a franchise agreement came to be executed which provides for the granting of the outward business of Holiday Autos within Ireland. That agreement is at the core of the dispute between the parties. The first significant issue is as to whether the benefit of that franchise arrangement is conferred upon the plaintiff and Mr. O’Reilly personally (as the plaintiff contends) or upon both of them in their capacity as agents of the second named defendant or other companies within the Windsor Motors Group (as the defendants contend).
THE FRANCHISE AGREEMENT
The relevant agreement is relatively straightforward in its terms. It is dated 14th November, 1991 and appears, on the evidence, to have been drafted by Messrs. Rochman Landau who are English solicitors and who acted on behalf of the franchisor which is stated to be H A International Limited of 12 Bruton Street, Mayfair, London W1, England. Insofar as the issue of the identity of the franchisee is concerned the following further provisions appear to me to be material:-
(1) The franchisee is defined as “PATRICK MICHAEL O’REILLY and WILLIAM PEARSE VAVASOUR of Windsor Car Rentals Limited, South Circular Road, Dublin 8”.
(2) The agreement bears the signature of both the plaintiff and Mr. O’Reilly who are stated as having signed “for and on behalf of the franchisee”.
(3) Clause 3.18 prohibits the grant of any sub franchise in respect of the business mark or know-how of the business.
(4) Most particularly clause 3.21 specifies that the franchisee “may on one occasion only within six months of the date of this agreement assign the benefit of this agreement to a limited liability company of which Patrick Michael O’Reilly and William Pearse Vavasour both be directors and majority shareholders and upon such assignment Patrick Michael O’Reilly and William Pearse Vavasour shall forthwith give notice of the assignment and the identity and registered office of the assignee to the franchisor but otherwise not to assign transfer or otherwise deal with the Mark and Know-How of the business or the benefit of this agreement in anyway without the prior written approval of the franchisor which shall not be unreasonably withheld in the following circumstances:-
3.21.1 if the proposed assignee is acceptable to the franchisor and shall agree to be bound by the terms and conditions of the standard franchise agreement used by the franchisor at the time of such proposed assignment for the residue of the term and
3.21.2 if the franchisee shall pay to the franchisor the reasonable costs and expenses incurred by the franchisor in the assessment of each proposed assignee.
(5) The agreement further provided:-
6.17 The franchisee shall have the option to extend the term for a further period of one year commencing on the day following the expiry date subject to the following: 6.17.1 service of notice of extension by the franchisee on the franchisor not later than one calendar month prior to the expiry date and
6.17.2 proper performance and observance by the franchisee of all its obligations under this agreement throughout the term and
6.17.3 execution by the franchisee of a new franchise agreement in the standard form used by the franchisor at the time of service of such notice in respect of a further period of one year without any option to renew.
(6) It should also be noted that the term is specified as being three years.
The defendants case is that by virtue of the fact that both the plaintiff and Mr. O’Reilly are described as being “of Windsor Car Rentals Limited” it is clear that their signatures the fact that they are named in the body of the agreement does not give rise to the inference that they were the contracting parties personally. I cannot agree.
In this context it is necessary to consider in some detail the provisions concerning assignment and/or extension of the franchise arrangements. The prohibition on assignment seems to be subject to two exceptions:-
(a) there is an absolute entitlement on the part of the franchisee to assign the benefit of the agreement to a limited liability in which both the plaintiff and Mr. O’Reilly are to be directors and majority shareholders.
(b) separate from that there is an entitlement on the part of the franchisee to seek the consent of the franchisor (which consent or approval cannot be unreasonably withheld) to the transfer subject to the provisions of clauses 3.21.1 and 3.21.2.
It is difficult to see how the provision referred to at (a) above would make any sense if it were the intention of the parties that the agreement was to be with the plaintiff and Mr. O’Reilly in their capacity as representatives of Windsor Motors Limited. In those circumstances it seems unlikely that there would be an automatic entitlement to transfer the franchise into a company which was owned by the plaintiff and Mr. O’Reilly. Furthermore if it were not contemplated by the parties that the plaintiff was to have a personal interest in the franchise it is difficult to see why he would be mentioned in the assignment arrangements at all. Furthermore, the construction of the agreement which treats Mr. O’Reilly and the plaintiff franchisees in their personal capacity (with an option to transfer the franchise into a corporate entity in which they would both have an interest) is consistent with the policy of Holiday Autos not to have inward and outward business in respect of any country in the hands of the same entity. It is reasonable to assume that the involvement of the plaintiff satisfied Holiday Autos that there would be a sufficient difference between the interests of their inward and outward agents/franchisees in Ireland so as to satisfy the concerns that clearly gave rise to that policy.
I am therefore satisfied that the only reasonable construction of the agreement taken as a whole is that the inclusion of the phrase “of Windsor Motors Limited” after the names of the plaintiff and Mr. O’Reilly where they appear in the definition of franchisee for the purposes of the agreement was simply to provide an address for those individuals and not in anyway to indicate that they were contracting on behalf of Windsor Motors Limited. Finally in that context it should be noted that the agreement was drafted by experienced solicitors from a jurisdiction whose laws in this regard are very similar to the laws in this jurisdiction. If it were intended that the franchisee should be Windsor Motors Limited then it would have been very easy indeed to specify that in the written document.
THE ARRANGEMENTS BETWEEN THE PARTIES
In the light of that finding it is necessary to consider the legal arrangements which may expressly or by implication have been in place between the parties to these proceedings so as to give effect to the franchise arrangement. In that context the plaintiff described the arrangements as being a marriage on the one hand of the fact that he had come up with the idea and had the expertise to manage it and on the other hand the fact that Mr. O’Reilly was, through the various entities within the Windsor Motors Group, in a position to deploy the resources of that group to facilitating compliance with the obligations of the franchisee under the agreement. It is common case that the resources necessary to ensure that those obligations were met were provided from within the Windsor Motors Group. The principal employee of the group concerned with managing the franchise business was the Ms. Collins who was the subject of the order of Lardner J. at the interim stage, and who gave evidence in the course of the proceedings before me. She was at all material times employed by and paid from within the Windsor Group. Furthermore, the phone and other backup necessary together with the premises, from which the business was administered were supplied from within the group making use of existing resources. On the other hand it is not at all clear that the provision of those facilities for running the franchise business was a very costly affair. While certain figures were proved in evidence in relation to the damages claim (to which I will refer in more detail later) which suggest that the total cost of administering the business in the ten month period during 1992 when it was operational came to just over IR£68,000.00 it is also clear on the evidence that much of that expenditure would, as a matter of likelihood, have been incurred in any event by the Windsor Group in respect of the conduct of its existing businesses. That is not to say that it may not properly have being deducted from the gross profit of the franchise business in computing the profits attributable thereto but it nonetheless remains the case that the additional expenditure required to be put in place by companies within the Windsor Group for the purposes of facilitating the operation of the franchise agreement was relatively limited. Given the finding above, to the effect that the franchise was with the plaintiff personally and Mr. O’Reilly personally and given both the evidence of the plaintiff (which in this regard I accept) and the undisputed evidence as to how matters actually proceeded I am satisfied that there was an agreement between the plaintiff and Mr. O’Reilly to the effect that Mr. O’Reilly would procure that the appropriate entities within the Windsor Motors Group would provide the necessary backup to ensure that the franchise could operate including the provision of services, premises and the time of such employees as might be required. The profits of the franchise would be calculated by the deduction from the gross profits (being the difference between the moneys which would be received from Irish customers booking abroad through Holiday Autos and the (lesser) sums that would require to be paid through Holiday Autos to the agents in the relevant countries) of the reasonable sums attributable to the provision of those services to the franchise. I am also satisfied that it was agreed that the net profits after deduction of such expenses would be divided as to 50% to the plaintiff personally and 50% to be applied at the direction of Mr. O’Reilly, whether to himself personally or into an entity within the Windsor Group, should he so direct.
Before leaving this topic I should deal with a minor issue which arose in the course of the evidence. It was accepted by the plaintiff that he had not, from the commencement of the practical operation of the franchise business in the earlier part of 1992 up and until differences arising between the parties in the earlier part of 1993 ever sought any payment. However on the basis of the arrangement which he asserts (and which I have for the reasons indicated above accepted) existed between the parties this does not seem to me to be material. The plaintiff was, in any event, employed by Windsor Rent a Car (an issue to which I will return). His entitlement under the franchise agreement was to receive 50% of the net profits. At the time of differences arising between the parties that business had not yet completed its first year of operation. In the circumstances it does not seem to me to be likely that the plaintiff would have sought payment until such time as audited accounts showing those profits had been prepared. While the point might, therefore, have been of some considerable importance had the franchise business continued for some number of years without the plaintiff seeking any payment in respect thereof it does not, on the facts of this case, seem to me to be material.
In all the circumstances I am therefore satisfied that an agreement existed between the plaintiff and Mr. O’Reilly to the effect that they would jointly operate the franchise with Mr. O’Reilly agreeing to procure the provision of the necessary facilities from within the Windsor Motor Group and with both parties to participate in the net profits to the extent of 50%.
THE CONTRACT OF EMPLOYMENT
It is common case that the plaintiff was served with a notice of termination of his employment with Windsor Rent a Car in early 1993. He served his notice period and was paid in respect thereof. No case is brought concerning the adequacy of the period of notice given.
Instead it is contended that there was (as Costello J. was satisfied a prima facie case existed in respect of) an implied term that his contract of employment with Windsor Rent a Car would not be terminated as long as the franchise agreement remained in place. A number of possibilities exist under this heading which were canvassed in the course of argument:-
(a) That such an implied term required the continuance of the plaintiff’s contract of employment for at least the three year period contemplated in the franchise agreement unless that franchise agreement were prematurely determined (an event which did not occur).
(b) That his contract of employment was not capable of being terminated until the expiry of the potential fourth year of the franchise agreement in the event that the franchisees exercised their clear entitlement under the terms of that agreement to extend the franchise arrangement for a period of one additional year by the service of notice of extension contemplated by clause 6.17.
(c) That the contract of employment could not be terminated as long as the franchise agreement in any form continued in existence even on foot of some further arrangement between Holiday Autos and the franchisees to continue the agreement beyond the entitlements conferred upon the franchisee under the arrangements signed up to in November, 1991.
It should be noted that it is not contended that there was an express agreement to this effect. In opposition to the plaintiff’s contention that such a term should be implied (which in fairness to the plaintiff he candidly attributed to the finding by Costello J. to the effect that there was a prima facie case to that effect), the defendant makes a series of points by way of defence which may be summarised as follows:-
(a) under the established case law concerning the circumstances in which a court will imply a term into a contract no such term should be implied;
(b) to imply such a term would be to require that the contract of employment would have a minimum anticipated duration of at least three years (or indeed a greater period in the event that the appropriate implied term was as at (b) and (c) above) and in those circumstances such a contract would be unenforceable under the provisions of the Statute of Frauds. In that context it is argued that it would be inappropriate to imply a term into a contract which would have the effect of rendering the contract unenforceable under the Statute.
(c) In the context of this aspect of the plaintiff’s claim the defendant also places reliance upon the fact that there does not appear to have been any significant connection between the general business of Windsor Rent a Car (in which the plaintiff was employed) and the franchise business. There was not, therefore, it is said, any necessary reason as to why the plaintiff would have had to continue in employment with Windsor Rent a Car in order for the franchise agreement to continue to operate.
The circumstances in which the plaintiff’s contract of employment with Windsor Rent a Car was terminated was the subject of evidence at the hearing. Mr. O’Reilly gave an account of the difficulties being encountered in the motor trade generally in the latter part of 1992. While the volume of sales in respect of the Rent a Car portion of the business had held up it was, he said, clear that insurance costs represented a very significant burden on the profitability of the Rent a Car business. It was the practice in the industry that a single policy of insurance in respect of all cars in the rental fleet was affected. The normal method used by insurance companies to determine the premium payable was a percentage of the total turnover. The Windsor Rent a Car fleet was insured with PMPA who intimated that with effect from early 1993 a significant increase in the percentage that would be required to be paid to secure a renewal of the insurance cover would be put in place. In Mr. O’Reilly’s view payment of the increased premium demanded by the PMPA would have rendered the business loss making. In those circumstances he determined that it would be necessary to close the car rental business and gave notice of redundancy to some ten out of twenty employees (including the plaintiff). The business did, in fact, cease for a number of days but as a result of an apparent change of heart on the part of the PMPA (possibly as a result of being faced with the loss of a significant amount of business) a renewal was secured at an acceptable rate and the business was restarted.
IMPLIED TERMS
Counsel for the defendants referred me to Sweeney v. Duggan [1997] 2 I.L.R.M. 221 where at p. 216 in the course of delivering the unanimous judgment of the Supreme Court Murphy J. noted that there are at least two situations where courts will, independently as statutory requirement, imply a term which has not been expressly agreed by the parties to a contract. As identified by Murphy J. the first such situation arises in circumstances where a term is inferred on the basis of the presumed intention of the parties. Reference was made to the celebrated passage from the judgment of MacKinnon L.J. in Shirlaw v. Southern Foundries [1926] Limited [1939] 2 K.B. 206 at 277 as follows:-
“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 express provision for it in their agreement, they would testily suppress him with a common, ‘oh, of course’.”
The second category of implied contractual term derives not from the intention of the parties to the contract but from the nature of the contract itself.
Murphy J. went on at p. 217 to note that whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable category of contract it must be not merely be reasonable but also necessary.
Applying that test it is difficult to see how the term contended for here must necessarily be implied. Would such a term as is contended for be necessary as a matter of law and logic to, in the words of Murphy J. at p. 222, “enable the provisions of the agreement to have operative effect”. It seems to me that the clear answer is no. There was obviously no such term implied when the contract of employment initially commenced for at that stage the franchise agreement was not in contemplation. The only argument upon which the plaintiff can rely is to the effect that the term became implied into his contract of employment as soon as the arrangements in respect of the franchise agreement became operative. In what way was it necessary to the proper operation of the franchise agreement or the contract of employment that such a term be implied into the employment arrangements. While it was, of course, in the plaintiff’s interests that he should continue to be directly involved in the franchise arrangement he did not necessarily have to be an employee of Windsor Rent a Car in order so to do. Similarly on the basis that I have found, as I would have to have done in order for the plaintiff to have a case in respect of the franchise agreement, that that agreement was a stand alone arrangement which was necessarily divorced by reason of the policy of Holiday Autos from the remainder of the Windsor Motor Group, it is difficult to see how it was in anyway necessary to the performance of the his contract of employment that there be an implied term that same should continue as long as the franchise should.
Similarly it does not seem to me that the hypothetical officious bystander would have received the required “of course” answer had he suggested such a term. Same might have been negotiated and if it were negotiated it could have been subject to various terms and conditions. No such negotiations took place.
In the circumstances it does not seem to me to be appropriate to imply a term into either the agreement between the plaintiff and Mr. O’Reilly in respect of the operation of the franchise (to the effect that Mr. O’Reilly who was the other party to that agreement would procure that the plaintiff’s contract of employment with Windsor Rent a Car would be coterminous with the franchise agreement) or a term in the contract of employment with Windsor Rent a Car itself to the same effect.
Given that it does not appear to me to be appropriate to imply any such term into the contract of employment (or indeed into the arrangements concerning the franchise agreement in the collateral matter referred to above) there does not appear to have been anything unlawful in the termination of that contract of employment and thus the plaintiff’s claim in respect of this heading fails.
The remaining element of the plaintiff’s claim in respect of his employment concerns a possible bonus payment for the year 1992. In evidence the plaintiff suggested that his terms of employment included an entitlement to a bonus payment of IR£10,000 per annum. In support of this he produced a letter dated 22 April 1992 from his employer (Tom Magee FCCA, Financial Director) which specified his remuneration to be as follows:-
Annual Salary £20,000
Annual Bonus £10,000
Profit Share 5% of profits
over budget
Against this the defendant suggested that the letter was written as a comfort for the plaintiff’s bank and did not reflect his actual package. Further it was suggested that profits were never sufficient to require the bonus payment.
In answer the plaintiff produced a print out from the relevant payroll of the defendants for that period which, insofar as it relates to him provides as follows:-
NAME Nov 91 BASIC EXTRA BASIC MONTHLY BONUS ANN BONUS
P VAVASOUR 18320 1680 6000 4000
On that basis I am satisfied that the plaintiff was at all material times during his employment entitled to a bonus of IR£10,000 per annum but that the profit share did not arise (nor was such claimed in these proceedings).
Therefore the plaintiff is entitled to recover the sum of IR£10,000 less tax and other deductions.
I will invite the parties to agree that net figure is converted into euro.
THE CESSATION OF THE FRANCHISE ARRANGEMENTS
It remains, however, to consider the circumstances in which the plaintiff ceased to be involved in the franchise arrangements. It was common case that all of the moneys which were received on foot of the franchise arrangement were paid into a company known as Globetrade Marketing Limited. This company would appear to be a wholly owned subsidiary of the Windsor Motors Group. The plaintiff in evidence said, and I accept, that it was his understanding that this was a convenience having regard to the fact that the expenses associated with the running of the franchise were also being borne by that group and that it was a company over whose accounts he had a certain degree of control. On the basis of the findings set out above as to the arrangements between the plaintiff and Mr. O’Reilly and in the context of the acceptance by both of them that the funds attributable to the franchise arrangement should be paid into an account in the name of Globetrade Marketing Limited it seems to me that it is appropriate to construe those arrangements as obliging Mr. O’Reilly to procure that 50% of the net profits derived by the franchise should be paid to the plaintiff.
What in fact occurred after the plaintiff’s contract of employment had been terminated was that the franchise business continued to operate as if Globetrade Marketing Limited was the franchisee. While there was little clear evidence as to the precise circumstances in which that occurred (and in particular no evidence by anyone representative of Holiday Autos) it would appear that Holiday Autos at least went along with that situation notwithstanding the exclusion of the plaintiff. Whether there was a formal transfer of the franchise agreement or not the franchise agreement operated as if Globetrade were the franchisee. It should of course be recollected in this context that the financial arrangements in respect of the business of the franchise (that is the receipt of moneys from customers and the onward payment to the appropriate agents of Holiday Autos) were already occurring through Globetrade prior to the plaintiff’s departure. Therefore in practical terms nothing changed after that departure.
Thereafter (and subject to one significant alteration in 1998) the franchise appears to have continued to be operated by Globetrade up and until the time when it was terminated by Holiday Autos in 2001. It is not clear whether there was any formal exercise by Globetrade (or indeed anyone else) of the entitlement to extend the franchise for one year upon the completion of the initial three year period in 1994. Similarly there was no detailed evidence as to precisely how the arrangements continued thereafter notwithstanding the termination of the original franchise agreement. On this basis it is reasonable to infer that while no formality attached to the extension of the arrangements, Globetrade and Holiday Autos agreed expressly or by necessary implication to continue the arrangements subject to the 1998 variation up and until the final termination in 2001.
CONCLUSIONS ON LIABILITY
For the above reasons I am satisfied that the first named defendant was in breach of contract when he failed to procure that 50% of the profits of the franchise would be paid to the plaintiff. Similarly I am not satisfied that there was any breach of contract on the part of any of the defendants in relation to the termination of the plaintiff’s contract of employment. I am satisfied that the third named defendant failed to pay the bonus sum of IR£10,000 contracted for in respect of 1992.
BASIS FOR CALCULATING DAMAGES
The next issue which logically arises is as to the appropriate basis in law for the calculation of the damages to which the plaintiff may be entitled for the breach of the franchise contract referred to above.
While there are, on the fact of this case, a number of important other issues which require to be determined in order to proceed to assess damages it is, nonetheless, appropriate to commence with approaching damages on the basis of the traditional test for compensatory damages. On this basis it is necessary to seek to place the plaintiff into the position in which he would have been had the contract been complied with. There are detailed figures available as to the trading in relation to the franchise operation (the detail of which I will return to). Therefore there is no difficulty in relation to the calculation of the loss of profits attributable to any period of time.
The first problem that arises is as to the period of time by reference to which damages should be calculated. In approaching the matter at this stage I have deferred until later consideration in the course of this judgment the applicability of the defendant’s contention that part of the plaintiff’s claim is in any event statute barred. I have similarly deferred the considerations of the argument made by the plaintiff as to an alternate basis upon which damages should be calculated.
It seems clear that the initial contract between the plaintiff and the first named defendant could only have been for the expected duration of the franchise agreement which was, subject to the negotiation of any further extension, a period of three years with an entitlement to extend for a further year. As the franchise did continue for that fourth year I have little difficulty in accepting that the plaintiff would be, in principle, and subject to the argument concerning the statute of limitations, be entitled to loss of profits for that four year period.
A more difficult question arises in respect of the question as to whether the plaintiff is entitled to damages based on any period beyond the fourth year. On the one hand it is clear that the franchise did continue for a significant period thereafter. On the other hand it can only have done so on foot of an express or implied agreement between Globetrade or other entities within the Windsor Motors Group and Holiday Autos, the plaintiff not being a party to any such agreement and it being known to all sides that the plaintiff was no longer involved in the franchise. Against that it also needs to be taken into account that at the time the continuance of the franchise occurred these proceedings were already in existence and any such continuance obviously must be viewed against that backdrop.
The real question seems to me to be this. Given that the plaintiff was no longer an employee of Windsor Motors but also given that he would have been an existing franchisee as of the date of the expiry of the extended fourth year period what would then have happened had the breach of contract not occurred so that the plaintiff was, at least up to that date, an existing and continuing franchisee.
Given that the franchise would then be about to expire and that holiday autos would be under no obligation to either the plaintiff or any of the defendants to continue same and equally given that the defendants would not have been obliged to continue with their arrangements with the plaintiff it seems to me that one cannot be certain that the franchise arrangement would have continued with the plaintiff as a
co-franchisee in the same manner as it continued in favour of Globetrade in the events that actually happened. On the other hand there can be little doubt that the plaintiff lost an opportunity of being able to participate in such a continuing franchise by virtue of what I have found to be his wrongful exclusion in participating in the franchise up to that date. If he was the joint-incumbent as of that time then he had a real opportunity to be involved in some way in the continuance of the franchise. By virtue of his exclusion and his not being, then, an incumbent he in fact lost that opportunity.
The most recent case in which the courts in this jurisdiction have had to consider a loss of opportunity is Philp v. Ryan and Others (unreported judgment of the Supreme Court delivered by Fennelly J. on 16th December, 2004). While that case was concerned with the loss of an opportunity to avail of medical treatment which might or might not have affected his prognosis the court nonetheless addressed general principles concerning loss of opportunity.
Fennelly J. quoted with approval from the speech of Lord Reid in Daveys v. Tailor [1974] A.C. 207 at p. 213 as follows:-
“When the question as whether a certain thing is or is not true – whether a certain event did or did not happen – the court must decide one way or the other. There is no question of chance or probability. Either it did or did not happen. But the standard of civil proof is a balance of probabilities. If the evidence shows a balance in favour of it having happened then it is proved that it did in fact happen.
But here we are not and could not be seeking a decision either that the wife would or that she would not have returned to her husband. You can prove that a past event happened, but you cannot prove that a future event will happen and I do not think that the law is so foolish as to suppose that you can. All you can do is to evaluate the chance. Sometimes it is virtually 100%; sometimes virtually nil. But often it is somewhere in between. And if it is somewhere in between I do not see much difference between a probability of 51% and a probability of 49%.”
Furthermore the court placed reliance on the speech of Lord Simon of Glaisdale at p. 220 to similar effect:-
“But this is one of those cases where a balance of probabilities is not the correct test. If the appellant showed any substantial (i.e. not merely fanciful) possibility of a resumption of co-habitation she was entitled to compensation for being deprived of that possibility. The damages would, of course, be scaled down from those payable to a dependent spouse of a stable union, according as the possibility becomes progressively more remote. But she would still be entitled to some down to the point where the possibility was so fanciful and remote as to be de minimis.”
Applying those principles to the facts of this case it seems to me that I must access the likelihood of the franchise having continued with the plaintiff as a
co-franchisee after year four on the basis that he remained a co-franchisee up to year four.
I have regard to the following factors:-
(a) at least at the relevant time (in 1995) the business seems to have been satisfactory from the point of view of Holiday Autos and it seems unlikely that they would have had any difficulty with the continuance of the existing business with or without the plaintiff as a co-franchisee.
(b) from the perspective of the defendants there would have been two competing requirements. If they wished to continue the business without the plaintiff then they would have to have attempted to negotiate a variation in the arrangements so as to exclude the plaintiff which fact might well not have commended itself to Holiday Autos. On the other hand the defendants might have been anxious, given that the plaintiff was no longer in their employ, to remove him from the picture.
(c) the plaintiff would be most unlikely to have been in a position, in practice, to have carried on the franchise without the availability of the resources of the defendant. In this regard it is important to note that the profits attributable to the franchise in the first number of years were not very substantial so that even had the plaintiff had access to 50% of those profits it is unlikely that he would have been able to take over the running of the franchise entirely by himself. The reality was that the costs of running the franchise were reduced by the application of economies of scale to the operations of the defendants so that resources that were also being utilised in their general motor business were also utilised for the purposes of the franchise. Such economies of scale would not have been available to the plaintiff.
In all of the above circumstances it seems to me that there would have been a significant risk that the plaintiff would not have been able in practice to continue as a franchisee against the opposition of the defendants but that nonetheless, in all the circumstances, it is more probable than not that he would have so continued. I would consider it appropriate, therefore, to reduce the profits attributable to any period after the fourth year to 60% of their full value to reflect the loss of opportunity. It is next necessary to consider two additional questions concerning the approach in principle to the calculation of damages before going on to assess the expert evidence in relation to the losses actually suffered.
STATUTE OF LIMITATIONS
The defendants argue that the plaintiff’s claim is, at least in part, statute barred. The basis upon which this claim is made stems from the amendment to the statement of claim permitted by Kelly J. and referred to above. I should note for completeness that the original statement of claim was amended at an early stage for the purposes of including the third named defendant as a defendant and further including appropriate pleadings in respect of the claim as against that party. At that stage the plaintiff’s claim in respect of the franchise was as set out at para. 13 (iv) and amounted to a claim for a payment of IR£49,375.00 representing that the plaintiff’s share of profits for the period to 31st January, 1993 and further an account of all profits of the franchise from that date to 14th November, 1994. This latter date was the date upon which the original three year term would have expired.
When the amendment was made in 2004, the claim was extended to cover damages in respect of breach of the franchise agreement to date. However, the defendants claim that the extended period in respect of which damages were claimed amounts to a fresh claim which was only brought on application being made to Mr. Justice Kelly in that regard on 22nd June, 2004. Thus it is argued that any loss that is attributable to the period from 15th November, 1994 up and until 22nd June, 1998, are not recoverable because they were not:-
(i) Included within the original claim; or
(ii) Attributable to a period within six years of the deemed commencement of the amended claim upon the making of the order of Kelly J.
Unfortunately for the plaintiff, and for entirely understandable reasons, he did not feel able to deal with the legal arguments raised by counsel for the defendant under this heading. In those circumstances I have considered same with particular scrutiny. However, I am driven to the conclusion that the defendants are correct in that contention. It is well settled that where pleadings are amended to include an additional Head of Claim, the statute only stops running as of the time of that amendment. It is, of course, the case that sometimes amendments are, in substance, merely a further particularisation of a claim which has already been made. The difficulty here is that the plaintiff’s case was, on the original pleadings, expressly confined to a claim up to 14th November, 1994. There was thus no claim in respect of any loss of opportunity in relation to the continuance or renewal of the franchise or, indeed, any other breach of contract that gave rise to losses anticipated to extend beyond that date. In those circumstances it seems to me that such a claim must be regarded as a new claim. Indeed the fact that Kelly J. felt it appropriate not to consider such a claim on the existing pleadings without considering and ultimately allowing an application to amend strengthens me in that view.
In the circumstances it seems to me that I must exclude from consideration any damages in respect of the period from 15th November, 1994 to 22nd June, 1998.
ADDITIONAL DAMAGES
It is also necessary for me to deal with the contention made by the plaintiff that he should be entitled to additional damages based upon what he contends were the mala fides of the defendants and further based upon the undoubted hardship and distress which he has suffered over the last eleven or twelve years. In that regard he referred me to Hickey v. Roches Stores, an unreported judgment of Finlay P. delivered on 14th July, 1976. That case is concerned with the circumstances in which it may be appropriate to approach the question of damages on the basis of calculating the gain which the wrongdoer made rather than the loss suffered by the plaintiff. It is obviously only relevant in cases where there is a difference between those two sums such that the wrongdoer gains more by his breach than the plaintiff has actually suffered by the wrongdoing. On the facts of this case it does not seem to me that that principle has any relevance. The agreement between the parties (which I have held has been breached by Mr. O’Reilly) was that Mr. O’Reilly would procure that 50% of the profits attributable to the franchise should be paid to the plaintiff. What Mr. O’Reilly gained by his breach was, therefore, exactly the same as the plaintiff lost, i.e. 50% of the net profits. While there may be some debate between the parties as to how those profits should be calculated (to which I will return), nonetheless in principle, and on the facts of this case, there does not appear to be any difference between the gain achieved by the breach and the loss suffered as a result therefrom.
The other leg of the plaintiff’s claim in respect of the payment of additional damages is one in which he seeks damages for distress. However, on the basis of the findings already made in the course of this judgment the plaintiff would not have been entitled to continue in employment and would only have suffered a loss in respect of 50% of the net profits. For reasons which will be clear later in this judgment those losses are relatively modest in most years. While undoubtedly accepting that the whole circumstances surrounding these proceedings have caused considerable distress to the plaintiff and his family it does not seem to me that having regard to the relatively modest financial losses which he suffered it can be said that any significant portion of that distress is, in reality, attributable to the wrongdoing which is actionable in these proceedings and in respect of which I have to calculate damages. For this reason I would not propose departing from purely compensatory damages to which I now turn.
THE CALCULATION OF DAMAGES
There was certainly some confusion which was only cleared up in the course of the proceedings as to the precise manner in which the franchise continued in the years after the plaintiff had departed from active involvement. However, it is now clear that at the instigation of Holiday Autos what in substance amounted to a renegotiation of the arrangements between Holiday Autos and the franchisee occurred in the latter part of 1997 and became operative with effect from 1998. In substance the whole manner in which the franchisee was to be paid altered so that instead of the franchise making a gross profit derived from the difference between what it charged its Irish customers and what it had to pay to the relevant Holiday Auto agent in the country concerned all payments were subsequently made directly to Holiday Autos who paid a commission back to the franchisee which appears to have been as to 7% on the first IR£1 million of turnover and 5% thereafter. It seems likely that this change was significantly motivated by the increased use of the internet as a means of booking car hire. Indeed it seems quite probable that once the business began to operate in that fashion it became increasingly likely that Holiday Autos would wish to terminate the franchise in its entirety, which they did in fact do in 2001.
However, for the purposes of this case it is important to recall that at the interlocutory stage Costello J. (as he then was) directed that the defendants should account to the plaintiff on a monthly basis for the turnover of the franchise business. This they continued to do. When the alteration in the nature of the business occurred at the beginning of 1998, a certificate in a slightly different form was furnished which divided the business into “old business” and “new business”. I was informed, and accept, that the new business was the grossed up turnover figure attributable to the commission paid to the franchisee. The old style business was a figure for turnover which had occurred in the traditional manner by direct sales by the franchisee to the public. This old style business continued for some period into 1998. I am also informed by the plaintiff, and accept, that he was entirely unaware as to that change in the nature of the conduct of the franchise operation until the matter was put in evidence in the course of the hearing. He was therefore, not unreasonably, under the apprehension that turnover in the traditional manner (that is to say sales for which the franchisee would have received payment) in the volumes indicated in the certificates was occurring. On that basis the plaintiff’s expert forensic accountant, Mr. Peter Johnson, had prepared figures for the profits of the franchise which were based on that assumption. Overnight (after the variation was clarified) he produced a revised report, dated 12th January, 2005, reflecting the new situation that had emerged in the course of evidence on the previous day. In that report he sets out what he describes as an upper estimate and a lower estimate of the value of 50% of the franchise net profits. The difference between the two stems from the treatment of the expenses attributable to the conduct of franchise business. The lower estimate is taken on the basis of accepting fully all of the expenses which were included in the statutory accounts of Globetrade Marketing Limited in respect of the business. The upper estimate is simply based on taking half of those expenses. The reason given by Mr. Johnson for tendering that figure was his experience that it was possible and not entirely unusual that accounts for companies within a group of companies do not necessarily allocate the expenses attributable to each company in an exact way. In this regard he noted, and I accept, that in most cases there are no revenue consequences resulting from any such distinction in that for practical purposes groups of companies, as defined in the Taxes Acts, are taxed on their collective profits by means of allowing losses occurring in one company to be the subject of an allowance in another profit making company within the same group. Mr. Johnson also accepted that it was entirely appropriate that where, as here, one company within a group provided services to another company within the group an appropriate charge for those services should be made. He did not, therefore, disagree in principle with the making of a charge but simply questioned whether the charge might not have been overstated.
To that end the defendants led evidence from Greg O’Shea, a partner in Burke & Company, who at all material times were auditors to Globetrade. Mr. Burke indicated that in respect of many of the years to which his evidence related he had himself carried out the calculation as to the sums attributable to the franchise business by way of costs and which should, therefore, be at least notionally paid by Globetrade to other companies within the group. While a number of minor matters were not absolutely clear (vis the fact that in some years there may have a round sum and the fact that for the last year the expenses seemed to continue beyond the date when the business ceased – this latter being explained by the need to wind-up the business) I am not satisfied on the evidence that there is anything like a sufficient basis for me to go behind the statutory accounts. In the circumstances it seems to me that the profits attributable to the franchise in respect of which the plaintiff was entitled to a 50% share are those set out in the lower figure given by Mr. Johnson. To those figures I must apply two reductions. For the reasons indicated above I must exclude the losses which appear to derive from the statute barred period. Furthermore I must reduce all losses subsequent to 1995 to 60% of their full value. On that basis the allowable losses appear to me to be the following:-
TABLE
Year Profit/loss 50% Attributable to Plaintiff Reduction Allowable Balance
1992 2,203 1,102 N/A 1,102
1993 (9,036) (4,518) N/A (4,518)
1994* 9,773 4,887 N/A 4,887
Net Share of profit to end 1994 1,471
Estimated net shares of profit to 14th November, 1994 1,000
1995 21,856 10,928 Statute Barred 0
1996 5,051 2,526 Statute Barred 0
1997 (24,824) (12,412) Statute Barred 0
1998* 39,891 19,946 60% and Estimated statute barred to 22nd June 6,000.
1999 31,771 15,886 60% 9,532
2000 65,000 32,500 60% 19,500
2001 (12,000) (6,000) 60% (3,600)
Total allowable losses £32,432
Notes:-
* While no specific evidence was given as to how the profits attributable to 1994 and 1998 should be divided up as and between the periods which I found to be statute barred and those which I found not to be statute barred, I have made an estimate based on the proportion of the years concerned.
Furthermore, it will be noted from the above table that the net profits in the period which I found to be statute barred were in fact extremely small in that the net position for the entirety of the years 1995, 1996 and 1997 showed a profit of just over IR£1,000 while the broken years showed an approximate profit in the statute barred portions thereof of approximately IR£10,000.
INTEREST
I have next to consider whether it is appropriate to allow courts act interest to the plaintiff. In the ordinary way the plaintiff has suffered commercial losses and a loss of his bonus payment and should be entitled to interest. I do have to have some regard to the fact that it has taken a very long period of time indeed for these proceedings to come on for hearing. There was a significant volume of debate at the hearing concerning the blame that might be attached, in particular to the defendants, in respect of delays experienced in the discovery process had otherwise in the proceedings. In particular reliance was placed upon the fact that Morris J. (as he then was) felt at one stage that the actions of the defendants warranted the dismissal of their defence. However, the precise circumstances which led to the making of that order are not a matter of record and furthermore the decision of Morris J. was in part overturned on appeal by the Supreme Court. However, for the purposes of this aspect of the case it seems to me sufficient to note that it is difficult to blame the plaintiff for any of the delays which occurred in the case up to the year 1999. Thereafter, and it would appear through no fault of his own, the plaintiff has had difficulty in obtaining legal representation which ultimately led to the circumstances in which he was required to represent himself. Equally it must be said that there is no basis for suggesting that the defendants were in any way responsible for those difficulties. Were it not for those difficulties it seems to me that it is likely that this case would have come on for hearing no later than 2001 and would have been the subject of a judgment by the end of that year. In the circumstances it seems to me that the justice of the case would be to award Courts Act interest on each of the sums allowed in the above table and the bonus payment at the appropriate courts act rate from the last day of the year to which the sum is attributable to the end of 2001. Hopefully it will be possible for the parties to agree the appropriate calculation together with the calculation of the sum in Euros to which the plaintiff should be entitled on the basis of the above together with interest calculated on the above basis.
Approved: Clarke J.
Dakota Packaging Ltd -v- AHP Manufacturing BV Trading As Wyeth Medica Ltd
[2004] IESC 102 (15 December 2004)
JUDGMENT delivered on the 15th day of December, 2004 by FENNELLY J.
In a judgment delivered on 10th October 2003, Peart J determined that the Appellant (hereinafter “Wyeth”) were bound to give reasonable notice to the Respondent (hereinafter “Dakota”) of the termination of a trading relationship, whereby they had been major purchasers of packaging from the latter. He also determined that the period of notice should be twelve months and that, during the period of notice, Wyeth were obliged to continue to purchase whatever goods of that type Wyeth required during that period.
Wyeth’s main point is that the learned trial judge purported to imply the term with regard to reasonable notice, while finding that there was no long-term purchase agreement between the parties. Dakota concedes that a term cannot be implied where there is no contract, but maintains that the learned trial judge “in effect” and despite some ambiguous language found that there was such a contract.
While the parties both in the High Court and in this Court presented extensive submissions on the law regarding implied contract terms, there was no fundamental disagreement as to the relevant principles or cases. It was agreed that there can be no implied term without a contract. Thus, the principal issue to be determined is whether the learned trial judge found that there was a contract (other than individual contracts for the sale of goods).
The Facts
Dakota is one of Ireland’s major print and packaging companies. It was a public limited company until 1994. It trades from Airways Industrial Estate, Dublin 17. At the commencement of these proceedings, it employed some 160 persons. Employment had peaked at over 200 about the year 2000. The Appellant is a company registered in the Netherlands, but trades in Ireland as Wyeth Medica Ireland. It is part of a major American multi-national company which manufactures pharmaceutical products. Its Irish manufacturing base is at Newbridge, Co Kildare, where it manufactures contraceptive products. Both companies are sophisticated enterprises operating in a competitive business environment and are accustomed to the need for high standards.
After initial contacts in 1993, Wyeth commenced purchasing packaging from Dakota. From small beginnings of some IR£100,000 in 1993, the business increased to IR£700,000 in 1995. The greatest increase was from 1999 onwards. About that time, Dakota invested some €10 million in its manufacturing facilities in order to assist the growth of its business with Wyeth. The business increased to just short of €4 million in 1999 and reached a peak value of €8.6 million in 2000, falling slightly to €8 million in 2001 and to €6.2 million in 2002. At the time of the commencement of the proceedings, the Wyeth business represented approximately 40% of the total turnover of Dakota.
In late 2002 and early 2003, Wyeth expressed concern about the financial stability of Dakota. These concerns were the subject of much discussion and argument between the parties. Whether these concerns were justified or not – and it is only fair to say that Dakota maintains that they were not – does not need to be decided and it was not decided in the High Court. It appears that the real effect of these events was to cause Wyeth to take a closer look at the prices they were paying to Dakota and to conclude that the goods could be sourced more competitively elsewhere. Again, whether they were correct in this respect is not relevant. Dakota’s sole contention is that, while Wyeth were entitled to terminate their trading relationship, they were required to give reasonable notice, or as it was put in evidence on behalf of Dakota, to “agree an exit strategy.” Thus, Wyeth did not have to justify the termination or even give a reason, provided they gave proper notice.
Unless there was some long-term agreement between the parties for the sale and purchase of packaging, there was no contract into which Peart J was entitled to imply a term that reasonable notice had to be given of its termination. In one sense, this issue can be disposed of simply by looking at the judgment of Peart J. Dakota has not appealed his findings regarding the existence or otherwise of a contract. If, as Wyeth maintains, Peart J found there was no such contract, they are entitled to succeed on the appeal. Therefore, I will refer to the judgment of the learned trial judge as fully as is necessary to deal with this question. I will also, however, refer to the evidence which, according to Dakota, established the existence of such a contract. Principally, this evidence was given by Mr Tony Fox, who was at all material times the sales director of Dakota. In saying this, I would also remark that, as was rightly stated by Mr Paul Gardiner, Senior Counsel, for Dakota, the facts themselves were not in serious dispute.
The High Court Judgment
The following appear to me to be the most material passages from the judgment of Peart J. Firstly, in summarising the facts, he made the following statements:
“A critical feature of this trading relationship as far as the present dispute is concerned is that at no time was there ever any supply agreement in writing concluded between the parties. The relationship developed over time with orders for product being received from Wyeth and being supplied on an order by order basis by Dakota, although Wyeth would from time to time give Dakota a forecast of anticipated orders so that presumably Dakota could have sufficient raw materials available when the orders were placed to fulfil the orders without delay.
In relation to orders, Mr Tony Fox, Dakota’s Sales Director agreed when giving evidence that each order placed represented a separate contract for the supply of the goods so ordered. The standard terms and conditions appearing on the back of each order form were in line with this, but Mr Fox went on to say that if that was to be the sole basis on which business was to be done with Wyeth, its orders could not have been fulfilled to meet their requirements, and that was why annual forecasts of volumes were made, so that the necessary quantities of raw materials (i.e. board) would be in stock at Dakota to meet the orders placed. Those stocks of board had to be bought in from board manufacturers and the lead time for that was about 10-12 weeks. He said that the business relationship with Wyeth could not have developed and matured in the way it did, if Dakota were to operate only on the basis that Wyeth had no obligations over and above what was stated on the order form, but he had to accept that on paper that was the extent of Wyeth’s obligation in relation to goods ordered.” (page 9)
“Mr Fox also confirmed in his evidence that in early 1997 Wyeth introduced what is described as a “Blanket Order” system of ordering, in order to cut down on paperwork given the number of orders being placed from time to time. A letter from Wyeth dated 29th January 1997 announcing the introduction of this new purchasing system stated that the normal purchasing terms and conditions would continue to apply, and then stated “that the Blanket Order should not be interpreted as a firm commitment by WMI to purchase the authorised quantity stated in the Blanket Order. You may only produce and deliver the stated call-off quantities”. (pages 9/10)
“Mr Fox was also referred to a further development in purchasing arrangements which was introduced in January 2000. This is what has been referred to as the “two month firm window”. In effect there would be a six month forecast given of anticipated orders going forward, but there would be a two month “firm window”, the latter being what Dakota could actually manufacture and that Wyeth guaranteed to take and pay for. The forecast six month period was merely indicative, and Wyeth had no obligation to purchase on foot of it. In April 2000 a document was sent by Wyeth entitled “Standardized procedures for vendors” and this set out the new arrangements relating to “Firm period” and “Forecast” and other matters which would form the basis for the purchasing arrangements with all Wyeth suppliers, and not just Dakota. Under the paragraph headed “Forecast” it states:
“The forecast period is for the following four months of the schedule. Vendors should use the Schedule period to forecast for base material for periods outside of the Firm Period. This period can be used by supplier to produce & hold stock but WMI is not liable for any stock outside the firm period that does not have a purchase order.”
While Mr Fox acknowledged that this document existed, he again stated that from a practical point of view it was not possible to operate strictly in accordance with it, because of the lead time needed to buy in raw material from board manufacturers. The two month window would not give sufficient lead time.” (page 10)
More importantly, when he came to what he described as his “conclusions,” the learned judge said:
“Nothing was ever written down, and each order constituted a contract for the delivery of the stipulated goods. Business gradually increased through 1995 to 1998 when just less than two million euro worth of business was transacted, again just on an order by order basis.” (page 29)
“In 1996 as we know, Dakota had at first failed to win a tender for the Wyeth business at that time. On the 14th February 1996 a letter was received from Mr Slater indicating that the business was to be transferred to a new supplier but he also indicated that the business would be transferred over a mutually agreed period of time, and he then thanked Dakota for its support in the tendering process, whatever that meant, and also expressed appreciation for the long standing association between the two companies. In my view, taking a snapshot of the relationship between the two companies at that time, there was no obligation upon Wyeth to give any notice to Dakota, and anything contained in that letter was a voluntary gesture on the part of Wyeth. Perhaps, indeed, it suited Wyeth to transfer the business gradually to its new suppliers, rather than to have the changeover take place overnight. In any event it was expressed in the way that appears in the letter, but I cannot see how that letter can constitute anything in the way of a binding commitment that at any future time at which the relationship might be terminated the transfer of business to any new supplier would be undertaken in a timeframe to be mutually agreed between the parties. It could not amount to that, and I am satisfied that no form of estoppel can arise therefrom. If there is to be a term of reasonable notice implied into the relations between the plaintiff and the defendant, it cannot in my opinion arise by virtue of that letter.” (pages 29/30)
“I am satisfied that the level of the relationship as of that time was of a character similar to many a business relationship of 5 years’ standing. In any walk of life, business comes and goes. It can go for any number of reasons, or for no reason other than someone’s whim or a simple desire for change, and no notice may be required to be given in these circumstances, unless there is an express term to the contrary.
Nevertheless the law has recognised that in some circumstances reasonable notice of termination must be given, even where there is no such term expressed in any written contract between the parties. I have been referred to a number of such cases, each of which is different in terms of the type of relationship existed between the parties, and there is certainly no case to which I have been referred which is on all fours with the present case, though there are some similarities in some of the cases. But the fact that the court will imply terms in certain circumstances is well settled, …” (page 30)
Having referred to the judgment of Murphy J in Sweeney v Duggan [1997] 2 I.R. 531, he continued on page 29:
“Having referred to the said officious bystander, he went on to say that in addition to the sort of case in which the parties would say “Oh, but of course”, there was a variety of cases in which a contractual term would be implied not on the basis of the presumed intention of the parties, but deriving from the nature of the contract itself, and referred to Lord Wilberforce’s description of the different categories as no more than shades on a continuous spectrum. I take this to mean that the range of cases, or the variety or kinds of cases in which a term will be implied is not confined in any way, and that there is vested in the court a wide discretion as to when it shall regard it as reasonable to imply a term, such as a reasonable notice term.
I say this because a feature of the present case, and an unusual feature, is that in spite of the very large volume of business transacted by Wyeth with Dakota, and of the very substantial investments both in terms of money, premises, plant and machinery, and personnel, no long-term or even medium term supply agreement was ever entered into between Dakota and Wyeth. Such an agreement would be of more benefit to Dakota than to Wyeth, but one cannot say that it would not have been of some benefit to Wyeth also, since they had a dependence on Dakota, which was recognised, albeit in a somewhat negative way, by Ms. Todd at the backend of 2002 when she embarked upon an examination of the risk to Wyeth of this dependency.” (page 32)
He continued at page 32:
“The question now is whether the relationship which developed between Wyeth and Dakota during and after 1998 changed things in such a way as to bring that relationship, which was an evolving one, into that category of relations which the law has recognised as capable of having implied therein a term that it will not be terminated other than on the basis of reasonable notice being given.”
The following step in the reasoning is crucial and merits full citation. At page 32/33, Peart J said:
“In 1997/1998 there was a development in the evolution of the relationship between Wyeth and Dakota. New products were being launched by Wyeth and very substantial quantities were expected. I am satisfied that Wyeth wanted Dakota to supply these anticipated increased volumes if it had the capacity. This accounts for Mr Slater speaking to Dakota at the time about moving its operation to an upgraded and larger premises if it wanted to be a major player in the packaging industry. There is no doubt also that Dakota was an ambitious company anxious to expand its business, and it goes without saying that it would jump at the chance of supplying Wyeth with the sort of quantities which were being talked about. Dakota had other customers which a new premises and upgraded facility would also benefit.
But I am satisfied that a very close relationship had developed between these two companies by this time, and without going so far as to say that Dakota was induced by Wyeth to invest so heavily in new premises and equipment, it was clear that if that was done the new business would come their way. It was certainly a benefit to Dakota, but it was also a benefit to Wyeth who now had a local supplier who could satisfy its requirements both as to reliability of supply and as to quality of product. Both of these factors are of critical importance to Wyeth given the business it is in. This is borne out by the evidence given by Wyeth.
As we now know the new levels of business did come Dakota’s way, and in fact the forecasts were exceeded. But while I am not saying this close cooperation, and encouragement by Wyeth to invest created of itself some sort of contractual relationship, it was a very significant factor in the development of the overall relationship between the parties, and a factor which I must take into account when considering the nature of the relationship between the parties. I prefer to use the phrase “nature of the relationship” between the parties, because the use of the word “contract” is confusing in this case, because, as Mr Murray was at pains to point out, there never was any contract in existence except each individual order of specific goods from time to time, and perhaps the commitment to purchase those goods specified in the “firm window” in the forecasts given by Wyeth. But to confine myself to that “contract” is to ignore essential aspects of the overall relationship, and would fail to recognise what Murphy J. was referring to in Sweeney v. Duggan when he stated that there are a variety of cases in which a contractual term will be implied on the basis not of the intention of the parties, but deriving from the nature of the contract itself. I refine this a little bit further for the purpose of this case by stating that it ought also to be derived from the nature of the relationship of the parties, as in the present case.
I accept that for a term to be implied it must not just be reasonable but must also be necessary. In addition I am satisfied that a term cannot be implied simply because one party considers that in all the circumstances it would be fair to them. It must also be capable of formulation with reasonable precision. That much is clear from the English authorities and from Sweeney v. Duggan.”
Later on the same page he continued:
“But in relation to the development of the relationship from 1998, I have absolutely no doubt that both parties would have regarded the giving of reasonable notice as a desirable thing had it been discussed. I do not have to state why Dakota would regard it as desirable, because that is obvious. But as far as Wyeth is concerned they were also putting themselves in a position of some dependency on Dakota. This was not seen as risky at the time, but there was risk. That risk was appreciated by September 2002 as we know. In fact I find it extraordinary that the matter was not brought up for discussion by Dakota either of their own motion as it were, or on the prompting of their Bank or even their auditors. However that was the situation. Dakota either closed their minds to the possibility of peremptory termination, or worked on the assumption that everybody would be decent about things when and if that situation arose.
While Wyeth have said that they would never agree to enter into any long-term supply agreement with a supplier, and do not in fact do so, that is not the same as saying that they would never agree to reasonable notice of termination. The fact that they do not have long-term supply agreements with their suppliers does not prevent this court from finding that a term of reasonable notice is capable of being implied.”
At a later stage, he gave further consideration to the grounds on which a term may be implied. He considered that would be fair to both parties and also reasonable. He said that it was necessary to give business efficacy to the relationship after 1998. He also spoke of giving “business efficacy to the arrangements between the parties.”
I have quoted at such length because it is necessary to understand what exactly the learned trial judge decided. It is perfectly clear, in my opinion, that the learned trial judge held that there was never at any time an agreement or a contract between the parties, other than individual purchase and sale contracts. Mr Gardiner, in seeking to explain what was, from his point of view, a very stark finding that “no long-term or even medium term supply agreement was ever entered into between Dakota and Wyeth” sought to argue that the judge was merely referring to the absence of a written agreement. However, that is not what he said and there is nothing in the immediate context of this statement to suggest that the judge was making such a qualified statement.
Other of the passages quoted above show the learned trial judge studiously even elaborately avoiding the use of the word contract or agreement. I cannot agree with Mr Gardiner’s submission that the learned trial judge held that there was a contract. He preferred quite expressly to use the phrase “nature of the relationship” between the parties, because, as he said, “the use of the word “contract” is confusing” in this case.” Even in the passage where he cited Murphy J on the question of implying terms into contracts, he felt it necessary to “refine” that dictum “by stating that it ought also be derived from the nature of the relationship of the parties….”
Accordingly, I am satisfied that the learned trial judge was very careful even deliberate in his use of language. It was not, as suggested by Mr Gardiner, ambiguous. He may have been mistaken in the legal conclusion he drew, but that is a different matter.
Furthermore, it was quite consistent with the evidence and with the comments made by the learned trial judge on it that he should come to this conclusion. The case, as originally pleaded and presented by Dakota was that the agreement was made in October 1993, at the outset of the dealings between the parties. As we have seen, the learned trial judge rejected that contention, holding that “each order constituted a contract for the delivery of stipulated goods.” Next, at the hearing Dakota relied on a letter written by Wyeth in 1996 in a very particular context. Dakota had been required to engage in a tendering process, if they were to continue supplying Wyeth. Initially, Dakota lost out in this process in favour of other suppliers. They were able, however, to persuade Wyeth to reverse this decision, because the competing tenders had been submitted on an incorrect basis which had distorted the process. The important point was that, in the intervening period when Dakota were going to lose the business, Wyeth wrote a letter to Dakota as follows:
“We refer to your recent tender submission in regard to our folding carton business in Ireland and the UK.
Regretfully, your tender has not been successful in this instance. The “Preferred Supplier” status has been awarded to a limited number of companies for our carton business. It is our intention to transfer business over a mutually agreed period of time.”
This letter became a major plank in the evidence of Mr Tony Fox on behalf of Dakota. He maintained that it demonstrated that Wyeth had agreed to adopt some form of mechanism of termination. Again, as already seen, Peart J rejected this contention. He could not see how the letter could “constitute anything in the way of a binding commitment.”
Dakota had to depend on the evidence of Mr Fox, if it were to establish the existence of a binding agreement. Mr Fox expressly agreed that Dakota did not have a long-term supply agreement with Wyeth. Curiously, he maintained, nonetheless, that they had a “long-term contract.” He was pressed repeatedly on this point in cross-examination. A representative answer would be the following:
“We did not have an agreement in written format. In the spirit of the working relationship that existed form 1993, it was our firm belief that there was an agreement between Dakota Packaging and Wyeth, and that then least that we would have expected as a result of that very close working relationship and the investment that we put in to support Wyeth in what was a very dramatic period for them, was that they would respect that and in their decision to exit, which we don’t have a problem with…and in effect what we are looking for is a managed exit programme that will not damage our business.”
At another point, asked whether Dakota had an agreement which required Wyeth to do business for a particular period, he said:
“The only agreement that we had in terms of volumes were, basically, the forecasts that we were given on an annual basis….”
Mr Fox gave no evidence of anything in the nature of a negotiated agreement. In reality, Dakota asked the court to infer an agreement from the relationship between the parties, the extensive business they were doing, the investment that Dakota had made and the undoubted history of close cooperation between the parties on every aspect. It is impossible not to be impressed with the commitment of Dakota to the business and the large volume of sales they built up. It is a notable feature of the case that no complaint is made about the quality of Dakota’s service to their customer. Consequently, it is not at all surprising that they were aggrieved at losing this very valuable customer so suddenly. Nonetheless, Peart J could find the existence of an agreement only if there was evidence to support it. Such written communications as existed tended to negative the existence of any long-term commitment by Wyeth. For example, in January 2000 Wyeth denied any responsibility for stock purchased outside the two month “firm period”. For reasons already given, I am satisfied that the learned judge came to a carefully considered view that there was no agreement or contract and that this conclusion was firmly based on the evidence.
Having regard to this conclusion, it is not contested that the learned trial judge was not entitled to imply a term into the “arrangements” or “the relationship” between the parties. In Sweeney v Duggan, Murphy J noted that there were “at least two situations where the courts will, independent of statutory requirement, imply a term which has not been expressly agreed by the parties to a contract” (my emphasis). He considered, citing The Moorcock (1889) 14 P.D. 64, the case of terms “inferred on the basis of the presumed intention of the parties.” He also referred to the “variety of cases in which a contractual term has been implied on the basis, not of the intention of the parties to the contract but deriving from the nature of the contract itself.” (emphasis added) Here he referred to Liverpool C.C. v Irwin [1977] AC 239. Later, he stated:
“Whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable category of contract it must be not merely reasonable but also necessary. Clearly it cannot be implied if is inconsistent with the express wording of the contract and furthermore it may be difficult to infer a term which cannot be formulated with reasonable precision.” (emphasis added).
Quite clearly, therefore, there must be a contract before a term can be implied. Peart J, having determined that there was no contract of the relevant type, was not entitled to infer or imply any term. His refinement of the dictum of Murphy J was not justified. There must be a contract.
Since that is sufficient to determine the appeal, it is not strictly necessary to comment further. Nonetheless, I think it desirable to state that the cases on the topic – indeed the cases which were very properly cited by the learned trial judge – do not warrant at least some of the language used in the judgment. In particular, the courts do not have “a broad discretion” to imply terms. It is not enough that a term to be implied is “fair and reasonable.” It is true that the learned judge went on to hold that the term must also be necessary, but it is important to bear in mind that the courts will not lightly infer terms. In this case, the implication of a term that reasonable notice must be given seems, assuming there to be a contract, simple enough, but Peart J himself saw difficulties in formulating the term, when he considered the obligations of Wyeth during the notice period. How much product did they have to buy? At what price? Clearly, these were matters that would have been the subject of detailed negotiation, if the matter had arisen. That is an additional reason. It would be difficult to measure up to the “reasonable precision” test postulated by Murphy J.
Other Defences
Wyeth relied on two additional grounds of defence which they argued on the appeal. Firstly, they argued that reliance on the alleged agreement, being one not to be performed within one year from its making, would have been defeated by the requirement that it be evidenced by a note or memorandum in writing for the purpose of the Statute of Frauds (Ireland) 1695. There was an interesting discussion as to the status, in Irish law, of the doctrine of part performance in the cases of contracts of this type. English case law, before the requirement was abolished, appeared to hold that the doctrine applied only to contracts for the sale of land. (see Britain v Rossiter (1879) 11 QBD 123; Maddison v Alderson (1883) 8 App. Cas. 467) Palles C.B., on one view, declined to follow these cases in Crowley v O’Sullivan [1900] 2 I.R. 477. More recently, however, Barron J, speaking for this Court, and referring to Maddison v Alderson, stated in Mackey v Wilde (1998) 1 I.L.R.M. 449 that in “all the earlier cases, it was assumed that the acts of part performance must necessarily relate to and affect land.” The conclusion in the present appeal is that there was no contract, so the question of the need for writing does not arise. Accordingly, it seems better to leave that, as well as a point concerning the absence of writing to satisfy the Sale of Goods Act, for debate on another day.
I would allow the appeal and substitute for the judgment of the High Court an order that, there being no agreement, the appellant was not required to give the Respondent reasonable notice of termination of the trading relationship between the parties. That is the only matter before this court. Mr Gardiner says that there are outstanding matters such as a claim based on alleged misrepresentation and that they will be pursued before the High Court. That does not appear to require any order from this court, but the parties should be heard following the delivery of this judgment.