Incorporation
Cases
Chapelton v Barry Urban District Council
[1940] 1 KB 532
Slesser LJ
“ As I read the learned county court judge’s judgment (and we have had the advantage of a note taken by Mr. Carey Evans in addition to the summary reasons which the learned county court judge gives for his decision), he said that the plaintiff had sufficient notice of the special contract printed on the ticket and was, accordingly, bound thereby – that is to say, as I understand it, that the learned county court judge has treated this case as a case similar to the many cases which have been tried in reference to conditions printed on tickets, and more particularly, on railway tickets – and he came to the conclusion that the local authority made an offer to hire out this chair to Mr. Chapelton only on certain conditions, which appear on the ticket, namely, that they, the council, would not be responsible for any accident which arose from the use of the chair, and they say that Mr. Chapelton hired the chair on the basis that that was one of the terms of the contract between him and themselves, the local authority.
Questions of this sort are always questions of difficulty and are very often largely questions of fact. In the class of case where it is said that there is a term in the contract freeing railway companies, or other providers of facilities, from liabilities which they would otherwise incur at common law, it is a question as to how far that condition has been made a term of the contract and whether it has been sufficiently brought to the notice of the person entering into the contract with the railway company, or other body, and there is a large number of authorities on that point. In my view, however, the present case does not come within that category at all. I think that the contract here, as appears from a consideration of all the circumstances, was this: The local authority offered to hire chairs to persons to sit upon on the beach, and there was a pile of chairs there standing ready for use by any one who wished to use them, and the conditions on which they offered persons the use of those chairs were stated in the notice which was put up by the pile of chairs, namely, that the sum charged for the hire of a chair was 2d. per session of three hours. I think that was the whole of the offer which the local authority made in this case. They said, in effect: “We offer to provide you with a chair, and if you accept that offer and sit in the chair, you will have to pay for that privilege 2d. per session of three hours.”
I think that Mr. Chapelton, in common with other persons who used these chairs, when he took the chair from the pile (which happened to be handed to him by an attendant, but which, I suppose, he might have taken from the pile of chairs himself if the attendant had been going on his rounds collecting money, or was otherwise away) simply thought that he was liable to pay 2d. for the use of the chair. No suggestion of any restriction of the council’s liability appeared in the notice which was near the pile of chairs. That, I think, is the proper view to take of the nature of the contract in this case. Then the notice contained these further words: “The public are respectfully requested to obtain tickets properly issued from the automatic punch in their presence from the Chair Attendants.” The very language of that “respectful request” shows clearly, to my mind, that for the convenience of the local authority the public were asked to obtain from the chair attendants tickets, which were mere vouchers or receipts showing how long a person hiring a chair is entitled to use that chair. It is wrong, I think, to look at the circumstance that the plaintiff obtained his receipt at the same time as he took his chair as being in any way a modification of the contract which I have indicated. This was a general offer to the general public, and I think it is right to say that one must take into account here that there was no reason why anybody taking one of these chairs should necessarily obtain a receipt at the moment he took his chair – and, indeed, the notice is inconsistent with that, because it “respectfully requests” the public to obtain receipts for their money. It may be that somebody might sit in one of these chairs for one hour, or two hours, or, if the holiday resort was a very popular one, for a longer time, before the attendant came round for his money, or it may be that the attendant would not come to him at all for payment for the chair, in which case I take it there would be an obligation upon the person who used the chair to search out the attendant, like a debtor searching for his creditor, in order to pay him the sum of 2d. for the use of the chair and to obtain a receipt for the 2d. paid.
I think the learned county court judge has misunderstood the nature of this agreement. I do not think that the notice excluding liability was a term of the contract at all, and I find it unnecessary to refer to the different authorities which were cited to us, save that I would mention a passage in the judgment of Mellish L.J. in Parker v. South Eastern Ry. Co.,[1] where he points out that it may be that a receipt or ticket may not contain terms of the contract at all, but may be a mere voucher, where he says: “For instance, if a person driving through a turnpike-gate received a ticket upon paying the toll, he might reasonably assume that the object of the ticket was that by producing it he might be free from paying toll at some other turnpike-gate, and might put it in his pocket unread.” I think the object of the giving and the taking of this ticket was that the person taking it might have evidence at hand by which he could show that the obligation he was under to pay 2d. for the use of the chair for three hours had been duly discharged, and I think it is altogether inconsistent, in the absence of any qualification of liability in the notice put up near the pile of chairs, to attempt to read into it the qualification contended for. In my opinion, this ticket is no more than a receipt, and is quite different from a railway ticket which contains upon it the terms upon which a railway company agrees to carry the passenger. This, therefore, is not, I think, as Mr. Ryder Richardson has argued, a question of fact for the learned county court judge. I think the learned county court judge as a matter of law has misconstrued this contract, and looking at all the circumstances of the case, has assumed that this condition on the ticket, or the terms upon which the ticket was issued, has disentitled the plaintiff to recover. The class of case which Sankey L.J. dealt with in Thompson v. London, Midland and Scottish Ry. Co.,[2] which seems to have influenced the learned county court judge in his decision, is entirely different from that which we have to consider in the present appeal.
This appeal should be allowed.
MacKinnon LJ
I agree that this appeal should be allowed. The learned county court judge decided this case relying upon a dictum of Sankey L.J. when he was speaking of a transaction which was totally different to this one. If a man does an act which constitutes the making of a contract, such as taking a railway ticket, or depositing his bag in a cloak-room, he will be bound by the terms of the document handed to him by the servant of the carriers or bailees; but if he merely pays money for something and receives a receipt for it, or does something which clearly only amounts to that, he cannot be deemed to have entered into a contract in the terms of the words that his creditor has chosen to print on the back of the receipt, unless, of course, the creditor has taken reasonable steps to bring the terms of the proposed contract to the mind of the man. In this case there was no evidence upon which the learned county court judge could find that the defendants had taken any steps to bring the terms of their proposed contract to the mind of the plaintiff. In those circumstances, I am satisfied that the defendants could not rely upon the words on the back of the ticket issued to the plaintiff, and, having admittedly been negligent in regard to the condition of the chair, they had no defence to the plaintiff’s cause of action.
Goddard LJ
I agree. In my view the cases which deal with railway tickets, cloak-room tickets, or documents issued by bailees when they take charge of goods, have no analogy to this case. In this case the appellant paid 2d. in order to have the right to sit on a chair on the beach, and he was asked to take a ticket in the form of a receipt for that purpose, and was given a document which shows nothing on the face of it, except that the man had the right to sit in the chair until 7.30 P.M. on the day when the accident occurred and the fact that the ticket was not transferable. I cannot imagine that anybody paying 2d. under those circumstances for the privilege of sitting in a chair on the beach would think for one moment that some conditions were being imposed upon him which would limit his ordinary rights, or that the document he received when paying his 2d. was a contractual document in any shape or form. I think the ticket he received was nothing but a receipt for his 2d. – a receipt which showed him how long he might use the chair. I think the learned judge below was wrong in thinking that the case of Thompson v. London, Midland and Scottish Ry. Co.,[3] upon which he seems to have relied, had any bearing on the present case. One must have regard to the facts of the case and the general circumstances of the case. In my opinion, Thompson v. London, Midland and Scottish Ry. Co.[3] has no bearing at all on this case.”
Hardwick Game Farm v Suffolk Agricultural and Poultry Producers Association Ltd
[1968] UKHL 3 [1969] 2 AC 31
Lord Reid
MY LORDS,
In the case of S.A.P.P.A. and Grimsdale there was a verbal contract
followed on the next day by a Sold Note which contained a condition in the
following terms:
” Sellers not accountable for weight, measure or quality after delivery
” from ship, mill or granary. The buyer under this contract takes the
” responsibility of any latent defects.”
In the course of dealing between the parties the practice was that on each
occasion when a deal was effected between Mr. Golden on behalf of
S.A.P.P.A. and Mr. Thearle on behalf of Grimsdale the Sold Note invariably
followed the verbal contract. All the judges in the Court of Appeal expressed
the view that the conditions in the Sold Note were incorporated in the
contract between the parties. I agree with this conclusion. Havers J. held
that the Sold Note was not incorporated in the contract by reason of some
observations by Lord Devlin in McCutcheon v. David Macbrayne [1964]
1 W.L.R. 125 at page 134 when he said:
” Previous dealings are relevant only if they prove knowledge of the
” terms, actual and not constructive, and assent to them. If a term
” is not expressed in a contract, there is only one other way in which it
” can come into it and that is by implication. No implication can be
” made against a party of a term which was unknown to him. If previ-
” ous dealings show that a man knew of and agreed to a term on 99
occasions there is a basis for saying that it can be imported into
” the hundredth contract without an express statement. It may or may
” not be sufficient to justify the importation—that depends on the
” circumstances; but at least by proving knowledge the essential begin-
” ning is made. Without knowledge there is nothing.”
The rest of the members of the House did not concur in this obiter dictum
of Lord Devlin and there is nothing, in my view, in McCutcheon to conflict
with the decision of the Court of Appeal. In McCutcheon there was a verbal
contract for the carriage of a motor car by sea, but the course of dealing
between the parties differed from previous occasions in that on the relevant
occasion a Risk Note was not, as before, signed by the consignor of the motor
car. In the present case S.A.P.P.A. by continuing to conduct their business
with Grimsdale on the basis of the Sold Notes which contained the relevant
condition and by not objecting to the condition must be taken to have assented
to the incorporation of these terms in the contract. The remaining question
is whether the clause applies so as to exempt Grimsdale from liability. Exemp-
tion clauses must be construed strictly (Adamastos Shipping Co. v. Anglo
Saxon Petroleum Co. Ltd. [1959] A.C. 133) and the exception must be ex-
pressed in sufficiently clear words. I cannot find that condition 17 is in
sufficiently clear terms to exempt Grimsdale of responsibility.
Grimsdale and Kendall and Holland Colombo
In this situation I am content to follow the Court of Appeal to this extent,
that the purpose for which Grimsdale required the meal was made known to
Kendall and Holland Colombo, namely for re-sale in smaller quantities for
compounding as a food for cattle and poultry and that this purpose was
sufficiently specific to come within the meaning of ” particular purpose “,
under section 14 (1). In the Irish case of Wallis v. Russell [1902] 2 I.R. 585
it was held that on a sale of fresh crabs to a customer the purpose indicated
for which the goods were required was for human consumption and that this
was a particular purpose within section 14 (1). Palles C.B. at page 598 said:
” So much for the first ground of limitation relied upon. I come now
” to the second—on the meaning of ‘ particular purpose’. As to that
” I have but little to say. The well-known judgment of Best, C.J. in
” Jones v. Bright 5 Bing. 853 points out the distinction between two
” classes of warranty, or, strictly speaking, of warranty and condition,
” that are dealt with in the two sub-sections under consideration: 1, fit-
” ness for a particular purpose ; 2, that the goods shall be of a merchant-
” able quality. Where no purpose is mentioned, there is a warranty, or
” condition, as the case may be, that the goods are, in the words of Best
” C.J. ‘ fit for some purpose’ or, in other words, merchantable as such;
” where a particular purpose is mentioned, the warranty or condition is
” that they shall be reasonably fit for that purpose. I think that that
” distinction, which has been established by the course of legal decision
” for a century, shows that the words ‘ particular purpose’ in a case of
” this description have a technical meaning; that it is not so much par-
” ticular purpose as distinct from general purpose; but it is purpose
” stated to the seller, as distinct from absence of purpose stated to the
” seller. In the absence of purpose stated, the warranty is that the article
” shall be fit for some purpose—in other words, merchantable ; where
” the purpose is stated, the warranty is that it shall be fit for that purpose.
” I cannot doubt that the purpose of using for human food is a ‘ par-
” ‘ ticular purpose’ within the meaning of the sub-section.”
The Court of Appeal affirmed the decision of the Chief Baron.
While it may be clear that the particular purpose for which the goods were
required was made known to the supplier, the difficult question arises in
connection with the subsequent part of section 14 (1). The particular pur-
pose must be made known ” so as to show that the buyer relies on the
” seller’s skill and judgment”. I have difficulty in acceding to what I
understand to be the views of the rest of your Lordships on this point. In
Manchester Liners v. Rea Ltd. [1922] 2 A.C. 74 the fact that the particular
purpose was made known to the seller was sufficient to raise the inference
that the buyer relied on the seller’s judgment and skill. In Grant v. Australian
Knitting Mills [1936] AC 85 Lord Wright at page 99 said:
” The first exception, if its terms are satisfied, entitles the buyer to
” the benefit of an implied condition that the goods are reasonably fit
” for the purpose for which the goods are supplied, but only if that
” purpose is made known to the seller ‘ so as to show that the buyer
” ‘ relies on the seller’s skill or judgment’. It is clear that the reliance
” must be brought home to the mind of the seller, expressly or by
” implication. The reliance will seldom be express: it will usually arise
” by implication from the circumstances: thus to take a case like that
” in question, of a purchase from a retailer, the reliance will be in
” general inferred from the fact that a buyer goes to the shop in the
” confidence that the tradesman has selected his stock with skill and
” judgment: the retailer need know nothing about the process of manu-
” facture: it is immaterial whether he be manufacturer or not: the main
” inducement to deal with a good retail shop is the expectation that the
” tradesman will have bought the right goods of a good make: the
” goods sold must be, as they were in the present case, goods of a
” description which it is in the course of the seller’s business to supply:
” there is no need to specify in terms the particular purpose for which
” the buyer requires the goods, which is none the less the particular
” purpose within the meaning of the section, because it is the only
” purpose for which any one would ordinarily want the goods.”
It must depend on the circumstances of each case whether that inference
can fairly be drawn. In Cammell Laird v. Manganese Bronze and Brass Co.
[1934] A.C. 402 at page 423 Lord Wright said:
” But the more difficult question remains whether the particular pur-
” pose for which the goods were required was not merely made known,
” as I think it was, by the appellants to the respondents, but was made
” known so as to show that the appellants as buyers relied on the sellers’
” skill and judgment. Such a reliance must be affirmatively shown ; the
” buyer must bring home to the mind of the seller that he is relying
” on him in such a way that the seller can be taken to have contracted
” on that footing. The reliance is to be the basis of a contractual
” obligation.”
I can well understand where the sale is by a manufacturer or a retailer to a
customer that the inference can easily be drawn. But Grimsdale and Kendall
and Holland Colombo were all dealers on the London Cattle Food Market
buying and selling goods of the same description possibly on the same day,
certainly from day to day. The section may apply to dealers inter se as
Shields v. Honeywell & Stein [1953] 1 Lloyd’s Rep. 359 shows. But there
is an air of unreality, in my view, in the idea that either of these dealers relied
on the other’s skill and judgment. It may well be that they trusted each
other’s honesty, as one of them said, but that is not the same thing as relying
on each other’s skill and judgment to select goods suitable for the particular
purpose for which they were required. There is, in my view, great force
in the judgment of Diplock L.J. in the Court of Appeal when he analyses
his reasons for saying that the implied warranty in section 14 (1) did not
apply to ordinary sales between dealers on the London Cattle Food Trade
Market, and I respectfully agree with his conclusion.
In the case of Grimsdale and Kendall and Holland Colombo the latent
defect clause is in the following terms:
” LATENT DEFECT—The Goods are not warranted free from de-
” fect, rendering same unmerchantable, which would not be apparent
” on reasonable examination, any statute or rule of law to the contrary
” notwithstanding.”
A long line of authority has decided that an exemption from breach of
warranty will not exempt for breach of condition (see Wallis v. Pratt &
Haynes [1910] 2 K.B. 1003; [1911] A.C. 394: Baldry v. Marshall [1925]
1 K.B. 260). I agree with the Court of Appeal that the latent defects clause
does not exempt Kendall and Holland Colombo.
As an addendum to these remarks I wish to mention a Scottish case
which was referred to in argument (Flynn v. Scott [1949] SC 442). This
decision appears to run counter to the principle in Wallis v. Russell (supra)
upon the construction of section 14 (1) which case has been followed in
many subsequent English cases. Flynn v. Scott which was decided by Lord
Mackintosh in the Outer House would appear to conflict with the decision in
the English case of Bartlett v. Sidney Marcus Ltd. [1965] W.L.R. 1013.
Both were cases of the sale of secondhand motor cars.
L’Estrange v F Graucob Ltd
[1934] 2 KB 394
Scrutton LJ
“ The present case is not a ticket case, and it is distinguishable from the ticket cases. In Parker v. South Eastern Ry. Co. Mellish L.J. laid down in a few sentences the law which is applicable to this case. He there said:
“In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents.”
Having said that, he goes on to deal with the ticket cases, where there is no signature to the contractual document, the document being simply handed by the one party to the other:
“The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case there must be evidence independently of the agreement itself to prove that the defendant has assented to it. In that case, also, if it is proved that the defendant has assented to the writing constituting the agreement between the parties, it is, in the absence of fraud, immaterial that the defendant had not read the agreement and did not know its contents.”
In cases in which the contract is contained in a railway ticket or other unsigned document, it is necessary to prove that an alleged party was aware, or ought to have been aware, of its terms and conditions. These cases have no application when the document has been signed. When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”
Maugham LJ
“ There can be no dispute as to the soundness in law of the statement of Mellish LJ in Parker v South Eastern Ry Co,[6] which has been read by my learned brother, to the effect that where a party has signed a written agreement it is immaterial to the question of his liability under it that he has not read it and does not know its contents. That is true in any case in which the agreement is held to be an agreement in writing.
…..
In this case it is, in my view, an irrelevant circumstance that the plaintiff did not read, or hear of, the parts of the sales document which are in small print, and that document should have effect according to its terms. I may add, however, that I could wish that the contract had been in a simpler and more usual form. It is unfortunate that the important clause excluding conditions and warranties is in such small print.”
Parker v South Eastern Railway
[1877] 2 CPD 416
Lindley J
“On the finding of the jury, I think we cannot say that the defendants did not accept the article, to be taken care of by them, without any special terms. Henderson v Stevenson, therefore, is undistinguishable from this case, except for the words “see back,” which did not appear on the face of the ticket in that case. But the findings here make that distinction immaterial. After the conclusions of fact which the jury have drawn, it is, upon the authority of that case, quite immaterial whether the special terms relied on were on the front or on the back of the ticket.”
Court of Appeal
Mellish LJ
“I am of opinion, therefore, that the proper direction to leave to the jury in these cases is, that if the person receiving the ticket did not see or know that there was any writing on the ticket, he is not bound by the conditions; that if he knew there was writing, and knew or believed that the writing contained conditions, then he is bound by the conditions; that if he knew there was writing on the ticket, but did not know or believe that the writing contained conditions, nevertheless he would be bound, if the delivering of the ticket to him in such a manner that he could see there was writing upon it, was, in the opinion of the jury, reasonable notice that the writing contained conditions. ”
Baggallay LJ concurred, and predicted that the same result would be reached by the jury (in Mr Parker’s favour). Bramwell LJ dissented, holding that reasonable notice should be a question of law, and that he would have decided in favour of the railway company.
J Spurling Ltd v Bradshaw
[1956] EWCA Civ 3, [1956] 1 WLR 461; [1956] 2 All ER 121; [1956] 1 Lloyd’s Rep 392
Denning LJ
If the clause is taken literally, it is wide enough to exempt the company from any obligation to redeliver the goods. It would mean that if the managing director sold the orange juice to somebody else, or used it up for the company’s purposes, maybe by mistake or even dishonestly, the company would not be liable; or if some discontented storeman took the bung out of a barrel and let the orange juice escape, the company still would not be liable. If the clause went to those lengths, it would be very unreasonable and might for that reason be invalid on the lines which Baron Bramwell indicated in Parker v. South Eastern Railway Company (1877) 2 C.P.D. 416, at p. 428; but I do not think this clause is to be construed as widely as that. These exempting clauses are nowadays all held to be subject to the overriding proviso that they only avail to exempt a party when he is carrying out his contract, not when he is deviating from it or is guilty of a breach which goes to the root of it. Just as a party who is guilty of a radical breach is disentitled from insisting on the further performance by the other, so also he is disentitled from relying on an exempting clause. For instance, if a carrier by land agrees to collect goods and deliver them forthwith, and in breach of that contract he leaves them unattended for an hour instead of carrying them to their destination, with the result that they are stolen, he is disentitled from relying on the exempting clause. That was decided in 1944 by this Court in the case of Bontex Knitting Works, Ltd. v. St. John’s Garage (1944) 60 T.L.R. 253, expressly approving the judgment of Mr. Justice Lewis in the same volume at p. 44; or if a bailee by mistake sells the goods or stores them in the wrong place, he is not covered by the exempting clause: see the decision of Mr. Justice McNair in Woolmer v. Delmer Price, Ltd. [1955] 1 Q.B. 291.
The essence of the contract by a warehouseman is that he will store the goods in the contractual place and deliver them on demand to the bailor or his order. If he stores them in a different place, or if he consumes or destroys them instead of storing them, or if he sells them, or delivers them without excuse to somebody else, he is guilty of a breach which goes to the root of the contract and he cannot rely on the exempting clause. But if he should happen to damage them by some momentary piece of inadvertence, then he is able to rely on the exempting clause: because negligence by itself, without more, is not a breach which goes to the root of the contract (see Swan, Hunter, and Wigham Richardson, Ltd. v. France Fenwick Tyne and Wear Company, Ltd. [1953] 2 Lloyd’s Rep. 82, at p. 88), any more than non-payment by itself is such a breach: see Mersey Steel and Iron Company, Ltd. v. Naylor, Benzon & Co. (1884) 9 App. Cas. 434, at p. 443. I would not like to say, however, that negligence can never go to the root of the contract. If a warehouseman were to handle the goods so roughly as to warrant the inference that he was reckless and indifferent to their safety, he would, I think, be guilty of a breach going to the root of the contract and could not rely on the exempting clause. He cannot be allowed to escape from his obligation by saying to himself: “I am not going to trouble about these goods because I am covered by an exempting clause.”
Another thing to remember about these exempting clauses is that in the ordinary way the burden is on the bailee to bring himself within the exception. A bailor, by pleading and presenting his case properly, can always put on the bailee the burden of proof.
In the case of non-delivery, for instance, all he need plead is the contract and a failure to deliver on demand. That puts on the bailee the burden of proving either loss without his fault—which, of course, would be a complete answer at common law—or, if it was due to his fault, it was a fault from which he is excused by the exempting clause: see Cunard Steamship Company, Ltd. v Buerger [1927] A.C. 1; (1926) 25 Ll.L.Rep. 215, and Woolmer v. Delmer Price, Ltd. [1955] 1 Q.B. 291. I do not think that the Court of Appeal in Alderslade v. Hendon Laundry, Ltd. [1945] K.B. 189, had the burden of proof in mind at all.
Likewise with goods that are returned by the bailee in a damaged condition, the burden is on him to show that the damage was done without his fault: or that, if fault there was, it was excused by the exempting clause. Nothing else will suffice.
But, where the only charge made in the pleadings—or the only reasonable inference on the facts—is that the damage was due to negligence and nothing more, then the bailee can rely on the exempting clause without more ado. That was, I think, the case here. As I read the pleadings, and the way the case was put to the Judge, Mr. Bradshaw was complaining of negligence and nothing more. The clause therefore avails to exempt the warehousemen, provided always that it was part of the contract.
This brings me to the question whether this clause was part of the contract. Mr. Sofer urged us to hold that the warehousemen did not do what was reasonably sufficient to give notice of the conditions within Parker v South Eastern Railway Company. I quite agree that the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient. The clause in this case, however, in my judgment, does not call for such exceptional treatment, especially when it is construed, as it should be, subject to the proviso that it only applies when the warehouseman is carrying out his contract and not when he is deviating from it or breaking it in a radical respect. So construed, the Judge was, I think, entitled to find that sufficient notice was given. It is to be noticed that the landing account on its face bold Mr. Bradshaw that the goods would be insured if he gave instructions; otherwise they were not insured. The invoice, on its face, told him they were warehoused “at owner’s risk.” The printed conditions, when read subject to the proviso which I have mentioned, added little or nothing to those explicit statements taken together.
Next it was said that the landing account and invoice were issued after the goods had been received and could not therefore be part of the contract of bailment: but Mr. Bradshaw admitted that he had received many landing accounts before. True he had not troubled to read them. On receiving this account, he took no objection to it, left the goods there, and went on paying the warehouse rent for months afterwards. It seems to me that by the course of business and conduct of the parties, these conditions were part of the contract.
In these circumstances, the warehousemen were entitled to rely on this exempting condition. I think, therefore, that the counterclaim was properly dismissed, and this appeal also should be dismissed.”
Olley v Marlborough Court Hotel
[1949] 1 KB 532
Denning LJ, Singleton LJ and Bucknill LJ
“The only other point in the case is whether the hotel company are protected by the notice which they put in the bedrooms, “The proprietors will not hold themselves responsible for articles lost or stolen, unless handed to the manageress for safe custody.” The first question is whether that notice formed part of the contract. Now people who rely on a contract to exempt themselves from their common law liability must prove that contract strictly. Not only must the terms of the contract be clearly proved, but also the intention to create legal relations – the intention to be legally bound – must also be clearly proved. The best way of proving it is by a written document signed by the party to be bound. Another way is by handing him before or at the time of the contract a written notice specifying its terms and making it clear to him that the contract is on those terms. A prominent public notice which is plain for him to see when he makes the contract or an express oral stipulation would, no doubt, have the same effect. But nothing short of one of these three ways will suffice. It has been held that mere notices put on receipts for money do not make a contract. (See Chapelton v. Barry Urban District Council) So, also, in my opinion, notices put up in bedrooms do not of themselves make a contract. As a rule, the guest does not see them until after he has been accepted as a guest. The hotel company no doubt hope that the guest will be held bound by them, but the hope is vain unless they clearly show that he agreed to be bound by them, which is rarely the case.
Assuming, however, that Mrs. Olley did agree to be bound by the terms of this notice, there remains the question whether on its true interpretation it exempted the hotel company from liability for their own negligence. It is said, and, indeed, with some support from the authorities, that this depends on whether the hotel was a common inn with the liability at common law of an insurer, or a private hotel with liability only for negligence. I confess that I do not think it should depend on that question. It should depend on the words of the contract. In order to exempt a person from liability for negligence, the exemption should be clear on the face of the contract. It should not depend on what view the courts may ultimately take on the question of whether the house is a common inn or a private hotel. In cases where it is clearly a common inn or, indeed, where it is uncertain whether it is a common inn or a private hotel, I am of opinion that a notice in these terms would not exempt the hotel company from liability for negligence but only from any liability as insurers. Indeed, even if it were clearly not a common inn but only a private hotel, I should be of the same opinion. Ample content can be given to the notice by construing it as a warning that the hotel company is not liable, in the absence of negligence. As such it serves a useful purpose. It is a warning to the guest that he must do his part to take care of his things himself, and, if need be, insure them. It is unnecessary to go further and to construe the notice as a contractual exemption of the hotel company from their common law liability for negligence. I agree that the appeal should be dismissed.”
McCutcheon v David MacBrayne Ltd
[1964] UKHL 4
Lord Reid
“The only other ground on which it would seem possible to import these conditions is that based on a course of dealing. If two parties have made a series of similar contracts each containing certain conditions, and then they make another without expressly referring to those conditions it may be that those conditions ought to be implied. If the officious bystander had asked them whether they had intended to leave out the conditions this time, both must, as honest men, have said “of course not”. But again the facts here will not support that ground. According to Mr. McSporran, there had been no consistent course of dealing ; sometimes he was asked to sign and sometimes not. And, moreover, he did not know what the conditions were. This time he was offered an oral contract without any reference to conditions, and he accepted the offer in good faith.
The Respondents also rely on the Appellant’s previous knowledge. I doubt whether it is possible to spell out a course of dealing in his case. In all but one of the previous cases he had been acting on behalf of his employer in sending a different kind of goods and he did not know that the Respondents always sought to insist on excluding liability for their own negligence. So it cannot be said that when he asked his agent to make a contract for him he knew that this or, indeed, any other special term would be included in it. He left his agent a free hand to contract, and I see nothing to prevent him from taking advantage of the contract which his agent in fact made. “The judicial task is not to discover the actual intentions of each party: it is to decide what each was reasonably entitled to conclude from the attitude of the other” (Gloag, Contract p. 7). In this case I do not think that either party was reasonably bound or entitled to conclude from the attitude of the other as known to him that these conditions were intended by the other party to be part of this contract. I would therefore allow the appeal and restore the interlocutor of the Lord Ordinary.”
Lord Devlin
“Your Lordships were referred to the dictum of Blackburn, J. in Harris v Great Western Railway Company (1876) 1 QBD 515, at 530. The passage is as follows:-
“And it is clear law that where there is a writing, into which the terms of any agreement are reduced, the terms are to be regulated by that writing. And though one of the parties may not have read the writing, yet, in general, he is bound to the other by those terms; and that, I apprehend, is on the ground that, by assenting to the contract thus reduced to writing, he represents to the other side that he has made himself acquainted with the contents of that writing and assents to them, and so induces the other side to act upon that representation by entering into the contract with him, and is consequently precluded from denying that he did make himself acquainted with those terms. But then the preclusion only exists when the case is brought within the rule so carefully and accurately laid down by Parke, B., in delivering the judgment of the Exchequer in Freeman v Cooke, that is, if he ‘ means his representation to be acted upon, and it is acted upon accordingly: or if, whatever a man’s real intentions may be, he so conduct himself that a reasonable man would take the representation to be true, and believe that it was meant that he should act upon it, and did act upon it as true.”
If the ordinary law of estoppel was applicable to this case, it might well be argued that the circumstances leave no room for any representation by the sender on which the carrier acted. I believe that any other member of the public in Mr. McCutcheon’s place,—and this goes for lawyers as well as for laymen,—would have found himself compelled to give the same sort of answers as Mr. McCutcheon gave ; and I doubt if any carrier who serves out documents of this type could honestly say that he acted in the belief that the recipient had ” made himself acquainted with the contents “. But Blackburn, J. was dealing with an unsigned document, a cloakroom ticket. Unless your Lordships are to disapprove the decision of the Court of Appeal in L’Estrange v Graucob [1934] 2 KB 394,—and there has been no suggestion in this case that you should,—the law is clear, without any recourse to the doctrine of estoppel, that a signature to a contract is conclusive.
This is a matter that is relevant to the way in which the Respondents put their case. They say that the previous dealings between themselves and the Appellant, being always on the terms of their ” risk note “, as they call their written conditions, the contract between themselves and the Appellant must be deemed to import the same conditions. In my opinion, the bare fact that there have been previous dealings between the parties does not assist the Respondents at all. The fact that a man has made a contract in the same form ninety-nine times (let alone three or four times which are here alleged) will not of itself affect the hundredth contract in which the form is not used. Previous dealings are relevant only if they prove knowledge of the terms, actual and not constructive, and assent to them. If a term is not expressed in a contract, there is only one other way in which it can come into it and that is by implication. No implication can be made against a party of a term which was unknown to him. If previous dealings show that a man knew of and agreed to a term on ninety-nine occasions, there is a basis for saying that it can be imported into the hundredth contract without an express statement. It may or may not be sufficient to justify the importation,—that depends on the circumstances; but at least by proving knowledge the essential beginning is made. Without knowledge there is nothing…
If the Respondents had remembered to issue a risk note in this case, they would have invited your Lordships to give a curt answer to any complaint by the Appellant. He might say that the terms were unfair and unreasonable, that he had never voluntarily agreed to them, that it was impossible to read or understand them and that anyway if he had tried to negotiate any change the Respondents would not have listened to him. The Respondents would expect him to be told that he had made his contract and must abide by it. Now the boot is on the other foot. It is just as legitimate, but also just as vain, for the Respondents to say that it was only a slip on their part, that it is unfair and unreasonable of the Appellant to take advantage of it and that he knew perfectly well that they never carried goods except on conditions. The law must give the same answer: they must abide by the contract they made. What is sauce for the goose is sauce for the gander. It will remain unpalatable sauce for both animals until the legislature, if the courts cannot do it, intervenes to secure that when contracts are made in circumstances in which there is no scope for free negotiation of the terms, they are made upon terms that are clear, fair and reasonable and settled independently as such. That is what Parliament has done in the case of carriage of goods by rail and on the high seas.”
Thornton v Shoe Lane Parking Ltd
[1971] 2 QB 163; [1971] 1 All ER 686; [1970] EWCA Civ 2
Lord Denning MR
“The important thing to notice is that the company seek by this condition to exempt themselves from liability, not only for damage to the car, but also for injury to the customer howsoever caused. The condition talks about insurance. It is well known that the customer is usually insured against damage to the car. But he is not insured against damage to himself. If the condition is incorporated into the contract of parking, it means that Mr. Thornton will be unable to recover any damages for his personal injuries which were caused by the negligence of the company.
We have been referred to the ticket cases of former times from Parker v South Eastern Railway Co (1877) 2 CPD 416 to McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125. They were concerned with railways, steamships and cloakrooms where booking clerks issued tickets to customers who took them away without reading them. In those cases the issue of the ticket was regarded as an offer by the company. If the customer took it and retained it without objection, his act was regarded as an acceptance of the offer: see Watkins v Rymill (1833) 10 QBD 178, 188 and Thompson v London, Midland and Scottish Railway Co [1930] 1 KB 41, 47. These cases were based on the theory that the customer, on being handed the ticket, could refuse it and decline to enter into a contract on those terms. He could ask for his money back. That theory was, of course, a fiction. No customer in a thousand ever read the conditions. If he had stopped to do so, he would have missed the train or the boat.
None of those cases has any application to a ticket which is issued by an automatic machine. The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved. He is committed beyond recall. He was committed at the very moment when he put his money into the machine. The contract was concluded at that time. It can be translated into offer and acceptance in this way: the offer is made when the proprietor of the machine holds it out as being ready to receive the money. The acceptance takes place when the customer puts his money into the slot. The terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice before-hand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late. The contract has already been made: see Olley v Marlborough Court Ltd [1949] 1 KB 532. The ticket is no more than a voucher or receipt for the money that has been paid (as in the deckchair case, Chapelton v Barry Urban District Council [1940] 1 KB 532) on terms which have been offered and accepted before the ticket is issued.
In the present case the offer was contained in the notice at the entrance giving the charges for garaging and saying “at owner’s risk,” i.e., at the risk of the owner so far as damage to the car was concerned. The offer was accepted when Mr Thornton drove up to the entrance and, by the movement of his car, turned the light from red to green, and the ticket was thrust at him. The contract was then concluded, and it could not be altered by any words printed on the ticket itself. In particular, it could not be altered so as to exempt the company from liability for personal injury due to their negligence.
Assuming, however, that an automatic machine is a booking clerk in disguise – so that the old fashioned ticket cases still apply to it. We then have to go back to the three questions put by Mellish LJ in Parker v South Eastern Railway Co, 2 CPD 416, 423, subject to this qualification: Mellish LJ used the word “conditions” in the plural, whereas it would be more apt to use the word “condition” in the singular, as indeed the lord justice himself did on the next page. After all, the only condition that matters for this purpose is the exempting condition. It is no use telling the customer that the ticket is issued subject to some “conditions” or other, without more: for he may reasonably regard “conditions” in general as merely regulatory, and not as taking away his rights, unless the exempting condition is drawn specifically to his attention. (Alternatively, if the plural “conditions” is used, it would be better prefaced with the word “exempting,” because the exempting conditions are the only conditions that matter for this purpose.) Telescoping the three questions, they come to this: the customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it.
Mr. Machin admitted here that the company did not do what was reasonably sufficient to give Mr. Thornton notice of the exempting condition. That admission was properly made. I do not pause to inquire whether the exempting condition is void for unreasonableness. All I say is that it is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way. It is an instance of what I had in mind in J Spurling Ltd v Bradshaw [1956] 1 WLR 461, 466. In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.
But, although reasonable notice of it was not given, Mr. Machin said that this case came within the second question propounded by Mellish L.J., namely that Mr. Thornton “knew or believed that the writing contained conditions.” There was no finding to that effect. The burden was on the company to prove it, and they did not do so. Certainly there was no evidence that Mr. Thornton knew of this exempting condition. He is not, therefore, bound by it.
Mr. Machin relied on a case in this court last year – Mendelssohn v Normand Ltd. [1970] 1 QB 177. Mr. Mendelssohn parked his car in the Cumberland Garage at Marble Arch, and was given a ticket which contained an exempting condition. There was no discussion as to whether the condition formed part of the contract. It was conceded that it did. That is shown by the report in the Law Reports at p. 180. Yet the garage company were not entitled to rely on the exempting condition for the reasons there given.
That case does not touch the present, where the whole question is whether the exempting condition formed part of the contract. I do not think it did. Mr. Thornton did not know of the condition, and the company did not do what was reasonably sufficient to give him notice of it.
I do not think the garage company can escape liability by reason of the exemption condition. I would, therefore, dismiss the appeal.”
Hollier v Rambler Motors (A.M.C.) Ltd.
[1971] EWCA Civ 12 [1972] 2 WLR 401, [1972] 2 QB 71, [1972] 1 All ER 399, [1971] EWCA Civ 12, [1972] RTR 190
Salmon LJ
The primary point taken in the court below was that condition 2 was not part of the contract between the parties because the delivery note was never supplied to the defendants at all. That the judge rejected on the facts; he found that the delivery note was supplied in the same jiffy bag with the transparencies, and that finding is not challenged in this court. He made no finding however that Mr. Beeching or any other representative of the defendants read condition 2 or any of the other printed conditions, and it is overwhelmingly probable that they did not.
An alternative argument for the defendants, in this court as below, was to the effect that any contract between the parties was made before the defendants knew of the existence of the delivery note viz. either in the course of the preliminary telephone conversation between Mr. Beeching and Miss Fraser, or when the jiffy bag containing the transparencies was received in the defendants’ premises but before the bag was opened. I regard these submissions as unrealistic and unarguable. The original telephone call was merely a preliminary enquiry and did not give rise to any contract. But the contract came into existence when the plaintiffs sent the transparencies to the defendants and the defendants, after opening the bag, accepted them by Mr. Beeching’s phone call to the plaintiffs at 3.10 on the 5th March. The question is whether condition 2 was a term of that contract.
There was never any oral discussion of terms between the parties before the contract was made. In particular there was no discussion whatever of terms in the original telephone conversation when Mr. Beeching made his preliminary enquiry. The question is therefore whether condition 2 was sufficiently brought to the defendants’ attention to make it a term of the contract which was only concluded after the defendants had received, and must have known that they had received the transparencies and the delivery note.
This sort of question was posed, in relation to printed conditions, in the ticket cases, such Parker v. South Eastern Railway L.R.2 C.P.D. 416, in the last century. At that stage the printed conditions were looked at as a whole and the question considered by the courts was whether the printed conditions as a whole had been sufficiently drawn to a customer’s attention to make the whole set of conditions part of the contract; if so the customer was bound by the printed conditions even though he never read them.
More recently the question has been discussed whether it is enough to look at a set of printed conditions as a whole. When for instance one condition in a set is particularly onerous does something special need to be done to draw customers’ attention to that particular condition? In an obiter dictum in J. Spurling Ltd. v. Bradshaw [1956] 1 W.L.R.461 at page 466 (cited in Chitty on Contracts 25th Ed. Vol. 1 at page 408) Lord Justice Denning stated that “Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient”.
Then in Thornton v. Shoe Lane Parking Ltd. (1971) 2.Q.B. 163 both Lord Denning M.R. and Lord Justice Megaw held as one of their grounds of decision, as I read their judgments, that where a condition is particularly onerous or unusual the party seeking to enforce it must show that that condition, or an unusual condition of that particular nature, was fairly brought to the notice of the other party. Lord Denning at pages 169H-170D re-stated and applied what he had said in the Spurling case, and held that the court should not hold any man bound by such a condition unless it was drawn to his attention in the most explicit way. Lord Justice Megaw deals with the point at pages 172F-173E where he says:
“I agree with Lord Denning M.R. that the question here is of the particular condition on which the defendants seek to rely, and not of the conditions in general. when the conditions sought to be attached all constitute, in Lord Dunedin’s words [1918] A.C. 846, 847, ‘the sort of restriction … that is usual’, it may not be necessary for a defendant to prove more than that the intention to attach some conditions has been fairly brought to the notice of the other party. But at least where the particular condition relied on involves a sort of restriction that is not shown to be usual in that class of contract, a defendant must show that his intention to attach an unusual condition of that particular nature was fairly brought to the notice of the other party. How much is required as being, in the words of Lord Justice Mellish L.J., 2 C.P.D. 416, 424, ‘reasonably sufficient to give the plaintiff notice of the condition’, depends upon the nature of the restrictive condition.
In the present case what has to be sought in answer to the third question is whether the defendant company did what was reasonable fairly to bring to the notice of the plaintiff, at or before the time when the contract was made, the existence of this particular condition. This condition is that part of the clause – a few words embedded in a lengthy clause – which Lord Denning M.R. has read, by which, in the midst of provisions as to damage to property, the defendants sought to exempt themselves from liability for any personal injury suffered by the customer while he was on their premises. Be it noted that such a condition is one which involves the abrogation of the right given to a person such as the plaintiff by statute, The Occupiers Liability Act 1957. True, it is open under that statute for the occupier of property by a contractual term to exclude that liability. In my view, however, before it can be said that a condition of that sort, restrictive of statutory rights, has been fairly brought to the notice of a party to a contract there must be some clear indication which would lead an ordinary sensible person to realise, at or before the time of making the contract, that a term of that sort, relating to personal injury, was sought to be included. I certainly would not accept that the position has been reached today in which it is to be assumed as a matter of general knowledge, custom,practice, or whatever is the phrase that is chosen to describe it, that when one is invited to go upon the property of another for such purposes as garaging a car, a contractual term is normally included that if one suffers any injury on those premises as a result of negligence on the part of the occupiers of the premises they shall not be liable.”
Counsel for the plaintiffs submits that Thornton v. Shoe Lane Parking was a case of an exemption clause and that what their Lordships said must be read as limited to exemption clauses and in particular exemption clauses which would deprive the party on whom they are imposed of statutory rights. But what their Lordships said was said by way of interpretation and application of the general statement of the law by Lord Justice Hellish in Parker v. South Eastern Railway and the logic of it is applicable to any particularly onerous clause in a printed set of conditions of the one contracting party which would not be generally known to the other party.
Condition 2 of these plaintiffs’ conditions is in my judgment a very onerous clause. The defendants could not conceivably have known, if their attention was not drawn to the caluse, that the plaintiffs were proposing to charge a “holding fee” for the retention of the transparencies at such a very high and exorbitant rate.
At the time of the ticket cases in the last century it was notorious that people hardly ever troubled to read printed conditions on a ticket or delivery note or similar document. That remains the case now. In the intervening years the printed conditions have tended to become more and more complicated and more and more one-sided in favour of the party who is imposing them, but the other parties, if they notice that there are printed conditions at all, generally still tend to assume that such conditions are only concerned with ancillary matters of form and are not of importance. In the ticket cases the courts held that the common law required that reasonable steps be taken to draw the other parties’ attention to the printed conditions or they would not be part of the contract. It is in my judgment a logical development of the common law into modern conditions that it should be held, as it was in Thornton v. Shoe Lane Parking, that, if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party.
In the present case, nothing whatever was done by the plaintiffs to draw the defendants’ attention particularly to condition 2; it was merely one of four columns’ width of conditions printed across the foot of the delivery note. Consequently condition 2 never, in my judgment, became part of the contract between the parties.
I would therefore allow this appeal and reduce the amount of the judgment which the judge awarded against the defendants to the amount which he would have awarded on a quantum meruit on his alternative findings, i.e. the reasonable charge of £3.50 per transparency per week for the retention of the transparencies beyond a reasonable period, which he fixed at 14 days from the date of their receipt by the defendants.
Bingham LJ
In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith. This does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as “playing fair”, “coming clean” or “putting one’s cards face upwards on the table”. It is in essence a principle of fair and open dealing. In such a forum it might, I think, be held on the facts of this case that the plaintiffs were under a duty in all fairness to draw the defendants’ attention specifically to the high price payable if the transparencies were not returned in time and, when the 14 days had expired, to point out to the defendants the high cost of continued failure to return them.
English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness. Many examples could be given. Thus equity has intervened to strike down unconscionable bargains. Parliament has stepped in to regulate the imposition of exemption clauses and the form of certain hire purchase agreements. The common law also has made its contribution, by holding that certain classes of contract require the utmost good faith, by treating as irrecoverable what purport to be agreed estimates of damage but are in truth a disguised penalty for breach, and in many other ways.
The well known cases on sufficiency of notice are in my view properly to be read in this context. At one level they are concerned with a question of pure contractual analysis, whether one party has done enough to give the other notice of the incorporation of a term in the contract. At another level they are concerned with a somewhat different question, whether it would in all the circumstances be fair (or reasonable) to hold a party bound by any conditions or by a particular condition of an unusual and stringent nature.
In the leading case of Parker v. The South Eastern Railway Company [1877] 2 C.P.D. 416 Lord Justice Baggallay plainly thought on the facts that the plaintiffs were right, Lord Justice Bramwell that they were wrong; Lord Justice Mellish thought that there had been a misdirection and there should be a re-trial, a view in which the other members of the court concurred. The judgments deserve to be re-read. Lord Justice Mellish said (at page 422):
“Now, I am of opinion that we cannot lay down, as a matter of law, either that the plaintiff was bound or that he was not bound by the conditions printed on the ticket, from the mere fact that he knew there was writing on the ticket, but did not know that the writing contained conditions. I think there may be cases in which a paper containing writing is delivered by one party to another in the course of a business transaction, where it would be quite reasonable that the party receiving it should assume that the writing contained in it no condition, and should put it in his pocket unread.”
At page 423 he added:
“The railway company, as it seems to me, must be entitled to make some assumptions respecting the person who deposits luggage with them; I think they are entitled to assume that he can read, and that he understands the English language, and that he pays such attention to what he is about as may be reasonably expected from a person in such a transaction as that of depositing luggage in a cloak-room. The railway company must, however, take mankind as they find them, and if what they do is sufficient to inform people in general that the ticket contains conditions, I think that a particular plaintiff ought not to be in a better position than other persons on account of his exceptional ignorance or stupidity or carelessness. But if what the railway company do is not sufficient to convey to the minds of people in general that the ticket contains conditions, then they have received goods on deposit without obtaining the consent of the persons depositing them to the conditions limiting their liability.”
Lord Justice Baggallay’s analytical approach was somewhat similar (at page 425-6):
“Now as regards each of the plaintiffs, if at the time when he accepted the ticket, he, either by actual examination of it, or by reason of previous experience, or from any other cause, was aware of the terms or purport or effect of the endorsed conditions, it can hardly be doubted that he became bound by them. I think also that he would be equally bound if he was aware or had good reason to believe that there were upon the ticket statements intended to affect the relative rights of himself and the company, but intentionally or negligently abstained from ascertaining whether there were any such, or from making himself acquainted with their purport. But I do not think that in the absence of any such knowledge or information, or good reason for belief, he was under any obligation to examine the ticket with the view of ascertaining whether there were any such statements or conditions upon it.”
Both these Lords Justices were, as it seems to me, distinguishing the case in which it would be fair to hold a party bound from the case in which it would not. But this approach is made more explicit in the strongly-worded judgment of Lord Justice Bramwell (at page 427):
“The plaintiffs have sworn that they did not know that the printing was the contract, and we must act as though that was true and we believed it, at least as far as entering the verdict for the defendants is concerned. Does this make any difference? The plaintiffs knew of the printed matter. Both admit they knew it concerned them in some way, though they said they did not know what it was; yet neither pretends that he knew or believed it was not the contract. Neither pretends he thought it had nothing to do with the business in hand; that he thought it was an advertisement or other matter unconnected with his deposit of a parcel at the defendants’ cloak-room. They admit that, for anything they knew or believed, it might be, only they did not know or believe it was, the contract. Their evidence is very much that they did not think, or, thinking, did not care about it. Now they claim to charge the company, and to have the benefit of their own indifference. Is this just? Is it reasonable? Is it the way in which any other business is allowed to be conducted? Is it even allowed to a man to ‘think’, ‘judge’, ‘guess’, ‘chance’ a matter, without informing himself when he can, and then when his ‘thought’, ‘judgment’, ‘guess’ or ‘chance’ turns out wrong or unsuccessful, claim to impose a burthen or duty on another which he could not have done had he informed himself as he might?”
He continued in the same vein at page 428:
“Has not the giver of the paper a right to suppose that the receiver is content to deal on the terms in the paper? What more can be done? Must he say, ‘Read that’? As I have said, he does so in effect when he puts it into the other’s hands. The truth is, people are content to take these things on trust. They know that there is a form which is always used – they are satisfied it is not unreasonable, because people do not usually put unreasonable terms into their contracts. If they did, then dealing would soon be stopped. Besides, unreasonable practices would be known. The very fact of not looking at the paper shews that this confidence exists. It is asked: What if there was some unreasonable condition, as for instance to forfeit £1000 if the goods were not removed in forty-eight hours? Would the depositor be bound? I might content myself by asking: Would he be, if he were told ‘our conditions are on this ticket’, and he did not read them. In my judgment, he would not be bound in either case. I think there is an implied understanding that there is no condition unreasonable to the knowledge of the party tendering the document and not insisting on its being read – no condition not relevant to the matter in hand. I am on opinion, therefore, that the plaintiffs, having notice of the printing, were in the same situation as though the porter had said, ‘Read that, it concerns the matter in hand’; that if the plaintiffs did not read it, they were as much bound as if they had read it and had not objected.”
This is not a simple contractual analysis whether an offer has been made and accepted.
In Hood v. Anchor Line (Henderson Brothers) Ltd. [1918] AC 837, an appeal from the Court of Session, the question was whether a steamship company had effectively protected itself against liability for injury to a passenger. Lord Finlay L.C. at 842 posed the simple question: “What more could have been done to bring the conditions to the notice of the passenger?” Viscount Haldane approached the matter in a more general way (at page 843):
“There is a large and varied class of cases where the legal duty of a member of society to his neighbour cannot be laid down a priori or without examining the special circumstances of the situation. The duty in these instances is ascertained by a standard which depends, not on mere general principles fashioned by the jurist, for no such general principles can provide for all the concrete details of which account must be taken, but on the opinion of reasonable men who have considered the whole of the circumstances in the particular instance and can be relied on to say how, according to accepted standards of conduct, a reasonable man ought to behave in these circumstances towards the neighbour towards whom he is bound by the necessities of the community to act with forbearance and consideration.”
And (at page 845) he added:
“It is true that Mr. May did not look at the envelope closely or refer to the condition. He took the contract away and put it in a safe, and ultimately gave it to the appellant, who did not read it either. But I am of opinion that the real question was not whether they did read it, but whether they can be heard to say that they did not read it. If it had been merely a case of inviting people to put a penny into an automatic machine and get a ticket for a brief journey, I might think differently. In such a transaction men cannot naturally be expected to pause to look whether they are obtaining all the rights which the law gives them in the absence of a special stipulation. But when it is a case of taking a ticket for a voyage of some days, with arrangements to be made, among other things, as to cabins and luggage, I think ordinary people do look to see what bargain they are getting, and should be taken as bound to have done so and as precluded from saying that they did not know.”
Lord Dunedin (at page 846-7) said:
“Accordingly it is in each case a question of circumstance whether the sort of restriction that is expressed in any writing (which, of course, includes printed matter) is a thing that is usual, and whether, being usual, it has been fairly brought before the notice of the accepting party.”
These authoritative passages appear to base the law very firmly on consideration of what is fair in all the circumstances.
J. Spurling v. Bradshaw [1956] 1 WLR 461 concerned an exemption clause in a warehousing contract. The case is now remembered for the observations of Lord Justice Denning at page 466:
“This brings me to the question whether this clause was part of the contract. Mr. Sofer urged us to hold that the warehousemen did not do what was reasonably sufficient to give notice of the conditions within Parker v. South Eastern Railway Co. I quite agree that the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.”
Here, therefore, is made explicit what Lord Justice Bramwell had perhaps foreshadowed, that what would be good notice of one condition would not be notice of another. The reason is that the more outlandish the clause the greater the notice which the other party, if he is to be bound, must in all fairness be given.
McCutcheon v. David Macbrayne Ltd. [1964] 1 WLR 125 is a case out of the common run because the document containing the contractual exemption was neither issued nor signed. The interest of the case for present purposes lies in two passages in the speeches of Lord Reid and Lord Pearce. Lord Reid (at page 128) said:
“If it could be said that when making the contract Mr. McSporran knew that the respondents always required a risk note to be signed and knew that the purser was simply forgetting to put it before him for signature, then it might be said that neither he nor his principal could take advantage of the error of the other party of which he was aware. But counsel frankly admitted that he could not put his case as high as that.”
Lord Pearce (at page 138) expressed a similar opinion:
“This is not a case where there was any bad faith on the part of the pursuer or his agent. Had the pursuer’s agent snatched at an offer that he knew was not intended, or deliberately taken advantage of the defenders’ omission to proffer their usual printed form for his signature, the situation would be different and other considerations would apply.”
Here again, as it seems to me, one finds reference to a concept of fair dealing that has very little to do with a conventional analysis of offer and acceptance.
Lastly I would mention Thornton v. Shoe Lane Parking Ltd. [1971] 2 QB 163. Lord Denning M.R. (at page 169-170) said:
“Assuming, however, that an automatic machine is a booking clerk in disguise – so that the old fashioned ticket cases still apply to it. We then have to go back to the three questions put by Mellish L.J. in Parker v. South Eastern Railway Co., 2 C.P.D. 416, 423, subject to this qualification: Mellish L.J. used the word ‘conditions’ in the plural, whereas it would be more apt to use the word ‘condition’ in the singular, as indeed the lord justice himself did on the next page. After all, the only condition that matters for this purpose is the exempting condition. It is no use telling the customer that the ticket is issued subject to some ‘conditions’ or other, without more: for he may reasonably regard ‘conditions’ in general as merely regulatory, and not as taking away his rights, unless the exempting condition is drawn specifically to his attention. (Alternatively, if the plural ‘conditions’ is used, it would be better prefaced with the word ‘exempting’, because the exempting conditions are the only conditions that matter for this purpose.)
Telescoping the three questions, they come to this: the customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it. Mr. Machin admitted here that the company did not do what was reasonably sufficient to give Mr. Thornton notice of the exempting condition. That admission was properly made. I do not pause to inquire whether the exempting condition is void for unreasonableness. All I say is that it is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way. It is an instance of what I had in mind in J. Spurling Ltd. v. Bradshaw [1956] 1 WLR 461, 466. In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.”
The judgment of Lord Justice Megaw (at pages 172-173) was to similar effect:
“So I come to the third of the three questions. That question, if I may return to the speech of Lord Dunedin in Hood v.Anchor Line (Henderson Brothers) Ltd. [1918] AC 837, 846, 847 was posed by him in this way:
‘Accordingly it is in each case a question of circumstance whether the sort of restriction that is expressed in any writing (which, of course, includes printed matter) is a thing that is usual, and whether, being usual, it has been fairly brought before the notice of the accepting party.’.
That, though it is more fully stated by Lord Dunedin, is essentially the same question, I think, as was formulated by Mellish L.J. in Parker’s case, 2 C.P.D. 416, 424 at the very end of his judgment, where he said that the question which ought to have been left to the jury was: whether the railway company did what was reasonably sufficient to give the plaintiff notice of the condition. (I emphasise the use by Mellish L.J. of the definite article and of the word ‘condition’ in the singular.) I agree with Lord Denning M.R. that the question here is of the particular condition on which the defendants seek to rely, and not of the conditions in general.
When the conditions sought to be attached all constitute, in Lord Dunedin’s words [1918] A.C. 846, 847, ‘the sort of restriction … that is usual’, it may not be necessary for a defendant to prove more than that the intention to attach some conditions has been fairly brought to the notice of the other party. But at least where the particular condition relied on involves a sort of restriction that is not shown to be usual in that class of contract, a defendant must show that his intention to attach an unusual condition of that particular nature was fairly brought to the notice of the other party. How much is required as being, in the words of Mellish L.J. 2 C.P.D. 416, 424, ‘reasonably sufficient to give the plaintiff notice of the condition’, depends upon the nature of the restrictive condition.” The tendency of the English authorities has, I think, been to look at the nature of the transaction in question and the character of the parties to it; to consider what notice the party alleged to be bound was given of the particular condition said to bind him; and to resolve whether in all the circumstances it is fair to hold him bound by the condition in question. This may yield a result not very different from the civil law principle of good faith, at any rate so far as the formation of the contract is concerned.
Turning to the present case, I am satisfied for reasons which Lord Justice Dillon has given that no contract was made on the telephone when the defendants made their initial request. I am equally satisfied that no contract was made on delivery of the transparencies to the defendants before the opening of the jiffy bag in which they were contained. Once the jiffy bag was opened and the transparencies taken out with the delivery note, it is in my judgment an inescapable inference that the defendants would have recognised the delivery note as a document of a kind likely to contain contractual terms and would have seen that there were conditions printed in small but visible lettering on the face of the document. To the extent that the conditions so displayed were common form or usual terms regularly encountered in this business, I do not think the defendants could successfully contend that they were not incorporated into the contract.
The crucial question in the case is whether the plaintiffs can be said fairly and reasonably to have brought condition 2 to the notice of the defendants^ The judge made no finding on the point, but I think that it is open to this court to draw an inference from the primary findings which he did make. In my opinion the plaintiffs did not do so. They delivered 47 transparencies, which was a number the defendants had not specifically asked for. Condition 2 contained a daily rate per transparency after the initial period of 14 days many times greater than was usual or (so far as the evidence shows) heard of. For these 47 transparencies there was to be a charge for each day of delay of £235 plus VAT. The result would be that a venial period of delay, as here, would lead to an inordinate liability. The defendants are not to be relieved of that liability because they did not read the condition, although doubtless they did not; but in my judgment they are to be relieved because the plaintiffs did not do what was necessary to draw this unreasonable and extortionate clause fairly to their attention. I would accordingly allow the defendants’ appeal and substitute for the judge’s award the sum which he assessed upon the alternative basis of quantum meruit.
In reaching the conclusion I have expressed I would not wish to be taken as deciding that condition 2 was not challengeable as a disguised penalty clause. This point was not argued before the judge nor raised in the notice of appeal. It was accordingly not argued before us. I have accordingly felt bound to assume, somewhat reluctantly, that condition 2 would be enforceable if fully and fairly brought to the defendants’ attention.
O’Brien v MGN Ltd
[2001] EWCA Civ 1279 [2002] CLC 33LADY JUSTICE HALE:
The claimant suffered a cruel disappointment on Monday 3 July 1995. He thought that he had won £50,000 in the scratchcard game played in the Daily Mirror that day. Mirror Group Newspapers thought otherwise. The issue is whether the contract between them incorporated the Mirror Group’s rules. It would make an excellent question in an undergraduate contract law seminar or examination. Like all good questions, it is easy to ask and difficult to answer. On 29 June 2000, in the Queen’s Bench Division of the High Court sitting in Liverpool, HHJ Hegarty QC answered it in the affirmative and dismissed the claimant’s claim. He gave permission to appeal to this court.
……
On Sunday 9 July 1995 the Editor of the People wrote an article apologising for the ‘mix-up’. She said that the only cards eligible for the telephone prize on 3 July were those from the Daily Mirror of Saturday 1 July and the Sunday Mirror of Sunday 2 July. This was because the ‘Ring and Win Today’ section in the Daily Mirror giving details of the Mystery Bonus Hotline had referred to ‘three chances to win’:
‘This is because you have THREE cards to play. One was in The People yesterday and another in the Sunday Mirror – and you already had a card in Saturday’s Daily Mirror.’
The Editor explained that in fact there were only two eligible cards, because there had been no ‘card in The People yesterday’. Hence, she said, anyone with a card issued in The People on 25 June 1995 was not eligible for a prize. She apologised and announced a special draw for one prize of £50,000, for which all those with cards from The People of 25 June showing two sums of £50,000 would be eligible. In addition, a further £50,000 would be shared equally among all those with such cards. The claimant’s card was entered in the draw. It was unsuccessful, but he did receive £33.97 as his share of the extra £50,000.
Eventually the claimant began these proceedings. MGN Ltd raised a number of defences. One was the argument put forward in the article of 9 July: that only holders of cards issued with the Daily Mirror for Saturday 1 July, the Sunday Mirror for Sunday 2 July, and The People for Sunday 2 July could be eligible. However that defence was abandoned shortly before the trial so the judge did not consider it. Another was that any contract between the parties was a gaming or wagering contract covered by s 18 of the Gaming Act 1845. This too was abandoned shortly before the trial. The judge did not think it necessary to invite submissions on whether this might be an illegal contract, but emphasised that he expressed no view on the lawfulness the game whether at common law or under the 1845 Act or under any other relevant legislation.
That left only the point upon which the case was decided: whether or not the contract between claimant and defendant incorporated the “Rules”. The first announcement of the game, in the Daily Mirror on 29 April 1995, had a heading in capital letters with white text in a black box INSTANT SCRATCH RULES. Under this were printed eight numbered paragraphs (“the Rules”). Rules 2 and 5 read as follows:
‘2. The prizes for each game will be awarded to the player or players who make a successful claim.
‘5. Should more prizes be claimed than are available in any prize category for any reason, a simple draw will take place for the prize.’
……
Conclusion
In my view the judge was right to hold that the contract was made on 3 July. The offer was contained in the paper that day. In my view it was accepted when the claimant telephoned to claim his prize. The offer and therefore the contract clearly incorporated the term ‘Normal Mirror Group rules apply’. The words were there to be read and it makes no difference whether or not the claimant actually read or paid attention to them.
The question, therefore, is whether those words, in the circumstances, were enough to incorporate the Rules, including Rule 5, into the contract. In the words of Bingham LJ in Interfoto Library Ltd v Stiletto Ltd [1989] 1 QB 433, at p 445E, can the defendant ‘be said fairly and reasonably to have brought [those rules] to the notice of’ the claimant? This is a question of fact. It is clear from the passage in the same judgment quoted earlier (at para 13) that one has to look at the particular contract made on the particular day between the particular parties. But what is fair and reasonable notice will depend upon the nature of the transaction and upon the nature of the term. As Dillon LJ summed it up in Interfoto, at pp 438H to 439A:
‘In the ticket cases the courts held that the common law required that reasonable steps be taken to draw the other parties’ attention to the printed conditions or they would not be part of the contract. It is, in my judgment, a logical development of the common law into modern conditions that it should be held, as it was in Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, that if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party.’
Bingham LJ put the same point in this way at p 443C:
‘ . . . what would be good notice of one condition would not be good notice of another. The reason is that the more outlandish the clause the greater the notice which the other party, if he is to be bound, must in all fairness be given.’
In my view, although Rule 5 does turn an apparent winner into a loser, it cannot by any normal use of language be called ‘onerous’ or ‘outlandish’. It does not impose any extra burden upon the claimant, unlike the clause in Interfoto. It does not seek to absolve the defendant from liability for personal injuries negligently caused, unlike the clause in Thornton v Shoe Lane Parking. It merely deprives the claimant of a windfall for which he has done very little in return. He bought two newspapers, although in fact he could have acquired a card and discovered the hotline number without doing either. He made a call to a premium rate number, which will have cost him some money and gained the newspaper some, but only a matter of pennies, not pounds.
The more difficult question is whether the rule is ‘unusual’ in this context. The judge found that the claimant knew that there was a limit on the number of prizes and that there were relevant rules. Miss Platell’s evidence was that these games and competitions always have rules. Indeed I would accept that this is common knowledge. This is not a situation in which players of the game would assume that the newspaper bore the risk of any mistake of any kind which might lead to more people making a claim than had been intended. Some people might assume that the ‘get out’ rule would provide for the prize to be shared amongst the claimants. Some might assume that it would provide for the drawing of lots. In the case of a single prize some might think drawing lots more appropriate; but it seems to me impossible to say that either solution would be ‘unusual’. There is simply no evidence to that effect. Such evidence as there is was to the effect that such rules are not unusual.
In any event, the words ‘onerous or unusual’ are not terms of art. They are simply one way of putting the general proposition that reasonable steps must be taken to draw the particular term in question to the notice of those who are to be bound by it and that more is required in relation to certain terms than to others depending on their effect. In the particular context of this particular game, I consider that the defendants did just enough to bring the Rules to the claimant’s attention. There was a clear reference to rules on the face of the card he used. There was a clear reference to rules in the paper containing the offer of a telephone prize. There was evidence that those rules could be discovered either from the newspaper offices or from back issues of the paper. The claimant had been able to discover them when the problem arose.
The judge had ‘great sympathy for Mr O’Brien who struck me as a thoroughly decent young man who must have suffered a cruel disappointment when his hopes were raised only to be dashed.’ There can be little sympathy for a newspaper which introduces such a game to attract publicity and readers, and then devotes space which could have been devoted to printing the Rules to hyperbole about the prizes to be won and the people who have won them. But the fact of the matter is that there was nothing at all outlandish about the rules of this game and indeed it would have been surprising if there had been no protection on the lines of Rule 5. I would dismiss this appeal.
SIR ANTHONY EVANS:
I agree that the appeal should be dismissed, but I do so for one reason only. I feel constrained to accept Mr Carr QC’s final submission, that this Court should not interfere with the Judge’s finding on an issue of fact, unless the finding is clearly wrong. The issue is whether the respondents took reasonable steps to draw the particular term to the notice of those who are to be bound by it (quoting from the judgment of Lady Justice Hale, para.23).
The words “Normal Mirror Group rules apply” clearly formed part of the contract. Unless it was established that the claimant had actual knowledge of Rule 5, which it was not, it is immaterial in my judgment that he had had the opportunity to read it on previous occasions, or was aware from the earlier editions of the newspapers that some Rules did exist. If those matters were relevant, it would mean that whether he was bound by it would itself be a matter of chance in the individual case.
There was no obvious reason why the Rules could not appear in every edition which offered tickets for the game, except as my Lady has said the editor’s wish to use the space for publishing hyperbole about the prizes to be won and the people who had won them. The reference to the Rules could have been accompanied by some indication of where they had been printed or could be found, for example ‘last Friday’s copy’ or ‘published on’ a particular weekday. Instead, on Monday 3 July the only publication in the Daily Mirror during the previous month had been on 10 June and 30 June. A person reading the offer on 3 July could not be expected to have ready access to back issues, even if he or she knew what date to look for. Whether the reader could discover what the Rules were was left essentially as a matter of chance. The promise of significant riches, in my judgment, deserve more.
I would also have considered that a Rule which gave the ‘winner’ no more than a further chance to obtain the prize was sufficiently onerous, if not unusual, to require greater prominence than was given to this one. This, in my judgment, was the strength of Mr Crystal’s main submission.
However, the judge concluded differently, and my colleagues agree with him. I cannot say that he was clearly wrong, and so reluctantly, I must agree that the appeal should be dismissed.
LORD JUSTICE POTTER:
For the reasons given by Hale LJ I agree that this appeal should be dismissed.
ORDER: Appeal dismissed with costs; appellant’s costs to be assessed if not agreed in accordance with Community Legal Service (costs) Regulations or their predecessors as appropriate application for permission to appeal to the House of Lords refused.
Noreside Construction Ltd v Irish Asphalt Ltd SC
[2014] IESC 68
Dunne J
The status of the delivery dockets and the signing of same
I am satisfied that the parties herein reached a concluded agreement following their negotiations on the 26th March, 2003. This could be described as the “master” contract. I am also of the view that on every subsequent occasion when an order was placed and a delivery of aggregate was made, a separate and distinct contract was made in respect of each such delivery which incorporated the terms and conditions of the “master” agreement negotiated between the parties as to the price for the goods to be supplied, depending on whether the goods were to be collected or delivered, credit terms and so on. It was always open to the parties to vary the terms and conditions of the “master” contract between them. The question at issue between the parties is whether the use of delivery dockets on numerous occasions had the effect of varying the terms of the contracts by the incorporation of Irish Asphalt’s terms and conditions into the series of contracts made over the course of Noreside’s project at Griffith Avenue as contended by Irish Asphalt. The answer to this question gives rise to an analysis as to whether or not the delivery dockets relied on by Irish Asphalt are contractual documents. I now propose to consider this question.
McMeel in the Construction of Contracts (11th Ed. at para. 15.56) commented on the question of whether or not a particular document is a contractual document as follows:
“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 Mededith Plant Hire [1996] CLC 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.”
Mr. Darling Q.C., on behalf of Irish Asphalt placed particular emphasis on the last paragraph of the passage quoted above from McMeel.
Treitel, The Law of Contract (12th Ed.) contains the following explanation of the nature of a document at paragraph 7 – 006:
“Nature of the Document. An exemption clause is not incorporated in the contract if the document in which it is set out (or referred to) is not intended to have contractual force: e.g. if the document is a mere receipt for payment. On the other hand, the mere fact that a document is called a ‘receipt’ will not prevent it from having contractual effect. A document will have such effect if the party to whom it was handed knew it was intended to be a contractual document or if it was handed to him in such circumstances as to give him reasonable notice of the fact that it contained conditions. It will also be contractual if it is obvious to a reasonable person that it must have been intended to have this effect. This will be the case if the document is of a kind that generally contains contractual terms. Whether a document falls into this class depends on current commercial practice, which may vary from time to time.”
As I have said, it is my view that each delivery of aggregate was a separate and distinct contract which incorporated the terms of the “master” contract concluded by the parties. The evidence as to the creation of these contracts was that a delivery of aggregate was ordered by oral “call off” in a telephone call by an operative or site foreman of Noreside, received by an operative of Irish Asphalt and then delivered to Noreside’s construction site, which arrangement was then recorded by the delivery docket which noted the amount of aggregate provided, the particular type of aggregate and whether the aggregate was either collected or delivered to the site. They were simply for the purpose of recording what occurred. As is clear from the passage referred to above from McMeel, such documents may come too late to prove an argument of incorporation. The status of a delivery note in any given situation will depend very much on the facts and circumstances of the particular case.
The fundamental question in this case is whether the delivery dockets have contractual effect. These delivery dockets contain a reference to terms and conditions but none are expressly set out or identified. Are these delivery dockets intended to have contractual effect? There is no doubt that the delivery dockets herein were important documents in the execution of the contracts given that they were relied on for the purpose of checking that the amounts set out on invoices that had to be paid by Noreside to Irish Asphalt was correct. To that extent, there is no dispute between the parties that the delivery dockets had an important role to play in the overall contractual relationship between the parties.
This Court was referred to an extensive range of case law and academic commentary in the written and oral submissions of Irish Asphalt herein and in the case of James Elliot Construction Limited v. Irish Asphalt Limited which was heard immediately before this case. The case law and academic commentary was considered at length in the judgment of the Court in that case. That case also concerned the role of delivery dockets of the same defendant/appellant which contained the same phrase on the delivery dockets. It is not necessary to set out in detail all of the authorities referred to in the judgment of the Court in James Elliot Construction Limited v. Irish Asphalt Limited delivered immediately before this judgment but it would be useful to refer to a number of the relevant authorities. Thus, in the case of Spurling Limited v. Bradshaw [1956] 1 WLR 461, reliance was placed on a document described as a “landing account”. That case concerned a defendant who had had dealings with the plaintiff warehousemen. A number of barrels of orange juice were delivered for storage and thereafter the defendant received a landing account which referred on its face to conditions printed in small type on the back including an exemption clause. The barrels of orange juice were subsequently found to be empty or so damaged as to be useless. The warehousemen sued for their charges for storage and the defendant counterclaimed for damages. Denning L.J. (at p. 467) stated:
“It is to be noticed that the landing account on its face told Mr. Bradshaw that the goods would be insured if he gave instructions; otherwise they were not insured. The invoice, on its face, told him they were warehoused ‘at owner’s risk’. The printed conditions, when read subject to the proviso which I have mentioned, added little or nothing to those explicit statements taken together.
Next it was said that the landing account and invoice were issued after the goods had been received and could not, therefore, be part of the contract of bailment: but Mr. Bradshaw admitted that he had received many landing accounts before. True he had not troubled to read them. On receiving this landing account, he took no objection to it, left the goods there, and went on paying the warehouse rent for months afterwards. It seems to me that by the course of business and conduct of the parties, these conditions were part of the contract.”
Similarly, in the case of British Road Services Ltd. v. Arthur V. Crutchley & Co. Ltd. [1968] 1 All ER 811, there was a reference to a delivery note. Following a long established course of business between the plaintiff carriers and the defendants, delivery notes for goods transported by the plaintiffs and delivered at the defendants’ warehouse would be handed back to the plaintiffs’ lorry drivers, on the defendants receiving the goods stamped “Received on AVC [that is the defendants’] Conditions”. Lord Pearson at p. 816 of the judgment in that case commented as follows:
“Now I come to the terms of the contract between the plaintiffs and the defendants. It was not proved that the plaintiffs’ conditions of subcontracting were ever sent to the defendants, and the defendants in evidence denied that they were subcontractors to the plaintiffs. The plaintiffs’ form of delivery note contained the words:
‘All goods are carried on the [plaintiffs’] conditions of carriage, copies of which can be obtained upon application to any office of the [plaintiffs].’
Under the long established course of business between the parties, however, the plaintiffs’ driver brought his delivery note into the defendants’ office at the Cotton Street warehouse and asked in effect if he could bring his load into the warehouse. If there was room in the warehouse, the permission would be given, and the delivery note would be rubberstamped by the defendants with the words ‘Received under AVC Conditions’, followed by the date and the address of the warehouse. The delivery note, thus converted into a receipt note, would be handed back to the plaintiffs’ driver and he would bring his load into the warehouse as instructed by the warehouse foreman. If this had only happened once, there would have been a doubt whether the plaintiffs’ driver was their agent to accept the defendants’ special contractual terms. This, however, happened frequently and regularly over many years at this and other warehouses of the defendants. Also the defendants’ invoices contained the words: ‘All goods are handled subject to conditions of carriage copies of which can be obtained on application’. It may perhaps be material to add that the defendants’ conditions of carriage were not peculiar to them, but were the conditions of carriage of Road Haulage Association Limited. At any rate, I agree with the decision of the Judge that the plaintiffs’ conditions were not, and the defendants’ conditions were, incorporated into the contract between these parties. The effect was that, while the nature of the defendants’ liability as bailees to the plaintiffs was unaffected, the liability was limited in amount to £800 per ton, which, when credit is given for sixty bottles of whisky recovered after the theft, produces a total in this case of £6,135.”
At first glance it may be difficult to see why there was a different approach taken to the plaintiffs’ terms and conditions in that case and those of the defendants. However, the reason is clear from the judgment of Lord Pearson – it was not proved that the plaintiffs’ conditions of sub-contracting were ever sent to the defendants; by contrast the defendants’ terms and conditions, although not peculiar to them, were the conditions of carriage of the Road Hauliers Association Limited and were incorporated into the contract by reference to the rubberstamping of the words “Received under AVC Conditions” on the delivery note. In other words, there could have been no doubt as to what the terms and conditions were.
Another case of interest and one which was relied on by the learned trial Judge herein is the decision in the case of Continental Tyre and Rubber Company Ltd. v. Trunk Taylor Company Ltd. [1985] S.C. 163. In that case, the delivery note which contained the phrase “All offers and sales are subject to company’s current terms and conditions of sale . . .” was a non-contractual document as it was “a document the only purpose of which was to record performance of a particular transaction with a view to payment”. Finlay Geoghegan J. placed particular reliance on the judgment in that case and accepted that the purpose of the delivery dockets herein was to record the supply of aggregate with a view to payment whilst acknowledging that the documents were crucial documents but in the execution of the contract already agreed. That case concerned the sale and delivery of tyres and a claim in respect of sums due in respect of those tyres. The tyres were alleged to have been rejected by customers of the defendants as not being of merchantable quality. The pursuers in the case, on the assumption that the warranty as to merchantable quality had been breached, pleaded that their liability was excluded by reference to their standard conditions of sale on a delivery note. They also relied on an argument that a recent and consistent course of dealing meant that the terms of the delivery note had been incorporated into the contract. Lord Brand, the Lord President at page 168 of his judgment stated:
“What has been called the ‘delivery note’ does not so describe itself. It is not and does not bear to be a contract note or ‘sold’ note of the kind considered in Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association [1966] 1 W.L.R. 287 . . . which purported to record the terms of the parties’ agreement, and which was tendered before performance. It is not and does not bear to be, either, an acknowledgement of order form, of the kind considered in Grayston Plant Ltd. v. Plean Precast Ltd. 1976 SC 206, purporting to record the terms on which the supply is made or to be made. The signature of the defenders’ employee is, as the form shows, required for one purpose and one purpose only. Opposite the box containing the signature are the following words: ‘Please note that your signature is proof that the quantity and description of the goods shown on this docket were received correctly’. There are not averments that the legend near the top left hand corner of the docket, referring to the pursuers’ ‘conditions of sale’, which is in small print and not in bold type, was ever drawn to the attention of the person who signed it, and it is not averred that signature of the docket was required before the delivery was made (cf. the very different circumstances in British Road Services Ltd. v. Arthur v. Crutchley & Co. Ltd. where the delivery note was overstamped, referring to the conditions upon which the warehouse keeper would receive the load, and handed to the plaintiffs’ driver before he brought his lorry into the premises; see the opinion of Lord Pearson at pp. 816 and 817).”
Reliance on a reference to terms and conditions said to be available on request was not sufficient to result in the incorporation of those terms and conditions into the contract between the parties in that case.
For completeness I should also refer to the decision in the case of Grogan v. Robin Meredith Plant Hire [1996] C.L.C. 1127, which was referred to in McMeel in the passage set out above and relied on by Finlay Geoghegan J. in the course of her judgment. That was a case in which 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. 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 defendant’s driver. Toward the bottom of the timesheet was printed, “All hire undertaken under CPA conditions. Copies available on request”. Under the standard conditions of the Contractor’s Plant Association, if incorporated into the contract, Triact was bound to indemnify the first defendant against any liability incurred to third parties in the course of the hire. In the third week of hire the machine was involved in an accident in which the plaintiff was injured. The plaintiff issued proceedings against the first defendant and Triact seeking damages for personal injuries. There was consent to judgment by the defendants. The first defendant claimed that the CPA conditions were incorporated into the contract by the signing of the driver’s timesheet on Triact’s behalf. Triact was therefore liable to indemnify the first defendant in respect of its liability to the plaintiff. In the High Court it was held that the contract had been varied so as to incorporate the CPA conditions. The appeal was allowed. In the course of his judgment Auld L.J. said:
“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 ed.), 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.”
Auld L.J. continued:
“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.”
Auld L.J. went on to say:
“If, as appears, that was the common understanding of the purpose of the time sheets, the fact that they made reference to the CPA conditions, not previously part of the contract, cannot, in my view, be of any contractual significance. Certainly such a reference on an essentially administrative and accounting document raised in the execution of an existing contract, did not have the clarity of meaning and purpose required to effect a variation incorporating them into the contract. . . . 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.”
As I said previously, the learned trial Judge placed considerable reliance on the judgment in that case leading to the conclusion by the trial Judge that the delivery dockets in this case were crucial documents in the context of both the construction and quarrying industry. Their purpose was to record the amount and type of aggregate supplied, together with the date and place of delivery, with a view to payment. However, whilst accepting that they had a contractual purpose in the execution of the contract, they did not have contractual effect in the sense of making or varying a contract.
A number of points emerge from the authorities referred to above. First of all, a delivery docket can be a contractual document – whether it is or not depends on the facts and circumstances in a particular case. The purpose for which the delivery docket was created may be of relevance. The next point to note, and one which seems to me to be of critical importance, is that the delivery docket or other document at issue must contain the relevant terms and conditions relied on or at the very least contain a reference to specific terms and conditions such as the AVC conditions relied on in the case of British Road Services Ltd. v. Arthur V Crutchley & Co. Ltd. referred to above. In that case, the plaintiff did not succeed in having its conditions of subcontracting incorporated into the contract even though those terms and conditions were stated to be available “upon application” while the defendant’s terms and conditions were incorporated by means of a stamp placed on the delivery note stating “Received under AVC conditions”.
In other words, a party contending that the terms of a previously negotiated contract have been varied by a document such as a delivery docket, must be able to show that the document concerned “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”. This may be by reference to specific terms and conditions either set out on the document itself or reference on the document to terms and conditions well known in a particular industry, such as the AVC conditions referred to above. It is difficult to see how a bland reference to terms and conditions being available on request, without more, will suffice for the purpose of making a contract or varying a contract. Thus, in my view, the learned trial judge was correct in concluding that the delivery dockets were not contractual documents and did not have contractual effect. They did not contain terms and conditions of the contract. They made no reference to price. They were created for the purpose of recording the type and amount of aggregate delivered and whether that aggregate was collected or delivered on site. This view is given further support by the fact that the signature on the delivery dockets was placed in a box headed “Materials received on behalf of Customer”. In the circumstances, the fact that the delivery dockets were signed on behalf of Noreside by its site foreman, operative or haulier does not have the effect of incorporating Irish Asphalt’s terms and conditions into the contracts between the parties by way of signature.
Reasonable notice and course of dealing
Lewison in The Interpretation of Contracts at p. 127 commented:
“It is not necessary to the incorporation of trading terms into a contract that they should be specifically set out provided that they are conditions in common form or usual terms in the relevant business. It is sufficient if adequate notice is given identifying and relying upon the conditions and they are available on request. Clear words of reference suffice to incorporate the terms referred to. Other conditions apply if the conditions or any of them are particularly onerous or unusual. . . .”
In the event that the delivery dockets were found not to be contractual documents and thus incorporated by signature into the contracts between the parties, Irish Asphalt contends that the delivery dockets provided on some 1,190 occasions to Noreside constituted reasonable notice of their terms and conditions and thus were incorporated into the contract between the parties. Generally, terms and conditions contained in an unsigned written document will not be incorporated into a contract unless the party to be bound had reasonable notice of those terms and conditions. The reason for this is straightforward. Terms and conditions relied on by a party in the context of an alleged breach of contract will often limit or exclude liability. They may provide for any contractual dispute to go to arbitration. There may be other important terms, for example, in relation to retention of title. It has been said that the more onerous an exemption clause contained in terms and conditions is, the greater the requirement for notice. This was graphically explained by Lord Denning M.R. in the case of Thornton v. Shoe Lane Parking [1971] 2 QB 163, at 170, where he stated of an exemption clause:
“. . . it is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way. . . . In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.”
Thus in a case such as this where the terms of Clause 8 of Irish Asphalt’s terms and conditions could only be described as onerous, it follows that in order to rely on the provisions of Clause 8 it is necessary for Irish Asphalt to demonstrate that it had given reasonable notice of those terms and conditions to Noreside.
It is not disputed that Mr. Regan of Noreside checked the delivery notes carefully for the purpose of ensuring that the amounts due by Noreside to Irish Asphalt on foot of invoices received by Noreside accurately reflected the goods supplied. Mr. Regan, in his evidence, confirmed that he checked the quantity, date and delivery docket number against invoices. Insofar as the phrase “The material is sold subject to our terms and conditions available on request” is concerned he said that he could not say with force that he had seen that phrase but when asked if he was aware that it was on the delivery dockets, he said “Possibly, yes”. It was never alleged before the High Court that the actual terms and conditions relied on by Irish Asphalt had been provided in any way to Noreside. The critical point emphasised by Irish Asphalt was that each delivery docket contained the proviso referred to above as to the terms and conditions being available on request. The essence of the case made by Irish Asphalt is that Mr. Regan, a person of authority within Noreside, saw the delivery dockets; therefore, he knew of the existence of terms and conditions relied on by Irish Asphalt and was willing to contract on that basis. He chose to turn a blind eye to Irish Asphalt’s terms and conditions and thus he took the risk of not actually ascertaining the specific terms and conditions. Put simply, he knew there were terms and conditions but chose not to find out what they were.
In the course of the written submissions reference was made to McMeel op. cit. at page 287, where the author explained the concept of incorporation by reasonable notice in the following terms:
“The second alternative route of incorporation is by reasonable notice. This is the principal mode of incorporation for unsigned printed documents. It first came to prominence in the nineteenth century ‘ticket cases’ as the industrial revolution and the railway age made standard terms a feature of everyday life. In the leading case of Parker v. South Eastern Railway Company, Mellish L.J. distinguished the case of incorporation by signature and continued:
‘The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case there must be evidence independently of the agreement itself to prove that the defendant has assented to it. In that case, also, if it is proved that the defendant has assented to the writing constituting the agreement between the parties, it is, in the absence of fraud, immaterial that the defendant had not read the agreement and did not know its contents. Now if in the course of making a contract one party delivers to another a paper containing writing, and the party receiving the paper knows that the paper contains conditions which the party delivering it intends to constitute the contract, I have no doubt that the party receiving the paper does, by receiving and keeping it, assent to the conditions contained in it, although he does not read them, and does not know what they are’.” – See 1877 2 CPD 416, 420.
This passage suggests that in the ordinary case it is sufficient to prove that a document containing terms was provided by one party to or sent to the other and was retained without demur. As with incorporation by signature, Mellish L.J. was emphatic that reading or familiarity with the terms was irrelevant.
In Circle Freight International Limited v. Medeast Gulf Exports [1988] 2 Lloyd’s Rep. 427, CA, the invoices each stated in small print at the bottom:
“All business is transacted by the company under the current trading conditions of the [IFF] a copy of which is available on request.”
This was in the words of Bingham L.J. both “clear and legible” and “placed immediately below the price where the eye would naturally alight on it”. The exporters never requested a copy and none was sent. Having reviewed the authorities, Taylor L.J. concluded:
“. . . it is not necessary to the incorporation of trading terms into a contract that they should be specifically set out provided that they are conditions in common form or usual terms in the relevant business. It is sufficient if adequate notice is given identifying and relying upon the conditions and they are available on request.” [1988] 2 Lloyd’s Rep. 427, 433.”
A number of points emerge from the passages referred to above. First of all, although one can be bound by terms and conditions that one has not read, the document relied on by the party asserting the terms and conditions should actually contain either the conditions themselves or in some other way identify the terms and conditions relied on. As Taylor L.J. concluded in Circle Freight, it is not even necessary for the conditions to be set out specifically. He pointed out that it would be sufficient if adequate notice was given identifying and relying upon the conditions. In that case, there was a clear reference to the IFF terms on invoices created for the purpose of the contracts between the parties. Taylor L. J. added in the course of his judgment (at p. 433) the following observation:
“Here, the parties were commercial companies. There had been a course of dealing in which at least eleven invoices had been sent giving notice that business was conducted on the IFF terms at a place on the document where it was plain to be seen. Mr. Zacaria knew that some terms applied. He knew that forwarding agents might impose terms which would frequently be standard terms and would sometimes or frequently deal with risk. He never sought to ask for or about the terms of business. The IFF conditions are not particularly onerous or unusual and, indeed, are in common use. In these circumstances, despite Mr. Gompertz’s clear and succinct argument to the contrary, I consider that reasonable notice of the terms was given by the plaintiffs. Putting it another way, I consider that the defendants’ conduct in continuing the course of business after at least eleven notices of the terms and omitting to request a sight of them would have led and did lead the plaintiffs reasonably to believe the defendants accepted their terms. In those circumstances it is irrelevant that in fact Mr. Zacaria did not read the notices.”
Thus, it was held that the IFF conditions were incorporated in the contract. It is noteworthy that the invoices relied on made specific reference to IFF conditions. Therefore, the plaintiffs had, in the view of the Court, given adequate notice identifying the conditions they relied on.
A further authority referred to in the submissions on behalf of Irish Asphalt was the case of Baden v. Societe Generale S.A. [1993] 1 WLR 509 which was relied on in relation to the concept of knowledge. Peter Gibson J. in the course of his judgment described knowledge as follows:
“(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.”
That case concerned the question of knowledge in the context of constructive trusteeship. It seems to me that there is a significant distinction between the type of knowledge a person can be said to have in the context of a constructive trust and the requirement to give reasonable notice of a particular state of affairs to another person. Knowledge in the manner explained by Gibson J. cannot be a substitute for the requirement of a party to give reasonable notice. It is for the party relying on an exemption clause to give reasonable notice of its terms and conditions and not for the party to be bound to be put on enquiry as to whether or not there may be terms and conditions containing an onerous exemption clause. I am not of the view that the case relied on assists the argument of Irish Asphalt on the question of reasonable notice.
The essence of the argument of Irish Asphalt is that the proviso on the delivery dockets, “This material is sold subject to the terms and conditions available on request”, was reasonable notice of the terms and conditions applicable. I cannot agree. At no stage was Noreside ever provided with a copy of Irish Asphalt’s terms and conditions. The terms and conditions were not identified in any shape or form or specified by reference to any known industry-wide terms and conditions. The position could have been otherwise if the proviso had identified some specific terms and conditions such as the IFF conditions referred to in the Circle Freight case. However that did not happen in this case and, accordingly, in my view, Irish Asphalt failed to give reasonable notice of its terms and conditions to Noreside.
Further, this is not a case in which the course of dealing between the parties could be relied on by Irish Asphalt to incorporate its terms and conditions into the contracts between the parties. The fact that the proviso is contained in a large number of delivery dockets does not assist Irish Asphalt in circumstances where Irish Asphalt has never given any reasonable notice of its terms and conditions to Noreside. Obviously, if Irish Asphalt had on numerous occasions supplied copies of its terms and conditions to Noreside but on a particular occasion had failed to do so, then in the context of a breach of contract on that occasion, it would be very difficult for Noreside to argue that it was not aware of the terms and conditions. The fundamental problem in this case for Irish Asphalt is that over the entire period of dealing between the parties, Irish Asphalt never supplied its terms and conditions to Noreside and in those circumstances I fail to see how it could be said that Irish Asphalt’s terms and conditions could have been incorporated into the series of contracts between the parties by a course of dealing.
Incorporation of terms by reference or by custom and practice
Very little needs to be said in relation to the argument that Irish Asphalt’s terms and conditions were incorporated into the contract between the parties by reference to the proviso contained on the delivery dockets. If it was the case that reference had been made to terms and conditions well known within the industry and identifiable as such, for example, as in the Circle Freight case by reference to the IIF conditions, I would be of the view that such terms and conditions could be incorporated into the contracts between the parties. If the reference was to some other document – for example – if the proviso made reference to “our terms and conditions as set out on our invoices”, the terms and conditions could be incorporated by such reference if the terms and conditions were, in fact, set out on the invoices. However, nothing of that kind happened here and the mere reference to terms and conditions without either specifying them in any way or otherwise identifying them is not, in my view, sufficient to incorporate the terms and conditions into a contract or series of contracts by reference. The basis on which terms and conditions could be incorporated by reference into a contract in any given case would clearly turn on its own facts and circumstances.
Finally, it was submitted on behalf of Irish Asphalt that the terms and conditions relied on by them were incorporated into the contracts by custom and practice. Lewison in Interpretation of Contracts 2007 referred to the principles governing incorporation by way of custom and practice in the following terms at page 221:
“A trade usage producing a customary meaning is a trade custom which must be proved as clearly and definitely as any other trade custom. In a market where buyers and sellers meet together habitually, they get into the habit of assuming that certain conditions or usages apply to all contracts they make. A usage grows up because everybody in the market, knowing the usages, tacitly assumes the contract he is making, whether as buyer or seller, is subject to the usage. The binding character of that usage is born of innumerable individual transactions entered into by the parties to them in the knowledge that certain usages are in practice habitually followed in that market. For a practice to amount to a recognised usage, it must be certain, in the sense that it is so well known in the market in which it is alleged to exist, that those who conduct business in the market contract with the usage as an implied term; and it must be reasonable.”
In making the argument that the terms and conditions were implied into the contract between Irish Asphalt and Noreside, Irish Asphalt relied on the evidence of Mr. Kennedy, a witness called by Irish Asphalt. Mr. Kennedy was a director of Roadstone and was responsible for a number of quarries and gravel operations. In the course of his evidence, he was asked if it was custom and practice within the industry to limit liability and he responded:
“Yeah, there are a number of reasons for that. At a macro level, obviously, there is the management of the risk in the business. In terms of proportionality, this business is a commoditised business. A commodity business, low value, high volume transactions, low value. So, for instance, in terms of a load of Clause 804, your typical cost delivered to site is, maybe €200. A profit margin for a business in the aggregates game, well run, is about €60. So where you are delivering material like that to a multimillion pound project you have to limit your risk. The second thing I would suggest is that, in relation to the industry, quarry companies or supply companies, they are not construction companies. And, again, if you look at it, they are at 21% VAT, the higher rate of VAT, which proves that they are a deliverer of materials, not a supplier of services, not a supplier of labour. So that’s a very distinguishing factor and that’s very important for people in the quarry industry. Because their customer base, typically, is in the construction industry and that customer base tends to be contractual. So the industry has to protect itself. . . .
Well, as said in my witness statement, I believe it to be custom and practice. My own experience is that all the major international players would have, either, a limited liability or a rejection of consequential loss. And I think a number of the larger family owned businesses in Ireland would have similar type statements.”
He went on to discuss Noreside’s terms and conditions and stated that he would never have accepted them:
“Question: “Why is that?
Answer: Because risk reward. It is a fundamental of our business that you can’t accept risk in the context of the type of reward you are getting in your business. Because it is a supply business. There are a number of reasons. One, just being practical about it, I may, you have no control over your product. You have certainly no control over your product if it is collected by the customer. You’d have no control when it gets to site. You have no control in terms of how it is used. So the industry, in general, in my experience, in my view, has always sought to protect itself as a result, we are not contractors, we are suppliers.”
In considering this issue, it is helpful to look at McDermott on Contract Law at para. 7.07 in which the author set out a number of requirements that must be fulfilled before a custom would be implied into a contract, namely:
(1) 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.
(2) The custom must be certain.
(3) The custom must be reasonable, and the more unreasonable it is the harder it will be to prove that it exists.
(4) Until the Court takes judicial notice of a custom it must be proved by clear and convincing evidence.
(5) The custom must not be inconsistent with the express contract.
The case of O’Reilly v. Irish Press [1937] ILTR 194, considered this issue. Maguire P. commented:
“. . . a custom or usage of any kind is a difficult thing to establish . . . it must be proved by persons whose position in the world of journalism entitles them to speak 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.”
The learned trial judge reviewed the evidence of Mr. Kennedy, that of Mr. Tuite on behalf of the defendant and the evidence of Mr. Regan. Mr. Regan, on behalf of Noreside, disputed the evidence of Mr. Kennedy and Mr. Tuite as to the existence of a custom or practice within the industry of a standard practice of including a limitation of liability clause in terms and conditions provided by quarry owners. Finlay Geoghegan J. concluded as follows at para. 50 of the judgment:
“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.”
The learned trial Judge was not satisfied on the evidence that there was sufficient evidence of a custom well known within the quarry industry such that quarry owners or operators were entitled to limit their liability in the absence of the inclusion of an express contractual term. Indeed, as she noted, the practice, on the contrary, appears to have been to include such an express contractual term. Looking at the evidence of Mr. Kennedy overall, it seems that the height of his evidence was that he believed it to be custom and practice. He referred to his experience that all the major international players would have either a limited liability or a rejection of consequential loss clause. He added that a number of the larger family owned businesses would have similar type statements. This suggests to me that the practice varies between quarry operators who have a clause that relates to limited liability and those who have a clause rejecting liability for consequential loss. Thus even within the evidence of Mr. Kennedy himself there is a degree of inconsistency as to the approach taken. Further, it seems that not all those involved in the business operate on the basis of seeking to limit their liability in that way. Thus, having considered the evidence and the finding of the learned trial Judge on this issue, I cannot see any basis for arguing that there was any error in her conclusion on this topic. Accordingly, I am satisfied that the terms and conditions relied on have not been incorporated by reference or by custom and practice.
Conclusions:
(1) There was a master contract between the parties concluded on the 26th March, 2003 which fixed the terms and conditions on which the parties would trade for the duration of Noreside’s Griffith Avenue project.
(2) Thereafter, there were separate and distinct contracts in respect of each supply of aggregate.
(3) The delivery dockets, whilst important documents in the execution of the contracts, were not contractual documents.
(4) Irish Asphalt’s terms and conditions were not incorporated into the contracts by the signature of Noreside’s site foreman or other operatives on the delivery dockets.
(5) Irish Asphalt’s terms and conditions were never provided or made known to Noreside.
(6) Irish Asphalt did not provide reasonable or adequate notice of the terms and conditions to Noreside by means of the proviso on the delivery docket or otherwise.
(7) Irish Asphalt’s terms and conditions were not incorporated into the contract by reference.
(8) Irish Asphalt did not establish in evidence that there was a custom and practice in the industry such that its terms and conditions could be implied or incorporated into the contract between the parties.
This is a case in which Irish Asphalt have sought to rely on terms and conditions which would limit their liability to Noreside for the defective aggregate supplied to Noreside. Irish Asphalt could have incorporated their terms and conditions into the contracts by any number of simple steps. For example, their terms and conditions could have been printed on their delivery dockets or on their invoices. All that occurred in this case was the inclusion of a reference in the delivery dockets to terms and conditions. This did not indicate in any way what those terms and conditions were. It is difficult to see how one could be bound by terms and conditions which are not contained in a signed contractual document or by terms and conditions which are never provided, identified or disclosed or by terms and conditions said to be incorporated by custom or usage unless they are “so notorious, well known and acquiesced in” as to be taken to be incorporated into the terms in the contract, as Maguire P. explained in O’Reilly v. Irish Press. In my view, Irish Asphalt has failed to establish that its terms and conditions were incorporated into the contracts with Noreside on any basis.
In the circumstances, I would dismiss the appeal.
Unitherm Heating Systems Ltd -v- Wallace as official liquidator of BHT Group Ltd (In Liquidation)
[2015] IECA 191 (29 July 2015)
Cite as: [2015] IECA 191 Irvine J
Discussion
37. It is beyond doubt that the leading authority on proceeds of sale clauses at the time of the High Court judgment was that of Murphy J. in Carroll, a case in which the Court concluded that the relevant proceeds of sale clause did not create a fiduciary relationship between the buyer and seller but rather confined the seller to a charge over the funds received in respect of the resale of its goods, which required registration.
38. In reaching a contrary conclusion in the present case, the High Court judge distinguished not only the contractual provisions in both cases but also the manner in which the respective parties had conducted their business and, on that basis, found that the relationship of principal and agent existed.
39. For the purposes of considering the distinction drawn by the High Court judge between the two cases, I will briefly summarise the facts in Carroll.
40. In Carroll, the plaintiff, a well-known tobacco company, had supplied goods to the defendants (“Bourkes”) as retailers. Those companies had gone into liquidation. The contract between the parties contained a reservation of title clause which provided that no property in the goods would pass until all sums due to the plaintiff had been discharged. It also gave the defendants the right to resell the goods to a third party on their own account, but not as agents for the plaintiff. Further, the contract included a proceeds of sale clause which required the defendants to “hold all monies received from such sale or other disposition in trust for the company (“Carrolls”) and undertake to maintain an independent account of all sums so received and on request [to] provide all details of such sums and accounts”. No such account was ever established, a fact that the High Court judge concluded was probably known to Carrolls.
41. In the course of the liquidation an issue arose as to the plaintiff’s rights in respect of the proceeds of sale of the goods sold on by the defendants to third parties. The plaintiff argued that these were impressed with a trust in its favour, thus entitling it as a beneficiary standing in a fiduciary relationship with the defendants to trace such proceeds into any other property acquired therewith by the trustees.
42. Murphy J. set out the basic legal principles as follow ([1990] 1 IR 481, 483):-
“The issue in the present case relates to the right of Carrolls in respect of the proceeds of sale of the goods supplied by it. In this context too the basic legal principles are well established. Where a trustee or other person in a fiduciary position disposes of property the proceeds of sale are impressed with a trust which entitles the beneficiary or other person standing in the fiduciary relationship to trace such proceeds into any other property acquired therewith by the trustee … Whether fiduciary obligations are imposed on one party or another depends in part upon the character in which they contract and partly on the nature of the dealings in which they engage. Obviously one would be slow to infer that a vendor and purchaser engaged in an arms length commercial transaction undertook obligations of a fiduciary nature one to the other. On the other hand if one postulates that in any context one person is selling the goods of another the assumption of fiduciary obligations in relation to the sale and in particular the proceeds thereof might well be appropriate. It seems to me that the question must be asked: how does a party come to sell property of which he is not the owner? Is he selling as a trustee in pursuance of a power of sale? Is he selling as the agent of the true owner? Does the sale constitute a wrongful conversion? If any of those questions were answered in the affirmative it seems to me that the law would impose a trust on the proceeds of sale which would confer on the true owner the right to recover those proceeds from the actual seller or, if the proceeds were no longer in the seller’s hands, to trace them into any other property acquired with them.”
43. Murphy J. concluded that it was clear from the terms of the contract that it was envisaged that the defendants would sell on the goods on their own account and not as an agent for Carrolls. Accordingly, he could see no basis upon which to find a fiduciary duty. If such an obligation was to be found, it had to be established by reference to the actual bargain or in the conditions of sale. He was satisfied that the parties intended that the property would pass to the sub-purchaser who would become the full owner.
44. In coming to that conclusion, Murphy J. considered the following facts to be material. Firstly, the contract anticipated that, on the onward sale, the sub-purchaser would become full owner. Secondly, the clause specifically provided that Bourkes were not selling on as an agent of Carrolls, and this being so, they could not be considered a fiduciary. Thirdly, Bourkes could set their own price for the onward sale of the goods. This meant that, following their sub-sale, they were not necessarily going to be replaced by assets of equal value. Fourthly, while Bourkes were contractually obliged to place the monies received in respect of the onward sale of the goods into a separate account, no such account had been established, a fact which Murphy J. inferred was known to Carrolls. Fifthly, the contract provided for a four week credit period, a facility the purpose of which Murphy J. stated was uncertain if Bourkes were not free to use the proceeds during that period. Murphy J. analysed how that arrangement “properly implemented” would work given that the sums of money credited thereto, assuming that the goods were resold at a marked-up price, would be in excess of the amounts due by Bourkes to Carrolls. That being so, Carrolls, if entitled to have recourse to that account for the purposes of discharging monies due to them, would not be entitled to the entire fund which suggested to Murphy J. that the rights of the seller bore all of the characteristics of a mortgage or charge. The charge so created required registration under s. 99 of the Companies Act 1963 and in the absence of such registration was invalid.
45. In the course of his judgment, Murphy J. stressed the importance of looking beyond the contractual terms themselves and warned that the attachment of labels to the dealings of the parties was not determinative of their legal status. The rights of the parties and the nature of the transaction which they were engaged in had to be determined by reference to a consideration of the document as a whole as well as the obligations and rights which it imposed on the parties. Murphy J. expressed himself satisfied that the true nature of the relationship between the Carrolls and Bourkes was one of debtor/creditor and the fact that the proceeds of sale were dealt with by Bourkes in the ordinary course of their business supported that conclusion.
Judgment of the High Court
46. In the High Court, Peart J. found that the relationship between Unitherm and BHT was that of principal and agent rather than that of creditor and debtor. He did so by distinguishing the facts of the present case from those in Carroll. The factors he relied upon may be summarised as follows: –
(i) The contractual terms were different. In Carroll, the contract expressly provided that in the event of the sale of goods by Bourkes that they should “act on their own account and not as agent for Carrolls”. The clause in Unitherm’s standard conditions of sale, whilst providing that BHT was entitled to sell the goods to third parties “in the normal course of the buyer’s business”, also provided in an earlier clause that, pending the payment of all sums and the passing of property in the said goods, “a fiduciary relationship shall exist between the buyer and the company and the buyer shall hold the said goods as trustee for and on behalf of the company and shall return the same to the company on demand”. The monies so received were also to be placed in a separate account.
(ii) The manner in which Unitherm and BHT traded was very different to the manner in which Carrolls traded with Bourkes. The High Court judge placed emphasis on the following aspects of the dealings between Unitherm and BHT which he felt were indicative of the existence of a principal/agent relationship: –
(a) That the customer’s plans were sent by BHT to Unitherm so that it might provide a quotation.
(b) That Unitherm prepared a quotation for the customer/third party on BHT headed notepaper or alternatively on jointly headed notepaper.
(c) That the price of the goods when sold to the customer was fixed by Unitherm rather than BHT. In Carroll, Bourkes were free to sell on to the customer at whatever price they wished.
(d) That Unitherm’s profit on the onward sale to the customer was fixed by Unitherm at a percentage of the price which it had quoted for the goods.
(e) That in respect of certain categories of goods, Unitherm provided a commissioning service to the customer.
47. Two matters caused the High Court judge some difficulty when considering whether or not the relationship of principal and agent existed. Firstly, BHT had been granted a credit facility of 60 days, a term considered to be a strong indicator against the existence of a trust over the monies received from the onward sale of the goods given that it implies that the buyer is free to use those monies during the currency of that period. However, the High Court judge concluded that such a clause could be equally consistent with an opportunity being afforded to the buyer to obtain a purchaser for the goods before having to pay the seller, and thus the existence of such a term did not necessarily exclude the possibility of a principal and agent relationship. Secondly, there was the fact that the monies that were to be placed in a separate bank account would be in excess of what was due to the seller because of the mark-up on the onward sale. Such circumstances were normally indicative of the seller having a charge over the monies in that account to the extent only of its outstanding liabilities. To overcome such an inference, the High Court judge concluded that it was open to him to imply into the contract a term that the trust would only apply to that portion of the monies received which were due to the seller.
Decision
48. As was stated by Mummery J. in Compaq Computer Ltd v. Abercorn Group Ltd. [1993] B.C.L.C. 602, the seller’s aim in insisting on a retention of title clause or a proceeds of sale clause is to prevent the goods and the proceeds of sale of its goods from becoming part of the assets of an insolvent buyer, available to satisfy the claims of the general body of creditors.
49. However, as was made clear by Murphy J. in Carroll, it does not follow that, just because the seller has such an objective in mind, the protection which it seeks will be achieved. The court must consider the character in which the parties contracted and the nature of the dealings in which they engaged, apart from the contractual provisions themselves, in order to ascertain how the position of the seller was secured. It must also ensure that the substance of the scheme of registration prescribed by s. 99 of the 1963 Act is preserved and that this scheme is not circumvented or manipulated by artificial characterisations of the buyer/seller relationship.
50. What is not in dispute is that Unitherm, as the unpaid seller, must establish a fiduciary relationship between itself and BHT affecting the proceeds of sale by BHT of the goods in question in order to enjoy an equitable right to trace the monies received in respect of the onward sale into a mixed fund.
51. That being so, it is necessary to consider, firstly, whether the High Court judge was correct in finding that Unitherm and BHT traded as principal and agent such as to create such a fiduciary obligation on the part of BHT in respect of the monies received for the said goods from its customers. If not, it is necessary then to consider the alternative submission made in the course of this appeal which is that BHT sold Unitherm’s goods as trustee in possession, thus impressing the monies received in respect of their onward sale with a trust in favour of Unitherm. These questions must be answered in response to the liquidator’s submissions that the extent of Unitherm’s security is a charge on the book debts of BHT which is void for want of registration.
52. Given that the proceedings in the High Court were decided upon the basis of agency, I will firstly consider whether the High Court judge was correct in reaching that conclusion which he did as to the existence of a fiduciary duty arising from a relationship of principal and agent.
Principal and agent
53. Having considered carefully the evidence available on affidavit as to nature of the relationship between Unitherm and BHT, including the contractual obligations deriving from Unitherm’s standard conditions of sale and the 60 day credit agreement with BHT, I regret to say that I am not satisfied that the relationship between Unitherm and BHT was that of principal and agent.
54. Looking firstly to Unitherm’s standard conditions of sale in support of the existence of such a relationship, the language and wording of those conditions, presumably prepared by Unitherm’s legal advisors, is not demonstrative of an intention on the part of Unitherm to trade with BHT as its agent. The words “principal” and “agent” are not to be found anywhere in the document. Unitherm is described as the “seller” and BHT the “buyer”. An agent does not buy goods from its principal but makes a contract for sale which contractually binds its principal and the customer. Further, clause 11(b)(v) of these Standard Conditions permits BHT to sell the goods to third parties “in the normal course of the buyer’s business”. That clause is not consistent with the conclusion that BHT was selling as agent on Unitherm’s behalf and is, in my view, consistent only with BHT selling on its own account.
55. The same clause also provides that BHT, on the sale of Unitherm’s goods to its own customers, is deemed to have assigned to Unitherm the benefit of any claim which it had against a customer. In my view, such a provision is incompatible with BHT selling as an agent on Unitherm’s behalf. If BHT was selling as an agent, it could have no contractual rights against the customer which it might assign to Unitherm. Further, if BHT had sold as agent for Unitherm, Unitherm would be the contracting party and could sue the customer on its own behalf without the need for any such assignment.
56. Not only are the standard conditions of sale inconsistent with the existence of a fiduciary duty based upon a relationship of principal and agent but the conditions are devoid of the type of obligations that a court might expect to see if an agency relationship had existed between the parties. For example, there is no term which prohibits BHT competing with its principal, Unitherm, or one requiring BHT to comply fully with its directions.
57. Given that an agent acts as an intermediary to conclude a contract between the principal and the customer, if such an agency relationship existed, that should have been apparent from the documentation referable to the trading arrangement between Unitherm, BHT and the customer. Samples of the relevant documentation were exhibited in these proceedings. These demonstrate that BHT raised purchase orders from Unitherm and, consistent with that, Unitherm invoiced BHT/Heat Merchants as its customer. While quotations in respect of the price of goods required by customers were sent to the customer in the name of BHT, and sometimes on notepaper bearing the joint names of Unitherm and BHT, the fact of the matter is that it was BHT, solely, that invoiced the customer in respect of the supply of those goods, and it did so on its own behalf. None of the documentation exhibited is consistent with BHT and Unitherm being in anything other than an arms length vendor and purchaser or creditor and debtor relationship insofar as the onward sale of the goods by BHT was concerned.
58. Neither am I satisfied that the features identified by Peart J. concerning the manner in which Unitherm and BHT conducted their business were necessarily indicative of an agency relationship. For my part, all of those features which he identified in the course of his judgment are equally characteristic of ordinary commercial practice in the industry in question. For example, it does not necessarily follow that just because the supplier insists on fixing the retail price for the onward sale of its goods, and thereby fixes the retailer’s profit margin, the relationship between the parties should be considered to be one of principal and agent. That type of condition, I suspect, is likely based on market considerations such as the price at which the seller believes it will sell the maximum amount of product. If the mark-up is left to the discretion of the retailer, then that could adversely affect the supplier’s sales opportunities and is, in reality, simply a form of resale price maintenance. While clauses of this kind can sometimes give rise to legitimate competition law concerns, it has nonetheless been recognised that a seller has a legitimate interest in prescribing or controlling the price at which the product will ultimately be sold on to the consumer. It does not on that account make the buyer an agent of the seller.
59. Further, supplier warranties and/or commissioning or ongoing service agreements exist without the supplier necessarily becoming the contracting party with the customer.
60. BHT’s entitlement to a fixed credit period is also inconsistent with an agency relationship. In circumstances where the contract would be between Unitherm and the customer, there would be no reason why the monies received by the agent would not be passed on immediately to the principal. Any agreement whereby the buyer is expressly or impliedly empowered to use the proceeds of sale for its own use would be inconsistent with such a relationship. Why should BHT be entitled to use Unitherm’s monies for its own benefits within a specific period?
61. While the High Court judge concluded that credit facilities of this nature also serve the purpose of allowing the purchaser to find a buyer before they need to pay the seller, in this instance, according to the evidence, it was the existence of a customer that led BHT to order the goods from Unitherm in the first place. Further, it would have been open to Unitherm to agree that payment by its agent would be deferred until such time as BHT had received the price of the goods from the customer, but that was not the nature of the clause provided. Accordingly, to my mind, the existence of the fixed credit period in the present case is inconsistent with the existence of a fiduciary relationship based upon agency.
62. While there was an obligation on BHT to keep the monies received in respect of the onward sale of Unitherm’s goods in a separate bank account, it never did so and the monies concerned were lodged to its trading account and used in the normal course of its business. Had the standard conditions of sale included a clause that the net proceeds of sale received by BHT had to be placed in a separate bank account and no credit facilities afforded to BHT, then, in the absence of all of the other evidence which points in favour of a normal debtor/creditor relationship, one might perhaps consider the possibility that BHT was acting as agent on behalf of Unitherm. However, the fact of the matter is that Unitherm queried the existence of this account for the first time on 7th March, 2012, in the course of the receivership and over six years after the parties had commenced their trading relationship. Further, over all of that period Unitherm had afforded BHT a sixty day credit period. Taken together, when added to all of the other indicators in favour of a normal debtor/creditor relationship, these facts are, in my view, inconsistent with the existence of an agency agreement.
63. However, even if the bank account had been set up in accordance with the standard conditions of sale, the clause required BHT to put all of the monies received, including its own, – call it commission or profit – into that account. On the face of it, the clause gives Unitherm a right to funds which belong to BHT, and this is inconsistent with the clause being in furtherance of an agency agreement. In Carroll, Murphy J. considered that such an arrangement had the characteristics of a charge made in favour of the seller given that it would be a fund to which it might have recourse for the discharge of the monies outstanding to it, even though it would not be entitled to the entirety of the monies in that fund.
64. Faced with the difficulty, Peart J. stated that he could imply a term into the clause which would confine BHT to the obligation to lodge into a separate account only that portion of the resale proceeds due to Unitherm. Such a term could, however, only be implied into the contract where it was necessary to give effect to the presumed intention of the parties.
65. Clause 11(b)(v) provides that “the proceeds of any such sale shall be held by the buyer on trust for the company”. Would an officious bystander, with knowledge of the business dealings between the parties and sight of the aforementioned clause, if asked about the agreement between the parties, have stated “Oh, of course” it was clear that the parties intended that only that portion of the proceeds of sale as reflected BHT’s liability to Unitherm should be placed in that account. The answer, I believe, is a resounding no. Neither is the imposition of an implied term necessary to give business efficacy to a relationship which, on the standard conditions of sale and the documentation as a whole as well as the manner in which the parties did business, is fully consistent with one of debtor and creditor.
66. The clause which he sought to imply into the standard terms and conditions was one that was in direct conflict with the words of the clause, which specifically provides that all proceeds of sale be lodged into the account. Further, there was no evidence that such a term reflected the true intention the parties, and it was in conflict with Unitherm’s own letter of 7th March, 2012, requiring that any monies collected for goods sold to third parties ought to be set aside for its benefit.
Trustee in possession
67. Rather belatedly in the course of the appeal hearing, having argued in favour of an agency relationship, counsel for the respondent sought to disengage somewhat with that argument in favour of a fiduciary relationship based on an assertion that BHT had sold Unitherm’s goods as trustee in possession, thus allowing Unitherm to claim that the proceeds of sale were held by BHT in trust on its behalf.
68. Critical to an analysis as to whether BHT might be considered to have sold to customers as trustee in possession is the answer to the question as to when and in what manner the title to Unitherm’s goods passed to the ultimate customer.
69. Of course, a seller such as Unitherm may agree with a buyer that it will reserve title or suspend the passing of title until such time as it receives payment for its goods. Title will pass in such circumstances when the parties intended to pass, as is provided for in s.17 of the Sale of Goods Act 1893 which provides as follows:-
“(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case.”
70. In this case, it is clear from clause 11 of the standard conditions of sale that it was agreed that, while Unitherm’s goods remained in BHT’s possession and at a time when they had not been paid for, the title to those goods remained with Unitherm. It was in these circumstances that Unitherm was paid €13,853.49 in the course of the liquidation as the goods concerned remained in BHT’s possession and for title to pass the purchase price had to be paid.
71. As to when and if title passes to the buyer, it becomes a more complicated question where the buyer is permitted to effect a sub-sale of the goods but the contractual terms maintain that title is nonetheless to remain with the seller. In this case, Unitherm permitted BHT to sell the goods. However, it sought to overcome the risk of non-payment by BHT by the inclusion of clause 11; whereby, it sought to retain title in respect of all goods supplied to BHT while any invoice remained un-discharged as well as a right to ownership of the proceeds of sale received by BHT in respect of the onward sale of the goods. In support of this provision, it also provided that the “proceeds of any such sale” would be held on trust for it by BHT. That it is possible to legally so provide is not in dispute. As Mc William J. stated in Frigoscandia (Contracting) Ltd. v. Continental Irish Meat Ltd. [1982] ILRM 396 at p.398:-
“The parties to a contract can agree to any terms they wish and, amongst others, they can agree that the property in the goods shall not pass to the purchaser until all the instalments of the purchase price have been paid. See McEntire v. Crossely Brothers, [1895)]AC 457 at 463; and s.17 of the Sale of Goods Act, 1893. The court has to decide what was the intention of the parties as shown by the provisions of the whole agreement.”
72. It has to be said that the intention of the parties is more easily determined in cases where, like in Frigoscandia, the Court was only concerned with ascertaining the true relationship between the seller and the buyer and where there has been no onward sale to a third party. However, there is now a significant body of case law in support of the proposition that, if the buyer, as was the position of BHT in the present case, is permitted to resell the goods, it is usual for it to do so on its own account unless there is very clear evidence to the contrary. If the buyer is truly selling on its own account, it has taken the legal and beneficial title in the goods from the seller by agreement. Accordingly, regardless of the use of words such as “trustee” or “fiduciary” in the conditions of sale, no fiduciary duty will be deemed to exist with the parties being considered to be in a relationship of debtor and creditor.
73. In general, most recent authorities have tended to treat “proceeds of sale” clauses as giving rise to charges which require registration and the courts have been reluctant to infer the existence of a fiduciary relationship between parties who, as Murphy J. described in Carroll, appear to be engaged in arms length commercial transactions as vendors and purchasers.
74. Counsel for Unitherm challenged the liquidator’s arguments that BHT had granted Unitherm a charge over the money it received from the sub-sale by reference to the decisions in Hickey, Romalpa and Armour and another v. Thyssen Edelstahlwerke A.G. [1991] B.C.L.C. 28 (“Armour”). I will deal with each of these in turn as I do not believe they provide adequate support sufficient to defeat the liquidator’s submissions.
75. In Hickey, the receiver of the company (the buyer) applied to the High Court for directions concerning the ownership of goods sold and delivered by the respondent to the company but for which it had not been paid. The contract contained a reservation of title clause stating that no property in the goods would pass until full payment had been received. Until then, the buyer was obliged to hold the goods on trust for the respondent in a manner which enabled them to be identified. The buyer was, as was the case with BHT, permitted in the normal course of business to sell the goods to a third party, in which case the proceeds of such sale were to be held by the buyer in trust for the respondent in a manner which enabled them to be identified as such. However, it is of vital significance to note that, at the time of the court application, the goods remained in the buyer’s possession and had not been the subject matter of resale to a third party.
76. The applicant maintained that the words “in trust” in the latter provision indicated that the legal estate in the goods had in fact passed to the buyer and that the only interest retained by the respondent was one by way of charge only.
77. Barron J. rejected that submission stating that he saw no reason why the seller could not impose a contractual term whereby the property in the goods sold would not pass until they had been paid for. In so doing, he referred to the judgment of McWilliam J. in Frigoscandia noted earlier in this judgment
78. He emphasised s.17 of the Sale of Goods Act 1893 and the right of the unpaid seller to protect himself, noting that there was nothing foreign to the law of the sale of goods in the seller seeking to postpone the date of the passing of the property in the goods agreed to be sold. He went on to conclude that there was nothing in the clause under consideration from which it could be inferred that the property had passed to the company and that it had assigned back an equitable interest in the goods by way of charge. The words “no property in any goods shall pass” had to be given their literal meaning.
79. In order for him to conclude that a charge had been created, the applicant would have to have been in a position to prove that all of the property had passed to the company and that it had assigned back to the respondent an equitable interest in the goods by way of charge so that, consequently, the respondent had no more than a charge in respect of the value of the goods supplied. However, this could not be established because the entirety of the property never passed by virtue of the retention of title clause. By way of contrast, in the present case this is what the liquidator alleges occurred, not in the course of the supply contract but at the time of the onward sale of Unitherms’s goods in the normal course of its business.
80. I view the decision in Hickey as of little value because, at the time of the application, the buyer still had the goods and had not sold them on to a third party, unlike in the present case were BHT has sold on the goods in the course of its own business. The Court did not have to concern itself with the nature of the relationship between the buyer and the seller in the context of the onward sale of the goods and the “proceeds of sale” clause. When Barron J. referred to the fact that no charge could be created where legal ownership never passed, he was doing so in the context of the retention of title clause and not the proceeds of sale clause. Accordingly, this judgment is entirely consistent with the position adopted by the liquidator in the present case. In respect of the retention of title clause, it has been accepted that Unitherm retained title over all goods for which it had not been paid whilst they remained in BHT’s possession. The liquidator never sought to make the case made by the receiver in Hickey, hence the payment to Unitherm of the sum of €13,853.49 in respect of such goods which remained in the possession of BHT, which had not been paid for as of the date of the liquidation.
81. As for Unitherm’s reliance upon the decision of the House of Lords in Armour, the same is misplaced as the decision is on all fours as that in Hickey. In that case, a German steel manufacturing company, the appellant, sold steel strips to a Scottish engineering company. The contract contained a standard reservation of title clause to the effect that title would not pass to the buyer until all debts had been paid. The Scottish company went into receivership while in possession of the appellant’s goods and for which goods payment had not been made. The receiver maintained that the company was the owner of the goods as it was entitled to take possession of them and sell them on. The receiver argued that the relevant clause had created a charge in favour of the seller but the property in the goods had passed to the Scottish company. The Court (Lord Keith disagreed on the basis that in order for the Scottish company to have created a security over the goods in favour of the appellant, it would have to have ownership and possession of the goods. However, the contract of sale said that property in goods was not to pass until all debts due had been paid. It was agreed that the company would receive possession but would not acquire the property until those debts were discharged. As the company had not paid for the goods and they were still in its possession, it had no interest of any kind to create a subordinate right in favour of the appellant.
82. This decision is of little import to the present case as at all times the liquidator has accepted that BHT had not acquired title to any of the goods which remained in its possession and which had not been paid for as of the date of liquidation, hence the payment of €13,853.49 discharged in respect of those goods. The decision does not in any way consider the consequences for the relationship between buyer and seller where the contract permits the buyer the right to sell on the goods to its own customers in the normal course of its business whilst providing that the proceeds of any such sale shall be held in trust by the buyer for the seller.
83. In Romalpa, a Dutch company sold aluminium foil to the defendant, an English company. Some of these goods were sold on to third parties. However, the terms and conditions of sale were different to those in the present case. There were two parts to the relevant clause in that case. The first was a straightforward retention of title clause which stated that title in the goods would only pass to the purchaser when it had met all of its outstanding liabilities to the plaintiff and that, until the date of payment, the purchaser would store its goods in such a way that they could be identified as being the property of the plaintiff. The second part of the clause was a complicated one which dealt only with the legal consequences for the parties in the event that the plaintiff’s goods became mixed with other goods and either remained upon the purchaser’s premises or were sold on to third parties. That clause specifically provided that, until the moment of full payment, the purchaser would remain the fiduciary owner of those goods notwithstanding its right to sell them on to third parties. The clause is indeed not unlike that contained at 11(b)(vi) of the standard conditions of sale in this case. Further, that second clause stated that until full payment was received the purchaser would keep the mixed goods in its capacity as fiduciary owner.
84. At the date of liquidation €35,000 was in the receiver’s possession referable to aluminium which had been sold on by the defendant to third parties. These were monies recovered by the receiver which he placed in a separate account. The defendant accepted that the effect of clause 13 was to make it bailee of the material supplied by the plaintiff until all debts were paid; but, once the goods had been resold, the receivers maintained that the relationship between the plaintiff and defendant was purely that of debtor and creditor and that, in the absence of an express constructive trust, the plaintiff was not entitled to avail of the equitable remedy of tracing.
85. Mocatta J., at first instance, held that the relevant clause showed an intention to create a fiduciary relationship between the parties and that the plaintiff was entitled to follow the proceeds of the sub-sale.
86. In dismissing the defendant’s appeal, the English Court of Appeal concluded that the purpose of the clause was to secure the plaintiff, in the event of insolvency, against the risk of non-payment after it had parted with the possession of, but not the legal title to, the material delivered. In order to give effect to that purpose, there had to be implied into the first part of the clause, in addition to the undoubted power to sell to a sub-purchaser, an obligation on the defendant to account in accordance with the normal fiduciary relationship of principal and agent, bailor and bailee, as expressly contemplated in the second part of the clause. Accordingly, the plaintiff was entitled to trace the proceeds of the sub-sales. The reason why such an implied term was introduced was that the clause in question made no mention of the rights of the parties in the event of the purchaser proceeding to resell the plaintiff’s goods in circumstances where they had not become mixed with other goods. Thus, it was decided to imply into the first part of the clause, which was no more than the standard retention of title clause which normally exists between seller and buyer, contractual obligations based upon the stated intention of the parties in the second half of the clause relating to the onward sale and/or control over mixed goods.
87. The decision in Romalpa clearly provides some support for Unitherm’s contention that clauses such as clause 11 of it’s standard conditions of sale can, depending upon the nature of the relationship between the buyer and the seller, contractually achieve a scenario whereby the equitable title to the goods at all times remains with the unpaid seller while the legal title passes to the buyer, who eventually holds the proceeds of onward sale in trust for the seller.
88. It is undoubtedly the case that the decision in Romalpa has not been favoured in recent times, and, certainly in this jurisdiction, it would appear to have been replaced by the remarkably clear and purposeful guidance giving by Murphy J. in Carroll as to how the nature of contractual relations should be determined. However, leaving that decision to one side for the moment, I am in any event convinced that Romalpa can be distinguished on its facts from the present case such that it should not be viewed as a relevant authority to guide the Court in this case.
89. The contractual arrangements between the parties in the two cases are significantly different. In Romalpa, the conditions of sale were entirely silent as to the purchaser’s right to resell goods which had not been mixed with other goods or otherwise engaged in a manufacturing process. There was no equivalent provision to that which is contained a clause 11(b)(v) of the present contract. The Court had to imply a term into the first part of the clause permitting the purchaser to sell the goods to third parties. The Court then had to decide upon the nature of the relationship between the parties at the time of the onward sale of the goods and the rights which flowed as a result of that conclusion. The Court determined the nature of the relationship between the seller and the purchaser at the time of the onward sale by reference to the expressed intention of the parties in relation to the onward sale of mixed goods. Given the ongoing fiduciary duty expressed to exist in respect of those goods in the second part of the clause, this duty was imported into the first part of the clause and as a result the Court concluded that the buyer and seller were in a fiduciary relationship for the purposes of the onward sale of the defendant’s goods. Roskill L.J. concluded that the buyer, when it sold on the plaintiff’s tinfoil, did so with its implied authority, as its agent, and remained fully accountable to it.
90. In stark contrast to those facts, clause 11(b)(v) of Unitherm’s standard conditions of sale specifically provide for the onward sale of non-mixed goods. There is nothing in that clause stating that ownership of the goods remains with the seller notwithstanding the right of BHT to sell them on to its own customers. Further, the clause states that BHT will sell the goods on in the normal course of its own business. Unlike in Romalpa, it does not state that BHT at that point holds the goods or sells them in its capacity as a fiduciary and, in my view, BHT cannot, on the facts of this case, be considered to have been acting as agent for Unitherm for the reasons already referred to earlier in this judgment. I am quite satisfied that this clause was never intended to provide a basis upon which Unitherm might maintain that BHT was selling in a fiduciary capacity either as trustee in possession or as agent on Unitherm’s behalf.
91. The cases are also different insofar as the receiver, in Romalpa, unlike the liquidator in the present case, did not argue in favour of the creation of a charge which was void for want of registration. In my view, it is likely that this argument was not advanced because there was no “proceeds of sale clause” covering the onward sale of non-mixed goods to the defendant’s customers. That being so, there was no clause to construe as one which might potentially be viewed as creating a charge requiring registration.
92. A third point of difference between the two cases is the fact that, in Romalpa, the receiver had placed the proceeds of sale in a separate account such that they had never been mixed with any other monies; whereas, in the present case, the monies received from the sub-sales had been mixed and used by BHT in the normal course of its business, a factor which the liquidator maintains is material to establishing the true nature of the relationship between the parties.
93. As was pointed out by counsel on behalf of the appellant, there have been a great number of decisions since Romalpa which have cast doubt upon the approach taken by the Court in that case, which paid little attention to the manner in which the parties actually conducted their business. The court must look carefully, as was advised by Murphy J. in Carroll, at the particular circumstances of the case to identify the rights intended to be given to the seller, and, when those are examined thoroughly, it is usually clear that the Buyer, in return for the right to sell the goods on to its own customers, has granted to the seller a charge over the monies received in respect of their onward sale.
94. McCann and Courtney, Companies Acts 1963-2009, (Dublin, 2010) in dealing with proceeds of sale clauses in the context of s.99 of the Companies Act 1963 provide the following helpful commentary:
“Proceeds of sale clause: In some cases it has been held that a clause which purports to retain the proceeds of a sub-sale of goods until the purchase price has been paid, will not be regarded as a registerable charge provided that it satisfies all or some of the following criteria:
(a) it expressly creates a fiduciary relationship between the seller and the buyer;
(b) it stipulates that in any sub-sale the buyer is to be regarded as acting for and on behalf of the seller;
(c) it imposes a duty on the buyer to keep the proceeds of any sub-sale separate from the buyer’s other moneys; and
(d) it requires the buyer to account for such proceeds to the seller.”
95. Most recent decisions, as is stated by the aforementioned authors, have leaned against the view that a clause in the above terms is successful in retaining title such as to entitle the seller to trace monies received by the purchaser following the resale of the goods. The greatest indicator in favour of title passing to the purchaser, regardless of the existence of a retention of title clause, is an agreement between the parties that the purchaser may sell on the goods in the course of its own business, an undisputed right of BHT in the present proceedings. If, on the one hand, Unitherm had retained full legal and beneficial title to the goods, the Court could not find that BHT had created a charge on the goods in favour of Unitherm as it is not legally possible for the buyer to charge in favour of the seller a title or interest which the buyer has not got. On the other hand, if on the true construction of the agreement the legal title to the goods has passed from the seller to the buyer, the Court may conclude that the legal consequences of the agreement is that the position of the seller is in fact secured by a charge created in his favour over the goods by the buyer.
96. Accordingly, the fact that BHT was specifically permitted to sell on the goods in the course of its own business is a strong indication that it was not acting as a fiduciary on Unitherm’s behalf.
97. Looking at clause 11(b)(v), can it realistically be argued that BHT sold Unitherm’s goods as trustee in possession? This is not what the clause states. To the contrary, clause 11(b)(v) specifically provides that the buyer is entitled to sell the goods to third parties in the normal course of the “buyer’s business”. These are standard terms and conditions imposed by Unitherm on all of its customers. The condition permits each such “buyer” to sell to its customers in the manner which is normal for it when dealing with its customers. Indeed, the use of the words “buyer” and the “sale of goods to third parties” would tend to support the liquidator’s submission that title to the goods passed to BHT with the seller’s agreement when it effected the sub-sale of those goods to its customers. That this is correct seems to be borne out by the final element of clause 11(b)(v); whereby, BHT, following the sale to the customer, was deemed to have assigned to Unitherm the benefit of any claim which it might have against the customer arising from such sale.
98. Another factor which tends to favour a conclusion that the buyer is providing security to the seller in respect of its unpaid account by way of a charge is a clause which provides that the totality of the monies received from the sub-sale of the goods should be kept in a separate account on an alleged “trust”. This is so because the purchaser is only obliged to account to the seller for the monies in that account to the extent of the sum remaining due to the seller. The only monies that could be held on trust are those that represent the seller’s interest in those goods. It is for this reason that clauses of this type and nature have been deemed to have the characteristics of a charge over the monies placed in such an account; the same having been granted by the buyer in return for the proprietary interest in the goods which, up to the point of re-sale, had remained with the seller. This is precisely the nature of the security which was afforded to Unitherm by BHT under clause 11(b)(v). In my view, the fact that Unitherm required BHT to hold the entirety of the sum received following the resale of the goods is consistent with the liquidator’s submission that the clause created a charge in favour of Unitherm over those monies in respect of the sums then outstanding.
99. A clause similar to that in the present case was considered by Mummery J. in Compaq Computer Ltd v. Abercorn Group Ltd [1993] B.C.L.C. 602. There, the seller required the buyer to account for the full proceeds of the resale of its goods. The Court took the view that the seller was not entitled to retain out of the proceeds more than what was sufficient to discharge the unpaid price of the goods. The seller’s right accordingly amounted to a limited interest in the proceeds by way of security.
100. While it is true to say that in the present case clause 11 requires that the monies received by BHT be placed in a separate account, a feature often considered to support the existence of a fiduciary duty, such an account was never opened. Further, at no stage prior to the receivership had Unitherm sought to establish that any such account existed or that the proceeds received in respect of the resale of its goods were directed to that account. However, even if this account had been established, insofar as it was intended to ring fence 100% of the proceeds recovered on the resale of the goods, the clause would not have been consistent with BHT holding the monies as a fiduciary on Unitherm’s behalf for the reasons just stated. The existence of the clause is not inconsistent with an agreement that Unitherm should have a charge over the monies received to secure repayment of any monies that remain outstanding.
101. Some assistance in this regard is to be found in the decision of Phillips J. in E. Pfeiffer Weinkellerei-Weineinkauf G.m.b.H. & Co. v. Arbuthnot Factors Ltd [1988] 1 W.L.R. 150. There the plaintiff, a German wine exporter, sold wine to an English importer on terms that included a property reservation clause which provided that the goods remained the plaintiff’s property until they had been paid for, but which permitted the importer to sell the goods in the meantime. The conditions of sale were not materially dissimilar to those in the present case in that the rights of the importer arising from the onward sale were to vest in the plaintiff and the monies received from the onward cash sale of the wine, which was stated to become the plaintiff’s money once received, was to be separated from other monies held by the importer. The importer failed to pay the plaintiff for all sums due, and the plaintiff brought an action claiming beneficial ownership of the funds referable to each sub-sale. The importer had entered into a factoring agreement pursuant to which it had assigned to the defendant, absolutely, the debts which it was owed from sub-purchasers and had warranted that “no reservation of title by any third party would apply to all or any part of the goods sold.” The plaintiff, in its action, claimed to be the beneficial owner of the proceeds of each sub-sale that had been entered into by the importer and that the defendant’s title to the debts assigned under the factoring agreement was subordinate to its prior equitable title. It accordingly sought an order that the defendant account to it for the monies received under the assignments made pursuant to the factoring agreement. In its defence, the defendant claimed that any interest which the plaintiff had over the proceeds of the sub-sales was in the nature of a charge on the importer’s property which was void for want of registration against the defendant under the provisions of the Companies Act 1948.
102. In his judgment, Phillips J. stated that, where a buyer was permitted to sell on a suppliers goods in the normal course of his business before paying the seller for them, the normal implication was that he was doing so for his own account and not as a fiduciary who was obliged to account to the seller for all the proceeds of sale; that the “property reservation clause” set out comprehensively the nature of the interest which the plaintiff was to have by way of security in respect of debts created by sub-sales; and that its terms were inconsistent with the existence of such a fiduciary relationship. Further, he held that the clause in question had created an equitable assignment in favour of the plaintiff over the monies owed by the sub-purchaser to the importer up to the amount of any outstanding indebtedness of the importer to the plaintiff and that this constituted a charge requiring registration under s.95 of the Companies Act 1948 (i.e., the equivalent of our s. 99 of the 1963 Act).
103. Another factor which has been deemed to be a strong indicator against the existence of a fiduciary relationship is an agreement whereby the purchaser is provided with a period of credit. Re Andrabell Ltd. [1984] 3 All E.R. 407 is a decision on point. There, the plaintiff supplied travel bags to a company on terms which provided that ownership of the goods would not pass until such time as the total purchase price had been paid to the plaintiff. The buyer was afforded 45 days credit. The bags were sold by the buyer in the normal course of its business, and the proceeds of sale were paid into its general bank account where they became mixed with monies belonging to the company. The buyer went into liquidation, and the plaintiff contended that, since the bags had not been paid for, the Court should conclude that the bags had been delivered to the buyer under a contract of bailment which had an implied term that the buyer was to account to the plaintiff in respect of the proceeds of sale of the bags in accordance with the normal fiduciary relationship of bailor and bailee.
104. While the facts in Andrabell were somewhat different from those in this case, insofar as Unitherm’s standard conditions of sale did specify that the monies received in respect of the onward sale of the goods would be placed in a separate account and that a fiduciary relationship was deemed to exist between the parties, the decision is nonetheless of assistance. In concluding that the parties were not in a fiduciary relationship, the Court emphasised that the company was not selling as agent for the plaintiff or on the plaintiff’s account and it was to be inferred from the fixed 45 day period of credit that the company was free during that period to use the proceeds received from the sale of the bags as it liked and that was not compatible with the plaintiff having an interest in the proceeds of sale.
105. The question I have to ask myself is whether the parties agreed that BHT would be trustee of the proceeds of sale. In that regard, in order for the seller to be entitled to the type of proprietary interest in the proceeds of sale as is contended for by Unitherm, the legal title to the proceeds of sale must vest in the buyer while their beneficial ownership vests in the seller. However, if the buyer is expressly or impliedly empowered to use the proceeds of sale as its own money, then it will not be considered to be a trustee of the proceeds but will be deemed to be in a normal creditor-debtor relationship with the seller.
106. In the present case, a 60 day period of credit was afforded to BHT to discharge its liabilities to Unitherm. That facility was agreed further to a letter of Mr. Declan Kissane dated 9th March, 2007, written on Unitherm’s behalf. It must be inferred from such a facility that Unitherm was content that BHT could use monies received by it in respect of the resale of Unitherm’s goods as it wished during the credit period to support its day-to-day commercial operations. If it were otherwise, how would BHT manage its day-to-day finance? Would it not face an acute cash flow problem?
107. I do, of course, recognise that, in terms of deciding upon the nature of the relationship between BHT and Unitherm, regard can only be had to business efficacy against the backdrop of the contractual provisions agreed to and, where there are obvious competing considerations, the question must be answered in light of what both parties agreed to rather than on a unilateral view taken from the point of view of the buyer. That said, however, for reasons earlier stated in this judgment, I do not believe it can realistically be inferred that the credit period in this case may have been agreed so that BHT could source a customer and conclude a sale after which it would hold the monies received exclusively in trust for Unitherm until the end of the sixty day period. Such an agreement would make no commercial sense. If the monies received from the sub-sale were intended to replace Unitherm’s prior interest in the goods, why did the clause not provide for immediate payment of monies received by BHT in respect of the onward sale of those goods, given that BHT as trustee thereof would not have been entitled to use the money for its own purposes during the remaining period of credit?
108. Accordingly, I am of the view that the terms of credit are completely at odds with Unitherm’s contention that BHT sold its goods as trustee in possession such that it was intended that it would hold the proceeds of sale on trust on its behalf.
Conclusions
109. In conclusion, clause 11 of Unitherm’s standard conditions of sale, that being the foundation stone upon which its claim is based, was clearly designed with the objective of securing its interests, so far as was possible, against the risk of non-payment after it had parted possession with its goods to any of its customers such as BHT.
110. It is accepted that the retention of title clause in the conditions of sale operated between Unitherm and BHT as intended in relation to the supply contract. It is clear from those conditions and from the manner in which the parties traded that while Unitherm’s goods remained in BHT’s possession and payment therefore remained outstanding, title did not pass and was not intended to pass, hence the payment of €13,853.49 to Unitherm in respect of goods which fell into that category in the course of the liquidation.
111. As to the proceeds of sale clause and the relationship between the parties when BHT sold Unitherm’s goods to its customers, I am satisfied that the relationship at that stage was always intended to be one of creditor and debtor. The parties did not intend that BHT would act as fiduciary on behalf of Unitherm either as its agent or as bailee in possession of its goods with a power of sale.
112. As to agency, in my view, the High Court judge was wrong in concluding that the evidence supported a finding that the parties had entered into such a relationship. Such a relationship is not evidenced in the standard conditions of sale, the documentation concerning the supply contract, or the contracts for the resale of the goods, or by the conduct of the parties themselves.
113. As to a fiduciary relationship built upon a relationship of bailment, a relationship not considered by the High Court judge, I can find no evidence to support a conclusion that the parties intended that BHT would sell Unitherm’s goods as bailee in possession. Again, this relationship is not to be found in the terms and conditions of sale, the contractual provisions, the trading documentation, or the manner in which the parties conducted their business.
114. Against such a finding are:-
(i) BHT’s right to sell to it’s customers in the course of its own business;
(ii) credit terms of 60 days;
(iii) the standard conditions of sale which sought to impress the entirety of the purchase monies received, including BHT’s profit margin, with a trust, the latter being monies to which it had no legal or beneficial entitlement;
(iv) the fact that no separate account was ever created for the purchase monies; and
(v) the “all sums due” nature of the retention of title clause.
All of these are characteristics of a charge made in favour of the seller over a fund to which it might have recourse for the discharge of any monies outstanding.
115. Regardless of some differences in the underlying facts between the two cases, I am satisfied that the transaction whereby BHT sold Unitherm’s products to its customers was in substance the same as that with which the Court was concerned in Carroll. In this regard, I differ with respect from the conclusion reached by Peart J. in the High Court. That being so, I am satisfied that in substitution for the right of property which Unitherm had enjoyed in its goods until the point in time when BHT proceeded to resell them, BHT granted to Unitherm a charge in its favour over the proceeds of sale of those goods. That charge was one which required registration under s. 99 of the Companies Act 1963, and in the absence of such registration is invalid and void as against the liquidator.
116. Accordingly, for my part, I would allow the appeal.
Irish Pharmaceutical Union & ors -v- Minister for Health and Children & ors
[2010] IESC 23 (29 April 2010)
Murray C.J., Denham J., Hardiman J., Geoghegan J.
Outcome: Allow And Set Aside
THE SUPREME COURT
Chief Justice [S.C. No. 298 of 2007]
Denham, J.
Hardiman, J.
Geoghegan, J.
Macken, J.
BETWEEN
JUDGMENT delivered on the 29th day of April, 2010 by Macken, J.
This is an appeal from the judgment of the High Court (Clarke, J.) delivered on 29th June, 2007. Within the context of the several claims originally made by the plaintiffs, but which were limited during the oral hearing, the High Court was called upon to examine the nature of several agreements between the IPU and the Minister, and between the individual pharmacists and Health Boards, in relation to the operation of a scheme providing for payments to pharmacists for the dispensing of medicines to members of the public. By his judgment the learned High Court judge found that under the terms of their contracts the second to sixth named plaintiffs were entitled to advance payments in respect of those services, and that the Minister had, by unilaterally withdrawing these, breached the terms of the plaintiffs’ contracts with the Health Boards. Declaratory orders were made in consequence thereof. I will return to the nature of those orders in due course. The learned High Court judge also found that no contractual relationship existed between the IPU and the Minister under the 1996 agreement entered into between them, and dismissed that claim on the part of the IPU.
The Background to the Claim
There is a very clear and detailed exposé of the background facts in the High Court judgment. It is, however, essential for a proper understanding of this appeal to set out a brief recital of the relevant facts which are as follows;
(a) A particular type of pharmacy service was introduced as far back as 1971 through the General Medical Services Scheme (“the GMS Scheme”). The initial standard contract for the provision of those services was entitled “Agreement with Pharmacists for Provision of Services under Section 59(1) of the Health Act 1970”. This agreement (“the 1971 pharmacy contract”) was made between each individual pharmacist interested in being involved in providing the service, and the individual Health Board in whose Health Board area a pharmacist operated at the time. That agreement made no reference to the provision of advance payments to pharmacists in respect of services being provided.
(b) Separate from and in advance of the execution of those individual contracts, a Memorandum of Agreement was drawn up, the content of which was agreed between the first named plaintiff (“the IPU”) on the one hand, and the Minister on the other hand, which memorandum was entitled “Proposed Arrangements” (“the 1971 Memorandum”). There is a reference in the 1971 Memorandum to the making of advance payments, which I will return to in due course.
(c) In 1996, in place of the existing 1971 pharmacy contract as then operating between individual pharmacists and the Health Boards, a new Community Pharmacy Contract Agreement (“the 1996 pharmacy contract”) was entered into by pharmacists with the Health Boards. The functions of the Health Boards have since been taken over by the Health Service Executive (“the HSE”). Neither the Health Boards nor the HSE is a party to the proceedings.
(d) This 1996 pharmacy contract was also preceded by a Memorandum of Agreement (“the 1996 Memorandum”) negotiated between the IPU and the Minister, to which the new standard form 1996 pharmacy contract was exhibited.
Neither 1996 document expressly refers to any advance payments. Evidence was given in the High Court that it was intended that both the 1996 pharmacy contract and the 1996 Memorandum would replace the 1971 pharmacy contract and the 1971 Memorandum.
It is against that background, combined with the legal effects of the foregoing documents, that the learned High Court judge made his decision, and from whose judgment of the 29th June, 2007 and the Order made thereon the appellants appeal.
The Proceedings
In essence, the individual plaintiffs in the proceedings contended that advance payments formed a term in the pharmacy contracts entered into between them and the Health Boards, because they constituted arrangements entered into between the IPU and the Minister, “arrangements” which were referred to in the 1971 Memorandum and, by reason of the terms of Clause 19(3) of the 1996 pharmacy contract, those arrangements had continued to exist and were part of the 1996 pharmacy contract.
The appellants (as defendants in the proceedings) contended that while provision had been made in 1971 for advance payments, and these were paid, they were administrative arrangements, which could be terminated by the Minister at any time, as the Minister lawfully did in 2002. They argued, and it was conceded by the respondents, that neither the 1971 pharmacy contract, nor the subsequent 1996 pharmacy contract which replaced it, contained any express reference to any advance payments. They also argued that, leaving aside the nature of any advance payment arrangements, the only reference to them was in the 1971 Memorandum. Such arrangements referred to in the 1971 Memorandum had never formed any part of the terms and conditions of either the 1971 pharmacy contract or the 1996 pharmacy contract which replaced it, and was not introduced into the 1996 Memorandum. There was, moreover, no privity of contract between the Minister and the individual plaintiff pharmacists. Finally, it was submitted that since the decision of the Minister was a matter of policy for him or her to determine, judicial review was the appropriate remedy, but the plaintiffs had delayed unduly in commencing any proceedings and were also, for that reason, disentitled to relief.
The Judgment
In his judgment, with much of which I am in agreement, the learned High Court judge approached the matter of advance payments by considering the four separate agreements or contracts mentioned above. He found that while originally the legal entitlement of both the IPU and the individual pharmacists was pleaded on a number of bases, at the hearing it had been made clear, in particular by the plaintiffs/respondents, that the only claim being pursued was a contractual one. It was necessary, therefore, to analyse the nature and extent of the relevant contractual relations between the parties, and construe the relevant documentation, any claim based on legitimate expectations having been expressly abandoned. The learned High Court judge identified four contractual issues which required to be considered, which, in substance, are:
(1) Whether the 1996 Memorandum constitutes a legal contract.
(2) If the 1996 Memorandum is found to create contractual relations, questions of construction arise as to the terms of that agreement.
(3) Some of those issues of construction involve the interaction between the Memorandum and the pharmacy contract.
(4) Questions of construction arise in relation to the pharmacy contracts themselves.
The first of the various arrangements entered into was the 1971 Memorandum. That agreement, he found, provided an express basis on which pharmacists would be paid an advance fee for the provision of free medicine by the relevant Health Board.
Shortly after that arrangement was entered into, the 1971 pharmacy contract was entered into between each individual pharmacist and the relevant Health Board at the time. As mentioned earlier, the functions originally exercised by Health Boards, were subsequently taken over by the Health Service Executive (“the HSE”). The learned High Court judge found no express reference to advance payments in the 1971 pharmacy contract. He found, however, that in the period subsequent to the aforesaid 1971 Memorandum and during the existence of the 1971 pharmacy contracts, advance payments were, in fact, made to the pharmacists by the Health Boards.
The 1996 Memorandum between the IPU and the Minister was then considered. Attached to the 1996 Memorandum was the proposed 1996 pharmacy contract to be entered into between the individual pharmacists and the relevant Health Boards. The learned High Court judge found no reference in the 1996 Memorandum to advance payments or to any agreement or arrangement in respect of the same.
The 1996 pharmacy contract was thereafter entered into by individual pharmacists and the Health Boards. The learned High Court judge found that the new 1996 pharmacy contract “replaced the original 1971 version and is a more detailed document”. As with its 1971 predecessor, the 1996 pharmacy contract made no express reference to advance payments. In the 1996 pharmacy contract, however, the following Clause 19(3) was included:
“This agreement is to be construed as contingent upon the terms agreed or to be agreed between the Minister and the Pharmaceutical Contractors’ Committee (which operated within the Irish Pharmaceutical Union) regarding arrangements for the provision of pharmaceutical services under the provisions of the Health Act 1970. The pharmacy contractor and the Board agree that any changes in the terms of such arrangements which may be agreed between the Minister and the Pharmaceutical Contractors’ Committee, shall be incorporated into this agreement and the terms of this agreement shall be construed accordingly, following the issue of a notification of such agreed changes by the Minister”.
In deciding the nature of the various agreements between the various parties, the learned High Court judge first addressed the two IPU/Minister Memoranda of 1971 and 1996. He likened these general agreements to those entered into at the end of a collective bargaining process by a trade union on behalf of its members, finding that the IPU was “acting in a way closely analogous to a trade union negotiating on behalf of its members”. He went on to find as follows:
“… In those circumstances it will not normally be the case that a contract between the trade union and the employer concerned will come into existence. Rather the trade union will enter into an agreement on behalf of its members which may, if appropriate, become incorporated into the terms and conditions of the individual contracts of employment of those members.”
It followed, therefore, he found, that although the 1971 Memorandum mentioned an advance payments scheme, it was an agreement which did not either create contractual relations or give rise to contractual obligations as between the IPU and the Minister. The same he found was true of the 1996 Memorandum. He considered, however, that notwithstanding the absence of any contractual relationship, it was nevertheless necessary to consider how the terms of the pharmacy contracts between the individual pharmacists and the Health Boards were affected, if at all, by the content of those two Memoranda.
The learned High Court judge then turned to consider the 1971 and 1996 pharmacy contracts, having regard to his findings in relation to the two general Memoranda. Given that the 1971 pharmacy contract was no longer operative, as he had found it was replaced by that of 1996, focus concentrated on the 1996 pharmacy contract. The learned High Court judge noted that Clause 19(3) of the 1996 pharmacy contract, the terms of which have been set out above, provide that the contract between the Health Board and the individual pharmacist was “to be construed as contingent upon the terms agreed or to be agreed between the Minster and the Pharmaceutical Contractors’ Committee (operating within the IPU) regarding arrangements for the provision of pharmaceutical services under the provisions of the Health Act, 1970.” He concluded that the making of advance payments fell within the meaning of “an arrangement for the provision of pharmaceutical services”. The learned High Court judge further found that while the central purpose of Clause 19(3) appeared to be designed to ensure that “any future agreement” entered into between the Minister and the PCC should be automatically incorporated into the individual contracts, it was, nevertheless, necessary to give some meaning to the phrase “terms agreed” in addition to “terms to be agreed”. Having considered the appropriate meaning to be attached to the phrase “terms to be agreed” he then stated:
“It seems to me that clause 19(3) therefore, as a matter of construction, necessarily imports into the individual contractual relations between individual pharmacists and Health Boards, all previous agreements entered into between the Minister and the PCC, at least to the extent that those agreements continued to subsist as of 1996.
Those agreements included the original arrangements entered into in 1971 in respect of advance payments as modified over the years by subsequent agreements.” (emphasis added)
The learned High Court judge considered that he was reinforced in his view of the meaning of “terms agreed” by the fact that:
“Both before and after the adoption of the 1996 form of individual agreement, the evidence suggests that it was common practice for Health Boards to issue documentation which seems to me to be only consistent with a recognition that the making of advance payments was part of the contractual arrangements between those parties.”
The learned High Court judge also outlined what he considered to be a unique feature of the pharmacy contracts. This was that, although these had been concluded between individual pharmacists and the respective Health Boards, it was the Minister who had decided to cease operation of the advance payments scheme. According to the learned High Court judge, the Minister had a special role under the pharmacy contracts which he found was clear from the language of Clause 19(5) of the 1996 pharmacy contract, which reads as follows:
“The terms and conditions of this agreement between the Pharmaceutical Contractors’ Committee (operating within the Pharmaceutical Union) and the Minister may be subject to review after a period of five years. In default of agreement on any such review, the matters of disagreement shall be subject to mediation and recommendation by a third party appointed by the Minister following consultation with the Pharmaceutical Contractors’ Committee. Any alterations to the agreement between the Minister and the Pharmaceutical Contractors’ Committee arising from the review provided for in this clause, shall be incorporated into this agreement and the terms of this agreement shall be construed accordingly, following the issue of a notification of such agreed changes by the Minister. The terms and conditions of this agreement may also be extended for specified periods with the agreement of the Minister and the Pharmaceutical Contractors’ Committee.”
Reference to the “this agreement” in the first sentence of this Clause was found by the learned High Court judge to apply to the 1996 Memorandum between the Minister and the IPU and not to the pharmacy contract itself in which Clause 19(5) is contained. This led, he found, to the unusual situation where the Minister was the person who had the power, on the State side, to vary terms in the pharmacy contracts. In the present proceedings the Minister had sought, unilaterally, to remove the advance payment scheme from the individual contracts, a scheme which the learned High Court judge found constituted one of the entitlements of the individual pharmacists pursuant to the terms of the 1996 pharmacy contract.
In consequence, the learned High Court judge found that under the 1996 pharmacy contract, the individual plaintiff pharmacists were entitled to an advance payment in accordance with “terms agreed” between the Minister and the IPU, including those concerning advance payments found in the 1971 Memorandum, in the format operating as of 1996. For the reasons given, the individual pharmacists were contractually entitled to monies paid under the advance payments scheme, the terms of which the Minister could not unilaterally alter.
The learned High Court judge confined his orders to the declarations mentioned above and made a declaration accordingly. He reiterated that neither general agreement between the IPU and the Minister was enforceable contractually.
The Notice of Appeal
By a Notice of Appeal dated the 30th October, 2007, the appellants appealed from the judgment of the High Court delivered on the 29th June, 2007 and the Order of the 26th July, 2007 (as perfected on the 11th October, 2007). By that appeal the appellants claimed that the learned High Court judge had, in substance, misdirected himself in law in the following respects:
1. In concluding that the terms of agreements between the IPU and the Minister, which did not have contractual effect, became incorporated into contractually binding agreements between individual pharmacists and the Health Boards.
2. In concluding that the Minister’s decision to terminate advance payments constituted a unilateral and unlawful variation of the terms of contracts made between the individual pharmacists and the Health Boards in circumstances where the court had concluded that the 1971 Memorandum, which had provided for the making of advance payments, did not have contractual force.
3. In holding that the individual plaintiffs were entitled to seek, in proceedings against the Minister, orders relating to the status of agreements reached between the IPU and the Minister, where:
(a) the learned trial judge had acknowledged in his judgment that “the only claim being pursued (by each of the plaintiffs) was one based in contract”;
(b) the IPU is not a party to the pharmacy contracts concluded by the individual pharmacists with Health Boards; and
(c) the HSE was not a party to the proceedings.
4. In holding that the agreements between the IPU and the Minister, which the learned High Court judge held were imported to the 1996 pharmacy contracts (by virtue of Clause 19(3) of the 1996 Standard Agreement), included “the original arrangements entered into in 1971 in respect of advance payments as modified over the years by subsequent agreements”.
5. In concluding that the individual plaintiffs were entitled to rely on the terms of their 1996 pharmacy contracts, as against the Minister, when the Minister was not a party to those contracts.
6. In finding, on the one hand, that neither the 1971 nor 1996 Memorandum amounted to a legally enforceable contract, while, on the other hand, holding that a term in the 1971 Memorandum became incorporated into the 1996 pharmacy contract between the individual plaintiffs and the HSE.
7. In concluding that the provisions for advance payments contained in the 1971 Memorandum constituted a “term agreed” within the meaning of Clause 19(3) of the 1996 pharmacy contract.
8. In concluding that Clause 19(3) of the 1996 pharmacy contract “necessarily imports” all previous agreements entered into between the IPU and the Minister, to the extent that the same continued to subsist as of 1996, where:
(i) Neither the 1971 nor the 1996 Memorandum constituted legally enforceable contracts or gave rise to contractual obligations for either the IPU or the Minister;
(ii) Neither the 1971 nor the 1996 pharmacy contract made any express reference to advance payments;
(iii) Although the 1971 Memorandum contained a reference to advance payments, the 1996 Memorandum between the same parties contained no such reference.
9. In concluding that advance payments remained a “term agreed” between the Minister and the IPU as of 1996 where:
(i) The 1996 Memorandum followed a complete renegotiation of the 1971 arrangement;
(ii) The 1996 Memorandum was intended to replace the 1971 Memorandum; and
(iii) The 1996 Memorandum made no reference whatsoever to advance payments.
10. In concluding that individual pharmacists are entitled to raise issues concerning their contractual relations with the HSE in proceedings against the Minister.
11. In concluding that the 1996 Memorandum contains an “indirect reference to advance payments”, by virtue of the reference therein to the 1996 pharmacy contract, in circumstances where the pharmacy contract does not contain any direct reference to advance payments.
12. In finding that the plaintiffs were not guilty of delay in bringing the within proceedings in circumstances where the learned trial judge accepted that “from a very early stage, the Minister made it clear that in her view the decision was a Government decision and could not be changed”.
13. In failing to award costs against the IPU, that plaintiff having been wholly unsuccessful in its claim, and instead awarding costs to that plaintiff against the defendants.
Written submissions were filed on behalf of the appellants and on behalf of the respondents, which have been of considerable assistance in the appeal.
The Appeal
At the outset it should be noted that the appeal is brought on behalf of the Minister. No appeal is brought on behalf of the IPU against the finding of the High Court judge on its claim, the IPU having been unsuccessful in its claim contract against the appellants.
The Argument of the Parties
Having regard to the judgment and the issues as identified by the learned High Court judge, the parties divide their submissions, both written and oral, into certain discrete areas covering: the contract law issue, the privity of contract issue and the public law issue. I propose in this judgment to follow the same approach by commencing with the contract law issue.
The Contract Law Issue
While the appellants are clearly in agreement with some of the judgment and with the legal findings of the learned High Court judge flowing therefrom, they nevertheless challenge the application of his conclusions, both factual and legal, to the particular facts of the present case.
As to his conclusions on the nature and legal effect of the 1971 and 1996 Memoranda, in his judgment the learned High Court judge found:
“In those circumstances I am not satisfied that the 1971 memorandum of agreement, read as a whole, and having regard to the sort of matters agreed in it, can be said amount to the type of arrangement which can create contractual relations.
For the same reasons I am not satisfied that the 1996 agreement can be construed as giving rise to contractual obligations.”
According to the appellants, the basis for these findings was that the learned High Court judge found that, in negotiating with the Minister, the IPU was engaged in a process akin to collective bargaining by a trade union. He stated:
“(IPU) was, in my view, acting in a way closely analogous to a trade union negotiating on behalf of its members. In those circumstances it will not normally be the case that a contract between the trade union and the employer concerned will come into existence. Rather the trade union will enter into an agreement on behalf of its members which may, if appropriate, become incorporated into the terms and conditions of the individual contracts of employment of those members.”
Mr. Sreenan, senior counsel for the appellants submit that the learned High Court judge was correct in finding that no contractual relations were, or could be, created by the Memoranda of 1971 and 1996. However, he argues that the learned High Court judge was incorrect in law in proceeding nevertheless to conclude, as he did, that, although no contractual relations were created, the terms of the 1971 Memorandum, nevertheless, became incorporated into the 1996 individual pharmacy contracts.
The appellants argue that having found – correctly – that neither the 1971 Memorandum nor the 1996 Memorandum created any contractual relations or imposed any contractual obligations, the learned High Court judge had been nevertheless motivated, incorrectly and erroneously in law, from the collective bargaining type process he found to exist, to conclude that the terms of the 1971 Memorandum became incorporated into the pharmacy contracts, and that this was without any basis in law.
The appellants invoked a range of case law in support of its contention that the learned High Court judge was wrong in finding that the outcome of the process leading to the 1996 Memorandum, even if that process was analogous to collective bargaining, could in any way bind the parties to the individual contracts. They point out that no authority was cited on behalf of the respondents to support the proposition that it could. Further, they submit that the far reaching proposition that the terms of the 1971 Memorandum could bind third parties, that is to say the individual pharmacists and the Health Boards, is also unsupported by any authority. They rely, in particular, on authority in this jurisdiction, that positive steps to achieve such an objective would have to be taken by the parties to the pharmacy contracts in order for any such objective to be met. They submit that no support, of the type invoked by the learned High Court judge, could as a matter of proper construction be found in the phrase “terms agreed or to be agreed between the Minister and the Pharmacy Contractors Committee” in Clause 19(3) of the 1996 pharmacy contract, so as to incorporate into that contract, any terms of the 1971 Memorandum. It will be recalled that the learned High Court judge stated:
“It seems to me that clause 19(3) therefore, as a matter of construction, necessarily imports into the individual contractual relations between individual pharmacists and Health Boards, all previous agreements entered into between the Minister and the PCC, at least to the extent that those agreements continued to subsist as of 1996.” (emphasis added)
The appellants contend that this statement overlooks several important matters, including the following:
(a) The fact that a new Memorandum had been entered into in 1996 between the Minister and the IPU that was clearly intended by the parties to vary, or replace, the pre-existing 1971 Memorandum. This was supported by evidence before the Court. This evidence of the parties’ intention to terminate the 1971 Memorandum and replace it with a 1996 Memorandum was disregarded by the learned High Court judge.
(b) During the course of the negotiations leading up to the conclusion of the 1996 Memorandum, the evidence established that it was always referred to as being a “new contract” and this was, again according to the evidence, recognised by representatives of the IPU by the use of appropriate terminology.
(c) The renegotiation of or intention to conclude a fresh or a new agreement in 1996 was at all times referred to in the minutes of meetings between the parties, and neither this evidence nor the evidence that the 1996 Memorandum had the effect of replacing the totality of the 1971 arrangement was ever queried on the part of the IPU.
(d) As early as the mid-1980’s the Minister’s officials had notified the IPU that advance payments did not enjoy any contractual status but rather mentioned the possibility that advance payment provision might be included in a future revision of the contract with the IPU. This position was not objected to or opposed by any representative of the IPU.
(e) The IPU had itself obtained counsel’s opinion in 1985 which concluded unambiguously that the terms of the 1971 Memorandum did not form part of the individual pharmacy contracts.
Notwithstanding the foregoing, at no stage did the IPU seek to have the legal status of advance payments incorporated into or copper-fastened in the pharmacy contract in any way.
Finally, the appellants contend that the words “terms agreed” in Clause 19(3) of the 1996 Memorandum, against the above background, should properly be construed as referring only to the terms appearing in the 1996 Memorandum, which did not mention any advance payments. While the learned High Court judge had suggested it was “necessary to give some meaning to the phrase terms agreed” in addition to the phrase “terms to be agreed” the learned High Court judge simply concluded that it referred also to the 1971 Memorandum, without giving any legal or other basis for that conclusion.
On behalf of the respondents, senior counsel Mr. McDonald, argues from a diametrically opposite view to that of counsel for the appellants. He points to the following factors as being important in appreciating the view taken by the learned High Court judge on what the respondents contend was the correct analysis of the very intimate relationship between the various agreements. First, each of the individual pharmacists executed the standard form pharmacy contract, the terms of which were arrived at following the agreement which led to the 1996 Memorandum. He drew the Court’s attention to the fact that the 1996 Memorandum expressly states that the 1996 pharmacy contract is to be in accordance with the terms and conditions of the agreement attached as Appendix 1 to that Memorandum. Further, he points to the fact that the arrangements reached between the Minister and the IPU leading to the 1996 Memorandum replaced the previous arrangements put in place in 1971. The 1971 Memorandum provided for the making of an advance payment. He submits that the conclusion of the learned High Court judge that the advance payment scheme which, although in theory implied a new advance payment each month, in practice operated on the basis that the advance payment was rolled over from month to month, was correct. A pharmacist received an initial advance payment with an entitlement to retain that so long as the pharmacist participated in the General Medical Service (GMS). The advance payment was readjusted annually in light of the volume of the GMS prescription business conducted by the individual pharmacist. When an individual pharmacist ceased to operate within the GMS, the entirety of the advance payment had to be repaid. Secondly, counsel contends that, subsequent to the negotiation of the 1996 Memorandum and the execution of the 1996 pharmacy contracts, advance payments as previously made under the old arrangement continued to be made to individual pharmacists. Evidence had been given in that regard and in relation to the practical administration of the scheme from an individual pharmacist’s point of view. The respondents argue that, in line with the evidence given in the course of the High Court proceedings, the learned trial judge was entitled to find, as he did, that both before and after the adoption of the 1996 pharmacy contract, it was common practice for Health Boards to issue documentation which “seems to me to be only consistent with the recognition that the making of advance payments was part of the contractual arrangements between those parties”.
Thirdly, while the respondents acknowledge that there is no express reference to advance payments in either the 1971 pharmacy contract, in the 1996 pharmacy contract or in the 1996 Memorandum, counsel submits that the learned High Court judge was entitled to find that the provisions of the 1971 Memorandum, under which the Minister agreed with the IPU that an advance payment of the type in question would be made, was properly covered by the words “terms agreed” in Clause 19(3) of the 1996 pharmacy contract which the learned High Court judge had correctly interpreted. In that regard the respondents rely also on the terms of Clause 19(5), both of which have been set out previously in this judgment.
The respondents next contend that Clause 19(3) of the 1996 agreement is, in reality, the key to a correct understanding of the learned High Court judge’s judgment, because it expressly states that the pharmacy contract is to be construed as contingent upon “terms agreed or to be agreed between the Minister and the Pharmaceutical Contractors Committee regarding arrangements for the provision of pharmaceutical services under the Health Act, 1970”. Accordingly, the terms of the two Memoranda reached in 1971 and 1996 became incorporated into the individual contracts held by the individual pharmacists. Since they are thus incorporated, it is irrelevant that the arrangements may not be contractually enforceable as between the Minister and the IPU. The 1971 Memoranda provided for arrangements agreed at a collective level, which have been incorporated specifically in the terms of the 1996 pharmacy contract, and which is contractually binding.
Finally, as to the meaning of “terms agreed”, the respondents rely on Hay v. O’Grady [1992] 1 I.R. 210 in support of their argument that the learned High Court judge, having considered all of the evidence relating to the factual matrix against which the 1996 Memorandum was put in place, found as a fact, or drew the correct inferences from the factual evidence adduced in respect of the same, that advance payments were an entitlement of the plaintiffs under the 1996 pharmacy contract. The appellants are not entitled to any relief on the basis that the learned High Court judge had misdirected himself in relation to the words “terms agreed”.
Conclusion
I am in agreement with the learned High Court judge, and indeed with the parties to this appeal that he was correct in identifying the several issues which required to be considered for the purposes of resolving the High Court proceedings. I have set out earlier in this judgment the reference which the learned High Court judge made to the only relief sought by the plaintiff, being relief directed towards declarations that the Minister had “acted in breach of contract in implementing the Government decision to freeze advance payments in December, 2002”. The actual declarations made were in the following terms:
“(a) By virtue of Clause 19(3) of the Community Pharmacy Contractor Agreement for provision of services under the Health Act 1970, the second to sixth named plaintiffs (the individual pharmacists) are entitled to the benefit of such agreements relating to advance payments as may have been made between the first named plaintiff (the IPU) and the first named defendant (Minister) as long as any such community pharmacy contract remains in force;
(b) The decision of the first named defendant (the Minister) to discontinue advance payments constituted a unilateral and unlawful variation in the terms of the individual community pharmacy contracts.”
Prior to making any decision as to whether the learned High Court judge was correct in the conclusions drawn from the arrangements or agreements entered into between the different parties, it is important to draw attention to the following matters which the learned trial judge considered to be of particular relevance in setting the framework for his decision. He stated:
“… As I have pointed out, the case, as it evolved, concerns the alleged existence of contractual entitlements. Whether the Minister might have, or might not have, a reasonable basis “on the merits” for seeking a change in the system is not, in those circumstances, relevant. If the Minister has a binding contractual obligation, then he must comply with his contract irrespective of whether he might have a legitimate basis for seeking to have it changed. On the other hand, if the Minister does not have a binding contractual obligation, then the plaintiffs have no case in law. In the latter case, even if the plaintiffs could persuade the court that there was “on the merits” a justification for the retention of the advance payment scheme, that would be a case that could only be made in contractual negotiations with the Minister, rather than in court.
In those circumstances it does not seem to me that it is part of the function of a court to form a view (in a case involving only a dispute about contractual entitlements) as to whether there might be, or not be, objective reasons for changing the scheme. … For those reasons it seems to me that the issues in this case are, subject to the delay point, confined to a consideration of the contended for contractual obligations. I now turn to those issues. …
In the order in which it appears to me to be appropriate to deal with the questions which have arisen, the issues seem to be as follows:
(a) Whether the 1996 agreement between the IPU and the Minister constitutes a legal contract. The Minister contends that the agreement does not amount to a contract.
(b) If the agreement between the Minister and the IPU is found to create contractual relations, certain questions of construction arise as to the terms of that agreement.
(c) Some of those issues of construction involve the interaction between the agreement entered into between the IPU and the Minister, on the one hand, and the standard form contract which was entered into between all pharmacists participating in the scheme (including the individual pharmacists) and, initially, the Health Boards, on the other hand. The form of that agreement was itself agreed between the IPU and the Minister. There is no doubt but that there are contractual relations between the individual pharmacists and, in the events that have happened, the HSE. However the HSE is not a party to these proceedings. In those circumstances, the Minister contends that the individual pharmacists are not entitled to rely, as against her, on the individual contracts.
(d) In addition there are questions of construction in relation to the individual contracts.” (emphasis added)
One of the first and major issues for consideration is the status of the 1971 and 1996 Memoranda. These are similar Memoranda in the sense that they are Memoranda negotiated between the IPU (or one of its committees) on the one hand and the Minister on the other hand, and as the learned High Court judge pointed out, correctly in my view, they are, if not collective bargaining arrangements or agreements, analogous to such collective bargaining agreements or arrangements.
Clause 29 of the 1971 Memorandum provided for advance payments in the following terms:
“On the submission of the first claim by a pharmacist participating in the scheme, an advance payment within three weeks will be made to him on the basis of 55p for each of the estimated number of prescription items in his claim. The claim will be paid in full within a further 30 days but the pharmacist will continue to retain the original advance payment as an advance for subsequent claims. In the event of the pharmacist leaving the scheme, this advance payment will be repayable by him.”
The terms of the 1971 Memorandum also included Clause 45 which states:
“Payment to the pharmacist will normally be made in full during the second half of the month following that in which the prescriptions were submitted. Thus, prescriptions dispensed in April will be submitted for payment in the first week of May and will be paid during the latter half of June. It is intended that the advance payment already referred to will compensate pharmacists for the delay in payment of the full amount. Prescription bundles not submitted before the specified date shall have to await payment with the following months bundle”. (emphasis added)
Both parties have accepted that collective bargaining agreements are not, generally speaking binding contracts inter partes and impose no contractual obligations on the parties thereto. This is clear, it is said, from the case law of our Courts (see Kenny v. An Post [1988] I.R. 285). So far as I can ascertain, however, the question as to whether a collective bargaining type arrangement, however it is defined, is legally enforceable, even inter partes, has not been definitively determined in this jurisdiction. Nevertheless, the dominant view appears to be that both parties to a collective bargaining type arrangement do not intend to create legal relations (see decision of Barrington, J. in O’Rourke v. Talbot Ireland Limited [1984] I.L.R.M. 587, a case which does not appear to be very different from the decision in Transport Salaried Staffs’ Association and Others v. Coras Iompair Eireann [1965] I.R. 180). Both parties accept that the 1971 and 1996 Memoranda are not legally binding or enforceable, inter partes, the legal basis for this position appearing to be the fact that the parties did not so intend. I do not think it necessary, for the reasons next dealt with, to make any definitive ruling on this issue generally, as it is not the basis for the appeal.
As the learned High Court judge in this case found, correctly in my view, this is not, however, the end of the matter, because the real issue in the present case, and more relevant than the issue as to whether or not collective bargaining arrangements, or those analogous to them, are themselves contractual in nature or give rise to contractual obligations, inter partes, is the question of law as to whether terms in a collective bargaining type agreement, such as in the 1971 and/or 1996 Memoranda, were in this case incorporated into individual contracts between other parties.
The legal issues which arise, therefore, are the following: first, in circumstances where collective bargaining type agreements are not binding in the sense that they do not establish contractual relations and do not impose contractual obligations on the parties to them, as the learned High Court judge found, in what circumstances, if at all, or by what legal means, do the terms of such agreements become incorporated into contracts made between other parties in order for terms of the collective bargaining type arrangements to create contractual relations or impose contractual obligations, pursuant to those other contracts. Secondly, if they do not require to be expressly incorporated in such contracts, in what circumstances do they create binding contractual obligations under the contracts, and on whom are those obligations placed?
The starting point for determining the terms of any contract, including the 1996 pharmacy contract, are the words used in the contract itself. Both parties agree there is no express reference to advance payments in the 1996 Memorandum, nor in the 1996 pharmacy contract, nor indeed was there any such reference in the 1971 pharmacy contract. Absent, therefore, a clause by which advance payments can be found, by correct interpretation, to be clearly incorporated in the contract between the individual pharmacists and the Health Boards, that is to say, the 1996 pharmacy contract, it seems to me such a term cannot be invoked, it not being part of the bargain struck between the parties. It is probably unnecessary to add that if the Government or a Minister, or an emanation of either, enters into an arrangement which is in the nature of a contract with a citizen or citizens, this arrangement will be binding on both parties, unless and until discharged in accordance with law. There is no question of any State party having a general inherent or residual power to alter or terminate binding contractual terms unless some unilateral power is agreed between the parties to such an arrangement, as was also properly remarked upon by the learned High Court judge, when he stated:
“However, it does not seem to me that any of these matters are really relevant. As I have pointed out, the case, as it evolved, concerns the alleged existence of contractual entitlements. Whether the Minister might have, or might not have, a reasonable basis “on the merits” for seeking a change in the system is not, in those circumstances, relevant. If the Minister has a binding contractual obligation, then he must comply with his contract irrespective of whether he might have a legitimate basis for seeking to have it changed. On the other hand, if the Minister does not have a binding contractual obligation, then the plaintiffs have no case in law.” (emphasis added)
The key basis for the decision by the learned High Court judge that the plaintiffs were entitled to succeed in their claim, and that the Minister had breached the terms of the plaintiffs’ contracts with the Health Boards, is the learned High Court judge’s interpretation and application of the phrase “terms agreed” in Clause 19(3) of the 1996 pharmacy contract. It is, however, unclear to me the legal mechanism or route which the learned High Court judge adopted, in finding that the “terms agreed”, by which the plaintiffs were entitled to invoke a right to advance payments pursuant to the 1971 Memorandum, arrived into or was incorporated into the 1996 pharmacy contract. It is worth drawing attention again to what he stated in relation to clause 19(3), having dealt with the phrase “terms to be agreed”, which was:
“It seems to me that clause 19(3) therefore, as a matter of construction, necessarily imports into the individual contractual relations between individual pharmacists and Health Boards, all previous agreements entered into between the Minister and the PCC, at least to the extent that those agreements continued to subsist as of 1996.
Those agreements included the original arrangements entered into in 1971 in respect of advance payments as modified over the years by subsequent agreements.” (emphasis added)
Logically this statement must have as its consequence that all the terms of the 1971 Memorandum were imported into the 1996 pharmacy contract. If not all terms were so imported, pursuant to the above finding of the learned High Court judge, there appears to be no reason why, isolated from all of the terms thereby imported, terms relating to advance payments were “necessarily” imported into the 1996 pharmacy contract.
Nor is it evident to me by what route, legally speaking, the terms were “necessarily” imported into the 1996 pharmacy contract, as no clear legal basis is given in the judgment. Did it consist of the transfer or adoption into the 1996 Memorandum between the same parties, of all terms, or terms concerning advance payments, which originally appeared in the 1971 Memorandum, and from there were transferred or imported into the 1996 pharmacy contract? Alternatively, did the learned High Court judge consider that all terms in the 1971 Memorandum, or terms relating to advance payments, were “necessarily” imported from it firstly into the 1971 pharmacy contract, and from there into the replacement 1996 pharmacy contract upon the negotiation of the latter?. The judgment is silent on whether the terms of the 1971 Memorandum, although it referred to advance payments, had become a term of the 1971 pharmacy contract, or was incorporated into the 1996 Memorandum.
Nor is it clear to me how a term relating to advance payments, having regard to the matters which I mention below, were, in effect, resurrected from the 1971 Memorandum without any suggestion in the 1996 Memorandum between the same parties that any terms of the original 1971 Memorandum were retained and/or transferred into the 1996 Memorandum, which is itself wholly silent on the question of advance payments and to which was exhibited the standard form 1996 pharmacy contract. It is clear from the evidence that the 1971 Memorandum was replaced by the 1996 Memorandum, the latter of which the learned High Court judge found was “brief” and the full content of which was set out in his judgment. It was the evidence, and was found as a matter of fact by the learned High Court judge, that the 1971 pharmacy contract was replaced by the 1996 pharmacy contract, the latter of which he found to be “a more detailed document”.
There is, as the appellants point out, clear support for the finding of the learned High Court judge that the 1996 arrangements, both the 1996 Memorandum and the 1996 pharmacy contract, constituted replacements for the earlier 1971 Memorandum and 1971 pharmacy contract, such that, correctly in my view, the earlier 1971 Memorandum and pharmacy contract no longer existed, or the terms thereof were no longer operative, save those specifically or expressly repeated in any new agreements or arrangements. The appellants point to several matters, already set out, as supporting the contention that the 1996 arrangements were in substitution for the earlier arrangements. This evidence includes the parties’ intention to terminate the earlier arrangements and replace them with the 1996 arrangements, and the fact that the 1996 Memorandum was referred to and accepted by the respondents as being a new contract or arrangement. This status was at all times referred to in minutes of meetings between the parties and was never challenged or queried on the part of the respondents. Other evidence to like effect as set out above. All of this, they argue, the learned High Court judge failed to take into account. It seems clear from the evidence, that there is no express support in any of the documents, or from any of the evidence given, that it was the intention of the parties that all of the terms of the 1971 Memorandum, or even the terms relating to advance payments, would be imported into the 1996 Memorandum, or into the 1996 pharmacy contract, by whatever legal route might be contended for. Nor is there any support in any of the legal authorities for the contention that the terms of the 1971 Memorandum, which were replaced, could be resurrected from or imported into the 1996 Memorandum – and the respondents did not claim they were – without the agreement of the parties. Indeed, the parties agree there is no reference at all to them in the 1996 Memorandum.
There are, moreover, two other factual matters which I consider to be of particular importance, referred to by the appellants, and which also do not appear to have been considered by the learned High Court judge from a perusal of his, in all other respects, impeccably clear judgment. The first of these is that as early as the middle of the 1980’s the Minister, through his officials, had notified the IPU that advance payments did not enjoy any contractual status between the parties, but rather suggested the possibility that an advance payments provision might be included in a future revision of the contract, which position was not demurred from by the representatives of the IPU. The second matter which appears to me to be relevant is that the IPU had itself obtained counsel’s opinion in the mid 1980’s to the effect that the terms of the 1971 Memorandum did not form part of the individual pharmacy contracts. It is, of course, true that these are not conclusive pieces of evidence. The legal advice may not have been correct, or may have been given against a different background different, or factual matrix. The Minister may have been incorrect in his view that advance payments did not enjoy contractual status. It is, however, inconceivable that against that factual background, and particularly if it was the belief of the parties that that factual background was correct, the issue of guaranteeing the status of advance payments was not to the forefront of the IPU’s negotiations with the Minister. It is equally inconceivable that the first named respondent did not insist on an express clause being included in the 1996 Memorandum and also in the 1996 standard form pharmacy contract exhibited to the 1996 Memorandum to deal with this precise point which was the subject of contention or controversy between the parties, and thereby overcome any question about or uncertainty concerning the status of advance payments, as indicated in the legal advice given to it.
Instead, although the parties were negotiating against that factual background, it is contended on the part of the respondents that the learned High Court judge was correct to find that some only of the terms of a Memorandum made in 1971, replaced by a 1996 Memorandum which did not mention those terms, were nevertheless imported into the provisions of the 1996 pharmacy contract exhibited to the 1996 Memorandum, and by a legal mechanism which is not explained by the learned High Court judge, and not covered by legal submission in the case of the respondents, save by the argument that the arrangements in the several agreements were all “intimately related”. This is undoubtedly true, but it does not, however, deal with the legal route by which terms in a defunct 1971 Memorandum were nevertheless found by the learned High Court judge to be “necessarily” incorporated into the 1996 pharmacy contract by the mere inclusion in that contract of the words “terms agreed” in Clause 19(3).
Although it is possible, in law, to have a term of a contract imported into another contract, provided the intention to do so is clearly found, it seems to me that, having regard to the background and the context in which the arrangements were negotiated, and having regard to the content of Clause 19(3), this intention is not borne out by a proper or reasonable interpretation of any of the terms in either of the agreements reached in 1996. I do not find that the “terms agreed” appearing in Clause 19(3) of the 1996 pharmacy contract can only, necessarily or reasonably be understood to mean those terms agreed, in the replaced or no longer extant 1971 Memorandum, itself replaced by a 1996 Memorandum in which such term did not appear at all. I am not either convinced that the finding which the learned High Court judge made can reasonably be considered to be reinforced by the fact that “both before and after the adoption of the 1996 form of individual agreement, the evidence suggests that it was common practice for Health Boards to issue documentation which seems to me to be only consistent with a recognition that the making of advance payments was part of the contractual arrangements between those parties” (emphasis added). This phrase raises two issues. The first is the finding that it is only consistent with a recognition that the advance payments were part of the contractual agreement between the individual plaintiffs and the Health Boards. It is, however, the case that such advance arrangements are equally consistent with an administrative scheme for advance payments. Nowhere in the judgment is it explained by the learned High Court judge the reasoning behind his finding that the payments, which it is accepted by all parties were made, are “only consistent with” contractual arrangements. Secondly, it is not evident to me that payments which occurred before the adoption of the 1996 pharmacy contract, whatever their nature, necessarily continued as contractual arrangements after 1996 in the absence of clear evidence by way of express term or necessarily implied term of the 1996 Memorandum, or the 1996 pharmacy contract. As concerns Clause 19(3) of the 1996 pharmacy contract, it is useful to set it out again. It reads as follows:
“This agreement is to be construed as contingent upon the terms agreed or to be agreed between the Minister and the Pharmaceutical Contractors’ Committee (which operated within the Irish Pharmaceutical Union) regarding arrangements for the provision of pharmaceutical services under the provisions of the Health Act 1970. The pharmacy contractor and the Board agree that any changes in the terms of such arrangements which may be agreed between the Minister and the Pharmaceutical Contractors’ Committee, shall be incorporated into this agreement and the terms of this agreement shall be construed accordingly, following the issue of a notification of such agreed changes by the Minister”. (emphasis added)
The learned High Court judge found that the words “terms agreed” in Clause 19(3) referred back as far as the 1971 Memorandum. Terms had, of course, been agreed in the 1996 Memorandum. In that very Memorandum was found the model 1996 pharmacy contract to be entered into subsequently by the third parties, namely the individual pharmacists and the Health Boards. That contract was not a term of the 1996 Memorandum itself, but rather an exhibit to the contract, in the shape of a pro forma standard pharmacy contract to be entered into in the future, by a pharmacist willing to do so. That occasion might never, in theory at least, arise, although this was unlikely. The point is, however, it was directed towards a future contract to be entered into between third parties, the terms of which were to be concluded by reference to the exhibit in the 1996 Memorandum, and never by any express reference to the 1971 Memorandum. It is not a question of the learned judge having two options, either of which being reasonable, and being entitled therefore to choose one or the other. On the one hand, there is nothing inconsistent with a finding, which the appellants contend for, that the phrase “terms agreed” in the 1996 pharmacy contract are only those found, in fact, in the 1996 Memorandum. On the other hand, it is almost impossible, legally and indeed logically, to find an appropriate legal route by which the same phrase refers “necessarily” to terms found in the 1971 Memorandum, as the learned High Court judge found. Although the learned High Court judge would ordinarily have been entitled to reach a conclusion based on two alternative hypotheses, or on factual findings made in the course of the hearing, I conclude that the learned High Court judge was incorrect in law in finding that “terms agreed” in Clause 19((3) of the 1996 pharmacy contract incorporated any terms, or any advance payment terms, of the 1971 Memorandum into the 1996 pharmacy contracts, this not being a conclusion which he could, in law, properly reach, having regard to all of the evidence adduced in the course of the hearing, and on the status of the two replacement agreements reach in 1996. I disagree with the contention on the part of the respondents that the finding of the learned High Court judge is such as to be protected by the judgment of this Court in Hay v O’Grady, supra. The determination of the learned High Court judge is not a primary finding of fact. Rather it is a question of considering the correct legal interpretation of a particular phrase in a contractual arrangement of an unusual, though not unknown, group of agreements, which is a finding in law, although within a particular factual context.
Further, the learned High Court judge considered that Article 19(5) could properly be invoked in support of a finding that the Minister had breached the terms of the pharmacy contract, although not a party to it. Article 19(5) it will be recalled reads as follows:
“The terms and conditions of this agreement between the Pharmaceutical Contractors’ Committee (operating within the Pharmaceutical Union) and the Minister may be subject to review after a period of five years. In default of agreement on any such review, the matters of disagreement shall be subject to mediation and recommendation by a third party appointed by the Minister following consultation with the Pharmaceutical Contractors’ Committee. Any alterations to the agreement between the Minister and the Pharmaceutical Contractors’ Committee arising from the review provided for in this clause, shall be incorporated into this agreement and the terms of this agreement shall be construed accordingly, following the issue of a notification of such agreed changes by the Minister. The terms and conditions of this agreement may also be extended for specified periods with the agreement of the Minister and the Pharmaceutical Contractors’ Committee.”
All parties agree that “this agreement” refers to the 1996 Memorandum. I think this must be correct, although poorly worded. In fact it is clear from the judgment that this clause is identical to one of the clauses in the 1996 Memorandum itself, being the fifth of the six clauses comprised in that Memorandum, and as cited in full in the judgment. It is little wonder therefore that its mere transposition into the 1996 pharmacy contract without appropriate modification renders it unclear, when it should have been amended to have regard to the fact that a clause referring to “this agreement … between the Pharmaceutical Contractors’ Committee and the Minister” could not have reflected the intention of the parties to the 1996 pharmacy contract. Leaving that inapt wording aside, however, it will be seen that the clause has several components:
(a) the 1996 Memorandum will be reviewed in 5 years.
(b) in default of agreement – matters in issue will go to mediation.
(c) if any changes arise upon review they will be incorporated in the 1996 pharmacy contract.
(d) such incorporation is dependent upon the changes being notified by the Minister in writing.
Whereas I am in agreement with the learned High Court judge that the Minister is, by the terms of this clause, in a position, on the State side, to vary the terms of the pharmacy contracts, this does not place the Minister in a position in any way superior to the IPU in terms of such change. The only term in Clause 19(5) which is peculiar to the Minister is that concerning notification in writing of any change to the 1996 pharmacy agreement, which arises either by agreement or pursuant to mediation. No such agreed new term in the 1996 Memorandum can be applied until the Minister notifies the agreed change in writing. I do not find therefore that this clause – which clearly vests in the Minister the power to negotiate, on the State side, with the IPU in respect of any term which may be agreed, and which may, after agreement, become, pursuant to Clause 19(3) of the 1996 pharmacy contract, a future term of that amended pharmacy contract – adds anything to the respondent’s case, or that by virtue of Clause 19(5) the “Minister retained full control over any agreement to vary the terms of the individual contract”, since equally the IPU retained the same full control, on behalf of its members, over any agreement to vary the terms of the same.
For the above reasons I am satisfied that in respect of the contract law issue the learned High Court judge misdirected himself in law in finding that the terms of the 1971 Memorandum were necessarily or at all incorporated or imported into the 1996 pharmacy contract, by virtue of Clause 19(3) of the latter. The Minister could not, therefore, have breached the terms of those contracts on the grounds contended for.
Having regard to this finding, neither the issue of privity of contract nor the public law issue requires further detailed consideration.
I would allow the appeal and set aside the judgment and Order of the High Court.
Noreside Construction Ltd -v- Irish Asphalt Ltd HC
[2011] IEHC 364 (04 October 2011)
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 4th day of October, 2011
1. This judgment is given on the trial of the first issue in a modular trial directed by the Court on 21st December, 2010. The issue directed to be tried prior to other issues in the proceedings is “what were the terms of the contract between the plaintiff and the defendant (express or implied) for the purchase and sale of the aggregate, the subject matter of the proceedings”.
Background to the Proceedings
2. The plaintiff is a construction company with its head office in Kilkenny. The defendant is the operator, inter alia, of a quarry at Baylane, Dublin, at which it produces, manufactures and supplies products to the construction industry.
3. In early 2003, the plaintiff was awarded a contract by Dublin City Council to build a development of 52 houses and 31 senior citizen units at Griffith Avenue, Finglas, Dublin. The plaintiff, through Michael Regan, a director with responsibility for procurement, made enquiries of a number of persons, including the defendant, in relation to the supply of aggregate for the development at Finglas. Following exchanges between the plaintiff and the defendant, which will be referred to in greater detail below, a Purchase Order No. 19027 (“the Purchase Order”) was faxed to the defendant on 26th March, 2003. The original Purchase Order was sent by post, the plaintiff contends, as a matter of probability, on the same day, and is date stamped as received by the defendant on 28th March, 2003. The plaintiff’s “Purchase Order Conditions” were printed on the reverse side of the original Purchase Order sent by fax and received, at the latest, by the defendant, on 28th March, 2003. There is no reference to such conditions on the front side of the Purchase Order sent by fax on 26th March, 2003.
4. The Purchase Order set out the price agreed for each of four different types of stone, both for collection and delivery. It also specified the credit terms of 60 days and that the price was fixed for the duration of the contract. It is not in dispute that such terms were agreed.
5. The defendant commenced supplying aggregate at the price agreed on 27th March, 2003. It continued to supply until May 2005. For each delivery, there was a delivery docket signed on behalf of the defendant and on behalf of the plaintiff (either by a site employee or a haulier on its behalf). Each delivery docket stated, on its face, at the bottom, “THIS MATERIAL IS SOLD SUBJECT TO THE TERMS AND CONDITIONS AVAILABLE ON REQUEST”.
6. In December 2008, the defendant informed the plaintiff that Pyrite was present in products purchased from its Baylane quarry and that any materials from that quarry should not be used as under floor infill in any building or within 500 millimetres of any concrete or steel structure. The aggregate supplied by the defendant to the plaintiff from the Baylane quarry between March 2003 and May 2005, had been so used by the plaintiff in the Griffith Avenue site.
7. In December 2008, and thereafter, Dublin City Council notified the plaintiff of claims arising out of the use of aggregates by the plaintiff at the development. The plaintiff notified the defendant of such claims.
8. In 2009, the plaintiff sought an indemnity from the defendant against the clams made against it, in particular, pursuant to clause 17 of its Purchase Order conditions. This was refused and it was denied that the Purchase Order conditions formed part of the agreement between the plaintiff and the defendant for the supply of aggregate.
9. On 19th March, 2009, the plaintiff issued the present proceedings, seeking, inter alia, a declaration that the terms and conditions of the agreement between the plaintiff and the defendant are as set out on the reverse of the Purchase Order; a declaration of its entitlement to an indemnity and further and consequential relief including damages for breach of contract.
10. In the pleadings delivered, including an amended Statement of Claim and amended Defence, it became clear that the plaintiff’s primary contention was that the terms of the supply agreement between the plaintiff and the defendant included those set out on the reverse of its Purchase Order. Further, that the defendant’s primary contention was that its standard terms and conditions, to which reference was made on its delivery dockets and, as initially contended, referred to in communications from the defendant to the plaintiff prior to March 2003, were incorporated in the contract or contracts. Alternative contentions in relation to applicable terms and conditions were pleaded by both parties. In addition, other issues are raised in the proceedings which can only be determined after determination of the applicable terms and conditions to the contract or contracts under which the aggregate was supplied by the defendant to the plaintiff.
11. The plaintiff’s primary purpose, in contending that the Purchase Order conditions form part of the contract of supply, is to enable it to rely upon the indemnity provided for in clause 17 of the Purchase Order conditions. This provides:
“INDEMNIFICATION – The Supplier shall indemnify and save harmless the Company against all liabilities, claims, causes of action, costs, loss, damages and expenses whatsoever in respect of personal injury to or death of any person whomsoever, or damage in any property real or personal arising out of, or in the course of, or caused by, the manufacture and delivery of, or any defect in, the goods, or from any act or omission of the Supplier, the agents, employees or subcontractors and shall indemnify the Company in respect of any direct or indirect loss or expense of whatever nature incurred by or claimed against the Company, due to the goods not conforming with the specifications, plans, designs, instructions or orders of the Company or its employees.”
12. Similarly, the defendant’s interest in contending that its terms and conditions, and not those of the plaintiff, were incorporated into the contract or contracts of supply, is to enable it to rely upon the limitation of liability set out in clause 8 thereof:
“In the event of goods being delivered which are defective the Company’s liability shall be limited to the cost of their replacement. In no circumstances shall the Company be liable for any other loss arising directly or indirectly from the supply of defective materials.”
13. Each of the parties also relied in submissions on certain other of their respective terms and conditions but they were of secondary importance.
14. Pursuant to a motion brought by the plaintiff, on 21st December, 2003, the court directed the modular trial and the issue to be determined prior to the determination of any other issue, as already set out, and to which I will refer as the contractual issue.
Facts in Dispute at Hearing of Contractual Issue
15. There were few relevant facts in dispute at the hearing of the contractual issue. Rather, this turned on the correct contractual analysis of undisputed fact and the appropriate characterisation thereof.
16. At the commencement of the hearing, the defendant, through its counsel, confirmed that it was no longer contending that it had brought to the attention of the plaintiff prior to the first delivery docket of 27th March, 2003, the existence of its terms and conditions. Such a contention had previously been pleaded, relied upon and disputed.
17. The plaintiff sought to establish on the balance of probabilities the fact that the original white copy of the Purchase Order with its Purchase Order Conditions printed on the reverse was received by the defendant at its Baylane quarry on 27th March, 2003, and not only on 28th March, 2003, as appears from the date stamp on the Purchase Order received by the defendant. It sought to establish this on the basis of the evidence of Mr. Regan that, having faxed the purchase form (which is agreed) at 13.09 hours on 26th March, 2003, he then, on the same day, arranged for his secretary to send the original signed Purchase Order by post to the defendant at the Baylane quarry in accordance with instructions given to him by Mr. Tuite of the defendant. Further, his evidence was that his normal postal system was that on leaving the office each evening at approximately 5.00pm, his secretary took the post with her and put it in a post box at the end of the road and that the last collection from there is at 5.45pm. The plaintiff also sought to rely on a report of the Commission for Communications Regulation on ‘An Post Quality of Service Domestic Single Piece Mail; Quarter One, January to March 2003’, dated 30th March, 2003. That report states that TNS mrbi, who were appointed to measure An Post’s quality of service, carried out research, the result of which showed that three out of four items of ordinary correspondence were delivered the next day during the operative period. In reliance on that evidence, counsel submitted that the court should find, as a matter of probability, that the original Purchase Order was posted in Kilkenny on 26th March, 2003, and was received by the defendant at its Baylane quarry on 27th March, 2003. Mr. Tuite, who was then a quarry manager with responsibility for the Baylane quarry, gave evidence of a system of work whereby a Mr. Sheridan (now deceased), who was the weighbridge operative, opened post that came to Baylane and date stamped the post before sending it on to the head office, approximately one mile away.
18. I could not be satisfied on the evidence adduced that, as a matter of probability, the Purchase Order arrived at Baylane on 27th March, 2003, rather than on 28th March, 2003. The onus to establish such fact as a matter of probability is on the plaintiff and I could not be satisfied, having regard to gaps in the evidence as to what actually occurred, that it has been discharged. For the reasons set out below, the factual issue as to whether the Purchase Order arrived by post in Baylane on 27th March or 28th March, 2003, is not relevant to my conclusions.
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.
20. As already indicated, the underlying facts are not in dispute, save to the extent already mentioned and determined. The contractual analysis also takes into account the evidence of the systems in operation in relation to the supply of aggregate by the defendant from its quarries for a particular construction job.
21. In my judgment, a contract came into existence between the plaintiff and the defendant on 26th March, 2003, in which they agreed the terms according to which the defendant would supply certain types of aggregate and stone to the plaintiff for its construction job at the site at Griffith Avenue, Finglas. Further, that there was no variation in the terms of that contract prior to the final delivery in May 2005. In my judgment, neither the plaintiff’s Purchase Order conditions nor the defendant’s terms and conditions, expressly or by implication, formed part of such contract. My reasoning for such conclusions is as follows.
22. The inquiry form sent by Mr. Regan on behalf of the plaintiff to Mr. Tuite on behalf of the defendant on 20th February, 2003, seeking “tender” for certain products was, in contractual terms, an invitation to treat. The defendant, by two faxed quotations from Mr. Tuite dated 24th February, 2003, offered to supply the specified grades of aggregate for the development at Griffith Avenue, Finglas, at prices specified both ex-works and delivered. This, in contractual terms, was an offer to supply at those prices.
23. The undisputed evidence is that there were further negotiations orally between Mr. Regan and Mr. Tuite during which Mr. Regan sought an improvement on the price. This does not appear to have been forthcoming. The further undisputed evidence of both gentlemen is that on the morning of 26th March, 2003, they had a final conversation during which Mr. Regan, having sought again to improve the price, ultimately informed Mr. Tuite that he was placing the order at the price offered. In addition to price, it appears probable that there were two further terms discussed as they are recorded on the subsequent Purchase Order and not disputed by the defendant. These are credit terms of 60 days and that the price was “fixed price for duration of contract”. The latter is a reference to the plaintiff’s contract with Dublin City Council as it had already been specified that the supply was for the purpose of a construction contract of the plaintiff at Griffith Avenue, Finglas.
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.
Noreside Construction Ltd v Irish Asphalt Ltd SC
[2014] IESC 68 (02 December 2014)
Judgment of Ms. Justice Dunne delivered the 2nd day of December, 2014
This is an appeal from a judgment of the High Court (Finlay Geoghegan J.) on an issue directed to be tried prior to other issues in a modular trial in the Commercial Court, namely, “What were the terms of the contract between the plaintiff and the defendant (express or implied) for the purchase and sale of the aggregate, the subject matter of the proceedings”.
Background
The background to this matter is described in the judgment of the High Court herein but for ease of reference it would be helpful to set out some of the details. The plaintiff/respondent (Noreside) is a construction company based in Kilkenny. The defendant/appellant (Irish Asphalt) operates quarries at a number of locations including one at Bay Lane, County Dublin and produces, manufactures and supplies products for the construction industry. Noreside was awarded a contract by Dublin City Council to build a development of fifty two houses and thirty one senior citizen units at Griffith Avenue, Finglas, County Dublin. Mr. Michael Regan, a director of Noreside, made contact with a number of suppliers of aggregate, including Irish Asphalt, in relation to the project. Following a number of exchanges between the parties, a purchase order was faxed by Noreside to Irish Asphalt on the 26th March, 2003 and subsequently, the original purchase order was sent by post to Irish Asphalt. It was date stamped as having been received by Irish Asphalt on the 28th March, 2003. Noreside’s terms and conditions were printed on the reverse side of the purchase order although there was no reference to those terms and conditions on the face of the purchase order. Ultimately, it was concluded that Noreside’s terms and conditions as set out on the reverse side of the purchase order were not incorporated into the contract between the parties. The purchase order contained details as to the price agreed for four types of stone by reference to the price for the collection of the goods and for delivery of the goods. Credit terms of sixty days were specified and it was also specified that the price agreed was to be fixed for the duration of the contract. There is no dispute between the parties as to these terms.
The first delivery of aggregate took place on the 27th March, 2003 and deliveries continued until May 2005. Each delivery was accompanied by a delivery docket signed by an employee of Noreside on site or by a haulier. Each delivery docket contained on its face the following statement:
“This material is sold subject to the terms and conditions available on request”.
That statement appeared at the foot of the page.
Subsequently in 2008, Irish Asphalt informed Noreside that the products supplied from the Bay Lane quarry contained pyrite. It was advised that the material should not be used as under-floor infill or within 500 mm of any concrete or metal structure. This is how it had been used by Noreside at the Griffith Avenue site. Dublin City Council notified Noreside of claims arising out of the use of the aggregates in December 2008. Noreside sought an indemnity from Irish Asphalt on foot of its terms and conditions as set out in the purchase order and when indemnity was refused, Noreside commenced these proceedings.
Following the hearing before the High Court the following declarations were made:
(1) 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.
(2) 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.
(3) 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 Services Act 1980, [in] the said contract of supply between the plaintiff and the defendant.
A number of ancillary orders were also made.
The appeal of Irish Asphalt was limited to the finding of the learned trial Judge that Irish Asphalt’s terms and conditions were not incorporated into the contract between the parties. Irish Asphalt sought to rely on those terms and conditions which it contended were incorporated into the contract or contracts between the parties in order to enable Irish Asphalt to rely upon the provisions of Clause 8 of the terms and conditions to the following effect:
“In the event of goods being delivered which are defective the company’s liability shall be limited to the cost of their replacement. In no circumstances shall the company be liable for any other loss arising directly or indirectly from the supply of defective materials.”
The judgment of the High Court
Finlay Geoghegan J., having set out the history of the matter, reached the following conclusions:
“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.”
She then went on to describe the express terms of the contract as including:
“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’.”
She further accepted that as a matter of probability, the contract between the parties contained a number of implied terms, including that a written purchase order signed by the plaintiff had to be communicated by fax to the defendant which she accepted was done on the 26th March, 2003. She further concluded that a credit application had to be completed by the plaintiff and returned to the defendant. In addition, she accepted that there were 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 Noreside’s site manager or other operative to Irish Asphalt’s operative on the weighbridge at Baylane and the recording of the aggregate supplied by means of delivery dockets. Thus she reached the conclusion that there was a concluded agreement between Noreside and Irish Asphalt on the 26th March, 2003 as to the terms on which Irish Asphalt would supply aggregate to Noreside for the duration of the contract at Griffith Avenue.
A central plank of the submissions on behalf of Irish Asphalt before Finlay Geoghegan J. was that its terms and conditions and, in particular, Clause 8 of those terms and conditions, were incorporated into the contract/contracts between the parties by reference to the signature by or on behalf of Noreside on each delivery docket. She noted the submission on behalf of Irish Asphalt to the effect 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.”
As was acknowledged by Finlay Geoghegan J., it is well established that terms and conditions may be incorporated into a contract by signature, reasonable notice or by a course of dealing.
At the heart of the question of incorporation of terms and conditions relied on by Irish Asphalt into the contract/contracts in this case is the role of the delivery dockets signed on each occasion that a delivery of material was made by Irish Asphalt to Noreside. Finlay Geoghegan J., at page 11 of her judgment, noted the importance of signature in respect of incorporation and in doing so referred to the judgment of Denning L.J. in Curtis v. Chemical Cleaning and Dyeing Company [1951] 1 K.B. 805, at p. 808, where he said:
“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.”
Finlay Geoghegan J. commented on this passage as follows:
“It is important to note the condition of ‘knowing it to be a contract which governs the relations between them’.”
Thus Finlay Geoghegan J. went on to consider the role of delivery dockets in the context of the argument of Irish Asphalt to the effect that the terms and conditions relied on by Irish Asphalt had been incorporated into the contract/contracts between Noreside and Irish Asphalt by means of the delivery dockets either by signature, by reasonable notice or by course of dealing.
A number of findings of the learned trial Judge are central to the arguments in this case:
(1) Finlay Geoghegan J. concluded that the terms agreed between the parties on the 26th March, 2003 were the terms on which Irish Asphalt agreed to supply aggregate to Noreside. On that basis she concluded that the delivery dockets were all post-contractual unless they had the effect either of making a new and distinct contract or of varying the existing contract.
(2) She acknowledged the evidence of both parties that delivery dockets were crucial documents for both the construction and the quarrying industry, being the written record of the amount and type of aggregate delivered and the time, date and place of delivery. She noted that they contained no reference as to price.
(3) She concluded that the delivery dockets had a contractual purpose in the sense of being documents used in the execution of the contract which came into existence on the 26th March, 2003. They did not have a contractual effect in the sense of making or varying a contract.
(4) The purpose of the delivery dockets was to record the particular supply with a view to payment. They were crucial documents but only in the administration or execution of the contract already agreed.
(5) She concluded that the facts in the case did not support the coming into existence of new and distinct contracts of supply to which potentially new terms applied upon Noreside’s site foreman or other operative making what was termed “a call off” or placing an order for a specified quantity of aggregate referred to in the purchase order, which was accepted by the Irish Asphalt’s weighbridge operator, by either making the product available for collection or arranging the delivery of same to Noreside’s site.
(6) She concluded that the system which operated between Irish Asphalt and Noreside was that the contractual terms applicable to supply were agreed at senior management level. Those terms, once agreed, were to last for the duration of Noreside’s construction contract at Finglas. The operatives who arranged for deliveries had no authority to negotiate any variation in the terms agreed. She concluded that 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.
(7) Finally, she concluded that the agreed supply terms including price and credit upon which it was being sold was not recorded in the delivery dockets. Those terms were terms which had been agreed on the 26th March, 2003.
Submissions
It is a key contention on the part of Irish Asphalt that the learned trial Judge was wrong in finding that there was only one contract agreed between the parties, namely, that which was agreed on the 26th March, 2003, leading to the conclusion that the delivery dockets were post-contractual documents which did not have the effect of varying or altering the terms of the contract between the parties by incorporating terms and conditions relied on by Irish Asphalt into the contract. Irish Asphalt contends that while there was a “master” contract between the parties, separate and distinct contracts were formed in relation to each delivery of aggregate. On the basis that each delivery docket contained the sentence “This material is sold subject to the terms and conditions available on request”, it is contended that the terms and conditions relied on by Irish Asphalt were incorporated into each separate and distinct contract by signature, reasonable notice or course of dealing.
Noreside contended that there was one contract between the parties, namely, that concluded on the 26th or, at the latest the 27th March, 2003, which contained all the necessary terms and conditions negotiated between the parties. On that basis, the delivery dockets were not contract making documents – they were simply documents generated in the course of the execution of the pre-existing contract. Even if that view was wrong and there were separate and distinct contracts each time a delivery was made, the delivery dockets did not alter or vary the pre-existing terms or provide additional terms to the contractual arrangements made between the parties.
The status of the delivery dockets and the signing of same
I am satisfied that the parties herein reached a concluded agreement following their negotiations on the 26th March, 2003. This could be described as the “master” contract. I am also of the view that on every subsequent occasion when an order was placed and a delivery of aggregate was made, a separate and distinct contract was made in respect of each such delivery which incorporated the terms and conditions of the “master” agreement negotiated between the parties as to the price for the goods to be supplied, depending on whether the goods were to be collected or delivered, credit terms and so on. It was always open to the parties to vary the terms and conditions of the “master” contract between them. The question at issue between the parties is whether the use of delivery dockets on numerous occasions had the effect of varying the terms of the contracts by the incorporation of Irish Asphalt’s terms and conditions into the series of contracts made over the course of Noreside’s project at Griffith Avenue as contended by Irish Asphalt. The answer to this question gives rise to an analysis as to whether or not the delivery dockets relied on by Irish Asphalt are contractual documents. I now propose to consider this question.
McMeel in the Construction of Contracts (11th Ed. at para. 15.56) commented on the question of whether or not a particular document is a contractual document as follows:
“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 Mededith Plant Hire [1996] CLC 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.”
Mr. Darling Q.C., on behalf of Irish Asphalt placed particular emphasis on the last paragraph of the passage quoted above from McMeel.
Treitel, The Law of Contract (12th Ed.) contains the following explanation of the nature of a document at paragraph 7 – 006:
“Nature of the Document. An exemption clause is not incorporated in the contract if the document in which it is set out (or referred to) is not intended to have contractual force: e.g. if the document is a mere receipt for payment. On the other hand, the mere fact that a document is called a ‘receipt’ will not prevent it from having contractual effect. A document will have such effect if the party to whom it was handed knew it was intended to be a contractual document or if it was handed to him in such circumstances as to give him reasonable notice of the fact that it contained conditions. It will also be contractual if it is obvious to a reasonable person that it must have been intended to have this effect. This will be the case if the document is of a kind that generally contains contractual terms. Whether a document falls into this class depends on current commercial practice, which may vary from time to time.”
As I have said, it is my view that each delivery of aggregate was a separate and distinct contract which incorporated the terms of the “master” contract concluded by the parties. The evidence as to the creation of these contracts was that a delivery of aggregate was ordered by oral “call off” in a telephone call by an operative or site foreman of Noreside, received by an operative of Irish Asphalt and then delivered to Noreside’s construction site, which arrangement was then recorded by the delivery docket which noted the amount of aggregate provided, the particular type of aggregate and whether the aggregate was either collected or delivered to the site. They were simply for the purpose of recording what occurred. As is clear from the passage referred to above from McMeel, such documents may come too late to prove an argument of incorporation. The status of a delivery note in any given situation will depend very much on the facts and circumstances of the particular case.
The fundamental question in this case is whether the delivery dockets have contractual effect. These delivery dockets contain a reference to terms and conditions but none are expressly set out or identified. Are these delivery dockets intended to have contractual effect? There is no doubt that the delivery dockets herein were important documents in the execution of the contracts given that they were relied on for the purpose of checking that the amounts set out on invoices that had to be paid by Noreside to Irish Asphalt was correct. To that extent, there is no dispute between the parties that the delivery dockets had an important role to play in the overall contractual relationship between the parties.
This Court was referred to an extensive range of case law and academic commentary in the written and oral submissions of Irish Asphalt herein and in the case of James Elliot Construction Limited v. Irish Asphalt Limited which was heard immediately before this case. The case law and academic commentary was considered at length in the judgment of the Court in that case. That case also concerned the role of delivery dockets of the same defendant/appellant which contained the same phrase on the delivery dockets. It is not necessary to set out in detail all of the authorities referred to in the judgment of the Court in James Elliot Construction Limited v. Irish Asphalt Limited delivered immediately before this judgment but it would be useful to refer to a number of the relevant authorities. Thus, in the case of Spurling Limited v. Bradshaw [1956] 1 WLR 461, reliance was placed on a document described as a “landing account”. That case concerned a defendant who had had dealings with the plaintiff warehousemen. A number of barrels of orange juice were delivered for storage and thereafter the defendant received a landing account which referred on its face to conditions printed in small type on the back including an exemption clause. The barrels of orange juice were subsequently found to be empty or so damaged as to be useless. The warehousemen sued for their charges for storage and the defendant counterclaimed for damages. Denning L.J. (at p. 467) stated:
“It is to be noticed that the landing account on its face told Mr. Bradshaw that the goods would be insured if he gave instructions; otherwise they were not insured. The invoice, on its face, told him they were warehoused ‘at owner’s risk’. The printed conditions, when read subject to the proviso which I have mentioned, added little or nothing to those explicit statements taken together.
Next it was said that the landing account and invoice were issued after the goods had been received and could not, therefore, be part of the contract of bailment: but Mr. Bradshaw admitted that he had received many landing accounts before. True he had not troubled to read them. On receiving this landing account, he took no objection to it, left the goods there, and went on paying the warehouse rent for months afterwards. It seems to me that by the course of business and conduct of the parties, these conditions were part of the contract.”
Similarly, in the case of British Road Services Ltd. v. Arthur V. Crutchley & Co. Ltd. [1968] 1 All ER 811, there was a reference to a delivery note. Following a long established course of business between the plaintiff carriers and the defendants, delivery notes for goods transported by the plaintiffs and delivered at the defendants’ warehouse would be handed back to the plaintiffs’ lorry drivers, on the defendants receiving the goods stamped “Received on AVC [that is the defendants’] Conditions”. Lord Pearson at p. 816 of the judgment in that case commented as follows:
“Now I come to the terms of the contract between the plaintiffs and the defendants. It was not proved that the plaintiffs’ conditions of subcontracting were ever sent to the defendants, and the defendants in evidence denied that they were subcontractors to the plaintiffs. The plaintiffs’ form of delivery note contained the words:
‘All goods are carried on the [plaintiffs’] conditions of carriage, copies of which can be obtained upon application to any office of the [plaintiffs].’
Under the long established course of business between the parties, however, the plaintiffs’ driver brought his delivery note into the defendants’ office at the Cotton Street warehouse and asked in effect if he could bring his load into the warehouse. If there was room in the warehouse, the permission would be given, and the delivery note would be rubberstamped by the defendants with the words ‘Received under AVC Conditions’, followed by the date and the address of the warehouse. The delivery note, thus converted into a receipt note, would be handed back to the plaintiffs’ driver and he would bring his load into the warehouse as instructed by the warehouse foreman. If this had only happened once, there would have been a doubt whether the plaintiffs’ driver was their agent to accept the defendants’ special contractual terms. This, however, happened frequently and regularly over many years at this and other warehouses of the defendants. Also the defendants’ invoices contained the words: ‘All goods are handled subject to conditions of carriage copies of which can be obtained on application’. It may perhaps be material to add that the defendants’ conditions of carriage were not peculiar to them, but were the conditions of carriage of Road Haulage Association Limited. At any rate, I agree with the decision of the Judge that the plaintiffs’ conditions were not, and the defendants’ conditions were, incorporated into the contract between these parties. The effect was that, while the nature of the defendants’ liability as bailees to the plaintiffs was unaffected, the liability was limited in amount to £800 per ton, which, when credit is given for sixty bottles of whisky recovered after the theft, produces a total in this case of £6,135.”
At first glance it may be difficult to see why there was a different approach taken to the plaintiffs’ terms and conditions in that case and those of the defendants. However, the reason is clear from the judgment of Lord Pearson – it was not proved that the plaintiffs’ conditions of sub-contracting were ever sent to the defendants; by contrast the defendants’ terms and conditions, although not peculiar to them, were the conditions of carriage of the Road Hauliers Association Limited and were incorporated into the contract by reference to the rubberstamping of the words “Received under AVC Conditions” on the delivery note. In other words, there could have been no doubt as to what the terms and conditions were.
Another case of interest and one which was relied on by the learned trial Judge herein is the decision in the case of Continental Tyre and Rubber Company Ltd. v. Trunk Taylor Company Ltd. [1985] S.C. 163. In that case, the delivery note which contained the phrase “All offers and sales are subject to company’s current terms and conditions of sale . . .” was a non-contractual document as it was “a document the only purpose of which was to record performance of a particular transaction with a view to payment”. Finlay Geoghegan J. placed particular reliance on the judgment in that case and accepted that the purpose of the delivery dockets herein was to record the supply of aggregate with a view to payment whilst acknowledging that the documents were crucial documents but in the execution of the contract already agreed. That case concerned the sale and delivery of tyres and a claim in respect of sums due in respect of those tyres. The tyres were alleged to have been rejected by customers of the defendants as not being of merchantable quality. The pursuers in the case, on the assumption that the warranty as to merchantable quality had been breached, pleaded that their liability was excluded by reference to their standard conditions of sale on a delivery note. They also relied on an argument that a recent and consistent course of dealing meant that the terms of the delivery note had been incorporated into the contract. Lord Brand, the Lord President at page 168 of his judgment stated:
“What has been called the ‘delivery note’ does not so describe itself. It is not and does not bear to be a contract note or ‘sold’ note of the kind considered in Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association [1966] 1 W.L.R. 287 . . . which purported to record the terms of the parties’ agreement, and which was tendered before performance. It is not and does not bear to be, either, an acknowledgement of order form, of the kind considered in Grayston Plant Ltd. v. Plean Precast Ltd. 1976 SC 206, purporting to record the terms on which the supply is made or to be made. The signature of the defenders’ employee is, as the form shows, required for one purpose and one purpose only. Opposite the box containing the signature are the following words: ‘Please note that your signature is proof that the quantity and description of the goods shown on this docket were received correctly’. There are not averments that the legend near the top left hand corner of the docket, referring to the pursuers’ ‘conditions of sale’, which is in small print and not in bold type, was ever drawn to the attention of the person who signed it, and it is not averred that signature of the docket was required before the delivery was made (cf. the very different circumstances in British Road Services Ltd. v. Arthur v. Crutchley & Co. Ltd. where the delivery note was overstamped, referring to the conditions upon which the warehouse keeper would receive the load, and handed to the plaintiffs’ driver before he brought his lorry into the premises; see the opinion of Lord Pearson at pp. 816 and 817).”
Reliance on a reference to terms and conditions said to be available on request was not sufficient to result in the incorporation of those terms and conditions into the contract between the parties in that case.
For completeness I should also refer to the decision in the case of Grogan v. Robin Meredith Plant Hire [1996] C.L.C. 1127, which was referred to in McMeel in the passage set out above and relied on by Finlay Geoghegan J. in the course of her judgment. That was a case in which 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. 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 defendant’s driver. Toward the bottom of the timesheet was printed, “All hire undertaken under CPA conditions. Copies available on request”. Under the standard conditions of the Contractor’s Plant Association, if incorporated into the contract, Triact was bound to indemnify the first defendant against any liability incurred to third parties in the course of the hire. In the third week of hire the machine was involved in an accident in which the plaintiff was injured. The plaintiff issued proceedings against the first defendant and Triact seeking damages for personal injuries. There was consent to judgment by the defendants. The first defendant claimed that the CPA conditions were incorporated into the contract by the signing of the driver’s timesheet on Triact’s behalf. Triact was therefore liable to indemnify the first defendant in respect of its liability to the plaintiff. In the High Court it was held that the contract had been varied so as to incorporate the CPA conditions. The appeal was allowed. In the course of his judgment Auld L.J. said:
“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 ed.), 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.”
Auld L.J. continued:
“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.”
Auld L.J. went on to say:
“If, as appears, that was the common understanding of the purpose of the time sheets, the fact that they made reference to the CPA conditions, not previously part of the contract, cannot, in my view, be of any contractual significance. Certainly such a reference on an essentially administrative and accounting document raised in the execution of an existing contract, did not have the clarity of meaning and purpose required to effect a variation incorporating them into the contract. . . . 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.”
As I said previously, the learned trial Judge placed considerable reliance on the judgment in that case leading to the conclusion by the trial Judge that the delivery dockets in this case were crucial documents in the context of both the construction and quarrying industry. Their purpose was to record the amount and type of aggregate supplied, together with the date and place of delivery, with a view to payment. However, whilst accepting that they had a contractual purpose in the execution of the contract, they did not have contractual effect in the sense of making or varying a contract.
A number of points emerge from the authorities referred to above. First of all, a delivery docket can be a contractual document – whether it is or not depends on the facts and circumstances in a particular case. The purpose for which the delivery docket was created may be of relevance. The next point to note, and one which seems to me to be of critical importance, is that the delivery docket or other document at issue must contain the relevant terms and conditions relied on or at the very least contain a reference to specific terms and conditions such as the AVC conditions relied on in the case of British Road Services Ltd. v. Arthur V Crutchley & Co. Ltd. referred to above. In that case, the plaintiff did not succeed in having its conditions of subcontracting incorporated into the contract even though those terms and conditions were stated to be available “upon application” while the defendant’s terms and conditions were incorporated by means of a stamp placed on the delivery note stating “Received under AVC conditions”.
In other words, a party contending that the terms of a previously negotiated contract have been varied by a document such as a delivery docket, must be able to show that the document concerned “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”. This may be by reference to specific terms and conditions either set out on the document itself or reference on the document to terms and conditions well known in a particular industry, such as the AVC conditions referred to above. It is difficult to see how a bland reference to terms and conditions being available on request, without more, will suffice for the purpose of making a contract or varying a contract. Thus, in my view, the learned trial judge was correct in concluding that the delivery dockets were not contractual documents and did not have contractual effect. They did not contain terms and conditions of the contract. They made no reference to price. They were created for the purpose of recording the type and amount of aggregate delivered and whether that aggregate was collected or delivered on site. This view is given further support by the fact that the signature on the delivery dockets was placed in a box headed “Materials received on behalf of Customer”. In the circumstances, the fact that the delivery dockets were signed on behalf of Noreside by its site foreman, operative or haulier does not have the effect of incorporating Irish Asphalt’s terms and conditions into the contracts between the parties by way of signature.
Reasonable notice and course of dealing
Lewison in The Interpretation of Contracts at p. 127 commented:
“It is not necessary to the incorporation of trading terms into a contract that they should be specifically set out provided that they are conditions in common form or usual terms in the relevant business. It is sufficient if adequate notice is given identifying and relying upon the conditions and they are available on request. Clear words of reference suffice to incorporate the terms referred to. Other conditions apply if the conditions or any of them are particularly onerous or unusual. . . .”
In the event that the delivery dockets were found not to be contractual documents and thus incorporated by signature into the contracts between the parties, Irish Asphalt contends that the delivery dockets provided on some 1,190 occasions to Noreside constituted reasonable notice of their terms and conditions and thus were incorporated into the contract between the parties. Generally, terms and conditions contained in an unsigned written document will not be incorporated into a contract unless the party to be bound had reasonable notice of those terms and conditions. The reason for this is straightforward. Terms and conditions relied on by a party in the context of an alleged breach of contract will often limit or exclude liability. They may provide for any contractual dispute to go to arbitration. There may be other important terms, for example, in relation to retention of title. It has been said that the more onerous an exemption clause contained in terms and conditions is, the greater the requirement for notice. This was graphically explained by Lord Denning M.R. in the case of Thornton v. Shoe Lane Parking [1971] 2 QB 163, at 170, where he stated of an exemption clause:
“. . . it is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way. . . . In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.”
Thus in a case such as this where the terms of Clause 8 of Irish Asphalt’s terms and conditions could only be described as onerous, it follows that in order to rely on the provisions of Clause 8 it is necessary for Irish Asphalt to demonstrate that it had given reasonable notice of those terms and conditions to Noreside.
It is not disputed that Mr. Regan of Noreside checked the delivery notes carefully for the purpose of ensuring that the amounts due by Noreside to Irish Asphalt on foot of invoices received by Noreside accurately reflected the goods supplied. Mr. Regan, in his evidence, confirmed that he checked the quantity, date and delivery docket number against invoices. Insofar as the phrase “The material is sold subject to our terms and conditions available on request” is concerned he said that he could not say with force that he had seen that phrase but when asked if he was aware that it was on the delivery dockets, he said “Possibly, yes”. It was never alleged before the High Court that the actual terms and conditions relied on by Irish Asphalt had been provided in any way to Noreside. The critical point emphasised by Irish Asphalt was that each delivery docket contained the proviso referred to above as to the terms and conditions being available on request. The essence of the case made by Irish Asphalt is that Mr. Regan, a person of authority within Noreside, saw the delivery dockets; therefore, he knew of the existence of terms and conditions relied on by Irish Asphalt and was willing to contract on that basis. He chose to turn a blind eye to Irish Asphalt’s terms and conditions and thus he took the risk of not actually ascertaining the specific terms and conditions. Put simply, he knew there were terms and conditions but chose not to find out what they were.
In the course of the written submissions reference was made to McMeel op. cit. at page 287, where the author explained the concept of incorporation by reasonable notice in the following terms:
“The second alternative route of incorporation is by reasonable notice. This is the principal mode of incorporation for unsigned printed documents. It first came to prominence in the nineteenth century ‘ticket cases’ as the industrial revolution and the railway age made standard terms a feature of everyday life. In the leading case of Parker v. South Eastern Railway Company, Mellish L.J. distinguished the case of incorporation by signature and continued:
‘The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case there must be evidence independently of the agreement itself to prove that the defendant has assented to it. In that case, also, if it is proved that the defendant has assented to the writing constituting the agreement between the parties, it is, in the absence of fraud, immaterial that the defendant had not read the agreement and did not know its contents. Now if in the course of making a contract one party delivers to another a paper containing writing, and the party receiving the paper knows that the paper contains conditions which the party delivering it intends to constitute the contract, I have no doubt that the party receiving the paper does, by receiving and keeping it, assent to the conditions contained in it, although he does not read them, and does not know what they are’.” – See 1877 2 CPD 416, 420.
This passage suggests that in the ordinary case it is sufficient to prove that a document containing terms was provided by one party to or sent to the other and was retained without demur. As with incorporation by signature, Mellish L.J. was emphatic that reading or familiarity with the terms was irrelevant.
In Circle Freight International Limited v. Medeast Gulf Exports [1988] 2 Lloyd’s Rep. 427, CA, the invoices each stated in small print at the bottom:
“All business is transacted by the company under the current trading conditions of the [IFF] a copy of which is available on request.”
This was in the words of Bingham L.J. both “clear and legible” and “placed immediately below the price where the eye would naturally alight on it”. The exporters never requested a copy and none was sent. Having reviewed the authorities, Taylor L.J. concluded:
“. . . it is not necessary to the incorporation of trading terms into a contract that they should be specifically set out provided that they are conditions in common form or usual terms in the relevant business. It is sufficient if adequate notice is given identifying and relying upon the conditions and they are available on request.” [1988] 2 Lloyd’s Rep. 427, 433.”
A number of points emerge from the passages referred to above. First of all, although one can be bound by terms and conditions that one has not read, the document relied on by the party asserting the terms and conditions should actually contain either the conditions themselves or in some other way identify the terms and conditions relied on. As Taylor L.J. concluded in Circle Freight, it is not even necessary for the conditions to be set out specifically. He pointed out that it would be sufficient if adequate notice was given identifying and relying upon the conditions. In that case, there was a clear reference to the IFF terms on invoices created for the purpose of the contracts between the parties. Taylor L. J. added in the course of his judgment (at p. 433) the following observation:
“Here, the parties were commercial companies. There had been a course of dealing in which at least eleven invoices had been sent giving notice that business was conducted on the IFF terms at a place on the document where it was plain to be seen. Mr. Zacaria knew that some terms applied. He knew that forwarding agents might impose terms which would frequently be standard terms and would sometimes or frequently deal with risk. He never sought to ask for or about the terms of business. The IFF conditions are not particularly onerous or unusual and, indeed, are in common use. In these circumstances, despite Mr. Gompertz’s clear and succinct argument to the contrary, I consider that reasonable notice of the terms was given by the plaintiffs. Putting it another way, I consider that the defendants’ conduct in continuing the course of business after at least eleven notices of the terms and omitting to request a sight of them would have led and did lead the plaintiffs reasonably to believe the defendants accepted their terms. In those circumstances it is irrelevant that in fact Mr. Zacaria did not read the notices.”
Thus, it was held that the IFF conditions were incorporated in the contract. It is noteworthy that the invoices relied on made specific reference to IFF conditions. Therefore, the plaintiffs had, in the view of the Court, given adequate notice identifying the conditions they relied on.
A further authority referred to in the submissions on behalf of Irish Asphalt was the case of Baden v. Societe Generale S.A. [1993] 1 WLR 509 which was relied on in relation to the concept of knowledge. Peter Gibson J. in the course of his judgment described knowledge as follows:
“(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.”
That case concerned the question of knowledge in the context of constructive trusteeship. It seems to me that there is a significant distinction between the type of knowledge a person can be said to have in the context of a constructive trust and the requirement to give reasonable notice of a particular state of affairs to another person. Knowledge in the manner explained by Gibson J. cannot be a substitute for the requirement of a party to give reasonable notice. It is for the party relying on an exemption clause to give reasonable notice of its terms and conditions and not for the party to be bound to be put on enquiry as to whether or not there may be terms and conditions containing an onerous exemption clause. I am not of the view that the case relied on assists the argument of Irish Asphalt on the question of reasonable notice.
The essence of the argument of Irish Asphalt is that the proviso on the delivery dockets, “This material is sold subject to the terms and conditions available on request”, was reasonable notice of the terms and conditions applicable. I cannot agree. At no stage was Noreside ever provided with a copy of Irish Asphalt’s terms and conditions. The terms and conditions were not identified in any shape or form or specified by reference to any known industry-wide terms and conditions. The position could have been otherwise if the proviso had identified some specific terms and conditions such as the IFF conditions referred to in the Circle Freight case. However that did not happen in this case and, accordingly, in my view, Irish Asphalt failed to give reasonable notice of its terms and conditions to Noreside.
Further, this is not a case in which the course of dealing between the parties could be relied on by Irish Asphalt to incorporate its terms and conditions into the contracts between the parties. The fact that the proviso is contained in a large number of delivery dockets does not assist Irish Asphalt in circumstances where Irish Asphalt has never given any reasonable notice of its terms and conditions to Noreside. Obviously, if Irish Asphalt had on numerous occasions supplied copies of its terms and conditions to Noreside but on a particular occasion had failed to do so, then in the context of a breach of contract on that occasion, it would be very difficult for Noreside to argue that it was not aware of the terms and conditions. The fundamental problem in this case for Irish Asphalt is that over the entire period of dealing between the parties, Irish Asphalt never supplied its terms and conditions to Noreside and in those circumstances I fail to see how it could be said that Irish Asphalt’s terms and conditions could have been incorporated into the series of contracts between the parties by a course of dealing.
Incorporation of terms by reference or by custom and practice
Very little needs to be said in relation to the argument that Irish Asphalt’s terms and conditions were incorporated into the contract between the parties by reference to the proviso contained on the delivery dockets. If it was the case that reference had been made to terms and conditions well known within the industry and identifiable as such, for example, as in the Circle Freight case by reference to the IIF conditions, I would be of the view that such terms and conditions could be incorporated into the contracts between the parties. If the reference was to some other document – for example – if the proviso made reference to “our terms and conditions as set out on our invoices”, the terms and conditions could be incorporated by such reference if the terms and conditions were, in fact, set out on the invoices. However, nothing of that kind happened here and the mere reference to terms and conditions without either specifying them in any way or otherwise identifying them is not, in my view, sufficient to incorporate the terms and conditions into a contract or series of contracts by reference. The basis on which terms and conditions could be incorporated by reference into a contract in any given case would clearly turn on its own facts and circumstances.
Finally, it was submitted on behalf of Irish Asphalt that the terms and conditions relied on by them were incorporated into the contracts by custom and practice. Lewison in Interpretation of Contracts 2007 referred to the principles governing incorporation by way of custom and practice in the following terms at page 221:
“A trade usage producing a customary meaning is a trade custom which must be proved as clearly and definitely as any other trade custom. In a market where buyers and sellers meet together habitually, they get into the habit of assuming that certain conditions or usages apply to all contracts they make. A usage grows up because everybody in the market, knowing the usages, tacitly assumes the contract he is making, whether as buyer or seller, is subject to the usage. The binding character of that usage is born of innumerable individual transactions entered into by the parties to them in the knowledge that certain usages are in practice habitually followed in that market. For a practice to amount to a recognised usage, it must be certain, in the sense that it is so well known in the market in which it is alleged to exist, that those who conduct business in the market contract with the usage as an implied term; and it must be reasonable.”
In making the argument that the terms and conditions were implied into the contract between Irish Asphalt and Noreside, Irish Asphalt relied on the evidence of Mr. Kennedy, a witness called by Irish Asphalt. Mr. Kennedy was a director of Roadstone and was responsible for a number of quarries and gravel operations. In the course of his evidence, he was asked if it was custom and practice within the industry to limit liability and he responded:
“Yeah, there are a number of reasons for that. At a macro level, obviously, there is the management of the risk in the business. In terms of proportionality, this business is a commoditised business. A commodity business, low value, high volume transactions, low value. So, for instance, in terms of a load of Clause 804, your typical cost delivered to site is, maybe €200. A profit margin for a business in the aggregates game, well run, is about €60. So where you are delivering material like that to a multimillion pound project you have to limit your risk. The second thing I would suggest is that, in relation to the industry, quarry companies or supply companies, they are not construction companies. And, again, if you look at it, they are at 21% VAT, the higher rate of VAT, which proves that they are a deliverer of materials, not a supplier of services, not a supplier of labour. So that’s a very distinguishing factor and that’s very important for people in the quarry industry. Because their customer base, typically, is in the construction industry and that customer base tends to be contractual. So the industry has to protect itself. . . .
Well, as said in my witness statement, I believe it to be custom and practice. My own experience is that all the major international players would have, either, a limited liability or a rejection of consequential loss. And I think a number of the larger family owned businesses in Ireland would have similar type statements.”
He went on to discuss Noreside’s terms and conditions and stated that he would never have accepted them:
“Question: “Why is that?
Answer: Because risk reward. It is a fundamental of our business that you can’t accept risk in the context of the type of reward you are getting in your business. Because it is a supply business. There are a number of reasons. One, just being practical about it, I may, you have no control over your product. You have certainly no control over your product if it is collected by the customer. You’d have no control when it gets to site. You have no control in terms of how it is used. So the industry, in general, in my experience, in my view, has always sought to protect itself as a result, we are not contractors, we are suppliers.”
In considering this issue, it is helpful to look at McDermott on Contract Law at para. 7.07 in which the author set out a number of requirements that must be fulfilled before a custom would be implied into a contract, namely:
(1) 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.
(2) The custom must be certain.
(3) The custom must be reasonable, and the more unreasonable it is the harder it will be to prove that it exists.
(4) Until the Court takes judicial notice of a custom it must be proved by clear and convincing evidence.
(5) The custom must not be inconsistent with the express contract.
The case of O’Reilly v. Irish Press [1937] ILTR 194, considered this issue. Maguire P. commented:
“. . . a custom or usage of any kind is a difficult thing to establish . . . it must be proved by persons whose position in the world of journalism entitles them to speak 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.”
The learned trial judge reviewed the evidence of Mr. Kennedy, that of Mr. Tuite on behalf of the defendant and the evidence of Mr. Regan. Mr. Regan, on behalf of Noreside, disputed the evidence of Mr. Kennedy and Mr. Tuite as to the existence of a custom or practice within the industry of a standard practice of including a limitation of liability clause in terms and conditions provided by quarry owners. Finlay Geoghegan J. concluded as follows at para. 50 of the judgment:
“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.”
The learned trial Judge was not satisfied on the evidence that there was sufficient evidence of a custom well known within the quarry industry such that quarry owners or operators were entitled to limit their liability in the absence of the inclusion of an express contractual term. Indeed, as she noted, the practice, on the contrary, appears to have been to include such an express contractual term. Looking at the evidence of Mr. Kennedy overall, it seems that the height of his evidence was that he believed it to be custom and practice. He referred to his experience that all the major international players would have either a limited liability or a rejection of consequential loss clause. He added that a number of the larger family owned businesses would have similar type statements. This suggests to me that the practice varies between quarry operators who have a clause that relates to limited liability and those who have a clause rejecting liability for consequential loss. Thus even within the evidence of Mr. Kennedy himself there is a degree of inconsistency as to the approach taken. Further, it seems that not all those involved in the business operate on the basis of seeking to limit their liability in that way. Thus, having considered the evidence and the finding of the learned trial Judge on this issue, I cannot see any basis for arguing that there was any error in her conclusion on this topic. Accordingly, I am satisfied that the terms and conditions relied on have not been incorporated by reference or by custom and practice.
Conclusions:
(1) There was a master contract between the parties concluded on the 26th March, 2003 which fixed the terms and conditions on which the parties would trade for the duration of Noreside’s Griffith Avenue project.
(2) Thereafter, there were separate and distinct contracts in respect of each supply of aggregate.
(3) The delivery dockets, whilst important documents in the execution of the contracts, were not contractual documents.
(4) Irish Asphalt’s terms and conditions were not incorporated into the contracts by the signature of Noreside’s site foreman or other operatives on the delivery dockets.
(5) Irish Asphalt’s terms and conditions were never provided or made known to Noreside.
(6) Irish Asphalt did not provide reasonable or adequate notice of the terms and conditions to Noreside by means of the proviso on the delivery docket or otherwise.
(7) Irish Asphalt’s terms and conditions were not incorporated into the contract by reference.
(8) Irish Asphalt did not establish in evidence that there was a custom and practice in the industry such that its terms and conditions could be implied or incorporated into the contract between the parties.
This is a case in which Irish Asphalt have sought to rely on terms and conditions which would limit their liability to Noreside for the defective aggregate supplied to Noreside. Irish Asphalt could have incorporated their terms and conditions into the contracts by any number of simple steps. For example, their terms and conditions could have been printed on their delivery dockets or on their invoices. All that occurred in this case was the inclusion of a reference in the delivery dockets to terms and conditions. This did not indicate in any way what those terms and conditions were. It is difficult to see how one could be bound by terms and conditions which are not contained in a signed contractual document or by terms and conditions which are never provided, identified or disclosed or by terms and conditions said to be incorporated by custom or usage unless they are “so notorious, well known and acquiesced in” as to be taken to be incorporated into the terms in the contract, as Maguire P. explained in O’Reilly v. Irish Press. In my view, Irish Asphalt has failed to establish that its terms and conditions were incorporated into the contracts with Noreside on any basis.
In the circumstances, I would dismiss the appeal.
Common Market Fertilizer S A & Anor -v- M V Sonata
[2007] IEHC 109 (07 March 2007)
of Mr. Justice Paul Butler delivered the 7th. day of March, 2007
By Plenary Summons dated herein on the 29th January, 2007 the plaintiffs commenced proceedings claiming damages for breach of contract of carriage and for breach of duty including negligence arising out of damage to a cargo of 7,279.5 metric tonnes of compound fertilizer carried on board the merchant vessel “Sonata” from St. Petersburg, Russia to Waterford in Ireland under a Bill of Lading dated the 12th January, 2007. The plaintiffs further claimed interest pursuant to contract and pursuant to statute.
By Order of this Court made on the 29th January, 2007 the M.V. Sonata was arrested.
By Notice of Motion dated the 12th February, 2007 the defendant seeks:-
1. An order pursuant to s. 5 of the Arbitration Act, 1980 or otherwise staying the plaintiffs’ claim herein;
2. A consequential or other order setting aside the arrest and releasing the defendant’s vessel from the arrest and custody of the Admiralty Marshal;
3. Alternatively, if for any reason the Court determines that it ought not to set aside the arrest or release the ship without security an order pursuant to O. 64, r. 17 of the Rules of the Superior Courts or otherwise fixing the security herein;
4. An order providing for the defendant’s costs of this application and the defendant’s costs of the proceedings.
Section 5 of the Arbitration Act, 1980 provides:-
“5.— (1) If any party to an arbitration agreement, or any person claiming through or under him, commences any proceedings in any court against any other party to such agreement, or any person claiming through or under him, in respect of any matter agreed to be referred to arbitration, any party to the proceedings may at any time after an appearance has been entered, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings, and the court, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings.
(2) Nothing in this section shall be construed as limiting or otherwise affecting the power conferred on the High Court pursuant to section 39 (3) of the Principal Act to refuse to stay any action brought in breach of an arbitration agreement.”
“Arbitration Agreement” is defined by s. 2 of that Act as:-
“An agreement in writing (including an agreement contained in an exchange of letters or telegrams) to submit to arbitration present and future differences capable of settlement by arbitration”.
The defendant claims that there is an arbitration agreement between the parties on the basis that there is an Arbitration Clause in the Charterparty.
Sweeney v. Mulcahy [1993] I.L.R.M. 289 is cited by the defendant as an authority for the proposition that an offer in writing of a contract that includes an Arbitration Clause, though not replied to in writing by the other party, is sufficient to constitute an Arbitration Agreement if the contract offered is subsequently acted upon by the parties.
While the plaintiffs were not parties to the Charterparty, it is submitted that as the Bill of Lading refers to the Arbitration Clause therein the plaintiff’s are bound by it in that the Charterparty is incorporated in the Bill of Lading.
While the law is correctly stated on behalf of the defendant, I am satisfied that in this case the facts are fundamentally different in that the Charterparty was generated subsequent to the Bill of Lading and could not, therefore, form part of it.
I, therefore, refuse the relief sought at paragraph 1 of the notice of motion herein.
As I have refused the relief sought at paragraph 1 of the Notice of Motion the “consequential” order sought at paragraph 2 does not arise. In the submissions it has been attempted to expand the reliefs sought in the Notice of Motion to a challenge of the jurisdiction of this court to arrest the vessel at all on the basis that the M.V. Sonata wears the flag of the Commonwealth of Dominica, a non-contracting party to the 1952 Arrest Convention (incorporated into Ireland by the Jurisdiction of the Courts (Maritime Conventions) Act, 1989). In the M.V. “Kapitan Labunets” [1995] 1 I.L.R.M. 430 the Supreme Court found that Article 8, paragraph (2) of the Convention plainly conferred jurisdiction to arrest a ship flying the flag of a non- contracting State.
Article 8.2 of the Convention provides:-
“(2) A ship flying the flag of a non-contracting State maybe arrested in a jurisdiction of any contracting State is respect of any of the Maritime claims enumerated in Article 1 or of any other claim for which the law of the contracting States permits arrest.”
I am satisfied that the court had jurisdiction to order the arrest in this case.
The other question remaining is that of security. It is clear that quantum will be hotly contested in this case and I can go so far as to observe that the defendant has indeed suggested an arguable case to the effect that the plaintiffs may well not be able to recover much of the sum now claimed. It is, however, accepted that the security should be fixed on the basis of the plaintiffs’ “reasonably arguable best case”. While the plaintiffs may not succeed to the full they have particularised and reasonably argued their best case in the amount of U.S. dollars $950,000.00 inclusive of interest in costs and I deem the same to an appropriate sum.
I shall hear the parties on the form of Order to be made on the basis of the foregoing findings.
Kinlen v Ennis Urban District Council
House of Lords.
9 November 1915
[1916] 50 I.L.T.R 1
Lord Buckmaster L.C., Lords Atkinson Shaw of Dunfermline, Parker of Waddington and Sumner.
Lord Buckmaster, L.C.
My Lords, I am of the clear opinion that the appeal should succeed. I cannot help thinking that the judgments of the Court of Appeal have gone astray owing to the judges failing to avail themselves of one of the most clearly defined and salutary rules of evidence known to the Courts. I refer to the rule which excludes from the construction of a written document the consideration of other preliminary documents or discussions which lead up to and are intended to be gathered up, included and explained in the written document itself.
My Lords, the value of that rule is very well illustrated by the present case, which arises under these circumstances. The Ennis Urban District Council in 1911, were preparing to carry out a scheme for the construction of labourers’ and artisans’ dwellings. It is with the artisans’ dwellings, and with those alone that the present dispute is concerned. These dwellings were to consist of three blocks of ten each or thirty in all, *2 and for the purpose of obtaining offers to carry out the work connected with their erection the Ennis Urban District Council caused certain specifications and a form of tender to be prepared. The form of specification is important. It was divided under two perfectly clear and distinct heads both grouped under the general conditions which were described as “General conditions of contract and specification of work and materials to be employed in the erection and completion of eight blocks of workmen’s dwellings for the Urban Council of Ennis.” The first head was in the following terms: “Conditions and specification of materials and workmanship to be employed in the erection and completion of workmen’s dwellings for the Urban Council of Ennis.” It then proceeded to refer to the tenders that it was desired to obtain, and continued in this form: “It is proposed to erect under present contract thirty cottages for artisans on plot opposite the Courthouse, having a frontage on the Gort Road, and which will be referred to in this specification, where necessary to define the work not applying to labourers’ cottages as Design ‘A,’ and it is proposed to erect forty-six cottages for labourers on the Clare Castle Road site, and which will be referred to as above as Design ‘B.’” The importance of that statement which I have read as to the meaning of Design “A” is that it does not appear at the head of the specification before it was sub-divided, but it appears in that part, and that part only, of the specification which deals with the erection of the dwellings. At a later part of the same document there comes an entirely distinct and separate heading called “Specification for road, water supply, &c,”“Separate estimate”. The only material clause in that separate estimate is one in these terms: “Construct wall at rere of Design ‘A’ along borheen, 540 feet long by 6 feet by 18 inches of rough rubble masonry. Put semi-circular concrete capping to same.” It is perfectly plain, therefore, that the Ennis Urban District Council had by their specification divided the work that they desired to have completed under two perfectly clear, perfectly separate and distinct heads, the one relating to the construction of the dwellings strictly and properly defined, and the other to a totally different piece of work, that of building a wall at the back of the land on which the cottages were to stand. In those circumstances there was a tender made by the appellant upon the form affixed to the specification, and this was accepted by the respondents and was followed by a formal contract under seal. The contract is dated the 4th September, 1911, and upon its true construction the whole of the dispute in this case depends. My Lords, if in considering that contract it were found that it depended upon the tender, that is to say that the contract in terms bound the builder to perform the work for which he had tendered, or if the contract was so ambiguous or the tender was so involved in its construction that it was impossible to understand what was intended without investigating the tender for that purpose, it might well be that the tender would need to be regarded. But I can find no such difficulty in the contract. It begins with the following material recitals: “whereas the Council have with the consent of the Local Government Board for Ireland adopted a scheme for the erection in the town of Ennis of artisans’ and labourers’ dwellings under the provisions of the Housing of the Working Classes Acts consisting of thirty artisans’ dwellings which are described as Design “A,” and forty-six labourers’ dwellings which are described as Design “B” in the said scheme… And whereas the contractor has by tender dated the 7th day of August, 1911, agreed to execute the said works comprised in Design “A” for the sum of £5,880 sterling, which said tender was accepted by the said Council.” The most important recital is the one which recites the agreement to execute the works in Design “A” for it is upon that that the whole contract depends. In my opinion there is no difficulty in determining what was the scope and ambit of the works which were comprised in Design “A” which is within the meaning of that contract defined in that part of the specification which relates only to the dwellings. Further, there follows in the first clause of the contract the obligation to perform the work which is in these terms: “The several works will be constructed in all respects agreeably to the specifications and in conformity with the accompanying drawings.” Those plans consisted of a plan of a house with a yard at the back headed Design “A,” and attached to that was a block plan showing the total numbers of the houses and the three blocks into which they were to be divided; the block plan showed further behind the rere wall of the tenements some open spaces that were divided into plots and appear to be bounded themselves again by a wall or fence. There is nothing whatever upon these plans to identify the wall which was the subject of the separate specification to which I have *3 referred. There is no line upon the plan that agrees with the length that is mentioned in the specification, nor is there any part whatever of the working plans that shows the dimensions of the wall or the method of construction by which it is to be built. On the other hand, we find that when we deal with the walls that are at the back of the yards of the tenements, the subject of the contract, there is a perfectly clear wall shown defined in position and thickness. So far as those plans are concerned, and so far as the design is elucidated by their assistance, there is nothing whatever to show that the Design “A” included the building of the wall which was the subject of the separate estimate in the original specification. Then it is said, but in point of fact, although it is not shewn upon the plan yet, Design “A” must be treated not as a design for certain buildings but as a general scheme, and that if you consider that scheme you find that part of the scheme was to build this wall at the back of the open piece of land that lay between the rere walls of the cottages and the road which is known as the borheen. My Lords, for the purpose of supplementing that argument reference has been made to the document I referred to just now called the tender and indeed, unless the tender is introduced into the discussion, it would, I think, be impossible to show that that wall was intended to be included. For the reasons I have already given I think it would be very dangerous indeed to stray away from the plain terms of the contract for the purpose of seeing what it was that had been the subject of the tender; and that for this reason when the tender is looked at two things become clear; the one is that there are to be separate tenders for the construction of the wall, and for the construction of another part of the work, which on the one hand, it is suggested is strictly confined to the cottages, and on the other is said to include the cottages and the wall as well. The tender itself when read in connection with the specification is, I think, a document that might well mislead a man, and without attempting to define what its true meaning is I think it is sufficient to say that its investigation affords a good reason for relying upon the rule that the statement as to what the parties meant when the tender was made and accepted is to be extracted from the contract which the parties subsequently made to carry their meaning into effect. It is perfectly possible that the builder in tendering may have had one thing in his mind and the Urban District Council may have had another. Their intentions are made plain and their minds are brought into unison by the contract which both parties signed. If the contract does not carry out what either of the parties are prepared to assert was the actual agreement, it is open to the party who is dissatisfied to seek to have it rectified; but it is not open to either party for the purpose of showing that the contract possesses a different meaning from that which upon the face it bears, to have reference to other documents, which in this case, at any rate, only increase and do not relieve the ambiguity. My Lords, therefore, in my opinion, this contract should not be interpreted by the assistance of any other documents than those which are expressly incorporated with it, and so interpreted it appears to me that there was no obligation whatever upon this builder to build the wall which is the subject of this dispute. My Lords, there is one further point that was urged by counsel for the respondents here which I think only needs slight consideration. He says that a certificate by the architect that the work was completed was a condition precedent to the claim for payment under the contract, and for that purpose he relies upon clause 18 of the contract, which is the only clause which provides for payment. That clause is in these terms: (clause 18) “No payment will be considered legally becoming due to the contractor. … until the architect or other person so appointed shall have given his certificate of the satisfactory completion of the contract when such balance is to be paid as follows.” He also referred to the fact that any disagreement or misunderstanding is to be settled by the architect by clause 11, and to the fact that by the specification itself, in the last clause of all, the engineer is to be the sole arbitrator, and by another clause it is provided that the works are also to be carried out as may be directed by him and to his entire satisfaction. My Lords, it may be accepted that the architect was the sole arbiter of whether the work had been properly done in accordance with the contract, or no, but that appears to me to carry the respondents but a short distance in this case, because in fact the engineer has given a certificate. That certificate was given on the 29th of August, 1913, and it is in these terms “I hereby certify that Mr. P. J. Kinlen has, with the exception that he has not demolished the old houses or built the rere wall, completed the contract to my satisfaction.” I read that certificate in this way: “A dispute has arisen between the council and the *4 builder as to whether the wall is within the contract or not. The wall in fact has not been completed. If it be within the contract, then that contract is not performed. Whether it be within the contract or whether it be not, I do not determine, but I say that with the exception of that item the work has been properly performed.” My Lords, in the view that I have formed, that work did not form, and never had formed, any part whatever of the contract, and it consequently follows that the architect’s certificate was perfect in substance and in form, and there is no difficulty placed in the way of the appellant by reason of any failure on the part of the architect to certify. For these reasons I think the appeal should be allowed, and the judgment entered by the King’s Bench Division should be restored.
Lord Atkinson.
My Lords, I concur, and have nothing to add.
Lord Shaw of Dunfermline.
My Lords, I also concur. In my opinion this agreement does not contain in itself any ambiguity which compels a court of law to refer to previous writings. My Lords, the rule upon this topic is elementary. It has been settled by a body of authority, of which the case in this House of Lee v. Alexander (8 A. C. 853) is a fair and leading example that where you have a contract entered into by parties which even expressly bears to be an implement of a previous contract, the latter supersedes the previous contract in toto. Whether with regard to real or to moveable estate or ordinary bargain, the adjusted final conveyance on the ultimate agreement becomes the sole measure of the rights and liabilities of the contracting parties. My Lords, I would desire respectfully to adopt the judgment of Mr. Justice Molony in this case as distinguishing between what the specification does provide for and what it does not. He says: “The specification shows that there was to be a separate estimate for the wall along the borheen, and it states that this wall was to be constructed “at the rere of Design ‘A’” but does not purport to be a part of the contract for Design “A,” and implies that it is not by stating that the “conditions of the contract and specification for the cottages are applicable to this contract in every respect.”1
It appears to me, my Lords, that that completely covers the entire case which has been made in argument in support of this appeal. I think the judgment of the Lord Chief Justice, and in particular the judgment of Mr. Justice Molony, ought to be affirmed by this House. I desire upon the subject of arbitration to make two observations in view of the argument which we have heard. In the first place, my Lords, I should be extremely slow to admit such an argument at this stage of the case. It appears to me to be of the word example that an argument of that kind which would cut down to the root of the action, should be allowed to be proposed at the Bar of your Lordships’ House. Before assenting to that view, I should desire to be satisfied that the Courts whose decisions are under review had had before them a crisp and plain plea to the effect that this action was excluded by reason of the award made by an arbiter. That has not been done in the pleadings or in the Courts below, and the contract of litis-contestation has been carried up to the Bar of this House without it. The citation of a public statute previously omitted in the proceedings may, of course, be a different matter, but in the ordinary case this House is, as it ought to be, extremely slow to admit fresh matter. On the subject of the arbitration plea itself, I would only, in conclusion, say that I do not think it has a good foundation in the terms of clause 11 of the specification. That clause provides that any disagreement or misunderstanding that may arise connected with the quality of the materials, or the execution of the works or any of the plans or specification, shall be decided by the architect. My Lords, there is no clause remitting to the arbitrament of this gentleman a decision as to the meaning of the contract itself. Until in short there has been postulated this fact, that the works executed are executed under this contract, there is no occasion for calling upon this gentleman whose jurisdiction does not begin until he has to determine a matter with regard to the execution of the works under the contract.
Lord Parker of Waddington.
My Lords, I concur.
Lord Sumner.
My Lords, I concur.
Appeal allowed, judgment of the King’s Bench Division restored.
1. The following is a further extract from the judgment of Molony, J., in the King’s Bench Division:— Looking, therefore, at the construction of the documents expressly incorporated therewith, it appears to me that the wall along the borheen was not included in the contract. It is, however, contended by the defendant that if recourse be had to two other documents the meaning of the parties will appear clear; first, the tender which is recited in the sealed contract, and secondly, the plan sent to the plaintiff with design “A,” which he had before him at the time of tendering. It is objected on behalf of the plaintiff that these documents are not legal evidence, but they appear to have been admitted without question at the trial. In considering these documents, one must bear in mind the words of James L. & J. in Leggett v. Byrne, 15 Ch. Div. 306, at p. 309. [His Lordship then read this passage and continued.] We can look, therefore, at the plan and tender for the purpose only of seeing what the object of the parties was, and what they were about to do, so far as to afford a guide in the construction of their words in the deed itself. By tender No. 1 the plaintiff agreed to erect and complete three blocks of artizans’ dwellings, yards, out-offices, sewerage, water, connection from service pipe, rere wall, demolish old houses as per design “A,” and by tender No. 4 the plaintiff agreed to demolish old houses and erect a wall “at rere of design ‘A.’” No 1 was accepted, but No. 4 was not. It is contended by the defendants that these tenders were alternative, and that under tender 1 the plaintiff was bound to do all he had tendered for in No. 4. The only rere wall shown on design “A” is the rere wall at the back of the houses, and this has been built. There were old houses on the plot comprised in design “A” which were demolished by the contractor (see letter from the plaintiff of the 4th April, 1913), and, consequently, every word of the tender is satisfied by the works which have already been done. It is next contended by the defendants that the work comprised in tender 2 includes the work under 5, and, consequently, the work comprised in tender 1 includes the work in tender 4; but this is to embark in a consideration of the specifications for which there is no legal warrant. It may, however, be observed that the new road and gates mentioned in 5 are expressly shown on the ground plan accompanying design “B.” Now, turning to the block plan accompanying design “A,” the object of which was to show the three blocks in which the houses were to be built, it is said that this plan shows a wall along the borheen. It shows a wall along the rere of all the houses which can most properly be called the rere wall. This wall corresponds to the wall in design “A,” save that it does not show any opening to the garden plots. The plan shows two walls bounding the borheen, and also two side walls from the cottages to the borheen, but does not specifically refer to the construction of any wall, and cannot, I think, be relied on for the purpose of adding to the contract is certainly not within its terms. I am therefore of opinion that Mr. Justice Madden rightly directed the jury that the plaintiff had completed the contract works before action brought.
Kastrup Trae-Aluvinduet A/S -v- Aluwood Concepts Ltd
[2009] IEHC 577 (13 November 2009)
JUDGEMENT of Mr. Justice John MacMenamin dated the 13th day of November, 2009.
1. In this application the applicant (“Kastrup”) seeks:
(i) An order pursuant to s. 7 of the Arbitration Act 1980 and s. 41 of the Arbitration Act 1954 enforcing the award of the Danish Arbitration Board for the Construction Industry dated 21st April, 2009, in this State in the same manner as if the said award was a judgment or order of this Honourable Court to identical effect;
(ii) Judgment in the sum of DKK904,063.93, together with DKK48,837.98 for legal costs, DKK44,308 for costs related to the arbitration tribunal in conducting proceedings, and DKK10,731.24 for costs of translation;
(iii) Interest on the principal sum of DKK759,249.27 from the 2nd December, 2008, was at the rate of 1.8% per month or part thereof, to the date of payment.
Factual background
2. The applicant is a limited company registered in Denmark. The respondent carries on the business of supplying Scandinavian window and door products having its registered office in Co. Waterford. Prior to the matters in suit the applicant and the respondent had an ongoing business relationship. The applicant supplied the respondent with Scandinavian doors and windows. These were transported to Ireland and used in developments by the respondent. This relationship operated on the basis of individual contracts between the parties for individual jobs being undertaken by the respondent. The plaintiff says all of these individual contracts were governed by a set of “Common Terms and Conditions of Sale”.
3. The said terms and conditions of sale contained at paragraph 11, a “Disputes” section which reads as follows:
“Submissions of question concerning the delivery for the opinion of experts appointed by the court must follow the rules of the General Conditions of 1992 for Works and Supplies in the Building and Construction Industry (“Almindelige Betingelser for Arbejde og Leverancer i. Bygge-og Anaegsvirksomhed 1992 )(AB 92) (S. 45).
Disputes between parties falling under AB 92, s. 22, subs. 14 shall be settled in accordance with AB 92, s. 46.
Disputes shall reach a final settlement at the Danish Court of Arbitration for the Building and Construction Industry, cf. the general conditions for works and supplies in the building and construction industry of 1992 (AB 92) 0, s. 47.”
4. The manner of alleged incorporation of this term into the contractual relationship is outlined later in this judgment. The business between the plaintiff and the defendant initiated in 2006 continued over a period of several years. It was substantial, amounting to hundreds of thousands of euro per annum. In 2008 disputes as to payment arose between the applicant and the respondent company. On 15th August, 2008, Danish solicitors acting for the applicant wrote to the respondent outlining the level of unpaid invoices which were owing at that time and requesting payment. These invoices totalled DKK945,372.06.
5. Aluwood had previously purported to raise a number of complaints of alleged defects in the product supplied by the applicant. By this the respondents sought to justify a refusal to pay for the goods in full. On 9th July 2008, Aluwood objected that the account furnished by Kastrup did not take into account a number of “contra-charges”. Kastrup wrote saying “we will have a look at your list and relate to which of your charges according to your terms and conditions of sale”. The applicant’s solicitor noted these matters in correspondence, but went on to indicate that if a payment of the outstanding balance was not received within ten days of the receipt of a letter of final demand the applicant would initiate legal proceedings pursuant to “article 11 of the applicant’s common terms and conditions of sale”.
6. The respondent did not reply to that letter. Specifically, Aluwood raised no question at that time regarding any reference to the common conditions of sale. The applicant’s solicitors initiated arbitration proceedings in Denmark.
7. While Aluwood contends that it was not on notice of any such terms and conditions from the commencement of the trading relationship, I find this is not so. In fact, in a letter of 18th August, 2006, which commenced the commercial relationship, Kastrup indicated that the basis of such business relationship would inter alia be in accordance with “1. common sales and delivery conditions of VI (VI: The organisation of Danish window producers)”. This same reference was repeated in a confirmation of the order of 24th August, 2006. The plaintiff and the defendant were both substantially engaged in a common course of commerce. Aluwood was in no way a simple “consumer” with such rights as a consumer might enjoy. It is a near universal practice in this type of trade that contractual or commercial relationships would be subject to some form of arbitration clause. It cannot be said that the existence of such a clause came as a “bolt from the blue” insofar as the respondent was concerned. If it was, this point was not raised in any correspondence then.
8. On 3rd September, 2008, Kastrup’s lawyers sent a copy of the particularised invoice outlining the principal debt to the respondent firm. On 6th November, 2008, they wrote to Aluwood’s Irish solicitors indicating that arbitration proceedings had been initiated against the respondent on 3rd September at the Danish Arbitration Institute, in accordance with Kastrup’s “Common Terms and Conditions of Sale” which had been agreed between the parties. In that letter Kastrup’s solicitor indicated that the deadline for filing a defence had been postponed three times from 2nd October, 2008, to 27th October, 2008, and finally to 6th November, 2008.
9. The respondent’s solicitors contacted Kastrup’s lawyers by way of email on the same date (6th November, 2008). No defence to the claim had yet been filed. Messrs. Hallys, Aluwood’s solicitors were informed that absent a defence, the Danish Arbitration Institute would issue its verdict solely on Kastrup’s statement of claim. Aluwood were informed that such a verdict would be final and directly enforceable against the respondent in Ireland.
10. On 11th November, 2008, Messrs. Hallys objected to the fact that the statement of claim in the Danish arbitration had been provided to Aluwood in the Danish language, and that their client’s proprietor, Mr. Brennan did not speak that language. In another letter of the same date, they sought details of the claim in English, and also looked for details of the common terms and conditions of sale, with evidence that these had been agreed between the parties. They wrote to similar effect to the Danish Arbitration Institute. On 13th November, 2008, Mr. Hally of that firm wrote again to Kastrup’s lawyers, repeating that neither he nor his clients spoke Danish, although it was clear that Mr. Dahl, Kastrup’s lawyer spoke English. He again sought copies of the terms and conditions of sale. He denied that his client was bound by the conditions or by any arbitration in Denmark. But this denial of the binding nature of the conditions was not particularised
11. Mr. Hally was contacted by the Institute, informing him that the language of the case was Danish, that his client should find an interpreter, and that it would be advisable to hire a Danish solicitor who could act on behalf of his client. This was reasonable advice. On 19th December, 2008, he contacted the Institute indicating that he had been in touch with a Danish solicitor and had asked for his client to be advised in relation to the matter. On 23rd December, 2008, Mr. Hally wrote to Mr. Brennan again pressing his client for instructions in relation to the claim. He said:
“Would you please let us have your instructions in relation to both matters as soon as possible, bearing in mind that if something is not done pretty quickly the claim will be dealt with without reference to any representations on your part.”
This was not only fair warning – it also shows the defendants own understanding of the procedural situation. It also shows Mr. Hally had not received any substantive instructions in the matter even by late December, 2008.
12. The Institute yet again extended the time for Aluwood to submit a statement of response. It could not have been fairer. It was indicated that such response should be filed by 16th January, 2009. This was, at minimum, the fourth extension of time. Furthermore the defendant was yet again informed should it fail to respond within that time limit, the case would be decided on the basis of the claim which had been furnished already by Kastrup.
13. For financial reasons Aluwood did not consider itself in a position to retain either a Danish lawyer or even a Danish translator. The fees requested by the Danish lawyer were entirely reasonable. There is no evidence as to the cost of a translator. I can only assume there was no serious effort made to obtain one. If there was, I would have expected there to be evidence on this point. This was a matter in the defendant’s hands entirely. Instead, on 2nd February, 2009, Mr. Brennan, the respondent’s proprietor contacted the Institute indicating that it would not be attending the hearing for the alleged reason that it was being “held in Denmark and not Ireland”. He furnished written details of Aluwood’s counterclaims, stated that this work had been in Ireland, but gave no other reason why the arbitration should be in Ireland rather than Denmark.
14. Mr. Brennan wrote in this letter that his firm could not afford the retainer fee for a Danish solicitor. He indicated that the level of business between his firm and Kastrup had amounted to €840,000 over the period. Finally, he wrote that Aluwood would not be attending any hearing in Denmark but would certainly appear at a hearing in Ireland “if we are still in business”. The impression this letter conveys is a great deal more eloquent about the defendant’s situation than any mere words.
15. On 12th March, 2009, Aluwood were provided with a copy of the applicant’s claim in Danish. Mr. Hally had repeatedly complained that the “claim” was in Danish. Mr. Dahl indicated that unless directed by the Arbitration Board he would not furnish the pleadings in English, as the language of the Arbitration was Danish.
16. On the 26th March, 2009, the Institute contacted Aluwood by letter. It indicated that the Chairman of the Tribunal, a High Court judge in Denmark, had made the following rulings:
a) That the procedural language for the Arbitration would be Danish;
b) That for this reason the claimant would not be ordered to translate its pleading or any other exhibit into English;
c) That for the same reason the hearing would be in Danish; and
d) If a party wished to have an interpreter present during that hearing they should make arrangements for that purpose.
The arbitral hearing and a later challenge to jurisdiction
17. The hearing of the Arbitration was fixed for 7th April, 2009, a fact well known to Aluwood. The previous evening, at 17.31 Messrs. Hallys wrote by email on 6th April, 2009, to the Institute. Only then did they raise a point that the respondent had never submitted to the Danish Arbitration Board having jurisdiction to deal with the dispute. They also contended that there was no evidence in any documentation to show that both parties had agreed to submit to arbitration as would be required under article 1 of the 2006 Rules. They suggested that there was no evidence that there had been a defined legal relationship between the parties. They said that while the claim was being made by Kastrup, in fact the debt had been assigned to another firm who had no interest in the debt. On this basis, Mr. Hally submitted that the Arbitration Board had no jurisdiction to deal with this issue. These were all purely technical points raised far too late in the day.
18. Unsurprisingly, the Danish Arbitration Board for the Construction Industry did not accept any of these very late written submissions. It proceeded to make an award after the hearing, which award was made in Copenhagen on 20th April, 2009.
The defendants first lines of defence: not an “award”
19. The first issues for determination are whether (i) there was an “award” made pursuant to an arbitration agreement, which (ii) does not come within any of the exceptions where a court might refuse to enforce under the New York Convention 1958 (identified in the Arbitration Act 1980).
20. Aluwood accept that if the award sought to be enforced is an “award” within the meaning of s. 6 (1) of the 1980 Act, the Court is obliged by the provisions of that Act to recognise and enforce the award, unless they establish one or more grounds upon which the Court might be entitled to refuse to enforce such award.
21. Section 9 of the Arbitration Act 1980 sets out the grounds upon which a court might refuse to enforce such an award. The burden of establishing such an award rests upon the party who opposes enforcement. The respondent accepts that enforcement of an award should not be refused by a court otherwise than pursuant to the grounds as set out in s. 9 of the Act of 1980. These grounds are exhaustive and the Court must recognise and enforce the award unless the party opposing enforcement does not prove that one or more of those grounds actually apply.
22. In brief such grounds of opposition may be summarised as:
(a) incapacity of a party;
(b) invalidity of the arbitration agreement under the law of the country or the party subject to it;
(c) absence of proper notice of the appointment of the arbitrator;
(d) an award deals with the difference not contemplated by or falling within the terms of the arbitration;
(e) the composition of the arbitral authority or the procedure adopted therein not being in accordance with the agreement of the parties or the law of the country where the arbitration took place;
(f) the award not yet being binding on the parties or had been set aside or suspended;
(g) the award being in respect of a matter not capable of settlement by arbitration under the law of the state or where it would be contrary to public policy to enforce the award;
(h) any matter which although part of the award was not actually submitted to arbitration. Essentially therefore the grounds are confined to issues of fair procedure, or matters going to jurisdiction or the law of the State where enforcement is sought.
23. The respondent says that the evidence before this Court establishes that there was never any binding arbitration agreement in place between the parties and therefore the award was not made in pursuance of an arbitration agreement. Counsel says the applicant did not draw the respondent’s attention to the existence of the contents of the “Common Terms and Conditions” that contain the arbitration clause. It is suggested further that the first time the respondent became aware of these conditions was on 9th July, 2008 when the applicant sent the email to the respondent stating that the respondent’s list of contra charges would have to be assessed “in accordance with” these conditions. It is said the respondent did not agree to a contractual relationship between the parties being governed by common terms and conditions, and, that the conditions were never incorporated into any of the individual contracts between the parties. In particular, it is said that the parties had not submitted or agreed to the general conditions of the agreement of 10th December, 1992. I reject this submission as a matter of fact and law.
24. In Cremer (Peter) GMBH v. Co-Operative Molasses Traders Ltd. [1985] ILRM 564 the respondent opposed an application for an order enforcing a foreign arbitral award pursuant to the Act of 1980 on the basis that there was no binding contract in existence between the parties and therefore no binding arbitration agreement.
25. I accept the simple point that, in order for there to be an “award” contained in s. 6.1 of the 1980 Act, a court must be satisfied that the document or decision sought to be enforced is, within the meaning of that Act, an “award” made in pursuance of an arbitration agreement under the Act. In such a determination the court should not rely on any decision reached by the arbitral authority. The court is not debarred from reaching a decision on that issue by reason of the existence in the award of a decision by the arbitral authority that an arbitration agreement was in existence (per Finlay C.J. in Cremer).
26. In approaching this issue the following facts are material. I find both the applicant’s initial quotation to the respondent dated 18th August, 2006 and the order confirmation dated 24th August, 2006, both referred to the common terms. On the initial quotation there is written next to the word “basis”; a specific reference to the “Common Sales and Delivery Conditions” of VI, the organisation of Danish window producers. The organisation of Danish window producers are called “Vindues Industrien in Danish, hence “VI”.
27. The height of the respondent’s case appears to lie in the contention that his attention was not specifically drawn to the existence or content of these terms and conditions. Aluwood says that it did not receive the “general conditions” being the Danish provision for the form of arbitration set out in the applicant’s common terms.
28. I am unable to accept the respondent’s submission in this regard. On the plain face of the correspondence the common terms were incorporated into the contract. It does not lie with the respondent to now assert that these terms did not form part of the agreement. The objection which the respondents make came at a very late date. Had there been any suggestion that these terms and conditions came as a real surprise, one would have expected an early objection to have been made. The respondent is not the situation of an ordinary consumer. Both the applicant and the respondent were involved in a trading relationship where arbitration agreements of this type are very prevalent if not universal. In fact there is no direct evidence at all before this Court that the respondent was not on notice of these general conditions as the affidavit averment to that effect is made not by Mr. Brennan, the respondent’s proprietor but by his solicitor. This is hearsay and goes to weight. I prefer the plaintiff’s evidence. Had there been a real evidential issue on this point one would have expected that the best evidence would have been adduced – that is Mr. Brennan’s own averment that he was unaware of any general conditions of this type. There is no such evidence. On any basis however, I prefer the evidence of the applicants that the respondent must be taken to have been aware of these general conditions. As a matter of law moreover I consider that the respondent must be taken to have been on notice of the conditions.
29. In Sweeney v. Mulcahy [1993] I.L.R.M. 289 the plaintiff engaged the defendant to carry out renovations on his house. The defendant wrote to the plaintiff stating that the conditions of engagement and the scale of minimum charges laid down by the Royal Institute of Architects of Ireland (R.I.A.I) would apply. The defendant did not send a copy of the conditions of the R.I.A.I. to the plaintiff but stated that a copy of them was available on request. The plaintiff did not formally acknowledge the letter in writing but the parties met again and continued with the project. O’Hanlon J. pointed out that there may have been an explanation as to why the plaintiff did not ask for a copy of these conditions. This was on the basis that another architect had been retained by the plaintiff and her husband in relation to the same or a similar project previously and had then provided them with a copy of the conditions of engagement and scale of minimum charges.
30. In this case the respondent was informed in the first letter as to the existence of the conditions. It was open to Aluwood to seek copies of these conditions but they did not do so.
31. O’Hanlon J. observed in Sweeney;
“Having regard to the foregoing facts I am of opinion that the agreement between the plaintiff and the defendant must be regarded as incorporating the R.I.A.I. Conditions of Engagement and Scale of Minimum Charges as this was expressly put forward by the defendant at the outset as the basis upon which she was prepared to act as architect in the matter, and the plaintiff allowed the work to proceed thereafter without expressing any dissent.”
32. In Holfeld Plastics Ltd. v. ISAP Omv Group Spa [1999] IEHC 24, Geoghegan J. considered whether the plaintiff was bound by an exclusive jurisdiction clause in the defendant’s standard terms. For the purposes of the “notice”, the principle engaged in this case, I do not think that there is a substantive difference between exclusive jurisdiction clauses, conditions of engagement setting out minimum charges, or arbitration clauses. In Holfeld the terms had been referred to and appended to the defendant’s initial quotation but the plaintiff contended it had not read them at the time the agreement was reached. Geoghegan J. stated at p. 4 of his judgment:
“If it was simply a matter of interpreting the contract in accordance with Irish law, I would have no hesitation in holding in favour of the defendant. These are two commercial companies dealing at arm’s length, and a company such as the plaintiff should expect supplier companies such as the defendant to annex to all its sales its own terms and conditions. Both quotations made it expressly clear that those conditions were to apply and on any reasonably careful reading of them the plaintiff would have been on notice of the exclusive jurisdiction clause.”
I consider this observation is particularly apropos in the current case.
33. In Stryker Corporation v. Sulzer Metco AG [2006] IEHC 60 O’Neill J. also had to determine whether the defendant’s standard terms and conditions had been incorporated into the agreement between the parties in circumstances where those standard terms contained an exclusive jurisdiction clause for the purposes of article 17 of the Lugano Convention. He found:
“It is clear in my view … that the necessary agreement may be inferred even in the absence of proof of actual agreement where the circumstances are such as to demonstrate that in the commercial context in which the agreement exists, the existence of that consensus or agreement is in those circumstances a probability rather than otherwise. Thus as was demonstrated in the Holfeld case agreement was inferred even though it was contended that the general conditions had never been read and hence not agreed to but where these general conditions were expressly referred to on the face of the contract.”
34. Applying these principles to the instant case, I take the view that even looking at the situation “in the round” (the test proposed by the respondent), I would be prepared to make similar inferences as those made in Sweeney, Holfeld and Stryker. On the balance of probability I find that this term formed part of the agreement for the reasons outlined.
35. I am fortified in this finding by the observation made in Credit Suisse Financial Products v. Societe Generale d’Enterprises [1997] I.L.P.T. 165 C A. There the Court of Appeal of England and Wales held that where the text of the contract contains an express reference to the relevant conditions, the fact that the other party does not have a copy of these is irrelevant.
36. The parties entered into a written contract which stipulated that it was to “supplement, form part of, and be subject to,” the 1992 International Swaps and Derivatives Association Master Agreement. This included a jurisdiction clause conferring jurisdiction on the English courts. Credit Suisse commenced proceedings in England relying on the jurisdiction clause. The defendant contested jurisdiction on the basis that the formal requirements of article 17 had not been met. In the High Court the judge had found that, since the defendant did not have a copy of the Master Agreement in his possession and readily available to it, the incorporation of that Agreement containing the jurisdiction clause was insufficient to bring the case within the article. All three judges in the Court of Appeal disagreed. Saville L.J. (as he then was) gave the only judgment holding:
“To my mind the question is simply whether the express reference in the written contract in the present case amounts to a clear and precise demonstration that the clause conferring jurisdiction was the subject of consensus between the parties.”
He continued:
“I have no doubt at all that it does. It seems to me that there is nothing in the (European Case law) which begins to suggest that where in the written contract itself there is an express incorporation by reference of other written terms, no consensus is established unless the profferee signing the contract has been supplied with a copy of those terms, or as the judge put it, he has ‘a copy of those conditions in his possession and readily available to him’”.
Saville L.J. later concluded:
“It seems to me to be clear from the judgment in Slotti that the court considered that a ‘guarantee’ of real consent does exist where there is an express reference in the written contract itself by way of incorporation of other written terms which include a clause in conferring jurisdiction. Indeed given such an express reference, it seems to me self-evident that the profferee of the written contract, by signing without reservation, has agreed in writing the incorporated terms (and thus the clause conferring jurisdiction) for the simple reason that the very words of the signed written contract itself are to that effect. To my mind the fact the profferee did not have a copy of the Master Agreement in his possession and readily available to him or, as he said in his affidavit, that he thought the reference to the Master Agreement was a ‘standing clause’(whatever that may mean) is neither here nor there; for in truth (the profferee) by signing the confirmation, did agree in writing that the terms of the Master Agreement formed part of the contract he was making.”
37. The principle applied by the Court of Appeal also applies with equal force to the situation here where the respondent firm traded extensively on foot of the conditions for a period of up to eighteen months prior to raising this point at a late hour. I therefore reject the respondent’s submission. I hold that the award is enforceable as a matter of Irish law.
The second issue – “unfair procedure” in the arbitration
38. It remains then to deal with the one outstanding issue of “fair procedures”. Under this general heading the respondent makes three complaints. These are:
(1) that it was deprived of the opportunity to file a defence;
(2) that the Danish Arbitration Board wrongly refused to direct an English translation of the pleadings submitted by the applicant in March 12th, 2009;
(3) that the same arbitration board wrongly refused to consider the submissions of the respondent when making its award.
39. The first two complaints hinge entirely around a generalised complaint that the arbitration was conducted through the Danish language. I reject them. The undisputable facts show that the respondent was furnished with all necessary documents to meet the claim being made in sufficient time to deal with it, if Aluwood wished to do so. The fact that the documents were not furnished with an English translation is not contested. The applicant was not obliged to furnish translations. The respondent was at liberty to have all or any of the documents translated. These were by no means voluminous. In fact, there is no evidence that the respondent made any effort to have these documents translated at any time. It is not open to a respondent in circumstances such as these, to bury its corporate head in the sand. In fact I infer it did not intend to participate in the arbitration at any time. The respondent informed the Arbitration Board to this effect on 2nd February, 2009. This happened after the respondent’s solicitor had indicated in November/December 2008 he was waiting for a firm of Danish lawyers to revert to him in relation to possible representation. Mr. Brennan was well aware of the position by 23rd December, 2008. Ultimately the respondent decided not to take up appropriate representation in Denmark because it was not prepared to pay the retainer in order to protect its interests. It cannot be said that the financial retainer requested was inordinate. The defendant delayed throughout.
40. I was referred to two authorities said to support the plaintiff’s case on “procedures”. These were Brostrom Tankers v. Factorias Vulcano S.A. [2004] 2 I.R. 191 and Re Eurofood IFSC Ltd. [2004] 4 I.R. 370. However I consider that the facts outlined in those cases are so different as to have no materiality to the present case.
41. No legal authority from any jurisdiction has been cited to me to the effect that want of fair procedures would arise in circumstances where the failing in question might have been immediately remediable by the “aggrieved” party itself taking just the minimal steps required to protect its interests. Had the respondent wished to engage with the process it could have done so. The reason why it did not do so was not due to matters beyond its control. It was due to choice.
42. It was also submitted on behalf of the respondent that the Danish Arbitration Board had wrongly refused to consider the counterclaims of the respondent when making its award. I consider this submission is misconceived and also unsupported by the facts. The award clearly indicated that the Board considered the respondent’s counter claims, made in correspondence, but simply found that they were not proven in evidence. The burden of proof for any claim in an arbitration made by the respondent is obviously on that respondent. The Arbitration Board simply stated that the respondent had not proved the claims. This was the fact. There was no evidence before the Board. Therefore the claim could not be allowed. The principle of “he who asserts must prove” is applicable. Furthermore, as is evident from the award, the written counterclaims were considered during the oral hearing as the applicant itself accepted two of the counterclaims, in fact even lowering its own claim because of these counterclaims – a matter mentioned directly in the arbitration award.
43. Finally, it is to be noted that there is an onus upon the party opposing enforcement to prove to the Court that it raised grounds upon which it resists enforcement at the earliest opportunity before the arbitral forum. (See the judgment of Colman J. in Minmetals Germany Gmbh v. Ferco Steel Ltd. [1999] All E.R. (Comm.) 315. In this case the lateness of all the “procedural” claims raised by the respondents before the Danish Arbitration Board speak for themselves. It was too late. The issue as to jurisdiction was raised at the eleventh minute of the eleventh hour on the evening prior to the arbitration itself. The point was devoid of merit. I would imagine the force of such a claim before the Arbitrator was in reverse ratio to its timeliness. The same observation is true here also. The respondent fails in its defences. The applicant is entitled to the relief it seeks.
Ryanair Ltd -v- Billigfluege De GmbH/Ticket Point Reiseburo GmbH;
Ryanair Ltd -v- On the Beach Limited
[2015] IESC 11 (19 February 2015)
Judgment delivered on the 19th day of February 2015 by Charleton J
1. This appeal is entirely concerned with the jurisdiction of the courts of Ireland to hear and determine the disputes in these three cases under Council Regulation EC/44/2001 of 22 December, 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, O.J. L 012/1 16.1.2001 (commonly called the Brussels I Regulation) as transposed into Irish law by the European Communities (Civil and Commercial Judgments) Regulations 2002 (S.I. No. 52 of 2002). All of the cases are concerned with the use by online travel companies of the website of Ryanair Limited to book flights for their customers through those travel companies instead of directly by the customer accessing that airline’s own website. The result for the customer is a slightly higher price but with a choice of several airlines flying from one destination to another. Appeals numbered 2010/084/086 in Ryanair Limited v Billigfluege.de GmbH/Ticket Point Reisebüro GmbH are concerned with an application for an interlocutory injunction, refused by Hanna J following his decision that the parties had made a clear choice of jurisdiction for the resolution of their dispute; [2010] IEHC 47. This does not form part of this judgment. The substantive hearings in the High Court will determine the questions as to the protection to be afforded to whatever intellectual property rights may be asserted notwithstanding the use of a publicly accessible website, and as to whether the parties to these various disputes have entered into a contract online and as to the terms thereof. The injunction applications in aid of whatever rights are asserted, either prior to trial or upon final decision, are also before the High Court. There are two separate but related sets of facts in the two cases under appeal. In appeal number 2010/108/109 Ryanair Limited v Billigfluege.de GmbH/Ticket Point Reisebüro GmbH, Hanna J has decided that the use of the website of Ryanair by the online travel website Billigfluege amounted to a choice by them as to jurisdiction; [2010] IEHC 47. In appeal number 2013/272 Ryanair Limited v On the Beach Limited, Laffoy J has made a similar decision on somewhat different facts consequent on the use by On the Beach of the Ryanair website; [2013] IEHC 124.
Appeal from hearings on affidavit
2. This appeal was characterised by confusion as to what the approach of an appellate court should be to disputed findings of fact where those facts as found by the trial judge derived entirely from affidavit evidence and the exhibits thereto. It was implied that a finding of jurisdiction by the High Court was somehow an exercise in judicial discretion. This is not correct. It is a finding of fact. A discretionary order is different. In such a case, an appellate court will “give great weight to the views of the trial judge and to any reasons stated by him for the course which he has taken” for the exercise of that discretion; Vella v Morelli [1968] 1 IR 11, per Budd J at p. 29, in that case considering an issue as to costs. In Desmond v MGN Ltd. [2009] 1 IR 737, Geoghegan J, giving judgment for the majority, affirmed that the position indicated by Budd J in Vella v Morelli is in his view the true legal principle in the light of the Constitution. However, Geoghegan J stated that while the Supreme Court would be slow to interfere with the High Court judge’s management of his or her list, in a case where “much more substantial issues are at stake” the Supreme Court must “seriously consider whether in all the circumstances and in the interests of justice it should re-exercise the discretion in a different direction.”
3. Where issues of fact are in dispute, the approach of this court to arguments that the trial judge was incorrect in the findings made on hearing oral evidence is set out in Hay v O’Grady [1992] 1 IR 210. The three principles therein set out were predicated on the unique position of the trial judge in hearing and seeing all of the witnesses and then deciding where the truth lay. Thus, findings of fact supported by credible evidence are not to be disturbed, inferences of fact derived from oral evidence will rarely be interfered with, while inferences drawn from circumstantial evidence leave an appellate court in as good a position to draw its own inferences as the court of trial; see the judgment of McCarthy J at p. 217.
4. Principles based on the superior ability of a trial judge to decide, as between live witnesses, who is to be preferred in terms of credibility or of recollection cannot apply with the same force where facts are merely deposed to on affidavit. Apart from the gap between the experience of hearing and seeing a person giving testimony and the recitation of facts on paper that affidavit evidence represents, it must also be remembered that the gulf widens through those words on paper being generally chosen by lawyers as a reflection of what a witness wishes to say, as opposed to witnesses speaking or writing the account themselves. Sometimes facts deposed to on affidavit will clash in an unequivocal way; as where a witness for a plaintiff or an applicant gives an account of a conversation that carries legal effect in a particular way and a defendant’s or respondent’s deponent either denies that the conversation took place at all or gives a materially contradictory account. The High Court has emphasised that where resolutions of fact are essential to a decision necessarily founded on contradictory affidavit evidence, the trial judge may need to hear such limited portion of the evidence as enables him or her to reach a proper conclusion.: Director of Corporate Enforcement v Seymour [2006] IEHC 369, and see Irish Bank Resolution Corporation Ltd. V Quinn [2012] IESC 51 in the Supreme Court.
5. Any party appealing a decision, however, bears the burden of demonstrating that the trial judge was incorrect as to whatever findings of fact underpin a decision. Where an appeal is taken against essential findings of fact drawn from affidavit evidence, the appellant must establish an error in those findings that is such as to render the decision untenable. Alternately, it may need to be established on appeal that the decision reached was impossible because an essential conflict could not be resolved on what was before the trial judge. In this appeal, it was argued on behalf of Billigfluege and that both Hanna J and Laffoy J, in both of their respective decisions, reached conclusions that they should not have reached because the affidavit evidence demonstrably clashed as to the issue of choice of jurisdiction in such a way as to have required them to first hear limited oral evidence. In this case, as in many heavy motion cases, volumes of affidavit evidence and accompanying exhibits were exchanged. Much of what was deposed to consisted of the iteration, reiteration or contradiction of mere argument. Essential fact tends, in those circumstances, to be swamped. The first task of the trial judge is to isolate the questions of fact that are essential to the decision and to identify such portions of the evidence as support one side or the other. Once that is clear, a trial judge will be aware that he or she is entitled to regard exhibits as part of the factual material. Where correspondence contradicts averments of fact, this should be taken into consideration; where bald allegations are unsupported, that may be important; where exhibits demonstrate that what a witness deposes to is unlikely, that can be significant; where a test result is confirmed by an analytic printout, it can be hard to gainsay; and where a fact is demonstrated through an unbroken chain of circumstances, mere argument will have to give way. What these considerations demonstrate is that sorting out the facts that can be relied on in the context of written material is an evaluative exercise. Such an analysis is one of finding where the probable balance of truth lies. As such, it should be treated with appropriate deference by an appellate court. Thus, an appellant arguing for the reversal of any judgment founded on a rigorous analysis of affidavit evidence as to fact bears a heavy burden in seeking to demonstrate that a trial judge has fallen into such error that the decision made is untenable. Separately, on an appeal, errors of law are either demonstrated or not as being present in a High Court judgment.
6. In Gramsci Shipping Corporation v Aivars Lembergs [2013] 4 All ER 157, the Court of Appeal in England and Wales took a similar approach on the issue of the appellate review of factual decisions based on affidavit evidence; relying on the decision of the neighbouring kingdom’s Supreme Court in VTB Capital plc v Nutritek International Corp and others [2013] 2 AC 337. At para. 34, Beatson LJ stated:
I start by reminding myself of the statements in the VTB Capital case about the approach of an appellate court to a question such as the one before this court: see [2013] 1 All ER (Comm) 1009 at [69], [96], [97] and [156], [2013] 2 WLR 398 per Lord Mance, Lord Neuberger and Lord Wilson. If the judge has erred in law, or taken into account any irrelevant matter or failed to take into account a relevant matter which could influence the conclusion reached, the appeal will be allowed. But they emphasised that, although the question before the judge is not the exercise of a discretion, it is ‘an evaluative, or a balancing exercise’, ‘a classic interlocutory exercise with which an appellate court should be slow to interfere’.
7. Turning to the analysis of the affidavit evidence on this appeal, there is nothing demonstrated whereby this Court should interfere with the respective decisions of Hanna J and of Laffoy J. There is no finding of fact that is not based on evidence and there has been no erroneous interpretation of the relevant material. Those facts are now considered.
Billigfluege facts
8. Billigfluege is, in effect, an online air travel booking site. As its name implies, it promotes cheap flights and it has its place of business in Germany. If a customer, who shall be called Siobhán for these purposes, in Berlin, is thinking of flying from there to Thessaloniki in Greece, she may be faced with a range of airlines that operate the route. She may first of all, probably by an online search, find out which airlines operate her chosen route. Then, to find the best price on an appropriate day and time of day, she would need to visit the website of each of the airlines, making notes along the way. When that comparison is done, Siobhán must return to the website of her airline of choice to book directly on that site. In doing so, no doubt, she will sign up to a contract by ticking a box indicating that the customer has read and agrees to the terms and conditions under which the flight is sold. This is quite a bit of trouble where several competing airlines operate on her chosen route. That can take time. Perhaps by the time that the most suitable flight has been chosen, such time will have passed that on reverting to the selected site, the price may have increased. Billigfluege seek to overcome this difficulty by means of screen scraping. It is hard to avoid the conclusion that in the various affidavits exchanged, the explanation as to how this works was made more complex than it need be. Put simply, the computer program of Billigfluege, or the computer service purchased through an intermediary by that company, constantly scans and constantly takes the relevant data on flights from the various relevant airlines on a huge range of routes. In the example given, a comparison becomes possible on the Billigfluege site between ticket prices for each airline operating a particular route on a particular day. The customer will see each price of each airline at each time on each day on a single web page. Siobhán may then choose the appropriate flight and pay for it on Billigfluege’s website. Consequently, in booking through Billigfluege, the customer pays more than had she booked directly on Ryanair’s, or any other airline’s, website. This is how Billigfluege makes its money. When the prices of each flight are taken from each airline’s website, they are increased through Billigfluege’s software by a particular percentage, which did not clearly emerge in the materials before the trial judge. It could be 2%, or it could be 10%, or it could be more. The increase could average at a figure or it could be dependant in some way on the original price range. That information is not in the affidavits. The customer does not know, apparently, that she is paying more than she would have had she booked directly with Ryanair. The airline claims that it appears on Billigfluege’s webpage as if the price comes directly from them, and that it is the original price with no add-on. Had she known, if this is true, she might have used the Billigfluege site for comparison purposes only, and proceeded from there to Ryanair’s website in order to save money. That customers generally do not do so means that the service offered by Billigfluege is profitable. Ryanair claim breaches of their intellectual property and, most importantly for these purposes, a breach of the terms of use of their website. Ryanair claim that once anyone accesses their website, and this they argue includes Billigfluege and their software and their service providers, they are bound by the terms of use of the website which are available on the website. The relevant clause is number 7, which provides:
Applicable law and jurisdiction. It is a condition precedent to the use of the Ryanair website, including access to information relating to flight details, costs etc., that any such party submits to the sole and exclusive jurisdiction of the Courts of the Republic of Ireland and to the application of the law in that jurisdiction, including any party accessing such information or facilities on their own behalf or on behalf of others.
In the absolute and sole discretion of Ryanair, a legal action may be brought by Ryanair against any party in breach of these terms and conditions, at its election, in Ireland or the place of breach or the domicile of that party, and, if more than one party, in the domicile of any one of those parties, and all other parties shall submit to that jurisdiction.
9. Letters were also written bringing this clause to the attention of Billigfluege for the purposes of these proceedings. In pursuit of a claim that use of the website did not constitute a choice of jurisdiction, as so set out, Billigfluege filed several lengthy and complex affidavits. The travel company contended, among other claims, that a visitor to the Ryanair website does not agree thereby to the terms and conditions. It was claimed that the terms and conditions of use were only activated when the customer decided to purchase a seat on a Ryanair flight. It was contended that a visitor to the Billigfluege website was not in fact using that website to purchase tickets but was instead “forwarded directly to [Ryanair’s] website.” Only at the point where this direct visitor decided to purchase a ticket, Billigfluege asserted, would this customer “confirm their agreement to and acceptance of [Ryanair’s] contractual conditions and … terms of use”, through “ticking separate boxes appearing on [Ryanair’s website].” Thus, Billigfluege were not the sellers of the ticket, it was averred. If that were so, the trial judge might reasonably wonder, how was it that the price was higher? In reply, Ryanair claimed that there were two sets of conditions; one on visiting the site and the other on purchasing a ticket. This was an issue capable of resolution by the trial judge on viewing screen shots, which were indeed exhibited. The customer’s own credit card is used in such purchases. The confirmation of the booking operates by the customer’s email address being forwarded by software through Billigfluege, and subsequently being inserted on the Ryanair website. The airline contended that it was never made clear to the customer that she was engaging in two separate transactions. Ryanair claimed that the purchase was not made directly. The airline pointed to an underlined hyperlink on their website containing the relevant terms of use. Central to undermining Billigfluege’s contention that the customer was buying the ticket and not Billigfluege itself was a test run by Ryanair. This provided what significant evidence. IP addresses are supplied to, inter alia, internet service providers by the international body responsible based, in this instance apparently in Amsterdam and generally referred to as Réseaux IP Européens Network Coordination Centre. The IP address will, the Court as told, show up on transactions of this kind. That, however, is all. IP addresses are generally given out by internet service providers to their customers. The link is thereby closed. Enquiry there will perhaps uncover that a particular IP address was assigned to a particular internet service provider, possibly in Germany or Ireland, but enquiries to internet service providers will in general yield no information, possibly due to confidentiality clauses in the relevant customer service contracts. Ryanair has three IP addresses. A member of the Ryanair firm went onto the website of Billigfluege and booked a flight as a test. On analysis, the transaction did not show any of Ryanair’s IP addresses as the purchaser of the ticket but, instead, an unknown and unascertainable IP address, the only information as to which was that it had been assigned to an internet service provider in Germany. The relevant screen shots were referenced and exhibited. In reply, there was a complex technical affidavit which was claimed in submissions on this appeal to be camouflage. Whatever the correctness of that assertion, it is clear that there was material on which a rational choice as between the two cases could be made even in circumstances where the trial judge was not compelled to hear limited oral evidence. There was also clear evidence upon which a choice could be made as between differing contentions on whether the ticking of boxes on Billigfluege’s website amounted to a choice of jurisdiction. Resolution of this issue was a matter of logic as opposed to an unresolvable choice between contending averments made by opposed witnesses on affidavits as to their own perceptions.
10. In making his decision, Hanna J rightly commented on the nature of the expertise involved in a travel company setting up, or commissioning, software of such sophistication as that engaged by Billigfluege. He was unconvinced by the general thrust of their argument:
In addition to claiming that the terms of use lacked contractual effect, [Billigfluege] also argued that regardless of the validity of the terms, they did not “use” the plaintiff’s website, the customer did. In this regard, while [Billigfluege] may not be the actual customer or person who will sit on the seat in the plane, they are commercial entities who nonetheless engage with the plaintiff’s website for the purpose of gleaning or “scraping” information from it for onward transmission to their own customers. To claim that that activity is not “use” of the plaintiff’s website by the defendants is an exercise in semantics and an unconvincing argument.
11. That was a conclusion that the trial judge was entitled to reach on the affidavit and exhibit evidence before him and one which was arrived at in an entirely logical fashion.
On the Beach facts
12. There are some material differences between the facts as to Billigfluege’s use of Ryanair’s website and the use made of it by On the Beach. This travel company is registered in England. That company, again, hosts an online travel website and the nature of the service provided to the customer is in essence the same as that provided by Billigfluege. The narrative also converges in terms of how remuneration is arrived at, i.e. through the addition of further fees to those charged for flights by airlines. In terms of difference, On the Beach is claimed by Ryanair to engage in the caching of the information on its website, and indeed has admitted as much. It might, perhaps, be surprising that Billigfluege do not also cache information; but that, as a matter of fact and of the intellectual property rights which may be involved, is a matter for the ultimate trial. In non-technical terms, caching consists not merely of the transmission by one website of the information displayed on another website, but also the holding of that information over time. In this way, the information will be instantly available through that website should it be sought by a customer, and made available without the caching website having recourse to again scraping the information off the website originally hosting the relevant data. Another difference between the operation of Billigfluege and that of On the Beach is that on the purchase of a flight through On the Beach, the customer’s own credit card is not used to buy, in this instance, the Ryanair flight, minus the price increase to the travel company for the service. That is how Billigfluege’s website operates. On the Beach uses its own company credit card to purchase all of the flights of its customers. Their credit cards pay it for its service; again at a higher price than originally offered by Ryanair. The terms of use of the Ryanair website are the same as in the Billigfluege case and, similarly, a letter drawing attention to those terms was sent to On the Beach in aid of this litigation. As Laffoy J commented, the application generated the “equivalent of four large lever arch folders of affidavits and exhibits.” The complexity of the facts before the trial judge and the care taken to precisely isolate and analyse those relevant, is apparent from the following recitation of the contentions between Ryanair as plaintiff and On the Beach as defendant, as set out in her judgment from para. 12 onwards. One of the contentions made by On the Beach was that the customer, not On the Beach, made the booking on Ryanair’s website. The travel company was merely an agent. This argument was advanced notwithstanding that as part of the process, a customer of On the Beach, as put in one of its own affidavits, is required to agree to this:
As agent for the consumer, the Defendant ticks the “Important – Please check box to continue” regarding the acceptance of [the plaintiff’s] Terms and Conditions of Travel and Website Terms of Use.
13. An argument was also made that the relevant data on the On the Beach website was not provided by it, but rather by third party service providers. This was a variant, in aid of the proposition that there was no choice of jurisdiction, advanced before Hanna J in terms of the customer and the customer only doing the booking. Another argument was advanced that the screen scraping was not done on choosing a flight, but only when the flight was booked, and then by the customer and not by the travel company. The relevant quote from the affidavit in support of the contention by On the Beach that they had not made a choice of jurisdiction was thus:
However, as of 1st February, 2012, [the defendant] started screen-scraping but only at the booking stage (that is, when a consumer has submitted his/her booking form to [the defendant]). However, as previously advised, raw data for [the defendant’s] website continues to be provided by third party data suppliers and [the defendant] has no involvement or role in the collection of such data by such suppliers.
14. Ryanair countered that the nature of the service provided by On the Beach was such as to make it, and not the consumer, the party which made a clear choice of jurisdiction. Laffoy J set out the contrary argument thus:
In elaborating on its submission that it is the defendant, not the consumer, which “ticks the box” confirming acceptance of the plaintiff’s Terms of Use, the plaintiff has analysed the evidence and has pointed to various factors which it was submitted support its contention. For example, it was submitted that at no point during the search and booking process on the defendant’s website is the consumer transferred to the plaintiff’s website or made aware of the plaintiff’s Terms of Use. Other elements of the process are pointed to as demonstrating that the consumer has no involvement in the actual booking of the flight. The plaintiff also pointed to a clause in the defendant’s own “Terms of Business” which, under the heading “On line bookings”, provides:
“By clicking to book and entering your personal and payment details on our website, you are requesting us to make an offer to the Principal/Flight provider to purchase the products on your behalf. At this point we immediately re-contact the Principal. Each Principal will still require a short period of time to confirm that your chosen flight/hotel is still available. Although the e-mail confirmation sent to you is NOT contractual acceptance of the Principal’s ability to provide this product, it is an acknowledgment that we have received your offer, and should the product be available as detailed on our website then you have entered into a legally binding agreement to purchase this product subject to the Principal’s Terms and Conditions.”
15. In a similar way to the Billigfluege case, in terms of these contending arguments, appropriate screen shots were attached by way of exhibit to the relevant affidavits. In terms of ability to make a decision, this was a matter of analysis and logic for the trial judge and did not require the hearing of limited oral evidence. Ultimately, Laffoy J came to the conclusion that the activity in question was international commerce; that a practice existed in that branch of commerce that the user of the website would become bound by the terms of use of that website by using it; and that On the Beach were aware of that practice and “generally and regularly followed [it] when making bookings with online travel agents and with airlines” amounting to a “consolidated practice”. This was a finding of fact, which the trial judge was entitled to make on the material before her. As a matter of law, as regards the findings that a clear choice of jurisdiction was made by On the Beach and by Billigfluege in their interactions with Ryanair, it is contended by those parties that an improper legal analysis was conducted by Hanna J and Laffoy J respectively.
Jurisdiction
16. Article 2 is starting point for any choice of jurisdiction in relation to the Brussels I Regulation. Article 2 sets out the general rule that a defendant in proposed litigation should be sued in the country in which that defendant is domiciled. Since Billigfluege is a company registered under the laws of Germany, that is the default jurisdiction for this action; and since On the Beach is a company registered in England and so the same consideration applies. Article 2 provides:
1. Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State.
2. Persons who are not nationals of the Member State in which they are domiciled shall be governed by the rules of jurisdiction applicable to nationals of that State.
17. Consequently, the party initiating an action outside the domicile of a defendant must point to an exception under the Regulation to the general rule. Here, Ryanair call in aid Article 5, Article 23.1 and Article 23.2. Article 5 provides as follows:
A person domiciled in a Member State may, in another Member State, be sued:
1. (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:
– in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered,
– in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided,
(c) if subparagraph (b) does not apply then subparagraph (a) applies;
2. in matters relating to maintenance, in the courts for the place where the maintenance creditor is domiciled or habitually resident or, if the matter is ancillary to proceedings concerning the status of a person, in the court which, according to its own law, has jurisdiction to entertain those proceedings, unless that jurisdiction is based solely on the nationality of one of the parties;
3. in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur;
4. as regards a civil claim for damages or restitution which is based on an act giving rise to criminal proceedings, in the court seised of those proceedings, to the extent that that court has jurisdiction under its own law to entertain civil proceedings;5. as regards a dispute arising out of the operations of a branch, agency or other establishment, in the courts for the place in which the branch, agency or other establishment is situated;
6. as settlor, trustee or beneficiary of a trust created by the operation of a statute, or by a written instrument, or created orally and evidenced in writing, in the courts of the Member State in which the trust is domiciled;
7. as regards a dispute concerning the payment of remuneration claimed in respect of the salvage of a cargo or freight, in the court under the authority of which the cargo or freight in question:
(a) has been arrested to secure such payment, or
(b) could have been so arrested, but bail or other security has been given;
provided that this provision shall apply only if it is claimed that the defendant has an interest in the cargo or freight or had such an interest at the time of salvage.
18. On this appeal, Ryanair relied on the condition for use of the website term and, peripherally, on the booking consent provision as enabling Ireland to have jurisdiction. Hanna J dealt with the issue of jurisdiction in the Billigfluege litigation by reference to “traditional contract principles of offer, acceptance and consideration”. Laffoy J, however, in the On the Beach case, did not base her judgment on any aspect of the formation of a contract. That emerges as the more correct approach. Central to the disparate contentions of the parties is whether there ever was a contract between Ryanair and Billigfluege and Ryanair and On the Beach respectively. It is not for the Court to now adjudicate on this matter, as essential to the rights asserted by Ryanair, and denied by the travel companies, are the rights and obligations under the contract, if any, and any other intellectual property rights that are asserted on Ryanair’s pleadings. What is clear from both the judgments of Hanna J and Laffoy J in the High Court is that each judge was made aware of the minutiae of setting up a system such as that operated by Billigfluege and by On the Beach. The attention to detail that such a system involves may reasonably infer, absent factors to contradict that inference, a close scrutiny of not only the data that needed to be captured from the sites of airlines such as Ryanair in order for these comparison and purchase online sites to work, but also the other aspects of the airlines’ requirements for use of their online material; whether valid or not. That included in this instance the conditions for using the Ryanair site. The effect of contractual and other obligations is for trial, and not for this appeal.
19. Rather, central to the issue of jurisdiction is Article 23. This provides:
1. If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:
(a) in writing or evidenced in writing; or
(b) in a form which accords with practices which the parties have established between themselves; or
(c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.
2. Any communication by electronic means which provides a durable record of the agreement shall be equivalent to “writing”.
3. Where such an agreement is concluded by parties, none of whom is domiciled in a Member State, the courts of other Member States shall have no jurisdiction over their disputes unless the court or courts chosen have declined jurisdiction.
4. The court or courts of a Member State on which a trust instrument has conferred jurisdiction shall have exclusive jurisdiction in any proceedings brought against a settlor, trustee or beneficiary, if relations between these persons or their rights or obligations under the trust are involved.
5. Agreements or provisions of a trust instrument conferring jurisdiction shall have no legal force if they are contrary to Articles 13, 17 or 21, or if the courts whose jurisdiction they purport to exclude have exclusive jurisdiction by virtue of Article 22.
20. Ryanair rely on paragraphs (a) and (c) of Article 23. In contending that there was an agreement conferring jurisdiction that was evidenced in writing, Ryanair claim that every click of assent to their terms and conditions of their website or their booking of flight terms and conditions amounts to a “communication by electronic means” and also contend that through their computer booking system they can provide “a durable record of the agreement”, considered under Article 23.2 to be equivalent to writing. This may or may not be correct. There is no record of it ever having been argued before either Hanna J or Laffoy J in the judgments of either court. For that argument to succeed, there would have to be an averment supported by appropriate computer print outs or screen shots of a small but representative sample of the transactions together with an opportunity to the travel companies to reply to that contention. The point should not be first decided on appeal.
21. On Article 23, clear principles have emerged from the Court of Justice of the European Union. There is nothing in the judgments of Hanna J or Laffoy J to indicate any variance from those principles, much less any error of law. It is appropriate to attempt to concisely set out the relevant approach to decisions on jurisdiction based on agreement.
22. Firstly, the primacy of jurisdiction under Article 2 being with the courts of the defendant to an action emerges clearly from the text of that article.
23. Secondly, since the primary rule for the place of trial is the domicile of the defendant, exceptions to Article 2 should be scrutinised carefully to ensure that any other mechanism for establishing jurisdiction under any other article of the Regulation is properly made. That principle emerges as early as Case C-269/95 Benincasa v Dentalkit Srl [1997] ECR I-3767, which concerned the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters, the precursor of the Brussels I Regulation. At paras. 13 and 14 the general rule was set out:
It must next be observed that, as the Court has consistently held, under the system of the Convention the general principle is that the courts of the Contracting State in which the defendant is domiciled are to have jurisdiction and that it is only by way of derogation from that principle that the Convention provides for cases, which are exhaustively listed, in which the defendant may or must, depending on the case, be sued in the courts of another Contracting State. Consequently, the rules of jurisdiction which derogate from that general principle cannot give rise to an interpretation going beyond the cases envisaged by the Convention (Shearson Lehman Hutton, paragraphs, 14, 15 and 16).
Such an interpretation must apply a fortiori with respect to a rule of jurisdiction, such as that contained in Article 14 of the Convention, which allows a consumer, within the meaning of Article 13 of the Convention, to sue the defendant in the courts of the Contracting State in which the plaintiff is domiciled. Apart from the cases expressly provided for, the Convention appears hostile towards the attribution of jurisdiction to the courts of the plaintiff’s domicile (see Case C-220/88 Dumez France and Tracoba [1990] ECR I-49, paragraphs 16 and 19, and Shearson Lehman Hutton, paragraph 17).
24. That principle was reiterated by the Court in Case C-256/00 Besix SA v Wasserreinigungsbau Alfred Kretzschmar GmbH & Co ECR I-1699, where at paras. 52 and 53 it is stated:
The system of common rules on conferment of jurisdiction laid down in Title II of the Brussels Convention is based on the general rule, set out in the first paragraph of Article 2, that persons domiciled in a Contracting State are to be sued in the courts of that State, irrespective of the nationality of the parties. That jurisdictional rule is a general principle, which expresses the maxim actor sequitur forum rei, because it makes it easier, in principle, for a defendant to defend himself (see, in particular, Case C-412/98 Group Josi [2000] ECR I-5925, paragraphs 34 and 35).
It is only by way of derogation from that fundamental principle that the Brussels Convention makes provision, in accordance with the first paragraph of Article 3, for, in particular, special jurisdictional rules, such as that laid down in Article 5(1), where the choice depends on an option to be exercised by the claimant.
25. Thirdly, what is or what is not a choice of jurisdiction does not depend on traditional concepts of the formation of a contract, whether under civil law or common law systems. Consensus as to jurisdiction is a matter of fact for the judge asked to adjudicate in whatever Member State such a dispute is adjudicated but is not a matter of domestic law. Rather, the applicable law is a matter that emerges as a requirement from the text of the Regulation, and before it the Convention, and consent to jurisdiction is a concept that should be given a uniform interpretation throughout the European Union. It is an autonomous regime. In the Benincasa v Dentalkit Srl case, the Court put the matter thus in the context of the Convention at paras. 11 and 12:
The point sought to be clarified by the national court’s first question is whether the first paragraph of Article 13 and the first paragraph of Article 14 of the Convention must be interpreted as meaning that a plaintiff who has concluded a contract with a view to pursuing a trade or profession, not at the present time but in the future, may be regarded as a consumer.
In this connection, regard should be had to the principle laid down by the case-law (see, in particular, Case 150/77 Bertrand [1978] ECR 1431, paragraphs 14, 15, 16 and 19, and Case C-89/91 Shearson Lehman Hutton [1993] ECR I-139, paragraph 13) according to which the concepts used in the Convention, which may have a different content depending on the national law of the Contracting States, must be interpreted independently, by reference principally to the system and objectives of the Convention, in order to ensure that the Convention is uniformly applied in all the Contracting States. This must apply in particular to the concept of ‘consumer’ within the meaning of Article 13 et seq. of the Convention, in so far as it determines the rules governing jurisdiction.
26. Fourthly, the objective of the Brussels I Regulation was to introduce confidence in commercial relations. Thereby, within the Member States, defaults on obligations should be predicted to be litigated in a particular jurisdiction. It follows, from the fundamental principle of legal certainty, that jurisdiction should be foreseeable on the relationship between the parties under the Regulation and on their choice of jurisdiction. This emerges from the Court in Case C-256/00 Besix SA v Wasserreinigungsbau Alfred Kretzschmar GmbH & Co [2002] ECR I-1699 where at para. 26:
That principle of legal certainty requires, in particular, that the jurisdictional rules which derogate from the basic principle of the Brussels Convention laid down in Article 2, such as the rule in Article 5(1), should be interpreted in such a way as to enable a normally well informed defendant reasonably to foresee before which courts, other than those of the State in which he is domiciled, he may be sued …
27. Fifthly, where any derogation from Article 2 is sought to be established by a plaintiff based on choice of jurisdiction, there is a requirement to show that a consensus has been reached between the parties as to where any disputes will be litigated. That must be clear and it is a matter of the independent will of the parties; see Case C-387/98 Coreck Maritime GmbH v Handelsveem BV E.C.R. I-9337 at paras. 13 and 14. In Case C-24/76 Estas Salotti v Rua [1976] ECR 1831, at para. 7, the Court of Justice of the European Union stated that Article 23:
… imposes upon the Court before which the matter is brought the duty of examining, first, whether the clause conferring jurisdiction upon it was in fact the subject of a consensus between the parties which must be clearly and precisely demonstrated.
28. Where a contract is concerned, a particular cause for confusion can arise because the clause as to choice of jurisdiction may be merely a numbered clause within several other terms of a disputed agreement. No final decision can be made as to the existence of a contract where the question before the court is only the interlocutory issue as to whether the case is properly to be tried before the courts urged to assume jurisdiction. To the extent that it is necessary, however, but only to that extent, the court deciding the issue of jurisdiction may need to enter into a consideration of such limited facts as are relevant to jurisdiction while leaving any decision as to the substance of the case to the trial. This emerges, among others, from Case C-159/97 Societad Trasporti Castelletti Spedizioni Internazionali SA v. Hugo Trumpy SpA [1999] ECR I-1597 where the Court stated at para. 48:
As the Court has repeatedly stated, it is in keeping with the spirit of certainty, which constitutes one of the aims of the Convention, that the national court seised should be able readily to decide whether it has jurisdiction on the basis of the rules of the Convention, without having to consider the substance of the case…
29. This Court in Ryanair Limited v. Unister GmbH [2013] IESC 14 summarised through Clarke J the extent of the obligation of a court “to enter into a sufficient inquiry to determine whether it truly has jurisdiction…” At para. 8.6, Clarke J stated that in some cases courts will be required to “to determine questions of fact which may be material to the very question of jurisdiction even though some of the same questions of fact may also be material to the substantive issues which arise in the proceedings generally.” His view in that regard coincides with that of the Court of Justice of the European Union since in the Hugo Trumpy case the issue was regarded as properly joined as to whether a particular course of conduct was generally and regularly followed in the type of contract in question. It follows that it is not enough for a defendant to baldly claim that matters are not at all clear. Where an unequivocal choice of jurisdiction can be uncovered on the materials before the trial judge, what is alleged by a defendant to be unclear, may become capable of being found as a fact. At para. 8.8 Clarke J stated:
There may be some doubt as to the precise extent to which it is appropriate for a court, in considering whether it has jurisdiction, to enter into detailed and contested factual questions in order to reach a conclusion as to whether jurisdiction has been established. However, it seems to me that the position adopted on behalf of Unister, which is to the effect that if the matter is not very clear the default jurisdiction applies, is not consistent with the jurisprudence of the ECJ. It follows that there may well be cases where an Irish court will be required to enter into some consideration of contested facts in order to determine whether, in accordance with the Regulation, it has jurisdiction. It seems to me to follow that an Irish court, in aid of such an inquiry, has jurisdiction to make any procedural orders which exist in the Irish legal regime and which may be considered to be of assistance in addressing such questions. However, it is important to identify that the availability of such measures (which could, in an appropriate case, include interrogatories or discovery orders or any other form of disclosure order in respect of which the Irish courts have jurisdiction) must be directed towards assisting in the resolution of the jurisdiction issue and must, therefore, relate to matters which could be said to be important for the resolution of the inquiry which the court is required under the Regulation to conduct as to whether it has jurisdiction.
30. This decision was in accord with Clarke J’s own judgment, while in the High Court, in Ryanair v Bravofly [2009] IEHC 41. In that case, Clarke J set out as an example of a disputed contract one which a defendant claims to be a forgery but which, none the less, contains an apparent assent by that defendant to jurisdiction. Difficult cases will arise. The duty of the courts remains to enter into an analysis of such limited facts as can determine whether the parties reached a consensus on jurisdiction.
31. Sixthly, and specifically with reference to Article 23.1(c) customs within a trade may be enquired into in order to determine a choice of jurisdiction. That clearly emerges from the text of the sub-Article. In addition, several cases support that approach. In Case C-106/95 Mainschiffahrts-Genossenschaft eG v Les Gravières Rhénanes SARL [1997] ECR I-911 the court unequivocally stated this principle at para. 20:
It must therefore be considered that the fact that one of the parties to the contract did not react or remained silent in the face of a commercial letter of confirmation from the other party containing a pre-printed reference to the courts having jurisdiction and that one of the parties repeatedly paid without objection invoices issued by the other party containing a similar reference may be deemed to constitute consent to the jurisdiction clause in issue, provided that such conduct is consistent with a practice in force in the area of international trade or commerce in which the parties in question are operating and the parties are or ought to have been aware of that practice.
32. This point was reiterated in the Hugo Trumpy case at para. 36, in a judgment where the court also restated the independence from national rules that such an enquiry entails:
It is therefore for the national court to refer to the commercial usages in the branch of international trade or commerce concerned in order to determine whether, in the case before it, the physical appearance of the jurisdiction clause, including the language in which it is drawn up, and its insertion in a standard form, which has not been signed by the party not involved in drawing it up, are consistent with the forms according with those usages.
33. Such are the core principles involved. Their application presents practical difficulties which the Court of Justice of the European Union has been careful not to ignore.
These decisions
34. These decisions were in accord with settled law. In the Billigfluege decision, Hanna J concluded as follows:
The plaintiff argued that they do not need to show the existence of a valid agreement at this stage and that once they can show an assent to jurisdiction, then the exclusive jurisdiction clause will have effect. Again, I find for the plaintiff on this point. The defendants used the plaintiff’s website. They access the site and screen-scraping activity is routinely carried out. The information gleaned therefrom is used for a commercial purpose as a result of which the defendant makes a profit or earns a fee. By using the site in this way, the defendants must be taken to have assented to the plaintiff’s website’s Terms of Use. In this case, we are dealing with commercial entities and the existence and effect of the website’s Terms of Use are clear and unambiguous. If you use the site, you agree not to breach its terms and if you do so, the exclusive jurisdiction clause set out in the Terms of Use make is clear that Ireland is the appropriate jurisdiction for the purposes of litigating any disputes that may arise as a result.
35. This decision was one open to the trial judge. In several passages in his judgment it is implied that the setting up of this operation involved a skilled scrutiny of the data for the purpose of sharing it; whether for a good purpose or whether it was made available generally as opposed to in a protected manner is not a matter for decision now. In her judgment, Laffoy J also reached a decision that was open on the materials before her. At para. 43 she decided that On the Beach was bound by the jurisdiction clause “by its use, either through the medium of an automaton or a manual operator or a third party data provider”. The summary of her reasoning occurs at para. 42:
In determining whether the plaintiff and the defendant have agreed to the courts of Ireland having exclusive jurisdiction arising out of the use by the defendant of the plaintiff’s website in the form provided for in paragraph (c) of Article 23(1), the first question which the Court has to determine, in accordance with the principles laid down in the MSG case, is whether the contract comes under the head of international trade or commerce. The answer to that question must be in the affirmative. The plaintiff is an international airline which sells flights and other services through its website. The defendant is a travel agent specialising in online business and it is in the course of that business that, whether directly or through the medium of third party data providers, it utilises the data on, and interacts with, the plaintiff’s website. That conclusion is based on an objective assessment of what the plaintiff makes available on its website and the manner in which the defendant utilises the data on, and interacts with, the website. The second question is whether a practice exists in the branch of trade or commerce in which the parties are operating. The evidence clearly establishes that in the airline business and in the travel agency online business the practice is that the website user becomes contractually bound by means of clicking, or ticking a box, whereby he demonstrates his assent or agreement to terms which the website owner has displayed. Moreover, in accordance with the standard internet practice in that business, the Terms of Use of a particular website are available throughout by way of hyperlink with the objective that, by utilising a provision such as Clause 1 of the plaintiff’s Terms of Use, the use of the website, browsing or viewing the website, binds the user to the Terms of Use. In Mr. Komorek’s first affidavit he has exhibited a range of screen shots from websites, focusing in particular on websites of airlines, which bear this out. Accordingly, in my view, the evidence does establish that there is a practice in the airline and online travel agency sectors of contractually binding web users by click wrapping or browse wrapping, which practice is generally and regularly followed by the operators in those sectors. In reality, it is difficult to see how online trade could be carried on in the absence of those devices. As regards the third question which arises from the MSG decision, in this case it is whether the defendant was aware or is presumed to have been aware of the practice. The evidence before the Court, in my view, clearly demonstrates that the defendant was aware of the practice, it being a practice which is generally and regularly followed when making bookings with online travel agents and with airlines and which, in the words of the Court in the MSG case, may be regarded as being a consolidated practice.
36. The reasoning in that regard is in accordance with the evidence before the trial judge in the High Court.
Agency
37. An agency point has also been put forward. Very little was made of the agency argument on this appeal. The matter may not have been argued before Hanna J, in any event there is no serious consideration of the point in his judgment. No decisions were opened on this appeal for the contention that the correct defendants to these decisions were not the travel companies but, instead, the many thousands of customers who used the websites of Billigfluege or On the Beach to purchase flights with Ryanair. For the purposes of the appeal only, the reasoning of Laffoy J on the point should be affirmed only to the extent of establishing a consensus on jurisdiction, but not as to any wider point of defence based on agency. Her decision is reflected at para. 45 of the judgment:
In my view, whether, in accessing the plaintiff’s website for the purpose of searching and booking on behalf of a client, the defendant is acting as agent or principal is irrelevant to the Court’s determination as to the applicability of Article 23(1)(c). The defendant’s reliance on a passage from Bowstead and Reynolds on Agency (19th Ed.) (at para. 9 – 001) to the effect that “[in] the absence of other indications, when an agent makes a contract, purporting to act solely on behalf of a disclosed principal, whether identified or unidentified, he is not liable to the third party on it”, fails to have regard for the court’s function in applying Aricle 23(1). As Clarke J. stated (at para. 7.4) in the Bravofly case, the Court of Justice has been –
‘at pains to point out that the question of whether the requirements set out in the . . . Regulation for a choice of jurisdiction clause to apply are met (and whether they are met is to be determined on the basis of an autonomous application of Community Law) is wholly separate from any questions concerning the validity or enforceability of the contract in which the clause may be found’.
Accordingly, whether, vis-à-vis the plaintiff, the defendant, in using the plaintiff’s website, acted as an agent or a principal and, if it acted as agent, whether it has liability in contract or, indeed, in tort, which also forms a basis of the plaintiff’s claim against the defendant, are not issues which require to be determined on the application of Article 23(1) under European Union Law.
E-Commerce Directive
38. Some attempt was made on appeal by On the Beach to advance arguments based on Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on electronic commerce’). This argument quickly dissolved as the text of the Directive, if ever relevant in the context of this case, a mystery that cannot now be elucidated, has nothing whatever to do with choice of jurisdiction. Laffoy J dealt in trenchant terms with that submission at para. 20 of her judgment:
It is convenient at this juncture to address a submission made on behalf of the defendant the relevance of which in the context of the single issue the Court has to determine, that is to say, the jurisdiction issue, is not obvious. The submission refers to the application of Directive 2000/31/EC, commonly known as the “E-Commerce Directive”, which has been transposed into Irish law by the European Communities (Directive 2000/31/EC Regulations) 2003 (S.I. No. 68 of 2003) (the E-Commerce Regulation). It is in the context of an argument that the defendant merely performs its role as agent for the consumer when booking a flight with the plaintiff that the E-Commerce Directive is referred to in the defendant’s written legal submissions. It is stated there that the defendant’s role as agent has relevance where the status of a contracting party as a consumer has an immediate bearing on the range of rights enjoyed against an entity, such as the plaintiff, which transacts business over the internet, the example given being the rules regarding the placing of orders through technological means contained in Article 11 of the E-Commerce Directive, which preclude contracting out in the case of consumers. In the same context, counsel for the defendant referred to Regulations 13 and 14 of the E-Commerce Regulation. While acknowledging that I may not have understood the true import of the argument, nonetheless, it seems to me that the invocation of the E-Commerce Directive is a “red herring”, as counsel for the plaintiff submitted, pointing to Article 1.4 of the E-Commerce Directive, which expressly provides that it does not establish additional rules on private international law, nor does it deal with the jurisdiction of the Court. The only issue the Court is concerned with is whether the Court has jurisdiction. In particular, the Court is concerned with whether the choice of jurisdiction provision in Clause 7 of the Terms of Use is applicable by operation of Article 23 of the Brussels 1 Regulation. That is a mixed question of law and fact.
39. Nothing has been advanced to morph this red herring into anything more digestible and, further, no argument has been made and no reading of the Directive makes this excursus into e-commerce in this context any more worthwhile.
Standard of proof
40. Ryanair has also sought to argue that the standard established for service of a summons or notice of a summons out of the jurisdiction under Order 11 of the Rules of the Superior Courts is the appropriate approach for a trial judge dealing with a dispute as to consensus as to jurisdiction under the Brussels I Regulation. At issue in Stryker Corporation and Another v Sulzer Metco AG [2006] IEHC 60 before Ó Néill J in the High Court was a motion under Order 12 Rule 26 to set aside service of a summons assuming that the courts of Ireland had jurisdiction in a dispute between a firm here and the supplier of a machine which exploded, the manufacturer of which was in Switzerland. The relevant principles for jurisdiction were based on the Lugano Convention. At issue was the standard of proof for establishing that the courts of Ireland had jurisdiction in a dispute. As between merely establishing an arguable case, the argument for the defendant, and requiring a party seeking to have courts in Ireland assume jurisdiction based on the normal balance of probabilities standard, Ó Néill J came firmly down for the ordinary standard of proof. He said:
Article 17 is cast in mandatory terms and where it applies the choice of jurisdiction made overrides any other potential place of jurisdiction which might arise from the other provisions of the Convention. Because of this overriding or overarching nature of Article 17, a consideration of which provision of the Convention applies so as to determine jurisdiction necessarily in my view starts with a consideration of whether Article 17 applies and in approaching the issues which arise on this motion, I propose first to consider whether Article 17 applies, as has been contended for by the plaintiffs.
Before embarking on such a consideration however I should deal with the appropriate standard of proof or the particular onus that rests on parties such as the defendant who asserts that there is an exclusive jurisdiction clause in existence which attracts the application of Article 17.
It was submitted by Mr. Finlay that the onus which was on him was merely to show a good arguable case. In that regard he was relying upon the following passage from the judgment of Lord Steyn in the case of Canada Trust Company v. Stolzenberg No. 2 [2002] 1 AC 1 where the learned judge said the following at p. 13
‘In a purely internal case, the test of a good arguable case has been laid down by the House of Lords as applicable also in respect of domicile as a ground of jurisdiction: See Scaconsor Far East Ltd. v. Bank Markazi Jombouri High Islami Iran [1994] 1 A.C.4 38.
The question is whether in the context of Article 6 (of the Lugano Convention) the more stringent test of balance of probabilities should apply. Adoption of such a test would sometimes require the trial of an issue or at least cross-examination of deponents to affidavits. It would involve great expense and delay. While it is true that the jurisdictional issues under the conventions are very important they are generally to be decided with due dispatch and without oral evidence. In my view Waller L.J.’s judgment (1998) 1 W.L.R. 502, 553 – 559 correctly explained on sound principled and pragmatic grounds why the defendants argument is misconceived.’
At issue in that case was Article 6 of the Convention which could be said to present an issue capable of easier resolution than can arise under Articles 17 or 5(1). Article 6 provides that where a defendant is one of a number of defendants he may be sued in the courts of the place where any one of them is domiciled.
That apart however, I in the course of the hearing raised the question of what would happen when both sides, as in this case, in my view have what might fairly be described as a “good arguable case”. To say that an applicant/respondent, on a motion such as this is entitled to the relief sought, if he simply demonstrates a good arguable case, would in my view, be to risk a grave injustice against a respondent/plaintiff who equally might be said to have a good arguable case. In that circumstance if the applicant were granted the relief simply on that basis there would in my view be an invidious discrimination against the respondent, contrary to Article 40.1 of the Constitution of Ireland which guarantees equality before the law.
I am unable to adopt the reasoning as set out in the above quoted passage in the judgment of Lord Steyn and am inclined to agree with the submission of Mr. Hogan which was to the effect that as the issue raised in the notice of motion must be determined finally by this court on this application, that the normal standard of proof in civil matters must apply that is to say, the party who carries the burden, in this case the defendant, in so far as the issue under Article 17 is concerned, must prove relevant facts on the balance of probability and so far as legal issues are concerned must satisfy the court of the correctness of any submissions made by them.
In order to succeed on this application the defendant must demonstrate that there was an agreement as to the inclusion of the defendants exclusive jurisdiction clause into the contract and that the formal requirements in Article 17 are met. Insofar as these former requirements are concerned, clearly it is the first of these namely that the agreement conferring jurisdiction is either in writing or evidenced in writing, that is the appropriate requirement requiring compliance.
41. In Handbridge Limited v British Aerospace Communications Ltd [1993] 3 IR 342 the Brussels Convention was in issue. There, the issue was as between the place of domicile of a defendant as the ordinary jurisdiction and the place of performance of a contract as an exception to that general rule. Finlay CJ for the Supreme Court laid down a set of rules at p. 358 as to how such disputes as to jurisdiction were to be approached:
Applying these principles, as it is necessary to do, to what is the exception provided for in art. 5 of the Convention, and in particular, in art. 5 (1) which is what is in issue in this case, I am satisfied that certain conclusions of principle arise. They are:—
(1) The onus is on the plaintiff who seeks to have his claim tried in the jurisdiction of a contracting state other than the contracting state in which the defendant is domiciled to establish that such claim unequivocally comes within the relevant exception.
(2) In a case of a claim for breach of contract, therefore, what he must prove is that the obligation in question in that claim is, by virtue of the terms of the contract or by some generally applicable principle of Irish law, an obligation which must be performed in Ireland.
(3) It would follow from this that where the evidence adduced by a plaintiff seeking to have a claim for breach of contract tried within the jurisdiction of a contracting state other than the state of domicile of the defendant amounts to no greater standard of proof than establishing that the obligation which it is claimed was breached could have been performed in such state, he has failed to establish his entitlement to sue pursuant to art. 5 (1), the necessary proof being that the obligation which it is claimed has been broken by the defendant according to the contract or according to some general principle of law, must be performed in the state concerned.
42. As against the application of the ordinary standard of proof, Ryanair can point to only one case, Analog Devices BV v Zurich Insurance Company [2002] 1 IR 272. That case, however was based on Order 11 of the Rules of the Superior Courts. Fennelly J was concerned not with contract formation but a dispute as to whether an exclusion clause applied. This comment at p. 281-282 is nonetheless relevant:
When the court grants leave for the service out of the jurisdiction of proceedings, it requires a person, not otherwise within the jurisdiction of our courts, to appear here and to answer the claim of a person made in what is for him a foreign court rather than leaving the plaintiff to pursue his remedy against that person in that other jurisdiction. The international comity of the courts have long required, therefore, that our courts examine such applications with care and circumspection. The applicant must furnish an affidavit verifying the facts upon which he bases his cause of action. It is not sufficient that he assert that he has a cause of action. The court judges the strength of the cause of action on a test of a ‘good arguable case.’ No argument has been addressed to the court in this case on the existence of the plaintiffs’ cause of action. The master policy is not disputed, nor does there appear to be any dispute about the fact that there was some incident capable of causing loss under the policy. The parties are at odds, it appears, only in respect of the applicability of the exclusion clause.
On the other hand, the parties are in dispute in respect of the existence of circumstances justifying the grant of leave to effect service out of the jurisdiction. In the case of O. 11, r. 1 (e)(iii) of the Rules of the Superior Courts, 1986, in particular, they are in dispute about issues of fact.
It is in this context that the plaintiffs submit that the court should apply a test of a ‘fair arguable case’ leaving the resolution of any disputes to the trial of the action. That approach needs to be applied with special circumspection in a case where the issue in contention is whether the court can take upon itself jurisdiction over a foreign person or corporation. Tests similarly worded are adopted by the courts in deciding whether or not to grant some forms of interlocutory relief, specifically injunctions, or whether to grant leave to apply for judicial review. But, in those cases, the position of the opposing party is not irrevocably affected. He may succeed at the trial of an action, though an interlocutory injunction has been granted against him, and he may defeat the substantive application for judicial review. This case is different. If the court grants leave to effect service out of the jurisdiction, it asserts that it has jurisdiction. The foreign defendant is required to submit to that jurisdiction and fails to do so at his peril. In particular, if the court declines to set aside an order for service, that ends the dispute about jurisdiction. There is no later opportunity to re-open the matter.
When Barrington J., in Short v. Ireland [1996] 2 I.R. 188 at p. 215, referred to a ‘good arguable case,’ he was speaking of the merits of the substantive claim of the plaintiffs against British Nuclear Fuels to be suffering or apprehending suffering from the activities of that company in the United Kingdom. Lord Goff of Chieveley analysed the matter at some length in Seaconsar Far East Ltd. v. Bank Markazi Jomhouri Islami Iran [1994] 1 A.C. 438, though he also was principally concerned with the rule for assessment of the strength of the plaintiffs’ case on the merits as distinct from the question of what test to apply on an application for service out of the jurisdiction. His discussion of the earlier House of Lords decision in Vitkovice Horni A Hutni Hezirstvo v. Korner [1951] A.C. 869 shows how confused the English courts were about the matter. The law lords thought the test to be, as laid down by the rule, as in our O. 11, r. 5 of the Rules of the Superior Courts, whether ‘the case was a proper one for service without the jurisdiction.’ This might not be thought to advance the matter much and Lords Simonds and Lord Normand appeared to accept the value of ‘a good arguable case.’ Lord Radcliffe spoke of ‘a strong argument’ and ‘a strong case for argument.’ Hence the notion of ‘good arguable case.’ I agree that this is the appropriate standard.
43. In Case C-256/00 Besix SA v Wasserreinigungsbau Alfred Kretzschmar GmbH & Co [2002] ECR I-1699 at para. 26, however, the Court of Justice of the European Union made it clear that both principles of legal certainty and ease of knowledge by a proposed defendant as to jurisdiction were at the heart of properly establishing jurisdiction under the relevant rules. It would be contrary to those principles were a mere standard of the application of an arguable case allowed to usurp the general principle that unequivocal proof of the exception to Article 2 is required. Further, since the probability standard is the ordinary standard throughout the European Union for the establishing of contentious issues, no lesser standard than that is required to prove an exception to the domicile of the defendant as the ordinary rule for jurisdiction.
Result
44. In both cases a consensus emerges as to jurisdiction in favour of the courts of Ireland. Both appeals should therefore be dismissed. Article 2 of the Brussels I Regulation specifies that persons domiciled in a Member State should be sued in the courts of that state. Exceptions to this rule in Article 23 include an agreement on a different choice of jurisdiction between the parties. This can be arrived at through assent or through a custom within a relevant commercial area. In summary, Ryanair sought to demonstrate that such a choice had been made by virtue of clause 7 of its terms and conditions of use of its website, which specified that Ryanair could elect to take proceedings against any breach of those terms and conditions in Ireland, or elsewhere at its discretion. Ryanair argued that the appellant travel companies had agreed to those terms through the use of their website. The appellant travel companies argued that their customers were bound by those terms, and not the companies themselves.
45. In the course of their decisions, Hanna and Laffoy JJ individually reached conclusions that were open to them on the evidence as presented, albeit that their conclusions were reached on different grounds. The conclusion of Laffoy J in the On the Beach decision was that the expression of assent to the terms and conditions of the websites of airlines and travel agencies through the clicking or ticking of a box is a practice generally and regularly followed in those commercial sectors. Moreover, she noted, in accordance with that practice, the terms and conditions of use of the website are available throughout such websites by way of hyperlink, with the objective of binding the user of the website to these terms. She held that it was clear that On the Beach were aware of the operation of that practice. Hanna J decided the jurisdiction issue in the Billigfluege hearing by reference to traditional contractual analysis. In upholding that decision on this appeal, and in accordance with precedent, no decision is made that a binding contract was entered into, only that a clear choice of jurisdiction has been made by the parties.
46. The burden of proof in taking such an appeal is on the appellant. There has been no demonstration of error. In rejecting the appeals of both travel companies, the result is that the decisions of the High Court were in accordance with Irish and EU precedent on the application of the Brussels I regulation. Further, there has been no finding of fact on the part of the High Court that had not been based on evidence.
47. Finally, the operative standard of proof in respect of a dispute over consensus as to jurisdiction under the Brussels I Regulation is the balance of probabilities as provided by the authorities set out herein and in accordance with national and EU law.