Informal Settings
Cases
Jones v Padavatton
[1968] EWCA Civ 4
Atkinson LJ
“On the other hand, I do not think that the lack of formality and precision in expressing the arrangement is necessarily an indication that no contract was intended having regard to what the court knows of the parties and their relationship. The problem is, in my view, a difficult one, because though one would tend to regard a promise by a parent to pay an allowance to a child during a course of study as no more than a family arrangement, on the facts of this case this particular daughter undoubtedly gave up a great deal on the strength of the mother’s promise.
In my judgment it is the subsequent history which gives the boat guide to the parties’ intention at the material time. There are three matters which seem to me important: (1) The daughter thought that her mother was promising her 200 United States dollars, or £70 a month, which she regarded as the minimum necessary for her support. The mother promised 200 dollars but she had in mind 200 British West Indian dollars, £42 a month, and that was what she in fact paid from November 1968 to December 1964. Those payments were accepted by the daughter without any sort of suggestion at any stage that the mother had legally contracted for the larger sum. (2) When the arrangements for the purchase of No. 181, Highbury Quadrant were being discussed, and the new arrangement was made for maintenance to come out of the rents, many material matters were left open: How much accommodation was the daughter to occupy; how much money was she to have out of the rents; if the rents fell below expectation, was the mother to make up the difference below £42, or £42 less the sum saved by the daughter in rent; for how long was the arrangement to continue, and so on. The whole arrangement was, in my view, far too vague and uncertain to be itself enforceable as a contract; but at no stage did the daughter bring into the discussions her alleged legal right to £43 per month until bar studies were completed, and how that right was to be affected by the new arrangement. (3) It is perhaps not without relevance to look at the daughter’s evidence in cross-examination. she was asked about the occasion when her mother visited the house and she, knowing perfectly well that her mother was there, refused for some hours to open the door. She said
“I didn’t open the door because a normal mother doesn’t sue her daughter in court. Anybody with normal feelings would feel upset by what was happening”.
Those answers and the daughter’s conduct on that occasion provide a strong indication that she had never for a moment contemplated the possibility of her mother or herself going to court to enforce legal obligations, and that she felt it quite intolerable that a purely family arrangement should become the subject of proceedings in a court of law.
At the time when the first arrangement was made, mother and daughter were, and always had been, to use the daughter’s own words, “very close”. I am satisfied that neither party at that time intended to enter into a legally binding contract, either then or later when the house was bought. The daughter was prepared to trust her mother to honour her promise of support, just as the mother no doubt trusted her daughter to study for the Bar with diligence, and to get through her examinations as early as she could
It follows that in my view the mother’s claim for possession succeeds, and her appeal should be allowed.
There remains the counterclaim. As to that I fully endorse what Lord Justice Salmon has aaid as to the manner in which that should be disposed of.”
Dresdner Kleinwort Ltd & Anor v Attrill & Ors
[2013] EWCA Civ 394
Elias LJ
“Third, Mr Linden submitted that when considering whether, objectively viewed, the parties intended to create legal relations, it was wrong for the judge to have regard to matters which were known to the employer but not to the workforce. So the judge ought not to have had regard to the concerns of the FSA or the board of the Bank when considering this matter since these were unknown to the employees at the material time. Similarly, with respect to the fact that the Board had itself chosen to disseminate the information via the Town Hall meeting, Mr Linden submits that the test should simply be how a reasonable employee would have interpreted the announcement and matters unknown to them could not enter into the equation. In support of this submission he relies upon two authorities in particular. They are the case well known to all first year law students, Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 and the decision of the Court of Appeal in Bowerman v Association of British Travel Agents Ltd [1996] CLC 451. Each of those cases involved a public statement to consumers of products and the issue was whether they were intended to create legal relations; were they promises which, if accepted, would constitute a contract? In each case the relevant question was held to be how the recipient of the promise would understand it.
Finally, it is submitted that once the analysis is limited to relevant factors which can properly be taken into account, the only proper inference is that there was no intention to create legal relations.
I will consider these grounds in turn.
Was the burden of proof on the Bank?
The judge held that he who asserts that there is no intention to create legal relations should bear the burden of establishing it. Mr Linden correctly pointed out that the two authorities on which the judge relied were both cases of bilateral contracts. He submitted that there is no reason to assume that the same principle applies where there is a unilateral statement rather than bilateral negotiations.
I do not see why that should make any real difference, at least in a case where the parties are already in a contractual relationship when the unilateral promise is made. Indeed I would start from the premise urged upon the court by the claimants that where a term is being introduced into a pre-existing contractual relationship, there will be a very strong presumption that it is intended to be legally binding. In Thomas Judge v Crown Leisure Limited [2005] IRLR 823 Lady Justice Smith expressed the view, in the context of an employment relationship, that if sufficiently certain words are used, then no issue of intention to create legal relations would arise. She said this (para 23):
“In my view, with respect, [the claimant’s counsel] has misunderstood the ET’s decision. The Tribunal did not hold that there was no intention to create legal relations. Indeed, in my view, that question never arose. These two men were employer and employee; in effect, legal relations already existed between them. If words had been uttered that were capable of amounting to a contractual promise, it could not sensibly have been suggested that there was no intention to create legal relations.”
Even if that may be said to be putting the position too high – and I refrain from expressing a final view on that – it at the very least supports the proposition that in a case where a change is being introduced against the background of an existing contractual relationship, the onus will be on the party asserting that there is no intention to create legal relations to establish that fact.
Did the judge take account of the clause 1.4 point?
The submission is that the principal issue being relied on by the Bank was that the fact that the clause 1.4 procedures were not used in order to effect the variation points strongly against inferring an intention to create legal relations. It is said that the judge simply failed to deal with the point. The short answer to this is that clause 1.4 was in fact used, for the reasons I have given. But quite apart from that, I think that on a fair reading of paragraph 146, reproduced in paragraph 67 above, the judge is reflecting this argument, albeit not as transparently as he might have done. It was the Bank’s case that any change had to be made in writing pursuant to clause 1.4 in order to be legally effective, and the judge is then focusing upon the potential significance of the fact that the Bank chose to implement the change in some other way.
Was the judge entitled to have regard to matters not known to the employees?
The contention here is that when looking at how a unilateral promise of this kind is interpreted, the authorities show that it is necessary to focus simply on how the reasonable recipient of the promise would have understood the offer. Since the employees would not share all the facts known to the employer, those matters unknown to them could not be taken into account.
On the facts, I do not think that this submission materially helps the Bank, even if it is correct, because the substance, if not the detail, of the facts which Mr Linden says were not known to the employees were in fact known to them. The two particular matters which Mr Linden relied upon include the FSA involvement and the fact that the Board had approved of Dr Jentzsch announcing the bonus pool in the way he did. There was an abundance of evidence that the workforce were aware that the FSA was concerned about the stability of the business; we were referred to over a dozen witness statements from claimants where the point was expressly mentioned. In any event the key point was that the promise was being made to sustain stability and this would have been obvious to staff in circumstances where the Bank was suffering heavy losses and where there were rumours that it was proposing to sell the investment banking division; the FSA involvement merely reinforced the importance of securing a stable workforce. Moreover, although the workforce may not have known for a fact that Dr Jentzsch was making the announcement with the approval of the Board, they would certainly assume that as Chief Executive of DKIB he had the requisite Board authority both to promise the bonus and to communicate that promise in the way he did. They would also know that important announcements were frequently made by Town Hall meetings.
Mr Hochhauser contended that in any event the legal premise was wrong and that background factors, even if not known to the employees, could be taken into account as part of the wider context when considering objectively whether there was an intention to create legal relations. It would be wholly artificial, he submits, to leave them out of account and the judge was right not to do so. He relied upon Carmichael v National Power [1999] ICR 1226, a decision of the House of Lords, to support his position that all relevant documents could be considered provided they have a bearing on the question in issue. That case was, however, concerned with issues of construction rather than intention to create legal relations and is not directly in point, although Mr Hochhauser relies on it by way of analogy.
In my judgment, this evidence is admissible even on the assumption that it was not known to the employees when the offer was made. The purpose behind the rule is that if the recipient of the unilateral promise would in the light of all the circumstances known to him reasonably understand the promise to be intended to be legally binding, the other party should not be allowed to escape liability by relying on evidence unknown to the recipient to establish that there was no such intention. But a rule of this nature must not be allowed to work an injustice. So a party who in fact knows that the other party does not intend to create legal relations cannot seek to contend otherwise by asserting that the evidence, objectively analysed, supports his case. He knows the truth and should not be allowed to deny it: Pateman v Pay (1974) 232 E.G.467. (A similar rule applies to stop an offeree from seeking to snap up an offer on terms consistent with the objective evidence when in fact he knows that the offeror did not intend to agree those terms: Hartog v Colin & Shields [1939] 3 All ER 566.)
Similarly, in Lark v Outhwaite [1991] 2 Lloyd’s Rep. 132 the plaintiff was asserting an intention to create legal relations but there was evidence from his agent which unambiguously showed that subjectively he did not have any such intention. Hirst J held that whilst the test whether a promise was intended to have legal consequences was primarily objective, the court should not be obliged to ignore entirely evidence of subjective intention. In my view the justification for admitting objective evidence relevant to understanding the likely intention of the offeror, such as the objective evidence in this case about the involvement and concern of the FSA and the need to keep staff is, if anything, stronger. An offeror should not be allowed to assert that there was no intention to create legal relations and at the same time seek to take advantage of a rule designed to benefit the offeree in order to conceal from the courts evidence which is inconsistent with his assertion.
As to the submission that that the judge reached a conclusion which was not sustainable on the evidence, Mr Linden accepted that he would have to satisfy the court that this was not a conclusion which a reasonable judge could have reached on the evidence before him. That was a realistic submission and reflects the fact that this court can only interfere if the judge below reached a conclusion that was wrong. In a context like this where inferences are drawn from primary facts, the court can only interfere if the judge steps beyond the range of reasonable decisions, adopting the same approach as it would in reviewing the exercise of a discretion, as Lord Justice Clarke pointed out in Assicurazioni Generali SpA v Arab Insurance Group [2002] EWCA Civ 1642; [2003] 1 WLR 577, para 16.
In my judgment, the conclusion of the judge was manifestly justified, essentially for the reasons he gave. For reasons I have already given, in my view there was a very strong presumption that a promise of this nature would be intended to be legally enforceable, and there were a whole series of matters supporting that conclusion. Perhaps the critical one is that this was a promise made in the context of a pre-existing legal relationship. In my judgment, viewed objectively, the natural inference would be that any promises made to staff relating to the terms of their employment would take effect in the same way as other contractual terms. Other factors reinforcing that conclusion include the fact that the source of the promise was the Chief Executive Officer with the obvious implication that the creation of the bonus pool must have been approved by the highest levels in the Bank; that it was part of a vitally important strategy to retain staff and prevent the potential collapse of the investment banking division; that the nature of the promise assured staff that the fund was guaranteed come what may; and that it was related to pay, the most fundamental obligation under the employment contract. There was, in truth, overwhelming evidence justifying the conclusion that this promise was intended to be legally binding. There were some factors lending a modicum of support to the Bank’s submissions, but the judge fairly considered them and gave cogent reasons why they were not ultimately persuasive.
I should add that I have taken on board three further points addressed by Mr Linden which did not perhaps figure as significantly before the judge. First, he emphasised that his submission did not mean that the promise, even if non-contractual, would have no legal significance. Any failure to respect the promise could be challenged under the term not to undermine trust and confidence, which was indeed precisely what the claimants have done as an alternative to their main case. It was therefore wrong of the judge to say that “if [the announcement] was not intended to have legal effect, it is difficult to see how it could have the intended effect”.
Second, it was submitted that to make the obligation legally binding would mean that the court would ultimately have to become embroiled in fixing the bonuses of staff, something which Lord Justice Mummery had said in Keen v Commerzbank [2007] ICR 623 the court would not do. His Lordship observed in that case that it was not for the courts to act as wage fixing bodies for the banking industry.
Third, it was said that the staff gave nothing in exchange for the promise.
None of these points, in my view, carries any significant weight, and certainly not enough to cast doubt on the judge’s conclusion. As to the first, the fact that the promise may be subject to some legal controls even if not contractually enforceable does not justify a court starting from the premise that this tells against an inference that there was an intention to create a binding contractual term. An objective analysis of intention would not start from the assumption that because there are general legal controls over the exercise of discretions by the employer, this is a factor pointing away from an intention to create contractual relations. Moreover, the judge’s observations to the effect that the purpose of introducing the promise would not have been achieved without the promise being legally binding were justified. It is fanciful to believe that the stability of staff would have been secured anything like as effectively had staff been told that the promise made to them was not contractually binding but that it might be indirectly secured by virtue of a general implied duty of trust and confidence.
As to the Keen point, I do not envisage that the court would have to fix the bonuses. It would simply require that when the Bank did so it distributed the full amount of the bonus pool. No doubt in the unlikely event that the Bank refused to do so the court may have to interfere faute de mieux, but as Maurice Kay LJ pointed out in the course of argument, this is something which courts exceptionally have to do from time to time when dealing with discretionary trusts. In any event, the Bank could not set up its own unwillingness to co-operate as a reason for inferring that there was no intention to create legal relations.
Finally, as regards the lack of anything in exchange, that is wrong as a matter of fact. The judge found in terms that each of these claimants had given good consideration in that the bonus pool was at least a factor, to a greater or lesser extent, in their decision to remain with the Bank. That was so notwithstanding that there may have been some reduction in job opportunities after the financial crash in September.
It follows that in my view there was an intention to enter into legal relations when this offer was made.”
Baird Textile Holdings Ltd v Marks & Spencer Plc
[2001] EWCA Civ 274 (
THE VICE CHANCELLOR :
“The Vice-Chancellor has set out paragraph 12(1) and (2) of the judgment below, in which Morison J summarised the relevant legal principles as he saw them. For a contract to come into existence, there must be both (a) an agreement on essentials with sufficient certainty to be enforceable and (b) an intention to create legal relations.
Both requirements are normally judged objectively. Absence of the former may involve or be explained by the latter. But this is not always so. A sufficiently certain agreement may be reached, but there may be either expressly (i.e. by express agreement) or impliedly (e.g. in some family situations) no intention to create legal relations.
An intention to create legal relations is normally presumed in the case of an express or apparent agreement satisfying the first requirement: see Chitty on Contracts (28th Ed.) Vol. 1 para.2-146. It is otherwise, when the case is that an implied contract falls to be inferred from parties’ conduct: Chitty, para.2-147. It is then for the party asserting such a contract to show the necessity for implying it. As Morison J said in his paragraph 12(1), if the parties would or might have acted as they did without any such contract, there is no necessity to imply any contract. It is merely putting the same point another way to say that no intention to make any such contract will then be inferred.
That the test of any such implication is necessity is, in my view, clear, both on the authority of The Aramis [1989] 1 Ll.R. 213, Blackpool and Fylde Aero Club Ltd. v. Blackpool B.C. [1990] 1 WLR 1195, The Hannah Blumenthal [1983] AC 854 and The Gudermes [1993] 1 Ll.R. 311 cited by the Vice-Chancellor, and also a matter of consistency. It could not be right to adopt a test of necessity when implying terms into a contract and a more relaxed test when implying a contract – which must itself have terms.
Here it is sought by the claimant to argue in reverse. First, the issue of intention to create legal relations is addressed and it is suggested that the judge gave only one reason (based on paragraph 9.28 of the claim) for negativing any such intention. Then, having sought to show that reason as ill-founded, it is argued that the only barrier to an enforceable contract is “essentially one of interpretation” and of giving effect to an intention on the part of the parties to contract.
It is, in my judgment, more appropriate to take the requirements in the order in which I have set them out, and to recognise their potential inter-relationship. If there is no sufficient agreement on essentials, that is on any view fundamental, and it may well also reflect an absence of intention to create legal relations.
Here, Baird has pleaded in detail facts and matters showing and concerning an exceptionally close and inter-active commercial relationship with M & S. The more I have heard and read about the closeness of the parties’ commercial co-operation in the past, the less able I have felt to see how its effect could be expressed in terms having any contractual certainty. The parties were in constant contact, discussing, developing, adapting or altering their arrangements. Baird submits that the answer lies in recognising that there were on each side broad obligations (a) to continue the long-standing purchaser-supplier relationship (unless and until one or other gave reasonable notice to determine it, put at three years) and, in that context, (b) for M & S to purchase and for Baird to supply a “reasonable” or “appropriate” share of whatever were M & S’s requirements from time to time, so as (c) to ensure, at least to that extent, that the production facilities that Baird had devoted to M & S’s business to date were maintained, or (at all events) run down in a less abrupt and painful way than actually occurred.
The terms of the suggested contract are more particularly contained in paragraph 9 of the claim:
“…. in exchange for BTH agreeing (a) to supply [M & S] with garments year by year on a seasonal basis; (b) to allow [M & S] to be closely involved in the design and manufacture of the garments so supplied; (c) to establish and maintain a workforce and manufacturing capacity sufficient to meet and be highly responsive to [M & S] continuing requirements; (d) not to act in a manner which in the view of [M & S] was contrary to its interests; and (e) to deal with [M & S] in good faith and reasonably having regard to the objective of the relationship, the relationship would continue long term and would be terminable only upon the giving of reasonable notice; and that during the subsistence of the relationship [M & S] would acquire garments from BTH in quantities and at prices which in all the circumstances were reasonable and would deal with BTH in good faith and reasonably having regard to the objective of the relationship.”
Mr Field for Baird identified four particular factors that would come into play in the exercise required whenever it became necessary to establish what significance the suggested contract had in practice: (1) the parties’ long–term intention to maintain a flexible supply base, (2) M & S’s overall requirements over the relevant period, (3) the extent to which Baird was likely to be able to supply such requirements and (4) Baird’s level of investment in its facilities. He accepted that, under the suggested contract, it would have been Baird’s implied obligation to meet a reasonable or appropriate share of whatever were M & S’s actual requirements, so far as it had the capability to do so and so far as the price was reasonable. He submitted that, in this way, a court could, by examining the parties’ past performance and their present situations and needs, work our whatever might be the minimum purchase obligations that M & S should be taken to have committed itself to place and Baird to have committed itself to supply during a three year period of notice.
When the suggested long-term contract is put in these terms, it becomes clear that it would, in case of any dispute, involve the court writing a “reasonable” contract for the parties, after making a complete review of their situations, needs, abilities and expectations. It could only become relevant to seek to identify the impact of such long-term obligations in a situation where actual co-operation had broken down or one or the other party wanted to reduce its commitment to the minimum. So the court would be expected to undertake the exercise in the very situation where the parties’ actual behaviour could no longer serve as a guide to the answer. I agree with the Vice-Chancellor that this is not an exercise that the court can or should undertake, or, indeed, which the parties can objectively be taken to have intended. The presence in the suggested contractual formulation of implied duties of good faith is an additional barrier in the way of the conclusion for which Baird contends, in view of English law’s general refusal to recognise any duty of this nature as an implied contractual term.
Objectively, the only sensible analysis of the present situation is in my judgment that the parties had an extremely good long-term commercial relationship, but not one which they ever sought to express, or which the court would ever seek to express, in terms of long-term contractual obligations. The upshot is that I agree with the judge’s conclusion that there was never here any agreement on essentials.
In addition, I consider that the fact that there was never any agreement to reach or even to set out the essential principles which might govern any legally binding long-term relationship indicates that neither party can objectively be taken to have intended to make any legally binding commitment of a long-term nature. Their conduct in this regard contrasts with their conduct in entering into short-term commitments relating to each season, as well as their conduct in entering into other particular contracts, such as that made by both M & S and Baird with the clothing designer, Matthew Williamson, dated 27th March 1998.”
Edmonds v Lawson & Anor
[2000] EWCA Civ 69
Bingham LCJ
“20. The claimant contended, and the judge held, that there was a contract between her and all those who were members of Mr Lawson’s chambers on 1 October 1998, made by the chambers’ offer of a 12-month pupillage and her acceptance of that offer. Before the judge and on appeal before us the defendants resisted that conclusion. The grounds of resistance were, first, that there was no intent to create legal relations and, secondly, that the pupillage agreement was unsupported by consideration moving from the claimant as promisee and so lacked an essential ingredient of a legally binding contract.
21. Whether the parties intended to enter into legally binding relations is an issue to be determined objectively and not by enquiring into their respective states of mind. The context is all-important. From the defendants’ point of view the written offer of pupillage to the claimant came at the end of a long, time-consuming and expensive process. It was also a process of great long-term consequence to them since, although barristers in practice are independent self-employed practitioners, it is of benefit to all, at every level, that chambers as a whole consist of talented and hardworking members, and the defendants’ like other chambers recruit most of their tenants from the pool of those recruited as pupils. So, quite apart from considerations of professional duty and the public interest, it is of direct practical consequence to chambers to attract and select the ablest pupils. That is why, in part at least, many chambers including the defendants’ fund pupillages for a proportion of their pupils, sometimes very generously. From the pupil’s point of view, obtaining a pupillage in a flourishing set of chambers practising in the pupil’s chosen field is a step with potentially immense consequences, both professional and financial, in both the short and the long term. Obtaining a pupillage does not of course guarantee a tenancy, but it guarantees the pupil an opportunity to show his quality and thereby seek a tenancy. When, as the culmination of a long process of application, short-listing and interview an offer is formally made and formally accepted it would in our judgment be surprising to infer that the parties intended to bind themselves in honour only.
22. In arguing that there was no intent to create legal relations Mr Goudie QC for the defendants relied on the educational nature of the arrangement, suggesting that it lacked the characteristics of a commercial contract and involved no payment by the pupil. It was a voluntary and gratuitous offer by the chambers to provide education and training. He also relied on the doubt which, he said, existed as to who entered into the arrangement on the chambers’ side. There was, he suggested, no need for a contract because the relationship was already regulated by the documents to which reference has been made above, and if chambers should resile from a undertaking to provide pupillage the pupil would have ample redress through the Bar disciplinary machinery, which would in practice preclude such dishonourable behaviour. The absence of written terms and conditions, he argued, pointed strongly against any intention to contract.
23. Neither singularly nor cumulatively do we find these points in any way persuasive on the question of intent. It is true that the content of the arrangement was educational, but as already pointed out the practical implications of the arrangement for both parties were potentially very significant and, subject to the point on consideration discussed below, there is no reason why a binding contract cannot be made for the provision of education and training. Whereas once the arrangement of pupillage was a one-to-one engagement between pupil and pupil-master, that has ceased to be so, as evidenced by the responsibility imposed on and accepted by heads of chambers, by the procedure in practice adopted by chambers and by the management of pupillage as a chambers responsibility. The claimant was not interviewed, nor was the offer of pupillage made, by either of those who became her successive pupil masters, and when the offer was made and accepted she did not know who they would be. The regulatory materials governing pupillage (only a small part of which we have quoted) were impliedly incorporated by reference into the arrangement made between the parties, and to that extent the terms of the arrangement were recorded in writing; but the functions and obligations of the parties were so clearly specified in these materials that any detailed negotiation of terms and conditions to be recorded in a written agreement between the parties was rendered unnecessary. It is of course unlikely that any chambers, certainly any reputable chambers, having made an offer of pupillage which has been accepted, would resile from that arrangement without very good reason, but the existence of a disciplinary sanction does not in our view point against the existence of a contract. To our mind this arrangement had all the characteristics of a binding contract. It makes no difference that, if the pupil defaulted, the chambers would be most unlikely to sue; the same is true if an employer engages a junior employee under an employment contract which is undoubtedly binding, and the employee fails to turn up on the appointed day.
24. The defendants’ argument on consideration is, we think, much stronger, for while chambers undertake to provide a closely prescribed curriculum of education and training the pupil no longer pays any fee and does not in our view undertake to do anything beyond that which is conducive to his or her education and training. In working on the pupil master’s papers (making factual summaries, or drafting chronologies, or writing advices or preparing pleadings) the pupil will be seeking to acquire, under the tutelage of the pupil master, the skills of a professional adviser, pleader and advocate, even though the pupil-master will often benefit from the pupil’s work and from discussion with him. If the pupil carries out legal research or keeps a note in court, he is again learning and applying professional skills necessary for practice. If the pupil produces any work of real value, whether to the pupil master or any other member of the Bar, the beneficiary is under a professional duty to remunerate the pupil. While any pupil of ordinary common sense would, if asked, carry out mundane tasks (such as photocopying authorities or making a cup of tea) which do not in any way promote his professional development there is in our view no obligation or duty on the pupil to do anything for the pupil-master which is not conducive to his own professional development.
25. This conclusion, if correct, would we think be fatal to any argument that there was a contract between the pupil and the individual pupil-master, for the pupil would provide no consideration for the pupil-master’s educational services. But the claimant does not rely on any contract said to have been made with an individual pupil-master and we think a broader view has to be taken of the relationship between chambers and pupil. For reasons on which we have already touched, members of chambers have a strong incentive to attract talented pupils, and their future prospects will to some extent depend on their success in doing so. The funding of awards is not an exercise in pure altruism but reflects an obvious (and wholly unobjectionable) element of self-interest. The agreement of the claimant and other pupils to undertake pupillage at chambers such as the defendants’ provides a pool of selected candidates who can be expected to compete with each other for recruitment as tenants. We do not regard this argument as undermined by the fact that some pupils who are accepted as such may be regarded as unlikely candidates for tenancy. The process must be viewed in the round, and not on a pupil by pupil basis, and chambers may well see an advantage in developing close relationships with pupils who plan to practise as employed barristers or to practise overseas. On balance we take the view that pupils such as the claimant provide consideration for the offer made by chambers such as the defendants’ by agreeing to enter into the close, important and potentially very productive relationship which pupillage involves.
26. We agree with the judge, although for somewhat different reasons, that the claimant did make a legally binding contract with the defendants.”
Sadler v George Reynolds
[2005] EWHC 309
Slade QC
“Apart from unparticularised denials, the specific matters raised in the pleaded Defence are issues of fact. However, having regard to the way in which, on occasion, George Reynolds has presented his case at trial and bearing in mind that he is a litigant in person, albeit with experience of one hundred civil and criminal trials, I will consider the question of whether any agreement between the parties was intended to have legal effect.
The approach of the courts to contractual intention has regard to:
• The nature of the relationship between the parties,
• The context in which agreement was reached, and
• Any express declaration of intent.
(Chitty on Contracts 29th Edition Vol 1 paras 2-175, 2-159, 2-157).
Contractual intention is normally judged objectively. ‘In the absence of … an expression [of the absence of contractual intention] …… the legal effect of an agreement which is clearly intended to give rise to some legal relations is not determined by the subjective intentions of the parties or of one of them ‘ (Chitty para 2-156).
Mr Duodu drew attention to Hadley and others v Kemp and another (1999] EMLR 589 in which Park J held that on the facts of that case he was not satisfied that an intention to create legal relations had been established. In my judgment, the case is simply an illustration of the general principles referred to above.
In my judgment, the only other issue of law which arises for consideration in this case is whether any duty of confidence in relation to the title of the autobiography and the idea for the first chapter can give rise to a cause of action independently of the claim in breach of contract. Confidentiality in original ideas is pleaded as an implied term of the contract between the parties. A cause of action in breach of confidence is asserted additionally or alternatively to the implied term.
Even if the three elements essential to the cause of action for breach of confidence referred to in Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41, namely (a) that the info1111ation was of a confidential nature, (b) that it was communicated in circumstances importing an obligation of confidence and (c) that there was an unauthorised use of the information, were satisfied in relation to the title of the book and the idea for the first chapter, is John Sadler able to establish that he has suffered damages for such breach in addition to damages for breach of the alleged ghost-writing contract? In my judgment, the claim for breach of confidence stands or falls with the claim in breach of contract and any claim for damages for such breach is subsumed in the damages for breach of contract. On the facts of this case, in my judgment, it is only if John Sadler establishes that George Reynolds entered into a contract with him for the writing of his autobiography that he can establish that the ideas in respect of which confidentiality is claimed were communicated in circumstances giving rise to a duty of confidence. Further, the ideas relate exclusively to the writing of the autobiography of George Reynolds. No damages flow from the breach of such a duty of confidence additional to damages for breach of any contract to co-operate in writing the book.
Did the parties enter into a contract for John Sadler to ghost-write George Reynolds’ autobiography?
The facts of this case place the agreement between the parties somewhere between an obviously commercial transaction and a social exchange. In my judgment, the onus is on John Sadler to establish an intention to create legal relations, albeit that the onus is a less heavy one than that which would be required to establish such an intent in the context of a purely social relationship.
I have found that John Sadler has established that by 2ih May 2001 an oral agreement had been entered into between him and George Reynolds giving John Sadler the right to write George Reynolds’ autobiography. It was, inter alia, an express term of the agreement that Mr Sadler would obtain a reputable publisher for the book and negotiate suitable terms for the publishing agreement and that all earnings from the book under any publishing agreement would be shared by Mr Sadler and Mr Reynolds on a 50-50 basis.
In my judgment John Sadler has established an intention to create legal relations. He was an experienced journalist who met and dealt with George Reynolds in that context. Mr Reynolds was well aware that Mr Sadler had made money from his previous ghost writing. On the evidence, George Reynolds, too, hoped to make money from the autobiography.
In paragraph 5.3 of the Defence served on behalf of Mr Reynolds it is pleaded that
“The Defendant did not, at any time, agree that the Claimant should be involved in writing such a book.”
I have found that such an agreement was entered into. Although the contention is not raised in the pleaded Defence served on behalf of Mr Reynolds, because of his observation in evidence that ‘A verbal contract is new to me’, I have considered whether it could be said that it was the intention of the parties that the agreement was not intended to be binding until it was reduced to writing. In my view the evidence does not support such a contention. Nothing is alleged to have been said to that effect nor do the circumstances of the oral agreement indicate that it was not intended to have legal effect unless and until reduced to writing.
Accordingly I hold that by 2ih May 2001 the parties had entered into a contract for John Sadler to ghost-write the autobiography of George Reynolds.”
Goulding Chemicals Ltd. v. Bolger
[1977] I.R. 211
S.C. O’Higgins C.J.
“The second ground of appeal put forward by the plaintiffs was based on the acceptance by all the unions concerned (including ITGWU of which the defendants are members) of the plaintiffs’ proposals for the closing of their plant. These proposals were designed to ensure that the closing would be accepted by the unions as being in the circumstances unavoidable and that satisfactory monetary compensation would be paid to all employees. It was of course implicit in the proposals and in their acceptance by the unions that there would be no trade dispute and, of course, no picketing. The six-point proposal or statement from the plaintiffs which was accepted by the unions was a business-like document and had all the appearances of being intended to create legal relations between the unions which accepted and the plaintiffs who proposed. I would regard the agreement resulting from the acceptance of these proposals as being similar in effect to that dealt with in Edwards v. Skyways Ltd. 58 and, there being nothing to suggest the contrary, in my view a valid contract was thereby created between these unions and the plaintiffs. However, this is not the point of this ground of appeal.
The plaintiffs’ contention is that this valid enforceable agreement has the effect of binding the defendants who are all members of one of the unions involved. This submission must be considered in the light of the evidence, which was uncontradicted, that the defendants at all times opposed the conclusion of any agreement with regard to the closing of the plant and made it abundantly clear, both inside the union and to the plaintiffs, that they would not accept any agreement to this effect. I find it hard to accept that in such circumstances the defendants can be bound by an agreement which they have expressly repudiated and opposed. It seems to me that to hold them bound would be contrary to all principle. The only basis put forward for suggesting that they should be bound was that they did not resign and continued to be members of their union. The rules of the union were not put in evidence but I would find it very difficult to accept that membership of an association like a union could bind all members individually in respect of union contracts merely because such had been made by the union. I cannot accept for these reasons that this ground of appeal is well founded.
Kenny J.
“The plaintiffs then argued that if the six-point statement and its acceptance by the unions created a contract the defendants, as members of the union, were bound by it because the majority of their co-members had accepted it. No authority to support this argument was cited and the rules of the union, which would show the authority of the majority, were not referred to or proved. I think that the contention is wrong in principle and that all the reported cases on this matter are against it. Membership of a corporate body or of an association does not have the consequence that every agreement made by that corporate body or association binds every member of it. None of the defendants are parties to the agreement and as they consistently opposed it, no question of their being bound by acquiescence can arise. In addition, there is the negative evidence against the contention provided by a section in the Industrial Relations Act, 1946. The two decisions that I have been able to find on this matter are against the plaintiffs’ contention.
In Holland v. London Society of Compositors 70 the plaintiff was a member of a provincial trade union which made an agreement with a London trade union that a member of the former union should, if he came to London, be admitted to membership of the latter union. The plaintiff was offered a position in London but was refused membership of the London union and, therefore, could not accept the position. He brought an action against the
London union for a declaration that he was entitled to membership of it and for an injunction. The court decided that the agreement was made not between the plaintiff and the London union but between the two trade unions only and that, as the plaintiff was neither directly nor indirectly a party to it, the action failed. In Young v. Canadian Northern Railway Co. 71 the defendants had entered into an employment agreement with a trade union and the plaintiff sought to rely on the terms of it when he was dismissed by the defendants. The Privy Council held that, having regard to the terms and nature of the agreement, it did not constitute a contract between any individual employee and his employer. There is in addition the negative argument that the Oireachtas assumed in 1946 that an employment agreement to which a trade union was a party did not bind the individual members of it. Section 30, sub-s. 1, of the Industrial Relations Act, 1946, reads:
“A registered employment agreement shall, so long as it continues to be registered, apply, for the purposes of this section, to every worker of the class, type or group to which it is expressed to apply, and his employer, notwithstanding that such worker or employer is not a party to the agreement or would not, apart from this subsection, be bound thereby.”
Therefore, I reject the plaintiffs’ argument that the defendants are bound by the six-point agreement or that there is any contractual relationship between the plaintiffs and them.”
Edwards v Skyways Ltd
[1964] 1 All ER 494, [1964] 1 WLR 349
Megaw J
In the present case, the subject matter of the agreement is business relations’ not social or domestic matters. There was a meeting of minds – an intention to agree. There was admittedly, consideration for the company’s promise. I accept the proposition of counsel for the plaintiff that in a case of this nature the onus is on the party who asserts that no legal effect was intended, and the onus is a heavy one.’
Roche -v- Roche & ors
[2009] IESC 82 (15 December 2009)
JUDGMENT of Murray C.J. delivered on the 15th day of December 2009
The primary issue in this case is whether the constitutional protection afforded to the life of the unborn as provided in Article 40.3. of the Constitution extends to three fertilised embryos which have been frozen and stored in a clinic.
The embryos came into being in the following circumstances. The appellant, who is the plaintiff in the proceedings, and her husband, the first named respondent, were married on the 5th March 1992. In 1994 they sought fertility advice from their general practitioner and were referred to the National Maternity Hospital, Holles Street, Dublin. Investigations in that hospital did not indicate any particular fertility problem. After care and treatment in the hospital the appellant became pregnant in January 1997 and a son was born in October 1997. The course of events which then led to the creation of the three frozen embryos the subject of these proceedings were summarised in the judgment of the learned High Court Judge on this issue as follows:
“Shortly after the birth of her son the plaintiff underwent surgery for an ovarian cyst and she lost two thirds of her right ovary. She was referred back to the National Maternity Hospital in Holles Street in 1999. On the 5th May, 2000 she underwent another laparoscopy. She had fertility treatment in 2001 at Holles Street which proved to be unsuccessful. In July 2001 the plaintiff and the first named defendant were referred for IVF treatment. They elected to have the treatment at the Sims Clinic (the fourth named defendant). Their first appointment at the fourth named defendant’s clinic was in October 2001. They returned to the clinic in January 2002. On the 29th January, 2002 the plaintiff signed a document entitled “Consent to Treatment Involving Egg Retrieval”. In this document the plaintiff agreed to the removal of eggs from her ovaries and a mixing of the eggs with the sperm of the first named defendant. On the same date the plaintiff and the first named defendant signed a document entitled “Consent to Embryo Freezing”. In that document it was stated, inter alia, “we consent to the cryo preservation (freezing) of our embryos and take full responsibility on an ongoing basis for these cryo preserved embryos.” The first named defendant signed a document entitled “Husband’s Consent” in which he acknowledged that he was the husband of the plaintiff and consented to the fertilisation of the plaintiff’s eggs and the implantation of three embryos. He also acknowledged in that document that he would become the legal father of any resulting child. On the same date the first named defendant signed a “Semen Collection Form” confirming that the sample produced was his. On the 1st of February, 2002 the plaintiff signed a form entitled “Consent to Embryo Transfer”. In this she agreed to the placing in her uterus of three embryos and the administration of any drugs or anaesthetics that might be found necessary in the course of the procedure.
As a result of the IVF treatment six viable embryos were created. Three were inserted in the plaintiff’s uterus and the remaining three were frozen. The plaintiff became pregnant as a result of the transfer of the three embryos and gave birth to a daughter on the 26th of October, 2002.
Towards the end of the plaintiff’s pregnancy following IVF treatment, marital difficulties arose between the plaintiff and the first named defendant which resulted in the first named defendant leaving the family home. He had entered into a second relationship. An attempt at reconciliation failed and the parties eventually entered into a judicial separation although they still remain legally husband and wife. The plaintiff wishes to have the three frozen embryos implanted in her uterus and the first defendant does not wish this to happen and does not wish to become the father of any child that might be born as a result of the implantation of the frozen embryos. “
It is in these circumstances that the issues have arisen as to whether the appellant, as she claims, is entitled to have the frozen embryos implanted in her womb against the wishes of her estranged husband who does not wish to become the father of another child.
As indicated above the appellant has asserted that since the embryos enjoy the protection of Article 40.3.3., that provision requires that their right to life be vindicated by permitting her to have them implanted in her womb.
Article 40.3.3.
This article states:
“The State acknowledges the right to life of the unborn and, with due regard to the equal right to life of the mother, guarantees in its laws to respect, and, as far as practicable, by its laws to defend and vindicate that right.”
The Irish language version states:
“3°Admhaíonn an Stát ceart na mbeo gan breith chun a mbeatha agus, ag féachaint go cuí do chomcheart na máthar chun a beatha, ráthaíonn sé gan cur isteach lena dhlíthe ar an gceart sin agus ráthaíonn fós an ceart sin a chosaint is a shuíomh lena dhlíthe sa mhéid gur féidir é.”
The language of that provision mirrors to a significant extent the general protection afforded by Article 40.3.1. to the personal rights of the citizen.
That provides (in the English language version, nothing arising from a comparison of the two language versions):
“The State guarantees in its laws to respect, and , as far as practicable, by its laws to defend and vindicate the personal rights of the citizen.”
Subsection 3 must be interpreted in the context of Article 40 as a whole and in particular of 40.3.1.
Article 40, under the heading ‘Fundamental Rights’ and the subheading ‘Personal Rights’, commences in its first subsection by stating that:
“All citizens shall, as human persons, be held equal before the law.”
Thus Article 40, as adopted in 1937, addresses constitutional guarantees for the personal rights of human persons.
That is not to say that Article 40.3, before it was amended following a referendum, in 1983 did not necessarily afford constitutional protection to life before birth, and there were views expressed in public debate, particularly that related to the referendum, that it did, reference often being made to the obiter dictum of Walsh J. in McGee v. Attorney General [1974] 1 I.R. 284 at 312 where he stated:
“On the other hand, any action on the part of either the husband or the wife or of the State to limit family sizes by endangering or destroying human life must necessarily not only be an offence against the common good but also against the guaranteed personal rights of the human life in question.”
Indeed that passage was at the time referred to by some as a reason for advocating that the then proposed constitutional amendment was unnecessary.
Whatever the merits of that view the Eighth Amendment to the Constitution inserted subsection 3 of Article 40.3. and effectively extended in express terms to the “life of the unborn” or “mbeo gan breith chun a mbeatha” the constitutional protection for the personal rights of citizens referred to in Article 40.3.1. It does contain a specific reference to the equal right to life of the mother and I will address that proviso in due course.
In my view the subsection 3 of Article 40.3. is clear in its intent. It is intended to protect human life before birth. The key words in the English version are “life of the unborn” and in particular, in my view the much more apt expression, “mbeo gan breith chun a mbeatha (beo in its genitive case). I think “ceart na mbeo gan breith chun a mbeatha” can be fairly interpreted as meaning the right of life not yet born to live, or to its life.
The provision does not refer to the right to life of the unborn ‘child’ or ‘foetus’. No doubt because that could have compromised the meaning of life by raising questions as to when human life, after it had commenced, whether on conception or on implantation, could be characterised or defined as that of the child or the foetus.
Thus, Article 40.3.3. focuses on human life before birth without exception. It did not purport to confer a right but to protect a right acknowledged to exist. It commences with the words “The State acknowledges the right to life …” and sought, in a positive rather than prohibitive form, to protect that life while at the same time it made clear that the provision should not be interpreted as in any way undermining the right to life of the mother. As I said, I will address that particular proviso in due course, but for the moment, suffice it to say, in my view the provision seeks to acknowledge that human life before birth and after birth, with the specific reference to the life of the mother, are worthy of equal value and respect.
So far as the wording in the English version is concerned it refers to “right to life of the unborn” and if the English language permitted it, it might have fitted more readily with the Irish language version if it referred to “The right to life of the unborn life” but that would have been, in English, both an inelegant and tautologous form of wording for insertion in the Constitution.
In the course of the appeal it was argued that this provision of the Constitution should be interpreted in the light of the mischief it was intended to address including the statutory history of the law on abortion.
It is undoubtedly the case that the prohibition on abortion or any weakening of the existing statutory provisions on the prohibition of abortion was a central part of the debate leading up to the amendment. At that time the law of abortion was governed only by sections 58 and 59 of the Offences Against the Person Act 1861 under which the procuring of a miscarriage was a crime. In that context, it is notorious that in public debate the strength or efficacy of that prohibition, as argued by some involved in the debate, had been weakened by a decision in a case before the English courts in 1939 namely R v. Bourne [1939] 1 KB 687. The dictum in that case was never followed in this country but nonetheless was apparently used to raise concerns as to how the statutory law might be interpreted in this country.
If the objective at the time had been to just address some perceived statutory frailties that could have been achieved more readily and easily by the adoption of legislation. But the public debate transcended that and the object obviously was, as the result demonstrates, to place in the Constitution a protection for human life before birth. Of course it is also notorious that another important part of the public debate was provoked by the decision of the Supreme Court in the United States in the case of Roe v. Wade 410 US 113 (1973) which found that in certain circumstances a pregnant woman had the right to have an abortion. The fear, on one side of the debate, was that the courts in this country, and specifically this Court, might at some point in the future decide that such a right resided in our Constitution.
In any event the response to the wide ranging debate which took place at the time transcended legislative considerations and the issues were addressed at constitutional level.
Having regard to the terms of Article 40.3.3. I do not consider that the Act of 1861 or any possible interpretation of it is particularly important for the interpretation of that Article.
What is important in this context is not so much the mischief that was being addressed as the manner in which it has been addressed in the terms of the constitutional provision in issue.
Article 40.3.3. is not prescriptive or prohibitive in its terms.
A prescriptive and prohibitive form of amendment could have been opted for. There was already a parallel for that in the Constitution concerning the prohibition (since deleted) on divorce which provided: “No law shall be enacted providing for the grant of dissolution of marriage”. Instead of addressing abortion as such by a prohibitive amendment such as ‘no law shall be enacted permitting an abortion to be performed’ or the like, reference to the specific mischief, so to speak, was omitted and the provision turned to focus on the positive protection of human life before birth.
In my view the provision of the Constitution was intended to embrace human life before birth without exception and to extend to it, in express positive terms, the constitutional protections available to life after birth already provided for in Article 40.3.1 (cited above).
Of course the issue of abortion is a very controversial subject in Ireland and in many countries not only on whether it should be permitted at all, but if permitted, the circumstances and time when that may be allowed. Article 40.3.3, as adopted by the people in a referendum, is what applies in this country.
The really important question remains, namely, as to whether the frozen embryos in this case must be considered by this Court as constituting human life within the meaning of the provision.
In the course of the appeal it was suggested that Article 40.3.3. was not intended, and it should not be interpreted, as applying to the frozen embryos in this case by reason of the fact that the Article only contemplated life in the womb. Accordingly, before going on to address the fundamental question as to whether the frozen embryos can be determined by this Court to have the qualities of human life within the meaning of Article 40.3.3, I propose to address this discrete point.
In support of that argument reference was made to the proviso in the article, namely, “… with due regard to the right to life of the mother, ….”
Of course the gestation and birth of a child is inextricably and humanly linked to the mother and its development in the womb.
In vitro fertilisation and the creation of embryos, fertilised ova, outside the womb was probably not contemplated at the time. It is another notorious fact that part of the public debate on these matters, as indeed it had often been in the past, included concern as to whether the right to life of the unborn might, in certain circumstances, take precedence over the right to life of the mother. The kind of question posed was whether a doctor faced with a specific constitutional protection for the life of the unborn would be entitled to give appropriate treatment for a life-threatening condition of the mother when that would result in the death of the foetus. Obviously, having regard to the terms of the provision, all human life is considered of equal value. Absent any specific reference in the Constitution to the right to life of the mother, even though her right to life as well as all other persons are covered by the general provisions of Article 40.3.1. and 2, the proviso in subsection 3 serves to make a clear statement that the right to life of the mother cannot be treated as having a lesser value than that of the foetus. It had, in my view, no other purpose.
It is still of course the case, even with in vitro fertilisation, that if that statement concerning the right to life of the mother was desirable or necessary then it is equally so now. Even with in vitro fertilisation, and the associated processes, the evolution post-implantation of the embryo to the birth of a child remains inextricably linked with the mother as indeed it is in the normal process of conception, implantation and birth.
As Hederman J., stated, in Attorney General v. X [1992] 1 I.R. at 72, when considering Article 40.3.3:
“The State’s duty to protect life also extends to the mother. The natural connection between the unborn child and the mother’s life constitutes a special relationship. But one cannot consider the unborn life only as part of the maternal organism.”
In short, that statement or proviso concerning the equal right to life of the mother is there to ensure respect and protection for her rights in certain circumstances and cannot logically, in my view, be interpreted as intending to remove protection from human life because it is outside the womb or to devalue the equal right to life of the unborn because it is outside the womb. Therefore, I cannot accept the argument that simply because the embryo exists outside the womb that it is excluded from the protection of Article 40.3.
If, and I accept it is a very important if, the frozen embryos fell to be considered as having the qualities of human life then, inevitably in my view, they would fall under the rubric of the constitutional provision. Outside the womb, they have the same qualities as they would have in the womb. That is why they are viable embryos for implantation with a view to the birth of a child. It would appear that the present state of medico-biological science is such that for the frozen embryos to advance towards birth, implantation in the womb is required. Whether that science will develop further so as to permit embryos evolve further outside the womb may be a matter for speculation.
Human Life and Article 40.3.3.
We know that human life begins in the womb. That is not in issue. I speak in the context of a normal pregnancy following what is referred to as the act of procreation, of sexual intercourse between a man and a woman. The question is: at what point does human life begin; fertilisation or implantation? Again I suppose it could be said that there was a broad consensus among all disciplines that human life begins at least at implantation of the embryo in the womb or not long thereafter.
Of course courts take judicial notice, without having to expressly say so, of obvious and accepted truths concerning the nature of the world we live in. Thus a party, in appropriate proceedings, would not have to prove that a foetus of three months constituted human life no more than a party would be required to prove the existence of the law of gravity. The issue here has an altogether different dimension. There is no generally accepted truth or scientific dogma as to precisely when human life begins.
Debate and discourse as to when human life begins has for very many decades, and indeed long before that, focused, though not always exclusively, on whether human life begins at conception or at implantation.
Inevitably, this featured as part of the public debate on the constitutional amendment but the provision is resoundingly silent as to when human life should be deemed to begin for the purposes of enjoying its protection.
I think it is safe to assume that at the time when the proposed amendment to the Constitution was being debated and its form being decided by the Oireachtas that there was no clear view or consensus on the question of when human life begins, or perhaps more important, when it can be deemed or treated as having begun.
The status of the embryo, that is to say its moral status, and specifically the issue as to when human life begins, continues to be debated and discussed as part of a virtually world wide discourse in diverse fora including the most prestigious universities and halls of learning. The many facets of the various sides to that debate, and there are cogent arguments from every perspective, is manifest from the evidence given by the expert witnesses in the High Court. The range of views expressed or referred to in that evidence underscores the absence of any broad multidisciplinary consensus as to precisely when life begins and in particular as to whether it should be considered as beginning at conception or implantation, which are the two reference points with which we are concerned for present purposes.
However, I think it can be said that the human embryo is generally accepted as having moral qualities and a moral status. However else it may be characterised, the fertilisation of the ovum is the first step in procreation and contains within it the potential, at least, for life. It has present in it all the genetic material for the formation of life. Its creation and use cannot be divorced from our concepts of human dignity.
The Council of Europe Convention on Human Rights and Biomedicine with a view to, inter alia, preventing the misuse of biology in medicine which may lead to acts endangering human dignity prohibits, in Article 18, the creation of human embryos for research purposes. Article 3 of the Charter of Fundamental Rights of the European Union prohibits the use of embryos for the cloning of human beings as does the United Nations Declaration on Human Cloning. Such provisions and the fact that many countries regulate and protect the manner and circumstances in which in vitro embryos may be created and dealt with reflect the recognised moral status of embryos as being inextricably associated with human dignity. There is inevitably within the ambit of that moral appreciation of the embryo much debate particularly concerning the parameters of regulatory measures and what should be permitted and what should be prohibited.
The moral status of embryos and the respect or protection which society may feel they are owed is a different issue to the question posed, as to when life begins, and I do not propose to comment on it further for the purposes of this judgment.
One comes back to that fundamental issue in this case; namely whether this Court should consider that the frozen embryo is human life within the meaning of Article 40.3.3.
In the course of the appeal, counsel for the appellant acknowledged that the issue is polycentric. That is to say it is an issue which must be viewed from many standpoints, moral, philosophical, theological and scientific. It is an issue which also engenders passionate views on one side or the other in virtually all disciplines.
I do not consider that it is for a court of law, faced with the most divergent if most learned views in the discourses available to it from the disciplines referred to, to pronounce on the truth of when precisely human life begins.
Absent a broad consensus or understanding on that truth, it is for legislatures in the exercise of their dispositive powers to resolve such issues on the basis of policy choices.
The learned trial Judge aptly quoted from the report of the Constitution Review Group of the Oireachtas published in July 1996 to the following effect:
“Definition is needed as to when the ‘unborn’ acquires the protection of the law. Philosophers and scientists may continue to debate when human life begins but the law must define what it intends to protect.”
In my view that sums up the role of the Oireachtas in relation to this matter as the organ of State with at least initial responsibility for the protection and regulation of constitutional rights.
Therefore, in the context of this case, there is uncertainty or no consensus as to when human life begins. The choice as to how life before birth can be best protected, and therefore the point which in law that protection should be deemed to commence, is a policy choice for the Oireachtas having due regard to the provisions of the Constitution. It is one which falls to be made having taken into account all the factors and strands of thought which it considers material and relevant.
The courts do not, in my view, have at their disposal objective criteria to decide this as a justiciable issue. Issues are not justiciable before the courts where there is, as Brennan J., put it in his opinion in Baker v. Carr 369 U.S. 186 (1962), “ a lack of judicially discoverable and manageable standards for resolving it; or the impossibility of deciding without an initial policy determination of a kind clearly for non judicial discretion; …” That is the position in which the Court in this case is placed regarding the question of when life begins. The onus rests on the Oireachtas to make the initial policy determination so as to define by law the precise point at which “the life of the unborn” begins to enjoy constitutional protection. The other alternative is an amendment to the Constitution.
Conclusion on this Issue
Accordingly in my view it has not been established, by the appellant, and it is not a justiciable issue for this Court to decide, that the frozen embryos constitute “life of the unborn” within the meaning of Article 40.3.3.
Contract and Implied Consent
I now turn to make a brief reference to some other issues which were raised by the appellant in the appeal. In the appeal counsel for the appellant relied on three documents as supporting her contention that the first named respondent had expressly or impliedly consented to the implantation of the three embryos. The first document is one signed by the appellant and relates to a consent to treatment involving egg retrieval. Then, on the reverse side of that document there is a consent form to the treatment which is headed the ‘Husband’s Consent’ and is signed by the first named respondent. Subsequently the appellant and the respondent signed a third document which was a consent to embryo freezing. I agree with the conclusions of Denham J., Geoghegan J., and Hardiman J., that the appellant has not established that there was any contractual engagement between these parties obliging the husband to consent to the implantation of the frozen embryos nor was there otherwise an implied consent to do so.
Estoppel
In the particular circumstances thus of this case and for the reasons set out in her judgment I agree with Denham J., that the plaintiff is not entitled to succeed in her claim that the first named responded is estopped from refusing his consent to implantation. I also agree with Denham J., that there may be circumstances, such as where a woman has no children (although not necessarily just in such cases) and her only reasonable prospect of bearing a child is the implantation of embryos, could be entitled to such implantation notwithstanding the absence of the consent of the man concerned to implantation, although he had consented to the embryos being frozen.
Conclusion
As the appellant has not succeeded on any of the grounds of appeal the appeal should be dismissed.
Judgment delivered the 15th day of December, 2009 by Denham J.
1. The central issue in this case is whether three embryos, which have been frozen and stored in a clinic, are the “unborn” and as such protected by Article 40.3.3° of the Constitution of Ireland.
2. This is an appeal brought by Mary Roche, the plaintiff/appellant, referred to in this judgment as “the plaintiff”, from the decision of the High Court refusing her claim for the release to her of three frozen embryos for implantation.
3. The plaintiff was married to Thomas Roche, the first named defendant/respondent, referred to in this judgment as her husband, in 1992.
4. The plaintiff and her husband had fertility difficulties, but, after some treatment, in 1997 the plaintiff and her husband had their first child, a son, born to them.
5. Subsequently, further fertility issues arose and in 2002 the plaintiff had in vitro fertilisation treatment, “I.V.F.”, at the Sims Clinic Ltd., the fourth named defendant/respondent, “the Clinic”. Six embryos resulted. Three of the embryos were implanted in the plaintiff’s uterus and she became pregnant. The remaining three embryos were frozen and placed in storage with the Clinic, and are the three embryos in issue in this case.
6. A number of documents were signed in 2002 by the plaintiff and her husband. These documents will be considered later in the judgment.
7. As a result of the implantation of the embryos in 2002, the plaintiff gave birth to a second child, a daughter, in October, 2002.
8. Shortly after the birth of their daughter, the plaintiff and her husband separated. Years later the plaintiff requested that the three frozen embryos be released to her, as she wishes to have them implanted in her uterus. The Clinic refused to release them in the absence of consent from her husband, which was refused. Thus the plaintiff has brought these proceedings.
9. In January, 2006 the second, third and fourth named defendants/respondents, the doctors and the Clinic, were released from any further participation in the proceedings, unless required, on their undertaking to make all reasonable efforts to preserve the three embryos pending the final determination of these proceedings. The Attorney General was joined as a notice party.
10. This case raises both private and public law issues. (a) The private law issue was described as a contractual matter. (b) The public law issue is a constitutional issue, as it is the plaintiff’s case that the frozen embryos constitute the “unborn” within the meaning of Article 40.3.3˚ of the Constitution of Ireland, and that the State is obliged to facilitate their implantation.
High Court
11. On the 18th July, 2006, the High Court held: (i) that there was no agreement between the plaintiff and her husband as to what was to be done with the frozen embryos in the circumstances that have arisen; and (ii) that her husband had not entered into an agreement which required him to give his consent to the implantation of the three frozen embryos.
12. On the 15th November, 2006, the High Court declared that the frozen embryos were not the “unborn” within the meaning of Article 40.3.3˚ of the Constitution. The learned High Court judge held that it was a matter for the Oireachtas to decide what steps should be taken to establish the legal status of embryos in vitro.
Appeal
13. The plaintiff has brought this appeal against both judgments and orders of the High Court. In essence, the plaintiff’s grounds of appeal are that the High Court erred, inter alia:-
(i) in finding that there was no agreement as to what would happen to the frozen embryos in circumstances where the marriage had broken down;
(ii) in finding that there was no evidence that the husband gave his express consent to the implantation of the embryos;
(iii) in finding that it was not the presumed intention of the parties that the embryos would be implanted in circumstances in which the first implantation procedure had been successful and their marriage had broken down;
(iv) in finding that a term of the contract requiring that the frozen embryos be implanted could not be derived from the nature of the agreement between the parties;
(v) in finding that the husband was not estopped from denying he had consented to the transfer of the embryos;
(vi) in his findings regarding the purpose of the Eighth Amendment to the Constitution;
(vii) in finding that there was no evidence to establish that it was ever in the mind of the People voting on the Eights Amendment that “unborn” meant anything other than foetus or child in the womb;
(viii) in finding (at least by implication) that “unborn” in Article 40.3.3° meant foetus or child in the womb exclusively;
(ix) in finding that the clear purpose of the Eighth Amendment was to deal with the issue of termination of pregnancy and with that issue alone, whereas it was intended to confer positive rights and protection to the unborn above and beyond the issue of abortion per se;
(x) in finding that the Court was not concerned with the question of when life begins;
(xi) in finding that no evidence was adduced to enable the Court to hold that the word “unborn” in Article 40.3.3° includes embryos outside the womb;
(xii) in finding that the word “unborn” in Article 40.3.3° does not include embryos in vitro and therefore does not include the three frozen embryos in this case;
(xiii) in finding that the plaintiff was not entitled to the return of the embryos to her uterus by virtue of Article 41 of the Constitution;
(xiv) in holding that that learned High Court judge could not determine when life began for the purpose of the word “unborn” while (a) disregarding the weight of the scientific evidence on that question advanced before the court, and (b) holding (at least by necessary implication) that life began at implantation for the purpose of Article 40.3.3˚.
14. The Attorney General has cross-appealed from so much of the order as awarded to the plaintiff and her husband their costs, on the grounds that the general rule should be applied, that costs should follow the event, and that there were no exceptional circumstances arising in the case so as to exclude the general rule on costs.
Submissions
15. Oral and written submissions were made on behalf of the plaintiff by Ms. Inge Clissman S.C. and Mr. Gerard Hogan S.C..
15.1 On the private law issue, in essence, it was submitted that the husband consented to the I.V.F. procedure in 2002 when he executed the necessary consent form and his consent is irrevocable as against the plaintiff. It was submitted that this is underscored by the fact that the embryo transfer forms required only the wife’s consent and did not require his consent, and that his consent was not formally sought although he was present at the implantation. It was submitted that in any event he was precluded and estopped by his conduct from denying or revoking his consent in circumstances where he allowed his wife to go through the I.V.F. procedure, and that he is also precluded from asserting a right to revoke that consent or to veto the future use of the embryos. It was submitted that the learned trial judge erred in law in holding that the husband’s consent was either required or (in the alternative) that he was entitled, in the circumstances, to refuse to give such consent.
15.2 On the constitutional issue it was submitted that:- (a) The evidence overwhelmingly supported the view that the embryos constitute unborn human life. That there are powerful arguments in favour of that view, and that it has been endorsed by a significant segment of the medical and scientific community, even if that community is divided on the question. (b) Given this state of affairs, it was submitted that the embryos should be regarded as embryonic human life and, hence, the “unborn” for the purpose of Article 40.3.3˚. It was submitted as unlikely that the People intended to protect only that unborn life that was conclusively established as such or an alternative (and equally) arbitrary date, e.g. implantation. (c) So far as the argument advanced by the husband to the effect that he should not have paternity imposed on him is concerned, this turns on whether the embryos constitute unborn human life. If they do, then he is already the father of these unborn human lives. (d) If this Court concludes, as submitted it must in light of the evidence adduced, that the embryos constitute the “unborn” for the purposes of Article 40.3.3˚, then this Court must vindicate that right by taking all practicable steps to protect that right. It was submitted that the Court should direct the Clinic to facilitate the plaintiff in having the embryos inserted in her uterus.
Paragraph 49 of the plaintiff’s submissions stated pithily the essence of her argument on this issue. In answer to the question as to whether a frozen embryo constitutes the unborn it was submitted:-
“49. The word “unborn” (“beo gan breith”) is, unfortunately, not defined. The literal translation of the Irish text may be rendered as “life not born”. It is submitted that the phrase refers to all human life which is capable of being born. For this purpose the Court does not have to pronounce on questions as to when human life begins. It is sufficient for present purposes to say that where (at least) a large body of medical and scientific opinion consider that embryos do constitute such unborn human life, that is sufficient for this purpose. The People must be taken to have wished to defend and protect such life, even the medical community is divided on the question as to when such life actually starts. Had the People wished such protection to commence from a later (and, it is submitted, an essentially arbitrary) date such as implantation, Article 40.3.3 would surely have said so.”
16. The submissions on behalf of the husband were advanced by Mr. John Rogers, S.C. and they included the following.
16.1 As regards the private law issue, what was termed the contractual issue, it was submitted that it was the husband’s position that there was no express or implied consent on his part to the transfer of the three frozen embryos to the plaintiff’s uterus. Should this Court hold otherwise, it was submitted that the withdrawal of consent is entirely admissible.
16.2 On the constitutional issue, on the meaning and status of the term “unborn” for the purposes of Article 40.3.3˚, it was submitted on behalf of the husband that the concept of the unborn must involve the capacity or potential to be born and this capacity arises only upon the occurrence of implantation. Article 40.3.3˚, it was submitted, does not support the plaintiff’s case so as to confer on a pre-implantation embryo a constitutional right to life.
17. Submissions, written and oral, were made on behalf of the Attorney General by the Mr. Donal O’Donnell, S.C. and Mr. Brian Murray, S.C..
17.1 On the private law issue, counsel on behalf of the Attorney General brought the Court’s attention to authorities in other jurisdictions which stressed the primacy of contractual agreements in this area.
17.2 On the constitutional issue, it was submitted that the frozen embryos in this case do not constitute the “unborn” within the meaning of Article 40.3.3˚ of the Constitution, with the consequences that the State is not obliged to facilitate their implantation. Defining the unborn so as to include pre-implantation embryos, as submitted on behalf of the plaintiff, would contravene the text, purpose, and spirit of Article 40.3.3˚. It was submitted that this article was inserted into the Constitution for the purpose of prohibiting the termination of pregnancies. A consideration of the intention of the People in enacting the Eighth Amendment suggests that it did not confer constitutional rights on the pre-implantation embryo. It was submitted that the plaintiff’s appeal ought to be dismissed; that dismissal of the appeal would leave to the People and their representatives the capacity to resolve the question of the appropriate treatment of such embryos in the light of modern conditions.
Current situation of the embryos
18. On the 24th June, 2005, the Clinic wrote to the plaintiff and her husband pointing out that they had received no payment for the storage of their embryos since June, 2003. The Clinic wrote that the failure of payment, despite a request for payment, “is a breach of unit policy which renders our implied storage contract null and void.” The Clinic stated that as an act of altruism it would maintain the integrity of the embryos for another year but pointed out that neither the Clinic nor its agents had any further responsibility for the embryos. The stored embryos may be removed from the storage area and transferred only with the consent of the plaintiff and her husband. The current situation is that the second and third named defendants and the Clinic have indicated that they will abide by the court order.
The Private law issue: Contract?
19. The first issue on this appeal is the private law matter, referred to as having a contractual aspect. Mr. Gerard Hogan S.C., for the plaintiff, argued that there was express consent by the husband to the implantation of the three embryos, or that there was implied consent, and/or that the husband is estopped from refusing to give his consent in the circumstances of the case.
20. There are three documents upon which this submission is grounded. I shall consider each of the documents in turn.
20.1 There is a document as follows:-
“Medical Programmes directed by:
Anthony Walsh, MD, MRCOG, MRCPI
David Walsh, MD, MRCOG
CONSENT TO TREATMENT INVOLVING EGG RETRIEVAL
Full name of Woman ..…[Mary Roche]…..
Address …………………….. [address given]
1. I consent to (delete/complete as applicable):
(a) Being prepared for egg retrieval.
[this is ticked]
(b) The removal of eggs from my ovaries with the aid of:
• laparoscopy
• ultrasound
[the term “ultrasound” is circled]
(c) the administration of any drugs and anaesthetics which may be found necessary in the course of the procedures;
[this is ticked]
(d) the mixing of the following (tick each column as required):
( ) of my eggs ( ) with sperm of my husband/partner
[both of the above are ticked]
( ) 3 eggs only ( ) all of my eggs
( ) anonymous donor’s eggs ( ) an anonymous donor’s sperm;
(e) the use of micromanipulation techniques
2. I have discussed with … [Dr Walsh] … the procedures outlined above.
I have been given information both orally and in writing about them.
3. I have been given a suitable opportunity to take part in counselling about the implications of the proposed treatment.
Patient’s signature …………… Date …………
[The plaintiff has signed the document and it is dated 29.01.02]
Doctor’s signature …………… Date …….……
[There is a signature and it is also dated 29.01.02]”
20.2 I have considered this document carefully. It is a type of form. It addresses the relationship between the two doctors, named at the top of the sheet, and the plaintiff. It is a consent form for the plaintiff in relation to the medical treatment being offered by the doctors. The husband is not a party to this form. The form addresses issues related to information for the plaintiff, and consent by the plaintiff to the medical procedures referred to. It is not a contract between the plaintiff and the husband. There is no question of an offer or acceptance or consideration, or an intention to create a legal contract, leading to an agreement between the plaintiff and her husband.
20.3 On the reverse side of that consent form is another consent form. The document is as follows:
“Medical Programmes directed by:
Anthony Walsh, MD, MRCOG, MRCPI
David Walsh, MD, MRCOG
HUSBAND’S CONSENT
1. I am the husband of …. [Mary Roche] …. and I consent to the course of treatment outlined above. I understand that I will become the legal father of any resulting child.
2. Any other remarks ……………..
Signature of husband ………… Date …………
[The document is signed by the husband and it is dated 29.01.02]
Full name in block capitals ……………………..
[Blank]
Address …………………………………………
[Blank]
______________________________________________________ “
20.4 The above document is a consent form signed by the husband, consenting to the course of treatment to the plaintiff. It addresses issues relevant to the medical treatment of the plaintiff and relates to the relationship, in this context, between the doctors and the husband. It also states that he understands that he will become the legal father of any resulting child. There is no question of a contractual relationship being established by this document between the plaintiff and her husband. There is no offer or acceptance, nor consideration, nor intention to create legal relations. It is a medical consent form signed by the husband and it is relevant to his relationship with the medical programmes and personnel.
20.5 Also, on the 29th January, 2002, the plaintiff and her husband signed a third document. This was a consent to embryo freezing. The document states as follows:-
“Medical Programmes directed by:
ANTHONY WALSH, MD, MRCOG, MRCPI
DAVID WALSH, MD, MRCOG
CONSENT TO EMBRYO FREEZING
Full names of couple …. Mary & Thomas Roche….
Address ……………………..
[short address is given]
We consent to the cryopreservation (freezing) of our embryos and take full responsibility on an on-going basis for these cryopreserved embryos.
Patients Signatures ………………. Date …………..
……………… Date ………….
[The plaintiff and the husband signed the document and dated it 29.01.02]
Doctor’s signature ………………. Date ………….
[There is a signature which is indecipherable and it is dated 29.01.02]”
21. This is another consent form. Neither this form nor the two previous forms are documents drawn up and establishing a legal agreement between the plaintiff and her husband. They are consent forms presented by the Clinic to the plaintiff and to her husband and they relate to consent to actions taken by the Clinic. They are signed by the plaintiff and her husband, as medical consent forms. They were formulated to protect and assist the Clinic and the second and third named defendants, in the treatment programme.
22. The plaintiff and the husband underwent the treatment with the hope that they might have a child. The process resulted in six embryos. Three of the six embryos were implanted in the plaintiff’s uterus and subsequently a child was born to them. The remaining three embryos were frozen. It is the three surplus embryos which have given rise to these proceedings. The position of these three embryos was not addressed in the documents, except in the consent to embryo freezing form.
23. When the treatment commenced it would not have been known how many eggs would be fertilised, and the consent to embryo freezing related to any surplus embryos. The document is simply that – a consent to embryo freezing. It provided for the situation where, as in fact happened in this case, surplus embryos were produced. None of the documents are contracts creating or evidencing an agreement between the plaintiff and her husband expressing consent to the implantation of these three surplus embryos in the plaintiff’s uterus. I am satisfied that the fact that the husband consented to the treatment and to the freezing does not establish a consent so as to enable the plaintiff to avail of the surplus frozen embryos for implantation.
24. The consent given by the husband was to the treatment then planned for the I.V.F., and to the freezing of any surplus embryos.
25. The documents are forms which were provided by the Clinic to the plaintiff and her husband to obtain their consent to the procedures. They are in line with the guidelines of the Medical Council.
26. In “A Guide to Ethical Conduct and Behaviour”, “the Guide”, approved and published by the Medical Council in 2004, on the issue of informed consent, it was stated, in paragraph 17.1:-
“It is accepted that consent is implied in many circumstances by the very fact that the patient has come to the doctor for medical care. There are however situations where verbal and if appropriate written consent is necessary for investigation and treatment. Informed consent can only be obtained by a doctor who has sufficient training and experience to be able to explain the intervention, the risks and benefits and the alternatives.”
27. In the section of the Guide relating to reproductive medicine, paragraph 24.5 was headed “In-Vitro Fertilisation (I.V.F.)” and stated:-
“Techniques such as I.V.F. should only be used after thorough investigation has failed to reveal a treatable cause for the infertility. Prior to fertilisation of an ovum, extensive discussion and counselling is essential. Any fertilised ovum must be used for normal implantation and must not be deliberately destroyed.
If couples have validly decided they do not wish to make use of their own fertilised ova, the potential for voluntary donation to other recipients may be considered.”
The documents in this case are consistent with those guidelines, which envisaged that there should not be intentional destruction of embryos.
In the 7th Edition 2009 Guide to Professional Conduct and Ethics for Registered Medical Practitioners, published recently by the Medical Council, on the matter of assisted human reproduction the guidelines state:-
“20.1 Assisted human reproduction treatments, such as In Vitro Fertilisation (IVF), should only be used after thorough investigation has shown that no other treatment is likely to be effective. You should ensure that appropriate counselling has been offered to the patient and that the patient has given informed consent before receiving any treatment.
20.2 Assisted reproduction services should only be provided by suitably qualified professionals, in appropriate facilities, and according to international best practice. Regular clinical audit and follow-up of outcomes should be the norm.
20.3 If you offer donor programmes to patients, you must consider the biological difficulties involved and pay particular attention to the source of the donated material. Such donations should be altruistic and non-commercial. You should keep accurate records for future reference.”
Thus there is a change in these new guidelines in relation to the fertilised ovum. This illustrates the lack of regulation in the area. The situation in this case has arisen because of the creation of the three surplus embryos. These circumstances arise in other jurisdictions also. Some states have taken steps to prohibit the keeping of surplus embryos. Other states make specific provision in legislation for surplus embryos. There is no legislation in Ireland on the issue, nor any other form of regulation on assisted human reproduction.
28. The Report of the Commission on Assisted Human Reproduction, 2005, at p.XI, stated that:-
“The surplus embryos not used for immediate transfer may be preserved in a frozen state (cryopreservation) for further use by the couple who produced them, thereby avoiding the necessity of repeating the risky and uncomfortable procedure of ovarian stimulation. (Sperm may also be reserved in a frozen state. At present ova are not routinely frozen). If frozen embryos still remain after the couple has completed their treatment, the available options include: donation to another couple, donation for research and being allowed to perish.”
The Commission recommended that a regulatory body should be established by an Act of the Oireachtas to regulate assisted human reproduction and that appropriate guidelines should be put in place. Clearly it is a matter for the Oireachtas to regulate the sensitive and important area of reproductive medicine.
29. I am satisfied that the consent of the husband to the I.V.F. treatment and to the freezing of embryos was not an agreement to the implantation, years later, of the surplus frozen embryos. There was no agreement, between the plaintiff and the husband, as to the surplus embryos.
30. The absence of an express agreement, and the absence of regulation in the circumstances of the case, lead to the issue of an implied agreement being raised by counsel for the plaintiff.
Implied Agreement
31. I am satisfied that the facts of the case do not establish that there was an implied consent by the husband to the use, the implantation, of the surplus frozen embryos. Without going into the evidence in detail in this judgment, two extracts illustrate the situation. On Day 2 the plaintiff gave the following evidence:-
“Q. Can you tell the Court when do you recall the first discussion taking place about the embryos between yourself and your husband?
A. It was before he left the second time. I asked him: ‘What are we going to do with our frozen embryos?’ and his initial reaction was at the time: ‘We will destroy them’ and I said ‘We can’t do that, the clinic don’t allow that’. We didn’t speak of it again.”
Later it transpired from the plaintiff’s evidence that they had a further discussion on the frozen embryos in 2005. In her evidence on Day 2 the plaintiff was asked and answered as follows:
“Q. Did you have any discussion with your husband about seeking to recover the embryos yourself with a view to having them transferred and for the purposes of implantation?
A. I did bring up the question again, I think it was in 2005. We were at a mediation session regarding an issue and I brought it up again. I asked him what are we going to do with our three frozen embryos and his reply was that we would donate them and the money that we would get from the donation, we would give it to a children’s charity. My reply to him was ‘You want to sell our children?’ He said ‘You don’t get any money when you donate frozen embryos’, and that was the last discussion I had with him.”
It is clear that there was at no time an implied agreement, or consent by the husband, to the implantation of the surplus frozen embryos.
Estoppel
32. Counsel submitted that once one had regard to the sequence of events, the consent forms, the implantation of three embryos, the freezing of the three surplus embryos, in a situation where the husband knew that there may be surplus embryos, that the husband is precluded by his conduct from refusing to give consent to the implantation of the three surplus embryos in the plaintiff’s uterus.
33. This submission is made in relation to a situation where, I am satisfied, there was neither an express nor an implied consent or intent to have the three surplus embryos implanted. There was no intent, or advance decision, in relation to any surplus embryos. There is no question, therefore, of enforcing any earlier expressions of choice. As there was no decision on the matter there is no issue of withdrawal of consent arising for consideration.
34. The facts of a case are critical to any analysis of estoppel. In this case there was the I.V.F. treatment, the implantation of three embryos and the successful birth of a daughter. This was the plaintiff and her husband’s second child, a son having been born to them earlier. There was consent to freezing surplus embryos but there was no agreement or choice made as to what was to be done with any surplus embryos. There was no agreement between the plaintiff and her husband. The plaintiff and her husband are now separated. The plaintiff wishes to have the surplus embryos implanted, while her husband does not wish them to be implanted. In the circumstances of this case, on the facts and the law, no issue of estoppel arises.
35. The finding, set out later in this judgment, on the meaning of the term the “unborn” in Article 40.3.3, with reference to the three frozen embryos, is relevant to this analysis. I have been mindful of that finding in my decision.
36. There being no agreement between the parties, another approach advocated was that of the contemporaneous mutual consent test. The Court’s attention was drawn to In Re the Marriage of Witten III 672 N.W. 2M 768 (Iowa 2003), a decision of the Iowa Supreme Court where frozen embryos had been created by the parties with consent. However, the marriage broke down and then the wife wished to use the embryos but the husband did not. The Court held:-
“That brings us, then to the dilemma presented when one or both partners change their minds and the parties cannot reach a mutual decision on disposition. We have already explained the grave public policy concerns we have with the balancing test, which simply substitutes the court as decision maker.”
However, this approach is not relevant to, nor should it be applied in, this case as there was no initial agreement as to what should happen to the surplus embryos other than that they be frozen. Consequently no issue of change of mind arises. However, it is of interest to note the test applied by that Court. It held:-
“A better principle to apply, we think, is the requirement of contemporaneous mutual consent. Under that model, no transfer, release, disposition or use of the embryos can occur without the signed authorization of both donors. If a stalemate results, the status quo would be maintained. The practical effect will be that the embryos are stored indefinitely unless both parties can agree to destroy the fertilised eggs. Thus, any expense associated with maintaining the status quo should logically be borne by the person opposing destruction. … Turning to the present case, we find a situation in which one party no longer concurs in the parties’ prior agreement with respect to the disposition of their frozen embryos, but the parties have been unable to reach a new agreement that is mutually satisfactory. Based on this fact, under the principles we have set forth today, we hold that there can be no use or disposition of the Wittens’ embryos unless Trip, (the husband) and Tamera (the appellant) reach an agreement. …”
That test does not arise in the circumstances of this case as the parties did not make an agreement as to the surplus frozen embryos. However, the mutuality required in the test is noteworthy.
37. A different test was applied in Davis v. Davis 842 S.W. 2d 588, 597 (Tenn. 1992), where the Tennessee Supreme Court addressed the issue of disputes as to frozen embryos between divorcing couples. It stated, at paragraph 112:-
“In summary, we hold that disputes involving the Disposition of preembryos produced by in vitro fertilization should be resolved, first, by looking to the preferences of the progenitors. If their wishes cannot be ascertained, or if there is dispute, then their prior agreement concerning Disposition should be carried out. If no prior agreement exists, then the relative interests of the parties in using or not using the preembryos must be weighed. Ordinarily, the party wishing to avoid procreation should prevail, assuming that the other party has a reasonable possibility of achieving parenthood by means other than use of the preembryos in question. If no other reasonable alternatives exist, then the argument in favour of using the preembryos to achieve pregnancy should be considered. However, if the party seeking control of the preembryos intends merely to donate them to another couple, the objecting party obviously has the greater interest and should prevail.”
38. As indicated earlier, I am satisfied that there was no prior agreement in this case to the implantation of the surplus frozen embryos. However, even if the husband had made such agreement, which he did not, I would not regard it as irrevocable. All the circumstances would have to be considered carefully. If a party had no children, and had no other opportunity of having a child, that would be a relevant factor for consideration. In this case the plaintiff and her husband already have two children. It is also relevant that they are now separated. Another important factor is that the husband does not wish to have further children with the plaintiff. If the embryos were implanted he would be the father of any subsequent children, with constitutional rights and duties.
39. The right to procreate was recognised in Murray v. Ireland [1991] 1 I.L.R.M. 465. There is an equal and opposite right not to procreate. In the circumstances of this case, while the plaintiff and her husband have family rights, the exercise of a right not to procreate by the husband is a proportionate interference in all the circumstances of the case to the right of the plaintiff to procreate.
Conclusion on civil issue
40. Each case requires to be considered on its own facts. I conclude on the civil issue that there was no agreement, express or implied, as to the use of the three surplus frozen embryos. Even if there was an agreement, which I am satisfied there was not, I consider that it would not be irrevocable. Further, in the circumstances, the principle of estoppel does not apply to estopp the husband from refusing to give his consent to the implantation of the frozen embryos.
41. I would dismiss the plaintiff’s appeal on all the grounds raised in relation to the private law issue.
Constitutional Issue: the “unborn”
42. For the purpose of analysing the constitutional issue I shall recap, shortly, the basic facts. The plaintiff and her husband experienced fertility difficulties. With treatment the plaintiff became pregnant and the couple had a son born to them in 1997. The plaintiff wished to have further children and she attended the Clinic for I.V.F. treatment in 2001. In January 2002 the plaintiff and her husband signed the documents set out earlier in this judgment. Six viable embryos were created in the Clinic following the mixing of the plaintiff’s eggs with the husband’s sperm. Three of the embryos were implanted in the plaintiff’s uterus, she became pregnant, and a daughter was born in 2002. The plaintiff and her husband have had marital difficulties and are now separated. At issue in this case are the three surplus embryos which were frozen and stored at the Clinic.
43. The plaintiff submits that the three surplus embryos constitute the “unborn” for the purposes of Article 40.3.3˚ of the Constitution and that the State, (which includes the Court), is obliged to facilitate the implantation of the embryos into the plaintiff’s uterus having regard to the constitutional duty to protect unborn life. On behalf of the husband it was submitted that the concept of the “unborn” must involve the capacity or potential to be born and that this capacity arises only upon the occurrence of implantation; that Article 40.3.3˚ does not support the plaintiff’s case so as to confer on an embryo pre-implantation a constitutional right to life. On behalf of the Attorney General it was submitted that the frozen embryos do not constitute the “unborn” within the meaning of Article 40.3.3˚, and that consequently the State is not obliged to facilitate their implantation.
44. The term “unborn” is to be found in Article 40.3.3˚ of the Constitution. The Article states:-
“The State acknowledges the right to life of the unborn and, with due regard to the equal right to life of the mother, guarantees in its laws to respect, and, as far as practicable, by its laws to defend and vindicate that right.”
The word “unborn” is not defined in the Constitution.
45. This case is not about the wonder and mystery of human life. This is a court of law which has been requested to make a legal decision on the construction of an article of the Constitution of Ireland. The question raised is whether the term “unborn” in the Constitution includes the three frozen embryos in issue in this case. It is a matter of construing the word in the Constitution to determine its constitutional meaning.
46. This is not an arena for attempting to define “life”, “the beginning of life”, “the timing of ensoulment”, “potential life”, “the unique human life”, when life begins, or other imponderables relating to the concept of life. This is not a forum for deciding principles of science, theology or ethics. This is a court of law which has been requested to interpret the Constitution and to make a legal decision of interpretation on an article in the Constitution.
47. Article 40.3.3˚ was inserted into the Constitution of Ireland, 1937, by the Eighth Amendment to the Constitution in 1983.
48. The context in which this amendment was passed is important and relevant.
Context – statutory
49. Before Article 40.3.3° was introduced into the Constitution the law on abortion was governed by s.58 and s.59 of the Offences against the Person Act, 1861, by which the procuring of a miscarriage was a crime. These provisions were confirmed by s.10 of the Health (Family Planning) Act, 1979.
50. The meaning of s.58 of the Offences Against the Person Act, 1861 was considered in England and Wales in R. v. Bourne [1939] I KB 687. MacNaghten J. held that an abortion to preserve the life of a pregnant woman was not unlawful. It was held that where a doctor was of the opinion that the probable consequence of a pregnancy was to render a woman a mental and physical wreck he could be said to be operating for the purpose of preserving the life of the mother.
51. R. v. Bourne was followed in many common law jurisdictions. However, it was never applied to or relied upon in this State. It was no part or our law.
52. The term “miscarriage” was not defined in the Act of 1861. It was referred to in R. (Smeaton) v. Secretary of State for Health [2002] 2 F.L.R. 146. Munby J., at p.210 stated:-
“Professor J K Mason takes the same view as both Professor Kennedy and Professor Grubb, and for much the same reasons: see his Medico-Legal Aspects of Reproduction and Parenthood (1990) pp 54-56 and Mason, McCall Smith and Laurie Law and Medical Ethics (5th edn, 1999) pp 111-112, 129-130.
He adds (Medico-Legal Aspects at p 54) an interesting argument as to why preventing implantation is not procuring a miscarriage:
‘Medically speaking . . . there is wealth of difference, the most particular being that the contents of the body’s passages which are open to the exterior are, themselves, “external” to the body. A simple example is to be seen in the ingestion of a toxic substance; an analysis of the stomach or bowel contents may indicate the fact of ingestion but cannot demonstrate poisoning-the substance has not been absorbed and is, accordingly, still “external” in nature. Something which is external is carried only in the loosest sense-it can be dropped either intentionally, accidentally or naturally. There can be little or no doubt that bodily “carriage” implies some kind of integration with the body or, as Kennedy has said: “there can be no miscarriage without carriage'”.
I agree with this analysis and apply it in my consideration of the issue before the Court.
53. Therefore, I am satisfied that, in the context of the statutory law prior to the introduction of Article 40.3.3° of the Constitution, the State protection of an embryo arose after implantation. The Amendment introduced in the Constitution was to copper fasten the protection provided in the statutory regime, to render unconstitutional the procuring of a miscarriage. It meant that any expansive interpretation of the Act of 1861 was precluded.
Context – right to privacy
54. Prior to the Eighth Amendment the context also included some controversial cases in other jurisdictions on, and the development of, the right to privacy. The right of privacy was interpreted by the Supreme Court of the United States of America to prohibit state interference with a couple’s use of contraceptives: Griswold v. Connecticut [1965] 381 U.S. 479. It was also the basis for the decision of that Court on the right of a woman to decide to have an abortion: Roe v. Wade [1973] 410 U.S. 113.
55. The right to privacy was also considered by this Court. In McGee v. Attorney General [1974] 1 I.R. 284 it was held that the provisions of s.17(3) of the Criminal Law Amendment Act, 1935, which prohibited the sale or import of contraceptives, were no longer in force. The provisions were held to be an unjustified invasion of the woman’s personal right to privacy in her marital affairs, and inconsistent with Article 40.3.1° of the Constitution. That article provides that the State guarantees in its laws to respect, and, as far as practicable, by its laws to defend and vindicate the personal rights of the citizen. In his judgment Walsh J. pointed out that the sexual life of a husband and wife is of necessity and by its nature an area of particular privacy. He stated, at p.313:-
“In my view, Article 41 of the Constitution guarantees the husband and wife against any such invasion of their privacy by the State. It follows that the use of contraceptives by them within that marital privacy is equally guaranteed against such invasion and, as such, assumes the status of a right so guaranteed by the Constitution. If this right cannot be directly invaded by the State it follows that it cannot be frustrated by the State taking measures to ensure that the exercise of that right is rendered impossible.”
In the debate before the Court in McGee the case Griswold v. Connecticut [1965] 381 U.S. 479 was opened and relied upon by the plaintiff. Walsh J. referred to that case (and two other cases of the U.S.A. which had been opened) and stated that his reason for not referring to them was not because he did not find them helpful or relevant, which he stated they were, but because he found it unnecessary to rely upon any of the dicta in those cases to support the views which he expressed.
Context – Mischief addressed
56. I am satisfied that the mischief to which Article 40.3.3° was addressed was that of the termination of pregnancy, the procuring of a miscarriage, an abortion.
57. McCarthy J. stated in Attorney General v. X [1992] 1 IR 1 at p.81:-
“[The Amendment’s] purpose can be readily identified – it was to enshrine in the Constitution the protection of the right to life of the unborn thus precluding the legislature from an unqualified repeal of s.58 of the Act of 1861 [which prohibited abortion] or otherwise, in general, legalising abortion.”
The Amendment would have a significant consequence for the legislature, it would preclude an unqualified repeal of s.58 of the Act of 1861. It would have a significant consequence in the Courts also.
Words
58. It is necessary to consider the words of Article 40.3.3º carefully. Article 40.3.3° acknowledges the right to life of the unborn. However, due regard is given to the equal right to life of the mother. This establishes a specific constitutional and legal relationship between the unborn and the mother.
59. The unborn is considered in Article 40.3.3° in relation to the mother. The special relationship is acknowledged. Of course there is a relationship between the frozen embryos in the clinic and the mother and the father – but not the link and relationship envisaged in Article 40.3.3°. Article 40.3.3° was drafted in light of the special relationship that exists uniquely between a mother and the child she carries. It is when this relationship exists that Article 40.3.3° applies.
60. Further, the relationship is viewed through the prism of the right to life. It applies to a relationship where one life may be balanced against another. This relationship only exists, this balance only applies, where there is a physical connection between the mother and the unborn. This occurs only subsequent to implantation of the embryo. Thus the balancing of the right to life described in Article 40.3.3° may only take place after implantation. Therefore an unborn under Article 40.3.3° is established after an embryo is implanted.
61. The concept of unborn envisages a state of being born, the potential to be born, the capacity to be born, which occurs only after the embryo has been implanted in the uterus of a mother.
62. This analysis may be put in a slightly different form. The right to life of the unborn is not stated as an absolute right in Article 40.3.3°. Rather, it is subject to the due regard to the right to life of the mother. The right to life of the mother is not stated as an absolute right either. Article 40.3.3° refers to a situation where these two lives are connected and a balance may have to be sought between the two lives. Thus the physical situation must exist to require such a balancing act. No such connection exists between the plaintiff and the three surplus embryos now frozen and stored at the Clinic. There is no such connection between the lives of the mother and the embryos at the moment. The relationship which might require the consideration of the right to life of the unborn and the equal right of the mother does not arise in the circumstances.
63. This connection, relationship, between the embryos and the mother does not arise until after implantation has occurred. After the implantation of an embryo the relationship between the embryo and the mother changes. The mother has carriage of the embryos, becomes pregnant, and the embryo enters a state of “unborn”. At that time an attachment begins between the two lives. It is that attachment which gives rise to the relationship addressed in Article 40.3.3°.
64. The words of Article 40.3.3° refers to a situation where the rights of the mother and the unborn are engaged. This occurs after implantation. Thus Article 40.3.3° does not apply to pre-implantation embryos.
65. There were submissions stressing the word “beo” in the Irish version of the Article. However, both language versions refer to birth or being born. Thus the fact of being born or birth is a factor in both versions. The beginning of “life” is not the protected term, it is the unborn, the life capable of being born, which is protected. The capacity to be born, or birth, defines the right protected. This situation, the capacity to be born, arises after implantation.
Harmonious Interpretation
66. The interpretation of the “unborn” as arising after implantation is also a harmonious interpretation of the Constitution. Article 41.1.2 states:-
“The State … guarantees to protect the Family in its constitution and authority, as the necessary basis of social order and as indispensable to the welfare of the Nation and the State.”
This establishes a strong family unit under the Constitution. In McGee v. Attorney General [1974] 1 I.R. 284 it was pointed out that this prevents the State from interfering in a married couple’s decision as to the make up of their family unit. Walsh J. stated at p.311:-
“It is a matter exclusively for the husband and wife to decide how many children they wish to have, it would be quite outside the competence of the State to dictate or prescribe the number of children which they might have or should have. In my view, the husband and wife have a correlative right to agree to have no children.”
67. If the frozen embryos were the “unborn” protected by Article 40.3.3° the State would have to intervene to facilitate their implantation. This would be a duty of the State irrespective of the parents’ wishes. Clearly this would be inconsistent with the rights of the family under the Constitution. It would also give to the State a duty to protect all embryos in the State in all the clinics, hospitals, etc., no matter what were the wishes of the parents.
68. In constructing the Constitution it is appropriate to seek a harmonious construction of Article 40.3.3° in the context of the Constitution. I agree with the approach of Henchy J., who spoke of achieving “the smooth and harmonious operation of the Constitution”: Tormey v. Ireland [1985] 1 I.R. 289 at p.296. The interpretation and construction should not lead to conflict with other articles, as O’Higgins C.J. enunciated in: State (D.P.P.) v. Walsh [1981] I.R. 412 at p.425. I believe that the construction which I have found of the term “unborn” is harmonious with other articles in the Constitution.
Conclusion on constitutional issue
69. For the reasons given I am satisfied that the term “unborn” does not refer to an unimplanted embryo. Consequently, it does not apply to the three surplus frozen embryos stored in the Clinic.
Overall Conclusion
70. On the first issue, which was referred to as having a contractual aspect, I am satisfied that the documents signed by the plaintiff and her husband in January, 2002 were forms provided by the Clinic to the plaintiff and her husband to obtain their consents to the medical procedures. They did not establish any contractual relationship between the plaintiff and her husband. There was no express agreement to the implantation of these surplus embryos at a later date. Nor was there any implied consent by the husband to the implantation of the surplus frozen embryos. As there was no initial agreement taken as to the implantation of the surplus embryos by the plaintiff and her husband there is no question of enforcing an earlier choice. There was no issue of a withdrawal of a consent. On the facts no issue of estoppel arises. For the reasons set out in this judgment I would dismiss this ground of appeal.
On the second issue, the constitutional issue, the plaintiff submitted that the three surplus embryos from the I.V.F. treatment constitute the unborn for the purpose of Article 40.3.3º of the Constitution and that the State is obliged to facilitate the implantation of the embryos in the plaintiff’s uterus as a consequence of the constitutional duty to protect the unborn. For the reasons set out in this judgment I would dismiss this appeal. In the context of the statutory law prior to the introduction of Article 40.3.3º of the Constitution, the State protection of an embryo arose after implantation. The context also includes cases at home and abroad which referred to the right to privacy and marital privacy. In that context Article 40.3.3º was addressed to the issue of miscarriage and abortion. I have considered the words of Article 40.3.3º carefully. Article 40.3.3º was drafted in light of the special relationship which exists uniquely between a mother and a child which she carries. It is when this relationship exists that Article 40.3.3º applies. The balancing of the right to life described in Article 40.3.3º may occur only after implantation. Thus an “unborn” described in Article 40.3.3º is established after an embryo is implanted. After the implantation of an embryo the relationship between the mother and the embryo changes. After the implantation the mother has carriage of the embryo and the embryo enters a state of “unborn”, there is an attachment between the mother and an unborn. It is that attachment which gives rise to the relationship addressed in Article 40.3.3º where the state acknowledges the right to life of the unborn and the due regard to the equal right to life of the mother. The interpretation of the “unborn” arising after implantation is a harmonious interpretation of the Constitution consistent with other rights under the Constitution.
For the reasons given I would dismiss the appeal on all grounds.
JUDGMENT delivered the 15th day of December, 2009, by Mr. Justice Hardiman.
The applicant and the first-named respondent, Mary and Thomas Roche, are husband and wife. They were married on the 5th March, 1992, but are now separated. In the mid 1990s, after some advice and treatment for apparent fertility difficulties, the applicant became pregnant and gave birth to a son in October, 1997. Subsequently she had surgery for an ovarian cyst and it was necessary to remove two thirds of her right ovary. She had further fertility difficulties which led to her referral to the Sims Clinic, where the second and third-named respondents carry on a well-reputed infertility practice. She first attended there in October, 2001. After investigation and advice the plaintiff consented to treatment involving the retrieval of eggs (ova) from her and the mixing of these eggs with sperm donated by her husband. She further agreed, as did her husband, to the cryopreservation of the embryos. On the 29th January, 2002, the husband signed a document entitled “Husband’s Consent” stating that he understood that he would be the father of any child resulting from the implantation of the embryos in the applicant. On the 1st February, 2002, the applicant signed a “Consent to embryo transfer” consenting to the placing in her uterus of three embryos. It appears that egg retrieval is difficult and somewhat painful and the practice which is widely followed, and was followed in the Sims Clinic, was to collect a sufficient number of eggs for implantation to minimise the risk of the patients having to undergo another session of egg retrieval if the first attempt at implantation was unsuccessful. In the case of the Roches, a total of six viable fertilised embryos were produced after the mixing process. Three were implanted and the other three were frozen or “cryogenically preserved”. This implantation of the first three embryos was the procedure to which the “Husband’s Consent”, described above, related.
This implantation process was successful, a pregnancy was achieved, and the plaintiff was delivered of a daughter on the 26th October, 2002. By that time, however, unhappy differences had arisen between husband and wife and they separated and continue to live apart.
The case concerns what is to happen to the three unimplanted frozen embryos. Some years after the birth of their daughter, and their separation, the applicant decided that she wanted to have the three frozen embryos implanted in her uterus in the hope of having a further child or children. She made it perfectly clear that she envisaged this, and maintenance of any resulting child or children, as taking place exclusively at the expense of the first-named respondent. The husband does not want the frozen embryos implanted, and says that he never agreed to this and it would be unreasonable and a breach of his human rights and an invasion of his autonomy to compel him to become the father of a child he does not want in the present circumstances. Nor would it be in the child’s interest to be raised in the circumstances now prevailing, in the husband’s view.
The proceedings.
This is an appeal from two judgments and the associated orders of the High Court (McGovern J.) of July and November, 2006, respectively, whereby the learned trial judge dismissed two separate claims brought by the applicant; the first was a claim that she was entitled to have the embryos implanted in her by reason of an agreement between herself and her husband that this would happen, or alternatively, that the husband was now estopped from denying that such an agreement existed. This has been referred to at various stages of the proceedings as “the civil claim”. The other claim was of a constitutional nature: the plaintiff claims that she is entitled to have the embryos implanted in her because they are within the meaning of the phrase “the unborn” as that phrase is used in Article 40.3.3 of the Constitution. The implantation of the embryos is said to be necessary to preserve the right of the unborn to life. This is referred to as “the constitutional claim”.
In relation to the civil claim, I have read the judgment of the learned trial judge, Mr. Justice McGovern, delivered the 18th of July, 2006. I have also read the transcript of the evidence upon which his judgment is based. I agree with his findings of fact, most of which were not indeed the subject of serious dispute and in particular his finding (p.9 of the judgment) that the question of what would happen to the frozen embryos if one of the parties died or if the parties became separated or divorced was simply never discussed between husband and wife at the time they agreed to seek IVF treatment. There was accordingly no express agreement on this topic. I agree with the legal conclusions of the learned trial judge in relation to implied or presumed intention of the parties and with his application of this law to the facts of the present case. In the result, I would uphold the judgment of the learned trial judge on this aspect of the case for precisely the reasons he gives in his judgment of the 18th July, 2006 and I consider that it would be otiose if I were to traverse the same ground.
The constitutional issue.
It is recorded in the judgment of the learned trial judge delivered the 15th November, 2006 that, apart from the civil issue, the parties identified two other issues which are:
“(a) Whether the frozen embryos are ‘unborn’ for the purpose of Article 40.3.3 of the Constitution of Ireland and
(b) Irrespective of the answer to the first question, is the applicant entitled to the return of the embryos to her uterus whether by virtue of Article 40.3.3 and/or Article 41 of the Constitution, or otherwise?”
These are novel issues in our jurisprudence. But experience has shown that, given a sufficient period of time, almost every conceivable set of facts will occur and may give rise to litigation. This is graphically illustrated by the remarkable factual matrix underlying the case of Attorney General v. X [1992] 1 IR 1. This fact gives point and urgency to certain observations at the end of this judgment. Science will not stand still waiting for us to update our laws.
Article 40.3.3
It will be seen that the first constitutional issue, and to a large extent the second one as well, turns on this provision of the Constitution. It has already been judicially observed (in the ‘X’ case cited below, per McCarthy J.) that this sub-Article, inserted into the Constitution by referendum in 1983, was controversial at the time and was, as McCarthy J. put it, “historically divisive of our people”. These aspects of the sub-Article are now, however, entirely irrelevant for the purposes of this case. Article 40.3.3 is a part of our Constitution and must be upheld by the Courts like any constitutional provision.
What is in question here is whether, on the true construction of the phrase “the unborn” (in the English language version of the sub-Article: the primary or Irish language version will be discussed below), the phrase “the unborn” includes, or does not include, the three embryos created by the mixture of the eggs retrieved from the applicant in this case with her husband’s sperm, and now cryogenically preserved in the Sims Clinic.
I propose now to set out the text of Article 40.3.3, first in the Irish language because that language has primacy in the event of conflict with the version in the other official language. It is as follows:
“Admhaíonn an Stát ceart na mbeo gan breith chun a mbeatha agus, ag féachaint go cuí do chomhcheart na máthar chun a beatha, ráthaíonn sé gan cur isteach lean dhlíthe ar an gceart sin agus ráthaíonn fós an ceart sin a chosaint is a shuíomh lena dhlíthe sa mhéid gur féidir é”.
The English language text is as follows:
“The State acknowledges the right to life of the unborn and, with due regard to the equal right to life of the mother, guarantees in its laws to respect and, as far as practicable, by its laws to defend and vindicate that right.”
I wish also to set out a literal translation of the Irish version of the sub-Article. This is the work of Professor Micheál Ó Cearúil, the author of Bunreacht Na hÉireann: a study of the Irish text. This book, which is a truly impressive and extremely useful work of scholarship of the highest order, was written for the all party Oireachtas Committee on the Constitution and published by that Committee in 1999. The “literal English translation”, given at p.548 of the book, is as follows:
“The State acknowledges the right of the unborn to their life and, having due regard to the equal right of the mother to her life, it guarantees not to interfere through its laws with that right and it guarantees further to protect and assert that right with its laws in so far as it is possible.”
The phrase “the unborn” represents an unusual usage in English and it may be that the primary or Irish version clarifies it. Professor Ó Cearúil observes (I am omitting purely technical detail and some citations of Irish language sources):
“ ‘Beo” is translated principally as ‘living being’ with the secondary sense of ‘life’.”
He quotes from Irish literary sources, as where the phrase “ag guí ar son na mbeo agus na mairbh”, is translated as “praying for the living and the dead”, which illustrates this meaning.
It appears from the same discussion, at p.549, that “gan bhreith” means “without birth”. The word “gan/without” is used in several senses in Irish to mean being deprived of, or not having, something. Thus, “gan phingin”, literally without a penny i.e. penniless: similarly “bheith gan chlann”, “to be without children”, thus childless. Thus the phrase “na mbeo gan breith” translates easily enough as “the living without birth”. This is an unusual phrase, either in English or in Irish and indeed Professor Ó Cearúil comments, for reasons too technical to go into here but fully expounded in his text, that one would expect further explanatory material and not the sudden finality of “gan breith” which one actually finds. That, indeed, is the sense which in my view an English speaker has in reading the phrase “the unborn”: one is inclined, however briefly, to wonder “the unborn what?” But there is no further elucidation, in the language itself, though some may be gleaned from the context: see below.
It is next necessary to note what it is that the State acknowledges in Article 40.3.3. Here, the Irish and English language versions seem in perfect accord: it is the right of the “living without birth to their life”, which is not to be interfered with by law and is, as far as practicable to be asserted and protected by law. Most importantly, these things are to be done “ag féachaint go cuí do cómhcheart na Máthar chun a beatha…” which I would translate as “looking narrowly to the equal right of the mother to her life” or, using constitutional language, “having due regard to the equal right of the mother to her life”.
Accordingly, in a strictly linguistic sense and perhaps more generally, the right of the “living without birth” to their lives is placed in apposition, perhaps in juxtaposition to the right of the mother to her life. But that linkage makes no sense, either as a matter of law, logic, language or ordinary human experience unless the life of the “living without birth” is so connected with the right of the mother to her life that the former is capable of impinging negatively on the latter. If this were not so it would be quite pointless to condition or qualify the undertaking of the State in relation to the life of the unborn with a need to consider the mother’s right to her life.
This aspect of Article 40.3.3. is well illustrated in the judgment of Hederman J. in The Attorney General v. X [1992] 1 IR 1, at p.75. Hederman J., who dissented in the result and would have substantially upheld the order of the High Court (Costello J.), referred in his judgment to Article 40.3.3 as “The Eight Amendment” and had the following to say:
“The Eighth Amendment does contemplate a situation arising where the protection of the mother’s right to live has to be taken into the balance between the competing rights of both lives, namely the mothers and the unborn child’s”. (Emphasis added)
Earlier, at p.72 Hederman J. had said:
“The creation of a new life, involving as it does pregnancy, birth and raising the child, necessarily involves some restriction of another’s freedom but the alternative is the destruction of the unborn life. The termination of pregnancy is not like a visit to the doctor to cure an illness. The State must, in principle, act in accordance with the mother’s duty to carry out the pregnancy and, in principle, must also outlaw termination of pregnancy”. (Emphasis added)
These extracts, of course, confirm what seems clear on a purely linguistic analysis of the sub-Article in both the national languages: that it refers to a situation in which the unborn life and the equally valuable life of the mother are essentially integrated or at least linked, so that one may affect the other adversely. Moreover, since the right in each case is a right to life and not to any less readily apprehensible concept such as welfare, best interest or good health, it is clear that the linkage must be a direct physical one. This leads me to believe that the temporal scope of the sub-Article is, and was intended to be, the period of a pregnancy when the unborn life has been implanted in the mother’s womb and is developing there.
Moreover, the person whose right to her life is required to be considered in vindicating the right to life of the unborn is “the mother”. Since, (as we have seen above), the relationship of the two rights to life must be such that that of the unborn is capable of impinging on that of the mother, it follows that the mother is the mother of the unborn life. In the context of the constitutional Article there is nothing else of which she can be the mother.
It thus follows that the mother is the mother of the “unborn” and that their physical relationship is such that the right to life of the unborn is capable of impinging on the right to life of the mother. This, it appears to me, requires a physical relationship. The only relevant physical relationship is that of pregnancy.
The Attorney General’s position.
On the hearing of this appeal, as in the High Court, the plaintiff Mary Roche contended that the fertilised but unimplanted embryo was within the meaning of the phrase “the unborn”. The first respondent, Thomas Roche, contended for the contrary proposition. While one does not doubt the sincerity of each contention, it is of course the case that the contentions of each of these primary parties reflect their respective views as to the result which should be arrived at in this action. In those circumstances a particular significance attaches to the views of the Attorney General who has of course no personal interest but who has been joined in the proceedings because of the constitutional issues raised.
The Attorney General expressed no view as to whether or not there was an agreement between husband and wife as to what should happen to the unimplanted embryos. But he submitted that, if there was an agreement on that issue, the agreement could be enforced by the court. On the constitutional issue however the Attorney General expressed a strong and unambiguous view. The “surplus embryos”, he submitted, had no status arising from the Constitution and specifically they were not within the meaning of the phrase “the unborn”. The Attorney said that it would be open to the people by constitutional amendment to protect embryos from fertilisation, but they did not do this in passing the Eight Amendment of the Constitution in 1983.
I propose now to leave to one side briefly the purely linguistic analysis of the sub-Article, and to consider its legal nature.
Article 40.3.3 as interpreted in the cases.
This exercise is an easier one than the linguistic analysis of the Articles because there exists a number of authoritative decisions on the question. In the case of Attorney General v. X [1992] 1 IR 1 McCarthy J. said:
“[The amendment’s] purpose can be readily identified – it was to enshrine in the Constitution the protection of the right to life of the unborn, thus precluding the legislature from an unqualified repeal of s.58 of the Act of 1861 [The Offences against the Person Act of that year: the section prohibits abortions] or [from] otherwise, in general, legalising abortion.”
More recently, in the case of Baby O v. the Minister for Justice [2002] 2 IR 169 Keane C.J., giving the unanimous judgment of the Court, said at pp. 181 and 182 that:
“The passage from Article 40.3.3 on which counsel relied, as explained by the judgments of the majority in this court in Attorney General v. X. [1992] 1 IR 1, was intended to prevent the legalisation of abortion either by legislation or judicial decision within the State, except where there was a real and substantial risk to the life of the mother which could only be avoided by the termination of the pregnancy.”
It is not necessary here to set out in any detail the reasons why those who promoted the amendment thought it necessary to take active steps to prevent the legalisation of abortion whether by legislation or by judicial decision. It related, in some degree, to the perception of the proponents of the Amendment to the Constitution which became Article 40.3.3 of the possibly baneful effects of such cases as McGee v. The Attorney General [1974] 1 IR 284, Griswold v. Connecticut [1965] 381 U.S. 479 and, most of all, Roe v. Wade [1973] 410 U.S. 113. These cases led certain proponents of a constitutional amendment in Ireland to embark upon a sometimes very learned analysis of them and to conclude that the emphasis, not least in the Irish case of McGee, on the authority of the family and the rights of its members to privacy, might contain the seeds of the judicial development of a right, however limited, to abortion.
Abortion was and is of course illegal in Ireland by virtue of s.58 of an Act of 1861, the Offences against the Person Act. This reads as follows:
“Every woman being with child who, within intent to procure her own miscarriage, shall unlawfully administer to herself any poison or other noxious thing or shall unlawfully use any instrument or other means whatsoever with a like intent, and whosoever with intent to procure the miscarriage of any woman, whether she be or be not with child, shall unlawfully administer to her or cause to be taken by her a poison or other noxious thing, or shall unlawfully use any instrument or other means whatsoever with the like intent, shall be guilty of felony.”
I wish to express my agreement with the analysis of this Section, and of its statutory and Common Law precursors, contained in the judgment of Geoghegan J. in this case.
Accordingly, two quite different analyses of Article 40.3.3 – a linguistic one and one based on the authorities – lead harmoniously to the same conclusion. The subsequent decisions of the courts, two of which are cited above, describe the purpose of the sub-Article as being to prevent the introduction of abortion either by legislation by the Oireachtas or by judicial decision. The legal position thus sought to be protected was that created in Ireland by s.58 of the Offences against the Person Act, 1861, which described abortion as the procuring of a miscarriage. It seems obvious that, as the medical authority cited by Denham J. in this case puts it with startling clarity, “There can be no miscarriage without carriage” and “Bodily carriage implies some kind of integration with the body [of the carrier].”
Precisely the same conclusion follows from a linguistic analysis of the text of the sub-Article, either in Irish or in English. A capacity of the life of the unborn to impinge on the right to life of the mother, which is an essential postulate of the sub-Article, equally depends on some form of integration of the life of the unborn with the bodily structures of the other life in question, that of the mother.
In my view each of these approaches leads harmoniously and inevitably to the conclusion that the “unborn”, “na mbeo gan breith”, is the foetus en ventre sa mere, the embryo implanted in the womb of the mother. It is manifest that the embryo undergoing cryogenic preservation is not so implanted and is incapable of impinging in any way on the right to life of the mother or of having any physical effect whatsoever on her body or its structures.
Article 40.3.1.
I do not consider that the applicant can rely, in the alternative, on Article 40.3.1. I remain to be convinced that this provision, with its express reference to the rights of “citizens” and to such specific rights as “good name” and “property rights”, extends or was ever intended to extend to a fertilised but unimplanted ovum.
Be that as it may, if the earlier provision (i.e. Article.40.3.1) did extend to a fertilised ovum, and to a foetus, that fact would appear to make Article 40.3.3 redundant. Without necessarily relying on canons of construction such as inclusio unius exclusio alterius, I would point out that, apart from the redundancy of the Article 40.3.3 that would follow from the plaintiff’s contention, Article 40.3.1 contains no express reference at all to the right to life of the mother. This seems a remarkable omission (for the reasons given by Hederman J. and quoted above), if the earlier sub-Article applied to a fertilised ovum so as to confer a right to implantation in the mother’s uterus, there would be no explicit protection of the position of the mother. But the mother, who is a life in being, and a citizen, is undoubtedly herself within the protection of Article 40.3.1. The failure explicitly to acknowledge her position in that sub-Article strongly suggests to me that, for the reasons set out below, the position of a fertilised embryo is not within the meaning or the intent of Article 40.3.1.
Article 40.3.1., as interpreted by the plaintiff, applies to a situation which was unimagined and unimaginable in 1937. The felt need for what became Article 40.3.3 was suggested to its proponents by legal and medical developments in the 1970s. It is a grave anachronism to seek for reference to such things forty years earlier. The language, the law and the science of the debate alike have changed out of recognition over that period.
The foregoing conclusions are sufficient to allow me to decide that I would dismiss the appeal on the constitutional grounds as well, for the reason that the embryos now being cryogenically preserved are not “the unborn” within the meaning of Article 40.3.3. I wish however to add a number of observations.
Firstly, the fact that the embryos in question in the present case are not within the relevant sub-Article of the Constitution, while it is fatal to litigation founded on the theory which has informed this action, does not of course mean that such embryos should not be treated with respect as entities having the potential to become a life in being. In the course of the argument on this appeal, the court heard of various legal provisions in other countries based precisely on such respect for the embryo: it appears that a number of European countries severely limit the number of fertilised embryos that can be produced in the course of IVF treatment. The disadvantage to this, of course, is that it increases the likelihood that, in the event of a failure to produce a pregnancy with the implanted embryo(s), that the patient will have to undergo the uncomfortable and apparently sometimes painful process of retrieval of ova again. It is also necessary to bear in mind that a very large number, in fact the great majority, of fertilised embryos are lost in the ordinary course of nature and that that event is not generally regarded, medically, clinically, socially, legally or privately, as equivalent to the death of a life in being. It is also necessary to bear in mind, as Mr. Hogan S.C. for the applicant did not conceal, that if respect for the fertilised embryo were carried to the point of equating it to a life in being, that view would lead to the outlawing of one of the most widely used methods of contraception which operates by the prevention of implantation.
The above are all serious considerations which, fortunately, the court is not called upon to resolve here. They are, primarily, matters for the Legislature. Indeed, it was a notable feature of the appeal that while the Notice of Appeal criticised the learned trial judge as having erred “in finding that the court was not concerned with the question of when life begins”, the appellant’s written submissions, at paragraph 49 positively says that for the purpose of the case “the court does not have to pronounce on questions as to when human life begins”.
But the fact that difficulties are raised does not absolve the legislature from the obligation to consider the degree of respect due to fertilised embryos and to act upon such consideration “by its laws”. There has been a marked reluctance on the part of the legislature actually to legislate on these issues: the court simply draws attention to this. That is all it can do. That is what McCarthy J. did, apparently in vain, in the X case eighteen years ago. But the Court does so as seriously and as urgently as it can.
The issue is all the more urgent because, of course, scientific developments in the area of embryology and the culturing of stem cells will not stand still. It has been very recently suggested that it may shortly be possible to develop human sperm from such cells.
If the legislature does not address such issues, Ireland may become by default an unregulated environment for practices which may prove controversial or, at least, to give rise to a need for regulation. This may be particularly urgent having regard to the views expressed on behalf of the Attorney General on the hearing of this appeal.
I would dismiss the appeal.
JUDGMENT of Mr. Justice Geoghegan delivered the 15th day of December 2009
While this appeal raises very important issues, the resolution of those issues does not involve this court in attempting to answer the question of when life begins. It is not a legal issue in this case. The expert evidence on both sides make it clear that there is as yet no definite scientific or medical answer to that question. It is, of course, a question which interests also theologians and philosophers but on the particular view of this case which I have taken, none of the approaches to this question have relevance to the issue on the appeal.
At this early stage, I think I should also make clear that because of the view I have taken on the issues in dispute (which is more or less the same view as that taken by the learned High Court judge) I will not be expressing any opinion as to how the State should regulate unused embryos created in IVF treatment. It emerged at the hearing of the appeal that many countries have put in place regulatory regimes relating to spare embryos. Germany, Italy and the U.K. were cited as examples but there is no regulation whatsoever in Ireland as yet. The only constitutional question which this case raises is whether the spare embryo is one of the “unborn” with the constitutional right to life under Article 40.3.3 of the Constitution. For reasons upon which I will be elaborating, I take the view that “the unborn” protected by that Article are confined to the unborn within the womb. I will be basing this opinion both on the words of the constitutional provision itself and on the history of the crime of abortion in this jurisdiction which was the context in which that provision was inserted into the Constitution by referendum of the people. In addition to the judgment of the learned High Court judge (McGovern J.) to which I have already referred, I gained particular assistance in arriving at my opinion from the written submissions of the Attorney General.
I will proceed now to explain the nature and scope of this appeal. A married couple had a child in the normal way. Some time later they wanted to have a second child. However, in the meantime, the appellant who was the wife had undergone surgery for an ovarian cyst and had lost two thirds of her right ovary. As a consequence of medical advice, it became clear that in order to have another child she would have to undergo IVF treatment. She procured this treatment at the Sims Clinic in Rathgar, Dublin. That treatment involved (inter alia) the removal of eggs from her ovaries and the mixing of the eggs with the sperm of her husband. Because egg retrieval is difficult and painful, the practice in fertility clinics has been to ensure that there would be enough eggs to be fertilised so as to avoid a second retrieval operation. What in practice happened was that the appellant’s ova were mixed with the respondent’s sperm creating six viable embryos. Three of these were immediately implanted into the appellant’s uterus and the others were frozen.
This implantation was successful and the appellant gave birth to a daughter. Around the same time, the marriage broke up, as the respondent had entered into another relationship.
The appellant, being aware of the existence of the three frozen embryos which were the spares, wanted them implanted in her uterus so that she could undergo a further pregnancy and produce a third child. The respondent objects because it would put him into the position that he was forcibly becoming a father, something which he does not want to happen. There is a further context to his objection. It is clear from the evidence given by the appellant that she would have regarded any child born as a consequence of the spare embryo being implanted, as a child of the respondent just as much as a child of the appellant with all the financial and other responsibilities that fatherhood involves. At all material times, the appellant and the respondent were medically advised that the IVF treatment could result in multiple births. If, therefore, the three spare embryos were duly implanted the possibility that triplets would be born could not be ruled out. I am merely recounting the perspective of the appellant as it emerged in evidence without placing any value judgment on it.
The first issue in the case was whether there was an enforceable contract as between the parties entitling the appellant to make use of the spare embryos. The learned trial judge held that there was not. I am in agreement with that finding for much the same reasons as influenced the trial judge but I will elaborate on them more fully in due course. Because of that view which I have taken, I do not find it necessary to consider the legal issue of whether there can be such an enforceable contract and, if so, how determinative it is. The court has been referred to considerable case law emanating from the United States of America, the majority thrust of which is that the fate of spare embryos should be determined by agreement of the parties. Since I am satisfied there was no contract here, I do not find it necessary to review those authorities nor am I to be taken as necessarily agreeing with their conclusions. I would prefer to leave these difficult questions to a case where they genuinely arise. In this particular case, the argument for a contract is outlined and explained in the judgment of the learned trial judge. I should, of course, mention at this stage that McGovern J. delivered himself of two distinct judgments. The first judgment of the 18th July, 2006 dealt with the contract issue. The second judgment, that of the 15th November, 2006 treated of the constitutional issue. It is the contract issue which I now intend to address.
It is not suggested that there was any clear written or oral agreement between the appellant and the respondent as to what was to happen spare embryos. Nevertheless in arguing for a contract, some written documents were relied on by the appellant. These documents were Consents which the clinic required to be signed as a routine part of their procedures. There were four Consent documents in all. The first was entitled “Consent to Treatment Involving Egg Retrieval”. That Consent was signed by the appellant only and by the form she gave her consent to the removal of eggs from her ovaries and the mixing of those eggs with the respondent’s sperm. The second document was a Consent form signed by both parties and entitled “Consent to Embryo Freezing”. By this form both the appellant and respondent agreed to the cryopreservation of the embryo and to take full responsibility on an on-going basis for frozen embryos. The third Consent form was entitled “Husband’s Consent” in which he consented to the treatment and expressed his understanding that he would become the legal father of any resulting child. The fourth and final document was entitled “Consent to Embryo Transfer” which involved the appellant consenting to the placing in her uterus of three embryos.
Like the learned High Court judge, I will elaborate slightly on this. It was clear from the medical evidence that the egg retrieval which is obviously an essential element of the IVF treatment can be awkward and painful. As a consequence, in most countries including Ireland, fertility clinics try to ensure that there be a sufficient number of eggs for fertilisation so that egg retrieval would not have to be undergone a second time. In this particular case nine or ten eggs were retrieved and were mixed with the respondent’s sperm. Of the resulting embryos, six were considered viable. The remainder were not frozen and they were presumably disposed of. Three of the six viable embryos were implanted into the appellant’s uterus and the remaining three were frozen.
The implantation of those three embryos resulted in a pregnancy and a successful birth of a daughter on the 26th October, 2002.
It is clear from the evidence of Dr. Wingfield, the consultant obstetrician and gynaecologist at the National Maternity Hospital, Holles Street that the reason why the standard IVF practice in most countries with the notable exception of Italy and Germany is to try and ensure that there are some spare suitable embryos which can be frozen, is to avoid putting the woman through the repeat painful procedure of egg removal. Indeed I think it useful to quote what she actually said in her witness statement:
“To achieve optimal success rates (still only 20/30% per cycle started) it is necessary to use superovulation. This results in multiple oocytes. The best pregnancy rates occur in cycles where six to ten oocytes are retrieved.
In an ideal world, these oocytes would be fertilised only as required i.e. one or two would be incubated with sperm and if these fertilise they would be placed in the uterus. If fertilisation did not occur, another two eggs could be tried etc. Unfortunately, oocytes do not survive outside the body and must be used within hours of retrieval. It is not yet possible to be able to choose the best quality eggs or the ones which are most likely to be successfully fertilised and the safety of the technology has not been sufficiently validated to routinely freeze oocytes. It is therefore necessary to try to fertilise all of the eggs once retrieved (i.e. they must all be used immediately or they are wasted).
On average, only 50/70% of oocytes will be successfully fertilised if exposed to sperm and a further large proportion of fertilised oocytes will be abnormal and unusable (at least 40%). In older women particularly, the chance of successful blastocyst formation, implantation and healthy pregnancy is low (10% and less if over 40 years. Most doctors and others working in IVF therefore consider it unethical to subject the woman to the risks of superovulation treatment if all oocytes are not then going to be used.
It is only safe to transfer two embryos to the uterus (three in rare cases); otherwise there is an unacceptable risk of multiple pregnancies. It is well proven that multiple pregnancies lead to greatly increased rates of miscarriage, premature birth, neo-natal morbidity and cerebral palsy. Therefore, one or two of the best embryos are transferred and the remainder are frozen, if deemed to be of sufficiently viable.
The purpose of all embryo freezing programmes is to give a couple the best chance to achieve a pregnancy with a maximum of safety. If the woman does not conceive following her first embryo transfer, one or two frozen embryos may be thawed and transferred to her uterus, without the need for further superovulation an oocyte retrieval. For couples who conceive with their first embryo transfer, they may achieve a second pregnancy a few years later using previously frozen embryos. Frozen embryo transfer is medically safer and less expensive than a second fresh IVF cycle.”
Dr. Wingfield goes on to explain that the above practice of IVF which is the norm in Ireland is accepted as best practice in the vast majority of countries. She stated that the majority of couples will quickly use any frozen embryos in order to achieve one or more pregnancies. But she accepts that some couples will end up with unwanted frozen embryos. Interestingly, she makes the point that this could occur for different reasons “e.g. they have had one or more children and their family is now complete or they may separate, one partner dies etc.” Whilst there are no regulations in Ireland she points out that in other jurisdictions the options to deal with unwanted embryos may include donation to another couple, donation for research or simply allowing them to perish.
I do not think that Dr. Wingfield’s expert evidence was in controversy at the trial and I have found her summary of the position very useful. She mentions that there are seven clinics providing IVF services in Ireland with approximately 2,500 fresh IVF and 700 frozen embryo cycles being performed every year. Although there is no statutory regulation, she refers to the Medical Council Guidelines and to the report of the Commission on Assisted Human Reproduction (2004). The Guidelines of the Medical Council and that report are both before the court. The guidelines do not ban embryo freezing and recommend donation of surplus embryos to another couple. The guidelines are not altogether satisfactory and are left somewhat vague. What is satisfactory is the excellent report of the Commission on Assisted Human Reproduction. That report lists and deals with all aspects of the problem. There were forty recommendations. The fourth and ninth of these inter alia are relevant to this case: The fourth reads:
“Appropriate guidelines should be put in place to govern the freezing and storage of gametes and the use of frozen gametes. The regulatory body should, in accordance with statutory guidelines, have power to address cases where gametes are abandoned, where the commissioning couple cannot agree on a course of action, where couples separate or where one or both partner dies or becomes incapacitated.”
The ninth recommendation reads as follows:
“Appropriate guidelines should be put in place by the regulatory body to govern the freezing of excess healthy embryos.”
Unfortunately, unlike most other countries no statutory regulations have been put in place. Running right through most of the documentation produced is the concept of the respect to be shown to the spare embryos but nowhere is there a suggestion that either party can be compelled by the other to become a parent in the absence of agreement. Referring to the document “Consent to Embryo Transfer” the judge went on to say that it was clear from the evidence that the three embryos referred to in that particular form were the embryos which were not frozen and that the purpose of freezing the other embryos was to use them if the first implantation failed. That finding was supported by evidence from both the appellant and the respondent and indeed precise references are given in the judgment. The first implantation having been successful, the judge pointed out that that left the question as to what was to happen to the remaining frozen embryos. He refers to the evidence of both parties and I have also read their evidence. On the basis of the consent form signed and on the oral evidence which he heard, the learned trial judge held that there was no evidence that the respondent gave his express consent to the implantation of the three frozen embryos in the plaintiff’s uterus and he went on to consider whether that consent could be implied. Not only was the finding open to him to make, I do not think that any other finding would have been open having regard to the evidence.
As I have already mentioned, at more or less the time of the birth of the IVF child, the marriage unfortunately broke up. There seems little doubt that there was no prior agreement relating to any of these contingencies whether foreseen or unforeseen. At most, there would have been an understanding that the question of using the frozen embryos in the event of a failure following the first implantation would be considered or indeed that it might be considered for the purpose of producing a second child. Even that is doubtful. I do not consider that any such understanding or agreement would ever have been intended to be a legally binding contract. Before ever one considers the other essential ingredients of a legally enforceable contract such as consideration and “offer and acceptance”, the first essential requirement is that there was an intention to create legal relations. There is nothing in the evidence of either party which supports any such intention. The forms signed were Consent forms required within the clinic system and they cannot be construed as contracts.
I have diverted somewhat, because of course I already mentioned that the judge went on to consider whether, even if there was no express contract, there might have been an implied contract. My first observation on that proposition is that in a domestic agreement between husband and wife of this kind, it would be rare that even express terms would be held to constitute a legally binding contract. It would be extremely rare that an understanding between husband and wife would be held to have ripened into a legally enforceable contract not even containing all the express terms but containing implied terms. The learned trial judge has correctly reviewed the authorities on implied terms and I do not intend to cover that territory. I agree with everything that he says.
I now turn to what is really the more serious issue on the appeal, the question of whether each of the frozen embryos is an “unborn” within the meaning of Article 40.3.3 of the Constitution. That subsection reads as follows:
“The State acknowledges the right to life of the unborn and, with due regard to the equal right to life of the mother, guarantees in its laws to respect, and, as far as practicable, by its laws to defend and vindicate that right.”
Without necessarily accepting that in interpreting this subsection, I am not entitled to have regard to the context in which it was inserted into the Constitution (a point to which I will return), I believe, that applying the ordinary rules of interpretation applicable to a statute which at any rate to some extent, permit of context to be taken into account, this constitutional provision is dealing exclusively with the baby in the mother’s womb. Probably, the strongest indicator of this is the reference to “the equal right to life of the mother”. I interpret the subsection as envisaging what I might loosely call “a mother and baby situation”. The State is not conferring a right but rather acknowledging the majority view in the community that the baby in the womb has the right to be born alive but that this is not an absolute right in as much as there could be situations where the continued pregnancy endangered the life of the mother. In this context the expression “equal right” is somewhat strange because, in a sense, what the provision is stating is that in a clash of rights to life between the baby and the mother, the mother’s life is to have priority. I would also attach some significance to the expression “the unborn”. It has been said that this expression was unusual in its nakedness. I do not think that that is altogether correct but its meaning and context may be somewhat unusual. The expression “the unborn” is not by any means unique but normally, far from meaning an actual baby or foetus, it would tend to mean what I might describe as “the as yet unborn” or in other words future existences. The expression in this sense finds its way into two quotations in the Oxford Book of Quotations. I do not believe that the expression “the unborn” would ever be used to describe a stand alone embryo whether fertilised or unfertilised or whether frozen or unfrozen. It has ultimately been accepted on all sides in this appeal that the case does not involve any determination of when life begins. Furthermore, the experts on both sides were in agreement that there is no scientific proof of when life begins. The IVF treatment itself highlights the complexity of the succession of steps in the process leading up to a successful birth. It seems clear on the evidence before the court that pregnancy in any meaningful sense commences with implantation. I think I am entitled to take judicial notice of the fact that the referendum which led to the insertion of this provision in the Constitution was generally known as “The Abortion Referendum”.
This brings me to the question already briefly adverted to, as to the extent to which I can take context into account in interpreting the Article. I have already expressed my view as to what the Article means applying only the ordinary rules of statutory interpretation as distinct from constitutional interpretation. I am not in fact convinced that the rules are identical. Judges play no part in the drafting of a statute, still less in the voting of it into law. Judges, however, are ordinary citizens and do participate in referenda. It would seem to me to be highly artificial if a judge could not also take judicial notice of and to some extent at least, use as an aid to interpretation, the ordinary common understanding of what in context was involved in the referendum. Nobody could dispute that the primary purpose of the referendum was to prevent decriminalisation of abortion without the approval of the people as a whole. Abortion in this jurisdiction was criminalised by the Offences against the Person Act, 1861, an Act carried into the laws of the Irish Free State and in turn carried over under the 1937 Constitution. In theory, there could have been a referendum as to the possible insertion of a provision in the Constitution that the relevant sections in the Offences against the Person Act, 1861 would not be repealed. Those very provisions however had been interpreted in the English courts in a manner which would not have been acceptable to the perceived majority of the Irish people who favoured an absolute ban on abortion. This was the famous case of Rex v. Bourne [1939] 1 K.B. 687. The positive assertion in the Constitution of the right to life would have been perceived as preventing any watering down of the criminal law on abortion.
It is appropriate, at this stage, to explain the relevant provisions in the 1861 Act and the aids to their interpretation deriving from their antecedents. This is important because if, as I believe, the insertion of Article 40.3.3 into the Constitution was with a view to preventing repeal or amendment of the existing abortion law, it is essential to understand what exactly that law prohibits.
The two relevant provisions of the Offences against the Person Act, 1861 are sections 58 and 59. Section 58 reads as follows:
“Every woman, being with child, who with intent to procure her own miscarriage, shall unlawfully administer to herself any poison or other noxious thing, or shall unlawfully use any instrument or other means whatsoever with the like intent, and whosoever, with intent to procure the miscarriage of any woman, whether she be or not with child, shall unlawfully administer to her or cause to be taken by her any poison or other noxious thing, or shall unlawfully use any instrument or other means whatsoever with the like intent shall be guilty of felony.”
Section 59 then reads:
“Whosoever shall unlawfully supply or procure any poison or other noxious thing, or any instrument or thing whatsoever knowing that the same is intended to be unlawfully used or employed with intent to procure the miscarriage of any woman, whether she be or not be with child, shall be guilty of a misdemeanour.”
On the interpretation of these two sections, I find the judgment of Munby J., the English High Court, Queen’s Bench case of R (Smeaton on behalf of the Society for the Protection of Unborn Children) v. The Secretary of State for Health particularly persuasive. In that case Munby J. was dealing with the lawfulness or otherwise of “the morning after pill”. But what he had to say is equally relevant to this case. He takes note first of all of the expression “being with child” in section 58 and he relates it to wording of earlier Acts to which I will be referring. He further points out that sections 58 and 59 create three offences but that common to all three offences is the need to prove either an “intent to procure.. miscarriage” or in the case of an offence under section 59 knowledge of another’s “intent to procure .. miscarriage”. He goes on to point out that this intent to procure a miscarriage was what was required when the offence was a common law offence prior to 1803 (case law to support that is cited) and under every version of the offences created before the 1861 Act i.e., the Acts of 1803, 1828 and 1837. Munby J. sums up the position as follows:
“Given the issue in the present case the last point requires emphasis. The essence of the offence, both at common law and in every version of the statutory regime since 1803 has always been the procuring of ‘miscarriage’. Putting the same point rather differently, ‘miscarriage’ is not a term of art introduced into the law in 1861. It is the word which Parliament and the lawyers have been using in this context for some two hundred years.”
The judge goes on to explain that common to all the three offences was the need to prove that the relevant act was “unlawful”. This requirement gave rise to the English decision of R v. Bourne cited above. As a consequence of Bourne’s case and quite apart from the possibility of a statutory repeal or amendment, there was no guarantee prior to the constitutional amendment, that abortions of the kind not considered “unlawful” in Bourne’s case, might some day be regarded with impunity by Irish courts.
I do not intend to survey in detail the pre-1861 law relating to abortion in a manner analogous to that done by Munby J.
At common law, however, commission of the offence required that the woman was carrying the child and that there had to be quickening of that child. Both at common law and right through the various statutes leading up to the 1861 Act, there was no offence without a miscarriage and “miscarriage” obviously implied previous “carriage”. The 1803 Act used the expression “quick with child”. Likewise the 1828 Act. The 1837 Act required “intent to procure the miscarriage of any woman”.
Both on a simple reading but even more so given its historical context, I would take the view that “the unborn” refers to a child in the womb not yet born. As Hardiman J. points out in his judgment, the Irish language version which of course is the authentic version bears this out.
If it was intended by the Article that if a fertilised embryo was created outside the body of the woman, that embryo would have the constitutional right to life, I cannot imagine that the Article would be worded in that way. There would be no logic, for instance, in conferring the constitutional right to life on a suitable spare embryo duly frozen on the one hand and not to confer it on an unsuitable embryo. I do not believe that the constitutional provision was drafted or indeed voted upon with IVF treatment in mind. There may well be some who would take the view that IVF treatment necessarily destroys “life” but if the intention was that that view would prevail or indeed if the topic was under consideration at all, the Article would have been worded quite differently. Statutory regulation relating to spare embryos is one matter but constitutional protection of their lives is quite another. It is not easy to see how, in practice, the latter could be achieved but at any rate that is a matter for the Oireachtas and for the people and not for the courts. The function of the court is to interpret the Article as it stands and for the reasons which I have indicated, I am satisfied that there is no constitutional provision which has the effect of overriding the express objections of the father.
I want however to make it clear at this stage that I am in agreement with the often expressed view that spare embryos, being lives or at least potential lives, ought to be treated with respect. The absence of a statute or statutory regulations indicating how that respect should be given is undesirable and arguably contrary to the spirit of the Constitution.
It is, however, up to the Oireachtas to provide such regulation. Even if it were possible, it would not be appropriate for the courts to attempt any guidance in this respect. I would be the first to acknowledge that it is not an easy task. One practical issue neatly illustrates the difficulty. It is common knowledge that some will argue against all use of spare embryos for medical purposes and indeed within that group there will be those who would object to even the creation, never mind the retention, of spare embryos. On the other hand, there are many who would bona fide hold the view that some regulated availability of an unimplanted embryo for medical purposes is a use which can enhance life. Hardly a week passes now when some new alleged medical use of an embryo is signposted in the media, one of the latest being a cure for total blindness. The moral and ethical problems in this area are legion. There is no common agreement on their resolution. Since most of these problems are of an ultra modern nature, I rather doubt that there is a constitutional solution to them, but that does not mean that there cannot and indeed should not be regulation by the Oireachtas. If there are constitutional aspects, they do not arise pursuant to the particular provision in the Constitution relied on in this case.
There are two other points which I think it important to make. First of all, even with the traditional methods of conception and pregnancy there is a very high attrition rate.
Dr. Wingfield, among others, gave some detailed evidence on this matter. Developing a view, she expressed in evidence “that a fertilised egg is a long, long way from being a human”. She went on immediately to say the following:
“There are various studies in the literature showing that the attrition rate both in natural conceptions and in in vitrio conception is quite substantial and that the chances of a fertilised egg actually becoming a human being are quite slim. We know from IVF that if you start off with a hundred eggs only 3/4 % of those will actually form a human being.”
It was then put to her did she mean by that that there would be a “successful pregnancy and birth of that child”. She replied in the affirmative but added:
“There are many pitfalls along the way where the processes can go wrong and where development can progress abnormally and where the whole process is aborted because something has gone wrong.”
This part of her evidence arose to some extent from questioning in relation to a statement she had made that although there is a natural tendency to regard the fertilised egg as a “baby” then to use her own words “science indicates that a fertilised egg is unfortunately a long, long way from being a human.” Dr. Wingfield developed that opinion further by saying:
“It is unfortunate that we use the same term to apply to a 1-cell embryo and also to an eight week old embryo or foetus, which you can see on an ultrasound scan, you can hear its heart beat, you can see it moving and certainly that eight week embryo, I think the vast majority of people would regard as a baby and a person, but as a 1-cell entity, which is also called an embryo is a very, very different entity from that… There is a very big difference between an early pre-implantation embryo and an eight week old embryo.”
Interestingly, the very next question put to her by Mr. O’Donnell, counsel for the Attorney General was prefaced by the remark “I think this is not significantly in dispute, and indeed I don’t think there is any serious dispute about the biological facts of the development of embryogenesis and the development of the embryo.” There are mountains of evidence of a similar vein but those extracts, in my view, which are not controversial, illustrate the unlikelihood that the constitutional provision with its relatively short and simple wording could have been intended to cover pre-implantation embryos.
The second additional observation I would make is that the kind of situation which arose in this case, i.e. the marriage breaking up while the frozen embryos were in existence is likely rarely to occur. As already referred to in the judgment, there are sound medical reasons in ease of the mother who wants to have a baby by the IVF method, to provide for spare embryos. Even in the case of a stable marriage, it does not at all follow that following on a successful birth by the IVF method it would be intended or agreed by the couple that the spare embryos would be then used to produce a second child by the same method. The creation of the spare embryos may in many instances be intended merely for the purposes of their use if the first attempt fails, but not for their use if the first attempt succeeds. Again, with some people this may be controversial but with others it may seem perfectly reasonable. In a system of regulation which there should be, these matters can be teased out. But to my mind the complexity of them is itself a further indication that the simple right to life amendment, as drawn up, was not intended to resolve any of these issues. It had the single purpose of protecting the child (and by that expression I include the foetus) in the woman’s womb and nothing more.
I would reject both the contractual and constitutional grounds of appeal and would, therefore, dismiss the appeal.
Judgment delivered the 15th day of December, 2009 by Mr. Justice Fennelly
1. I agree that the appeal should be dismissed. I am satisfied that the first-named respondent is not bound by any contract or agreement or by the application of equitable principles to permit the frozen embryos to be implanted. In this respect, I agree with the judgment of Geoghegan J. and with the reasons he gives.
2. I am also satisfied that the frozen embryos do not enjoy the protection of the guarantees provided to the right to life of the unborn by Article 40.3.3 of the Constitution. I agree, for the reasons given in the judgments of Hardiman J. and Geoghegan J. that Article 40.3.3 does not extend to or include frozen embryos which have not been implanted. I do not think that the constitutional provision should be considered only as being intended to reinforce the effect of section 58 of the Offences against the Person Act, 1861. The people, in adopting the Eighth Amendment to the Constitution employed distinct, new and independent language.
3. Finally, I join Hardiman J. in expressing concern at the total absence of any form of statutory regulation of in vitro fertilisation in Ireland. It is disturbing, to use no stronger word, that some four years after publication of the Report of the Commission on Assisted Human Reproduction, no legislative proposal has even been formulated. Counsel for the Attorney General argued before us that there is no law or public policy regarding the protection of frozen embryos, in short that they have no legal status. As I interpret these submissions, the organs of the State have no present intention to propose any legislation. It is obvious that this is extremely difficult and sensitive subject-matter. It is controversial for all of the reasons mentioned by Hardiman J. and Geoghegan J. Nonetheless, it cannot be denied that the fertilisation of the ovum brings into existence, outside the womb, the essential unique components of a potential new individual human person. I agree with the judgments of Hardiman J. and Geoghegan J. that the frozen embryo is entitled to respect. This is the least that can be said. Arguably there may be a constitutional obligation on the State to give concrete form to that respect. In default of any action by the executive and legislative organs of the State, it may be open to the courts in a future case to consider whether an embryo enjoys constitutional protection under other provisions of the Constitution.
Emo Oil Limited -v- Sun Alliance & London Insurance Company
[2009] IESC 2 (22 January 2009)
JUDGMENT of Mr. Justice Kearns delivered the 22nd day of January, 2009
This is an appeal from the judgment of the High Court (Gilligan J.) delivered on 25th November, 2005 in which he determined a preliminary issue in these proceedings in favour of the plaintiff relating to the interpretation of the terms of a policy of insurance entered into by the parties. The policy of insurance was for “catastrophe credit” insurance pursuant to which the plaintiff, an importer and distributor of oil products, claims an indemnity from the defendant.
The specific matter in issue is whether, when a winding up petition on grounds of insolvency was presented in respect of one of the plaintiff’s buyers during the period of the policy, but the winding up order in respect of that company was made after the expiration of the policy, the liquidation of that company can be said to have “occurred” within the period of the policy. The agreed wording of the preliminary issue is:-
“Whether the insolvency of the insured buyer occurred within the period of insurance under the terms of the policy of insurance, having regard to the terms of section 220(2) of the Companies Act, 1963.”
In his judgment, Gilligan J. held that the term “insolvency” in the policy should be interpreted by reference to the date of the commencement of a winding up, as opposed to the date on which a winding up order is made and that, accordingly, the winding up occurred within the term of the policy. It is from that finding that this appeal is brought.
FACTUAL BACKGROUND
The plaintiff and the defendant entered into a contract for “catastrophe credit insurance” on 1st May, 1997. This policy was renewed by correspondence on varied terms at various dates, the last of which was from the period from 1st August, 2001 to 31st July, 2002, which said term was extended to the 31st August, 2002.
The policy provided for cover inter alia in the following circumstances:-
“The insurance provided:
The company will indemnify the insured in respect of the aggregate insured losses in excess of the deductible arising during the normal course of the insured’s business from the insolvency or protracted default of an insured buyer.
PROVIDED THAT:
(A) The insolvency or protracted default of the insured buyer occurs during the period of insurance …”
The policy defines “insolvency” by reference to a number of events, including the following:-
“Insolvency shall mean that one of the following has occurred in respect of the insured buyer …
· A proposal for a voluntary arrangement has been made and approved under Part I of the (English) Insolvency Act, 1986 (hereinafter referred to as the Act).
· An administration order has been made by the court under Part II of the Act.
· The appointment of an administrative receiver on behalf of debenture holders or other creditors under Part III of the Act.
· A resolution has been passed for the voluntary winding up or an order for winding up has been made by the court under Part IV of the Act.
· A bankruptcy order has been made by the court under Part IX of the Act.
· Liquidation has occurred as defined in section 247 of the Act (other than a voluntary winding up solely for the purpose of amalgamation or reconstruction on a solvent basis) …
· A compromise or arrangement between the insured buyer and his creditors has been sanctioned by the court under section 425 of the Companies Act, 1985.
· A valid assignment or composition has been made by the insured buyer for the benefit of his creditors.
Or the equivalent as stipulated or in accordance with the local law of the countries specified under the Geographical Limits.”
The “Geographical Limits” are described as “Eire and U.K.”.
On 29th August, 2002, the plaintiff presented a Petition seeking the winding up of one of its customers, Dev Oil & Gas Limited (‘Dev Oil’). A winding up order was made on 11th September, 2002, i.e. after the expiry of the period of insurance under the policy. If a deduction is made in respect of VAT, the plaintiff alleges that it has suffered a net loss of €647,990.72 from the insolvency of Dev Oil. It further alleges that Dev Oil was an insured buyer within the terms of the policy and that Dev Oil’s debts are insured losses under the policy.
RELEVANT STATUTORY PROVISIONS
The definition of “insolvency” under the policy is set out above and the issue is the date of the insolvency for the purposes of the policy. It is the defendant’s case that only the following limb of the definitions provided is relevant in determining the issue:-
“A resolution has been passed for the voluntary winding up or an order for winding up has been made by the court under Part IV of the English Insolvency Act 1986”.
The policy provides a possible extension of the definition in that it states “or the equivalent as stipulated or in accordance with the local law of the countries specified under the Geographical Limits”. As already noted, the geographical limits are stated in the Schedule to be “Eire and UK”.
Under Irish law, it is provided by the Companies Acts 1963 – 2006 that a liquidation may occur in one of the following two ways:-
(A) A company may be wound up by the High Court under the jurisdiction given to it under s.212 of the Act of 1963, or
(B) A company may be wound up voluntarily in circumstances outlined in s.251 of the 1963 Act.
In defining when liquidation ‘has occurred’, the policy refers to the definition in s.247 of the English Insolvency Act, 1986, or its equivalent in accordance with Irish Law. There is no equivalent provision in this jurisdiction to s.247(2) of the Act of 1986, which provides:-
“For the purposes of … (certain parts of the Act of 1986), a company goes into liquidation if it passes a resolution for voluntary winding up, or an order for its winding up is made by the court at a time when it has not already gone into liquidation by passing such a resolution.”
The Irish Companies Acts 1963 – 2006 do not contain an equivalent provision. The Irish ‘equivalents’ of Part IV of the Act of 1986 are elaborated in ss.212 and 251 of the Companies Act, 1963.
Given that the decision of the High Court was based on the plaintiff’s arguments arising out of s. 220(2) of the Act of 1963 and in particular the deeming provisions therein contained, it is important to set out that provision which is as follows:-
“In any other case (except where before the presentation of a petition a resolution has been passed by the company for voluntary winding up), the winding up of a company by the court shall be deemed to commence at the time of the presentation of the petition for the winding up”.
Section 220(2) of the Act of 1963 has a direct equivalent in s.129(2) of the Act of 1986, which similarly applies the principle of ‘relation back’ – the concept that an act done at a later time is deemed by law to have occurred at an earlier time. Section 129(2) is in materially identical terms to s.220(2) and provides:-
“… In any other case (except where before the presentation of a petition a resolution has been passed by the company for voluntary winding up or where a winding up order is made on foot of an application for an administration order), the winding up of a company by the court is deemed to commence at the time of the presentation of the petition for winding up.”
Thus, while there is no directly equivalent provision in Irish law to s.247 of the English Act of 1986, Irish law has the same effect. The defendant attaches particular importance to the fact that, although this provision exists both in English law and Irish law, no reference to it appears in the policy. Instead the policy defines insolvency by reference to the occurrence of events including (inter alia) the making of a winding up order. It does not refer to any “deemed” commencement.
THE HIGH COURT JUDGMENT
As already noted, the High Court (Gilligan J.) interpreted the policy in favour of the plaintiff. He held that the insolvency of Dev Oil occurred on 29th August, 2002 within the period of insurance having regard to the provisions of s.220(2) of the Companies Act 1963.
In his judgment, Gilligan J. reviewed the relevant portion of the policy and found that the definition of insolvency in the policy referred specifically to the equivalent local law in the country specified under the Geographical Limits (i.e. Ireland). He was of the view that in the circumstances of the case and in determining the issue of when the insolvency occurred, that particular issue had to be decided in accordance with Irish law and in particular s.220(2) of the Companies Act 1963.
He did not accept the arguments advanced by the defendant to the effect that the insolvency, within the meaning of the policy, only occurred when the order winding up the company was made on 11th September, 2002. In refusing to follow a leading English decision of Mettoy Pension Trustee Limited v. Evans [1990] 1 W.L.R. 1587 he held as follows:-
“I am satisfied that the issue to be decided in Mettoy Pension Trustee Ltd. can be distinguished from the particular circumstances at issue in this case. In Mettoy Pension Trustee Limited the Court was asked to determine the meaning of the words “a company going into liquidation” within the meaning of a deed setting out certain rules concerning a pension scheme whereas the issue to be decided by this Court is as regards the date the Court should attribute to the occurrence of the insolvency within the meaning of the policy and having regard to Irish law. In any event, I prefer to follow the judgment of Kelly J. in Re Eurofood IFSC Limited [2004] 4 IR 370 and the views expressed by Templeman J. in Re Dynamics Corporation of America [1973] 1 W.L.R. 63.”
Gilligan J. concluded as follows:-
“I take the view in the particular circumstances of this case that in determining the issue that arises in accordance with Irish Law and in particular s.220 (2) of the Companies Act 1963, the liquidation of Dev Oil Limited occurred on 29th day of August, 2002, being the date when the petition was presented by reason of the fact of the order that was made by this Court on 11th September, 2002. I follow the rationale of Kelly J. in his interpretation of s.220(2) of the Companies Act, 1963 to the effect that the order appointing the official liquidator becomes effective as of the date of the presentation of the petition which in this case was a time within the term of the policy. Accordingly, I come to the conclusion that the issue to be decided is to be resolved in the plaintiff’s favour with the insolvency of the insured buyer occurring within the period of insurance under the terms of the policy of insurance having regard to the terms of s.220(2) of the Companies Act, 1963.”
GENERAL PRINCIPLES IN RELATION TO INTERPRETATION OF CONTRACTUAL TERMS
Both parties to this appeal accept as correct the general approach to the interpretation of contractual terms approved in this jurisdiction in Analog Devices BV v. Zurich Insurance Company [2005] 1 IR 274, where this Court adopted the following statement of principles relating to contractual interpretation as set out by Lord Hoffman in the House of Lords decision in I.C.S. v. West Bromwich B.S. [1998] 1 WLR 896 at pp. 912 to 913:-
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be next mentioned, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammar; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Limited v. Eagle Star Life Assurance Co. Ltd.[1997] AC 749.
(5) The “Rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would, nevertheless, conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v. Salen Rederierna A.B. [1985] A.C. 191, at p. 201:-
‘If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.”
Also of relevance with regard to context and background circumstances are the dicta of Lord Wilberforce in the case of Reardon Smith Line Limited v. Hansen–Tangen [1976] 3 All E.R. 570 where he stated as follows at pp. 574 to 575:-
“No contracts are made in a vacuum; there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as the surrounding circumstances but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.
When one speaks of the intention of the parties to the contract, one is speaking objectively – the parties cannot themselves give direct evidence of what their intention was – and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly, when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have had in mind in the situation of the parties.
What the court must do must be to place itself in thought in the same factual matrix as that in which the parties were”.
To similar effect were the views expressed by Laffoy J. in UPM Kymmene Corporation v. B.W.G. Limited (Unreported, High Court, Laffoy J., 11th June 1999) in relation to the construction of a contract where she stated as follows:-
“… The basic rules of construction which the court must apply in interpreting the documents which contain the parties’ agreements are not in dispute. The court’s task is to ascertain the intention of the parties, and the intention must be ascertained from the language they have used, considered in light of the surrounding circumstances and the object of the contract. Moreover, in attempting to ascertain the presumed intention of the parties the court should adopt an objective, rather than subjective approach and should consider what would have been the intention of reasonable persons in the position of the parties”.
THE COMMENCEMENT OF A LIQUIDATION
The principle that the winding up of a company commences at the date of the presentation of the petition is well established in Irish company law. It is at a moment in time fixed by statute. There is really no dispute between the parties that the date of presentation of the petition is the beginning of a liquidation and therefore the beginning of its occurrence.
I think it is of importance in the present case to consider briefly the considerations which underpin the doctrine of ‘relation back’ and I have derived considerable assistance from written submissions filed in this case which detail the consequences flowing from the doctrine and which thereby illustrate the raison d’etre for relation back and which include the following:-
(i) Section 218 of the Companies Act 1963 provides that any disposition of property of the company made after the commencement of its winding up is void unless the court otherwise directs.
(ii) No judgment mortgage registered against the land of an insolvent company within three months before the commencement of the winding up shall confer “any priority or preference over simple contract creditors”.
(iii) Any attachment, sequestration, distress or execution put in force against the property or effects of the company after the commencement of the liquidation is void to all intents by virtue of s.219 of the Companies Act 1963.
(iv) Section 217 of the Companies Act 1963 provides that upon the presentation of petition any action or proceeding against the company in any court may be stayed or restrained at any time after presentation but before a winding up order has been made on the application of the company or any creditor or contributory.
(v) Under s.286 of the Companies Act 1963 any payments made to creditors are deemed to be of fraudulent preference if made within six months of the commencement of the winding up.
(vi) Under s. 288 of the Companies Act 1963 a floating charge on the undertaking of the property created within twelve months before the commencement of the winding up is invalid.
(vii) Under section 290 of the Act a liquidator has twelve months from the commencement of the liquidation to disclaim onerous property.
(viii) When considering restriction under s.150 of the Companies Act 1990, the court has to be satisfied that the directors are directors of the company within a twelve month period prior to the commencement of the winding up, namely, the date upon which the petition was presented.
(ix) The presentation of a petition to wind up a company together with the appointment of the provisional liquidator constitute a judgment in the insolvency proceedings within the meaning of Article 2 of Council Regulation EC No. 1346/2000 (The Insolvency Regulations).
This list of considerations illustrates that the underlying rationale or justification for the ‘relation back’ doctrine is the protection of the creditors of the company. An associated consideration is the conferring of validity on any acts that have been performed by a provisional liquidator. The defendant in the instant case is not a creditor and none of the considerations listed above engage with the kind of circumstances which arise in the present case. Furthermore the defendant makes the very valid point that it was open to the plaintiff to achieve the winding up and secure an order to that effect within the term of the contract.
Mr. Denis McDonald, senior counsel for the defendant, pointed out in this context that the mere presentation of a winding up petition may or may not result in a winding up order being made. A petition might not initially be advertised and might be given a new return date, in which case a significant period of time could elapse before it first came before the court. Thereafter, a petition might be contested or even appealed to the Supreme Court. Such contests or appeals might not be resolved until many months – if not years – after the petition was originally presented. If the interpretation contended for by the plaintiff was accepted, it could, he submitted, potentially lead to an open ended exposure on the part of the insurer long after the policy had expired. He submitted that this could hardly have been the intention of the parties when negotiating the policy.
DECISION
It must be stressed at the outset that this case revolves around an issue of contractual interpretation rather than one of statutory interpretation. Part of the plaintiff’s submission has been to argue that the concept of ‘relation back’ as defined in the Companies Acts should be adopted as an appropriate tool for the interpretation of the contract. Mr. John Gleeson, senior counsel for the plaintiff, argued not only for this proposition but also for the proposition that, in so far as the relation back doctrine created any ambiguity as to the intention of the parties in this case, a construction contra proferentem should be applied so that the issue would be resolved in favour of the plaintiff.
The latter part of this submission may be quickly dealt with. As noted by Clarke: The Law of Insurance Contracts, 5th ed., (London. 2006) at paragraph 15-5:-
“In the past some courts were quick to find ambiguity in policies of insurance, in order to apply the canon of construction contra proferentem, and that raised the suspicion that the canon was being used to create the ambiguity, which then justified the (further) use of the canon: the cart (or the canon) got before the horse in the pursuit of the insurer. Orthodoxy, however, is that contra proferentem ought only to be applied for the purpose of removing a doubt, not for the purpose of creating a doubt, or magnifying an ambiguity, when the circumstances of the case raise no real difficulty. The maxim should not be used to create the ambiguity it is then employed to solve. First there must be genuine ambiguity.”
Furthermore, as noted by Mance, Goldrein & Merkin Insurance Disputes, 2nd ed., (London.2003) at p.148:-
“In commercial cases, it will be extremely rare for the court to be unable to ascertain from the context of the contract as a whole which meaning was intended by the parties. Thus construction contra proferentem will, in such cases, usually be an approach of last resort. It may however be more readily resorted to in respect of routine standard from commercial insurance policies.”
I am more than satisfied that there is no ambiguity in the relevant clause of the insurance contract. Both parts of the relevant limb are absolutely clear. The first part defines insolvency arising when “a resolution has been passed for the voluntary winding up” – a circumstance which clearly does not arise in the present case. The second limb of the definition contained in the policy refers not merely to the ‘winding up’ of the company but to the making of ‘an order for winding up’ being made by the court under the relevant legislation. Again, there is no ambiguity of language.
In Mettoy Pension Trustees v. Evans [1990] 1 W.L.R. 1587, the court was required to interpret the phrase ‘going into liquidation’ in the rules of a pension scheme, in circumstances where a period of just over two months had elapsed between the presentation of a winding up petition and the making of a winding up order. In that case, just as in the present case, the court was engaged in the consideration of a contractual document in order to consider the intentions of its drafters and its effects on the parties thereto. Warner J. had to consider whether the phrase ‘going into liquidation’ meant the actual beginning of a winding up, as a result of the making of a winding up order, or its ‘deemed’ statutory beginning. Put another way, he had to consider whether the words ‘going into liquidation’ were to be construed by reference to the relation back doctrine. He declined to do so, stating at p.1613:-
“To my mind the phrase ‘going into liquidation’ in rule 11(b) points to the actual beginning of the winding up, not to its statutory ‘deemed’ beginning. Practical considerations which were mentioned both by Mr. Inglis-Jones and by Mr. Nugee support that view. The presentation of a winding up petition does not of itself establish that there will be a liquidation of the company concerned. The petition may be contested. Even if it results in the making of a winding up order, there will be a delay, maybe quite a long delay, between the presentation of the petition and the winding up order. If the date of the presentation of the petition is to be treated, if and when a winding up order is made, as having been the date when the company went into liquidation, there will be, following the presentation of the petition, a period of uncertainty during which no-one will know whether the scheme is to be administered as a continuing scheme or as a dissolved scheme, for instance whether or not employees contributions should continue to be collected.
In the result I think that the reference to the company ‘going into liquidation’ in rule 11(b) is to be construed, in the case of a compulsory winding up, as a reference to the making of the winding up order.”
Amongst cases referred to by Warner J. was General Share & Trust Company v. Wetley Brick and Pottery Company [1882] 20 Ch.D.260 wherein the Court of Appeal held that the words “if the lessees … shall be wound up voluntarily or by compulsion” in a proviso for re-entry in a lease refer to the making of the winding up order. Also, in Official Custodian v. Parway Estates [1985] 1 Ch. 151. Dillon L.J. assumed at pp. 157 to 158 that the words “if the tenant shall enter into liquidation whether compulsorily or voluntarily” in a re-entry clause in a lease refer to the making of the winding up order.
While Gilligan J. concluded that the issues in Mettoy could be distinguished from the particular circumstances of the instant case, apparently based on the fact that the wording involved was different and that the deed considered the rules of a pension scheme, the factual circumstances of the two cases are quite similar. It seems to me that the phrase ‘liquidation has occurred’ used in the policy is even more clearly distinguishable from the term ‘going into liquidation’ used in Mettoy.
A similar approach was adopted in Re Walter L. Jacob & Co Ltd. [1993] B.C.C. 512. This was a case in which a company director sought to argue that he could not be disqualified under s.7(2) of the English Company Directors Disqualification Act, 1986, in circumstances where more than two years had passed since the date of commencement of the liquidation.
The section provided that proceedings could be taken within two years ‘… beginning with the day on which the company of which that person is, or has been a director, became insolvent’. The director argued that the company must be taken to have become insolvent on the date of the presentation of the petition by reference to s.129(2) of the Insolvency Act, 1986. This was rejected by Hoffman J. who stated:-
“The purpose of section 129(2) in the context of winding up is clear. It deals with the validity of certain transactions entered into with the company and has the effect of retrospectively invalidating, by virtue of section 127, dispositions which were made before the winding up order but after the presentation of the petition. The reason why the date of the presentation of the petition is taken as the date from which such dispositions are invalidated is perfectly clear as a part of the policy of the Act. It is, on the other hand, not at all easy to see why the date of the presentation of the petition should have any relevance to the period within which the Official Receiver is obliged to issue a summons for disqualification under the Act of 1986. It is only once the winding up order has been made that the Official Receiver knows that he is under a duty to investigate the conduct of the directors and, if necessary, to apply for their disqualification. It seems to me that it would be quite illogical for the period within which the official receiver can take such steps to be abridged by the fact that the petition has taken a long time to come on for hearing or, as in this case, has been delayed by the necessity of an appeal to the Court of Appeal.
It is noticeable that section 7(2) uses the expression ‘the day on which the company became insolvent’. It would, I think, have been perfectly easy, if Parliament had so intended, for the section to use the well known expression ‘the date upon which the winding up commenced’. That would have brought into play section 129(2). But Parliament has not done so and, in my view, the context of section 7(2) requires one to construe the words ‘became insolvent’ with reference to section 247 of the Insolvency Act as meaning the date upon which the winding up order was made.”
I believe that similar considerations apply in the instant case. It was always open to the parties to use a term such as ‘a winding up has commenced’ in the policy had their intention been that now contended for by the plaintiff.
I am also of the view that the decisions of Kelly J. in Re Eurofood IFSC Ltd. [2004] 4 I.R. 370 and the views expressed by Templeman J. in In re Dynamics Corpn [1973] 1 W.L.R. 63 do no more than confirm the application of the ‘relation back’ doctrine, a doctrine which of itself is not in dispute in the present case. Neither decision purports to address a matter of contractual interpretation. The decision of the High Court (Kelly J.) in Re Eurofood IFSC Ltd. related to a net point of the interpretation of Council Regulation EC No. 1346/2000 namely, whether ‘the time of opening of proceedings’ under Article 2 was the date of the presentation of a winding up petition or the date of the making up of the winding up order. There can be no dispute but that the order appointing a liquidator becomes effective as of the date of presentation of a winding up petition, a point relied upon by Kelly J. in Re Eurofood IFSC Ltd, which appears to have formed the basis of the learned High Court judge’s decision in the instant case.
Similarly, the case of In re Dynamics Corpn. was a case involving statutory interpretation and not the interpretation of a contract. In that case the English High Court held that proceedings should be stayed following the presentation of a winding up petition, on the basis that under s.276 of the English 1948 Act, a company was thereafter ‘in the course of winding up’.
I am impressed by the defendant’s argument that the interpretation contended for by the plaintiff would cause significant problems in practice and would flout business common sense, notably in circumstances where the presentation of a winding up petition might not result in any winding up order being made. A petition might not be proceeded with, or a considerable period of time could elapse before it comes before the court. It might be contested at that stage and might even indeed be the subject matter of an appeal. Such contests or appeals might not be resolved for months or years after the petition was originally presented. In such a situation, this could potentially lead to an open ended exposure on the part of the insurer long after the policy had expired.
As Fennelly J. pointed out in the course of his judgment in Re: Eurofood IFSC Ltd. [2004] 4 I.R. 370 at 406:-
“It does not necessarily follow from the fact that a winding up petition has been presented or even that a provisional liquidator has been appointed that a winding up order will in fact be made. Section 216 (1) provides that, on ‘hearing a winding-up petition, the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make any interim order, or any other order that it thinks fit’. The presentation of the petition and the order for winding up are distinct. A principal function of the relation back provision of s. 220(2) is to confer validity on any acts that have been performed by a provisional liquidator following his appointment at the time of the presentation of the petition.”
While I have the utmost sympathy for the predicament in which the plaintiff company now finds itself, it seems to me that the issue as to whether the insolvency of the insured buyer occurred within the period of insurance under the terms of the policy of insurance must be answered in the negative. I would allow the appeal.
MC (A Ward) & Anor -v- FC & Ors
[2013] IEHC 272 (02 May 2013)
Judgment of Mr. Justice Feeney delivered on 2nd day of May, 2013.
1.1 MC is a ward of Court so found and declared by order of this Court dated the 4th November, 2009. She was born on the 18th May, 1925 and is a widow without child, grandchild or other descendant. She resided with her late husband at their family home at, Rathgar, Dublin, up to his death in 1991 and thereafter she continued to reside in that house by herself until 2006.
1.2 By order of this Court of the 27th January, 2010, Margaret McGreevy was appointed committee of the person and of the estate of MC. By further order dated 12th April, 2010, Margaret Molony, the second named plaintiff, was substituted as committee of the estate and of the person of MC.
1.3 FC, the first named defendant, is the nephew of MC. He resides at T A, K, County Wexford. The second and third named defendants are brothers of R, D, County Wexford and work as agricultural contractors under the trade name of H Brothers.
1.4 MC is the owner of the property at County Wexford (“T A”) and was residing in that property with the first named defendant, her nephew, FC, up until the time that she was admitted to a nursing home on the 11th March, 2010. She continues to reside in that nursing home. FC remains in occupation of the property at T A. That property was purchased in 2008 subsequent to the sale of MC’s house in Rathgar.
2.1 On the 25th February, 2006, at the time that MC was residing alone in Rathgar, she became unwell and was admitted to St. James’s Hospital. At that time MC had no close relations in Dublin but had a number of relations who resided in County Wexford which was the county where MC had been born and brought up. FC was one of her nephews and due to a number of circumstances he had formed a close relationship with MC. When FC was a child he spent two extended periods with his aunt. The first was when FC was three years old and on that occasion he spent approximately six months with his aunt and uncle in Dublin. Some five years later he spent a further period of two months with his aunt in Dublin after he had been hospitalised. When FC became an adult he visited his aunt, MC, on a regular basis from his home in Wexford. MC lived alone after her husband’s death in 1991 up until she moved to Wexford. During that period she did not work, having given up her pre-marriage employment on marriage. Prior to marriage she had worked as a legal assistant/secretary to a partner in a firm of solicitors in Dublin.
2.2 On the 25th February, 2006 MC was admitted to St. James’s Hospital after her neighbours became apprehensive as to her wellbeing and of her ability to look after herself. The hospital records noted that she was admitted with a history of intermittent confusion and concerns from her neighbours about her ability to self-care. The ability to self-care was confirmed following admission at an interview between MC and a hospital social worker. The hospital records state that MC was admitted with the condition of “acopia”. During the course of evidence, Dr. O’Donoghue gave evidence that acopia was a medical term or slang for being “not able to cope”. The medical records covering her stay in St. James’s Hospital noted that the admission had arisen in circumstances where the neighbours had called an ambulance to bring MC to hospital as a result of “ongoing concerns about her poor self-care skills, vulnerability at home”. The notes indicated that MC expressed the view that her neighbours were overreacting. However, the hospital notes record that MC had “considerable difficulty in personal self-care, cooking (eats biscuits only throughout the day) cleaning, etc”. During the course of the hearing, Sinead McSharry, a medical social worker attached to the Accident and Emergency Department at St. James’s Hospital, gave evidence that she carried out an assessment of MC shortly after her admission. Her evidence supported by contemporaneous notes indicated that MC was obviously a vulnerablewoman and that during the course of the assessment it became clear that there were areas where she was struggling with her personal life and that she was having difficulty with personal care, managing her nutrition and managing to mobilise safely in her home. Shortly after MC’s admission to St. James’s Hospital, a mini mental state examination (MMSE) was carried out. That examination, also known as the Folstein Test, is a brief thirty point questionnaire test that is used to screen for cognitive impairment and is also used as a basic test or indication for dementia. The MMSE test carried out on MC in the days following her admission resulted in a score of twenty out of thirty. While in hospital there were two occasions when MC was identified as being disorientated but the medical view was that such disorientation arose from active infection. The evidence to me indicated that the interpretation of MMSE scores proceeds on the basis that a score equal to or greater than twenty five points is indicative of normal cognition and that a score of ten to twenty points is indicative of moderate impairment while a score of twenty one to twenty four points is indicative of mild cognitive impairment.
2.3 After MC’s admission to St. James’s Hospital, a medical condition unrelated to the reason for her admission was diagnosed. That medical condition was an aortic aneurysm and she required surgery. She remained in hospital until the 26th April, 2006 when she was discharged into the care of the first named defendant, FC. From the end of April 2006 up until MC went to reside in a nursing home in County Wexford on the 11th March, 2010, she resided with her nephew, FC, at various different addresses. On release from hospital, MC resided in her original family home at C, County Wexford with FC, her nephew, and his father, who was her brother-in-law being the widower of MC’s late sister.
2.4 Prior to her discharge from St. James’s, MC had indicated to the medical social worker on the 3rd April, 2006 that she was adamant that she wanted to go home to her house in Dublin and that she believed that she was able to do so as her neighbour was present to support her. The notes of that attendance indicated that MC became very annoyed at any idea of moving to Wexford. Prior to her discharge at the end of April 2006, a family meeting occurred which was attended by FC and a plan was identified whereby she would live at C, in County Wexford. The social worker at St. James’s Hospital continued to keep in touch with MC after her discharge for four months. She recorded that FC had tried to persuade MC to sell her house in Dublin and buy in Wexford but that there had been no success.
2.5 Towards the latter part of 2006, MC moved from the house at C, to St M. R H, County Wexford, which was the home of a M K. M K was the partner of FC. She resided in that house for approximately one year until following a dispute in late 2007, she returned to C under the supervision of her nephew, FC. She was there for a number of months until returning to reside at St. M in early 2008.
2.6 The evidence establishes that from her discharge from St. James up until May of 2007, MC was at best reluctant, and at times opposed, to the sale of her home in Rathgar. The evidence, as confirmed by the attendance of the medical social worker, was that FC was desirous of having the Rathgar house sold and an arrangement put in place whereby MC would live with him on a permanent basis. By May of 2007 MC was seriously considering selling her Rathgar property and contact was made with Eleanor Wardlaw (Mrs. Wardlaw), a local solicitor based in Killinick, in County Wexford, who was known to the family. Mrs. Wardlaw gave comprehensive and precise evidence to me and demonstrated that she was an efficient, considerate and committed solicitor. I am satisfied that her evidence was accurate and truthful. This was reinforced by the efficient and comprehensive manner in which she kept attendances. She ensured that MC’s interests were fully and properly identified and represented. She was initially contacted by telephone on the 16th May, 2007 and made an appointment to meet MC two days later. On the 18th May, 2007, FC brought MC to Mrs. Wardlaw. By that date MC was dependent upon her nephew, FC, for transport and for the provision of a place to reside. At the meeting MC indicated that she wanted to sell the house in Rathgar and hoped to obtain a price of approximately €2.5m. Mrs. Wardlaw indicated that she would instruct estate agents to assist in the sale and that she would consider the title deeds. Mrs. Wardlaw gave evidence that she was experienced in dealing with elderly people and that, therefore, at the first consultation she sought and obtained the identity of MC’s general practitioner and took limited instructions in relation to her medical history. Mrs. Wardlaw was informed that MC intended to purchase a house in Wexford and was considering a property in Tagoat. Mrs. Wardlaw also gave evidence that after the consultation on the 18th May, 2007, FC rang her to inform her that MC’s general practitioner, Dr. Liz O’Sullivan, was satisfied in relation to MC’s health and mental state. That contact was, on the evidence of Mrs. Wardlaw, entirely unsolicited and was made at a time before Mrs. Wardlaw had contacted the general practitioner.
2.7 FC’s enthusiasm for the house in Rathgar to be sold and to progress the sale was not only illustrated by his statement to the medical social worker and by his unsolicited contact with Mrs. Wardlaw in relation to MC’s health and mental state, but was also demonstrated by his conduct in late 2006 or early 2007. During that period, whilst MC was residing with FC, he was the active participant in the preparation of a forged letter which purported to have come from a Welfare Inspector in the Dublin South Region in the Department of Social Welfare. That letter later became available in evidence through another relation of MC and was the subject of extensive evidence. The letter is undated but clearly was written during the period between MC’s discharge from St. James’s Hospital in May of 2006 and when she went to see Mrs. Wardlaw on the 18th May, 2007. The letter was obtained by a relation of MC by the name of E R and that letter was then made available in these proceedings. FC gave evidence that he assisted in the preparation of that letter in that he obtained blank notepaper of the Department of Social and Family Affairs and used that notepaper to type a letter addressed to himself but on his evidence it was dictated by MC. He gave evidence that the letter was produced in the latter part of 2006 or early 2007. FC failed to provide any rational explanation as to the reason or circumstances for the production of that forged letter and the suggested dictation of it by his aunt. The letter was addressed to FC and having regard to its contents it is clear that it was prepared for the purpose of putting pressure on MC to encourage her to sell her house in Rathgar. The letter was typed by FC and was addressed to him and the suggestion that it was dictated to him by MC lacks credibility. When one has regard to the content of the letter and to whom it was addressed, it is clear that the purpose of the letter was so that it could be used by FC to put pressure on MC to sell her house. References within the letter to an assumption that absent MC agreeing to sell the house, that “the State will be taking possession of MC’s house at the end of July” and that “the State will be responsible for selling it”, together with a closing paragraph that indicated that “an Inspector from the Department of Social and Family Affairs will be making an unannounced visit to you and your aunt at your address in R” and that “this visit will be different from the usual visits . . . from the local health authority”, all point to an intent to put pressure on MC. It is probable that not only did FC obtain the headed notepaper and type the letter, but that he also was the person who composed the letter. The reason for writing the letter was to put pressure on MC and it is probable that it was used for that purpose. That letter is demonstrative of the reluctance that MC had to arrive at a decision to sell her home in Rathgar and also of FC’s efforts to try and persuade her. Mr. Kohl, in giving evidence, also stated that the forged letter from the Department of Social and Family Affairs had come into his possession through a relation of MC and that he discussed the letter with FC who confirmed that he had written the letter. As set out above, FC in his evidence to this Court disputed that he composed the letter and swore that he only typed the letter from instructions given to him by MC. I conclude that the version given by FC to Mr. Kohl was correct. The attempt by FC to resile from this admission during his evidence resulted in him giving false evidence. FC’s claim that MC dictated a letter which contained threats against her, and sought to put pressure on herself to sell her house is not credible.
2.8 Mrs. Wardlaw’s attendances confirm that following the initial meeting and the unsolicited contact from FC in relation to his aunt’s health and mental state that FCendeavoured to further progress a sale by informing Mrs. Wardlaw that his aunt, MC, had met with the auctioneers and was happy to go along with them and that it had been agreed that the house in Rathgar could be sold by private treaty with a reserve in the region of €2.5m. Thereafter, FC brought the title deeds, a valuation and a marriage and death certificate into Mrs. Wardlaw. After that activity in the second half of May of 2007 there was no contact in relation to the proposed sale until the 19th July, 2007. On that date Mrs. Wardlaw rang FC. FC informed her that MC now accepted that she did not own a second house and that the proposed sale related to her Rathgar property. Mrs. Wardlaw was also informed of the intention of MC to make a will. The issue of the purchase of a new house by MC was also raised and it was indicated by FC that that house might be put into the joint names of the two of them. By September 2007 Mrs. Wardlaw had been contacted by two different relations of MC, other than FC, raising certain apprehensions concerning M C’s health and her ability to complete a sale. Mrs. Wardlaw was already proceeding on the basis that MC would require to be independently advised in the absence of any other person by her and that prior to any sale, a medical report as to her capacity would be required. On the 20th July, 2007, MC signed a letter of that date addressed to Anna Rossy in Sherry Fitzgerald, Auctioneers. The probability is that that letter was typed by FC given his involvement in the preparation and completion of the forged letter. The letter commenced by indicating that MC had made up her mind and decided to sell her house in Rathgar and that she was sorry for the delay in trying to make up her mind. The letter also stated that MC knew that the auctioneers had been dealing with her nephew, FC, and that she would trust him to deal with any problems that may arise on her behalf. The letter also stated that MC would leave her nephew to deal with Sherry Fitzgerald on her behalf and that he would take care of the details. On the 14th September, 2007, Mrs. Wardlaw met in private with MC. She inquired about the proposed sale of the house in Rathgar and whether MC was satisfied to sell that house. Mrs. Wardlaw gave advice to MC and informed her that Mrs. Wardlaw was going to write to her general practitioner to obtain a medical report and that she would see MC the following week. After the private meeting with MC, Mrs. Wardlawspoke to FC to make arrangements about contacting Dr. O’Sullivan and she also suggested that another family member might help FC in dealing with the details of the sale as some members of the family did not trust him. On the date of the consultation, Mrs. Wardlaw wrote to Dr. O’Sullivan requesting a medical report on MC’scapacity and she stated in the letter that –
“I myself have no concerns in relation to MC’s mental capacity, although I can see that at times she comes across as a bit scatty, which I understand was always her way. I do not have any particulars in relation to her health and what medication, if any she is on and whether or not she would be capable of living alone”.
She went on to request a report on MC’s general health and her capacity to deal with her affairs and any views that the general practitioner might have in relation to MC’s future. Following the written request for a report there was telephone contact between Mrs. Wardlaw and Dr. O’Sullivan on the 26th September, 2007. Dr. O’Sullivan informed Mrs. Wardlaw that she had done a test on MC which was quite extensive and that she was quite surprised as to how well MC had done and that she was satisfied that she was in possession of all her faculties. She indicated that MC was able to make up her own mind and was not at a stage where she would need to go into a nursing home but Dr. O’Sullivan indicated that she accepted that MC would need to live with somebody else. Following that telephone call, the house in Rathgar was auctioned on the following day, that is, the 27th September, 2007, and the property was sold at auction for €2,800,000. A contract was signed and a deposit of €280,000 paid.
2.9 In November 2007, MC had a falling out with her nephew, FC, and his partner and she left their house and returned to her family home at C. She resided there for a number of weeks with her nephew, FC, staying at night time. Mrs. Wardlaw saw MC on her own in relation to accommodation and discussed with her the possibility of staying permanently in C and finding a companion. On the 15th November, 2007, Mrs. Wardlaw wrote to Dr. O’Sullivan informing her that MC no longer lived in R H and had returned to C, K. In C there were two houses, a newer house where her nephew, J C, and his wife lived with their children, and the old family home which was where MC resided. In that letter Mrs. Wardlaw commented on MC’s long-term situation and stated “I do not know whether going forward she (MC) can stay where she is. It seems what is best for her or what she wants is not the same as what FC would like”. In the final paragraph of the letter Mrs. Wardlaw stated –
“I have advised FC that any decisions for MC’s future will be made by herself in consultation by you and myself. I would therefore welcome at this stage your views in relation to her capability of living alone. I have suggested to her that she might consider a live-in companion. It is accepted that MC does not want to go to a nursing home and this does not arise . . . at present”.
On the 17th December, 2007, Mrs. Wardlaw wrote to MC after the sale of the Rathgar property had closed, indicating that there was a net balance after expenses of €2,717,313.05. A month later, on the 14th January, 2008, Mrs. Wardlaw again wrote to MC indicating that it was difficult for MC to make a decision in relation to investment long-term until she had sorted out her house situation and wondering if she wanted Mrs. Wardlaw to set up “an appointment with an investment adviser”. She suggested that that advice might be obtained before the deposit renewal date on the initial investment of the net proceeds expired on the 11th February, 2008. Dr. O’Sullivan wrote to Mrs. Wardlaw on 14th January, 2008 and confirmed the oral report that she had given following the examination of MC on the 19th September, 2007. In that report, Dr. O’Sullivan stated in relation to the mental state examination as follows:
“Mini mental state examination was performed and MC performed extremely well. I enclose a photocopy of this exam. Essentially MC is of normal mental state and capable of making her own decisions and managing her own affairs. In short, MC was in good physical and mental health at the time of review. However in view of her age and previous illness I do feel she requires support and is not capable of living completely independently. While she can manage to dress and feed herself with no difficulty she is at the stage where a live-in companion is advised and she realises that.”
The mini mental state examination which was enclosed with that letter indicated a score of thirty three out of thirty. That score was incorrect and should have read twenty eight out of thirty.
2.10 On the 22nd January, 2008, Mrs. Wardlaw met in private with MC. MC indicated that she had returned to live in R H but did not like it. The words that she used were I “hate it” and that she wanted “a place of her own”. Mrs. Wardlaw informed MC of Dr. O’Sullivan’s report and of the fact that Dr. O’Sullivan was of the view that she could not live alone. MC indicated that she was happy to buy a new property at T A which was near to FC’s house and that there was a room downstairs that could be converted into a bedroom for herself. She confirmed that she was happy to buy the property and was not being pressurised by anybody to do so and she informed Mrs. Wardlaw that there was land with the house and that she was happy that FC could use the land for his own use and that FC was going to move into the new house with her but that FC’s partner was not going to accompany him. The attendance note taken on the 22nd January, 2008 states that MC informed Mrs. Wardlaw that “the house will be sold after your day” and “FC only there for your lifetime”. Mrs. Wardlaw gave evidence that it was clear from the consultation that MC agreed to FCliving in the house at T A while she was there but that it was never envisaged that FC would live there on his own and that what was envisaged was that the house would be sold after MC had died and that at that stage FC would get a generous inheritance. It was suggested in cross-examination by the first named defendant that MCagreed to give FC a life interest in the property. Mrs. Wardlaw refuted such suggestion and confirmed that a life interest was never discussed and that what was envisaged was that FC would live there whilst MC resided in the house. After the meeting on 22nd January, 2008, arrangements were made for the purchase of the property at T A, K, County Wexford together with adjoining lands and that purchase was completed in April 2008 for a purchase price of €744,000. MC moved into the house at T A together with FC. FC’s partner did not move into the house but after a short period, F C’s daughter, her boyfriend, and a Polish woman named I S came to reside in the property. After MC went into the nursing home in March of 2010, FC continued to reside in the house. His partner has now also moved into T A.
2.11 On the 10th April, 2008, Mrs. Wardlaw met with MC and discussed the transfer of the balance of the funds arising from the sale of the house in Rathgar which were left after the purchase of the property at T A. Mrs. Wardlaw informed MC that there was a balance of €1,938,300 on deposit with the ICS Building Society and that a representative of the Bank of Ireland Private Banking would meet with MC, as had previously been discussed, to consider the investment of the balance. Mrs. Wardlawalso advised MC that she should ensure that all bills were paid by cheque rather than giving her nephew, FC, sums of money. Prior to that meeting in April 2008, Mrs. Wardlaw had been informed by MC that she was going to the Bank of Ireland Private Banking Section to obtain investment advice. Following the consultation on the 10th April, 2008, Mrs. Wardlaw was in contact with MC and advised her that the balance of monies were being transferred to the Bank of Ireland/ICS Building Society and that a meeting with Bank of Ireland Private Banking was arranged and would take place during the first week of May 2008. Mrs. Wardlaw contacted a representative in the Bank of Ireland and confirmed that contact had been made with a representative of Bank of Ireland Private Banking to make an appointment for MC to receive investment advice and that on that basis Mrs. Wardlaw agreed to fax and post the request for transfer of funds. On the 2nd May, 2008, €1,938,453.41 was transferred into MC’sICS Building Society’s account at the Bank of Ireland in R H.
2.12 In the following fourteen months no contact was made with Mrs. Wardlaw and she was not in a position to give any independent advice or to see MC on her own. The evidence established that no independent financial advice was received by MC and that the proposed meeting with Bank of Ireland Private Banking did not occur. It is what occurred after the 2nd May, 2008 when the sum of €1,938,453.41 was lodged which forms the core matters in issue in this case and, in particular, the mode and manner in which sums were withdrawn and the use to which those sums were put.
3.1 The payments which are the subject matter of these proceedings are eight withdrawals which took place from MC’s account. The first withdrawal was on the 16th May, 2008 and the last withdrawal on the 14th April, 2009. There is no dispute but that the sum of €1,938,453.41 was lodged to MC’s account on the 2nd May, 2008 resulting in a balance in that account of €1,949,619.16. Thereafter, eight withdrawals occurred which are relevant to these proceedings. Those eight withdrawals are set out in eight lettered paragraphs A to H inclusive. (Hereafter in this judgment I shall refer to such withdrawals by such letters).
A – 16th May, 2008 – withdrawal of €100,000 by transfer to account in sole name of FC;
B – 16th May, 2008 – transfer of €10,000 to joint account in names of MC and FC;
C – 3rd July, 2008 – withdrawal of €93,800 lodged to account in sole name of FC;
D – 13th August, 2008 – withdrawal of €42,000 lodged to the account in the sole name of FC;
E – 22nd September, 2008 – transfer of €42,000 to the account in name of FC;
F – 15th December, 2008 – transfer of €50,000 to the account in the joint names of MC and FC;
G – 28th January, 2009 – transfer of €100,000 to account in joint names of MC and FC;
H – 14th April, 2009 – transfer of €500,000 to account in the sole name of FC.
Other than for the withdrawal of the 15th December, 2008, the transfers and withdrawals were executed by MC after she was brought to the Bank of Ireland Branch in Rosslare where the transactions took place. The transfer on the 15th December, 2008 took place in circumstances where MC was in hospital and was carried out by FC. MC had signed a withdrawal slip and that was used in her absence. FC’s evidence in relation to this matter was that he had a number of blank withdrawal slips signed by MC so that transactions could take place without her having to attend at the bank.
3.2 The largest withdrawal was the transfer ‘H’ on the 14th April, 2009. By that date over €400,000 had been transferred either into the sole or joint accounts of FC in a period of less than eleven months. On the 14th April, 2009, FC brought M C to the bank in Rosslare and the transfer was carried out in the public office. At no time was MC spoken to by a senior official and, such conversation as took place, took place with an official from the bank at the public counter and in circumstances where FC, who had brought MC to the bank, was also present in the public office. The process and procedures followed by the bank were cursory and had no regard to the sums involved, the frequency of withdrawals or the age of the account holder. As of the date of that transfer, MC was not only elderly and fragile, but was due within a matter of days to have an assessment as to her mental capacity. To allow and permit the immediate transfer of such a substantial sum of money, representing a significant portion of the funds available to MC, without a private meeting or real consideration is indicative of a lack of full or proper procedures being followed in the bank’s dealing with elderly and potentially vulnerable customers.
3.3 FC acknowledges in evidence that he received all the sums of money set out in the earlier paragraph (i.e. ‘A’ to ‘H’ inclusive) and states that he used those sums for particular purposes. He claims that his aunt agreed to each and every one of the transfers and had determined that he should receive half of her funds and that she was aware of the intended use by him of the money and what purchases he would make. FC dealt with his claim that his aunt wished to provide him with funds for the purchase of items of machinery and to provide him in total with half of the money available in his cross-examination. (Day 5, pages 120 – 124). He claims that there was a gentleman’s agreement between him and MC and J H, the second named defendant, that funds would be provided to purchase machinery for the H machinery business and that FCwould be given a wage as soon as the business was built up and that J H and FC would hold joint ownership of the machinery and if the business did not prosper, that the machinery would be returned to the sole ownership of FC. FC claimed that that agreement was an oral agreement first made in 2006 at a time prior to the sale of the house in Rathgar. FC claimed that his aunt stated that “she was going to look after us”, that is, himself and J H. At that time J H was assisting in relation to the tidying up and clearing out of the house in Rathgar. FC gave further evidence that his aunt remained interested in the machinery business and would ask questions about it on different occasions. He gave evidence that “he imagines” that the agreement was made sometime in the summer of 2007. When asked to provide details of the agreement, he stated in relation to the agreement that his aunt said she would look after him and that his health was not the best and MC wanted to look after him and that she wanted J H to do that and that his future would be looked after and that he would have a job and that he, FC, would have some machinery of his own. FC gave evidence that he presumed that when it was first mentioned, that his aunt meant he would be looked after when the house was sold, and that he did not recollect or remember any discussion about money other than at one stage his aunt stated that when the house was sold in Dublin, if it was sold for over a million euro, she would give him half of it but he was unable to remember when that was said. Clearly, if that was said, it would have to have been said prior to the sale. He also stated that in relation to his aunt’s statements that she said she would give him half of the proceeds and that if he was not mistaken she had said it on more than one occasion and that to the best of his recollection the first occasion would have been in August/September 2006. FC produced a document in purported support of his claim for an oral gentleman’s agreement which was dated the 13th July, 2011 and was signed by him and JH. The subject was identified as a gentleman’s agreement and the document read as follows:
“This statement is confirmation of a gentleman’s agreement between MC, FC and J H. The agreement was that J H would give FC a wage as soon as the business was built up enough to be able to support an extra wage, and was acknowledged by all three of us that this would not happen overnight and would take a few years for this to materialise. J H and FC would hold joint ownership of the machinery and if the business did not work out, ownership of the machinery would return to FC as full owner. Any maintenance including parts, would be paid from the proceeds of the business. I requested J H to confirm this agreement between us in writing for the benefit of the High Court.”
It was signed by FC and JH. Other than for the claim that MC was agreeable at the date of each transfer for such transfer to take place, and was aware of the purported use or the general intended use of the funds on each occasion, the only matters upon which FC relies upon in support of his claim that he is entitled to retain all the sums transferred out of MC’s account is the purported gentleman’s agreement and the evidence that he gave relating to MC’s desire to give him half of her funds. The claim in relation to MC’s intended wish to give him half of the funds is a matter which was not originally pleaded but which was given in evidence by FC after he delivered an amended defence and counterclaim at the start of the trial.
3.4 Carsten Kohl, a social worker attached to the Protection Service for Older Persons Unit of Wexford Community Service gave evidence to me. He is a senior case worker for the protection of older people within the Wexford Community Services and he became involved with MC when he received a phone call from John R, a brother-in-law of MC, on the 15th January, 2009, wherein he raised certain matters of concern. As a result of that phone call, Mr. Kohl made a home visit to T A on the 26th January, 2009. During the course of Mr. Kohl’s interview with MC, she stated that she bought the house and that she gave half of her remaining money to F, referring to FC, and that he bought some machinery with the money. She was asked how she managed her financial affairs and she said that she had a cousin in Rathmines working in a bank but did not go into any further details and she also told Mr. Kohl that F, again referring to FC, had begged her for half of her money. She also indicated that in the past she was running the country and that she was the Taoiseach at some stage and that she ran the whole of Ireland. Mr. Kohl determined to have a follow up visit and visited MC for a second time on the 5th March, 2009. She did not recognise Mr. Kohl from his earlier visit and on that date she appeared quite confused and he formed the impression that she was even more confused on the second occasion than she had been on the first occasion. FC informed Mr. Kohl on that occasion that MC’s memory was as usual but that she was more confused after waking up and generally she only became more active and alert later in the day. On the occasion of the second visit Mr. Kohl informed MC that he was planning a referral to a psychiatrist for old age because he felt that it was important that MC’s capacity should be tested. Mr. Kohl gave evidence that he had decided to proceed on that basis as a result of his observations and impressions during his two visits. He checked with Dr. Gormley’s office and established that a referral to him had already been made in relation to MC through the public health nurse. Dr. Niall Gormley is a Consultant Psychiatrist for old age with Wexford Mental Health Service. FC was aware of the intended consultation with Dr. Gormley which was arranged for April 2009. On the 18th May, 2009, Mr. Kohl rang FC to ascertain what had occurred at the appointment and was informed by FC that MC had missed the appointment as she was sick and that another appointment had been arranged for the end of June. On the occasion of that phone call, FC informed Mr. Kohl of the circumstances of the €500,000 withdrawal on the 14th April, 2009. He told Mr. Kohl that MC had overheard a conversation which had indicated that she might be made a ward of Court and that MC then insisted that she be brought to the bank so that she could put all her money into FC’s name. FC told Mr. Kohl that he rang the bank in advance of the visit and asked the manager and the staff to go along with the transaction and FC informed Mr. Kohl that €500,000 was transferred into his account. He told Mr. Kohl that all the money, that is the €500,000, would be invested and would be used for MC’s care.
3.5 At the start of May 2008, Mrs. Wardlaw had made arrangements with Bank of Ireland Private Banking Division to advise MC in relation to her funds. After that, she was not involved with MC until July of the following year when, on the 9th July, 2009, she received a phone call from Mr. R, a brother-in-law of MC. Mr. R raised the issue of MC being made a ward of Court. On the following day Mrs. Wardlaw tried to contact Dr. O’Sullivan and contacted the Bank of Ireland in Rosslare and informed them that she had received expressions of concern in relation to a recent transaction on MC’s account. The acting manager confirmed to Mrs. Wardlaw that Carsten Kohl, a social worker with the HSE, had called to the branch on the previous day. Mrs. Wardlaw advised the acting manager that her phone call was a formal telephone call and that she was putting the bank on notice of her concern and that she reminded the bank that they had a duty of care to their clients and, in particular, to elderly clients. The acting manager, Peter Hudson, confirmed that he was investigating the matter and that he was seeking advice from the bank’s legal department. Mrs. Wardlaw informed the acting manager that if there had been a transaction involving €500,000 that surely that that would have been brought to the attention of the bank manager and not dealt with solely by a teller. The acting manager thanked Mrs. Wardlaw for contacting him. Mrs. Wardlaw was later in contact with Carsten Kohl who informed her that MChad transferred €500,000 to FC and that it would appear that that occurred when there was an assessment pending from Dr. Gormley. Carsten Kohl also informed Mrs. Wardlaw that the money which had been transferred was available for MC’s care as it had been invested and he had been informed of that by FC. A few days later FC informed Mrs. Wardlaw of the letter from the HSE to say that an appointment had been made to have MC assessed and that he, that is FC, subsequently postponed the appointment. Mrs. Wardlaw continued to endeavour to deal with the issue concerning the use of MC’s funds and on the 10th August, 2009, met with MC in her office. FC was also present. MC indicated that she wanted him to be present at the meeting. Mrs. Wardlaw asked why the money available to MC had not been invested through Bank of Ireland Private Banking and FC stated that MC only wanted to invest €1m and that the bank suggested €1.75m so that MC had said no. During that meeting MC indicated that she did not know that she had given away as much as €500,000 and FC informed her that on the 12th April, 2009 MC gave him €500,000 “to look after her for the rest of her life” and added that he did not ask for it. FC also mentioned that he still regarded the €500,000 as being MC’s and that when Mrs. Wardlaw asked him if he would be agreeable to sign a declaration of trust in favour of his aunt, that he indicated that he would be agreeable. At that meeting Mrs. Wardlaw was informed by FC that €70,000 remained in the bank in R H in two accounts, one in his name and the name of IS with a balance of €50,000 and another in his sole name with a balance of €20,000. Mrs. Wardlaw suggested that the money should be refunded to MC immediately. FC agreed to repay €65,000, out of the two bank accounts, to MC. Two days after the meeting with Mrs. Wardlaw, FC confirmed that the transfer would be done and that he was going to the bank the following day. FC did not transfer any funds.
3.6 Dr. Niall Gormley called to see MC on the 9th June, 2009 and following that visit, he wrote a report dated the 18th June, 2009. In that letter Dr. Gormley stated that:
“FC described MC as eccentric by nature, and that she had struggled to provide care for herself when living independently. In addition to the eccentricity, he described a gradual deterioration in her memory, most significantly since a hip fracture last November. On a few occasions she had wandered off from the house and had to be returned by neighbours, but there have been no recent episodes as according to FC MC is never alone at home.”
Dr. Gormley carried out a mini mental state examination to test MC’s cognitive ability. MC displayed global impairment with an MMSE test result of eighteen out of thirty. At the examination Dr. Gormley identified that MC was inconsistent regarding her move from Dublin and that at times she stated she missed Dublin and did not know why she had left, although later she said she was quite content living in K. Dr. Gormley identified MC’s speech pattern as being quite rambling and disjointed. Dr. Gormley concluded as follows:
“In summary MC is an 84 year old lady living with her nephew and his two daughters. Her presentation is consistent with a dementia of moderate severity, on a background of what appears to be a grandiose or eccentric type personality. Her general care appears to be good, and MC did not raise any specific concerns with me. MC would appear to retain decision making capacity for basic day to day affairs, but would not be capable of engaging in any complex financial decision making.”
3.7 I also heard evidence from Nurse Molony, an experienced and qualified nurse who had graduated in 1983. In late 2007 she was engaged to provide certain care to MC.She provided care to MC from December 2007 until March 2010. She attended on a regular basis, at least once a week, and she gave evidence as follows (Day 3, question 36):
“But right from the beginning I didn’t question the fact that I was also dealing with someone who perhaps was in the early stages of dementia. Now, I never had a diagnosis of that and I never asked for it and it was not part of my remit. But having worked with people who did have it, I just thought for quite a while that it was early stage. I mean, her conversations could jump from one thing to the other and it was never really very much present day, except when she spoke of Francis.”
She also gave evidence that (Day 3, question 40):
“The other thing I noticed on a couple of occasions was that when I would go – in my copybook that I kept notes in my fee would always have been left there by FC and on a few occasions she would insist on paying me also. She wouldn’t take money back. She used to say to me ‘Take one of those’. I was never sure whether she realised it was a twenty euro or a fifty euro or not. I am not sure, but that is something I noticed.”
3.8 Dr. Patrick Geoffrey O’Donoghue, a Consultant Psychiatrist and registered medical specialist in general adult psychiatry, gave evidence to me. He had carried out a full review of all available medical records in relation to MC. He also gave evidence that he examined MC on the 29th September, 2009 to enable him to make an assessment as of that date. He gave evidence that as of that date he was very clear that MC had very significant cognitive deficits such that he would make a diagnosis of moderate to severe dementia. He also thought that she was incapable of managing her affairs and could be considered a person of unsound mind. He gave evidence that the dementia was probably an Alzheimer type of dementia which had been running over seven to ten years. A person presenting with the type of symptoms and cognitive capacity demonstrated by MC as of September 2009 would have a history going back “certainly five years or more”. He gave evidence that from his examination of the medical records that (Day 1, page 118):
“She was not orientated in time and place, it was fairly consistent throughout the admission in 2006 and certainly for the latter part of her admission in 2006 she wasn’t physically unwell. She had, you know, Dr. Nuala Caffrey on 3 April (2006) that she was probably back to her baseline level of function. I think she had significant cognitive deficits at that time, and that makes sense. Everybody was concerned; can this woman care for herself. And I think she had an enduring deficit at that time and it had progressed steadily and slowly.”
3.9 I also heard evidence from Ann Kelly who is an occupational therapist who qualified in 2005. She worked in Waterford Regional Hospital from 2005 to 2010. In 2008, whilst working in the orthopaedic ward, she came into contact with MC who was being treated in the hospital as a result of an injury. As part of her examination of MC she carried out a mini mental state examination on the 16th December, 2008. That mini mental state examination was scored as having an outcome of thirteen out of thirty. However, in evidence it was acknowledged that the totting up of the figures of that examination was incorrect and that it should have been sixteen out of thirty. Ann Kelly gave evidence that (Day 2, question 72):
“From my records I would feel that this lady was somebody that had some difficulties with her memory in terms of applying things, you know, from day to day and applying the advice that would have been provided to her. So I suppose that she would be somewhat vulnerable and needing help from other people to manage her daily activities safely at home.”
3.10 I also heard evidence from Elizabeth C who was called in evidence by FC. She lived in the house with MC for a period of approximately six months, either in the second half of 2006 or the first half of 2007. Mrs. C gave evidence, in cross-examination, that MC was rambling in her speech but that she disagreed with Nurse Molony’s evidence that MC was a person in the early stages of dementia. Mrs. C indicated that she respected the opinion of Nurse Molony and that Nurse Molony had got to know MC and therefore would have been able to assess her as it was Mrs. C’s experience that MC dealt with outsiders differently from people that she knew.
4.1 The preponderance and weight of evidence that I heard leads me to the conclusion that by the date of MC’s admission to St. James’s Hospital on the 25th February, 2006, she was suffering from the early stages of dementia. There are differing outcomes from the of mini mental state examinations which take place after the date of admission in 2006 and different opinions expressed by medical doctors and paramedicals. The different results indicated that MC’s condition was not constant and that, depending upon the date and circumstances, she could be more alert and perceptive showing increased cognitive ability depending upon the circumstances and location of the test. However, the weight of evidence and the expert medical opinion, which I accept, is that by February of 2006, MC was suffering from early stage mild dementia with some cognitive impairment. The evidence, which I again accept, is that that is a condition which varies but which, from an overall perspective, progresses. The evidence demonstrates that by February 2006, MC was a fragile individual who had lived alone for a considerable period of time and was clearly having difficulty in caring for herself. It was her inability to care for herself which was the stated cause of her being admitted to hospital in February 2006. By that date MC was in a vulnerable position and was a person who required assistance and care and had reached a stage where she no longer could live alone. The evidence shows that MC was a strong-willed, opinionated lady but had reached a stage where she was vulnerable without assistance and help in everyday activities. The differing views expressed by MC as to her willingness or lack of willingness to sell her house in Rathgar and her views as to where she should reside whilst in County Wexford are indicative of a person who was erratic and inconsistent in her views and liable to alter or change those views. By the time that MC was discharged from St. James’s Hospital in April 2006, her mental state and physical condition were such that she could not live by herself and was dependent upon others to provide essential everyday requirements. She could not take care of herself without assistance; she was a person who required to be looked after.
4.2 The medical examination carried out by Dr. O’Sullivan in September 2007 indicates that at that time MC’s cognitive capacity was sufficient to enable her to make decisions as regards managing her own affairs. Dr. O’Sullivan, in her report of the 14th January, 2008, following her examination on the 19th September, 2007, makes it clear that in view of MC’s age and previous illness, that she “requires support” and “is not capable of living completely independently”. That report confirms my conclusion that there can be no doubt that by September 2007, and in all probability from her discharge from St. James in May 2006, MC could not live independently and required care and assistance. Between the examination by Dr. O’Sullivan in September 2007 and the admission of MC to Waterford Regional Hospital on the 28th October, 2008, there appears to have been a significant deterioration in MC’s condition and in her cognitive ability. This is confirmed by the mini mental state examination carried out on the 16th December, 2008, which demonstrates moderate cognitive impairment. Dementia of a moderate severity was identifiable by December 2008 and was confirmed by the Consultant Psychiatrist’s examination in June 2009 and given his evidence in relation to the nature and progress of dementia, the probability is that during 2007 and 2008, MC’s cognitive impairment had progressed from mild to moderate and that at no time during 2008 had MC the capacity to engage in any complex financial decision making even though she did retain a capacity to deal with basic day to day affairs. In relation to her day to day existence, the evidence establishes that from May of 2006, MC did not have the capacity to care for herself without help and assistance and had become dependent.
5.1 The claim of the second named plaintiff, as the committee of the person of the first named plaintiff who is a ward of Court, is set out in the amended statement of claim delivered on the 21st March, 2011. The plaintiffs contends that all the funds withdrawn and as set out in paragraphs ‘A’ to ‘H’ above were beneficially owned by MC and that, accordingly, the first named defendant holds such funds on trust for the first named plaintiff. It is also claimed that the first named defendant is accountable to the plaintiffs in respect of all of the eight sums withdrawn from the account of MC. The plaintiffs also claim a full account in respect of the withdrawn sums. It is claimed that the monies properly belong to and are the property of MC. There is also a claim that FC has admitted that he holds the sum of €500,000 upon trust for MC but that despite being called upon to do so, that he has failed and neglected and/or refused to lodge the same in Court for the benefit of MC. There is also an alternative claim made in conversion.
5.2 The first basis upon which the plaintiffs make their claim is that at all material times MC was a person of unsound mind and incapable of managing her person or property. It is claimed that it follows that it would be inequitable and unconscionable for the first named defendant to retain any money of the first named plaintiff and that any transaction by which the first named plaintiff may have been divested of any of her assets constitutes an improvident or unconscionable bargain or transaction and any such bargain or transaction ought to be set aside by order of the Court.
5.3 The second and alternative basis upon which the plaintiffs claim is that at all material times the first named plaintiff, MC, was an elderly and vulnerable person who depended upon FC, the first named defendant, to act in the first named plaintiff’s best interests and that FC by his own conduct has purported to take charge of the first named plaintiff’s affairs and has placed himself in a position of dominion and trust over MC and that, in the circumstances, the plaintiffs’ claim that the first named plaintiff, insofar as the transactions the subject matter of the proceedings are concerned, acted under the presumed undue influence of the first named defendant or, alternatively MCacted under the actual undue influence of FC.
5.4 It is also claimed that the first named defendant was in breach of a duty of care owed to the first named plaintiff not to withdraw any money or undertake any transactions which was contrary to the interests of the first named plaintiff. The plaintiffs plead that the first named defendant exerted influence and pressure on the first named plaintiff together with an alternative plea that the first named plaintiff acted under the presumed undue influence of the first named defendant. The plaintiffs claim a constructive trust in relation to the funds for the use and benefit of the first named plaintiff absolute and for an order that the first named defendant should be compelled to account for such sums and to repay them for the benefit of the first named plaintiff. It is also claimed that the first named defendant continues to reside in the first named plaintiff’s property at T A and that he uses the property for his own use and benefit and that notwithstanding that the first named defendant has been called upon to deliver up vacant possession of the property that he has failed to do so and that he is, therefore, trespassing and that he should be directed to deliver up vacant possession of the property.
5.5 It is also claimed by the plaintiffs that the first named defendant has admitted that since the year 2008 he has paid or transferred part of the first named plaintiff’s monies, being part of the monies withdrawn at paragraphs ‘A’ to ‘H’ inclusive, to the second and/or third named defendants for the purpose of the purchase of machinery by the first and/or second and/or third named defendants for use by the second and third named defendants in the course of their business and that an order should be made for the return of each and every item of machinery purchased. It is pleaded that neither the second or third named defendants are purchasers for value and that they knew or ought to have known that the money provided by the first named defendant to purchase the plant and machinery was the property of and beneficially owned by the first named plaintiff and that in the premise the plant and machinery purchased by the defendants with the first named plaintiff’s funds is held upon trust by the second and third named defendants for the first named plaintiff. It is also claimed that any income or profit generated by the second and third named defendants in the use of the machinery is the property of the first named plaintiff and should be accounted for. It is also claimed that any depreciation and/or loss of value in respect of any of the plant or machinery purchased with the first named plaintiff’s funds, insofar as it causes a loss to the first named plaintiff, gives rise to a claim for damages.
5.6 The plaintiffs claim a declaration that the first named defendant holds the sum of €937,800 withdrawn from the first named plaintiff’s account, being the property of the first named plaintiff together with interest accrued thereon upon trust for the plaintiffs, and that the plaintiffs are entitled to judgment together with interest for that sum. Certain additional ancillary reliefs in relation to injunctions are also claimed. The claims against the first defendant for conversion and/or breach of contract and/or breach of duty is recognised by the plaintiffs as being alternative claims which do not arise in the event of judgment being granted for the sum claimed. Another ancillary relief claimed is a declaration that the funds held in account No. 54947355 – Bank of Ireland, which account is in the name of the first named defendant is the property of the first named plaintiff and an order is sought that those funds be immediately lodged in Court to the credit of the first named plaintiff.
5.7 As regards the second and third named defendants, the plaintiffs claim not only a declaration that all plant and machinery are held in trust, but also a declaration that the first named plaintiff is entitled to recover, as beneficial owner, each and every item of plant and machinery together with all documents of title and/or registration in respect of such plant and machinery. An order is also sought against all the defendants for the delivery of the plant and machinery together with the documents of title and/or registration together with a claim for an account in relation to income which has been earned by use of the machinery. There is also a claim against the second and third named defendants for damages.
6.1 The first named defendant has put in a full defence and counterclaim. He denies that he has wrongfully converted any monies to his own use and that all monies transferred to him have been accounted for and are not due or owing to the plaintiffs. It is expressly denied by the first named defendant that the first named plaintiff is a person of unsound mind or incapable of managing her person or her property. In support of his defence, the first named defendant claims that the first named plaintiff voluntarily put the first named defendant in the said funds in order to provide for his future and that it was the intention and wishes and instructions of the first named plaintiff to transfer the funds in issue to the first named defendant. In effect, the first named defendant claims that in respect of each and every transfer as set out in paragraphs ‘A’ to ‘H’ inclusive, that at the time of each transfer the first named plaintiff intended the sums of money to be transferred to the first named defendant for his use and that the first named plaintiff agreed to such transfers, and that in so agreeing she was putting in place and implementing her previously expressed intention of transferring funds for the benefit of the first named defendant.
6.2 It is also denied by the first named defendant that the first named plaintiff was an elderly or vulnerable person who depended upon him to act in the first named plaintiff’s best interests and it is denied that she acted under either the actual influence or the presumed undue influence of the first named defendant.
6.3 Insofar as the plaintiffs rely on a claim that the first named plaintiff is a vulnerable person, it is denied by the first named defendant that the first named plaintiff was a vulnerable person but rather was a responsible and capable person possessed of an outstanding ability to make important decisions and never relied upon the first named defendant or any other person to make decisions. The first named defendant claims that in transferring the funds to his benefit he was carrying out the first named plaintiff’s express instructions and that in so doing, he was not acting contrary to the interests of the first named plaintiff because he was carrying out her instructions. There is also a denial that any of the transactions were an improvident or unconscionable bargain or ought to be set aside.
6.4 The first named defendant denies that he exerted any pressure upon the first named plaintiff. It is also denied that the first named plaintiff depended upon the first named defendant other than that she relied upon him to carry out certain duties when requested to do so. It is denied that the first named plaintiff received no independent financial or legal advice in relation to the transactions in issue and it is claimed that the first named plaintiff had legal representation at all material times from Mrs. Wardlaw and also had the benefit of financial advice from the ICS Building Society. It is also claimed that the first named plaintiff had two separate appointments with financial advisers and that they provided the first named plaintiff with all financial advice and assistance when required. The first named defendant pleads that the plaintiffs were aware at all material times that the first named plaintiff had the benefit of both her solicitor, Mrs. Wardlaw, and the financial advice of Bank of Ireland Private Banking and the investment services of FBD. It is also denied that the first named defendant holds €500,000 on trust for the first named plaintiff or that the first named plaintiff has suffered the alleged or any loss.
6.5 In relation to the claim that the first named defendant deliver up vacant possession of the first named plaintiff’s property, the first named defendant claims that he is not prepared to deliver up vacant possession of the property because of the arrangement made between him and the first named plaintiff on or about July 2006 which provided that he would have a permanent right of residence in the property subject to him maintaining and providing security for the property and he denies that he is trespassing. In the alternative, it is claimed by the first named defendant that he is entitled to a life interest in the property.
6.6 Insofar as funds were transferred for the benefit or for the use of the second and third named defendants, the first named defendant claims that such funds were transferred for the use of those defendants in their business and it was done at the request of and with the approval of the first named plaintiff in order to provide security for the first named defendant in the future.
6.7 The first named defendant makes complaint in relation to statements that were made in Court by and on behalf of the plaintiffs which it is claimed had the effect of identifying the ward of Court as the first named defendant was personally named. The first named defendant claims that the second named plaintiff wilfully misled the Court. The first named defendant contends that the Court does not have jurisdiction in relation to what transpired between him and the first named plaintiff and other parties prior to the date upon which she was made a ward of Court and that since all transactions prior to that date were made with the first named plaintiff’s knowledge and consent, that such transactions cannot be reviewed by the Court.
6.8 The first named defendant counterclaims for the sum of €551,686, which is claimed as being the balance owed to him, which it is claimed is confirmed by an attendance docket of Mrs. Wardlaw dated the 10th August, 2009. The first named defendant also claims that as a result of these proceedings that he has suffered health problems and has been placed under duress and hardship and is entitled to damages. There is also a claim that the proceedings against the first named defendant are frivolous and amount to a defamation of his character. The first named defendant contends that insofar as the second named plaintiff holds property on behalf of the general solicitor that she holds such property which belongs to the first named defendant on trust for him.
6.9 Finally, the first named defendant counterclaims that as a result of false and misleading information being provided to the Court, that he was deprived of his liberty and spent ten days in prison, having been committed for contempt, and that he is entitled to damages arising therefrom.
7.1 The second and third named defendants delivered a defence on the 24th November, 2011. In that defence the second and third named defendants deny that the purchase of the plant and machinery in issue in these proceedings is the property of or beneficially owned by the first named plaintiff and, in making such denial, rely upon what is identified as the gentleman’s agreement made between MC, JH and FC. It is claimed that that agreement was made on or about July 2006 and that on foot of that agreement the first named plaintiff acknowledged and recognised that any property bought would not be her property and that she did not desire the return of any such property.
7.2 The second and third named defendants also rely upon a claimed understanding that they had in relation to them accepting funds to purchase machinery that the first named plaintiff had discussed such proposed purchases with her solicitor, and had sought legal advice. It is also claimed that there was consideration insofar as the second and third named defendants guaranteed a job to the first named defendant for his life. The second and third named defendants claim that a request for the return of the plant and machinery is not a request by the first named plaintiff as it is contrary to the gentleman’s agreement entered into by the first named plaintiff.
7.3 The second and third named defendants also rely on the defence as maintained by the first named defendant and claim that all transfers of funds were with the consent of the first named plaintiff and in accordance with her directions and wishes. The second and third named defendants deny the plaintiffs’ entitlement to any of the reliefs sought and make the same plea as contended for by the first named defendant that any transactions that took place between MC and any of the defendants before she was made a ward of Court cannot be the subject of a Court order and the Court does not have jurisdiction in relation to such transactions.
8.1 All matters raised in the first named defendant’s counterclaim are in issue and the plaintiffs deny that the first named defendant is entitled to any of the reliefs sought in his counterclaim.
9.1 I have already determined that as a matter of probability that from the start of 2008, MC was suffering from a cognitive and mental incapacity. The impairment was not fixed. The evidence establishes that the extent and severity of the impairment varied and altered and was not constant but that there was, in all probability, a gradual deterioration. I had the report of Dr. Niall Gormley, a Consultant in Old Age Psychiatry, and it is clear from his expert opinion that by June of 2009, MC was incapable of engaging in any complex financial decision making. The evidence as to MC’s mental state and condition at the time of her admission to Waterford Regional Hospital on the 28th November, 2008 is such that the probability is that by that date there was a lack of capacity on the part of MC to engage in any complex financial decision making. The evidence of Nurse Molony, who commenced her regular visits to MC in late 2007 establishes to my satisfaction that the probability is that from the start of 2008, MC’searly stage dementia had reached a level that whilst she was able to make decisions in relation to basic every day matters, that she had no longer the capacity to engage in any complex financial decision making. Nurse Molony’s evidence about MC’s conduct and her inability to deal with simple financial transactions, when taken together with Dr. Gormley’s expert evidence in relation to the progress and course of dementia, leads me to the finding that I am satisfied that as and from the start of 2008, MC was no longer capable of engaging in any complex financial decision making.
9.2 In respect of the extent and nature of MC’s dementia and cognitive impairment in the period from her discharge from St. James in May 2006 up to being made a ward of Court, the evidence establishes that for that entire period MC was incapable of minding herself without assistance and had been become dependent to such an extent that FC was in a position to exercise dominion over her. The evidence that I heard leads to the conclusion that after MC’s release from St. James’s Hospital in May 2006, she could not live alone and required assistance and supervision and, absent same, she would have required to be in a nursing home. She could not live alone. MC was at a clear disadvantage in relation to her nephew, FC, by reason of her mental capacity, increasing dementia and her dependence upon him for independent living. As and from her discharge from St. James’s Hospital, MC was, in effect, in the care of FC until she went into a nursing home in 2010. It was the provision of the care, back-up, supervision and management of her daily life by FC which enabled MC to continue to cope. Absent such assistance MC would have been incapable of independent living and coping.
9.3 I am satisfied from the evidence that the transfer of funds from MC’s bank account to the control of and to the benefit of FC from May 2008 to April 2009 were as a result of influence expressly used by FC for the purpose of obtaining such funds. The evidence establishes that FC sought to exercise control and dominion over MC,and to ensure that she acted in accordance with his wishes and to his benefit. This is apparent from the efforts that he made to compel, and to some extent coerce, MC into selling her house in Rathgar thereby raising a substantial capital sum. FC’s preparedness to forge a letter purporting to come from a State body was carried out by him in late 2006 or early 2007 and I am satisfied that that forged letter was concocted by FC for the express purpose of persuading or forcing MC to sell her house in Rathgar and thereby achieving a situation where there would be substantial sum of money available. My finding in relation to this matter is further supported by FC’s dealings with Mrs. Wardlaw and his clear attempts to progress the potential sale of the Rathgar property. The intentions of FC are further identifiable from his attempt to have the property in Wexford, which MC purchased, placed in the joint names of himself and MC. The intentions of FC are further demonstrated by the manner in which he arranged to have blank bank withdrawal slips signed by MC so that they could be used without her having to attend at the bank. After May 2008 no financial advice was made available, and no legal advice was available to MC at the time of the withdrawals and FC was aware of this fact. By May 2008, given the extent of MCdependence and her need for day to day supervision, it must have been apparent to FC that at the time that each of the eight withdrawals and transfers the subject matter of these proceedings were made, that MC had received no independent legal advice, or financial advice. Notwithstanding that, FC pleaded in his defence that such advice, both legal and financial, had been provided. Notwithstanding that plea, no credible evidence was led as to any advice either legal or financial being received by MC from the date that €1,938,453.41 was lodged on the 2nd May, 2008 up to and after the withdrawal of €500,000 on the 14th April, 2009. FC accompanied MC to the bank to make all the withdrawals other than on the one occasion when he withdrew the funds using a pre-signed withdrawal slip. I am satisfied from the evidence of Nurse Moloney, who was a regular visitor to MC during the entire of 2008, that it must have been apparent to FC that MC was suffering from cognitive impairment and had difficulty comprehending financial transactions and making any detailed or considered decision in relation to any significant financial matter. The true intentions of FC in his dealings with his aunt’s financial affairs is further established by the evidence that I heard concerning how he responded to being questioned in relation to the €500,000 withdrawal which had occurred in April 2009. FC informed Mr. Kohl that the entire sum would be invested and used for MC’s care. I accept Mr. Kohl’s evidence in relation to this matter and it is supported by his contemporaneous note. That statement made by FC to Mr. Kohl was a false statement and one which FC must have known was untrue as the entire funds were not available to be invested and used for MC’s care when he made that statement. FC also informed Mrs. Wardlaw that he would transfer the funds remaining under his control to MC’s account, and, notwithstanding that he indicated to Mrs. Wardlaw that he would be attending at the bank to complete such a transfer, no transfer took place. Mrs. Wardlaw was not questioned in relation to her evidence that FC made such a statement. I accept Mrs. Wardlaw’s evidence in relation to this matter and her evidence was supported by a contemporaneous note. FC provided me with no explanation as to why he went back on his word and chose to proceed on the basis that the funds were available to him for his own use.
9.4 I have already set out my findings in relation to the forged letter. I am satisfied that in relation to that matter, FC gave false evidence. His preparedness to give false evidence was further apparent from the evidence that he gave in relation to the purchase of two properties in Poland. His evidence on that matter was inconsistent and when information and documents became available which demonstrated that his initial evidence was incorrect, FC demonstrated a willingness to change his evidence without regard to the truth. The manner in which FC dealt with the purchase of two properties in Poland, including details of the actual purchases, the names of the persons purchasing the properties, the price received, the advice obtained before the purchases were completed, the location of the properties and the very presence of FC in Poland, was so unreliable and so inconsistent and shifting that I concluded that I was able to place little reliance on FC’s willingness to truthfully account for his dealings with his aunt’s monies.
9.5 In his defence, FC sought to rely on a series of recorded phone calls which took place from January 2009 up to August/September of that year. There was one further call at Christmas 2011 but that was of no relevance. Transcripts of those calls were available in evidence and FC sought to rely on the contents of those calls to establish that his aunt had agreed that she would give him half of her property and had agreed to support him out of her funds. Having considered the contents of those phone calls, in their entirety, it is clear that rather than demonstrate that MC had formed the clear intention to gift half her money to FC and to support him in his business dealings, that they demonstrate a person manifesting moderate dementia with a significant inability to communicate in a logical and coherent manner. The telephone calls are entirely consistent with the description contained in Dr. Gormley’s report that by the year 2009, MC’s speech pattern was quite rambling and disjointed. FC sought to place considerable emphasis on what is described as call No. 1 in support of his claim that his aunt wanted to give him half of her funds, but it is apparent from the overall content that during that telephone conversation MC was at times rambling and incoherent. Insofar as any conclusion can be drawn from those phone calls, they support the findings and conclusions contained in Dr. Gormley’s report of June 2009. All of the telephone calls relied upon by FC occurred after 2008 and at a time when MC was presenting as a person with dementia of moderate severity. The content of those phone calls is consistent with that diagnosis.
9.6 The capacity and intent of FC to influence MC to his benefit, without regard to her genuine wellbeing, is best illustrated by the circumstances surrounding the final withdrawal of €500,000 in April 2009. That withdrawal took place in circumstances where FC was aware that there was a psychiatric examination due to be carried out on his aunt for the purpose of ascertaining her mental capacity. FC was involved in and knew of the cancellation of the initial appointment which was due to take place within a matter of days of the date of withdrawal. To proceed with a withdrawal of such a substantial sum as €500,000, representing almost a third of MC’s remaining funds, and when such funds were to be used by FC for a number of transactions which were for his own benefit, leads to the conclusion that there is no doubt but that the €500,000 withdrawn in April 2009 can be viewed as being as a result of influence used by FC for the purposes of obtaining such funds. FC’s purported defence that he was acting on his aunt’s freely expressed wish at a time that she was capable of making such a decision lacks credibility given FC’s knowledge of his aunt’s dealing with Mr. Kohl and the imminent psychiatric examination.
9.7 I have already identified that by the start of 2008, MC was in a situation that FC had influence over her. FC in his defence claims that insofar as the plaintiffs seek to shift the onus on to him to establish that each of the gifts or transfers resulted from the free exercise of the donor’s will, that such onus can be discharged by him establishing that MC received independent legal and financial advice. The evidence of Mrs. Wardlaw, which I accept, establishes that no legal advice was given by her from early May 2008 until after the last withdrawal in April 2009. Nor was there any evidence of any other legal advice. Mrs. Wardlaw in her evidence showed that she was a caring and attentive solicitor who would have ensured that M C received separate and independent advice and that she was properly and fully advised on financial matters before engaging in the transfer of any substantial sums of money. The evidence of Mrs. Wardlaw, which I accept, was that in relation to the circumstances and manner upon which the funds the subject matter of these proceedings were withdrawn were such that she was “horrified”. That evidence shows that any transfer of funds that would have occurred after her advice would have taken place in entirely different circumstances from those that actually occurred. There is no evidence that at the time when the funds were transferred to the control and benefit of FC, that any legal advice was given. Whilst it was pleaded by FC that independent financial advice was provided by Bank of Ireland Private Banking, there is no evidence whatsoever of such advice and I am therefore satisfied that MC received no independent legal or financial advice in relation to any of the transfers either shortly before or at the time that such transfers occurred.
9.8 I shall deal later in this judgment as to how the funds that were withdrawn by the eight withdrawals the subject matter of these proceedings were used. That will include the purchase of the machinery, the use of that machinery, the site comprised in Folio 54540 of County Wexford, the two Polish properties and other miscellaneous expenditure. I shall also deal with the dwelling house and lands at T A which are owned by the first named plaintiff and where the first named defendant resides.
9.9 The first named defendant in his defence raised an issue, which was not pleaded, but which was dealt with in evidence, relating to a claim that his aunt agreed to give him half of her funds. FC dates his aunt’s purported agreement to give him half of her funds to late 2006 and also claims that she might have repeated her intention to make such a gift. That purported agreement was made long before any final decision had been made to sell the house in Rathgar and before there was any knowledge of what was the amount of the net proceeds of sale. The terms and conditions of such purported contract are so uncertain and vague that it would be impossible to conclude that there was a contract or agreement between MC and FC. No evidence was led as to what was actually agreed or as to the terms that the parties actually bound themselves to. For contractual obligations to arise from an agreement between two parties, I would have to be able to identify an agreement containing an offer to perform a certain action on certain terms and acceptance of that offer and also to identify consideration passing between the parties. The first named defendant’s evidence went no further than to suggest that he received an indication from his aunt that he would at some time in the future receive half of her monies. At best, that amounted to no more than a promise and it was never sufficiently clearly identified so that I could conclude that there was a contract or an agreement or, indeed, any commitment. Even if I accept the evidence of FC in relation to his aunt’s indication, I am unable to identify what his aunt’s real intention was, nor can it be said that the intention of MC was clearly communicated and understood by FC. Even on the basis of FC’s own evidence, there is no evidence that MC intended to make a contract and, at best, any statement that she made in relation to an intention to provide FC with half of her funds at some future date. It was no more than a promise and was not a legally binding contract or agreement.
9.10 In relation to the so-called gentleman’s agreement, I have already identified that when FC gave evidence in relation to this matter, that he presumed that when it was first mentioned that his aunt meant that he would be looked after when the house was sold. He did not recollect or remember any discussion about money other than at one stage his aunt stated that when the house was sold in Dublin, if it was sold for over a million euro, she would give him half of it. He was unable to remember when that was said. Again, even if MC made such a statement, it does not and cannot amount to a contract or an agreement. It fails to demonstrate any intention on the part of MC to create a binding legal agreement and fails to identify what was MC’s real intention in making such a statement. In relation to the so-called oral gentleman’s agreement, it is once again apparent that the terms of such purported agreement or contract are so uncertain as to be unenforceable. It is impossible to ascertain from the purported gentleman’s agreement what are the true intentions of MC and to what extent, if any, she agreed to provide funds to FC and JH. Even if I were to accept the evidence of FC in relation to the gentleman’s agreement, I have no evidence which enables me to identify the terms by which it is claimed that MC agreed to be bound and there is no evidence of offer and acceptance or of consideration. There is no evidence of the meetings of mind which is implicit in the concept of any legally enforceable agreement.
9.11 An examination of the transactions the subject matter of these proceedings confirms that there were eight separate transfer of funds, either by cash being withdrawn by FC or funds being transferred into an account or accounts controlled by him. It is therefore necessary that I look at each of those transactions separately and determine whether or not in respect of all or any of the transfers there was the free exercise of the will by MC in and about the transfer of such funds. In addressing that issue, I shall look at the legal authorities available to assist me in determining whether or not all or any of those transactions should be set aside.
10.1 The issue of undue influence and improvident transactions and the legal principles to be applied was considered by the Supreme Court in Carroll v. Carroll [1999] 4 I.R. 241. That case dealt with undue influence and did not address the issue of lack of capacity. Denham J. considered the issue of undue influence commencing at page 253 of her judgment. She held:
“There are two classes of transactions which may be set aside on the grounds of undue influence. They were described by the House of Lords (in the judgment of Cotton L.J) in Allcard v. Skinner (1887) 36 Ch.D. 145 at p. 171 as: –
‘The question is – Does the case fall within the principles laid down by the decisions of the Court of Chancery in setting aside voluntary gifts executed by parties who at the time were under such influence as, in the opinion of the Court, enabled the donor afterwards to set the gift aside? These decisions may be divided into two classes – First, where the Court has been satisfied that the gift was the result of influence expressly used by the donee for the purpose; second, where the relations between the donor and donee have at or shortly before the execution of the gift been such as to raise a presumption that the donee had influence over the donor. In such a case the Court sets aside the voluntary gift, unless it is proved that in fact the gift was the spontaneous act of the donor acting under circumstances which enabled him to exercise an independent will and which justifies the Court in holding that the gift was the result of a free exercise of the donor’s will In the second class of cases the Court interferes, not on the ground that any wrongful act has in fact been committed by the donee, but on the ground of public policy, and to prevent the relations which existed between the parties and the influence arising therefrom being abused.’
This case arises under the second class of case. Counsel for the defendant quite rightly accepted that this case falls into the latter category. He acknowledged that the relationship between Thomas Carroll senior and Thomas Carroll junior and the surrounding circumstances gave rise to the presumption of undue influence.
The legal situation arising on such relationship being established was described in ‘Equity and the Law of Trusts in Ireland’ by Hilary Delany at p. 482 as: –
‘Once a relationship giving rise to a presumption of undue influence is established, and it is shown that a ‘substantial benefit’ has been obtained, the onus lies on the donee to establish that the gift or transaction resulted from the ‘free exercise of the donor’s will’. As Dixon J put it in Johnson v. Butress, the evidence must establish that the gift was ‘the independent and well-understood act of a man in a position to exercise a free judgment based on information as full as that of the donee’. The manner in which this presumption may be rebutted relates to two main issues; first, the question of whether independent legal advice has been received and secondly, whether it can be shown that the decision to make the gift or transfer was ‘a spontaneous and independent act’ or that the donor ‘acted of his own free will’.’
I adopt this analysis of the law and apply it. In this case the presumption is established and a substantial benefit was obtained thus the onus lies on the donee, the defendant, to establish that the transfer was the free exercise of the will of the donor, Thomas Carroll senior. Thus, it was for the defendant to provide the evidence that the transfer was the independent and free gift of Thomas Carroll senior. The issue then arising is whether there was evidence upon which the learned trial judge could be satisfied that the presumption was not rebutted. In analysing this the first matter is that of independent legal advice. . . .
In considering whether Thomas Carroll senior acted of his own free will an important matter was whether or not the transfer was read over to Thomas Carroll senior. There was no evidence of this even though the defendant was given an opportunity in the High Court to address the matter.
This case is not about the presence or absence of mental capacity. The onus is on the defendant to produce evidence to dislodge the presumption of undue influence.
The learned trial judge concluded, on this aspect of the case, at p. 230 that:-
‘I am not satisfied that the [defendant] has established as a matter of probability that the transaction was the result of the free exercise of the donor’s will such as to rebut the presumption of undue influence. Mr Joyce allowed that in substance and fact he was acting as the ‘family solicitor’ in the transaction for both parties. He saw the donor on two occasions for a total of about 35-40 minutes, not all of which was devoted to the business of the transfer. It is clear that the donor never read the transfer deed nor had it read to him by anyone else. While its contents were apparently discussed between him and Mr Joyce, I am not satisfied that any real consideration was given to the fact that the donor (a frail man, in dependant circumstances) was disposing of all his real assets without reserving to himself (by way of a revocation clause or by way of charging the property with his maintenance and support), any protection for his own future particularly in the event of a falling out with his son, or in the event of his son predeceasing him. It is, I think, clear that Philip Joyce was not aware of the family’s circumstances either in the context of the position of the other members of the family, the totality of the assets held by the family members or the assurances given by the donor to other members of the family including the plaintiffs as to their user of the Burke Street premises during their lifetimes. Thus, while I accept the evidence (which was not really disputed) that the donor was a man who was mentally alert at the date of the transfer, I am not at all happy that at the date of the transfer he had the necessary independent advice (whether it was that of a legal advisor or a competent and qualified lay person) such as would persuade me that the transaction was made of his own free will.’
There was evidence before the learned trial judge upon which he could reach these conclusions of fact. Thus, I would affirm his determination.
Counsel for the defendant submitted that for the plaintiffs to succeed there should be evidence that Thomas Carroll junior exercised undue influence on Thomas Carroll senior. This submission was at the core of the appeal. Counsel argued strongly that as Thomas Carroll junior himself had not unduly influenced his father that was sufficient to rebut the presumption. He argued that in this case Thomas Carroll junior did not exercise undue influence, or in counsel’s word, ‘wiles’ on Thomas Carroll senior. That being the case, it being accepted that Thomas Carroll senior was mentally capable, it was submitted that he could give away his assets as he wished. Counsel for the defendant relied on the lack of undue influence exercised by Thomas Carroll junior and referred to Reg. (Proctor) v. Hutton [1978] N.I. 139.
However, this is not a case of actual undue influence being expressly exercised but is rather a case in which the relationship between the donor and donee has raised the presumption of undue influence. It is then for the defendant to rebut the presumption. The burden was described in Inche Noriah v. Shaik Allie Bin Omar [1929] AC 127 at p. 135 by Hailsham L.C.:-
‘It is necessary for the donee to prove that the gift was the result of the free exercise of independent will. The most obvious way to prove this is by establishing that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person so completely as to satisfy the Court that the donor was acting independently of any influence from the donee and with the full appreciation of what he was doing; and in cases where there are no other circumstances this may be the only means which the donee can rebut the presumption. But the fact to be established is that stated in the judgment already cited of Cotton L.J., and if evidence is given of circumstances sufficient to establish this fact, their Lordships see no reason for disregarding them merely because they do not include independent advice from a lawyer. Nor are their Lordships prepared to lay down what advice must be received in order to satisfy the rule in cases where independent legal advice is relied upon, further than to say that it must be given with a knowledge of all relevant circumstances and must be such as a competent and honest adviser would give if acting solely in the interests of the donor.’
In Reg. (Proctor) v. Hutton [1978] N.I. 139 at p. 146, Lowry L.J. described the different approaches to the different classes of undue influence. He stated:-
‘When relying on ‘express undue influence’ the plaintiff must prove that an unfair advantage has been gained by an unconscientious use of power in the form of some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating. The undue influence which is presumed in the second class of case is influence of the same kind: the difference lies in not being able to prove its exercise but, by virtue of the presumption, undue influence is deemed to have been exercised until its exercise is negatived on a balance of probabilities by evidence.’
It is clear that what is at issue is whether the donee has taken advantage of his position or ‘… been assiduous not to do so. The question can only be answered in each case by a meticulous consideration of the facts’: Hanbury, ‘Modern Equity’ (9th ed.) p. 652.
I am satisfied that this is the correct approach. In this case, the presumption existing, it was then necessary to conduct a careful analysis of the facts. On the facts it was a matter of determining if the donee, Thomas Carroll junior, had taken advantage of his position or had been assiduous not to do so. This was not a case where the issue was whether Thomas Carroll junior had taken advantage of his position expressly. Rather it was a case where in the circumstances assiduous care should have been taken not to take advantage of the position of Thomas Carroll senior.
The learned trial judge conducted a painstaking analysis of the facts as has been set out fully in this judgment. I am satisfied that the appeal was argued on a mistaken approach to the law. The reason for the equitable law to protect Thomas Carroll senior is one of public policy – to protect a frail person. As Cotton L.J. said in Allcard v. Skinner (1887) 36 Ch. D. 145 at p. 171:-
‘In the second class of cases the Court interferes, not on the ground that any wrongful act has in fact been committed by the donee, but on the ground of public policy, and to prevent the relations which existed between the parties and the influence arising therefrom being abused.’
Thus, the issue is whether on the facts and circumstances of the case the donee has rebutted the presumption of undue influence. The facts and circumstances of this case were fully considered and determined by the learned High Court Judge. In this case the donor was giving away practically his sole asset and the learned trial judge made careful findings of fact about the transaction.”
10.2 There are two classes of transactions which a court can set aside on the grounds of undue influence. There is also a separate and related ground upon which a transaction can be set aside and that is on the basis of the absence of mental capacity. As was identified in the judgment of Denham J. in the Carroll case, that particular case was not about the presence or absence of mental capacity. I have already determined earlier in this judgment that the probability is that from early 2008, MC was suffering from a cognitive and mental incapacity to deal with any matter requiring complex financial decision making. When looking at particular transactions it is the capacity of the persons making such transactions at the time of the transactions which is critical. The first in time of the eight transactions under review occurred on the 16th May, 2008 and I am satisfied from the evidence that by that date MC had a cognitive and mental incapacity to deal with transactions of that nature. MC’s impairment was such that her condition was subject to gradual deterioration. This case is, therefore, a case where the presence or absence of mental capacity is in issue. On the basis of the determination that I have made concerning MC’s mental capacity as and from May 2008, I am satisfied that she did not have the mental capacity to engage in or carry out any of the eight transactions the subject matter of these proceedings. On that ground alone, I am satisfied that each of the transfers of funds were not made by MC as an exercise of her free will. She, as donor, did not have the necessary capacity.
10.3 In relation to the plaintiffs’ claim concerning undue influence, the extract from the judgment of Denham J. in the Carroll case makes it clear that there are two classes of transactions which may be set aside on the grounds of undue influence. I adopt and apply the approach of Denham J. concerning undue influence as set out in her judgment in the Carroll case. The first class identified are cases where the evidence establishes that voluntary gifts executed by a party were made at a time when that party was under such influence that the Court is satisfied that such gift was as a result of influence expressly used by the donee for that purpose. That class can be identified as actual undue influence being expressly exercised. To establish that there was such undue influence, a plaintiff must establish, in the words of Laurie L.J. in the Reg. (Proctor) v. Hutton case:
“. . . that an unfair advantage has been gained by an unconsciousness use of power in the form of some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating.”
It is unnecessary for the plaintiffs to take on the onus of proving such unfair advantage in this case. That arises from the fact that I am satisfied that there is clear and compelling evidence that this case comes within the second class of undue influence as identified in the judgment of Denham J. The facts establish that the relations between MC and FC at or shortly before the date when each of the eight transactions were carried out were such as to give rise to a presumption that FC, the effective donee of such funds, had influence over MC. As held by Denham J. in the Carroll case:
“In such a case the Court sets aside the voluntary gift, unless it is proved that in fact the gift was the spontaneous act of the donor acting under circumstances which enabled him to exercise an independent will and which justifies the Court in holding that the gift was the result of a free exercise of the donor’s will.”
In adopting and applying the analysis of the law set out in the Carroll case, I am satisfied that, first, the relationship between MC and FC gives rise to the presumption that FC had influence over MC, and, second, once such presumption is established that each of the eight transfers represented a benefit which was obtained by FC and that therefore the onus lies on him to establish that each transfer was a free exercise of MC’s will. It is for FC to provide evidence that each of the transfers was the independent and free exercise of MC’s will and, absent that evidence, the presumption is not rebutted. Such presumption arises in circumstances where the evidence established that by May 2008, MC was reliant upon FC and can be said to have been truly dependent upon him. By that date and for a considerable period prior to that date, MC was in a situation where her day to day existence and welfare was reliant and dependent upon the actions and conduct of FC. The evidence shows that MCwas in relation to her day to day existence sustained by FC and dependent upon him. MC was suffering from cognitive and mental incapacity by that time. There was also a clear disparity of age and mental and physical capacity. The entire of the evidence which I heard in relation to MC’s condition and circumstances as of May 2008 are such that she would have been incapable of independent living without the assistance and support of FC. The medical evidence established that MC was in such a condition that she could only continue to reside outside of nursing home type care because FC resided with her and ensured that MC’s personal requirements and safety were provided for. By the date of the first of the eight transactions, MC was incapable of independent living and could not cope by herself.
10.4 The issue of undue influence and the application of the legal principles identified in the Carroll case was considered by Gilligan J. in Prendergast v. Joyce [2009] 3 IR 519. In that case the plaintiff in her capacity as the representative of M.J.’s estate, sought to have certain banking transactions set aside for reasons of undue influence and improvidence. In determining that the transaction should be set aside, Gilligan J. held that the relationship between the donor and the donee in that case was such as to give rise to a presumption that the donee had influence over the donor, and that, in such circumstances, the onus was on the first defendant to establish that the transfers were the free exercise of the donor’s will. The presumption of undue influence identified by Gilligan J. arose from the actual relationship between the donor and the donee at or shortly before the time of the impugned transactions coupled with the circumstances of the parties relevant to the acquisition of a position of influence, including the age, position in life, state of health and other particular vulnerabilities of the donor. At paragraph 40 of his judgment (p. 532) Gilligan J. held:
“40. The categories of relationship to which the presumption applies are neither closed nor rigid (McGonigle v. Black (Unreported, High Court, Barr J., 14th November, 1988)). In McGonigle the presumption applied in the context of a friendship between the lonely and vulnerable donor of the land concerned, who could not cope well without support and had resorted to alcohol abuse, and a friend who lived nearby, who had frequent contact with him and provided him with some home comforts. In the context of the instant case, it is appropriate to recall that the presumption has been applied in the context of a relationship between an aunt and her nephew by marriage (Inche Noriah v. Shaik Allie Bin Omar [1929] AC 127) and even as between a man and his great nephew (Cheese v.Thomas [1994] 1 W.L.R. 129). This is not to suggest that it would apply in all such relationships: leaving aside those categories of relationship which, by their nature, automatically raise the presumption of undue influence, the question of whether the presumption applies depends on the particular circumstances of the case.”
Gilligan J. went on to identify certain circumstances which a court might take into account by reference to the judgment of Budd J. in Gregg v. Kidd [1956] I.R. 183. Those matters included not only the issue of friendship between a lonely and vulnerable donor who could not cope without support and whether the person who benefited from a gift from the donor had frequent contact and provided the donor with home comforts but he also identified that a court should have regard to the disparity of age and of mental or physical incapacity. Indeed, the mere dependence upon the kindness and assistance of another could be a factor. Gilligan J. also identified from the judgment of Budd J. that to bring the principle of undue influence into play, it must be shown that the opportunity for the exercise of the influence or ascendancy on the donor existed, such as where the parties reside together and meet frequently. He also identified the issue of close family relationship and the capacity for such a relationship to create a situation where influence is readily acquired. In this case, there was a close family relationship between MC and FC. The circumstances in which MC resided created a situation where influence was readily acquired. The facts in this case establish that such influence also arose through the disparity of age and mental and physical capacity between MC and FC. By the date of the first gift, MC had significantly impaired mental capacity, was elderly and frail and was dependent upon the kindness and assistance of FC. FChad a continuing opportunity to exercise influence or ascendancy on and over MC and her day to day existence and welfare was dependent upon him. MC was at a serious disadvantage to FC by reason of her diminished mental capacity and the day to day circumstances of her existence.
10.5 Once, as in this case, a relationship giving rise to a presumption of undue influence is established and where it has been shown in evidence that a donee has received a substantial benefit, the onus lies on that donee to establish that the gift or transaction resulted from the free exercise of the donor’s will. That onus can be discharged by evidence showing that the gift was the independent and well understood act of a man or a woman in a position to exercise a free judgment based on information as full as that of the donee. As identified by Denham J. in the Carroll case, the manner in which such presumption may be rebutted relates to two main issues, first, the question of whether independent legal advice has been received, and secondly, whether it can be shown that the decision to make the gift or transfer was a spontaneous and independent act or that the donee acted of his own free will. The first named defendant led no evidence to discharge such presumption. There was no evidence that MC received independent legal advice at the relevant time and such evidence as was available established that for a substantial period leading up to the transactions in question MC had no access to legal advice. There was also no evidence that she received any financial advice. FC gave evidence that MC refused advice to lodge or deposit a certain sum because she disagreed as to the suggested amount of such deposit. However, there was no evidence to support such claim and I heard no evidence as to who gave such advice, what was the advice, how, when and in what circumstances it was given. Absent evidence on these matters, the claim as to the receipt of such advice is of no value in discharging the onus on FC. None of the transactions could be said to have been as a result of MC’s free will given her diminished and mental capacity.
10.6 Insofar as MC had to interact with the bank to facilitate the transfer of funds, the evidence established that the bank went no further than complying with the necessary mechanical or procedural requirements and provided no advice to MC. The Bank merely processed the transactions. Whilst FC gave evidence of statements allegedly made by MC indicating a desire to transfer funds to him, the position is that even if those statements were made, they were made at a time when I am satisfied that she did not have the cognitive capacity to understand such transactions. They were also made in circumstances where undue influence can be deemed to have been exercised. The facts of this case show that FC took advantage of his position and in no way whatsoever sought to provide or ensure that MC had assistance or advice in relation to any of the transactions. Assiduous care should have been taken not to take advantage of the position of MC and FC did not lead any evidence to show that such care was, in fact, taken.
10.7 A separate head of claim made by the plaintiffs is the claim that in the circumstances of this case, the impugned transactions were such that they constitute an improvident or unconscionable bargain and ought to be set aside by order of this Court. As set out above, I am satisfied that in relation to each and every one of the impugned transactions, FC exercised influence over MC at a time when she was dependent upon him and in circumstances where she received no independent legal or financial advice in relation to any of the transactions, She was divested of her funds and in all of the transactions there was no consideration. Gilligan J. in the Prendergast case dealt with the doctrine of improvidence and held that it was not confined to transactions for value and could apply to gifts (see paragraphs 79 – paragraphs 82 at pp. 545 – 547 of the judgment of Gilligan J.). I adopt and apply, as he did, the identification of the jurisdiction in equity to set aside a transfer once three criteria identified by Shanley J. in Carroll v. Carroll [1998] 2 ILRM 218 have been established. Those three criteria are:
1. that one party was at serious disadvantage to another by reason of poverty, ignorance or otherwise, so that circumstances existed of which unfair advantage could be taken;
2. that the transaction was at an undervalue; and
3. that there was a lack of independent legal advice.
All of those three criteria are established in this case. It is clear that MC was at a serious disadvantage to FC owing to her cognitive impairment and her overall circumstances were such as to enable FC to take an unfair advantage of MC and each of the impugned transactions were transactions for no value and there was a lack of any independent legal advice. The evidence in this case discloses a case of improvidence. In arriving at such a conclusion, I am adopting and applying the statement of the law set out in paragraph 80 of the judgment of Gilligan J. in Prendergast v. Joyce (at p. 546) where he held:
“It has also been suggested in a series of cases . . . that to have a transaction set aside for improvidence, it must be established that the defendant acted in a manner which involved some element of moral turpitude. I am satisfied that this proposition does not represent Irish law.”
11.1 I shall now deal with the property the subject matter of these proceedings including the eight payments identified above. The uncontroverted evidence is that the first named defendant received all the money the subject of the eight withdrawals which were paid into accounts, either in his sole name or controlled by him. The evidence identified and traced certain specific purchases or items of expenditure made from such funds. It was also established that a site comprising Folio 54540F, County Wexford, was purchased with the funds. I shall deal with the Polish properties in a separate paragraph. Each of the payments or transfers received by FC were made in circumstances where I am satisfied that such transactions should be set aside on the basis of lack of capacity, undue influence and on the basis of improvidence. I heard evidence from Liam Dowdall, an accountant of Smith & Williamson Freany Limited, in relation to his analysis of the documentary evidence in relation to the transactions and the expenditure made from such funds. I accept Mr. Dowdall’s evidence and his analysis as the most complete, consistent and accurate account of the use to which the funds were made. His evidence was grounded in the available documents. Based upon his analysis, I accept that €937,800 was withdrawn from MC’s bank account. Mr. Dowdall’s analysis identifies the amount expended thereafter, by FC, on his business, plant and machinery, cash withdrawals, credit card payments, third party payments, household expenses, the Polish apartments and loan, land at K and other expenditure which totalled a figure of €944,661.88. That figure is almost €7,000 greater than the sum withdrawn (i.e. €6,861.88) and if one gives allowance to the first named defendant for that figure, and also for the sum which Mr. Dowdall calculated as benefiting MC of €29,420.29, the calculation results in a sum of €36,290.92 and when that figure is deducted from the €937,800, the outcome is €900,009.08. That sum is the total amount in respect of which MC received no benefit. I recognise that the sum attributed to the benefit of MC is a calculation and that it has been prepared on the basis identified in Mr. Dowdall’s report of the 4th October, 2012 and must represent therefore an estimation rather than an actual figure, but I am satisfied that it represents the most realistic figure available to the Court and one upon which I should rely.
11.2 In relation to the purchase of machinery, the defendants rely on a purported agreement described as the gentleman’s agreement to entitle them to retain possession and ownership of the machinery. As indicated earlier in this judgment, I am satisfied that there is no legal basis for such agreement and it follows that the defendants must account to the plaintiffs in respect of all machinery purchased by them. At the time that the funds were transferred and when such funds were expended on the purchase of machinery, the same took place in circumstances and at a time when MC could not truly be said to have consented to such transfers or to such purchases. It is also the case that such transactions were improvident. The evidence led by the defendants in relation to the amount expended on machinery was, to some degree, inconsistent and inaccurate. FCin the income and expenditure account provided by him identified the sum of €417,540, whilst JH produced a document which suggested that the total expenditure was €332,560. That expenditure was confirmed by JH in his oral evidence. Liam Dowdall, the forensic accountant who examined the documentary evidence, identified a figure almost identical to the figure provided in evidence by JH. Mr. Dowdall identified a sum of €322,560 as being expended on machinery which is a figure only €10,000 less than the figure given in evidence by JH. Insofar as there is a discrepancy between those figures, I prefer the evidence of Liam Dowdall, who, during his evidence, dealt with each and every purported discrepancy and ultimately concluded that he could identify a figure of €322,560 as being provided to the machinery and agricultural contracting business carried on by the three defendants. Mr. Dowdall’s evidence established the purchase of machinery to the value of €322,560 and that each and every item of such machinery was purchased from monies withdrawn from MC’s account. There was disputed evidence in relation to one item, namely, a John Deere tractor, but despite the first named defendant’s assertions, no evidence was produced to identify a John Deere tractor as described in the affidavit sworn by Mr. Owens within these proceedings. The machinery with a total value of €322,560 which has been identified by Mr. Dowdall consists of twenty nine items and I list those twenty nine items:
(1) Welgr Baler
(2) Mchale Wrapper
(3) Nissan Navara – motor vehicle
(4) Kuhr Mower 301 serial number 920076
(5) Duetz Fahr 4060 Registration 95KE5813
(6) John Deere 6810 Tractor Registration 01TS3862
(7) JCB Fratrac 155
(8) Richard Western Dung Spreader
(9) Pedrotti Grain Dryer
(10) John Deere 6910 Tractor Registration O1KE10393
(11) Kuhn Hay Tedder model 10601
(12) Claas 3M Front Mower
(13) MF 8937 Loader Registration
(14) Claas Liner Rake
(15) Vacuum Tank
(16) Front PTO Kit
(17) John Deere 6920S Tractor Registration 03WD809
(18) Grain and Silage Trailer
(19) Grass Tedder
(20) Herron HD 20 Dump Trailer
(21) Bridgeway Swath Conditioner
(22) McConnell Hedge cutter PA 8000
(23) George Dwyer Harrow
(24) Gardu de-mount Sprayer
(25) Kuhn Power Harrow
(26) M B Trac 150hp Tractor registration 87C 12803
(27) Chieftain Transport Trailer
(28) Hitachi tracked Digger
(29) Kevereland Plough
The evidence of the second and third named defendants was that they were aware that the funding for the machinery came from MC but sought to defend their entitlement to use and retain possession of such machinery on the basis of the so-called gentleman’s agreement. From that document it is clear that all parties were aware that the machinery had been acquired from monies emanating from the account of MC. I am satisfied that both the second and third named defendants were at all time aware that the money used to purchase each of the items of machinery, came from MC and there is no evidence that either of them took any steps to ensure that MC had received the benefit of any independent advice before proceeding with the purchase of any of the items of machinery. An analysis of the evidence given by the first and second named defendants in respect of the purchase of machinery demonstrates a casual and unplanned process leading to the purchase of various items of machinery. No assessment or projections were made in respect of any of the items of machinery to determine whether or not any item of machinery would generate a profit when used. It is also clear from the evidence that as of the date of the so-called gentleman’s agreement no actual machinery had been identified. It is also the case that the evidence established that even though it was claimed that the purchases of machinery was for the benefit of FC, notwithstanding the considerable sum expended on machinery, that in the three years 2009 to 2011 inclusive, FC benefited by payments that he received from the H brothers’ business in a total sum of less than €10,000. The evidence which I heard and which was confirmed by Mr. Dowdall identified that, notwithstanding the purchase of machinery for the H brothers’ business without any cost to the business, that their business was operating at a loss from 2008 onwards.
11.3 In the light of the findings that I have made, I am satisfied that the plaintiffs are entitled to the declarations which they have sought in relation to each and every item of plant and machinery purchased with and from the funds of MC and that such machinery is held by the defendants upon trust for the plaintiffs. The first named plaintiff, MC, is the beneficial owner of such plant and machinery as it was acquired using her funds and she is entitled to recover such machinery from the defendants. The plaintiffs are entitled to an order that the defendants deliver up all the items of machinery and plant as such machinery and plant is the property of the first named plaintiff, together with all documents of title and registration in respect of each and every item.
11.4 The plaintiffs also seek an order directing the defendants to account for all income which has been earned from the use of, or renting out the said plant and machinery. In the light of the evidence which I heard in relation to the profitability of the H Brothers’ business and, in particular, the fact that it has been loss making since 2008, I am satisfied that it is not in the Ward’s interest to have such an order made, given the costs and expenses involved in completing such account and given the nature and extent of the other reliefs granted to the plaintiffs.
12.1 The first named defendant purchased lands comprising Folio No. 54540F of the Register of Freeholders, County Wexford. In evidence, the first named defendant, FC,acknowledged that he held that property on trust for the Ward. When directly asked whether he, FC, accepted that the site in question was held by him on trust for his aunt, he replied “yes”. In the light of that acknowledgement and in the light of the earlier findings made by me in this judgment in relation to the circumstances in which funds were obtained, it follows that the plaintiffs are entitled to an order directing the first named defendant to take all necessary steps to convey the said property to the plaintiffs. In default of the first named defendant taking such steps, I will consider an application by the plaintiffs pursuant to s. 26(vi) of the Trustee Act 1893 vesting the said lands in the plaintiffs, or, alternatively, for an order pursuant to s. 33 of the said Act appointing a person to convey the land to the plaintiffs and I will give liberty to apply in respect of this matter.
13.1 In these proceedings the plaintiffs also seek possession of the lands and property known as T As. The plaintiffs seek an order directing the first named defendant to deliver up vacant possession of the property of the first named plaintiff, at T A, K, in the County of Wexford, being the property comprised in Folio Nos. 22942F, 43020F and 37422F of the Register, County of Wexford. That dwelling house and the lands adjacent thereto are the property of MC and she resided in that property with FC up until the 10th March, 2010, which is the date upon which she transferred to a residential nursing home. FC has continued to reside in the property and to use the lands. Earlier in this judgment I have dealt with FC’s claim that he has an entitlement to remain on in possession of the house and property on the basis of an agreement that he had with MC. I am satisfied there is no such agreement enforceable at law and that any statement made by MC in relation to FC’s entitlement was limited to his entitlement to remain in possession as long as she was in the premises. Insofar as there is disputed evidence in relation to this matter, I prefer the evidence of Mrs. Wardlaw. There is no dispute that the property has been demanded from the first named defendant and that it was purchased by MC. It is also clear from the evidence of Mrs. Wardlaw that she never received any instructions from MC that the property at T A was ever to be put into the joint names of MC and FC nor was FC ever given any promise by MC that he would receive an interest in the property. FC has failed to establish any intention on the part of MC of conferring any interest in the property or lands on him either in the nature of a life interest or otherwise. It follows that the plaintiffs are entitled to the orders sought directing the first named defendant to deliver up vacantpossession of the property of the first named plaintiff at T A, K, in the County of Wexford, being the property comprised in the three folios identified above.
13.2 Certain sums of money are retained in bank account No. 54947355 in the Bank of Ireland in the name of the first named defendant. The evidence of Mr. Dowdall, the forensic accountant, established that those funds are the funds of MC. In the light of the findings made by me, it follows that I should make a declaration that the funds held in that account in the name of the first named defendant are the property of MC and that she is entitled to a declaration to that effect. It follows that the order sought that such funds are to be immediately lodged in Court to the credit of the first named plaintiff should be made.
14.1 The evidence which I heard from the first and second named defendants and the evidence from the forensic accountant identified that there was a significant gap or void in relation to the precise use of funds made from the overall sums withdrawn from MC’s account. In the light of that, the relief sought by the plaintiffs that the defendants should each be required to account to the Court in respect of the expenditure of all monies received by them is an order which I am satisfied should be made. Given that I am satisfied that the funds are properly the property of MC and that the defendants have failed to fully and comprehensively account for the use of such funds, an order requiring them to account for such funds is needed.
15.1 I heard extensive evidence in relation to the acquisition of two apartments in Poland. In relation to those transactions, there was available to me details concerning the transfer of €125,000 into account No. 44173798 in the name of IS on the 26th May, 2009. That transfer took place at a time when FC was aware that MC was awaiting a psychiatric assessment as to her capacity to deal with financial matters. In the two weeks leading up to the 29th May, 2009, there were some eight withdrawals from the savings account of FC which had been put in funds from MC’s bank account. The sum of €250,000 was transferred into FC’s savings account on the 24th April, 2009. One of the eight draw-downs was the sum of €125,000 transferred on the 26th May, 2009, which was in relation to the purchase of properties in Poland. The other seven draw-downs which took place between the 18th May, 2009 and the 29th May, 2009 amounted in total to a sum slightly in excess of €100,000. Those seven withdrawals and transfers, together with the transfer of €125,000 in respect of the Polish properties, resulted in the funds standing in FC’s saving account being significantly diminished over a two week period. The manner, mode and timing of those transactions, when taken together with FC’s knowledge of the imminent psychiatric examination of MC, results in my concluding that the purpose of such withdrawals and transfers was to diminish any sum which would be available for repayment to MC in the event of her being found to be incapable of conducting financial transactions.
15.2 FC’s evidence in relation to the investment in two properties in Poland was inconsistent and changed during the course of his evidence when certain matters were put to him. FC claimed that one apartment was purchased for IS, at the request of MC, and another purchased under a loan arrangement with Ms. S’s mother, BS. That claim is inconsistent with statements made by FC during 2009 to both Carsten Kohl and Mrs. Wardlaw that the Polish properties were brought as an investment for his aunt. Those statements were made much closer in time to the actual investment. They are at variance with FC’s later claim that his aunt instructed him to purchase a property in Poland for IS and to give her parents money to buy an apartment for themselves. The fact that FC demonstrated a willingness to change and alter his account as to the circumstances in which he funded the purchase of the Polish properties, and on whose behalf they were being purchased, identifies his willingness to mislead the Court. On the 9th July, 2009, FC told Mr. Kohl, as confirmed in Mr. Kohl’s contemporaneous note, that in relation to the €500,000 withdrawn in April 2009, that it was invested in (apartments) and that its purpose was to invest it for and to use to provide for MC’s care. At a meeting on the 10th August, 2009 between FC and Mrs. Wardlaw, in Mrs. Wardlaw’s office, also confirmed by a contemporaneous attendance note, FC answered in response to what portion of the €500,000 which had been withdrawn was available, and FC responded by saying that €200,000 had been invested in two apartments in Poland in the joint names of himself and IS and when asked by Mrs. Wardlaw as to whether FC would be agreeable to signing a declaration of trust in favour of MC, he indicated that he would. Mrs. Wardlaw also noted that it was proposed to do up the two properties and to then sell them on and the meeting concluded by it being suggested that any money from the sales would be returned to MC.The position adopted by FC in 2009 is entirely different from what he later swore during these proceedings. It is the case that FC’s evidence as to the actual mechanics of the purchase of one of the two properties and how it was identified and viewed and purchased was inconsistent with his claim that as of May 2009 that property had yet to be purchased. In evidence FC acknowledged that he stayed in the property, yet he claimed that the property had not been purchased by that date. The extent to which FC was prepared to mislead the Court was illustrated by his evidence concerning the use of his credit card in Poland. When faced with evidence of such use and his claim not to have been in Poland at that time, he then claimed his card was used by IS. That evidence lacked credibility and I am satisfied in relation to that and a number of other matters, FC was endeavouring to mislead the Court. That conclusion is also borne out by the evidence that I heard in relation to the banking arrangements concerning the purchase of properties in Poland. That evidence was supported by documentary evidence which was available in court. It is clear from that evidence that in April 2009 arrangements were made to transfer €215,000 to Poland. A transfer of €65,000 was made on the 15th April, 2009 from FC’s current account and thereafter on the 24th April, 2009, a joint account in his name and IS was set up and some four days later €150,000 was transferred to that joint account on the 28th April, 2009. That transfer was from FC’s current account. It is the case that by the end of April 2009, FC had taken steps to ensure that money would be transferred to Poland and I am satisfied that those steps were taken in circumstances where FC was endeavouring to ensure that funds would not be available for repayment in the event that MC was taken into wardship. The inconsistency of the evidence was further borne out by FC’s initial denial that he had ever travelled to Poland and it was not until after the records of his credit card account were put to him, in cross-examination, which demonstrated that the credit card had been used in Poland on the 30th April, 2009, that FC changed his evidence to acknowledge that he had travelled to Poland at that time. In the course of the written submissions, the plaintiffs identified a substantial number of inconsistencies in FC’sevidence in relation to his transactions concerning the Polish properties and I am satisfied that they are accurate and give an illustration of the willingness of FC to alter and change his explanations depending upon what documents were being put to him. The plaintiffs in their submissions claim that the evidence given by FC in relation to the acquisition of apartments in Poland was utterly inconsistent, incredible and unreliable. I am satisfied that that represents a correct analysis of FC’s evidence in relation to the Polish properties. In the light of that finding, and given the absence of any clear, conclusive or definitive evidence in relation to the two Polish properties, I am satisfied that the Court should make an order requiring FC to account in respect of the monies transferred to the joint account of himself and IS (being the €65,000 and €150,000 identified above) and that he fully account to the plaintiffs for those sums and the apartments in Poland and any other assets or monies held by him in Poland either in his own name or in the name of any other party.
16.1 In the light of the findings that I have made in this judgment, I am satisfied that there is no basis for the counterclaim made by the first named defendant. The first named defendant has failed to establish that there is any sum due or owing to him or that there was any agreement between him and MC for the payment by MC of a sum to him representing half of her assets. I am also satisfied that the plaintiffs have correctly and properly pursued this claim against the first named defendant and that the case against him was not a frivolous one nor was it prosecuted in an improper manner nor were the plaintiffs or any of them guilty of any deception or of misleading the Court as claimed. The defendants have put forward no basis for their claim that the Court cannot deal with matters prior to MC being made a Ward. The Court has such jurisdiction and it will exercise it in protecting MC and as a matter of public interest. The first named defendant has failed to establish that any wrong was done to him or that he has suffered any loss or damage as a result of the conduct of these proceedings.
17.1 The first named plaintiff is entitled to a declaration that the first named defendant holds the sum of €900,009.08 withdrawn from the first named plaintiff’s deposit account as property of the first named plaintiff together with interest thereon from the date upon which the first named plaintiff was made a Ward of Court, that is, from the 4th November, 2009. The first named plaintiff is entitled to judgment against the first named defendant for that sum together with the interest accrued thereon. I will also make an order for the accounts and inquiries identified in this judgment. I will hear the parties in relation to any injunctive relief that is required in the light of the orders made. I will also make an order directing the first named defendant deliver up vacant possession of the property of the first named plaintiff at T A, K, comprised in the three folios identified in this judgment. The first named plaintiff is also entitled to a declaration against all three defendants that the plant and machinery identified in this judgment was purchased with funds of the first named plaintiff upon trust for her and a declaration that as the beneficial owner thereof, the first named plaintiff is entitled to recover from all the defendants possession of each and every item of plant and machinery as set out in this judgement together with all documents of title and registration documents relating to such plant and machinery and, if necessary, an order directing all three defendants to deliver up to the plaintiffs all plant and machinery identified in this judgment together with the documents of title and registration. The plaintiffs are also entitled to damages against all three defendants for any loss or diminution in value of the machinery on the sale of such machinery after it is transferred to the plaintiffs and I will hear the parties as to how such damages are to be calculated and the procedure to be followed. The first named plaintiff is also entitled to a declaration that the funds held in account No. 54947355, Bank of Ireland, in the name of the first named defendant, are the property of the first named plaintiff and that such funds should be forthwith lodged in Court to the credit of the first named plaintiff. I will also hear the parties in relation to any further orders that are required in the light of the judgment that I have given.
Coleman -v- Mullen
[2011] IEHC 179 (03 May 2011)
Cite as: [2011] IEHC 179
JUDGMENT of Mr. Justice Hogan delivered on the 3rd May, 2011
1. This is an appeal against the decision of Her Honour Judge Linnane dated 29th January 2010 whereby she awarded the plaintiff the sum of €25,000 against the defendant in his capacity as the executor of the estate of the late Elizabeth O’Keeffe. Ms. O’Keeffe was a widow with no children who died on 27th November 1999. The net issue in this appeal is whether the plaintiff is entitle to maintain a quantum meruit claim in her respect of the various services which she voluntarilysupplied to Ms. O’Keeffe during her lifetime.
2. The net value of Ms. O’Keeffe’s estate came to IR£263,184. By will dated 2nd November, 1994, Ms. O’Keeffe left a number of specific bequests to named individuals, including the sum of IR£8,000 to the plaintiff. She left her house and contents to the defendant, who was also constituted the residuary legatee.
3. The (largely uncontested) evidence shows that Ms. Coleman befriended Ms. O’Keeffe shortly after her husband died in 1990, although they had known each other prior to that date. They were (relatively) close neighbours who lived within 1km. of each of other in Dalkey. From about 1993 until 1998 – at which point Ms. O’Keeffe moved into a nursing home – Ms. Coleman was her constant companion. She attended to all Ms. O’Keeffe’s daily chores. Ms. Coleman further drove and escorted her while she attended to her business in the Dalkey area. Ms. O’Keeffe was regularly provided with meals and company in Ms.Coleman’s own house nearby. Ms. Coleman furthermore cleaned Ms. O’Keeffe’s house and attended to matters such as laundry and cooking. Even when Ms. O’Keeffe entered the nursing home, Ms. Coleman visited her regularly, attended to her laundry and personal hygiene and generally looked after her house. All in all, Ms. Colemanestimated that she worked about 20 hours each week for Ms. O’Keeffe’s benefit during this period. While the extent of this work is disputed to some extent by the defendant, it has not really been suggested that Ms. Coleman’s contribution was not very considerable over a long period or that, if the claim were valid in law, €25,000 would not represent a fair recompense for the plaintiff.
4. There was also a very clear bond of friendship between the parties. The evidence shows that Ms. O’Keeffe doted on Ms. Coleman’s three young children and, in one sense, more or less informally adopted them as “her” own “grandchildren.” While Ms. O’Keeffe mentioned that she was contemplating setting up a trust fund for them, nothing ever came of this. It has not been suggested, however, that there was anything in the nature of a promise either to the plaintiff or to her children in this regard, still less that Ms. Coleman altered her position on foot of such a representation.
5. In this respect, the present case is quite unlike McCarron v. McCarron, Supreme Court, 13th February, 1997. In that case a young man worked as a farm hand for his uncle for 16 years without reward. The Supreme Court found, however, that there was an oral contract between the parties that the uncle would transfer the two farms to the plaintiff on the former’s death. Given that the defendant had raised no issue concerning a note or memorandum for the purposes of the Statute of Frauds, the Court held that the contract was specifically enforceable.
6. It is also important to stress, however, that the services rendered by Ms. Coleman were purely voluntary and stemmed exclusively from ties of friendship and neighbourliness. Nor was there any question of promise or expectation induced by Ms. O’Keeffe. Nor – if only to exclude extreme cases – was there any question of Ms. Coleman’s will having been overborne. Nor can it be suggested that she was exploited in any way or that she was subjected to a type of quasi-servitude through some form of subtle intimidation or psychological control. Having heard the evidence of Ms. Coleman, I am perfectly satisfied that her numerous acts of kindness towards Ms. O’Keeffe were prompted exclusively by considerations of friendship and kind-heartedness. Ms. Coleman’s evidence in respect of these matters was further confirmed by Ms. Sandra Hayden, a mutual friend who also knew Ms. O’Keeffe very well.
7. Ms. Coleman further stated in evidence that she would not have contemplated suing Ms. O’Keeffe during the latter’s lifetime. She disclaimed the idea of any binding contract and she expressly confirmed that she would have continued as heretofore to provide such services even if Ms. O’Keeffe had made it clear that she would make no provision by will for her or for her children.
8. It is against this background that the present claim falls to be considered. At the outset, it is only fair to say that Ms. Coleman’s sense of grievance is perfectly understandable. It is, I think, no different from the grievance which might be felt by a family member who had devoted a considerable time altruistically looking after an ailing and elderly parent without expectation or reward and yet who nonetheless found after the death of the parent in question that other family members had through legacy or benefaction been rewarded at his or her expense. While it is true that this type of possible injustice is capable of being remedied under s.117 of the Succession Act 1965, in the case of the parent/child relationship, no such direct remedy is available in a case of the present kind.
9. The question which actually arises is whether the plaintiff’s actions can give rise to a claim in quantum meruit. As Brennan J. explained in a leading Australian decision on quantum meruit, Pavey & Mathews Pty. Ltd. v. Paul (1987) 162 C.L.R. 221:-
“Correspondingly, quantum meruit is sometimes used to describe an action to recover a reasonable sum which is due under a contract and sometimes to describe an action to recover a reasonable sum when the obligation to pay it is imposed by law independently of actual contract. As we have seen, indebitatus assumpsit was first expanded to embrace an action of quantum meruit when a contract did not stipulate a fixed sum as the remuneration of the work to be done. Later it was expanded to embrace an action of quantum meruit in quasi-contract when an obligation to pay was imposed by law independently of contract. There is now, as there was in the seventeenth century, a manifest difference between implying in a contract a term to pay quantum meruit and imposing an obligation to pay quantum meruit independently of contract.”
10. We are here concerned with quantum meruit in the second sense of that term. There was no contract and, given the modern law on quantum meruit, there is no necessity to resort to what Henchy J. described in East Cork Foods v. O’Dwyer Steel [1978] I.R. 103, 111 as a “pleader’s stratagem” in order to suggest the existence of some fictitious contract, such as would have been necessary in the 17th and 18th centuries when the forms of action of indebitatus assumpsit held sway. We may thus rather ask whether the law would normally impose an obligation to pay in such circumstances, irrespective of whether an actual contract (or, if you prefer, a promise to pay under such a contract) is implied by law. This is clearly linked to general notions of unjust enrichment, since the obligation is imposed by law to ensure that the recipient of the services is not enriched at the expense of another: see generally Fridman, Restitution (2nd Ed.) at 285-287 where the Canadian law on this topic is helpfully expounded.
11. The existence of such an obligation has naturally been recognized in a series of cases dealing with the provision of professional services: see Clark, Contract Law in Ireland (5th Ed., 2004) at 599-600. Thus, for example, in Henehan v. Courtney & Hanley (1967) 101 I.L.T.R. 25 an estate agent was instructed by a purchaser to find a suitable farm. Such a farm was located by the agent and the sale subsequently closed. Teevan J. held that the estate agent was entitled to recover quantum meruit, since even though nothing was said about the commission or fees, the judge nonetheless quoted Bateman on Auctions:-
“It is the employment of a professional agent to perform duties of the kind usually undertaken by members of his profession which gives rise to an implied promise to pay him reasonable remuneration.”
12. Teevan J. here proceeded on the basis that the relationship between the parties gave rise either to an implied contract or, perhaps more precisely, an implied promise to pay in such circumstances pursuant to an actual contract. But I doubt if anything greatly turns on these nuanced distinctions, since Henehan can just as easily be rationalised on the basis that it would have been unjust to allow the purchaser of the farm to be enriched at the expense of the agent by not paying the latter the remuneration for his services which the law required to be discharged.
13. Similar thinking is evident in the Supreme Court’s judgment in Chaieb v. Carter [1987] IESC 5. Here the plaintiff was appointed as the defendant’s agent in connection with the shipment of cattle from Ireland to Egypt. That original contract was partially frustrated when the Egyptian authorities refused to accept heifers as part of that shipment. The defendants nonetheless independently subsequently negotiated the shipment and sought to repudiate the payment of commission to the agent. The Supreme Court found that the securing of the new contract flowed from the work carried out by the plaintiff and, as Finlay C.J. observed, the plaintiff was “entitled to reasonable remuneration having regard to the work carried out by him and having regard to the expenditure which he clearly made on behalf of the defendants during this period.”
14. Can it be said, therefore, that the law would have imposed an obligation on the late Ms. O’Keeffe to pay for the services which she received, irrespective of whether one looks at this through the lens of quantum meruit on the one hand or unjust enrichment on the other? The law here largely reflects and follows the traditional understanding of the parties. The agents in both Henehan and Chaieb were held to be entitled to payment on a quantum meruit basis because they were professional agents providing professional services in a commercial context. Likewise, if the plaintiff in the present had been explicitly retained qua professional housekeeper, then she would plainly be entitled to be paid on a quantum meruit basis, even if the question of payment had never actually been discussed.
15. But the plaintiff was not retained on that basis. As I have consistently emphasized, the plaintiff rather voluntarily acted as a good friend to an elderly neighbour. The consistency of her support and help deserves recognition and praise, but I cannot accept that there could have been any understanding that Ms. Coleman was entitled to be rewarded for her services. In this regard, it may be noted that in McCarron Murphy J. assumed that “humanitarian services provided on a purely neighbourly or charitable basis for some person in need” fell outside the scope of law of contract.
16. Of course, it is indisputable but that even within families binding contractual arrangements covering the provision of domestic services can be – and are – frequently made, but in such circumstances there generally would have to be a clear intention to create legal relations, even if the documentation itself governing the contract was informal. As Budd J. observed in his concurring judgment in Rogers v. Smith, (Supreme Court, 16th July, 1970):-
“…in social and family matters, agreements may be come to which do not give rise to legal relations, because such a consequence is not the intention of the parties. [In] family matters, an intention to remain free of legal obligation will be readily implied, whereas in business matters the opposite result would ordinarily follow.”
17. There are, of course, instances of where the existence of a contract may nonetheless be found, even in family cases, as the Supreme Court’s decision in McCarron exemplifies. Yet in this regard there would have to be clear evidence of an intention to create legal relations. I am perfectly satisfied, having heard the clear and frank evidence of Ms. Coleman that, in the present case there was no such intention. With commendable candour, she made it clear that she would have continued to befriend and assist Ms. O’Keeffe during the latter’s lifetime, regardless of any expectation, promise or agreement to create legal relations or obtain monetary reward. As Clark, Contract Law in Ireland, has observed (at 90) “if the promise would have acted in a similar way even without the promise sought to be enforced, an absence of legal intent may be inferred.”
18. If, therefore, there was no intention to create legal relations, should, then, the law impose such an obligation? I do not think that the courts can – or should – take this step. If the law is to be changed such as to enable voluntary carers of family and neighbours to make quantum meruit claims of this kind quite independently of any intention to create legal relationships, this would represent a potentially far-reaching legal change which could not be described as being some incremental and perfectly logical deduction from the existing corpus of case-law in this area. A change of this kind would be a matter for the Oireachtas.
19. Any such change would furthermore present considerable policy questions which the Oireachtas would have to weigh and balance. If such a claim could be made, it might lead to a situation in which, for example, an elderly couple might be dissuaded by their adult children from accepting the kindness of neighbours, simply because the children feared a subsequent claim against the parents’ estates. Conversely, it might lead to or encourage a situation in which persons with less than altruistic motives officiously sought to interpose themselves into the lives of elderly neighbours and relatives in the hope – or even expectation – that they could subsequently make a quantum meruit claim against the estates of such persons in the wake of their deaths.
Conclusions
20. In conclusion, therefore, I must hold that in the absence of any intention to create legal relations, the plaintiff is not entitled to maintain her claim for quantum meruit against the estate of Ms. O’Keeffe. In these circumstances, I would therefore allow the defendant’s appeal and set aside the award in the Circuit Court.
RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Company KG (UK Production)
[2010] UKSC 14 (10 March 2010)
Cite as: [2010] UKSC 14, [2010] 1 CLC 388, [2010] 2 All ER (Comm) 97, [2010] WLR 753, [2010] Bus LR 776, 129 Con LR 1, [2010] 3 All ER 1, (2010) 129 Con LR 1, [2010] BLR 337, [2010] CILL 2868, [2010] 1 WLR 753
LORD CLARKE (delivering the judgment of the court)
Introduction
This is the judgment of the court. The appeal arises out of a dispute between RTS Flexible Systems Limited (‘RTS’) and Molkerei Alois Müller GmbH & Co KG (‘Müller’) in relation to work carried out and equipment supplied by RTS to Müller. The different decisions in the courts below and the arguments in this court demonstrate the perils of beginning work without agreeing the precise basis upon which it is to be done. The moral of the story to is to agree first and to start work later. The claim was brought by RTS for “money due under a contract, alternatively damages”. A number of issues arose between the parties and by an order dated 11 January 2008 Akenhead J ordered the trial of specific preliminary issues. That trial came before Christopher Clarke J (‘the judge’) and on 16 May 2008 he handed down a judgment in which he determined each of them.
The parties had initially intended to enter into a detailed written contract which would set out all the complex terms on which the work was to be carried out and the equipment supplied. However, as often happens, the terms were not finalised before it was agreed that work should begin. It was common ground before the judge that the parties entered into a contract formed by a Letter of Intent dated 21 February 2005 and a letter from RTS dated 1 March 2005 (‘the LOI Contract’), the purpose of which was to enable work to begin on agreed terms. The judge held that the LOI Contract was treated by the parties as expiring on 27 May 2005. The judge further held that after the lapse of the LOI Contract the parties reached full agreement on the work that was to be done for the price that they had already agreed, which was £1,682,000 and had been agreed in the LOI Contract. He held that the natural inference from the evidence was that their contract was that RTS would carry out the agreed work for the agreed price. It was not however essential for them to have agreed the terms and conditions and they did not do so. They continued after the expiry of the LOI Contract just as they had before, by calling for and carrying out the work without agreement as to the applicable terms. The judge declined to hold that the parties’ contract included the final draft version of certain terms known as the MF/1 terms (the ‘MF/1 terms’).
RTS appealed to the Court of Appeal. At the outset of his judgment Waller LJ, with whom Moses LJ and Hallett LJ agreed, made it clear that RTS had said that it was not appealing any of the judge’s findings of fact. The issue before the Court of Appeal was whether the judge was right in holding that there was a contract between the parties at all after the expiry of the LOI Contract and whether, if there was a contract, he was right in holding that it was not on the MF/1 terms. Waller LJ also made it clear that there was an issue as to whether RTS was entitled to contend that there was no contract. The Court of Appeal allowed the appeal and made a declaration that the parties did not enter into any contract after the LOI Contract came to an end.
The essential issues in this appeal, which is brought by permission given by the House of Lords, are whether the parties made a contract after the expiry of the LOI Contract and, if so, on what terms. As to terms, the argument centres on whether the contract was subject to some or all of the MF/1 terms as amended by agreement. Müller submits that the judge was correct to hold, both that there was a contract after the expiry of the LOI Contract, and that it was not on any of the MF/1 terms, whereas RTS submits that the Court of Appeal was right to hold that there was no contract but that, if there was, it was on all the MF/1 terms as amended in the course of negotiations. The importance of the MF/1 terms is that they contain detailed provisions as to many matters, including liquidated damages. In this judgment we will focus on those two issues, although part of Müller’s challenge to the decision of the Court of Appeal that there was no contract is a submission that it should not have permitted RTS to take the point because it had not been taken before the judge. We will refer briefly to that issue en passant.
The relevant facts
Both the judge and Waller LJ have set out the background facts in considerable detail. It is only necessary to refer to some of the facts in order to resolve the issues in this appeal.
We begin with the Letter of Intent, which was dated 21 February 2005 and sent by Müller to RTS, and which included the following:
“Project: Build, delivery, complete installation and commissioning by RTS … of the Automated Pot Mixing Lines 1 & 2 and the De-Palletising Cell (‘the Equipment’) for the Repack line (‘Repack Line’) within the Repack facility in Market Drayton of … Müller …
Thank you for your mail dated 16 February 2005 setting out your offer (number FS04014 – Issue J) to supply the Equipment to Müller (“the Offer”).
Please accept this letter of intent as confirmation of our wish to proceed with the Project as set out in the Offer subject to the following terms:-
(i) The agreed price for the engineering, build, delivery, installation and commissioning as set out in the Offer is GBP 1,682,000 …
(ii) RTS is now to commence all work required in order to meet Müller’s deadlines set out in the Offer to allow commencement of full production by Müller on the Repack Lines by 30 September 2005. Delivery of line also to be in accordance with the timetable set out in the Offer.
(iii) That the full contractual terms will be based on Müller’s amended form of MF/1 contract and the full terms and the relevant technical specifications will be finalised, agreed and then signed within 4 weeks of the date of this letter. Prior to agreement on the full contractual terms, only Müller shall have the right to terminate this supply project and contract. However, should Müller terminate, Müller undertakes to reimburse RTS for the reasonable demonstrable out of pocket expenses incurred by RTS up to the date of termination. Müller will not be liable for any loss of profits (whether direct or indirect), loss of contracts, loss of anticipated savings, data, goodwill and revenue or any other indirect or consequential loss arising from such termination. No further legal rights or remedies shall be available to RTS upon such termination.
Please confirm your acceptance of the above by signing below where indicated.
This letter of intent shall be governed by English law and subject to the exclusive jurisdiction of English courts.”
It is important to note that the Letter of Intent provided for the whole agreed contract price and was not limited to the price of the works to be carried out during the currency of the LOI Contract. It is also of interest and, we think, of some importance that it was contemplated from the outset that the full contract terms were to be based on Müller’s MF/1 terms.
On 1 March RTS wrote to Müller confirming that it had started work subject to Müller accepting two points. The first was that the equipment would be commissioned by 30 September and would be ready for Site Acceptance Testing (‘SAT’) activities as shown in the programme. But the equipment would not then be expected to be at full production quantities. Section (ii) of the Letter of Intent would be revised by omitting “full”. The second point referred to section (iii) and made the point that during the four week period covered by the Letter of Intent RTS would incur costs in both engineering time and in order to meet the project programme. It would for example place orders for long lead items such as robots, conveyors and tray erectors. RTS said that, in the event of termination, it would require reimbursement for these costs, including the cancellation costs of subcontract commitments as well as any out of pocket expenses, albeit without profit. Those points were subsequently accepted by Müller.
The judge held at his para 39 that it was implicit in the LOI Contract that upon expiry of the four weeks it would come to an end. Neither party challenged his conclusion that after the expiry of the LOI Contract it was not revived, either in the Court of Appeal or in this court. In answering the question posed under Issue 1.1, namely what were terms of the LOI Contract and the obligations of the parties under it, the judge said this at para 42:
“a) The agreed price for the engineering, build, delivery, installation and commissioning of the work set out in the Quotation was to be £1,682,000;
b) RTS was bound to embark on such work as was necessary to ensure the provision of the equipment to be supplied by it in accordance with the provisions of sections 4 – 8 of Quotation J and the timetable set out in Appendix 7 thereof. Commissioning was to be completed by 30 September 2005 and the equipment was to be ready for production (but not full production) and Site Acceptance Testing as shown in that Appendix at that date;
c) Müller and RTS were to have a period of four weeks from 21 February 2005 to finalise, agree and sign a contract based on Müller’s amended MF/1 form of contract. Following the expiry of that period the contract would terminate;
d) Prior to agreement of the full contractual terms and conditions based on Müller’s amended MF/1 contract, only Müller had the right to terminate the supply project;
e) If Müller did so terminate or the term of the contract expired, it would reimburse RTS for the reasonable, demonstrable out of pocket expenses incurred by RTS up to the date of termination, including the cost of engineering time, cancellation costs of subcontract commitments, and any out of pocket expenses, but without profit;
f) RTS would have no further legal right or remedy on termination and Müller would not be liable for any loss of profit (whether direct or indirect), loss of anticipated savings, data, goodwill and revenue or any other indirect or consequential loss arising from termination;
g) There were no exclusions or limitations of liability in the contract.”
It is important to note the references to the MF/1 terms both in the Letter of Intent and in the judge’s conclusions. It seems to us to be almost inconceivable that the parties would have entered into an agreement for the performance of the whole project which was not based on detailed terms. The judge made this point at para 39 in these terms:
“The absence of agreed full contractual terms would be of limited significance over a four week period; but more significant, if it could continue until the end of the project. The parties did not, in my judgment, contemplate that, in the absence of finalisation and signature within the specified timescale (or any agreed extension), RTS would be bound to continue with a project for which the applicable terms had not been agreed. Consistent with that the Letter of Intent says nothing about when any part of the price would be payable and gives Müller a right to cancel upon payment only of expenses and cancellation costs – a right that is entirely reasonable during a four week period but inappropriate for a contract for the entire project. The payment schedule in the Quotation does specify a series of percentage payments, but the first of those is the 30% of TCV payable on receipt of order and the Letter of Intent is not an order.”
It is also important to set the LOI Contract and what happened subsequently in their context. The negotiations had been proceeding for some time. As appears in the Letter of Intent, apart from the price, the parties had been discussing Quotation J and the schedules to it, including Schedule 7. After the LOI Contract and while work was proceeding in accordance with it, detailed negotiations proceeded. The negotiations up to 16 May are described by the judge at his paras 43 to 47. Mr David Salisbury, the senior Buyer in Müller’s purchasing department, sent the first draft of a contract to RTS on 15 March. The scheme of the draft (and each subsequent draft), in which words beginning with a capital letter had defined meanings, was as follows. Clause 1 provided that on receipt of an Order for Delivery RTS would supply the Equipment and perform the Works on the terms and conditions set out in the Contract and that without prejudice to the other provisions of the Contract the Equipment would comply with the Specification. Clause 2 provided for some terms to survive Termination. Clause 3 provided that Müller would procure payment of the Contract Price as set out in Schedule 2 and, importantly, clause 4 provided that the general terms and conditions set out in Schedule 1 would apply to the Contract. We have not been shown Schedule 2, which may indeed not exist. However, clause 49, which is a definitions clause which was expressly given contractual force by clause 7, included the definition of the Contract Price as £1,682,000 “being the price as set out in more detail in Schedule 1.” Clause 5 was entitled Limitation of Liability and provided for limitations of liability referable to particular clauses of the Contract. Clause 6 provided for the following order of preference to be applicable to the contractual documents: first the general terms and conditions set out in Schedule 1, secondly the User Requirement Specification (‘URS’) set out in Schedule 4, thirdly the Functional Design Specification (‘FDS’) set out in Schedule 3 and finally all the other Schedules comprised in the Contract.
Clauses 8 to 48 were entitled “Schedule 1 General Conditions” and, in their original form, in essence set out the MF/1 terms. It is plain that they were always intended to form an important part of the contract. They were given pride of place by clause 6. In the course of the negotiations they were amended in significant respects. We were provided with a version of the draft contract which shows the original draft in black with subsequent variations in six other colours. In the form of clauses 8 to 48, Schedule 1 included detailed provisions on all the topics one might expect, including Equipment and Services to be Provided, Purchaser’s Obligations, the Contract Price, Payment, Warranties, Guarantees, representation and management, Inspection and Testing, Completion, Delay, Defects Liability, Limitations of Liability, Force Majeure and the like. In the course of argument we were referred to many of the amendments that were made in the course of the negotiations. To take one example, when read with clause 5, clause 36 contained detailed provisions (as amended) limiting liability. For example, subject to some exceptions, the limit of each party’s liability for an Event of Default is the amount of the Price.
Schedule 1 also contained clause 48, which was the subject of considerable debate and provided:
“48. COUNTERPARTS
48.1 This Contract may be executed in any number of counterparts provided that it shall not become effective until each party has executed a counterpart and exchanged it with the other.”
The draft contract further contained a number of Schedules on various topics to which we refer below. Some but not all of them were referred to in the clauses which formed part of Schedule 1.
There were exchanges between the parties as to the terms of the first draft and of the second draft, which was sent to RTS by Mr William Morris, in-house counsel to Müller, on 14 April. One of the proposed changes in that draft was that RTS’ parent company, RTS PLC, be added as a guarantor. Meanwhile on 13 April the parties agreed or confirmed their agreement to RTS’ letter of 1 March and agreed that the period for execution of a formal contract would expire on 16 May. Negotiations continued and, as the judge noted at para 46, on 13 May Mr Morris e-mailed Mr Gavin Brown, who was RTS’ Operations Director, as follows:
“Given that the contract is now almost agreed we hereby confirm that the expiry date for the current letter of intent can be extended until 27 May 2005, or, if sooner, the date the contract is actually signed …”
As stated above, the judge held, in the light of the exchanges between the parties, that they agreed that the LOI Contract would expire on 27 May.
Further drafts were sent by Mr Morris to RTS on 11 and 16 May, when, as the judge put it at para 48, Mr Morris e-mailed to Mr Brown the draft “contract with final tweaks”, adding “perhaps you can drop me a quick e-mail confirming you are happy – we can then all concentrate on completing the schedules”. The draft sent on 16 May was the fourth draft contract. The judge described the schedules sent as part of it at that time in para 48 as follows:
“Schedule 1: General Conditions extending to 48 paragraphs.
Schedule 3: A page headed “Functional Design Specification”. This is a document which states the intended functionality of the RTS equipment. It is usually derived from the User Requirement Specification: see below.
Schedule 4: A page headed “User Requirement Specification”. This is usually compiled by the client but, on this occasion, was lifted from RTS’Quotation K at Müller’s request.
Schedule 5: A three page schedule, drafted by Müller, divided into Part 1 “Tests on Completion” and Part 2 “RTS Tests”.
Schedule 6: A two page schedule, drafted by Müller, headed Performance Tests”. The last paragraph of this read as follows:
“THIS SCHEDULE NEEDS TO PROVIDE THAT IF THE TEST WITHIN A CERTAIN PERCENTAGE OF THE REQUIRED LEVEL LDs WILL APPLY AND THE EQUIPMENT WILL STILL HAVE “PASSED”. IF THE PERCENTAGE ACHIEVED IS LOWER THAN THAT SPECIFIED BY LDs (I.E. LOWER THAN THE MAXIMUM PAYOUT UNDER LDS) THE EQUIPMENT WILL HAVE FAILED THE TEST AND THE OTHER REMEDIES WILL BE AVAILABLE TO THE PURCHASER”
Schedule 7: An Advance Payment Guarantee to be given by RTS’ parent.
Schedule 8: A defects liability demand guarantee also to be given by RTS’ parent.
Schedule 9: This made provision for the supply of a list of stock items and wear and non-wear parts.
Schedule 10: A description of what the programme needed to include.
Schedule 11: An empty table of Key Performance Indicators, Performance required and Liquidated Damages.
Schedule 12: A page headed “Certificates of Payment” together with a form of Delivery Certificate, Completion Certificate and Final Certificate of Payment.
Schedule 13: A list of the operating manuals and other drawings and maintenance schedules required.
Schedule 14: A Schedule dealing with Training Requirements.
Schedule 15: A Schedule headed “Health and Safety Requirements” but otherwise blank.
Schedule 16: A Schedule headed “Free Issue Equipment” but otherwise blank.
Schedule 17: A Schedule headed “Site Preparations” but otherwise blank.”
On 19 May Mr Brown e-mailed Mr Morris to say that the fourth draft seemed fine to him except for a small proposed amendment to clause 24.3, which related to delay of Tests on Completion. On 25 May Mr Brown again e-mailed Mr Morris, saying that he expected to have the schedules completed “today”. Mr Morris replied saying that the small proposed amendment to clause 24.3 looked fine, but that he needed to get back to him on Force Majeure and “any final tidy-ups”. On 26 May Mr Morris made some proposals relating to Force Majeure, to which Mr Brown countered. The judge held at para 50 that on 5 July, after further negotiations, Mr Morris proposed a compromise form of the Force Majeure clause which Mr Brown told him seemed fine and which Mr Morris said he would incorporate into a contract when he put all the schedules together with Müller’s Project Manager, Mr St John. He also said that the agreement should be in a position to be signed and forwarded to Mr Brown for signature that week.
In the meantime on 26 May Mr Brown had set out RTS’ understanding of the current status of the contract schedules in a yet further e-mail to Mr Morris. At para 51, under the heading “Finalisation of the Schedules”, the judge set out in the form of a kind of Scott schedule both Mr Brown’s position from the e-mail under the heading ‘Understood status’ and his own conclusions with regard to each item under the heading ‘My Comment’ as follows:
SCH. Understood status My Comment
1 Not referred to in the e-mail. No need. Schedule 1 consisted of the General Conditions.
2 Assumed not required as the payment schedule is included in the body of the contract. This schedule is described in the Contract as setting out the price; but that is in the General Conditions in Schedule 1 anyway.
3 FDS – currently being reissued.
Brown suggested it should be referred to rather than incorporated. The FDS was later agreed:
see the RTS e-mail of 29 June and para 52.
4 URS. Agreed that section 4 of the Quotation would form the URS, which was attached. The URS had the appendices referred to at para 26.
5 Agreed that RTS Test Plan would form this Schedule. With Müller for approval. The RTS Test Plan was later agreed: see the RTS e-mail of 29 June: para 52
6 RTS Test Plan RTS REGARDED ITS TEST PLAN AS COVERING THE GROUND OF SCHEDULES 5 AND 6 AND MÜLLER WAS HAPPY WITH THAT PROVIDED THAT IT DID SO. BUT THE ONLY VERSION OF SCHEDULE 6 CONTAINED MÜLLER’S WORDING.
7 Advance Payment guarantee already agreed. The guarantee had been attached to the e-mail of 16 May.
8 Defect Liability guarantee – RTS’ parent company to approve. A draft had been attached to the 16 May e-mail. The parent company never approved it.
9 To be completed during the project. Part 1 related to stock items. It was never completed. Part 2 contains provisions for the durability of Wear Parts, which is capable of standing on its own.
10 Approved programme attached The attachment was either as in Quotation I or Quotation J.
This programme was overtaken by the overall project plan and Installation at Müller plan referred to in para 52 below.
11 KPIs agreed: attached. These included details of the Performance Required and Liquidated Damages
12 Müller to complete. This related to Certificates of Payment. Never completed.
13 To be completed during the project. This related to operating manuals. Never completed, It would not have been possible to provide them at the time.
14 To be completed during the project. This related to Training Requirements. Never completed
15 Müller to provide details. This related to Health and Safety Requirements. Never completed
16 As per attached document. The attached document contained the Assumptions for Free Issue Equipment for the Project
17 Müller to provide site preparation details. This does not seem to have been provided, but the site was prepared.
The references to para numbers in the Comment boxes are references to para numbers in the judge’s judgment. For simplicity we have omitted two footnotes.
It can be seen from the Comment boxes that there were no problems about Schedules 1 to 5. As already stated, Schedule 1 was in effect the MF/1 conditions (as amended) and contained clauses 1 to 48. Schedule 2 was unnecessary and, as to Schedules 3, 4 and 5, the FDS, the URS and the RTS Test Plan were variously agreed in the e-mails referred to by the judge. As to Schedule 5, in addition to words to the effect recorded in the judge’s Comment box, Mr Brown’s email of 26 May went on to suggest that upon approval of the RTS Test plan by Muller “it is included in this schedule and existing text is deleted”. On or by 29 June the use of the RTS Test plan in Schedule 5 had been approved by both parties, as recorded in an exchange of emails on that date and by the judge in paragraph 52 of his judgment.
Schedule 6 gives rise to more difficulty. Mr Brown’s email of 26 May contained simply the words “RTS Test plan” which appear in the judge’s Comment box. The words in capitals set out in paragraph 15 above were inserted in the version of Schedule 6 attached to Mr Morris’ e-mail of 11 May and also appeared in the version attached to his email of 16 May. The evidence is that those words were originally inserted by Mr Morris as an internal note to his colleagues. However that may be, Schedule 6 was recorded in Mr Brown’s e-mail of 26 May as being simply the RTS Test Plan. In the course of his evidence Mr St John confirmed that Müller was content to use the RTS Test Plan as Schedule 6. It is clear from the judge’s entry in his Comment box that he accepted that there was agreement to that effect. That seems to us to be so even though, as he added “the only version of Schedule 6 contained Müller’s wording”. It appears to us to follow from those conclusions that Schedule 6 comprised, and comprised only, the RTS Test Plan (in a form which was, as we have stated, subsequently agreed as recorded in emails on 29 June), and that the draft or drafts in blue containing the text in capital letters which formed part of the third and/or fourth draft were not agreed as part of Schedule 6. In these circumstances we conclude that by the end of the negotiations there was no issue between the parties as to the content of Schedule 6. We deal further below (para 71 et seq) with Müller’s contrary submissions and with the judge’s conclusions at para 74 of his judgment on the question whether agreement was reached on Schedule 6 as well as on the related clauses 5 and 27.7 and the relationship between them.
We note in passing that it seems to us that the logic that has led us to the conclusion that the RTS Test Plan replaced the draft or drafts of Schedule 6 also leads to the conclusion that it was agreed that the RTS Test Plan entirely replaced the drafts of Parts I and II of Schedule 5 as they appear in our bundle in black and blue respectively. However, this is not a final conclusion because it was not directly addressed in the course of the argument.
As to Schedule 7, the form of the Advance Payment Guarantee was agreed but the judge held at para 75 that RTS did not procure the provision of it by its parent company, which was to be the guarantor. As to Schedule 8, RTS’ parent company did not approve the Defect Liability Guarantee. As we see it, the judge’s comments on Schedules 9 to 17 present no problem. In so far as some items remained to be completed during performance of the project, they seem to us to be items which did not have to be agreed before the contract was made.
In para 52 the judge noted that on 29 June, after further discussion, Mr David Guest, who was an RTS Project Manager, e-mailed to Mr Morris copies of the FDS, the Test Plan, the Project Plan and the Installation at Müller plan, which Müller had approved. Mr Guest also e-mailed Mr St John a copy of a detailed Test and Build Schedule. The final version of the draft contract in the coloured version with which we were provided includes the points agreed in the e-mail exchanges of 19 and 25 May, 29 June and 5 July.
At para 67 the judge recorded Müller’s recognition that the parties reached a final draft of the contractual terms and conditions, namely Schedule 1, which contained the general conditions as modified in the e-mails of 19 and 25 May and 5 July. The judge nowhere rejected Müller’s recognition as being wrong on the facts. In our judgment, it was essentially correct. The modifications from the original draft were significant and detailed and were tailored to the particular project. For example, clause 8.2 included a provision that RTSwas not to be held liable for breach of the contract arising from any act or omission of a supplier of the Free Issue Equipment, which was equipment which RTS was not going to design, build or supply but was going to integrate. There are many other examples, including clause 36, which provided, as one would expect, for Limitations of Liability. However, as we see it, with the possible exception of clauses 5 and 27.7, none of the detailed clauses is material to the resolution of the issues in this appeal. In summary, with that possible exception, everything was agreed as at 5 July except for the provisions relating to the parent company guarantee and items which it was not necessary to complete or which were to be completed in the course of the project. We return to this point (and the possible exception) below in the context of the reasoning of the judge.
At paras 53 to 61 of his judgment the judge described the performance by RTS, which we can summarise more shortly. RTS began work on the project on 23 February. The expiry of the LOI Contract did not bring that work to an end. Problems arose between June and August with delay to some of the Free Issue Equipment. The project involved the installation of two production lines, Lines 1 and 2. Quotation J and the URS had provided for a Customer Factory Acceptance Test (‘CFAT’) to be carried out at RTS’ premises, after which the equipment was to be installed and commissioned at Müller’s factory, followed by a SAT. That programme involved installing Line 2 first. However, as a result of the problems of delay, which are set out in detail at paras 53 to 57 of the judge’s judgment, consideration was given to Line 1 being installed before Line 2. As the judge explained at para 58, on 15 August Mr Guest of RTS e-mailed Mr Foster of Müller with a revised schedule for Line 1, which involved the equipment for Line 1 being sent immediately to Market Drayton, without CFAT testing. Under the schedule, low volume production capability was planned as starting on Wednesday 28 September, with SAT beginning on Monday 24 October. This was on the assumption that Line 2 could be installed after Line 1.
Discussion of these problems led to a variation of the delivery plans. The judge described the variation as follows:
“59. On 25 August 2005 there was a meeting to discuss the problem, at which, as is common ground, there was an agreed variation of the delivery plan.
60. It was agreed that there would be no CFAT at RTS’ premises and that Line 1 would be installed first so that production could begin on this Line as soon as it could be made operational once delivered. At the meeting Mr Brown gave Müller certain warnings to which I shall refer hereafter.
61. Most of the RTS components for Line 1 were delivered to Müller on or about 5 September 2005. The RTS components for Line 2 were delivered on or about 2 December. Line 1 was run on automatic, for the first time, on 1 October. The 150,000 packs were produced, although much of the production was the result of manual operation without the robots. SAT testing has never taken place. One of the matters in dispute is as to whether it should have done.”
The judge made further findings as to the variation on 25 August and as to what happened thereafter at paras 106 to 135. It is not necessary to refer to those conclusions in any detail in order to determine the issues in this appeal. However, at para 106 the judge said that it was common ground between the parties that the contract between them was varied on 25 August 2005 at a meeting at RTS’ premises in Irlam between Messrs Brown and Guest from RTS and Messrs St John, Benyon, Foster, Highfield and possibly others for Müller, at which the parties agreed to alter the delivery schedules of the lines and to dispense with the need for RTS to conduct CFAT tests on Line 1.
After the agreement on 25 August the parties concentrated on Line 1 and Line 2 fell behind. Resources which would otherwise have been dedicated to both Lines had to be dedicated to Line 1 only. Moreover, as the judge held at para 121, the need to deal with Line 1 so as to meet Müller’s production requirements seemed to have caused everyone to divert their efforts away from finalising contractual documentation, which was a matter which had gone quiet in mid July. Most of RTS’ equipment for Line 1 was delivered on 5 September and detailed work continued on Line 1, which Müller put into production on 10 October.
As Waller LJ said at para 43 of his judgment in the Court of Appeal, ultimately a dispute arose between the parties leading to the litigation. The details are unimportant save to comment first that no contract was ever signed as contemplated; second that until argument in the Court of Appeal each party had submitted as its primary position that at some stage a contract came into existence which governed their relationship; but third that both had at different times taken up positions inconsistent with that which they finally adopted at the trial as to whether MF/1 terms formed part of the contract.
As to payment, we take the position essentially from Waller LJ’s judgment at paras 44 to 46, where he summarised the conclusions of the judge. Müller paid RTS 30 per cent of the agreed price of £1,682,000 plus VAT on about 28 April 2005 and made further payments of 30 per cent on 8 September 2005 and of 10 per cent in January 2006. It did so following the issue by RTS of invoices which claimed those specified percentages of a total contract value of £1,682,000. Although 30 per cent was specified in Quotation J as the amount of the first two payments under the contract, the payments made were not all stage payments as specified in Quotation J. That Quotation called for (a) 30 per cent on receipt of order, (b) 30 per cent on delivery to RTS of the major items of bought out equipment, (c) 20 per cent on delivery to Müller, (d) 10 per cent on completion of commissioning and (e) 10 per cent within 30 to 90 days of takeover, although (a) was to be within 7 days of receipt of order and (b), (c) and (d) were to be within 30 days of the date of invoice. There was however no order and, even if the Letter of Intent was to be regarded as the equivalent, payment was not made within 7 days of it. The second 30 per cent was paid after delivery to RTS of major items and submission of an invoice. The 10 per cent paid in January 2006 was not however the 20 per cent due on delivery. Waller LJ further noted that the payments made were not the stage payments specified in clause 11 of the fourth draft of the Contract sent with the e-mail of 16 May.
While that is so, the fact remains that the payments were expressly made pursuant to requests by RTS for payment of specific percentages of the Contract Price, which seems to us to support the conclusion that the parties had agreed the Contract Price.
The parties’ cases before the judge
As stated above, at para 67 the judge recorded Müller’s recognition that the parties reached a final draft of the contractual terms and conditions, namely Schedule 1, which contained the general conditions as modified in the e-mails of 19 and 25 May and 5 July. Müller had expressly pleaded in its Contractual Statement of Case (and submitted to the judge) that on 5 July RTS and Müller agreed the terms of the proposed written contract between them and the draft contract was ready for execution. Before the judge Müller’s case was that, despite that agreement, there was no binding contract between the parties on those terms for the reasons which the judge summarised at para 67. This was because it was the parties’ intention that detailed terms negotiated by them would not have contractual effect until the relevant documentation, namely the Contract and the Schedules, was formally executed and signed. That that was so appeared from:
“a) the Letter of Intent which referred to the full terms and the relevant technical specifications being finalised, agreed and then signed within 4 weeks of the date of that letter;
b) Mr Morris’ e-mail of 13 May, which referred to the Letter of Intent lasting until 27 May or, if sooner, the date the contract is “actually signed”;”
and was consistent with
“c) the evidence of Mr Brown of RTS, in para 46 of his witness statement, referring to his e-mail of 26 May 2005 that:
“My view was that whilst we had agreed the wording in principal (sic), until the whole contract including the schedules had been compiled as a complete document and signed as accepted by RTS then it wasn’t enforceable. Whether this is right or not I don’t now know, but it was what I thought then. Therefore, to my mind, the milestone event at which the terms and conditions of the anticipated contract were agreed and in force was when RTS signed the document.”
Müller’s case was that no contractual document had been signed and thus no such document had been exchanged. Its case was not, however, that there was no contract between the parties. Its case that there was a contract depended upon the fact of payment and the work carried out, including delivery of the components comprising Line 1 on 5 September. There was a contract on the basis that Müller would pay the price, namely £1,682,000, in return for the goods and services that RTS had agreed to provide as set out in a number of specific documents identified by the judge at para 68. The specific documents relied upon by Müller and set out by the judge at para 68 were the following: (i) the documents attached to the e-mail of 26 May, namely (a) the URS and its Appendices, save that the Parent Company guarantee was never given and the Provisional Project Plan was overtaken by the documents set out at para 22 above (and para 52 of the judgment) in June, (b) the KPIs and (c) the Assumptions for Free Issued Equipment (‘the Assumptions’); and (ii) the documents attached to Mr Guest’s two e-mails of 29 June, namely (a) the FDS, (b) the Test Plan, (c) the overall project plan (which superseded the delivery programme attached to the e-mail of 26 May) which was to form Schedule 10 to the contract, (d) the installation plan and (e) the Test and Build Schedule. In short Müller submitted that the parties had an intention to create contractual relations when RTS provided the goods and services and Müller made its payments.
Müller’s case was that no further contractual terms as to payment had been agreed, with the result that RTS was not entitled to payment of the balance of the price over and above the amount in fact paid by Müller as set out below until it had completed substantial performance. Moreover, a critical part of Müller’s case was that the amended MF/1 terms as agreed and set out in clauses 8 to 48 as amended never became part of a binding agreement.
The primary case for RTS before the judge by contrast (as summarised at para 71) was (i) that the LOI Contract incorporated Quotation J, including RTS’ standard terms, (ii) that it did not expire in May and (iii) that it was never replaced by any new contract. The judge rejected (i) and (ii), which left RTS’ alternative case, which was that, if there was a new contract, it incorporated the agreed amended MF/1 conditions. This was on the basis that if, as Müller submitted, most of the Schedules were incorporated, so also were the terms and conditions in Schedule 1, which was the basis of the contract. We accept Mr Catchpole’s submission that before the judge RTS’ primary case was that there was a continuing contract on the terms of the LOI Contract, but that it had two alterative cases, namely that there was either no contract (but RTS was entitled to a quantum meruit) or, if there was a contract, that it was on MF/1 terms.
We note in passing that preliminary issue 1.2.4 was formulated in such a way that one of the possible results was a right to payment, not under contract but by way of quantum meruit. In these circumstances we agree with the Court of Appeal that, in the light of the submissions before him, it would have been open to the judge to hold that there was no contract but that RTS was entitled to a quantum meruit. As Waller LJ put it at para 55, before the judge could decide what contract had come into existence after the expiry of the LOI Contract, he would have to consider whether a contract came into existence at all. The Court of Appeal was correct to hold that it was open to RTS to submit that there was no contract and we reject Müller’s submissions to the contrary. In any event, we detect no injustice in permitting RTS to contend that there was no contract, either in the Court of Appeal or in this court.
The conclusion and reasoning of the judge
The judge accepted Müller’s submissions. He held at para 72 that after the lapse of the LOI Contract the parties reached full agreement on the work that was to be done “for the price that they had already agreed”. Having referred at para 66 to the decision and reasoning of Steyn LJ in G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 at 27 he said that it was, as Steyn LJ had contemplated, unrealistic to suppose that the parties did not intend to create legal relations. So far so good. However, he held that it was not essential for them to have agreed the terms and conditions, by which we think he meant the MF/1 conditions, and they did not do so. He held that the parties continued after the expiry of the LOI Contract just as they had done before, that is by calling for and carrying out the work without agreement as to the applicable terms. In paras 73 to 76 he gave four reasons for declining to infer that the contract included the final draft version of the MF/1 conditions.
The four reasons were these:
i) Müller’s Letter of Intent and its e-mail of 13 May 2005 indicated that the final terms were not to be contractually agreed until signature.
ii) The contract sent with the e-mail of 16 May was designed to operate as a composite whole, consisting of (a) the basic two page, seven clause contract, and (b) the 17 schedules that are annexed to it and referred to in the general conditions which constitute Schedule 1. Although many of these Schedules were agreed several were not. In particular it was not agreed what Schedule 6 would contain. The words in capitals represented a proposed, but never agreed, refinement to give Müller some ampler remedy than liquidated damages if the performance of the equipment was lower than that degree of non performance which would give rise to the maximum liquidated damages.
iii) The parties did not proceed on the basis of the conditions. RTS did not procure the provision of the Advance Payment Guarantee (Schedule 7), which, under the conditions, was required to be procured prior to the advance payment being made. Schedules 15 and 17, which address matters relevant from the start of the contract, were not completed. Müller did not appoint an Engineer. Payment was not made in accordance with the application and certification procedure laid down in clause 11 and the procedure for Changes to the Contract laid down by clause 39 was not followed. The dispute procedure required by clause 41 was not followed.
iv) Clause 48 of the general conditions was not satisfied because the contract was not executed, nor were any counterparts exchanged.
As we read them, those reasons contain two different strands. The first is set out in reasons i) and iv) and is that any agreement made between the parties was made subject to contract and was not binding until a formal contract was signed by and perhaps exchanged between both parties. The second is set out in ii) and iii) and is that all essential terms were not agreed.
For those reasons the judge held that by no later than 29 June 2005 the contract between the parties, which was to apply retrospectively, was that RTS was to provide the goods and services specified, and comply with the obligations set out, in the documents set out in his para 68, subject to the conditions specified therein.
The parties’ cases in the Court of Appeal
In the Court of Appeal, RTS abandoned its case that the LOI Contract did not expire but continued. It submitted to the Court of Appeal that the judge was wrong to hold that there was a contract on terms which excluded the MF/1 terms. Its submissions were first that there was no contract and, secondly, that, if there was a contract, it was on the terms agreed as at 5 July, which included the MF/1 terms set out in clauses 8 to 48 and the Schedules, as amended by agreement. Müller submitted that the point that there was no contract was not open to RTS. At para 53 Waller LJ said this:
“53. The force of this argument was clearly not lost on Müller. The major part of their skeleton in the Court of Appeal was aimed at arguing that RTSshould not be entitled to argue the point in the Court of Appeal having regard to the stance they had taken before the judge. The answer to the point on its merit was put shortly as follows and in much the same way as the argument had been put before the judge:-
’79. On its proper construction, clause 48 of the amended form MF1 prevented a contract on those terms taking effect without signature by the parties and RTS plc. It does not follow that in the absence of a signed agreement there could not be a binding contract between the parties on some other terms as a result of their conduct.'”
As we read para 53, Waller LJ is there setting out Müller’s skeleton argument. The argument was that, although clause 48 prevented a contract on MF/1 terms, it did not prevent a contract on other terms based on conduct. On that footing Müller sought to uphold the approach taken by the judge.
Conclusion and reasoning of the Court of Appeal
The Court of Appeal decided the appeal on a narrow basis. It rejected the submission that it was not open to RTS to contend that there was no contract. It accepted the proposition in the first sentence of para 79 of the skeleton. Waller LJ held at para 56 that the judge had misconstrued clause 48. He added:
“He relied on condition 48 as preventing a contract coming into being on the MF/1 conditions [see para 76]. This, I understand, to be the point taken by [Müller] at paragraph 79 of their skeleton quoted above. But once it is appreciated that the definition of contract in condition 48 covers not just those conditions but the contract including the schedules, condition 48 seems to me to become a complete answer.”
We put ‘Müller’ in square brackets because the copy of the judgment we have refers to RTS. However that is a typographical error because the reference is in fact to Müller’s skeleton, as Waller LJ’s para 61 states. His reference to ‘the definition of contract’ is a reference to clause 49, which defined ‘Contract’ as meaning ‘this Contract signed by the parties and the Schedules’.
It is of interest to note that at para 58 Waller LJ appreciated that the conclusion that there was no contract could be said to be very unsatisfactory but he added that the judge’s answer was also very unsatisfactory in that, although the MF/1 conditions had to all intents and purposes been agreed and the limit of RTS’ liability had been agreed, “by selecting simply the schedules [the judge] achieved a bargain neither side intended to enter into”. Waller LJ then said this by way of conclusion at para 61:
“It would, as it seems to me, from the way negotiations had gone as between the parties, and once the true construction of condition 48 has been appreciated, have needed a clear express variation of condition 48 for a court to be able to reach the conclusion which the judge reached, i.e. that all of MF/1 had been put on one side by the parties and the Schedules (and only in so far as they have been agreed) applied. With condition 48 properly understood and in the context of the importance the parties actually considered the negotiations of MF/1 to have, in my view, the above conclusion is simply not open to the court, and I reject Mr Maclean’s submissions as encapsulated in paragraph 79 of his written submissions.”
There was no detailed analysis in the Court of Appeal of the possibility that the preferable conclusion was not either of the solutions which Waller LJ (in our view correctly) rejected but that the parties had by their conduct unequivocally waived clause 48 and that there was a contract on the terms agreed as at 5 July as subsequently varied by the agreement of 25 August.
Discussion
The principles
The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement.
The problems that have arisen in this case are not uncommon, and fall under two heads. Both heads arise out of the parties agreeing that the work should proceed before the formal written contract was executed in accordance with the parties’ common understanding. The first concerns the effect of the parties’ understanding (here reflected in clause 48 of the draft written contract) that the contract would “not become effective until each party has executed a counterpart and exchanged it with the other” – which never occurred. Is that fatal to a conclusion that the work done was covered by a contract? The second frequently arises in such circumstances and is this. Leaving aside the implications of the parties’ failure to execute and exchange any agreement in written form, were the parties agreed upon all the terms which they objectively regarded or the law required as essential for the formation of legally binding relations? Here, in particular, this relates to the terms on which the work was being carried out. What, if any, price or remuneration was agreed and what were the rights and obligations of the contractor or supplier?
We agree with Mr Catchpole’s submission that, in a case where a contract is being negotiated subject to contract and work begins before the formal contract is executed, it cannot be said that there will always or even usually be a contract on the terms that were agreed subject to contract. That would be too simplistic and dogmatic an approach. The court should not impose binding contracts on the parties which they have not reached. All will depend upon the circumstances. This can be seen from a contrast between the approach of Steyn LJ in the Percy Trentham case, which was relied upon by the judge, and that of Robert Goff J in British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504, to which the judge was not referred but which was relied upon in and by the Court of Appeal.
These principles apply to all contracts, including both sales contracts and construction contracts, and are clearly stated in Pagnan SPA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601, both by Bingham J at first instance and by the Court of Appeal. In Pagnan it was held that, although certain terms of economic significance to the parties were not agreed, neither party intended agreement of those terms to be a precondition to a concluded agreement. The parties regarded them as relatively minor details which could be sorted out without difficulty once a bargain was struck. The parties agreed to bind themselves to agreed terms, leaving certain subsidiary and legally inessential terms to be decided later.
In his judgment in the Court of Appeal in Pagnan Lloyd LJ (with whom O’Connor and Stocker LJJ agreed) summarised the relevant principles in this way at page 619:
“(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole…
(2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary ‘subject to contract’ case.
(3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed…
(4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled…
(5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty
(6) It is sometimes said that the parties must agree on the essential terms and it is only matters of detail which can be left over. This may be misleading, since the word ‘essential’ in that context is ambiguous. If by ‘essential’ one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by ‘essential’ one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by ‘essential’ one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge [at page 611] ‘the masters of their contractual fate’. Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called ‘heads of agreement’.
The same principles apply where, as here, one is considering whether a contract was concluded in correspondence as well as by oral communications and conduct.
Before the judge much attention was paid to the Percy Trentham case, where, as Steyn LJ put it at page 26, the case for Trentham (the main contractor) was that the sub-contracts came into existence, not simply from an exchange of contracts, but partly by reason of written exchanges, partly by oral discussions and partly by performance of the transactions. In the passage from the judgment of Steyn LJ at page 27 quoted by the judge at para 66 he identified these four particular matters which he regarded as of importance. (1) English law generally adopts an objective theory of contract formation, ignoring the subjective expectations and the unexpressed mental reservations of the parties. Instead the governing criterion is the reasonable expectations of honest sensible businessmen. (2) Contracts may come into existence, not as a result of offer and acceptance, but during and as a result of performance. (3) The fact that the transaction is executed rather than executory can be very relevant. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations and difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. This may be so in both fully executed and partly executed transactions. (4) If a contract only comes into existence during and as a result of performance it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance.
By contrast, in the Court of Appeal much attention was paid to the decision of Robert Goff J in the British Steel case, which had not been cited to the judge. At para 51 Waller LJ said that the factors which influenced Robert Goff J to conclude in that case that there was no binding contract apply with equal force to the factual matrix here. He thought (para 59) that, if the judge had had Robert Goff J’s judgment cited to him (and/or if the no contract point had been fully developed before him) the judge would not have reached the conclusion he did.
The particular passage in Robert Goff J’s judgment (starting at page 510G) on which Waller LJ relied reads as follows:
“The real difficulty is to be found in the factual matrix of the transaction, and in particular the fact that the work was being done pending a formal sub-contract the terms of which were still in a state of negotiation. It is, of course, a notorious fact that, when a contract is made for the supply of goods on a scale and in circumstances such as the present, it will in all probability be subject to standard terms, usually the standard terms of the supplier. Such standard terms will frequently legislate, not only for the liability of the seller for defects, but also for the damages (if any) for which the seller will be liable in the event not only of defects in the goods but also of late delivery. It is a commonplace that a seller of goods may exclude liability for consequential loss, and may agree liquidated damages for delay. In the present case, an unresolved dispute broke out between the parties on the question whether CBE’s or BSC’s standard terms were to apply, the former providing no limit to the seller’s liability for delay and the latter excluding such liability altogether. Accordingly, when, in a case such as the present, the parties are still in a state of negotiation, it is impossible to predicate what liability (if any) will be assumed by the seller for, eg defective goods or late delivery, if a formal contract should be entered into. In these circumstances, if the buyer asks the seller to commence work ‘pending’ the parties entering into a formal contract, it is difficult to infer from the [seller] acting on that request that he is assuming any responsibility for his performance, except such responsibility as will rest on him under the terms of the contract which both parties confidently anticipate they will shortly enter into. It would be an extraordinary result if, by acting on such a request in such circumstances, the [seller] were to assume an unlimited liability for his contractual performance, when he would never assume such liability under any contract which he entered into.”
(Waller LJ rightly put ‘seller’ in parenthesis since, although the report reads ‘buyer’, Robert Goff J must have meant ‘seller’.)
In that passage Robert Goff J recognised that contracts for the supply of goods on a significant scale will in all probability be subject to standard terms, which will frequently legislate, not only for the liability of the seller for defects, but also for the damages (if any) for which the seller will be liable in the event not only of defects in the goods but also of late delivery. Thus a seller may exclude liability for consequential loss, and may agree liquidated damages for delay. In the British Steel case itself there was an unresolved dispute as to whose standard terms were to apply. One set of terms provided no limit to the seller’s liability for delay and the other excluded such liability altogether. We can understand why, in such a case, if the buyer asks the seller to commence work ‘pending’ the parties entering into a formal contract, it is difficult to infer from the seller acting on that request that he is assuming any responsibility for his performance, “except such responsibility as will rest on him under the terms of the contract which both parties confidently anticipate they will shortly enter into”. By the last words, Robert Goff J was not suggesting that there was, in the case before him, any contract governing the performance rendered, merely that the parties had anticipated (wrongly in the event) that there would be.
There is said to be a conflict between the approach of Steyn LJ in the Percy Trentham case and that of Robert Goff J in the British Steel case. We do not agree. Each case depends upon its own facts. We do not understand Steyn LJ to be saying that it follows from the fact that the work was performed that the parties must have entered into a contract. On the other hand, it is plainly a very relevant factor pointing in that direction. Whether the court will hold that a binding contract was made depends upon all the circumstances of the case, of which that is but one. The decision in the British Steel case was simply one on the other side of the line. Robert Goff J was struck by the likelihood that parties would agree detailed provisions for matters such as liability for defects and concluded on the facts that no binding agreement had been reached. By contrast, in Pagnan Bingham J and the Court of Appeal reached a different conclusion, albeit in a case of sale not construction.
We note in passing that the Percy Trentham case was not a ‘subject to contract’ or ‘subject to written contract’ type of case. Nor was Pagnan, whereas part of the reasoning in the British Steel case in the passage quoted above was that the negotiations were throughout conducted on the basis that, when reached, the agreement would be incorporated in a formal contract. So too was the reasoning of the Court of Appeal in Galliard Homes Ltd v J Jarvis & Sons Ltd (1999) 71 Con LR 219. In our judgment, in such a case, the question is whether the parties have nevertheless agreed to enter into contractual relations on particular terms notwithstanding their earlier understanding or agreement. Thus, in the Galliard Homes case Lindsay J, giving the only substantive judgment in the Court of Appeal, which also comprised Evans and Schiemann LJJ, at page 236 quoted with approval the statement in Megarry & Wade, The Law of Real Property, 5th ed (1984) at pages 568-9 that it is possible for an agreement ‘subject to contract’ or ‘subject to written contract’ to become legally binding if the parties later agree to waive that condition, for they are in effect making a firm contract by reference to the terms of the earlier agreement. Put another way, they are waiving the ‘subject to [written] contract’ term or understanding.
Whether in such a case the parties agreed to enter into a binding contract, waiving reliance on the ‘subject to [written] contract’ term or understanding will again depend upon all the circumstances of the case, although the cases show that the court will not lightly so hold. We turn to consider the facts.
Application of the principles to the facts
There are three possible conclusions which could be reached. They are (1) that, as the Court of Appeal held, there was no contract between the parties; (2) that, as the judge held, there was a contract between the parties on the limited terms found by the judge; and (3) that there was an agreement between the parties on wider terms. In the third case there is some scope for argument as to the precise terms. As appears below, it is our view that, if the third solution is adopted, the most compelling conclusion is that the terms were those agreed on and before 5 July as subsequently varied on 25 August. We consider each possible conclusion in turn.
(1) No contract
We agree with the judge that it is unrealistic to suppose that the parties did not intend to create legal relations. This can be tested by asking whether the price of £1,682,000 was agreed. Both parties accept that it was. If it was, as we see it, it must have formed a part of a contract between the parties. Moreover, once it is accepted (as both parties now accept) that the LOI Contract expired and was not revived, the contract containing the price must be contained in some agreement other than the LOI Contract. If the price is to be a term binding on the parties, it cannot, at any rate on conventional principles, be a case of no contract. Although it did not address this question, the Court of Appeal’s solution involves holding that there was no binding agreement as to price or anything else and that evidence of the agreed price is no more than some evidence of what a reasonable price would have been for quantum meruit purposes. The difficulty with that analysis seems to us to be threefold. First, neither party suggested in the course of the project that the price was not agreed and RTS invoiced for percentages of the price and Müller paid sums so calculated as described above. Second, the price of £1,682,000 was agreed and included in the LOI Contract on the footing that there would be a detailed contract containing many different provisions including, as expressly recognised in the LOI Contract, the MF/1 terms. Third, there was an agreed variation on 25 August which nobody suggested was not a contractual variation.
In these circumstances the no contract solution is unconvincing. Moreover, it involves RTS agreeing to proceed with detailed work and to complete the whole contract on a non-contractual basis subject to no terms at all.
(2) Contract on the terms found by the judge
We entirely agree with the judge that the parties initially intended that there should be a written contract between them which was executed by each and exchanged between them. We further accept that, if the matter were tested on, say, 5 July, the correct conclusion may well have been that that remained the position and that there was no binding agreement between them. However, that is not on the basis that the parties had not reached agreement (or sufficient agreement) but because the agreement they had reached remained (in the traditional language) ‘subject to contract’. Thus, as correctly submitted in Müller’s skeleton argument before the judge, the agreement was ready for execution at that stage but was subject to contract. In the same skeleton argument Müller correctly submitted that the question was, objectively speaking, whether the parties’ intentions took a new turn at some stage such that they intended to be bound by the ‘final draft contract’ without the need for its formal execution. As we read it, the skeleton defined the ‘final draft contract’ as the draft sent by Mr Morris on 16 May, subject to subsequent e-mail agreement as stated above.
The striking feature of this case which makes it very different from many of the cases which the courts have considered is that essentially all the terms were agreed between the parties and that substantial works were then carried out and the agreement was subsequently varied in important respects. The parties treated the agreement of 25 August as a variation of the agreement that they had reached by 5 July. Nobody suggested in August that there was no contract and thus nothing to vary. It was not until November, by which time the parties were in dispute, that points were taken as to whether there was a contract.
We have reached the firm conclusion that by 25 August at the latest the parties’ communications and actions lead to the conclusion that they had agreed that RTS would perform the work and supply the materials on the terms agreed between them up to and including 5 July as varied by the agreement of 25 August. Thereafter the work continued on a somewhat different basis because of the provision of Line 1 before Line 2. As stated above, it does not seem to us to make commercial sense to hold that the parties were agreeing to the works being carried out without any relevant contract terms. In this regard we agree with the judge.
On the other hand it does not seem to us to make commercial sense to hold that the work was carried out on some but not all the terms agreed by 5 July. The terms were negotiated on the basis that the Schedules would form part of the Contract, which also contained the detailed Conditions in Schedule 1, which had themselves been subject to much discussion and comprised clauses 8 to 48. We accept Mr Catchpole’s submission that the Conditions, based as they were on the MF/1 terms which were put forward by Müller and expressly referred to in the LOI Contract and which (among many other things) defined RTS’ performance obligations, set out the warranties provided by RTS and identified the limit of its potential liability. It is, in our judgment, inconceivable that the parties would have agreed only some of the terms, namely those in the specific documents identified by Müller, and not those in clauses 8 to 48. It seems to us that this was one of the considerations which the Court of Appeal had in mind in reaching the extreme conclusion which it did, namely that there was no contract at all.
We agree with the Court of Appeal that the judge’s analysis cannot be correct. As appears from paras 36 and 37 above, there were four reasons for his decision, expressed in para 72, not to infer that the contract included the final draft version of the MF/1 conditions. They were expressed in his paras 73 to 76. His first and fourth reasons appear to us to be essentially the same. As to his first reason, it is true that the LOI Contract and the e-mail of 13 May indicated that the final terms were not to be contractually agreed until signature. That was indeed the original plan and remained the position until after 5 July. Equally, his fourth reason was that the effect of clause 48 was that the contract was not to be binding until signed.
The problem with these conclusions is that, as Mr Catchpole submitted, they prove too much. Given that no formal contract was signed or exchanged, we accept that, unless and until the parties agreed to vary or waive clause 48, the Contract would not become binding or effective. The problem for Müller is that identified by the Court of Appeal. Given the definition of ‘Contract’ in clause 49 as including the Schedules, the effect of clause 48 would be that the Schedules would be as ineffective as the MF/1 conditions because they all form part of the Contract as defined. Yet Müller’s case is that the documents identified by the judge as forming the terms of a binding agreement are all or almost all ‘Schedules’ within the meaning of clause 49. It follows that, if clause 48 prevented the MF/1 terms from being binding terms of a contract, by parity of reasoning it prevented the documents relied upon by Müller (and accepted by the judge) from being binding terms either.
It follows that, subject to one point, we agree with the reasoning of the Court of Appeal in paras 56 and 61 of Waller LJ’s judgment and referred to above. That one point is this. Waller LJ said that it would have required a
“clear express variation of condition 48 for a court to be able to reach the conclusion which the judge reached, i.e. that all of MF/1 had been put on one side by the parties and the Schedules (and only in so far as they have been agreed) applied.” (para 61)
We can well understand that, given the Court of Appeal’s conclusion that, for the reasons discussed above, there could have been no contract on the terms found by the judge if clause 48 (or the ‘subject to contract’ understanding embodied in it) remained, the court would have no alternative but to hold that there was no contract. That is not, however, so if the parties have by their exchanges and conduct waived the ‘subject to contract’ condition or understanding.
We agree with the Court of Appeal that, before it could be held that there was a binding contract on the MF/1 terms as amended by agreement, unequivocal agreement that clause 48 had been waived would be required. We do not however think that it is necessary for that agreement to be express if by that is meant an express statement by the parties to that effect. Such unequivocal agreement can in principle be inferred from communications between the parties and conduct of one party known to the other.
If such an inference can be drawn on the facts, then the correct solution would not be the second but the third of the possibilities identified above, subject to the judge’s second and third reasons identified in para 37 above. It would not, in our opinion, be the second possibility because that would involve holding that the parties agreed some but not all of the terms agreed on or before 5 July. Yet, as the judge held at his para 74 (our para 37ii)), the contract sent with the e-mail of 16 May was designed to operate as a composite whole, consisting of (a) the basic two page, seven clause contract and (b) the 17 schedules that are annexed to it and referred to in the general conditions which constitute Schedule 1, that is the MF/1 terms. In our judgment, the parties at no time reached agreement on the terms set out in the documents referred to in the judge’s para 68 without the MF/1 terms as amended, which form an important part of the Contract, namely clauses 8 to 48.
(3) Contract on terms wider than found by the judge
The first question under this head is whether the parties departed from the understanding or agreement that it was to be subject to contract, as had been the original understanding of the parties and as expressly provided in clause 48. The second is whether the parties intended to be bound by what was agreed or whether there were further terms which they regarded as essential or which the law regards as essential in order for the contract to be legally enforceable. It is convenient to consider the second point first.
All essential terms agreed?
The second point is embodied in the judge’s paras 74 and 75 and is set out in para 37ii) and iii) above. We entirely agree with the judge’s conclusion in the first sentence of our para 37ii) that the fourth draft of the contract sent with the e-mail of 16 May was designed to operate as a composite whole consisting of the two page seven clause contract and clauses 8 to 48 which comprised the MF/1 terms as amended and the 17 Schedules annexed. We have set out the facts in this regard in some detail at paras 11 to 30 above. In summary, the parties negotiated clauses 8 to 48 in some detail and, subject to some of the Schedules, the clauses were essentially agreed. As noted at para 23 above, at his para 67 the judge recorded Müller’s recognition that the parties reached a final draft of the contractual terms and conditions, namely Schedule 1, which contained the general conditions as modified in the e-mails of 19 and 25 May and 5 July. The judge nowhere rejected Müller’s recognition as being wrong on the facts. That draft is the version with coloured amendments up to purple in the version provided to us.
As to the Schedules, the judge recognised at his para 74 (our para 37ii) and iii)), that although many of the Schedules were agreed, several were not. In particular, he said that it was not agreed what Schedule 6 would contain and that the words in capitals represented a proposed, but never agreed, refinement to give Müller some ampler remedy than liquidated damages if the performance of the equipment was lower than that degree of non performance which would give rise to the maximum liquidated damages. We have already expressed the view in para 19 above that, on the judge’s findings of fact, the parties had agreed that Schedule 6 would comprise, and comprise only, the RTS Test Plan.
We return to Mr Maclean’s submissions that (a) the parties had not reached agreement on the suggestion contained in the capital letters in the text of the fourth draft quoted above and that, absent such agreement, there could be no binding agreement between the parties and/or (b) clauses 5 and 27.7 were not or cannot be taken as having been agreed.
Clause 5 provided for limits of liability in relation to specific clauses. In relation to clause 27.7, as amended by Müller in blue, as shown in italics below, and sent to RTS with the third draft it provided:
“Percentage of Contract Price to be paid to the Purchaser or deducted from the Contract Price [words deleted] [to be calculated in accordance with Schedule 6].
Maximum percentage of Contract Price for which liquidated damages payments paid under clause 27.7.2 is 2.5%.
Clause 27.7.1 and 2 provided:
“27.7 If the Works fail to pass the Performance Tests [words deleted] as determined by the provisions of Schedule 6 above then the following remedies will be available to the Purchaser:-
27.7.1 the Contractor shall (without prejudice to the Purchaser’s other rights and remedies) pay to the Purchaser [words deleted] the sum set out in clause 5 [words deleted] within 14 days of receipt of an invoice from the Purchaser such sum being agreed between the parties as being a genuine pre-estimate of losses suffered by the Purchaser as a result of the Equipment not meeting the requisite standards;
27.7.2 where the Purchaser has not become entitled to liquidated damages due to the Performance Tests not being successfully passed and the Equipment not meeting the requisite standards to entitle the Purchaser to claim the maximum liquidated damages pursuant to clause 27.7.1 as set out in clause 5 above the Purchaser may give written notice to terminate the Contract immediately such failure shall be deemed a material breach incapable of remedy and pursuant to clause 34.1.2 and without prejudice to its other rights and remedies in the Contract the Purchaser may by written notice terminate the Contract immediately and take at the expense of the Contractor such steps as may in all circumstances be reasonable to ensure that the Works pass the Performance Tests.”
The words deleted show that in the original draft clause 27.7.1 was concerned with delay. The words in italics are in blue and were first added by Müller in Mr Morris’s email of 11 May.
It will be recalled that the suggestion in capital letters made by Müller was in these terms:
“THIS SCHEDULE NEEDS TO PROVIDE THAT IF THE TEST WITHIN A CERTAIN PERCENTAGE OF THE REQUIRED LEVEL LDs WILL APPLY AND THE EQUIPMENT WILL STILL HAVE “PASSED”. IF THE PERCENTAGE ACHIEVED IS LOWER THAN THAT SPECIFIED BY LDs (I.E. LOWER THAN THE MAXIMUM PAYOUT UNDER LDS) THE EQUIPMENT WILL HAVE FAILED THE TEST AND THE OTHER REMEDIES WILL BE AVAILABLE TO THE PURCHASER”
It is important to note that the suggestion was not that there should be any amendment to any of the terms of clauses 7 to 48, or indeed to clause 5 or any of the other clauses. It was suggested that in some circumstances ‘other remedies’ should be available to Müller and, moreover, that such remedies should be provided for in Schedule 6. The problem for Müller in this regard is that it was agreed between the parties that the RTS Test Plan would form Schedules 5 and 6 and, as at 5 July, there was no further suggestion that Schedule 6 should contain something further and, if so, what that something might be. It is far from clear what Müller had in mind, but whatever it was it was not pursued.
As to the clauses of the contract itself, as stated above the parties agreed them as at 5 July, when the one remaining issue, which related to Force Majeure, was agreed. There was no suggestion at that time that Schedule 6 had not been finally agreed or that, because of any incompleteness in it, Müller could not or would not agree clauses 5 or 27.7. As amended in blue, clause 27.7 set out the remedies available to Müller if the Works failed to pass the Performance Tests as determined by Schedule 6. The amount payable by RTS as damages for failure to pass Performance Tests was to be that stated in clause 5, namely 2.5 per cent of the Contract Price. There is plenty of scope for argument as to the true construction of clauses 27.7 and clause 5 in the context of the RTS Test Plan which it was subsequently agreed should comprise Schedule 6. On one view the 2.5 per cent was to be both a maximum and a minimum. However, we note that clause 27.7.1 is expressed to be “without prejudice to the Purchaser’s other rights and remedies”. The position is further confused by the insertion, as a result of Mr Morris’s emails of 11 and 16 May, of a blue ‘not’ in the first line of clause 27.7.2. It would not be appropriate for us to express a view as to the true construction of those terms, which (absent agreement) will be a matter for the trial judge.
It is Müller’s concern that the effect of clauses 5 and 27.7 may be held to be that its damages for any failure by RTS to pass the Performance Tests are limited to 2.5 per cent of the Contract Price. However, Mr Maclean for Müller correctly recognised that no attempt was made to amend those clauses further. He simply relied upon the point left open by the capital letters. He submitted that in the light of that fact the court cannot conclude that clauses 27.7 and 5 were agreed terms. However, there is, in our judgment, no basis upon which the court could hold that clauses 27.7 and 5 were not agreed to be part of the agreed clauses as at 5 July. They had been agreed, in fact by 26 May (see paras 18-19 above) and, although there was initially an outstanding point in the Schedule, the terms of the Schedule itself were subsequently agreed and, as at 5 July Müller was not saying that it could not agree either those terms or Schedule 6.
As is clear from his judgment, the judge focused on the position as at 5 July. He did not make any finding relating to exchanges between the parties after that and in particular on 11 or 12 July. This is not perhaps surprising because, although in his initial e-mail when sending the third draft to RTS on 11 May Mr Morris of Müller flagged the point made in the capital letters and said that he intended completing a suggested draft on this in a couple of days, he never did so or reverted to the point. Müller at no time reverted to RTS on the point before the agreed variation on 25 August or, indeed, until a much later date. Although there is some evidence that Mr Morris still had it in mind on 11 July (see the next paragraph) as long before that as 16 May he had e-mailed the fourth draft, which included the capital letters but which he referred to as the contract ‘with final tweaks’. Moreover, the RTS Test Plan was agreed as Schedules 5 and 6 on 29 June. This point was not therefore presented to RTS as of any real importance. If it had been regarded as of any real importance to Müller it would surely have been referred to again before 5 July, either in the context of clauses 27.7 and 5 or in the context of Schedule 6. In these circumstances, in our judgment, whether viewed as at 5 July, 25 August or 5 September, this point could not fairly be regarded from exchanges between the parties as an essential part of the agreement.
We reach this conclusion having fully taken into account such evidence as there is relating to the events of 11 and 12 July. It appears that on 11 July Mr Morris gave a copy of the draft contract with its Schedules to Mr St John with a view to its being given to Mr Gavin Brown of RTS. There is evidence that a draft was given to Mr Brown and there is some evidence that Schedule 6 was in the same form as we have it in the blue version; that is with the capital letters, in other words, without any reference at all to the RTS Test Plan which had on any view by then been agreed as at least a part of Schedules 5 and 6. Mr St John’s evidence was that he handed the document to Mr Brown without looking at it. There is no evidence or suggestion that it was discussed. We have been shown a copy of a document in that form which has Mr Brown’s notations on it but those were put on in November, not July. The position is not clear because, when Mr Brown was asked whether that was the draft which Mr St John handed him in July he said that he could not recall his handing it to him in July. He thought he had received it at the end of October or early November, although he accepted that July was a possibility. When asked whether there had been any discussion about signing the contract in July, he said no. He then said that it had all gone quiet in mid-July and that he was expecting the schedules to be completed formally. He said that in mid-July he was content to let sleeping dogs lie and that RTS saw no problems with not signing the contract.
In these circumstances we conclude that there is no evidence of a discussion on the capital letters or any other point on 11 or 12 July or, indeed at any time after 5 July until much later, probably in November. Essential agreement was in our judgment reached by 5 July. None of the issues remaining after that date, including the capital letters point, was regarded by the parties as an essential matter which required agreement before a contract could be binding. On the contrary, they had agreed on the RTS Test Plan as the basis of Schedules 5 and 6. In so far as the judge reached a different conclusion in his reason ii), we respectfully disagree.
It is true, as the judge stated in his reason iii), that the parties did not proceed on the basis of all the agreed conditions and that not all the Schedules were agreed. The judge noted as part of his reason iii) that RTS did not procure the provision of the Advance Payment Guarantee as required by Schedule 7, provision of which was according to clause 16.1 “a condition of the contract” to be procured before any monies were paid towards the Price. That is so but that failure does not prevent the Contract having binding effect. In any event, as appears below, part of the Price was paid by Müller notwithstanding the failure to provide the guarantee. Even if (contrary to our view) procurement of the guarantee would otherwise have been a condition precedent to any contract, it was waived. The judge further noted in reason iii) that Schedules 15 and 17 were not completed, even though they address matters relevant from the start of the contract. However Schedule 15 was plainly not regarded as an essential matter: it simply related to health and safety requirements. Schedule 17 related to Site Preparations. According to an email dated 26 May sent by Mr Brown, Müller was to “provide site prep details”. While it appears that Müller may not have prepared those details, the site was in fact prepared and, so far as we are aware this caused no problem. It could not be regarded as a critical provision of the contract.
The judge added in his reason iii) that Müller did not appoint an Engineer. However, by clause 49, the Engineer was defined as the person appointed by the Purchaser and in default of any appointment, as the Purchaser. It follows, as Mr Catchpole observed, that in default of appointment of an Engineer, Müller was the Engineer. Finally, in his reason iii) the judge said that payment was not made in accordance with the application and certification procedure laid down in clause 11, that the procedure for Changes to the Contract laid down by clause 39 was not followed and that the dispute procedure required by clause 41 was not followed. We do not see how those facts lead to the conclusion that the various clauses were not agreed as indicated above. Another point touched on in submissions was the failure of RTS to procure any parent company guarantee in accordance with clause 48A of the terms in Schedule 1. But that was a provision which was for Müller’s exclusive benefit and open to Müller to waive, which in our view it clearly did by going ahead with the contract by and after the 25 August 2005 variation.
Although the judge did not make specific mention of the other Schedules in his reason iii), he did refer to them in his Comment box and we have dealt with them in para 21 above. In so far as some of them remained to be completed, in our judgment, they are in the same category as the terms which were not agreed in Pagnan. On a fair view of the negotiations and all the circumstances of the case, neither party intended agreement of those terms to be a precondition to a concluded agreement. As we say at para 23, in summary everything was agreed except for the provisions relating to the parent company guarantee and items which it was not necessary to complete or which were to be completed in the course of the project.
In all these circumstances we agree with Waller LJ’s conclusion at para 58 of his judgment that the MF/1 conditions had to all intents and purposes been agreed and the limit of RTS’ liability had been agreed. In short, by 25 August there was in our judgment unequivocal conduct on the part of both parties which leads to the conclusion that it was agreed that the project would be carried out by RTS for the agreed price on the terms agreed by 5 July as varied on 25 August.
Clause 48 and subject to contract
The first point remains. Had the parties agreed to be bound by the agreed terms without the necessity of a formal written contract or, put another way, had they agreed to waive that requirement and thus clause 48? We have reached the conclusion that they had. The circumstances point to the fact that there was a binding agreement and that it was not on the limited terms held by the judge. The Price had been agreed, a significant amount of work had been carried out, agreement had been reached on 5 July and the subsequent agreement to vary the Contract so that RTS agreed to provide Line 1 before Line 2 was reached without any suggestion that the variation was agreed subject to contract. The clear inference is that the parties had agreed to waive the subject to contract clause, viz clause 48. Any other conclusion makes no commercial sense. RTS could surely not have refused to perform the contract as varied pending a formal contract being signed and exchanged. Nobody suggested that it could and, of course, it did not. If one applies the standard of the reasonable, honest businessman suggested by Steyn LJ, we conclude that, whether he was an RTS man or a Müller man, he would have concluded that the parties intended that the work should be carried out for the agreed price on the agreed terms, including the terms as varied by the agreement of 25 August, without the necessity for a formal written agreement, which had been overtaken by events.
By contrast we do not think that the reasonable honest businessman in the position of either RTS or Müller would have concluded as at 25 August that there was no contract between them or that there was a contract on some but not all of the terms that had been agreed on or before 5 July as varied by the agreement of 25 August. Although this is not a case quite like the Percy Trentham case because that was not a subject to contract case, it was equally not a case like the British Steel case because here all the terms which the parties treated as essential were agreed and the parties were performing the contract without a formal contract being signed or exchanged, whereas there parties were still negotiating terms which they regarded as essential. As Mr Brown said, instead of signing the contract the parties here simply let sleeping dogs lie or, as Mr Manzoni put it in his skeleton argument at first instance, neither party wanted the negotiations to get in the way of the project. The project was the only important thing. The only reasonable inference to draw is that by or on 25 August, the parties had in effect agreed to waive the ‘subject to contract’ provision encapsulated by clause 48. We have considered whether it would be appropriate to take a later date than 25 August, perhaps 5 September when most of RTS’ equipment for Line 1 was delivered, or even 8 September when a second 30 per cent instalment of the Price was paid. However, on balance we prefer 25 August because by then the die was cast and all the parties’ efforts were directed to preparations for Line 1.
By the time the contract was concluded, there had been some delay for reasons which were already contentious (see para 24 above and paras 53-57 of the judge’s judgment). The contract, once concluded on 25 August, must, as we presently see it (though the point was not fully explored before us), be treated as applicable to the whole period of contractual performance. Any issues arising in respect of such delay would, on that basis, fall to be determined under the terms of the contract (subject to any waiver which there may have been of particular terms), as if these had already been in force during the period of such delay.
CONCLUSION
For the reasons we have given, we have a reached a different conclusion from both the judge and the Court of Appeal. It was agreed in the course of the argument that the court would reach its conclusions on the issues of principle before it and that the parties would subsequently have an opportunity to make submissions on the form of the order. However, subject to submissions on the precise form of order, including the precise formulation of the declarations to be made, our conclusion is that the appeal should be allowed, the order of the Court of Appeal set aside and declarations made (1) that the parties reached a binding agreement on or about 25 August on the terms agreed on or before 5 July as subsequently varied on 25 August and (2) that that binding agreement was not subject to contract or to the terms of clause 48.
McCabe Builders(Dubllin) Ltd -v- Sagamu Developments Ltd & ors
[2009] IESC 31 (01 April 2009)
Judgment delivered the 1st day of April, 2009 by Mr Justice Fennelly
1. The parties to this appeal are a building contractor and a developer. They are in dispute regarding the terms of the contract under which the plaintiff/respondent agreed to carry out a large building project for the defendants/respondents. Each party puts forward a set of documents said to comprise the terms of the contract between them. The appellants (whom I will describe as “the Hanly Group”) bring this appeal from the judgment of Charleton J in the High Court, in which that learned judge held that there was no contract because the parties were not ad idem. Consequently, the respondent (which I will describe as “McCabes”) is to be remunerated on the basis of quantum meruit.
2. McCabes proposed a tender price for works described in tender documents provided by the appellants. Negotiations followed. There was an exchange of letters, said by the appellants to comprise a contract. The respondents say that the contract basically consists of the standard-form contract later signed. There are inconsistencies between that document and some, at least of the tender documents.
3. It is necessary to recount the contractual history and to recall the applicable principles of the law of contract in order to reach a conclusion as to whether there was a concluded agreement and, if so, on what terms.
Contractual history
4. The Hanly Group is an established group of builders and developers. In the year 2005, it proposed to build 32 houses and 14 apartments at a site known as Rocky Valley, Kilmacanogue, County Wicklow. They had obtained planning permission for the development. They engaged Nolan Ryan, a leading firm of Quantity Surveyors, to conduct an initial tendering process. Tender documents were sent out by Nolan Ryan on behalf the Hanly Group under cover of a letter of 24th June 2005 to a number of builders, including McCabes. The tender documents comprised:
(i) The Bill of Approximate Quantities in four volumes;
(ii) A Form of Tender for completion;
(iii) Architectural Drawings and Landscape Architect’s Drawings;
(iv) A specification.
5. The core of the dispute between the parties is whether the Bill of Approximate Quantities remained a contractual document once the standard-form contract had been signed. McCabes contend that the version of standard-form contract signed by the parties excluded it from having any contractual effect insofar as it described the works to be carried out. The learned trial judge agreed. The Hanly Group contend that the description of the works is “partly definitive” of the contractor’s obligations under the contract partly because the tender drawings and specification were quite inadequate for that purpose and partly because of the exchange of correspondence between the parties after tender but before signature of the contract.
6. It is necessary, in order to discern the precise nature of the contractual dispute, to refer to some of the documents generated during the process in some detail.
7. The Bill of Approximate Quantities is central to the case for the Hanly Group. It contained the following material provisions:
· Under the heading, “Project Particulars,” there appeared a subheading “Contract” as follows:
“The form of contract will be the Articles of Agreement and Conditions of Contract 2002 (Revision 1, Print 4) as issued by the R.I.A.I. in agreement with the C.I.F. and S.C.S. where quantities do not form part of the contract.
The Appendix to the Contract will be filled in as shown in the Preliminaries Section of the Bill of Approximate Quantities.” This is known as the Blue form. I will refer to it as the R.I.A.I. form.
· A slightly varied version of the foregoing provision appeared in the schedule to the Bill of Approximate Quantities, once more emphasising the expression “where quantities DO NOT form part of the Contract” but followed by a large number of references to provisions of the R.I.A.I. form. Opposite a reference to “(36) Wage and Price Variations” there appeared: “(Clause Deleted).” There was a large list of items for inclusion in the completion of the Appendix to the Articles of Agreement (the R.I.A.I. form).
· In the Bill of Approximate Quantities under the heading “General Conditions” at GC 2 and GC 4 and the sub-heading “Documents” there at two places appeared the following:
“The Contractor shall carefully examine the drawings and other Contract documents and satisfy himself as to their accuracy and ensure that they cover and embody the proposed works.
The Contractor shall properly execute the Works whether or not shown on the drawings or described in the Bill of Approximate Quantities, provided that same may reasonably be inferred therefrom.”
· GC 5 of the General Conditions provided:
”The “Works” shall mean the whole of the works envisaged by this Contract…”
· The notes to the form of tender included: “The Contractor’s attention is drawn to the fact that Quantities do not form part of the Contract for this Project.”
· There was also a “Specification for Materials,” which contained no material provision. However, it seems to have been common case that it was quite inadequate to its stated purpose. The learned trial judge noted that it had “been described in evidence as one of the worst, meaning lacking in detail, ever issued as part of a tender process in a job of this size.”
8. The tenders were received on 19th July, 2005. The VAT exclusive tender prices for the works varied between approximately a high of €21.2 million and a low of €15.7 million. McCabes’ tender was the second lowest at €17,222,620. Negotiations took place between the Hanly Group and McCabes resulting in a reduction of their tender price of almost €2 million bringing it to a level below the next lowest competitive tender.
9. On 5th August 2005 Mr John Hanly of the Hanly Group commenced to write a letter to Mr Richard McCarthy of McCabes referring to conversations that had taken place between them. The letter includes the following sentence:
“As per our conversation, we will be entering into a Fixed Price Contract with the Contractor to carry out the works at Kilmacanogue; there will however be 6 No. PC Sums, 3 of which will be nominated suppliers and the other 3 will be at the Contractors discretion. In all cases, should there be an extra overspend on the 6 PC Sums, it will be the Developers responsibility to pay the difference.”
10. The writing of the letter was interrupted by a telephone conversation between Mr Hanly and Mr McCarthy. The learned trial judge found as a fact that, in that conversation, “a deal was made to do the works tendered for, including any extra works that might be implied by the correspondence of the 25th July, and 3rd August, for the sum of €15.3 million plus VAT.” These references to other correspondence are not in dispute on the appeal. The works being discussed (I will avoid saying “agreed” at this point) extended to the subject-matter of a large number of other letters or other documents, which were incorporated in the August correspondence. The learned trial judge found as facts that McCabes had received, in particular the letters dated 25th July and 3rd August referred to in the quoted passage. These were incorporated in the letter of 5th August.
11. In the light of the “deal” made in the telephone conversation, Mr Hanly completed the letter of 5th August proceeding, so far as relevant, as follows:
“The parameters of this letter encompass all other documentation provided by The Hanly Group to McCabe Builders surrounding the compilation of this contract.
“Since writing this letter, we have reached agreement on the project via telephone. I would like to summarise our agreement as follows:
“The Hanly Group will pay McCabe Builders €15.3 million plus VAT for the Contract as outlined in the Spec. and Bill of Quantities at Kimacanogue, County Wicklow. The Hanly Group is entering into a Fixed Price Contract and as stated earlier in this letter there are 6 PC Sums of which there are only two nominated Suppliers/Subcontractors ……
“Although not relevant to McCabe’s, it must be noted that the Hanly Group are giving in excess of €600,000 over and above a competitor’s price. We are doing this in the knowledge that the show house will be delivered in a timely fashion by the second/third week in November as discussed; also the consolidation of what should be a mutually beneficial relationship between our firms.
“In view of the above, whereby the Hanly Group will be fair to the contractor, we will be entertaining no claims whatsoever, we will work in conjunction and on a timely basis with McCabe’s to approve whatever alternatives (both products and methods) are put forward, thus ensuring cost effectiveness for McCabe’s throughout the course of the project.
“We propose taking the opportunity over the coming days to work closely with McCabe’s to finalise all outstanding issues and also we would hope to put forward some real samples of the type of product mentioned in the designer’s report. It would be beneficial for both of our companies to have reached a conclusion on this upon signing of contracts.
“It is the Hanly Groups understanding that all correspondence forwarded to McCabe Builders from our offices and Nolan Ryan’s offices regarding conditions, planning conditions and special conditions are and form integral parts of our agreement. I would be grateful if you could review this document, and if you concur that the conditions laid out in this document are as agreed, please sign below and return to our offices at your earliest convenience.”
12. A copy of the letter was duly signed and returned on behalf of McCabes on 8th August, without alteration.
13. Although the letter of 5th August refers throughout to the Hanly Group, Mr Hanly signed the letter on behalf of Laragan Development Ltd. The first-named appellant, Sagamu Developments Limited, was not mentioned as a possible contracting party at that stage. In short, the precise contracting party in the Hanly Group remained to be identified.
14. No further negotiations took place after 5th August and its counter-signature on behalf of McCabes on 8th August. However, in order to get the project started, a letter of intent for works to the value of €1 million, signed on behalf of Laragan Developments Ltd, was sent on the 26th August, 2005, in the absence of completed contract documents.
15. On 24th November 2005, Mr Hanly wrote to Mr McCabe enclosing the R.I.A.I. form and Bill of Quantities. A copy of the letter of 5th to 8th August was interleaved. The letter was written on Hanly Group notepaper and signed on behalf of Laragan Developments Ltd. The R.I.A.I. form named Sagamu Developments Limited as the contracting party. Mr Hanly said that he had initialled the documents and asked that they be returned following signature. Signature did not, in fact, take place until 19th January 2006. It is common case that the R.I.A.I. form was signed on behalf of both parties.
16. The R.I.A.I. form is entitled “Articles of Agreement” and is headed with the following:
“This form is applicable where quantities DO NOT form part of the contract.”
Sagamu Developments Limited is named as the employer and McCabes as the contractor.
Paragraph 1 provides:
“For the consideration hereinafter mentioned the Contractor will upon and subject to the Conditions annexed hereto execute and complete the Works shown upon the Contract Drawings and/or described in the Specification and Conditions all of which together with this Agreement are hereinafter referred to as “the Contract Documents.”
Paragraph 2 specifies the contract sum as €17,370,500 (the sum of €15,300,000 with VAT added). Paragraph 3(a)(ii) is crucial. It provides:
“If the Articles of Agreement do not provide for the inclusion of the Bill of Quantities as a contract document the contract sum shall be deemed to provide for the quantity and quality of work set out in the drawings and specification and the contractor shall, before the signing of the Articles of Agreement furnish the architect with the Schedule of Rates.
The Schedule of Rates shall be deemed to mean:
A copy of the fully priced and detailed estimate upon which the contractor’s tender is based priced in ink, or
Where a Bill of Quantities is provided for tendering purposes the rates therein contained.
The Bill of Quantities unless otherwise stated shall be deemed to be have been prepared in accordance with the method of measurement of building works last before issued or approved by the Society of Chartered Surveyors and the Construction Industry Federation. Nothing contained in the contractor’s estimate or the Bill of Quantities (except as a Schedule of Rates) shall confer rights or impose any obligations beyond those conferred or imposed by the contract documents.”
17. As already stated, the contract was signed on behalf of McCabes on 19th January 2006.
The proceedings
18. McCabes issued the present proceedings on 31st January 2007. They claim a declaration to the effect that there exists a binding agreement between McCabes and some or all of the appellants in respect of the development, “the terms of which are to be found in the RIAI Form of Contract 2002 Edition (Rev. 1 Print 4) where quantities do not form part of the contract and the associated documents, namely the Articles of Agreement (where quantities do not form part of the contract), the Conditions, the Specification, Appendix 1 containing a full list of the Contract Drawings and to the extent that it is relevant, the Schedule of Rates (deemed pursuant to clause3.1(ii) of the Contract, to be the rates as per the Bill of Approximate Quantities).” McCabes claim that the contract does not include either the letter of 5th to 8th August or the letters of 25th July and 3rd August, which, according to the findings of the learned trial judge, they had received.
19. The defence of the appellants need not be cited, but the counterclaim seeks a declaration that there exists a binding agreement between McCabes and the appellants, or alternatively Laragan Developments Limited in the terms of the letter or letters of 5th to 8th August 2005 and the documents listed in appendices to the pleading. In effect, the counterclaim is for a contract in the terms of the correspondence of August, to include the various other documents and letters received, especially the Bill of Approximate Quantities.
20. The learned trial judge, as already stated, did not accept either version of the contract. He held that the parties were not ad idem.
21. The learned trial judge analysed the R.I.A.I. form at length and concluded that it was not possible to incorporate the Bill of Approximate Quantities with it, essentially because of the wording of the document and the adoption of clause 3.1(ii). He effectively placed the onus on the appellants to satisfy him of the inclusion of the descriptions from the Bill of Approximate Quantities in the R.I.A.I. form and they had not done so.
22. On the other hand, this conclusion was not sufficient to persuade him to accept McCabes contention that the R.I.A.I. form, with the documents expressly incorporated, represented the contract. He reviewed the dealings between the parties in enormous detail, referring frequently to their respective intentions. He thought that the test as to whether a contract ever existed was “whether each contracting party had the same intention as to the fundamental terms that give any agreement substantial efficacy.” He thought that “the essence of the concept of an agreement [was] that the minds of the parties should meet as to their mutual obligations” and that “[t]hose obligations must be expressed in such a way that the obligations of each party can be determined with a reasonable degree of certainty.” He found that “[t]he minds of the parties never met as to central issues that are crucial to their differing understanding of what would otherwise be their mutual obligations.” He could not hold that there was a concluded contract and said that the matter would have to be sent to arbitration as to amount.
23. The learned trial judge held that the case had to be dealt with on the basis of a quantum meruit: McCabes were entitled to reasonable recompense for the benefit which they had conferred through the work they had done under the purported contract for the appellants. While the learned judge made further observations on the question of reasonable remuneration, including that it should be at such value as was prevalent in 2005, he did not relate the claim McCabes would be entitled to make in any way to the negotiations between the parties, the August correspondence, the tender which had been submitted by McCabes or the agreed sum of €15,300,000.
24. The Hanly Group have appealed against the High Court decision. They claim, as they did in the High Court, that the contract consists of the series of contractual exchanges between the parties and, in particular, that the works are to be defined by reference to the descriptions contained in the Bill of Approximate Quantities.
The opposing contentions
25. In its simplest terms, the issue is whether the R.I.A.I. form excludes any right of the Hanly Group to rely on the Bill of Approximate Quantities though only insofar as it describes the works. McCabes, in reliance on the express written terms, claim that it does. I will summarise the opposing claims.
26. The Hanly Group rely crucially on the following provision, repeated at GC 2 and GC 4 of the General Conditions in the Bill of Approximate Quantities:
“The Contractor shall properly execute the Works whether or not shown on the drawings or described in the Bill of Approximate Quantities, provided that same may reasonably be inferred therefrom.”
27. This they say is “partly definitive” of the contractor’s obligations. In other words, they say that the scope of the “works” is partly defined by the Bill of Approximate Quantities. The contract drawings and specification are also relevant, but the evidence in the High Court was that those documents were inadequate for that purpose. I have already noted the comment of the learned trial judge that the specification was utterly inadequate to describe the works. The Hanly Group, therefore, use the Bill of Approximate Quantities to define in part the scope of the contract works. They refer to the columns of the Bill, comprising, firstly, descriptions of work, secondly, quantities and, thirdly, rates. They emphasise that they rely on the descriptions column only and not the quantities. Insofar as there is conflict, they say that the provisions of GC 2 and 4 overrule condition 3(a)(ii) of the R.I.A.I. form.
28. The Hanly Group claim that a concluded agreement had been reached in the correspondence of August 2005. This showed that the Hanly Group insisted on a fixed price for the works as then agreed.
29. They point out that, in the absence of the descriptions in the Bill, McCabes would be able to limit their contractual obligations by reference to the drawings only. Although they had tendered on the basis that they would carry out the work described in the Bill of Approximate Quantities, they would not, in fact, be bound to do so. Thus, insofar as the Bill described works in excess of what could be gathered from the drawings, they would be entitled to claim extra over and above the amount agreed (€15.3m). Thus, they could claim double payment. Insofar as the R.I.A.I. form provides to the contrary, they say that the provisions of GC 2 and 4 of the Bill of Approximate Quantities should prevail.
30. It is convenient, at this point to recall that the learned trial judge addressed this point. He dealt with it in the following passage:
“Mr. McCarthy [of McCabes] agreed that the drawings in this case were lacking. The specifications, he accepted, were poor. In those circumstances, descriptions might be regarded as necessary for the purpose of defining the obligations of the contractor. I accept that this could have been done. In this case, it was not done. The plaintiff expected that the Bill of Quantities would drop away, apart from becoming a Schedule of Rates as the “blue form” RIAI contract specifies. If something was not in the drawings or specifications but was in the Bill of Quantities as a description then, theoretically, it is possible for the plaintiff, as contractor, to claim twice in respect of the same work. Some of the later correspondence from the plaintiff hints at some unstated, and perhaps even this, extreme position. I accept the evidence of Mr. McCarthy that no claim would be pursued on the double by the plaintiff. I accept also the evidence of Mr. Hanly that he could never have signed up to any form of agreement that might allow for this. I would also regard a reasonable bystander with knowledge of the intentions of the parties to immediately declare that a claim on the double, even if not expressly ruled out by the form of the contract chosen, would have been excluded. It is thus excluded by implication.”
31. In other words, the learned trial judge accepted that McCabes might well be entitled to claim on the double, but that Mr McCarthy said that they would not do so. He then proceeded, by reference to the notion of the reasonable bystander, to hold that such a right was excluded by implication. More importantly, the learned trial judge accepted the necessity for “descriptions” for the purpose of defining the scope of the contractor’s obligations but that the Bill of Approximate Quantities, since it had “dropped away” did not do so.
32. McCabes supported the decision of the learned trial judge to the effect that the parties were never ad idem and that, essentially, there was no written agreement in extensive written submissions.
33. At the hearing counsel for McCabes nevertheless concentrated on the proposition that the R.I.A.I. blue-form contract together only with those documents expressly included comprises the entire agreement between the parties. McCabes case, in this respect, is very simple. The Bill of Approximate Quantities is not a contract document except to the extent that it can provide a schedule of rates. At one point, counsel described the provision that Quantities do not form part of the contract as the sheet-anchor of McCabes’ case.
Was there a contract?
34. It is notable that both parties to this appeal embarked on the proceedings in the High Court by alleging that a contract existed between them for the carrying out of the development at Kilmacanogue. McCabes were to be the contractor and the Hanly Group (or one of the companies in the Group) was to be the contractor. On the pleadings, they differed only as to the contractual documents which governed their relationship. Furthermore, by the time the parties commenced this litigation, a very large part of the development had been carried out.
35. It is striking, in these circumstances, that the learned trial judge concluded that there was no binding agreement at all between the parties.
36. The parties went through three distinct phases of contractual negotiations.
37. Firstly, the Hanly Group, through Nolan Ryan, a firm of quantity surveyors, circulated a set of tender documents. Those documents expressly provided that, at the end of the tender process, the contract would be in the R.I.A.I. form of contract. It is obvious that both the Hanly Group and McCabes, in tendering, envisaged that a binding written agreement would come into existence.
38. Secondly, following McCabes’ tender, negotiations took place between the parties culminating in the August exchange of correspondence. It is unnecessary, for present purposes, to decide whether that exchange itself constituted a binding contract. The letter was signed on behalf of McCabes and by Mr Hanly on behalf of the Hanly Group and of Laragan Developments Limited. Leaving aside the identity of the contracting party, it is inescapable that both parties envisaged a written agreement. The tender process had been followed by negotiations leading to a reduction in the tender price to €15,300,000 and to important modifications to the scope of the works by including reference to a number of letters particularly those of 25th July and 3rd August. The August letter spoke of a Fixed Price Contract. It asked for signature on behalf of McCabes. The letter was, in fact signed on behalf of both parties.
39. Finally, the correspondence from 24th November 2005, which was accompanied by both the August letter and the Bill of Approximate Quantities, was designed to lead to the signature of the R.I.A.I. form which was expressly provided for by the tender documents.
40. At every stage of the contractual exchange, it is indisputable that both the Hanly Group and McCabes wished their agreement for the carrying out of a very substantial development to be contained in a formal written agreement. In my view, their intentions are to be gathered objectively from their exchanges of documents and not from their expressions of subjective intention as given in evidence at the hearing in the High Court. Amongst other things, the R.I.A.I. form would provide for arbitration of disputes and how variations were to be assessed and paid for.
41. The result of the finding of the learned trial judge is that each party is left to the uncertainty of a quantum meruit claim. Since there is no contract, there seems to be no reason to limit McCabes to the amount of €15,300,000 apparently agreed in the August correspondence or even to the amount of their tender of July 2005. The learned trial judge seems to have perceived that this would give rise to a problem. He noted that it would be “theoretically” possible for McCabes to claim twice in respect of the same work. In this, he was perhaps inconsistent. If there was no contract, McCabes would not be bound by the reduced tender sum of €15,300,000. They could claim payment without any reference to that sum or to the works they had agreed to perform for it. This simply serves to show that the decision that there is no contract at all between parties who have negotiated a hard-won deal is liable to produce injustice. On one version, McCabes may be entitled to claim twice; on another, they are free to charge without reference to the tender process. The learned judge’s final observation, on this point, was that a claim on the double would be excluded “by implication.” It is not clear how such a term could be implied in the absence of a contract. Nor can I see how any statement made on behalf of McCabes at the hearing that they would not claim on the double would have contractual effect.
42. The parties to the project for the development at Kilmacanogue clearly intended to enter a legally binding contract governing their relationship. They were experienced and reputable contracting companies. They engaged in a tendering procedure, followed by negotiations on price and other matters. They formally agreed to use the R.I.A.I. form and they signed it. One of the essential components of the standard-form building contracts is the provision for arbitration to settle disputes or disagreements. The absence of an arbitration procedure in the case of large building contracts will inevitably work great inconvenience for all parties, not to mentions the courts.
43. I agree with the statement in Contract Law, by Paul A. MacDermott (Butterworths. Dublin 2001) at page 171, that in “commercial arrangements it will be presumed that the parties intended to create legally binding contracts.” Lord Wright said in Hillas & Co. Ltd. v. Arcos Ltd (1932) 147 LT 503 a p.514:
“Businessmen often record the most important agreements in crude and summary fashion. Modes of expression sufficiently clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the Court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the Court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the Court is to make a contract for the parties, or to go outside the words they have used, except in so far as they are appropriate implications of law”.
44. In other words, the courts should seek to give effect to the apparent intentions of parties to enter into binding contracts. It is clear that the parties to the present proceedings intended that their relationship would be governed by a formal legal contract. The question is what the terms of the contract are.
Terms of contract
45. The principal dispute comes down to quite a narrow question. It can be expressed in various ways by reference to the terms of the various documents. The essential issue is whether the description of the “works” is limited, as McCabes contend, to what was described in the “Contract Drawings” and the “specification.” These are the documents mentioned on the first page of the “Articles of Agreement,” or the R.I.A.I. form. The opposing contention is that is that the description of “the works” is in part contained the Bill of Approximate Quantities.
46. It is not necessary to repeat the account of the three contractual stages, which I have set out above. Insofar as the tender stage is concerned, there can be no doubt at all that the Bill of Approximate Quantities was central to the description of the works. GC 2 and 4 impose an obligation on the contractor to execute the “works” “whether or not shown on the drawings or described in the Bill of Approximate Quantities, provided that same may reasonably be inferred therefrom.”
47. McCabes tendered on the basis of these documents. Their tender as reduced following negotiation was also based on the works as so described. The parties then entered an agreement. In the letter of 5th and 8th August, the agreed sum of €15,300,000 was expressed as payment “for the Contract as outlined in the Spec. and Bill of Quantities…”
48. Thus, the Bill of Approximate Quantities was central both to the description of the “works” and the price to be paid therefore at all times prior to the execution of the R.I.A.I. form contract. That document was indisputably intended to incorporate formally the terms of the agreement reached in August.
49. Looking at the object of the contract as a whole, therefore, there is no doubt that the intention of the parties was that the contract sum specified in the R.I.A.I. form would represent the consideration for the carrying out of the works for which McCabes had submitted their tender.
50. The sheet-anchor of McCabes case against the foregoing is the term: “where quantities DO NOT form part of the contract.” This term undoubtedly appeared, not only in the tender documents, specifically the Bill of Approximate Quantities, but in the R.I.A.I. form.
51. Resolution of the contest between the opposing contentions depends on which of two approaches is adopted to the ascertainment of the contract terms. McCabes say that the contract is to be found only in the R.I.A.I. form together only with any documents expressly incorporated with it. The alternative approach is to take account of the apparent intention of the parties as shown by course of dealing between them, thus including the August correspondence and the Bill of Approximate Quantities.
52. There is very great merit in the first approach in normal circumstances. Following a tender procedure, the employer and the contractor normally intend that their entire agreement be contained in one or other of the R.I.A.I. forms which has been negotiated and prepared with such care and expertise by all sides in the building industry. At that point the tender documents fall away except to the extent that they are incorporated in the chosen R.I.A.I. form of contract. Accordingly, I see great force in the view expressed in the judgment which is about to be delivered by Murphy J.
53. In the present case, however, I am convinced that the R.I.A.I. form does not fully represent the true agreement between the parties. In particular, it does not at all fully describe the works for which McCabes tendered in July, which they agreed to carry out in August and which was to be the subject of the contract. The reasons for this are already apparent and I will develop them further. It is well established that the courts will, in appropriate cases, look at the terms of a contract by reference to the course of dealing between commercial undertakings. We have had a series of cases in which applicable terms for the purposes of the Brussels Convention (now the Brussels Regulation) have been upheld by reference to a finding that a party was on express or implied notice of them. Examples are Clare Taverns t/a Durty Nellie’s v Gill t/a as Universal Business Systems [2003] 1 I.R. 286; Leo Laboratories Ltd. v Crompton B.V. (formerly Witco B.V.) [2005] 2 IR 225. The following statement of McGuinness J in the High Court in the former case at page 296 has been approved in subsequent cases:
“In the submissions made before this Court, it was not seriously suggested that the practice of printing general conditions of sale on the reverse side of invoices and similar documents, with a reference on the face of the document to the said conditions, was not a common commercial practice in the type of international trade with which we are concerned here. Indeed, from the point of view of practical experience every ordinary consumer, and still more anyone engaged in trade or commerce, must be familiar with this type of document.”
It is quite clear from the exchange of correspondence in August and the fact that the Bill of Approximate Quantities and that correspondence were enclosed with the letter from the Hanly Group of 24th November the Hanly Group wished these documents to form part of the contract and that McCabes were on full notice of those documents and of their contents.
54. It is still possible, of course, for the R.I.A.I. form as signed by the parties to have excluded those documents from the contract and it is to that issue that I now turn.
55. The first page of the R.I.A.I. form refers to the “works” referring to the development at Kilmacanogue. The “works,” as so described, are the works the subject of the tender documents.
56. This becomes clear from the ensuing statement that “the Contractor has made an estimate of the sum which he will require for carrying out the said works as shown on the tender dated 19th July 2005……………….” The R.I.A.I. form states that the employer has “caused drawings (hereinafter called “the Contract Drawings”) and a Specification describing the work to be done to be prepared….”
Condition 1 then provides:
“For the consideration hereinafter mentioned the Contractor will upon and subject to the Conditions annexed hereto execute and complete the Works shown upon the Contract Drawings and/or described in the Specification and Conditions all of which together with this Agreement are hereinafter referred to as “the Contract Documents.”
However, the works “shown upon the Contract Drawings and/or described in the Specification and Conditions” are not the entire of the “works” included in the tender of 19th July.
57. Before turning to clause 3(a)(ii), it seems to me that these terms do not exclude the descriptions contained in the Bill of Approximate Quantities from playing a role in identifying the “works.” Condition 1 does not purport to be exhaustive and must, in any event, be read in the light of the introductory reference to the “works” already cited. From the latter, read with the earlier contractual documents, it is clear that the works should be identified by reference to the “estimate” dated 19th July 2005, which is, of course, the tender.
58. It remains, therefore, to be considered whether clause 3(a)(ii) has the effect of entirely excluding the Bill of Approximate Quantities, as indeed the learned trial judge held, although, in the end, he did not find that there was a concluded contract in the terms of the R.I.A.I. form. The effect of that clause is, it is agreed, that the Bill of Approximate Quantities acts only as a Schedule of Rates. The key provision is the following:
“If the Articles of Agreement do not provide for the inclusion of the Bill of Quantities as a contract document the contract sum shall be deemed to provide for the quantity and quality of work set out in the drawings and specification and the contractor shall, before the signing of the Articles of Agreement furnish the architect with the Schedule of Rates.” (emphasis added)
59. This provision, therefore, like Condition but unlike the introductory material on the first page appears to define the works only by reference to the drawings and specification, the latter being, by common consent, utterly inadequate.
60. This provision cannot, on the facts of this case, be interpreted without reference to the general background. It is most important to recall that McCabestendered for the contract on the basis of a description of the Works as contained in the General Conditions of the Bill of Approximate Quantities. Those conditions were, as the Hanly Group have argued, “partly definitive” of the contractor’s obligations. As already noted, any other interpretation would potentially leave McCabes in the position of being able to claim in effect “on the double.” It seems obvious to me that the Court should lean against such a potentially unjust interpretation. The signing and countersigning of the August letter demonstrates a clear intention of both parties to enter an agreement for a fixed sum of €15,300,000 for the carrying out of the works described in that letter and documents incorporated by reference with it. That contractual intention was carried through to the letter of 24th November. I have no doubt, therefore, that the parties intended this agreement to be expressed in the R.I.A.I. form. To the extent that it does not, it is in conflict with the intentions of the parties. In the face of such a conflict, I believe the clear intention of the parties must prevail. I do not think it is necessary to resort to the equitable remedy of rectification, sought by the Hanly Group in their pleadings. I believe that correct result can be achieved by interpreting the R.I.A.I. form together with documents necessarily related to it.
61. I would add that the August agreement significantly differentiates this case from other cases where there might be discrepancies between tender documents and the signed R.I.A.I. form. In normal circumstances, the latter will prevail in the event of any discrepancies. Here, however, the parties had engaged in strenuous post-tender negotiations resulting in very significantly varied the tender sum but also made significant modifications to the scope of the works. The August agreement, signed by both parties, other than the identification of the proper contracting party, represented a step away from the tender procedure.
62. For the same reasons, I believe that the R.I.A.I. form was intended to include within the scope of the works all the works described directly or indirectly in the August correspondence.
I would allow the appeal and make a declaration that there exists a binding contract between McCabes and the first-named appellant the terms of which are set out in the Articles of Agreement and Conditions of Contract 2002 (Revision 1, Print 4) as issued by the R.I.A.I., signed by the parties on 24th November 2005 and 19th January 2006 together with the letter from the letter from the Hanly Group dated 5th August 2005 and signed on behalf of McCabes on 8th August 2005 and the documents referred to therein and incorporated thereby as more particularly set out in Appendix 1 and Appendix 2 of the Counterclaim.
Judgment delivered the 1st April 2009 by Mr. Justice Murphy
1. The parties to this appeal seek declarations as to the nature of the building contract entered into by the appellants (“the Hanly Group”) as employers and the respondent (“McCabes”) as contractor.
2. By letter dated 5th August, 2005, from Mr. Alan Hanly, the chief executive of the Hanly Group, to Mr. Richard McCarthy, commercial director of McCabes, was countersigned and returned by Mr. McCarthy on 8th August.
3. That letter stated in relation to a meeting the previous day, 4th August, as follows:-
“… we will be entering into a fixed price contract with the contractor to carry out the works at Kilmacanogue; there will however be 6 P.C. sums, three of which will be nominated suppliers and the other three will be at the contractor’s discretion. In all cases, should there be an extra overspend on the 6 P.C. sums, it will be the developers responsibility to pay the difference.”
4. That letter stated that the parties had reached agreement on the project via telephone. The summary of their agreement appeared as follows:-
“The Healy Group will pay McCabe Builders €15.3million plus VAT for the contract as outlined in the Spec and Bill of Quantities at Kilmacanogue, Co. Wicklow. The Hanly Group is entering into a fixed price contract and as stated earlier in this letter there are 6 P.C. sums of which there are only two nominated suppliers/sub-contractors (McNally Kitchens and Vogue Bathrooms). In both cases McCabe Builders will be dealing directly with these suppliers. However, the Hanly Group has already secured competitive quotes from both people and at any rate, as with other P.C. sums, should same increase; it will be an extra over-cost for the Hanly Group. Our expertise and experience will assist in choosing both suppliers, particularly given the product in question as both suppliers will be able to deal efficiently with customers who wish to upgrade/change products. This will be both beneficial to McCabe Contractors and the Hanly Group of developers.”
The letter then stated that the parties proposed to take the opportunity over the coming days to work closely to finalise all outstanding issues. It was noted that it would be beneficial to both of the companies to reach a conclusion on this upon signing of contracts.
5. The letter dealt with the understanding of the Hanly Group in the following terms:-
“it is the Hanly Group’s understanding that all correspondence forwarded to McCabe Builders from our offices and (the quantity surveyor’s offices) regarding conditions, planning conditions and special conditions are and form integral parts of our agreement. I would be grateful if you could review this document, and if you concur that the conditions laid out in this document are as agreed, please sign below and return to our offices at your earliest convenience.”
6. The High Court found that the communication of the 5th and 8th August was ineffective to create legal relations, due to uncertainty, and that no contractual relations had been created between the parties. The entitlement of the respondent in relation to payment for the work done to date was to be assessed on a quantum meruit.
7. The Hanly Group had engaged a firm of quantity surveyors to conduct an initial tendering process. Tender documents were sent out to a number of builders, including McCabes on the last week of June, 2005. The tender documents comprised a Bill of Approximate Quantities, a form of tender and architectural drawings and a landscape architect’s drawings.
8. The Bill of Approximate Quantities was in four volumes. The preamble to the Bill of Approximate Quantities provided that the contractor was to “properly execute the works whether or not shown on the drawings or described in the Bill of Approximate Quantities, provided that same may be reasonably inferred therefrom”.
9. The contract drawings prepared for the appellant had not been sufficiently developed to enable tenderers to properly price the works with a required degree of specificity needed for a meaningful tender. The specification document entitled “Specification of Materials”, consisting of 13 pages was very sparse. To make up for this the appellant’s quantity surveyors provided a very detailed Bill of Approximate Quantities to allow tenderers price in detail for the works required.
10. A provision had been made in the Bill of Approximate Quantities that the form of contract would be the Articles of Agreement and Conditions of Contract 2002 (revision 1, print 4) as issued by the R.I.A.I. in agreement with the Construction Industry Federation (C.I.F.) and Society of Chartered Surveyors (S.C.S.) where quantities did not form part of the contract. That document also provided as a general condition at (G.C.2) that the contractor should carefully examine the drawings and other contract documents and satisfy himself as to their accuracy and ensure that they cover and embody the proposed works. The contractor should also properly execute the works whether or not shown in the drawings and described in the Bill of Approximate Quantities, provided that same may reasonably be inferred therefrom.
11. The appellants submitted that the description in the Bill of Quantities in relation to the works, in the circumstances, formed part of the contract documents.
12. On 10th August, works commenced on site.
13. On 26th August, 2005, Mr. Hanly wrote to Mr. McCarthy issuing a letter of intent for the works to the value of €1,000,000.00, primarily to cover the respondents for works that they were commencing on the site of presence in the absence of a fully signed contract.
14. The formal contract documentation, including the R.I.A.I “blue form”, was sent to the respondent on 24th November, 2005, for signature and return which was signed on 19th January, 2006.
15. The R.I.A.I. “blue form” accordingly became binding on 19th January, 2006. 16. The Articles of Agreement thereof recited:-
“For the consideration hereinafter mentioned the contractor will upon and subject to the conditions annexed hereto execute and complete the works shown upon the contract drawings and/or described in the specification and conditions all of which together with this Agreement are hereinafter referred to as ‘the Contract Documents.’”
17. Condition 2 under the heading “The Scope of Contract” provided that the contractor should carry out and complete the works in accordance with the Contract Documents and with the directions and to the reasonable satisfaction of the architect…
18. Condition 3 (a)(ii) provided that where the Articles of Agreement did not provide for the inclusion of a Bill of Quantities as a Contract Document, the contract sum should be deemed to provide for the quantity and quality of work set out in the drawings and specifications. The contractor was required, before the signing of the Articles of Agreement, to furnish the architect with a Schedule of Rates. Where a Bill of Quantities was provided for tendering purposes the rates therein contained should be the Schedule of Rates.
19. That condition further provided:-
“Nothing contained in the contractors estimate or the bills, the Bill of Quantities (except as a Schedule of Rates), shall confer rights or impose any obligations beyond those conferred or imposed by the Contract Documents.”
20. This provision would seem to be at variance with the appellant’s contention that the description in the Approximate Bill of Quantities was effectively the Specification for the purpose of the Contract, notwithstanding that what was termed “the formal contract documentation” sent to the respondent on 24th November, 2005, included the letter of 5th .
21. Keane: The RIAI Contracts – A Working Guide (4th revised edition) comments on the RIAI “blue form” for use without quantities and the “yellow” version for use where quantities are part of the contract, as follows:-
“3.01. The effect on the Contract as to whether the Bill of Quantities forms part of the Contract or not is important. If the Bill of Quantities is a Contract Document then the quantities shown are those required under the Contract and any variation from the quantities shown in the bill will be adjusted in the final account under clause 13 as if it were a variation.
If the Bill of Quantities is not part of the Contract, then the quantities are provided only as a guide to the extent of the work (but also, of course, to form in effect, a Schedule of Rates) and the contractor, or indeed the employer, must bear any loss which might result from differences in the bill in the actual work carried out. The practice of having a Bill of Quantities not forming part of the Contract is unusual now and if a Bill of Quantities is prepared it is almost always made a Contract Document.
3.02 Originally, quantities were taken out by the contractors themselves when tendering, or the contractor employed a quantity surveyor to do this work. Naturally, under those arrangements, the responsibility for the accuracy of the quantities fell entirely on the contractor. Over the years, however, the role of the quantity surveyor changed, and more and more he became employed by the building owner. It seemed reasonable in these changed circumstances, that the employer accept responsibility for the accuracy of the bill since he has ordered the preparation of that bill and his agent, the quantity surveyor, has prepared it. This area was a profitable source of litigation until the case of Patman and Fotheringham Ltd. v. Pilditch [1904] Huttons Building Contracts, 4th edition, vol. 2, p.368 where it was held: ‘if the quantities in the Bill are less than those required by the drawings the contractor is entitled to be paid an appropriate addition to the contract sum since the quantities were introduced with the contract as part of the description of the contract work, and if the contractor was required to do more, it was an extra.”’
22. Keane refers to the decision of Ross J. in Collin Bros. v. Dublin County Council [1908] 1 I.R. 503, which dealt with the construction of Portrane Asylum, where the defendant sought to reduce the specification before contract. Quantities did not form part of the contract. A mistake had been made in a bill of reductions which had been prepared by the defendant employer’s quantity surveyor. The court held that mistake could be rectified because “the meaning of rectification of a written instrument is to carry out the real intention of the parties which had been erroneously expressed” in respect of the building of the asylum for the defendants. The Bill of Quantities had been priced by the plaintiffs in the sum of £199,000.00. The reductions brought that sum down to under £170,000.00. The building having been completed an error was discovered whereby the contractors lost £357.00. It was accepted that there was a mutual mistake.
Ross J. was of the view that the court could not deal with the contract alone but had to deal with the tender. The intention of the parties, when analysed, was that the tender for the original amount of the price to section, less the amount of the priced bill of reductions, should be accepted. The sum of £167,000.00 was erroneously taken to be the figure, and erroneously embodied in the contract.
23. Ross J. continued at 509, 510 as follows:-
“The meaning of rectification of a written instrument is to carry out the real intention of the parties which has been erroneously expressed. This is what the plaintiffs asked me to do. There are all kinds of technical difficulties. How can you rectify the deed without rectifying the tender? How can you alter an accepted tender? These technicalities ought not to be allowed to stand in the way of a court of equity, whose primary duty is to struggle to enforce fair dealing between man and man, if it can be done without violating some matter of principle.”
24. There is no evidence of a common mistake in the present case; accordingly the issue of rectification cannot arise. The tender could only be referred to where there was a mutual mistake in order to establish the true intention of the parties.
25. There is no doubt that the parties intended on 5th August, 2005, to enter into an R.IA.I. Contract without quantities. The only issue is what the specifications were and whether, notwithstanding the provisions in the contract eventually signed on 19th January, 2006, by the contractor.
26. Lord Denning in English Industrial Estates Corporation v. George Wimpey & Co. Ltd. [1972] 7 B.L.R. 122, took the view that provisions which have been specially typed in a Bill of Quantities must take precedence over a standard printed form but this, according to Keane, is an unusual view.
27. The provisions of clause 3(8)(i) which incorporates the Bill of Quantities, provides that nothing contained in the Bill should override, modify or affect in any way whatsoever the application or interpretation of that condition.
28. It was s. 3(8)(ii) that applies in the present case. That also provides that:-
“Nothing contained in the contractors estimate or the Bill of Quantities (except as a Schedule of Rates) shall confer rights or impose any obligations beyond those conferred or imposed by the Contract Documents.”
29. In clause 3(a)(i) the Bill of Quantities is deemed to provide for the quality and quantity of the work. On the other hand in sub-clause 3(a)(ii) the drawings and specifications are to perform this function.
30. It would seem, accordingly, that, in the absence of a special condition in the R.I.A.I. “blue form” importing the description of works therein to include those described in the Approximate Bill of Quantities, only the drawings and specification, inadequate though they appear, can form the definition of works. It is these that form the contract documents referred to in clause 3(b).
31. I am of the view that the R.I.A.I. contract without quantities binds the parties and would allow the appeal to that extent. However, I am unable to accept the appellant’s contention that the R.I.A.I. contract can incorporate the description in the Approximate Bill of Quantities as being a definition of the works or as being part of the contract documentation.
Keogh -v- Gibbons [2016] IEHC 319 (14 June 2016)
URL: http://www.bailii.org/ie/cases/IEHC/2016/H319.html
Cite as: [2016] IEHC 319UDGMENT of Mr Justice Max Barrett delivered on 14th June, 2016.
Part 1
Introduction
1. This is a summary claim for monies that Ms Keogh claims were lent and advanced by her to Mr Gibbons or for his benefit and at his request within the last six years.
2. Ms Keogh and Mr Gibbons were for a time dating each other. They then lived together as a couple. The entirety of their relationship spanned from 2004 to 2009.Each of Ms Keogh and Mr Gibbons appears during that time to have been financially generous to the other. Mr Gibbons bought various gifts for Ms Keogh, he gave her money when she was the victim of a burglary, he obtained a couple of jeeps under successive hire-purchase agreements and allowed her the use of them as though they were hers, he assisted financially and otherwise in her canteen business, and when he first moved into her house he paid towards his accommodation and lodging.
3. Mr Gibbons was generous with his own monies. Ms Keogh, in return, was generous with sums of money that she borrowed and some of which she gave to Mr Gibbons. She claims that her borrowings were done as part of a deal whereby Mr Gibbons would complete the construction of a house in the foothills of the Dublin Mountains and pay her back the monies she gave him by drawing down in some way on any increase in the value of that house when constructed. There does not appear to have been any arrangement as to interest contemplated in the arrangement as described by Ms Keogh.For his part, Mr Gibbons says that in fact such monies as Ms Keogh advanced to him involved her paying back some of what he had previously given her during their relationship.
4. The arrangement described by Ms Keogh has the ring of truth about it. She has always ‘paid her way’ through life. She does not lead an extravagant lifestyle. Apart from her borrowings during the course of her relationship with Mr Gibbons, she has been financially prudent. Though there is no documentation evidencing the contractual relationship that Ms Keogh purports to have existed between herself and Mr Gibbons, it defies logic that a woman who is generally prudent would run out and borrow monies for her boyfriend (and later partner) in the expectation that he could keep it if, as happened here, their personal relationship came to an earlier end than either party appears at the outset to have contemplated.
5. The court accepts therefore that there was a contractual relationship between the two parties of the type suggested by Ms Keogh. The substance of this contractual arrangement is considered further later below.Though he continues to deny that there was any legal relationship between them concerning the loan monies, Mr Gibbons has sought that various advances that he made to Ms Keogh during the currency of their relationship should be ‘set off’ whatever amount he owes her. As will be seen below, the court’s understanding of the contractual arrangements arising between the parties is to yield at least part of the ‘set off’ sought by Mr Gibbons, albeit by a subtly different route to that contended for.
Part 2
Oral Evidence
A. Ms Keogh and Mr Gibbons.
6. Both Ms Keogh and Mr Gibbons took to the witness-box during the course of the hearings. Both were clearly seeking to tell the truth as each recalled it. Ms Keogh did not seem to the court a woman who would be vulnerable to a conniving man. Mr Gibbons did not seem to the court the type of man who would prey financially on a woman.
B. Mr Keogh.
7. Ms Keogh’s brother, John, also took to the witness stand.He testified that shortly after the ‘break-up’ of the relationship between his sister and Mr Gibbons, he met with Mr Gibbons and received an assurance that the better part of €200k would be paid to his sister. For his part, Mr Gibbons denies that he ever gave this indication and the court believes him. At no time has Mr Gibbons owed €200k to Ms Keogh, so why would he acknowledge such a liability? It may be that some confusion has arisen over the proposed €200k promissory note arrangement (of which more anon).
C. Ms Cartagena.
8. Ms Cartagena, daughter of Mr Gibbons, also gave evidence. She was, for a time, a walking-partner of Ms Keogh. During one of these walks, Ms Keogh indicated that she owed €20k to her mother which had as yet gone unpaid. Ms Cartagena, like her father, seems a pleasant person. Her evidence was credible and is accepted by the court as true…but it does not really advance matters so far as the wider thrust of this case is concerned.
D. Mr Glynn.
9. Mr Glynn, sometime solicitor to Ms Keogh gave evidence. He was brought in by Ms Keogh at a very late stage when the relationship between her and Mr Gibbons had all but ended. Though Mr Glynn, an entirely competent professional, had his attendance from the meeting (which occurred several years ago), he could not, understandably, recall the substance of the meeting in great detail.
10. When it comes to this meeting, Mr Gibbons maintains that in order to help out Ms Keogh, who was by then in financial distress, and – so Mr Gibbons thought, but Ms Keogh’s evidence at trial suggested otherwise – because there were signs of their ‘getting back together’as a couple, he was minded to extend Ms Keogh creditin the amount of €200k. Various means whereby this might be achieved were discussed with Mr Glynn, who later contacted Mr Gibbons’ solicitor with a view to progressing matters; however, nothing came to pass.
11. The court does not read a great deal into the sequence of events involving Mr Glynn. All practising solicitors have doubtless attended meetings at which parties discuss a possible deal, appear to arrive at a possible arrangement between them that may or may not have been perfectly thought through, and then completely restructure that arrangement or (as here) never proceed any further. That, it seems to the court, is all that happened here. The parties discussed matters with Mr Glynn, he gave his advice, and nothing was agreed by the parties thereafter. That is the stuff of life for practising solicitors.
E. Mr Walsh.
12. Mr Frank Walsh, a certified accountant with Browne, Murphy & Hughes took to the stand. He had done a forensic accounting exercise on such figures as had been made available to him, reducing the mass of financial documentation with which the court had been presented by both parties to a comprehensible yet comprehensive analysis. His evidence was entirely helpful. However, the extent to which he could be of assistance was constrained by the fact that Mr Gibbons gets paid (or got paid) his salary in cash, leads (or led) a life in which cash plays a greater role than would perhaps be the case for most, and so had (and may still have) a lot of expenditure that is effectively invisible, being a cash payment out from a cash receipt in.
Part 3
The Contracts Arising
A. General.
13. Our law of contract requires that for a contract to exist between parties there must be offer, acceptance, and consideration. An intention to create legal relations is also sometimes asserted to be a necessary ingredient to the formation of a contract and there is case-law that supports this assertion. Even so, this is a bit of a grey area, not least because in a polity founded on the rule of law, it is ultimately the law, not the whim of the parties to a purported legal agreement that determines the legal status of same; and certainly in the longer reach of the common law, it was the presence or absence of consideration that was the determinant of contractual intention. Nowhere perhaps do matters become greyer in this regard than in the context of family arrangements. And in this case, the difficulty arising starkly presents: Ms Keogh says that there was an intention to create legal relations; Mr Gibbons says there was no intention to create legal relations; the court must therefore ‘wade in’ and seek to decide whether there was the requisite contractual intention. In this regard, factors such as the degree of closeness between the parties have traditionally played a role in the deliberations of the courts, as have the extent to which a promisee has relied on a promise.
B. Contract #1.
14. Ms Keogh offered to assist Mr Gibbons in a manner that went above and beyond the boundaries of a personal relationship – certainly one of a relatively short duration as theirs was. Thus Ms Keogh offered to borrow monies from certain financial institutions and give them to Mr Gibbons to assist him in building a house in the Dublin Mountains. This was not some wealthy heiress embarking on a folly that involved her throwing about monies with abandon. It was a woman of relatively moderate means offering to borrow money to help someone out. And Mr Gibbons, for his part, accepted this offer. Ms Keogh then relied on this arrangement to act very much to her prejudice, borrowing large sums for which she is now, regrettably, being pursued by the lending institutions. The court is satisfied, based on the foregoing, that offer, acceptance, consideration (and contractual) intention all present.
C. Contract #2.
15. There is another side to the relationship between Ms Keogh and Mr Gibbons. During their relatively short time together as a couple, Mr Gibbons expended monies (a) on a thorough refurbishment of Ms Keogh’s house (even though he owned a house of his own), (b) lent her monies to cover the cost of business assets stolen from her home one Christmas, and (c) part-funded Ms Keogh’s business.
16. It was a curious feature of Ms Keogh’s evidence, and one not accepted by the court as correct, that any money expended by her on Mr Gibbons’ house as it underwent construction was done pursuant to a contractual arrangement, but that any money expended by Mr Gibbonson her was intended as a gift. Doubtless, as in any romantic relationship, some monies went each way and nobody counted the cost…but not all monies. Just as Ms Keogh was not a wealthy person splashing about money with abandon, neither was Mr Gibbons. And in the relatively short-term relationship between the two there was perhaps a more commercial hue to arrangements between them than one might expect to find in a longer-term relationship. Thus when it comes to:
(a) the refurbishment of Ms Keogh’s house
two people were moving towards, and for a time became, one couple with two houses and so had the option of renting one out. Mr Gibbonsexpended money on Ms Keogh’s house,and relied on her indication that she would be moving into his house, each expecting that as a coupletheir moving in together would not just be personally rewarding but would also yield a joint financial boon.
(b) the cost of the stolen business assets
there seemed little, if any, doubt from the evidence – even Ms Keogh, when in the witness-box, appeared physically to balk at the suggestion – that the monies advanced by Mr Gibbons at the relevant time were anything other than a loan repayable in the future.
(c) part-funding of Ms Keogh’s business
there is no doubt that Mr Gibbons to some extent funded Ms Keogh’s business and that this was a commercial investment – yes, done in the context of a burgeoning romantic relationship (albeit one that was not ultimately one of especially long duration) but alsodone with a constant eye to, and an understanding that, there would be a hard financial return in cash terms for both parties.
17. In each of (a), (b) and (c), the court finds an offer moving from Mr Gibbons, an acceptance on the part of Ms Keogh, consideration in the form of monies expended, a prejudicial reliance on the express or understood expectation of a joint future financial benefit, and hence the requisite contractual intention arising. The court is mindful that Mr Gibbons contends that no contractual intention ever manifested in his dealings with Ms Keogh but respectfully disagrees.
D. The Jeeps.
18. At an early point in the relationship between Ms Keogh and Mr Gibbons, Ms Keogh expressed a desire to buy a Jeep that she could not herself afford. Mr Gibbons agreed that he would arrange the necessary hire-purchase financing but that Ms Keogh could drive the Jeep as though it was hers. At a later point, Mr Gibbons ‘topped up’ the hire-purchase finance, with Ms Keogh’s agreement, in order to replace the Jeep with a more up-to-date model. Ms Keogh indicated in her evidence that she believed the Jeep was a gift. But it appears to the court that the arrangement between the two, again in the context of a relatively short-term relationship, was that (a) Mr Gibbons would arrange the financing, (b) Ms Keogh would get the use of the Jeep as though it were hers, and (c) at some future stage there would be a financial reckoning…albeit that, perhaps, this last date might never have come had the romantic relationship endured between the two. Again, the court is mindful that Mr Gibbons contends that no contractual intention ever manifested in his dealings with Ms Keogh, but again respectfully disagrees.
Part 4
The Liabilities Presenting
A. Overview.
19. The court has found that Mr Gibbons owes money to Ms Keogh, and Ms Keogh owes money to Mr Gibbons. The difficulty arising for Mr Gibbons is that an analysis of the funds that have moved between him and Ms Keogh yields the conclusion that he is the party left owing money.
B. Analysis of Figures.
The various cash advances and certain other advances in kind made by Ms Keogh to Mr Gibbons are identified overleaf:
€
20.06.06….. 8,000[a]
23.06.06….. 0[b]
23.06.08….. 7,500[c]
26.01.07….. 3,850[d]
21.05.07….. 1,100[e]
10.07.07….. 32,000[f]
20.07.07….. 0[g]
10.06-08.07….. 6,722.46[h]
26.11.07….. 22,000[i]
€81,172.46
20. The various cash advances and certain other advances in kind by Mr Gibbons to Ms Keogh are identified below:
€
Jeeps….. 43,415[j]
Renovation works….. 6,130[k]
Petrol….. 4,787[l]
Newspapers & tobacco…..1,000[m]
Float….. 0[n]]
€55,332
[a] Only the €8,000 payment to a Mr O’Brien (contractor) is receipted. The remainder of the €16,002.20 withdrawn from Ms Keogh’sbank account on that date is unaccounted for. The €2.20 is almost certainly the bank-charge for the draft.
[b] There is nothing to suggest the €10,000 withdrawn on this date went to Mr Gibbons and there is the unaccounted-for fact that €18,000 was returned to Ms Keogh’s account at a later stage, which €18,000, the court finds, comprised the €10,000 and the ‘missing’ €8,000 from [a].
[c] Drawn from loan monies of €12,000 that issued to Ms Keogh on 23.06.08.
[d] This is the cost of the fireplace for what is now Mr Gibbons’ home alone. The court considers that the cost of the fireplace can be treated as having been done pursuant to the contractual arrangement as to the construction and furbishing of Mr Gibbons’ home.
[e] This is the cost of certain curtains for what is now Mr Gibbons’ home alone. The court considers that the cost of the curtains can be treated as having been done pursuant to the contractual arrangement as to the construction and furbishing of Mr Gibbons’ home.
[f] Drawn from loan monies of €76,631 that issued to Ms Keogh on 26.06.07.
[g] It was initially claimed that €20,000 was withdrawn by Ms Keogh from her account on this date. There is no evidence that this occurred and no evidence of any payment to Mr Gibbons. In any event, the court understands that this limb of the claim is now withdrawn. It is likely there was confusion arising on Ms Keogh’s part in this regard because of a repayment by her around this time of the €20,000 she owed to her mother.
[h] Thirty-nine withdrawals were made from Ms Keogh’s account at this time. Twenty-two of them are home purchases done to acquire furnishings for what is now Mr Gibbons’ home alone. The court considers that the cost of these furnishings can be treated as having been done pursuant to the contractual arrangement as to the construction and furbishing of Mr Gibbons’ home.
[i] Drawn from loan monies of €30,000 that issued to Ms Keogh on 26.11.07
[j] Mr Walsh formulated two methods of calculating the benefit arising to Ms Keogh by virtue of her exclusive use of the Jeeps. The court has taken the lower figure arising.
[k] The court has allowed the receipted expenses of €6,130.94,as itemised by Mr Walsh in the additional documentation handed up by him in court during his oral testimony. The court considered the figures for additional expense posited by Mr Gibbons in his evidence to be‘guess-timates’ on which no proper reliance can be placed by a court.
[l] It is clear from an analysis of Ms Keogh’s business accounts that some level of fuel costs on her van must have been met by Mr Gibbons. The fairest means of calculating this has been posited by Mr Walsh in his expert report and yields the above-stated figure.
[m] Apart from Mr Gibbons’ ‘say-so’, there is no evidence before it that he bought the newspapers and tobacco for Ms Keogh.The court has, however, allowed the €1,000 that is mutually acknowledged to have been given by Mr Gibbons and received by Ms Keogh to cover the cost of certain stock stolen from Ms Keogh in Christmas 2004.
[n] Ms Keogh indicated that the float each week was €50. Mr Gibbons corrected her on this, referring to Ms Keogh’slongstanding practice of having a €100 float at the start of each business-day to allow for the possibility that, e.g., the first customer would give her a €50 note and so ‘wipe out’ her float. The court accepts that there must have been a circa. €100 float per day.However, apart from Mr Gibbons’ ‘say-so’, there is no evidence that he ever funded the float monies, and Ms Keogh firmly indicated that he did not.
Part 5
Conclusion
21. For the reasons stated above, the court will order that Mr Gibbons pay to Ms Keogh the amount of €25,840.46, i.e.the net difference between €81,172.46 and €55,332.
Roche -v- Roche & ors
[2009] IESC 82 (15 December 2009)
JUDGMENT of Murray C.J. delivered on the 15th day of December 2009
The primary issue in this case is whether the constitutional protection afforded to the life of the unborn as provided in Article 40.3. of the Constitution extends to three fertilised embryos which have been frozen and stored in a clinic.
The embryos came into being in the following circumstances. The appellant, who is the plaintiff in the proceedings, and her husband, the first named respondent, were married on the 5th March 1992. In 1994 they sought fertility advice from their general practitioner and were referred to the National Maternity Hospital, Holles Street, Dublin. Investigations in that hospital did not indicate any particular fertility problem. After care and treatment in the hospital the appellant became pregnant in January 1997 and a son was born in October 1997. The course of events which then led to the creation of the three frozen embryos the subject of these proceedings were summarised in the judgment of the learned High Court Judge on this issue as follows:
“Shortly after the birth of her son the plaintiff underwent surgery for an ovarian cyst and she lost two thirds of her right ovary. She was referred back to the National Maternity Hospital in Holles Street in 1999. On the 5th May, 2000 she underwent another laparoscopy. She had fertility treatment in 2001 at Holles Street which proved to be unsuccessful. In July 2001 the plaintiff and the first named defendant were referred for IVF treatment. They elected to have the treatment at the Sims Clinic (the fourth named defendant). Their first appointment at the fourth named defendant’s clinic was in October 2001. They returned to the clinic in January 2002. On the 29th January, 2002 the plaintiff signed a document entitled “Consent to Treatment Involving Egg Retrieval”. In this document the plaintiff agreed to the removal of eggs from her ovaries and a mixing of the eggs with the sperm of the first named defendant. On the same date the plaintiff and the first named defendant signed a document entitled “Consent to Embryo Freezing”. In that document it was stated, inter alia, “we consent to the cryo preservation (freezing) of our embryos and take full responsibility on an ongoing basis for these cryo preserved embryos.” The first named defendant signed a document entitled “Husband’s Consent” in which he acknowledged that he was the husband of the plaintiff and consented to the fertilisation of the plaintiff’s eggs and the implantation of three embryos. He also acknowledged in that document that he would become the legal father of any resulting child. On the same date the first named defendant signed a “Semen Collection Form” confirming that the sample produced was his. On the 1st of February, 2002 the plaintiff signed a form entitled “Consent to Embryo Transfer”. In this she agreed to the placing in her uterus of three embryos and the administration of any drugs or anaesthetics that might be found necessary in the course of the procedure.
As a result of the IVF treatment six viable embryos were created. Three were inserted in the plaintiff’s uterus and the remaining three were frozen. The plaintiff became pregnant as a result of the transfer of the three embryos and gave birth to a daughter on the 26th of October, 2002.
Towards the end of the plaintiff’s pregnancy following IVF treatment, marital difficulties arose between the plaintiff and the first named defendant which resulted in the first named defendant leaving the family home. He had entered into a second relationship. An attempt at reconciliation failed and the parties eventually entered into a judicial separation although they still remain legally husband and wife. The plaintiff wishes to have the three frozen embryos implanted in her uterus and the first defendant does not wish this to happen and does not wish to become the father of any child that might be born as a result of the implantation of the frozen embryos. “
It is in these circumstances that the issues have arisen as to whether the appellant, as she claims, is entitled to have the frozen embryos implanted in her womb against the wishes of her estranged husband who does not wish to become the father of another child.
As indicated above the appellant has asserted that since the embryos enjoy the protection of Article 40.3.3., that provision requires that their right to life be vindicated by permitting her to have them implanted in her womb.
Article 40.3.3.
This article states:
“The State acknowledges the right to life of the unborn and, with due regard to the equal right to life of the mother, guarantees in its laws to respect, and, as far as practicable, by its laws to defend and vindicate that right.”
The Irish language version states:
“3°Admhaíonn an Stát ceart na mbeo gan breith chun a mbeatha agus, ag féachaint go cuí do chomcheart na máthar chun a beatha, ráthaíonn sé gan cur isteach lena dhlíthe ar an gceart sin agus ráthaíonn fós an ceart sin a chosaint is a shuíomh lena dhlíthe sa mhéid gur féidir é.”
The language of that provision mirrors to a significant extent the general protection afforded by Article 40.3.1. to the personal rights of the citizen.
That provides (in the English language version, nothing arising from a comparison of the two language versions):
“The State guarantees in its laws to respect, and , as far as practicable, by its laws to defend and vindicate the personal rights of the citizen.”
Subsection 3 must be interpreted in the context of Article 40 as a whole and in particular of 40.3.1.
Article 40, under the heading ‘Fundamental Rights’ and the subheading ‘Personal Rights’, commences in its first subsection by stating that:
“All citizens shall, as human persons, be held equal before the law.”
Thus Article 40, as adopted in 1937, addresses constitutional guarantees for the personal rights of human persons.
That is not to say that Article 40.3, before it was amended following a referendum, in 1983 did not necessarily afford constitutional protection to life before birth, and there were views expressed in public debate, particularly that related to the referendum, that it did, reference often being made to the obiter dictum of Walsh J. in McGee v. Attorney General [1974] 1 I.R. 284 at 312 where he stated:
“On the other hand, any action on the part of either the husband or the wife or of the State to limit family sizes by endangering or destroying human life must necessarily not only be an offence against the common good but also against the guaranteed personal rights of the human life in question.”
Indeed that passage was at the time referred to by some as a reason for advocating that the then proposed constitutional amendment was unnecessary.
Whatever the merits of that view the Eighth Amendment to the Constitution inserted subsection 3 of Article 40.3. and effectively extended in express terms to the “life of the unborn” or “mbeo gan breith chun a mbeatha” the constitutional protection for the personal rights of citizens referred to in Article 40.3.1. It does contain a specific reference to the equal right to life of the mother and I will address that proviso in due course.
In my view the subsection 3 of Article 40.3. is clear in its intent. It is intended to protect human life before birth. The key words in the English versionare “life of the unborn” and in particular, in my view the much more apt expression, “mbeo gan breith chun a mbeatha (beo in its genitive case). I think “ceart na mbeo gan breith chun a mbeatha” can be fairly interpreted as meaning the right of life not yet born to live, or to its life.
The provision does not refer to the right to life of the unborn ‘child’ or ‘foetus’. No doubt because that could have compromised the meaning of life by raising questions as to when human life, after it had commenced, whether on conception or on implantation, could be characterised or defined as that of the child or the foetus.
Thus, Article 40.3.3. focuses on human life before birth without exception. It did not purport to confer a right but to protect a right acknowledged to exist. It commences with the words “The State acknowledges the right to life …” and sought, in a positive rather than prohibitive form, to protect that life while at the same time it made clear that the provision should not be interpreted as in any way undermining the right to life of the mother. As I said, I will address that particular proviso in due course, but for the moment, suffice it to say, in my view the provision seeks to acknowledge that human life before birth and after birth, with the specific reference to the life of the mother, are worthy of equal value and respect.
So far as the wording in the English version is concerned it refers to “right to life of the unborn” and if the English language permitted it, it might have fitted more readily with the Irish language version if it referred to “The right to life of the unborn life” but that would have been, in English, both an inelegant and tautologous form of wording for insertion in the Constitution.
In the course of the appeal it was argued that this provision of the Constitution should be interpreted in the light of the mischief it was intended to address including the statutory history of the law on abortion.
It is undoubtedly the case that the prohibition on abortion or any weakening of the existing statutory provisions on the prohibition of abortion was a central part of the debate leading up to the amendment. At that time the law of abortion was governed only by sections 58 and 59 of the Offences Against the Person Act 1861 under which the procuring of a miscarriage was a crime. In that context, it is notorious that in public debate the strength or efficacy of that prohibition, as argued by some involved in the debate, had been weakened by a decision in a case before the English courts in 1939 namely R v. Bourne [1939] 1 KB 687. The dictum in that case was never followed in this country but nonetheless was apparently used to raise concerns as to how the statutory law might be interpreted in this country.
If the objective at the time had been to just address some perceived statutory frailties that could have been achieved more readily and easily by the adoption of legislation. But the public debate transcended that and the object obviously was, as the result demonstrates, to place in the Constitution a protection for human life before birth. Of course it is also notorious that another important part of the public debate was provoked by the decision of the Supreme Court in the United States in the case of Roe v. Wade 410 US 113 (1973) which found that in certain circumstances a pregnant woman had the right to have an abortion. The fear, on one side of the debate, was that the courts in this country, and specifically this Court, might at some point in the future decide that such a right resided in our Constitution.
In any event the response to the wide ranging debate which took place at the time transcended legislative considerations and the issues were addressed at constitutional level.
Having regard to the terms of Article 40.3.3. I do not consider that the Act of 1861 or any possible interpretation of it is particularly important for the interpretation of that Article.
What is important in this context is not so much the mischief that was being addressed as the manner in which it has been addressed in the terms of the constitutional provision in issue.
Article 40.3.3. is not prescriptive or prohibitive in its terms.
A prescriptive and prohibitive form of amendment could have been opted for. There was already a parallel for that in the Constitution concerning the prohibition (since deleted) on divorce which provided: “No law shall be enacted providing for the grant of dissolution of marriage”. Instead of addressing abortion as such by a prohibitive amendment such as ‘no law shall be enacted permitting an abortion to be performed’ or the like, reference to the specific mischief, so to speak, was omitted and the provision turned to focus on the positive protection of human life before birth.
In my view the provision of the Constitution was intended to embrace human life before birth without exception and to extend to it, in express positive terms, the constitutional protections available to life after birth already provided for in Article 40.3.1 (cited above).
Of course the issue of abortion is a very controversial subject in Ireland and in many countries not only on whether it should be permitted at all, but if permitted, the circumstances and time when that may be allowed. Article 40.3.3, as adopted by the people in a referendum, is what applies in this country.
The really important question remains, namely, as to whether the frozen embryos in this case must be considered by this Court as constituting human life within the meaning of the provision.
In the course of the appeal it was suggested that Article 40.3.3. was not intended, and it should not be interpreted, as applying to the frozen embryos in this case by reason of the fact that the Article only contemplated life in the womb. Accordingly, before going on to address the fundamental question as to whether the frozen embryos can be determined by this Court to have the qualities of human life within the meaning of Article 40.3.3, I propose to address this discrete point.
In support of that argument reference was made to the proviso in the article, namely, “… with due regard to the right to life of the mother, ….”
Of course the gestation and birth of a child is inextricably and humanly linked to the mother and its development in the womb.
In vitro fertilisation and the creation of embryos, fertilised ova, outside the womb was probably not contemplated at the time. It is another notorious fact that part of the public debate on these matters, as indeed it had often been in the past, included concern as to whether the right to life of the unborn might, in certain circumstances, take precedence over the right to life of the mother. The kind of question posed was whether a doctor faced with a specific constitutional protection for the life of the unborn would be entitled to give appropriate treatment for a life-threatening condition of the mother when that would result in the death of the foetus. Obviously, having regard to the terms of the provision, all human life is considered of equal value. Absent any specific reference in the Constitution to the right to life of the mother, even though her right to life as well as all other persons are covered by the general provisions of Article 40.3.1. and 2, the proviso in subsection 3 serves to make a clear statement that the right to life of the mother cannot be treated as having a lesser value than that of the foetus. It had, in my view, no other purpose.
It is still of course the case, even with in vitro fertilisation, that if that statement concerning the right to life of the mother was desirable or necessary then it is equally so now. Even with in vitro fertilisation, and the associated processes, the evolution post-implantation of the embryo to the birth of a child remains inextricably linked with the mother as indeed it is in the normal process of conception, implantation and birth.
As Hederman J., stated, in Attorney General v. X [1992] 1 I.R. at 72, when considering Article 40.3.3:
“The State’s duty to protect life also extends to the mother. The natural connection between the unborn child and the mother’s life constitutes a special relationship. But one cannot consider the unborn life only as part of the maternal organism.”
In short, that statement or proviso concerning the equal right to life of the mother is there to ensure respect and protection for her rights in certain circumstances and cannot logically, in my view, be interpreted as intending to remove protection from human life because it is outside the womb or to devalue the equal right to life of the unborn because it is outside the womb. Therefore, I cannot accept the argument that simply because the embryo exists outside the womb that it is excluded from the protection of Article 40.3.
If, and I accept it is a very important if, the frozen embryos fell to be considered as having the qualities of human life then, inevitably in my view, they would fall under the rubric of the constitutional provision. Outside the womb, they have the same qualities as they would have in the womb. That is why they are viable embryos for implantation with a view to the birth of a child. It would appear that the present state of medico-biological science is such that for the frozen embryos to advance towards birth, implantation in the womb is required. Whether that science will develop further so as to permit embryos evolve further outside the womb may be a matter for speculation.
Human Life and Article 40.3.3.
We know that human life begins in the womb. That is not in issue. I speak in the context of a normal pregnancy following what is referred to as the act of procreation, of sexual intercourse between a man and a woman. The question is: at what point does human life begin; fertilisation or implantation? Again I suppose it could be said that there was a broad consensus among all disciplines that human life begins at least at implantation of the embryo in the womb or not long thereafter.
Of course courts take judicial notice, without having to expressly say so, of obvious and accepted truths concerning the nature of the world we live in. Thus a party, in appropriate proceedings, would not have to prove that a foetus of three months constituted human life no more than a party would be required to prove the existence of the law of gravity. The issue here has an altogether different dimension. There is no generally accepted truth or scientific dogma as to precisely when human life begins.
Debate and discourse as to when human life begins has for very many decades, and indeed long before that, focused, though not always exclusively, on whether human life begins at conception or at implantation.
Inevitably, this featured as part of the public debate on the constitutional amendment but the provision is resoundingly silent as to when human life should be deemed to begin for the purposes of enjoying its protection.
I think it is safe to assume that at the time when the proposed amendment to the Constitution was being debated and its form being decided by the Oireachtas that there was no clear view or consensus on the question of when human life begins, or perhaps more important, when it can be deemed or treated as having begun.
The status of the embryo, that is to say its moral status, and specifically the issue as to when human life begins, continues to be debated and discussed as part of a virtually world wide discourse in diverse fora including the most prestigious universities and halls of learning. The many facets of the varioussides to that debate, and there are cogent arguments from every perspective, is manifest from the evidence given by the expert witnesses in the High Court. The range of views expressed or referred to in that evidence underscores the absence of any broad multidisciplinary consensus as to precisely when life begins and in particular as to whether it should be considered as beginning at conception or implantation, which are the two reference points with which we are concerned for present purposes.
However, I think it can be said that the human embryo is generally accepted as having moral qualities and a moral status. However else it may be characterised, the fertilisation of the ovum is the first step in procreation and contains within it the potential, at least, for life. It has present in it all the genetic material for the formation of life. Its creation and use cannot be divorced from our concepts of human dignity.
The Council of Europe Convention on Human Rights and Biomedicine with a view to, inter alia, preventing the misuse of biology in medicine which may lead to acts endangering human dignity prohibits, in Article 18, the creation of human embryos for research purposes. Article 3 of the Charter of Fundamental Rights of the European Union prohibits the use of embryos for the cloning of human beings as does the United Nations Declaration on Human Cloning. Such provisions and the fact that many countries regulate and protect the manner and circumstances in which in vitro embryos may be created and dealt with reflect the recognised moral status of embryos as being inextricably associated with human dignity. There is inevitably within the ambit of that moral appreciation of the embryo much debate particularly concerning the parameters of regulatory measures and what should be permitted and what should be prohibited.
The moral status of embryos and the respect or protection which society may feel they are owed is a different issue to the question posed, as to when life begins, and I do not propose to comment on it further for the purposes of this judgment.
One comes back to that fundamental issue in this case; namely whether this Court should consider that the frozen embryo is human life within the meaning of Article 40.3.3.
In the course of the appeal, counsel for the appellant acknowledged that the issue is polycentric. That is to say it is an issue which must be viewed from many standpoints, moral, philosophical, theological and scientific. It is an issue which also engenders passionate views on one side or the other in virtually all disciplines.
I do not consider that it is for a court of law, faced with the most divergent if most learned views in the discourses available to it from the disciplines referred to, to pronounce on the truth of when precisely human life begins.
Absent a broad consensus or understanding on that truth, it is for legislatures in the exercise of their dispositive powers to resolve such issues on the basis of policy choices.
The learned trial Judge aptly quoted from the report of the Constitution Review Group of the Oireachtas published in July 1996 to the following effect:
“Definition is needed as to when the ‘unborn’ acquires the protection of the law. Philosophers and scientists may continue to debate when human life begins but the law must define what it intends to protect.”
In my view that sums up the role of the Oireachtas in relation to this matter as the organ of State with at least initial responsibility for the protection and regulation of constitutional rights.
Therefore, in the context of this case, there is uncertainty or no consensus as to when human life begins. The choice as to how life before birth can be best protected, and therefore the point which in law that protection should be deemed to commence, is a policy choice for the Oireachtas having due regard to the provisions of the Constitution. It is one which falls to be made having taken into account all the factors and strands of thought which it considers material and relevant.
The courts do not, in my view, have at their disposal objective criteria to decide this as a justiciable issue. Issues are not justiciable before the courts where there is, as Brennan J., put it in his opinion in Baker v. Carr 369 U.S. 186 (1962), “ a lack of judicially discoverable and manageable standards for resolving it; or the impossibility of deciding without an initial policy determination of a kind clearly for non judicial discretion; …” That is the position in which the Court in this case is placed regarding the question of when life begins. The onus rests on the Oireachtas to make the initial policy determination so as to define by law the precise point at which “the life of the unborn” begins to enjoy constitutional protection. The other alternative is an amendment to the Constitution.
Conclusion on this Issue
Accordingly in my view it has not been established, by the appellant, and it is not a justiciable issue for this Court to decide, that the frozen embryos constitute “life of the unborn” within the meaning of Article 40.3.3.
Contract and Implied Consent
I now turn to make a brief reference to some other issues which were raised by the appellant in the appeal. In the appeal counsel for the appellant relied on three documents as supporting her contention that the first named respondent had expressly or impliedly consented to the implantation of the three embryos. The first document is one signed by the appellant and relates to a consent to treatment involving egg retrieval. Then, on the reverse side of that document there is a consent form to the treatment which is headed the ‘Husband’s Consent’ and is signed by the first named respondent. Subsequently the appellant and the respondent signed a third document which was a consent to embryo freezing. I agree with the conclusions of Denham J., Geoghegan J., and Hardiman J., that the appellant has not established that there was any contractual engagement between these parties obliging the husband to consent to the implantation of the frozen embryos nor was there otherwise an implied consent to do so.
Estoppel
In the particular circumstances thus of this case and for the reasons set out in her judgment I agree with Denham J., that the plaintiff is not entitled to succeed in her claim that the first named responded is estopped from refusing his consent to implantation. I also agree with Denham J., that there may be circumstances, such as where a woman has no children (although not necessarily just in such cases) and her only reasonable prospect of bearing a child is the implantation of embryos, could be entitled to such implantation notwithstanding the absence of the consent of the man concerned to implantation, although he had consented to the embryos being frozen.
Conclusion
As the appellant has not succeeded on any of the grounds of appeal the appeal should be dismissed.
Judgment delivered the 15th day of December, 2009 by Denham J.
1. The central issue in this case is whether three embryos, which have been frozen and stored in a clinic, are the “unborn” and as such protected by Article 40.3.3° of the Constitution of Ireland.
2. This is an appeal brought by Mary Roche, the plaintiff/appellant, referred to in this judgment as “the plaintiff”, from the decision of the High Court refusing her claim for the release to her of three frozen embryos for implantation.
3. The plaintiff was married to Thomas Roche, the first named defendant/respondent, referred to in this judgment as her husband, in 1992.
4. The plaintiff and her husband had fertility difficulties, but, after some treatment, in 1997 the plaintiff and her husband had their first child, a son, born to them.
5. Subsequently, further fertility issues arose and in 2002 the plaintiff had in vitro fertilisation treatment, “I.V.F.”, at the Sims Clinic Ltd., the fourth named defendant/respondent, “the Clinic”. Six embryos resulted. Three of the embryos were implanted in the plaintiff’s uterus and she became pregnant. The remaining three embryos were frozen and placed in storage with the Clinic, and are the three embryos in issue in this case.
6. A number of documents were signed in 2002 by the plaintiff and her husband. These documents will be considered later in the judgment.
7. As a result of the implantation of the embryos in 2002, the plaintiff gave birth to a second child, a daughter, in October, 2002.
8. Shortly after the birth of their daughter, the plaintiff and her husband separated. Years later the plaintiff requested that the three frozen embryos be released to her, as she wishes to have them implanted in her uterus. The Clinic refused to release them in the absence of consent from her husband, which was refused. Thus the plaintiff has brought these proceedings.
9. In January, 2006 the second, third and fourth named defendants/respondents, the doctors and the Clinic, were released from any further participation in the proceedings, unless required, on their undertaking to make all reasonable efforts to preserve the three embryos pending the final determination of these proceedings. The Attorney General was joined as a notice party.
10. This case raises both private and public law issues. (a) The private law issue was described as a contractual matter. (b) The public law issue is a constitutional issue, as it is the plaintiff’s case that the frozen embryos constitute the “unborn” within the meaning of Article 40.3.3° of the Constitution of Ireland, and that the State is obliged to facilitate their implantation.
High Court
11. On the 18th July, 2006, the High Court held: (i) that there was no agreement between the plaintiff and her husband as to what was to be done with the frozen embryos in the circumstances that have arisen; and (ii) that her husband had not entered into an agreement which required him to give his consent to the implantation of the three frozen embryos.
12. On the 15th November, 2006, the High Court declared that the frozen embryos were not the “unborn” within the meaning of Article 40.3.3° of the Constitution. The learned High Court judge held that it was a matter for the Oireachtas to decide what steps should be taken to establish the legal status of embryos in vitro.
Appeal
13. The plaintiff has brought this appeal against both judgments and orders of the High Court. In essence, the plaintiff’s grounds of appeal are that the High Court erred, inter alia:-
(i) in finding that there was no agreement as to what would happen to the frozen embryos in circumstances where the marriage had broken down;
(ii) in finding that there was no evidence that the husband gave his express consent to the implantation of the embryos;
(iii) in finding that it was not the presumed intention of the parties that the embryos would be implanted in circumstances in which the first implantation procedure had been successful and their marriage had broken down;
(iv) in finding that a term of the contract requiring that the frozen embryos be implanted could not be derived from the nature of the agreement between the parties;
(v) in finding that the husband was not estopped from denying he had consented to the transfer of the embryos;
(vi) in his findings regarding the purpose of the Eighth Amendment to the Constitution;
(vii) in finding that there was no evidence to establish that it was ever in the mind of the People voting on the Eights Amendment that “unborn” meant anything other than foetus or child in the womb;
(viii) in finding (at least by implication) that “unborn” in Article 40.3.3° meant foetus or child in the womb exclusively;
(ix) in finding that the clear purpose of the Eighth Amendment was to deal with the issue of termination of pregnancy and with that issue alone, whereas it was intended to confer positive rights and protection to the unborn above and beyond the issue of abortion per se;
(x) in finding that the Court was not concerned with the question of when life begins;
(xi) in finding that no evidence was adduced to enable the Court to hold that the word “unborn” in Article 40.3.3° includes embryos outside the womb;
(xii) in finding that the word “unborn” in Article 40.3.3° does not include embryos in vitro and therefore does not include the three frozen embryos in this case;
(xiii) in finding that the plaintiff was not entitled to the return of the embryos to her uterus by virtue of Article 41 of the Constitution;
(xiv) in holding that that learned High Court judge could not determine when life began for the purpose of the word “unborn” while (a) disregarding the weight of the scientific evidence on that question advanced before the court, and (b) holding (at least by necessary implication) that life began at implantation for the purpose of Article 40.3.3°.
14. The Attorney General has cross-appealed from so much of the order as awarded to the plaintiff and her husband their costs, on the grounds that the general rule should be applied, that costs should follow the event, and that there were no exceptional circumstances arising in the case so as to exclude the general rule on costs.
Submissions
15. Oral and written submissions were made on behalf of the plaintiff by Ms. Inge Clissman S.C. and Mr. Gerard Hogan S.C..
15.1 On the private law issue, in essence, it was submitted that the husband consented to the I.V.F. procedure in 2002 when he executed the necessary consent form and his consent is irrevocable as against the plaintiff. It was submitted that this is underscored by the fact that the embryo transfer forms required only the wife’s consent and did not require his consent, and that his consent was not formally sought although he was present at the implantation. It was submitted that in any event he was precluded and estopped by his conduct from denying or revoking his consent in circumstances where he allowed his wife to go through the I.V.F. procedure, and that he is also precluded from asserting a right to revoke that consent or to veto the future use of the embryos. It was submitted that the learned trial judge erred in law in holding that the husband’s consent was either required or (in the alternative) that he was entitled, in the circumstances, to refuse to give such consent.
15.2 On the constitutional issue it was submitted that:- (a) The evidence overwhelmingly supported the view that the embryos constitute unborn human life. That there are powerful arguments in favour of that view, and that it has been endorsed by a significant segment of the medical and scientific community, even if that community is divided on the question. (b) Given this state of affairs, it was submitted that the embryos should be regarded as embryonic human life and, hence, the “unborn” for the purpose of Article 40.3.3°. It was submitted as unlikely that the People intended to protect only that unborn life that was conclusively established as such or an alternative (and equally) arbitrary date, e.g. implantation. (c) So far as the argument advanced by the husband to the effect that he should not have paternity imposed on him is concerned, this turns on whether the embryos constitute unborn human life. If they do, then he is already the father of these unborn human lives. (d) If this Court concludes, as submitted it must in light of the evidence adduced, that the embryos constitute the “unborn” for the purposes of Article 40.3.3°, then this Court must vindicate that right by taking all practicable steps to protect that right. It was submitted that the Court should direct the Clinic to facilitate the plaintiff in having the embryos inserted in her uterus.
Paragraph 49 of the plaintiff’s submissions stated pithily the essence of her argument on this issue. In answer to the question as to whether a frozen embryo constitutes the unborn it was submitted:-
“49. The word “unborn” (“beo gan breith”) is, unfortunately, not defined. The literal translation of the Irish text may be rendered as “life not born”. It is submitted that the phrase refers to all human life which is capable of being born. For this purpose the Court does not have to pronounce on questions as to when human life begins. It is sufficient for present purposes to say that where (at least) a large body of medical and scientific opinion consider that embryos do constitute such unborn human life, that is sufficient for this purpose. The People must be taken to have wished to defend and protect such life, even the medical community is divided on the question as to when such life actually starts. Had the People wished such protection to commence from a later (and, it is submitted, an essentially arbitrary) date such as implantation, Article 40.3.3 would surely have said so.”
16. The submissions on behalf of the husband were advanced by Mr. John Rogers, S.C. and they included the following.
16.1 As regards the private law issue, what was termed the contractual issue, it was submitted that it was the husband’s position that there was no express or implied consent on his part to the transfer of the three frozen embryos to the plaintiff’s uterus. Should this Court hold otherwise, it was submitted that the withdrawal of consent is entirely admissible.
16.2 On the constitutional issue, on the meaning and status of the term “unborn” for the purposes of Article 40.3.3°, it was submitted on behalf of the husband that the concept of the unborn must involve the capacity or potential to be born and this capacity arises only upon the occurrence of implantation. Article 40.3.3°, it was submitted, does not support the plaintiff’s case so as to confer on a pre-implantation embryo a constitutional right to life.
17. Submissions, written and oral, were made on behalf of the Attorney General by the Mr. Donal O’Donnell, S.C. and Mr. Brian Murray, S.C..
17.1 On the private law issue, counsel on behalf of the Attorney General brought the Court’s attention to authorities in other jurisdictions which stressed the primacy of contractual agreements in this area.
17.2 On the constitutional issue, it was submitted that the frozen embryos in this case do not constitute the “unborn” within the meaning of Article 40.3.3° of the Constitution, with the consequences that the State is not obliged to facilitate their implantation. Defining the unborn so as to include pre-implantation embryos, as submitted on behalf of the plaintiff, would contravene the text, purpose, and spirit of Article 40.3.3°. It was submitted that this article was inserted into the Constitution for the purpose of prohibiting the termination of pregnancies. A consideration of the intention of the People in enacting the Eighth Amendment suggests that it did not confer constitutional rights on the pre-implantation embryo. It was submitted that the plaintiff’s appeal ought to be dismissed; that dismissal of the appeal would leave to the People and their representatives the capacity to resolve the question of the appropriate treatment of such embryos in the light of modern conditions.
Current situation of the embryos
18. On the 24th June, 2005, the Clinic wrote to the plaintiff and her husband pointing out that they had received no payment for the storage of their embryos since June, 2003. The Clinic wrote that the failure of payment, despite a request for payment, “is a breach of unit policy which renders our implied storage contract null and void.” The Clinic stated that as an act of altruism it would maintain the integrity of the embryos for another year but pointed out that neither the Clinic nor its agents had any further responsibility for the embryos. The stored embryos may be removed from the storage area and transferred only with the consent of the plaintiff and her husband. The current situation is that the second and third named defendants and the Clinic have indicated that they will abide by the court order.
The Private law issue: Contract?
19. The first issue on this appeal is the private law matter, referred to as having a contractual aspect. Mr. Gerard Hogan S.C., for the plaintiff, argued that there was express consent by the husband to the implantation of the three embryos, or that there was implied consent, and/or that the husband is estopped from refusing to give his consent in the circumstances of the case.
20. There are three documents upon which this submission is grounded. I shall consider each of the documents in turn.
20.1 There is a document as follows:-
“Medical Programmes directed by:
Anthony Walsh, MD, MRCOG, MRCPI
David Walsh, MD, MRCOG
CONSENT TO TREATMENT INVOLVING EGG RETRIEVAL
Full name of Woman ..…[Mary Roche]…..
Address …………………….. [address given]
1. I consent to (delete/complete as applicable):
(a) Being prepared for egg retrieval.
[this is ticked]
(b) The removal of eggs from my ovaries with the aid of:
• laparoscopy
• ultrasound
[the term “ultrasound” is circled]
(c) the administration of any drugs and anaesthetics which may be found necessary in the course of the procedures;
[this is ticked]
(d) the mixing of the following (tick each column as required):
( ) of my eggs ( ) with sperm of my husband/partner
[both of the above are ticked]
( ) 3 eggs only ( ) all of my eggs
( ) anonymous donor’s eggs ( ) an anonymous donor’s sperm;
(e) the use of micromanipulation techniques
2. I have discussed with … [Dr Walsh] … the procedures outlined above.
I have been given information both orally and in writing about them.
3. I have been given a suitable opportunity to take part in counselling about the implications of the proposed treatment.
Patient’s signature …………… Date …………
[The plaintiff has signed the document and it is dated 29.01.02]
Doctor’s signature …………… Date …….……
[There is a signature and it is also dated 29.01.02]”
20.2 I have considered this document carefully. It is a type of form. It addresses the relationship between the two doctors, named at the top of the sheet, and the plaintiff. It is a consent form for the plaintiff in relation to the medical treatment being offered by the doctors. The husband is not a party to this form. The form addresses issues related to information for the plaintiff, and consent by the plaintiff to the medical procedures referred to. It is not a contract between the plaintiff and the husband. There is no question of an offer or acceptance or consideration, or an intention to create a legal contract, leading to an agreement between the plaintiff and her husband.
20.3 On the reverse side of that consent form is another consent form. The document is as follows:
“Medical Programmes directed by:
Anthony Walsh, MD, MRCOG, MRCPI
David Walsh, MD, MRCOG
HUSBAND’S CONSENT
1. I am the husband of …. [Mary Roche] …. and I consent to the course of treatment outlined above. I understand that I will become the legal father of any resulting child.
2. Any other remarks ……………..
Signature of husband ………… Date …………
[The document is signed by the husband and it is dated 29.01.02]
Full name in block capitals ……………………..
[Blank]
Address …………………………………………
[Blank]
______________________________________________________ “
20.4 The above document is a consent form signed by the husband, consenting to the course of treatment to the plaintiff. It addresses issues relevant to the medical treatment of the plaintiff and relates to the relationship, in this context, between the doctors and the husband. It also states that he understands that he will become the legal father of any resulting child. There is no question of a contractual relationship being established by this document between the plaintiff and her husband. There is no offer or acceptance, nor consideration, nor intention to create legal relations. It is a medical consent form signed by the husband and it is relevant to his relationship with the medical programmes and personnel.
20.5 Also, on the 29th January, 2002, the plaintiff and her husband signed a third document. This was a consent to embryo freezing. The document states as follows:-
“Medical Programmes directed by:
ANTHONY WALSH, MD, MRCOG, MRCPI
DAVID WALSH, MD, MRCOG
CONSENT TO EMBRYO FREEZING
Full names of couple …. Mary & Thomas Roche….
Address ……………………..
[short address is given]
We consent to the cryopreservation (freezing) of our embryos and take full responsibility on an on-going basis for these cryopreserved embryos.
Patients Signatures ………………. Date …………..
……………… Date ………….
[The plaintiff and the husband signed the document and dated it 29.01.02]
Doctor’s signature ………………. Date ………….
[There is a signature which is indecipherable and it is dated 29.01.02]”
21. This is another consent form. Neither this form nor the two previous forms are documents drawn up and establishing a legal agreement between the plaintiff and her husband. They are consent forms presented by the Clinic to the plaintiff and to her husband and they relate to consent to actions taken by the Clinic. They are signed by the plaintiff and her husband, as medical consent forms. They were formulated to protect and assist the Clinic and the second and third named defendants, in the treatment programme.
22. The plaintiff and the husband underwent the treatment with the hope that they might have a child. The process resulted in six embryos. Three of the six embryos were implanted in the plaintiff’s uterus and subsequently a child was born to them. The remaining three embryos were frozen. It is the three surplus embryos which have given rise to these proceedings. The position of these three embryos was not addressed in the documents, except in the consent to embryo freezing form.
23. When the treatment commenced it would not have been known how many eggs would be fertilised, and the consent to embryo freezing related to any surplus embryos. The document is simply that – a consent to embryo freezing. It provided for the situation where, as in fact happened in this case, surplus embryos were produced. None of the documents are contracts creating or evidencing an agreement between the plaintiff and her husband expressing consent to the implantation of these three surplus embryos in the plaintiff’s uterus. I am satisfied that the fact that the husband consented to the treatment and to the freezing does not establish a consent so as to enable the plaintiff to avail of the surplus frozen embryos for implantation.
24. The consent given by the husband was to the treatment then planned for the I.V.F., and to the freezing of any surplus embryos.
25. The documents are forms which were provided by the Clinic to the plaintiff and her husband to obtain their consent to the procedures. They are in line with the guidelines of the Medical Council.
26. In “A Guide to Ethical Conduct and Behaviour”, “the Guide”, approved and published by the Medical Council in 2004, on the issue of informed consent, it was stated, in paragraph 17.1:-
“It is accepted that consent is implied in many circumstances by the very fact that the patient has come to the doctor for medical care. There are however situations where verbal and if appropriate written consent is necessary for investigation and treatment. Informed consent can only be obtained by a doctor who has sufficient training and experience to be able to explain the intervention, the risks and benefits and the alternatives.”
27. In the section of the Guide relating to reproductive medicine, paragraph 24.5 was headed “In-Vitro Fertilisation (I.V.F.)” and stated:-
“Techniques such as I.V.F. should only be used after thorough investigation has failed to reveal a treatable cause for the infertility. Prior to fertilisation of an ovum, extensive discussion and counselling is essential. Any fertilised ovum must be used for normal implantation and must not be deliberately destroyed.
If couples have validly decided they do not wish to make use of their own fertilised ova, the potential for voluntarydonation to other recipients may be considered.”
The documents in this case are consistent with those guidelines, which envisaged that there should not be intentional destruction of embryos.
In the 7th Edition 2009 Guide to Professional Conduct and Ethics for Registered Medical Practitioners, published recently by the Medical Council, on the matter of assisted human reproduction the guidelines state:-
“20.1 Assisted human reproduction treatments, such as In Vitro Fertilisation (IVF), should only be used after thorough investigation has shown that no other treatment is likely to be effective. You should ensure that appropriate counselling has been offered to the patient and that the patient has given informed consent before receiving any treatment.
20.2 Assisted reproduction services should only be provided by suitably qualified professionals, in appropriate facilities, and according to international best practice. Regular clinical audit and follow-up of outcomes should be the norm.
20.3 If you offer donor programmes to patients, you must consider the biological difficulties involved and pay particular attention to the source of the donated material. Such donations should be altruistic and non-commercial. You should keep accurate records for future reference.”
Thus there is a change in these new guidelines in relation to the fertilised ovum. This illustrates the lack of regulation in the area. The situation in this case has arisen because of the creation of the three surplus embryos. These circumstances arise in other jurisdictions also. Some states have taken steps to prohibit the keeping of surplus embryos. Other states make specific provision in legislation for surplus embryos. There is no legislation in Ireland on the issue, nor any other form of regulation on assisted human reproduction.
28. The Report of the Commission on Assisted Human Reproduction, 2005, at p.XI, stated that:-
“The surplus embryos not used for immediate transfer may be preserved in a frozen state (cryopreservation) for further use by the couple who produced them, thereby avoiding the necessity of repeating the risky and uncomfortable procedure of ovarian stimulation. (Sperm may also be reserved in a frozen state. At present ova are not routinely frozen). If frozen embryos still remain after the couple has completed their treatment, the available options include: donation to another couple, donation for research and being allowed to perish.”
The Commission recommended that a regulatory body should be established by an Act of the Oireachtas to regulate assisted human reproduction and that appropriate guidelines should be put in place. Clearly it is a matter for the Oireachtas to regulate the sensitive and important area of reproductive medicine.
29. I am satisfied that the consent of the husband to the I.V.F. treatment and to the freezing of embryos was not an agreement to the implantation, years later, of the surplus frozen embryos. There was no agreement, between the plaintiff and the husband, as to the surplus embryos.
30. The absence of an express agreement, and the absence of regulation in the circumstances of the case, lead to the issue of an implied agreement being raised by counsel for the plaintiff.
Implied Agreement
31. I am satisfied that the facts of the case do not establish that there was an implied consent by the husband to the use, the implantation, of the surplus frozen embryos. Without going into the evidence in detail in this judgment, two extracts illustrate the situation. On Day 2 the plaintiff gave the following evidence:-
“Q. Can you tell the Court when do you recall the first discussion taking place about the embryos between yourself and your husband?
A. It was before he left the second time. I asked him: ‘What are we going to do with our frozen embryos?’ and his initial reaction was at the time: ‘We will destroy them’ and I said ‘We can’t do that, the clinic don’t allow that’. We didn’t speak of it again.”
Later it transpired from the plaintiff’s evidence that they had a further discussion on the frozen embryos in 2005. In her evidence on Day 2 the plaintiff was asked and answered as follows:
“Q. Did you have any discussion with your husband about seeking to recover the embryos yourself with a view to having them transferred and for the purposes of implantation?
A. I did bring up the question again, I think it was in 2005. We were at a mediation session regarding an issue and I brought it up again. I asked him what are we going to do with our three frozen embryos and his reply was that we would donate them and the money that we would get from the donation, we would give it to a children’s charity. My reply to him was ‘You want to sell our children?’ He said ‘You don’t get any money when you donate frozen embryos’, and that was the last discussion I had with him.”
It is clear that there was at no time an implied agreement, or consent by the husband, to the implantation of the surplus frozen embryos.
Estoppel
32. Counsel submitted that once one had regard to the sequence of events, the consent forms, the implantation of three embryos, the freezing of the three surplus embryos, in a situation where the husband knew that there may be surplus embryos, that the husband is precluded by his conduct from refusing to give consent to the implantation of the three surplus embryos in the plaintiff’s uterus.
33. This submission is made in relation to a situation where, I am satisfied, there was neither an express nor an implied consent or intent to have the three surplus embryos implanted. There was no intent, or advance decision, in relation to any surplus embryos. There is no question, therefore, of enforcing any earlier expressions of choice. As there was no decision on the matter there is no issue of withdrawal of consent arising for consideration.
34. The facts of a case are critical to any analysis of estoppel. In this case there was the I.V.F. treatment, the implantation of three embryos and the successful birth of a daughter. This was the plaintiff and her husband’s second child, a son having been born to them earlier. There was consent to freezing surplus embryos but there was no agreement or choice made as to what was to be done with any surplus embryos. There was no agreement between the plaintiff and her husband. The plaintiff and her husband are now separated. The plaintiff wishes to have the surplus embryos implanted, while her husband does not wish them to be implanted. In the circumstances of this case, on the facts and the law, no issue of estoppel arises.
35. The finding, set out later in this judgment, on the meaning of the term the “unborn” in Article 40.3.3, with reference to the three frozen embryos, is relevant to this analysis. I have been mindful of that finding in my decision.
36. There being no agreement between the parties, another approach advocated was that of the contemporaneous mutual consent test. The Court’s attention was drawn to In Re the Marriage of Witten III 672 N.W. 2M 768 (Iowa 2003), a decision of the Iowa Supreme Court where frozen embryos had been created by the parties with consent. However, the marriage broke down and then the wife wished to use the embryos but the husband did not. The Court held:-
“That brings us, then to the dilemma presented when one or both partners change their minds and the parties cannot reach a mutual decision on disposition. We have already explained the grave public policy concerns we have with the balancing test, which simply substitutes the court as decision maker.”
However, this approach is not relevant to, nor should it be applied in, this case as there was no initial agreement as to what should happen to the surplus embryos other than that they be frozen. Consequently no issue of change of mind arises. However, it is of interest to note the test applied by that Court. It held:-
“A better principle to apply, we think, is the requirement of contemporaneous mutual consent. Under that model, no transfer, release, disposition or use of the embryos can occur without the signed authorization of both donors. If a stalemate results, the status quo would be maintained. The practical effect will be that the embryos are stored indefinitely unless both parties can agree to destroy the fertilised eggs. Thus, any expense associated with maintaining the status quo should logically be borne by the person opposing destruction. … Turning to the present case, we find a situation in which one party no longer concurs in the parties’ prior agreement with respect to the disposition of their frozen embryos, but the parties have been unable to reach a new agreement that is mutually satisfactory. Based on this fact, under the principles we have set forth today, we hold that there can be no use or disposition of the Wittens’ embryos unless Trip, (the husband) and Tamera (the appellant) reach an agreement. …”
That test does not arise in the circumstances of this case as the parties did not make an agreement as to the surplus frozen embryos. However, the mutuality required in the test is noteworthy.
37. A different test was applied in Davis v. Davis 842 S.W. 2d 588, 597 (Tenn. 1992), where the Tennessee Supreme Court addressed the issue of disputes as to frozen embryos between divorcing couples. It stated, at paragraph 112:-
“In summary, we hold that disputes involving the Disposition of preembryos produced by in vitro fertilization should be resolved, first, by looking to the preferences of the progenitors. If their wishes cannot be ascertained, or if there is dispute, then their prior agreement concerning Disposition should be carried out. If no prior agreement exists, then the relative interests of the parties in using or not using the preembryos must be weighed. Ordinarily, the party wishing to avoid procreation should prevail, assuming that the other party has a reasonable possibility of achieving parenthood by means other than use of the preembryos in question. If no other reasonable alternatives exist, then the argument in favour of using the preembryos to achieve pregnancy should be considered. However, if the party seeking control of the preembryos intends merely to donate them to another couple, the objecting party obviously has the greater interest and should prevail.”
38. As indicated earlier, I am satisfied that there was no prior agreement in this case to the implantation of the surplus frozen embryos. However, even if the husband had made such agreement, which he did not, I would not regard it as irrevocable. All the circumstances would have to be considered carefully. If a party had no children, and had no other opportunity of having a child, that would be a relevant factor for consideration. In this case the plaintiff and her husband already have two children. It is also relevant that they are now separated. Another important factor is that the husband does not wish to have further children with the plaintiff. If the embryos were implanted he would be the father of any subsequent children, with constitutional rights and duties.
39. The right to procreate was recognised in Murray v. Ireland [1991] 1 I.L.R.M. 465. There is an equal and opposite right not to procreate. In the circumstances of this case, while the plaintiff and her husband have family rights, the exercise of a right not to procreate by the husband is a proportionate interference in all the circumstances of the case to the right of the plaintiff to procreate.
Conclusion on civil issue
40. Each case requires to be considered on its own facts. I conclude on the civil issue that there was no agreement, express or implied, as to the use of the three surplus frozen embryos. Even if there was an agreement, which I am satisfied there was not, I consider that it would not be irrevocable. Further, in the circumstances, the principle of estoppel does not apply to estopp the husband from refusing to give his consent to the implantation of the frozen embryos.
41. I would dismiss the plaintiff’s appeal on all the grounds raised in relation to the private law issue.
Constitutional Issue: the “unborn”
42. For the purpose of analysing the constitutional issue I shall recap, shortly, the basic facts. The plaintiff and her husband experienced fertility difficulties. With treatment the plaintiff became pregnant and the couple had a son born to them in 1997. The plaintiff wished to have further children and she attended the Clinic for I.V.F. treatment in 2001. In January 2002 the plaintiff and her husband signed the documents set out earlier in this judgment. Six viable embryos were created in the Clinic following the mixing of the plaintiff’s eggs with the husband’s sperm. Three of the embryos were implanted in the plaintiff’s uterus, she became pregnant, and a daughter was born in 2002. The plaintiff and her husband have had marital difficulties and are now separated. At issue in this case are the three surplus embryos which were frozen and stored at the Clinic.
43. The plaintiff submits that the three surplus embryos constitute the “unborn” for the purposes of Article 40.3.3° of the Constitution and that the State, (which includes the Court), is obliged to facilitate the implantation of the embryos into the plaintiff’s uterus having regard to the constitutional duty to protect unborn life. On behalf of the husband it was submitted that the concept of the “unborn” must involve the capacity or potential to be born and that this capacity arises only upon the occurrence of implantation; that Article 40.3.3° does not support the plaintiff’s case so as to confer on an embryo pre-implantation a constitutional right to life. On behalf of the Attorney General it was submitted that the frozen embryos do not constitute the “unborn” within the meaning of Article 40.3.3°, and that consequently the State is not obliged to facilitate their implantation.
44. The term “unborn” is to be found in Article 40.3.3° of the Constitution. The Article states:-
“The State acknowledges the right to life of the unborn and, with due regard to the equal right to life of the mother, guarantees in its laws to respect, and, as far as practicable, by its laws to defend and vindicate that right.”
The word “unborn” is not defined in the Constitution.
45. This case is not about the wonder and mystery of human life. This is a court of law which has been requested to make a legal decision on the construction of an article of the Constitution of Ireland. The question raised is whether the term “unborn” in the Constitution includes the three frozen embryos in issue in this case. It is a matter of construing the word in the Constitution to determine its constitutional meaning.
46. This is not an arena for attempting to define “life”, “the beginning of life”, “the timing of ensoulment”, “potential life”, “the unique human life”, when life begins, or other imponderables relating to the concept of life. This is not a forum for deciding principles of science, theology or ethics. This is a court of law which has been requested to interpret the Constitution and to make a legal decision of interpretation on an article in the Constitution.
47. Article 40.3.3° was inserted into the Constitution of Ireland, 1937, by the Eighth Amendment to the Constitution in 1983.
48. The context in which this amendment was passed is important and relevant.
Context – statutory
49. Before Article 40.3.3° was introduced into the Constitution the law on abortion was governed by s.58 and s.59 of the Offences against the Person Act, 1861, by which the procuring of a miscarriage was a crime. These provisions were confirmed by s.10 of the Health (Family Planning) Act, 1979.
50. The meaning of s.58 of the Offences Against the Person Act, 1861 was considered in England and Wales in R. v. Bourne [1939] I KB 687. MacNaghten J. held that an abortion to preserve the life of a pregnant woman was not unlawful. It was held that where a doctor was of the opinion that the probable consequence of a pregnancy was to render a woman a mental and physical wreck he could be said to be operating for the purpose of preserving the life of the mother.
51. R. v. Bourne was followed in many common law jurisdictions. However, it was never applied to or relied upon in this State. It was no part or our law.
52. The term “miscarriage” was not defined in the Act of 1861. It was referred to in R. (Smeaton) v. Secretary of State for Health [2002] 2 F.L.R. 146. Munby J., at p.210 stated:-
“Professor J K Mason takes the same view as both Professor Kennedy and Professor Grubb, and for much the same reasons: see his Medico-Legal Aspects of Reproduction and Parenthood (1990) pp 54-56 and Mason, McCall Smith and Laurie Law and Medical Ethics (5th edn, 1999) pp 111-112, 129-130.
He adds (Medico-Legal Aspects at p 54) an interesting argument as to why preventing implantation is not procuring a miscarriage:
‘Medically speaking . . . there is wealth of difference, the most particular being that the contents of the body’s passages which are open to the exterior are, themselves, “external” to the body. A simple example is to be seen in the ingestion of a toxic substance; an analysis of the stomach or bowel contents may indicate the fact of ingestion but cannot demonstrate poisoning-the substance has not been absorbed and is, accordingly, still “external” in nature. Something which is external is carried only in the loosest sense-it can be dropped either intentionally, accidentally or naturally. There can be little or no doubt that bodily “carriage” implies some kind of integration with the body or, as Kennedy has said: “there can be no miscarriage without carriage'”.
I agree with this analysis and apply it in my consideration of the issue before the Court.
53. Therefore, I am satisfied that, in the context of the statutory law prior to the introduction of Article 40.3.3° of the Constitution, the State protection of an embryo arose after implantation. The Amendment introduced in the Constitution was to copper fasten the protection provided in the statutory regime, to render unconstitutional the procuring of a miscarriage. It meant that any expansive interpretation of the Act of 1861 was precluded.
Context – right to privacy
54. Prior to the Eighth Amendment the context also included some controversial cases in other jurisdictions on, and the development of, the right to privacy. The right of privacy was interpreted by the Supreme Court of the United States of America to prohibit state interference with a couple’s use of contraceptives: Griswold v. Connecticut [1965] 381 U.S. 479. It was also the basis for the decision of that Court on the right of a woman to decide to have an abortion: Roe v. Wade [1973] 410 U.S. 113.
55. The right to privacy was also considered by this Court. In McGee v. Attorney General [1974] 1 I.R. 284 it was held that the provisions of s.17(3) of the Criminal Law Amendment Act, 1935, which prohibited the sale or import of contraceptives, were no longer in force. The provisions were held to be an unjustified invasion of the woman’s personal right to privacy in her marital affairs, and inconsistent with Article 40.3.1° of the Constitution. That article provides that the State guarantees in its laws to respect, and, as far as practicable, by its laws to defend and vindicatethe personal rights of the citizen. In his judgment Walsh J. pointed out that the sexual life of a husband and wife is of necessity and by its nature an area of particular privacy. He stated, at p.313:-
“In my view, Article 41 of the Constitution guarantees the husband and wife against any such invasion of their privacy by the State. It follows that the use of contraceptives by them within that marital privacy is equally guaranteed against such invasion and, as such, assumes the status of a right so guaranteed by the Constitution. If this right cannot be directly invaded by the State it follows that it cannot be frustrated by the State taking measures to ensure that the exercise of that right is rendered impossible.”
In the debate before the Court in McGee the case Griswold v. Connecticut [1965] 381 U.S. 479 was opened and relied upon by the plaintiff. Walsh J. referred to that case (and two other cases of the U.S.A. which had been opened) and stated that his reason for not referring to them was not because he did not find them helpful or relevant, which he stated they were, but because he found it unnecessary to rely upon any of the dicta in those cases to support the views which he expressed.
Context – Mischief addressed
56. I am satisfied that the mischief to which Article 40.3.3° was addressed was that of the termination of pregnancy, the procuring of a miscarriage, an abortion.
57. McCarthy J. stated in Attorney General v. X [1992] 1 IR 1 at p.81:-
“[The Amendment’s] purpose can be readily identified – it was to enshrine in the Constitution the protection of the right to life of the unborn thus precluding the legislature from an unqualified repeal of s.58 of the Act of 1861 [which prohibited abortion] or otherwise, in general, legalising abortion.”
The Amendment would have a significant consequence for the legislature, it would preclude an unqualified repeal of s.58 of the Act of 1861. It would have a significant consequence in the Courts also.
Words
58. It is necessary to consider the words of Article 40.3.3º carefully. Article 40.3.3° acknowledges the right to life of the unborn. However, due regard is given to the equal right to life of the mother. This establishes a specific constitutional and legal relationship between the unborn and the mother.
59. The unborn is considered in Article 40.3.3° in relation to the mother. The special relationship is acknowledged. Of course there is a relationship between the frozen embryos in the clinic and the mother and the father – but not the link and relationship envisaged in Article 40.3.3°. Article 40.3.3° was drafted in light of the special relationship that exists uniquely between a mother and the child she carries. It is when this relationship exists that Article 40.3.3° applies.
60. Further, the relationship is viewed through the prism of the right to life. It applies to a relationship where one life may be balanced against another. This relationship only exists, this balance only applies, where there is a physical connection between the mother and the unborn. This occurs only subsequent to implantation of the embryo. Thus the balancing of the right to life described in Article 40.3.3° may only take place after implantation. Therefore an unborn under Article 40.3.3° is established after an embryo is implanted.
61. The concept of unborn envisages a state of being born, the potential to be born, the capacity to be born, which occurs only after the embryo has been implanted in the uterus of a mother.
62. This analysis may be put in a slightly different form. The right to life of the unborn is not stated as an absolute right in Article 40.3.3°. Rather, it is subject to the due regard to the right to life of the mother. The right to life of the mother is not stated as an absolute right either. Article 40.3.3° refers to a situation where these two lives are connected and a balance may have to be sought between the two lives. Thus the physical situation must exist to require such a balancing act. No such connection exists between the plaintiff and the three surplus embryos now frozen and stored at the Clinic. There is no such connection between the lives of the mother and the embryos at the moment. The relationship which might require the consideration of the right to life of the unborn and the equal right of the mother does not arise in the circumstances.
63. This connection, relationship, between the embryos and the mother does not arise until after implantation has occurred. After the implantation of an embryo the relationship between the embryo and the mother changes. The mother has carriage of the embryos, becomes pregnant, and the embryo enters a state of “unborn”. At that time an attachment begins between the two lives. It is that attachment which gives rise to the relationship addressed in Article 40.3.3°.
64. The words of Article 40.3.3° refers to a situation where the rights of the mother and the unborn are engaged. This occurs after implantation. Thus Article 40.3.3° does not apply to pre-implantation embryos.
65. There were submissions stressing the word “beo” in the Irish version of the Article. However, both language versions refer to birth or being born. Thus the fact of being born or birth is a factor in both versions. The beginning of “life” is not the protected term, it is the unborn, the life capable of being born, which is protected. The capacity to be born, or birth, defines the right protected. This situation, the capacity to be born, arises after implantation.
Harmonious Interpretation
66. The interpretation of the “unborn” as arising after implantation is also a harmonious interpretation of the Constitution. Article 41.1.2 states:-
“The State … guarantees to protect the Family in its constitution and authority, as the necessary basis of social order and as indispensable to the welfare of the Nation and the State.”
This establishes a strong family unit under the Constitution. In McGee v. Attorney General [1974] 1 I.R. 284 it was pointed out that this prevents the State from interfering in a married couple’s decision as to the make up of their family unit. Walsh J. stated at p.311:-
“It is a matter exclusively for the husband and wife to decide how many children they wish to have, it would be quite outside the competence of the State to dictate or prescribe the number of children which they might have or should have. In my view, the husband and wife have a correlative right to agree to have no children.”
67. If the frozen embryos were the “unborn” protected by Article 40.3.3° the State would have to intervene to facilitate their implantation. This would be a duty of the State irrespective of the parents’ wishes. Clearly this would be inconsistent with the rights of the family under the Constitution. It would also give to the State a duty to protect all embryos in the State in all the clinics, hospitals, etc., no matter what were the wishes of the parents.
68. In constructing the Constitution it is appropriate to seek a harmonious construction of Article 40.3.3° in the context of the Constitution. I agree with the approach of Henchy J., who spoke of achieving “the smooth and harmonious operation of the Constitution”: Tormey v. Ireland [1985] 1 I.R. 289 at p.296. The interpretation and construction should not lead to conflict with other articles, as O’Higgins C.J. enunciated in: State (D.P.P.) v. Walsh [1981] I.R. 412 at p.425. I believe that the construction which I have found of the term “unborn” is harmonious with other articles in the Constitution.
Conclusion on constitutional issue
69. For the reasons given I am satisfied that the term “unborn” does not refer to an unimplanted embryo. Consequently, it does not apply to the three surplus frozen embryos stored in the Clinic.
Overall Conclusion
70. On the first issue, which was referred to as having a contractual aspect, I am satisfied that the documents signed by the plaintiff and her husband in January, 2002 were forms provided by the Clinic to the plaintiff and her husband to obtain their consents to the medical procedures. They did not establish any contractual relationship between the plaintiff and her husband. There was no express agreement to the implantation of these surplus embryos at a later date. Nor was there any implied consent by the husband to the implantation of the surplus frozen embryos. As there was no initial agreement taken as to the implantation of the surplus embryos by the plaintiff and her husband there is no question of enforcing an earlier choice. There was no issue of a withdrawal of a consent. On the facts no issue of estoppel arises. For the reasons set out in this judgment I would dismiss this ground of appeal.
On the second issue, the constitutional issue, the plaintiff submitted that the three surplus embryos from the I.V.F. treatment constitute the unborn for the purpose of Article 40.3.3º of the Constitution and that the State is obliged to facilitate the implantation of the embryos in the plaintiff’s uterus as a consequence of the constitutional duty to protect the unborn. For the reasons set out in this judgment I would dismiss this appeal. In the context of the statutory law prior to the introduction of Article 40.3.3º of the Constitution, the State protection of an embryo arose after implantation. The context also includes cases at home and abroad which referred to the right to privacy and marital privacy. In that context Article 40.3.3º was addressed to the issue of miscarriage and abortion. I have considered the words of Article 40.3.3º carefully. Article 40.3.3º was drafted in light of the special relationship which exists uniquely between a mother and a child which she carries. It is when this relationship exists that Article 40.3.3º applies. The balancing of the right to life described in Article 40.3.3º may occur only after implantation. Thus an “unborn” described in Article 40.3.3º is established after an embryo is implanted. After the implantation of an embryo the relationship between the mother and the embryo changes. After the implantation the mother has carriage of the embryo and the embryo enters a state of “unborn”, there is an attachment between the mother and an unborn. It is that attachment which gives rise to the relationship addressed in Article 40.3.3º where the state acknowledges the right to life of the unborn and the due regard to the equal right to life of the mother. The interpretation of the “unborn” arising after implantation is a harmonious interpretation of the Constitution consistent with other rights under the Constitution.
For the reasons given I would dismiss the appeal on all grounds.
JUDGMENT delivered the 15th day of December, 2009, by Mr. Justice Hardiman.
The applicant and the first-named respondent, Mary and Thomas Roche, are husband and wife. They were married on the 5th March, 1992, but are now separated. In the mid 1990s, after some advice and treatment for apparent fertility difficulties, the applicant became pregnant and gave birth to a son in October, 1997. Subsequently she had surgery for an ovarian cyst and it was necessary to remove two thirds of her right ovary. She had further fertility difficulties which led to her referral to the Sims Clinic, where the second and third-named respondents carry on a well-reputed infertility practice. She first attended there in October, 2001. After investigation and advice the plaintiff consented to treatment involving the retrieval of eggs (ova) from her and the mixing of these eggs with sperm donated by her husband. She further agreed, as did her husband, to the cryopreservation of the embryos. On the 29th January, 2002, the husband signed a document entitled “Husband’s Consent” stating that he understood that he would be the father of any child resulting from the implantation of the embryos in the applicant. On the 1st February, 2002, the applicant signed a “Consent to embryo transfer” consenting to the placing in her uterus of three embryos. It appears that egg retrieval is difficult and somewhat painful and the practice which is widely followed, and was followed in the Sims Clinic, was to collect a sufficient number of eggs for implantation to minimise the risk of the patients having to undergo another session of egg retrieval if the first attempt at implantation was unsuccessful. In the case of the Roches, a total of six viable fertilised embryos were produced after the mixing process. Three were implanted and the other three were frozen or “cryogenically preserved”. This implantation of the first three embryos was the procedure to which the “Husband’s Consent”, described above, related.
This implantation process was successful, a pregnancy was achieved, and the plaintiff was delivered of a daughter on the 26th October, 2002. By that time, however, unhappy differences had arisen between husband and wife and they separated and continue to live apart.
The case concerns what is to happen to the three unimplanted frozen embryos. Some years after the birth of their daughter, and their separation, the applicant decided that she wanted to have the three frozen embryos implanted in her uterus in the hope of having a further child or children. She made it perfectly clear that she envisaged this, and maintenance of any resulting child or children, as taking place exclusively at the expense of the first-named respondent. The husband does not want the frozen embryos implanted, and says that he never agreed to this and it would be unreasonable and a breach of his human rights and an invasion of his autonomy to compel him to become the father of a child he does not want in the present circumstances. Nor would it be in the child’s interest to be raised in the circumstances now prevailing, in the husband’s view.
The proceedings.
This is an appeal from two judgments and the associated orders of the High Court (McGovern J.) of July and November, 2006, respectively, whereby the learned trial judge dismissed two separate claims brought by the applicant; the first was a claim that she was entitled to have the embryos implanted in her by reason of an agreement between herself and her husband that this would happen, or alternatively, that the husband was now estopped from denying that such an agreement existed. This has been referred to at various stages of the proceedings as “the civil claim”. The other claim was of a constitutional nature: the plaintiff claims that she is entitled to have the embryos implanted in her because they are within the meaning of the phrase “the unborn” as that phrase is used in Article 40.3.3 of the Constitution. The implantation of the embryos is said to be necessary to preserve the right of the unborn to life. This is referred to as “the constitutional claim”.
In relation to the civil claim, I have read the judgment of the learned trial judge, Mr. Justice McGovern, delivered the 18th of July, 2006. I have also read the transcript of the evidence upon which his judgment is based. I agree with his findings of fact, most of which were not indeed the subject of serious dispute and in particular his finding (p.9 of the judgment) that the question of what would happen to the frozen embryos if one of the parties died or if the parties became separated or divorced was simply never discussed between husband and wife at the time they agreed to seek IVF treatment. There was accordingly no express agreement on this topic. I agree with the legal conclusions of the learned trial judge in relation to implied or presumed intention of the parties and with his application of this law to the facts of the present case. In the result, I would uphold the judgment of the learned trial judge on this aspect of the case for precisely the reasons he gives in his judgment of the 18th July, 2006 and I consider that it would be otiose if I were to traverse the same ground.
The constitutional issue.
It is recorded in the judgment of the learned trial judge delivered the 15th November, 2006 that, apart from the civil issue, the parties identified two other issues which are:
“(a) Whether the frozen embryos are ‘unborn’ for the purpose of Article 40.3.3 of the Constitution of Ireland and
(b) Irrespective of the answer to the first question, is the applicant entitled to the return of the embryos to her uterus whether by virtue of Article 40.3.3 and/or Article 41 of the Constitution, or otherwise?”
These are novel issues in our jurisprudence. But experience has shown that, given a sufficient period of time, almost every conceivable set of facts will occur and may give rise to litigation. This is graphically illustrated by the remarkable factual matrix underlying the case of Attorney General v. X [1992] 1 IR 1. This fact gives point and urgency to certain observations at the end of this judgment. Science will not stand still waiting for us to update our laws.
Article 40.3.3
It will be seen that the first constitutional issue, and to a large extent the second one as well, turns on this provision of the Constitution. It has already been judicially observed (in the ‘X’ case cited below, per McCarthy J.) that this sub-Article, inserted into the Constitution by referendum in 1983, was controversial at the time and was, as McCarthy J. put it, “historically divisive of our people”. These aspects of the sub-Article are now, however, entirely irrelevant for the purposes of this case. Article 40.3.3 is a part of our Constitution and must be upheld by the Courts like any constitutional provision.
What is in question here is whether, on the true construction of the phrase “the unborn” (in the English language version of the sub-Article: the primary or Irish language version will be discussed below), the phrase “the unborn” includes, or does not include, the three embryos created by the mixture of the eggs retrieved from the applicant in this case with her husband’s sperm, and now cryogenically preserved in the Sims Clinic.
I propose now to set out the text of Article 40.3.3, first in the Irish language because that language has primacy in the event of conflict with the version in the other official language. It is as follows:
“Admhaíonn an Stát ceart na mbeo gan breith chun a mbeatha agus, ag féachaint go cuí do chomhcheart na máthar chun a beatha, ráthaíonn sé gan cur isteach lean dhlíthe ar an gceart sin agus ráthaíonn fós an ceart sin a chosaint is a shuíomh lena dhlíthe sa mhéid gur féidir é”.
The English language text is as follows:
“The State acknowledges the right to life of the unborn and, with due regard to the equal right to life of the mother, guarantees in its laws to respect and, as far as practicable, by its laws to defend and vindicate that right.”
I wish also to set out a literal translation of the Irish version of the sub-Article. This is the work of Professor Micheál Ó Cearúil, the author of Bunreacht Na hÉireann: a study of the Irish text. This book, which is a truly impressive and extremely useful work of scholarship of the highest order, was written for the all party Oireachtas Committee on the Constitution and published by that Committee in 1999. The “literal English translation”, given at p.548 of the book, is as follows:
“The State acknowledges the right of the unborn to their life and, having due regard to the equal right of the mother to her life, it guarantees not to interfere through its laws with that right and it guarantees further to protect and assert that right with its laws in so far as it is possible.”
The phrase “the unborn” represents an unusual usage in English and it may be that the primary or Irish version clarifies it. Professor Ó Cearúil observes (I am omitting purely technical detail and some citations of Irish language sources):
“ ‘Beo” is translated principally as ‘living being’ with the secondary sense of ‘life’.”
He quotes from Irish literary sources, as where the phrase “ag guí ar son na mbeo agus na mairbh”, is translated as “praying for the living and the dead”, which illustrates this meaning.
It appears from the same discussion, at p.549, that “gan bhreith” means “without birth”. The word “gan/without” is used in several senses in Irish to mean being deprived of, or not having, something. Thus, “gan phingin”, literally without a penny i.e. penniless: similarly “bheith gan chlann”, “to be without children”, thus childless. Thus the phrase “na mbeo gan breith” translates easily enough as “the living without birth”. This is an unusual phrase, either in English or in Irish and indeed Professor Ó Cearúil comments, for reasons too technical to go into here but fully expounded in his text, that one would expect further explanatory material and not the sudden finality of “gan breith” which one actually finds. That, indeed, is the sense which in my view an English speaker has in reading the phrase “the unborn”: one is inclined, however briefly, to wonder “the unborn what?” But there is no further elucidation, in the language itself, though some may be gleaned from the context: see below.
It is next necessary to note what it is that the State acknowledges in Article 40.3.3. Here, the Irish and English language versions seem in perfect accord: it is the right of the “living without birth to their life”, which is not to be interfered with by law and is, as far as practicable to be asserted and protected by law. Most importantly, these things are to be done “ag féachaint go cuí do cómhcheart na Máthar chun a beatha…” which I would translate as “looking narrowly to the equal right of the mother to her life” or, using constitutional language, “having due regard to the equal right of the mother to her life”.
Accordingly, in a strictly linguistic sense and perhaps more generally, the right of the “living without birth” to their lives is placed in apposition, perhaps in juxtaposition to the right of the mother to her life. But that linkage makes no sense, either as a matter of law, logic, language or ordinary human experience unless the life of the “living without birth” is so connected with the right of the mother to her life that the former is capable of impinging negatively on the latter. If this were not so it would be quite pointless to condition or qualify the undertaking of the State in relation to the life of the unborn with a need to consider the mother’s right to her life.
This aspect of Article 40.3.3. is well illustrated in the judgment of Hederman J. in The Attorney General v. X [1992] 1 IR 1, at p.75. Hederman J., who dissented in the result and would have substantially upheld the order of the High Court (Costello J.), referred in his judgment to Article 40.3.3 as “The Eight Amendment” and had the following to say:
“The Eighth Amendment does contemplate a situation arising where the protection of the mother’s right to live has to be taken into the balance between the competing rights of both lives, namely the mothers and the unborn child’s”. (Emphasis added)
Earlier, at p.72 Hederman J. had said:
“The creation of a new life, involving as it does pregnancy, birth and raising the child, necessarily involves some restriction of another’s freedom but the alternative is the destruction of the unborn life. The termination of pregnancy is not like a visit to the doctor to cure an illness. The State must, in principle, act in accordance with the mother’s duty to carry out the pregnancy and, in principle, must also outlaw termination of pregnancy”. (Emphasis added)
These extracts, of course, confirm what seems clear on a purely linguistic analysis of the sub-Article in both the national languages: that it refers to a situation in which the unborn life and the equally valuable life of the mother are essentially integrated or at least linked, so that one may affect the other adversely. Moreover, since the right in each case is a right to life and not to any less readily apprehensible concept such as welfare, best interest or good health, it is clear that the linkage must be a direct physical one. This leads me to believe that the temporal scope of the sub-Article is, and was intended to be, the period of a pregnancy when the unborn life has been implanted in the mother’s womb and is developing there.
Moreover, the person whose right to her life is required to be considered in vindicating the right to life of the unborn is “the mother”. Since, (as we have seen above), the relationship of the two rights to life must be such that that of the unborn is capable of impinging on that of the mother, it follows that the mother is the mother of the unborn life. In the context of the constitutional Article there is nothing else of which she can be the mother.
It thus follows that the mother is the mother of the “unborn” and that their physical relationship is such that the right to life of the unborn is capable of impinging on the right to life of the mother. This, it appears to me, requires a physical relationship. The only relevant physical relationship is that of pregnancy.
The Attorney General’s position.
On the hearing of this appeal, as in the High Court, the plaintiff Mary Roche contended that the fertilised but unimplanted embryo was within the meaning of the phrase “the unborn”. The first respondent, Thomas Roche, contended for the contrary proposition. While one does not doubt the sincerity of each contention, it is of course the case that the contentions of each of these primary parties reflect their respective views as to the result which should be arrived at in this action. In those circumstances a particular significance attaches to the views of the Attorney General who has of course no personal interest but who has been joined in the proceedings because of the constitutional issues raised.
The Attorney General expressed no view as to whether or not there was an agreement between husband and wife as to what should happen to the unimplanted embryos. But he submitted that, if there was an agreement on that issue, the agreement could be enforced by the court. On the constitutional issue however the Attorney General expressed a strong and unambiguous view. The “surplus embryos”, he submitted, had no status arising from the Constitution and specifically they were not within the meaning of the phrase “the unborn”. The Attorney said that it would be open to the people by constitutional amendment to protect embryos from fertilisation, but they did not do this in passing the Eight Amendment of the Constitution in 1983.
I propose now to leave to one side briefly the purely linguistic analysis of the sub-Article, and to consider its legal nature.
Article 40.3.3 as interpreted in the cases.
This exercise is an easier one than the linguistic analysis of the Articles because there exists a number of authoritative decisions on the question. In the case of Attorney General v. X [1992] 1 IR 1 McCarthy J. said:
“[The amendment’s] purpose can be readily identified – it was to enshrine in the Constitution the protection of the right to life of the unborn, thus precluding the legislature from an unqualified repeal of s.58 of the Act of 1861 [The Offences against the Person Act of that year: the section prohibits abortions] or [from] otherwise, in general, legalising abortion.”
More recently, in the case of Baby O v. the Minister for Justice [2002] 2 IR 169 Keane C.J., giving the unanimous judgment of the Court, said at pp. 181 and 182 that:
“The passage from Article 40.3.3 on which counsel relied, as explained by the judgments of the majority in this court in Attorney General v. X. [1992] 1 IR 1, was intended to prevent the legalisation of abortion either by legislation or judicial decision within the State, except where there was a real and substantial risk to the life of the mother which could only be avoided by the termination of the pregnancy.”
It is not necessary here to set out in any detail the reasons why those who promoted the amendment thought it necessary to take active steps to prevent the legalisation of abortion whether by legislation or by judicial decision. It related, in some degree, to the perception of the proponents of the Amendment to the Constitution which became Article 40.3.3 of the possibly baneful effects of such cases as McGee v. The Attorney General [1974] 1 IR 284, Griswold v. Connecticut [1965] 381 U.S. 479 and, most of all, Roe v. Wade [1973] 410 U.S. 113. These cases led certain proponents of a constitutional amendment in Ireland to embark upon a sometimes very learned analysis of them and to conclude that the emphasis, not least in the Irish case of McGee, on the authority of the family and the rights of its members to privacy, might contain the seeds of the judicial development of a right, however limited, to abortion.
Abortion was and is of course illegal in Ireland by virtue of s.58 of an Act of 1861, the Offences against the Person Act. This reads as follows:
“Every woman being with child who, within intent to procure her own miscarriage, shall unlawfully administer to herself any poison or other noxious thing or shall unlawfully use any instrument or other means whatsoever with a like intent, and whosoever with intent to procure the miscarriage of any woman, whether she be or be not with child, shall unlawfully administer to her or cause to be taken by her a poison or other noxious thing, or shall unlawfully use any instrument or other means whatsoever with the like intent, shall be guilty of felony.”
I wish to express my agreement with the analysis of this Section, and of its statutory and Common Law precursors, contained in the judgment of Geoghegan J. in this case.
Accordingly, two quite different analyses of Article 40.3.3 – a linguistic one and one based on the authorities – lead harmoniously to the same conclusion. The subsequent decisions of the courts, two of which are cited above, describe the purpose of the sub-Article as being to prevent the introduction of abortion either by legislation by the Oireachtas or by judicial decision. The legal position thus sought to be protected was that created in Ireland by s.58 of the Offences against the Person Act, 1861, which described abortion as the procuring of a miscarriage. It seems obvious that, as the medical authority cited by Denham J. in this case puts it with startling clarity, “There can be no miscarriage without carriage” and “Bodily carriage implies some kind of integration with the body [of the carrier].”
Precisely the same conclusion follows from a linguistic analysis of the text of the sub-Article, either in Irish or in English. A capacity of the life of the unborn to impinge on the right to life of the mother, which is an essential postulate of the sub-Article, equally depends on some form of integration of the life of the unborn with the bodily structures of the other life in question, that of the mother.
In my view each of these approaches leads harmoniously and inevitably to the conclusion that the “unborn”, “na mbeo gan breith”, is the foetus en ventre sa mere, the embryo implanted in the womb of the mother. It is manifest that the embryo undergoing cryogenic preservation is not so implanted and is incapable of impinging in any way on the right to life of the mother or of having any physical effect whatsoever on her body or its structures.
Article 40.3.1.
I do not consider that the applicant can rely, in the alternative, on Article 40.3.1. I remain to be convinced that this provision, with its express reference to the rights of “citizens” and to such specific rights as “good name” and “property rights”, extends or was ever intended to extend to a fertilised but unimplanted ovum.
Be that as it may, if the earlier provision (i.e. Article.40.3.1) did extend to a fertilised ovum, and to a foetus, that fact would appear to make Article 40.3.3 redundant. Without necessarily relying on canons of construction such as inclusio unius exclusio alterius, I would point out that, apart from the redundancy of the Article 40.3.3 that would follow from the plaintiff’s contention, Article 40.3.1 contains no express reference at all to the right to life of the mother. This seems a remarkable omission (for the reasons given by Hederman J. and quoted above), if the earlier sub-Article applied to a fertilised ovum so as to confer a right to implantation in the mother’s uterus, there would be no explicit protection of the position of the mother. But the mother, who is a life in being, and a citizen, is undoubtedly herself within the protection of Article 40.3.1. The failure explicitly to acknowledge her position in that sub-Article strongly suggests to me that, for the reasons set out below, the position of a fertilised embryo is not within the meaning or the intent of Article 40.3.1.
Article 40.3.1., as interpreted by the plaintiff, applies to a situation which was unimagined and unimaginable in 1937. The felt need for what became Article 40.3.3 was suggested to its proponents by legal and medical developments in the 1970s. It is a grave anachronism to seek for reference to such things forty years earlier. The language, the law and the science of the debate alike have changed out of recognition over that period.
The foregoing conclusions are sufficient to allow me to decide that I would dismiss the appeal on the constitutional grounds as well, for the reason that the embryos now being cryogenically preserved are not “the unborn” within the meaning of Article 40.3.3. I wish however to add a number of observations.
Firstly, the fact that the embryos in question in the present case are not within the relevant sub-Article of the Constitution, while it is fatal to litigation founded on the theory which has informed this action, does not of course mean that such embryos should not be treated with respect as entities having the potential to become a life in being. In the course of the argument on this appeal, the court heard of various legal provisions in other countries based precisely on such respect for the embryo: it appears that a number of European countries severely limit the number of fertilised embryos that can be produced in the course of IVF treatment. The disadvantage to this, of course, is that it increases the likelihood that, in the event of a failure to produce a pregnancy with the implanted embryo(s), that the patient will have to undergo the uncomfortable and apparently sometimes painful process of retrieval of ova again. It is also necessary to bear in mind that a very large number, in fact the great majority, of fertilised embryos are lost in the ordinary course of nature and that that event is not generally regarded, medically, clinically, socially, legally or privately, as equivalent to the death of a life in being. It is also necessary to bear in mind, as Mr. Hogan S.C. for the applicant did not conceal, that if respect for the fertilised embryo were carried to the point of equating it to a life in being, that view would lead to the outlawing of one of the most widely used methods of contraception which operates by the prevention of implantation.
The above are all serious considerations which, fortunately, the court is not called upon to resolve here. They are, primarily, matters for the Legislature. Indeed, it was a notable feature of the appeal that while the Notice of Appeal criticised the learned trial judge as having erred “in finding that the court was not concerned with the question of when life begins”, the appellant’s written submissions, at paragraph 49 positively says that for the purpose of the case “the court does not have to pronounce on questions as to when human life begins”.
But the fact that difficulties are raised does not absolve the legislature from the obligation to consider the degree of respect due to fertilised embryos and to act upon such consideration “by its laws”. There has been a marked reluctance on the part of the legislature actually to legislate on these issues: the court simply draws attention to this. That is all it can do. That is what McCarthy J. did, apparently in vain, in the X case eighteen years ago. But the Court does so as seriously and as urgently as it can.
The issue is all the more urgent because, of course, scientific developments in the area of embryology and the culturing of stem cells will not stand still. It has been very recently suggested that it may shortly be possible to develop human sperm from such cells.
If the legislature does not address such issues, Ireland may become by default an unregulated environment for practices which may prove controversial or, at least, to give rise to a need for regulation. This may be particularly urgent having regard to the views expressed on behalf of the Attorney General on the hearing of this appeal.
I would dismiss the appeal.
JUDGMENT of Mr. Justice Geoghegan delivered the 15th day of December 2009
While this appeal raises very important issues, the resolution of those issues does not involve this court in attempting to answer the question of when life begins. It is not a legal issue in this case. The expert evidence on both sides make it clear that there is as yet no definite scientific or medical answer to that question. It is, of course, a question which interests also theologians and philosophers but on the particular view of this case which I have taken, none of the approaches to this question have relevance to the issue on the appeal.
At this early stage, I think I should also make clear that because of the view I have taken on the issues in dispute (which is more or less the same view as that taken by the learned High Court judge) I will not be expressing any opinion as to how the State should regulate unused embryos created in IVF treatment. It emerged at the hearing of the appeal that many countries have put in place regulatory regimes relating to spare embryos. Germany, Italy and the U.K. were cited as examples but there is no regulation whatsoever in Ireland as yet. The only constitutional question which this case raises is whether the spare embryo is one of the “unborn” with the constitutional right to life under Article 40.3.3 of the Constitution. For reasons upon which I will be elaborating, I take the view that “the unborn” protected by that Article are confined to the unborn within the womb. I will be basing this opinion both on the words of the constitutional provision itself and on the history of the crime of abortion in this jurisdiction which was the context in which that provision was inserted into the Constitution by referendum of the people. In addition to the judgment of the learned High Court judge (McGovern J.) to which I have already referred, I gained particular assistance in arriving at my opinion from the written submissions of the Attorney General.
I will proceed now to explain the nature and scope of this appeal. A married couple had a child in the normal way. Some time later they wanted to have a second child. However, in the meantime, the appellant who was the wife had undergone surgery for an ovarian cyst and had lost two thirds of her right ovary. As a consequence of medical advice, it became clear that in order to have another child she would have to undergo IVF treatment. She procured this treatment at the Sims Clinic in Rathgar, Dublin. That treatment involved (inter alia) the removal of eggs from her ovaries and the mixing of the eggs with the sperm of her husband. Because egg retrieval is difficult and painful, the practice in fertility clinics has been to ensure that there would be enough eggs to be fertilised so as to avoid a second retrieval operation. What in practice happened was that the appellant’s ova were mixed with the respondent’s sperm creating six viable embryos. Three of these were immediately implanted into the appellant’s uterus and the others were frozen.
This implantation was successful and the appellant gave birth to a daughter. Around the same time, the marriage broke up, as the respondent had entered into another relationship.
The appellant, being aware of the existence of the three frozen embryos which were the spares, wanted them implanted in her uterus so that she could undergo a further pregnancy and produce a third child. The respondent objects because it would put him into the position that he was forcibly becoming a father, something which he does not want to happen. There is a further context to his objection. It is clear from the evidence given by the appellant that she would have regarded any child born as a consequence of the spare embryo being implanted, as a child of the respondent just as much as a child of the appellant with all the financial and other responsibilities that fatherhood involves. At all material times, the appellant and the respondent were medically advised that the IVF treatment could result in multiple births. If, therefore, the three spare embryos were duly implanted the possibility that triplets would be born could not be ruled out. I am merely recounting the perspective of the appellant as it emerged in evidence without placing any value judgment on it.
The first issue in the case was whether there was an enforceable contract as between the parties entitling the appellant to make use of the spare embryos. The learned trial judge held that there was not. I am in agreement with that finding for much the same reasons as influenced the trial judge but I will elaborate on them more fully in due course. Because of that view which I have taken, I do not find it necessary to consider the legal issue of whether there can be such an enforceable contract and, if so, how determinative it is. The court has been referred to considerable case law emanating from the United States of America, the majority thrust of which is that the fate of spare embryos should be determined by agreement of the parties. Since I am satisfied there was no contract here, I do not find it necessary to review those authorities nor am I to be taken as necessarily agreeing with their conclusions. I would prefer to leave these difficult questions to a case where they genuinely arise. In this particular case, the argument for a contract is outlined and explained in the judgment of the learned trial judge. I should, of course, mention at this stage that McGovern J. delivered himself of two distinct judgments. The first judgment of the 18th July, 2006 dealt with the contract issue. The second judgment, that of the 15th November, 2006 treated of the constitutional issue. It is the contract issue which I now intend to address.
It is not suggested that there was any clear written or oral agreement between the appellant and the respondent as to what was to happen spare embryos. Nevertheless in arguing for a contract, some written documents were relied on by the appellant. These documents were Consents which the clinic required to be signed as a routine part of their procedures. There were four Consent documents in all. The first was entitled “Consent to Treatment Involving Egg Retrieval”. That Consent was signed by the appellant only and by the form she gave her consent to the removal of eggs from her ovaries and the mixing of those eggs with the respondent’s sperm. The second document was a Consent form signed by both parties and entitled “Consent to Embryo Freezing”. By this form both the appellant and respondent agreed to the cryopreservation of the embryo and to take full responsibility on an on-going basis for frozen embryos. The third Consent form was entitled “Husband’s Consent” in which he consented to the treatment and expressed his understanding that he would become the legal father of any resulting child. The fourth and final document was entitled “Consent to Embryo Transfer” which involved the appellant consenting to the placing in her uterus of three embryos.
Like the learned High Court judge, I will elaborate slightly on this. It was clear from the medical evidence that the egg retrieval which is obviously an essential element of the IVF treatment can be awkward and painful. As a consequence, in most countries including Ireland, fertility clinics try to ensure that there be a sufficient number of eggs for fertilisation so that egg retrieval would not have to be undergone a second time. In this particular case nine or ten eggs were retrieved and were mixed with the respondent’s sperm. Of the resulting embryos, six were considered viable. The remainder were not frozen and they were presumably disposed of. Three of the six viable embryos were implanted into the appellant’s uterus and the remaining three were frozen.
The implantation of those three embryos resulted in a pregnancy and a successful birth of a daughter on the 26th October, 2002.
It is clear from the evidence of Dr. Wingfield, the consultant obstetrician and gynaecologist at the National Maternity Hospital, Holles Street that the reason why the standard IVF practice in most countries with the notable exception of Italy and Germany is to try and ensure that there are some spare suitable embryos which can be frozen, is to avoid putting the woman through the repeat painful procedure of egg removal. Indeed I think it useful to quote what she actually said in her witness statement:
“To achieve optimal success rates (still only 20/30% per cycle started) it is necessary to use superovulation. This results in multiple oocytes. The best pregnancy rates occur in cycles where six to ten oocytes are retrieved.
In an ideal world, these oocytes would be fertilised only as required i.e. one or two would be incubated with sperm and if these fertilise they would be placed in the uterus. If fertilisation did not occur, another two eggs could be tried etc. Unfortunately, oocytes do not survive outside the body and must be used within hours of retrieval. It is not yet possible to be able to choose the best quality eggs or the ones which are most likely to be successfully fertilised and the safety of the technology has not been sufficiently validated to routinely freeze oocytes. It is therefore necessary to try to fertilise all of the eggs once retrieved (i.e. they must all be used immediately or they are wasted).
On average, only 50/70% of oocytes will be successfully fertilised if exposed to sperm and a further large proportion of fertilised oocytes will be abnormal and unusable (at least 40%). In older women particularly, the chance of successful blastocyst formation, implantation and healthy pregnancy is low (10% and less if over 40 years. Most doctors and others working in IVF therefore consider it unethical to subject the woman to the risks of superovulation treatment if all oocytes are not then going to be used.
It is only safe to transfer two embryos to the uterus (three in rare cases); otherwise there is an unacceptable risk of multiple pregnancies. It is well proven that multiple pregnancies lead to greatly increased rates of miscarriage, premature birth, neo-natal morbidity and cerebral palsy. Therefore, one or two of the best embryos are transferred and the remainder are frozen, if deemed to be of sufficiently viable.
The purpose of all embryo freezing programmes is to give a couple the best chance to achieve a pregnancy with a maximum of safety. If the woman does not conceive following her first embryo transfer, one or two frozen embryos may be thawed and transferred to her uterus, without the need for further superovulation an oocyte retrieval. For couples who conceive with their first embryo transfer, they may achieve a second pregnancy a few years later using previously frozen embryos. Frozen embryo transfer is medically safer and less expensive than a second fresh IVF cycle.”
Dr. Wingfield goes on to explain that the above practice of IVF which is the norm in Ireland is accepted as best practice in the vast majority of countries. She stated that the majority of couples will quickly use any frozen embryos in order to achieve one or more pregnancies. But she accepts that some couples will end up with unwanted frozen embryos. Interestingly, she makes the point that this could occur for different reasons “e.g. they have had one or more children and their family is now complete or they may separate, one partner dies etc.” Whilst there are no regulations in Ireland she points out that in other jurisdictions the options to deal with unwanted embryos may include donation to another couple, donation for research or simply allowing them to perish.
I do not think that Dr. Wingfield’s expert evidence was in controversy at the trial and I have found her summary of the position very useful. She mentions that there are seven clinics providing IVF services in Ireland with approximately 2,500 fresh IVF and 700 frozen embryo cycles being performed every year. Although there is no statutory regulation, she refers to the Medical Council Guidelines and to the report of the Commission on Assisted Human Reproduction (2004). The Guidelines of the Medical Council and that report are both before the court. The guidelines do not ban embryo freezing and recommend donation of surplus embryos to another couple. The guidelines are not altogether satisfactory and are left somewhat vague. What is satisfactory is the excellent report of the Commission on Assisted Human Reproduction. That report lists and deals with all aspects of the problem. There were forty recommendations. The fourth and ninth of these inter alia are relevant to this case: The fourth reads:
“Appropriate guidelines should be put in place to govern the freezing and storage of gametes and the use of frozen gametes. The regulatory body should, in accordance with statutory guidelines, have power to address cases where gametes are abandoned, where the commissioning couple cannot agree on a course of action, where couples separate or where one or both partner dies or becomes incapacitated.”
The ninth recommendation reads as follows:
“Appropriate guidelines should be put in place by the regulatory body to govern the freezing of excess healthy embryos.”
Unfortunately, unlike most other countries no statutory regulations have been put in place. Running right through most of the documentation produced is the concept of the respect to be shown to the spare embryos but nowhere is there a suggestion that either party can be compelled by the other to become a parent in the absence of agreement. Referring to the document “Consent to Embryo Transfer” the judge went on to say that it was clear from the evidence that the three embryos referred to in that particular form were the embryos which were not frozen and that the purpose of freezing the other embryos was to use them if the first implantation failed. That finding was supported by evidence from both the appellant and the respondent and indeed precise references are given in the judgment. The first implantation having been successful, the judge pointed out that that left the question as to what was to happen to the remaining frozen embryos. He refers to the evidence of both parties and I have also read their evidence. On the basis of the consent form signed and on the oral evidence which he heard, the learned trial judge held that there was no evidence that the respondent gave his express consent to the implantation of the three frozen embryos in the plaintiff’s uterus and he went on to consider whether that consent could be implied. Not only was the finding open to him to make, I do not think that any other finding would have been open having regard to the evidence.
As I have already mentioned, at more or less the time of the birth of the IVF child, the marriage unfortunately broke up. There seems little doubt that there was no prior agreement relating to any of these contingencies whether foreseen or unforeseen. At most, there would have been an understanding that the question of using the frozen embryos in the event of a failure following the first implantation would be considered or indeed that it might be considered for the purpose of producing a second child. Even that is doubtful. I do not consider that any such understanding or agreement would ever have been intended to be a legally binding contract. Before ever one considers the other essential ingredients of a legally enforceable contract such as consideration and “offer and acceptance”, the first essential requirement is that there was an intention to create legal relations. There is nothing in the evidence of either party which supports any such intention. The forms signed were Consent forms required within the clinic system and they cannot be construed as contracts.
I have diverted somewhat, because of course I already mentioned that the judge went on to consider whether, even if there was no express contract, there might have been an implied contract. My first observation on that proposition is that in a domestic agreement between husband and wife of this kind, it would be rare that even express terms would be held to constitute a legally binding contract. It would be extremely rare that an understanding between husband and wife would be held to have ripened into a legally enforceable contract not even containing all the express terms but containing implied terms. The learned trial judge has correctly reviewed the authorities on implied terms and I do not intend to cover that territory. I agree with everything that he says.
I now turn to what is really the more serious issue on the appeal, the question of whether each of the frozen embryos is an “unborn” within the meaning of Article 40.3.3 of the Constitution. That subsection reads as follows:
“The State acknowledges the right to life of the unborn and, with due regard to the equal right to life of the mother, guarantees in its laws to respect, and, as far as practicable, by its laws to defend and vindicate that right.”
Without necessarily accepting that in interpreting this subsection, I am not entitled to have regard to the context in which it was inserted into the Constitution (a point to which I will return), I believe, that applying the ordinary rules of interpretation applicable to a statute which at any rate to some extent, permit of context to be taken into account, this constitutional provision is dealing exclusively with the baby in the mother’s womb. Probably, the strongest indicator of this is the reference to “the equal right to life of the mother”. I interpret the subsection as envisaging what I might loosely call “a mother and baby situation”. The State is not conferring a right but rather acknowledging the majority view in the community that the baby in the womb has the right to be born alive but that this is not an absolute right in as much as there could be situations where the continued pregnancy endangered the life of the mother. In this context the expression “equal right” is somewhat strange because, in a sense, what the provision is stating is that in a clash of rights to life between the baby and the mother, the mother’s life is to have priority. I would also attach some significance to the expression “the unborn”. It has been said that this expression was unusual in its nakedness. I do not think that that is altogether correct but its meaning and context may be somewhat unusual. The expression “the unborn” is not by any means unique but normally, far from meaning an actual baby or foetus, it would tend to mean what I might describe as “the as yet unborn” or in other words future existences. The expression in this sense finds its way into two quotations in the Oxford Book of Quotations. I do not believe that the expression “the unborn” would ever be used to describe a stand alone embryo whether fertilised or unfertilised or whether frozen or unfrozen. It has ultimately been accepted on all sides in this appeal that the case does not involve any determination of when life begins. Furthermore, the experts on both sides were in agreement that there is no scientific proof of when life begins. The IVF treatment itself highlights the complexity of the succession of steps in the process leading up to a successful birth. It seems clear on the evidence before the court that pregnancy in any meaningful sense commences with implantation. I think I am entitled to take judicial notice of the fact that the referendum which led to the insertion of this provision in the Constitution was generally known as “The Abortion Referendum”.
This brings me to the question already briefly adverted to, as to the extent to which I can take context into account in interpreting the Article. I have already expressed my view as to what the Article means applying only the ordinary rules of statutory interpretation as distinct from constitutional interpretation. I am not in fact convinced that the rules are identical. Judges play no part in the drafting of a statute, still less in the voting of it into law. Judges, however, are ordinary citizens and do participate in referenda. It would seem to me to be highly artificial if a judge could not also take judicial notice of and to some extent at least, use as an aid to interpretation, the ordinary common understanding of what in context was involved in the referendum. Nobody could dispute that the primary purpose of the referendum was to prevent decriminalisation of abortion without the approval of the people as a whole. Abortion in this jurisdiction was criminalised by the Offences against the Person Act, 1861, an Act carried into the laws of the Irish Free State and in turn carried over under the 1937 Constitution. In theory, there could have been a referendum as to the possible insertion of a provision in the Constitution that the relevant sections in the Offences against the Person Act, 1861 would not be repealed. Those very provisions however had been interpreted in the English courts in a manner which would not have been acceptable to the perceived majority of the Irish people who favoured an absolute ban on abortion. This was the famous case of Rex v. Bourne [1939] 1 K.B. 687. The positive assertion in the Constitution of the right to life would have been perceived as preventing any watering down of the criminal law on abortion.
It is appropriate, at this stage, to explain the relevant provisions in the 1861 Act and the aids to their interpretation deriving from their antecedents. This is important because if, as I believe, the insertion of Article 40.3.3 into the Constitution was with a view to preventing repeal or amendment of the existing abortion law, it is essential to understand what exactly that law prohibits.
The two relevant provisions of the Offences against the Person Act, 1861 are sections 58 and 59. Section 58 reads as follows:
“Every woman, being with child, who with intent to procure her own miscarriage, shall unlawfully administer to herself any poison or other noxious thing, or shall unlawfully use any instrument or other means whatsoever with the like intent, and whosoever, with intent to procure the miscarriage of any woman, whether she be or not with child, shall unlawfully administer to her or cause to be taken by her any poison or other noxious thing, or shall unlawfully use any instrument or other means whatsoever with the like intent shall be guilty of felony.”
Section 59 then reads:
“Whosoever shall unlawfully supply or procure any poison or other noxious thing, or any instrument or thing whatsoever knowing that the same is intended to be unlawfully used or employed with intent to procure the miscarriage of any woman, whether she be or not be with child, shall be guilty of a misdemeanour.”
On the interpretation of these two sections, I find the judgment of Munby J., the English High Court, Queen’s Bench case of R (Smeaton on behalf of the Society for the Protection of Unborn Children) v. The Secretary of State for Health particularly persuasive. In that case Munby J. was dealing with the lawfulness or otherwise of “the morning after pill”. But what he had to say is equally relevant to this case. He takes note first of all of the expression “being with child” in section 58 and he relates it to wording of earlier Acts to which I will be referring. He further points out that sections 58 and 59 create three offences but that common to all three offences is the need to prove either an “intent to procure.. miscarriage” or in the case of an offence under section 59 knowledge of another’s “intent to procure .. miscarriage”. He goes on to point out that this intent to procure a miscarriage was what was required when the offence was a common law offence prior to 1803 (case law to support that is cited) and under every version of the offences created before the 1861 Act i.e., the Acts of 1803, 1828 and 1837. Munby J. sums up the position as follows:
“Given the issue in the present case the last point requires emphasis. The essence of the offence, both at common law and in every versionof the statutory regime since 1803 has always been the procuring of ‘miscarriage’. Putting the same point rather differently, ‘miscarriage’ is not a term of art introduced into the law in 1861. It is the word which Parliament and the lawyers have been using in this context for some two hundred years.”
The judge goes on to explain that common to all the three offences was the need to prove that the relevant act was “unlawful”. This requirement gave rise to the English decision of R v. Bourne cited above. As a consequence of Bourne’s case and quite apart from the possibility of a statutory repeal or amendment, there was no guarantee prior to the constitutional amendment, that abortions of the kind not considered “unlawful” in Bourne’s case, might some day be regarded with impunity by Irish courts.
I do not intend to survey in detail the pre-1861 law relating to abortion in a manner analogous to that done by Munby J.
At common law, however, commission of the offence required that the woman was carrying the child and that there had to be quickening of that child. Both at common law and right through the various statutes leading up to the 1861 Act, there was no offence without a miscarriage and “miscarriage” obviously implied previous “carriage”. The 1803 Act used the expression “quick with child”. Likewise the 1828 Act. The 1837 Act required “intent to procure the miscarriage of any woman”.
Both on a simple reading but even more so given its historical context, I would take the view that “the unborn” refers to a child in the womb not yet born. As Hardiman J. points out in his judgment, the Irish language version which of course is the authentic version bears this out.
If it was intended by the Article that if a fertilised embryo was created outside the body of the woman, that embryo would have the constitutional right to life, I cannot imagine that the Article would be worded in that way. There would be no logic, for instance, in conferring the constitutional right to life on a suitable spare embryo duly frozen on the one hand and not to confer it on an unsuitable embryo. I do not believe that the constitutional provision was drafted or indeed voted upon with IVF treatment in mind. There may well be some who would take the view that IVF treatment necessarily destroys “life” but if the intention was that that view would prevail or indeed if the topic was under consideration at all, the Article would have been worded quite differently. Statutory regulation relating to spare embryos is one matter but constitutional protection of their lives is quite another. It is not easy to see how, in practice, the latter could be achieved but at any rate that is a matter for the Oireachtas and for the people and not for the courts. The function of the court is to interpret the Article as it stands and for the reasons which I have indicated, I am satisfied that there is no constitutional provision which has the effect of overriding the express objections of the father.
I want however to make it clear at this stage that I am in agreement with the often expressed view that spare embryos, being lives or at least potential lives, ought to be treated with respect. The absence of a statute or statutory regulations indicating how that respect should be given is undesirable and arguably contrary to the spirit of the Constitution.
It is, however, up to the Oireachtas to provide such regulation. Even if it were possible, it would not be appropriate for the courts to attempt any guidance in this respect. I would be the first to acknowledge that it is not an easy task. One practical issue neatly illustrates the difficulty. It is common knowledge that some will argue against all use of spare embryos for medical purposes and indeed within that group there will be those who would object to even the creation, never mind the retention, of spare embryos. On the other hand, there are many who would bona fide hold the view that some regulated availability of an unimplanted embryo for medical purposes is a use which can enhance life. Hardly a week passes now when some new alleged medical use of an embryo is signposted in the media, one of the latest being a cure for total blindness. The moral and ethical problems in this area are legion. There is no common agreement on their resolution. Since most of these problems are of an ultra modern nature, I rather doubt that there is a constitutional solution to them, but that does not mean that there cannot and indeed should not be regulation by the Oireachtas. If there are constitutional aspects, they do not arise pursuant to the particular provision in the Constitution relied on in this case.
There are two other points which I think it important to make. First of all, even with the traditional methods of conception and pregnancy there is a very high attrition rate.
Dr. Wingfield, among others, gave some detailed evidence on this matter. Developing a view, she expressed in evidence “that a fertilised egg is a long, long way from being a human”. She went on immediately to say the following:
“There are various studies in the literature showing that the attrition rate both in natural conceptions and in in vitrio conception is quite substantial and that the chances of a fertilised egg actually becoming a human being are quite slim. We know from IVF that if you start off with a hundred eggs only 3/4 % of those will actually form a human being.”
It was then put to her did she mean by that that there would be a “successful pregnancy and birth of that child”. She replied in the affirmative but added:
“There are many pitfalls along the way where the processes can go wrong and where development can progress abnormally and where the whole process is aborted because something has gone wrong.”
This part of her evidence arose to some extent from questioning in relation to a statement she had made that although there is a natural tendency to regard the fertilised egg as a “baby” then to use her own words “science indicates that a fertilised egg is unfortunately a long, long way from being a human.” Dr. Wingfield developed that opinion further by saying:
“It is unfortunate that we use the same term to apply to a 1-cell embryo and also to an eight week old embryo or foetus, which you can see on an ultrasound scan, you can hear its heart beat, you can see it moving and certainly that eight week embryo, I think the vast majority of people would regard as a baby and a person, but as a 1-cell entity, which is also called an embryo is a very, very different entity from that… There is a very big difference between an early pre-implantation embryo and an eight week old embryo.”
Interestingly, the very next question put to her by Mr. O’Donnell, counsel for the Attorney General was prefaced by the remark “I think this is not significantly in dispute, and indeed I don’t think there is any serious dispute about the biological facts of the development of embryogenesis and the development of the embryo.” There are mountains of evidence of a similar vein but those extracts, in my view, which are not controversial, illustrate the unlikelihood that the constitutional provision with its relatively short and simple wording could have been intended to cover pre-implantation embryos.
The second additional observation I would make is that the kind of situation which arose in this case, i.e. the marriage breaking up while the frozen embryos were in existence is likely rarely to occur. As already referred to in the judgment, there are sound medical reasons in ease of the mother who wants to have a baby by the IVF method, to provide for spare embryos. Even in the case of a stable marriage, it does not at all follow that following on a successful birth by the IVF method it would be intended or agreed by the couple that the spare embryos would be then used to produce a second child by the same method. The creation of the spare embryos may in many instances be intended merely for the purposes of their use if the first attempt fails, but not for their use if the first attempt succeeds. Again, with some people this may be controversial but with others it may seem perfectly reasonable. In a system of regulation which there should be, these matters can be teased out. But to my mind the complexity of them is itself a further indication that the simple right to life amendment, as drawn up, was not intended to resolve any of these issues. It had the single purpose of protecting the child (and by that expression I include the foetus) in the woman’s womb and nothing more.
I would reject both the contractual and constitutional grounds of appeal and would, therefore, dismiss the appeal.
Judgment delivered the 15th day of December, 2009 by Mr. Justice Fennelly
1. I agree that the appeal should be dismissed. I am satisfied that the first-named respondent is not bound by any contract or agreement or by the application of equitable principles to permit the frozen embryos to be implanted. In this respect, I agree with the judgment of Geoghegan J. and with the reasons he gives.
2. I am also satisfied that the frozen embryos do not enjoy the protection of the guarantees provided to the right to life of the unborn by Article 40.3.3 of the Constitution. I agree, for the reasons given in the judgments of Hardiman J. and Geoghegan J. that Article 40.3.3 does not extend to or include frozen embryos which have not been implanted. I do not think that the constitutional provision should be considered only as being intended to reinforce the effect of section 58 of the Offences against the Person Act, 1861. The people, in adopting the Eighth Amendment to the Constitution employed distinct, new and independent language.
3. Finally, I join Hardiman J. in expressing concern at the total absence of any form of statutory regulation of in vitro fertilisation in Ireland. It is disturbing, to use no stronger word, that some four years after publication of the Report of the Commission on Assisted Human Reproduction, no legislative proposal has even been formulated. Counsel for the Attorney General argued before us that there is no law or public policy regarding the protection of frozen embryos, in short that they have no legal status. As I interpret these submissions, the organs of the State have no present intention to propose any legislation. It is obvious that this is extremely difficult and sensitive subject-matter. It is controversial for all of the reasons mentioned by Hardiman J. and Geoghegan J. Nonetheless, it cannot be denied that the fertilisation of the ovum brings into existence, outside the womb, the essential unique components of a potential new individual human person. I agree with the judgments of Hardiman J. and Geoghegan J. that the frozen embryo is entitled to respect. This is the least that can be said. Arguably there may be a constitutional obligation on the State to give concrete form to that respect. In default of any action by the executive and legislative organs of the State, it may be open to the courts in a future case to consider whether an embryo enjoys constitutional protection under other provisions of the Constitution.
Edmonds v Lawson & Anor
[2000] EWCA Civ 69 (10 March 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/69.html
Cite as: [2000] QB 501, [2000] ICR 567, [2000] EWCA Civ 69, [2000] IRLR 391, [2000] 2 WLR 1091
LORD CHIEF JUSTICE:
1. This is an appeal by the defendants against a decision of Sullivan J made on 24 September 1999 when he held that the claimant, a pupil barrister, was entitled to be paid the national minimum wage during her pupillage.
2. She brought the proceedings against Mr Michael Lawson QC, the head of the chambers in which she was a pupil, and against two junior members of the chambers, to each of whom she was assigned as a pupil for six months of her 12-month pupillage. Counsel on both sides are instructed by the General Council of the Bar, and the proceedings are devoid of acrimony; but the parties make sharply conflicting submissions on the issues which lie at the heart of this appeal, which are whether there was any contract between the claimant and the members of the chambers where she was a pupil and, if there was, whether it was a contract of employment within the meaning of the National Minimum Wage Act 1998.
3. The claimant, born on 1 November 1968, is now aged 31. She graduated from Oxford with a good degree in English and worked in the IT industry for some time before deciding to become a lawyer. She undertook an MA course in Environmental Law and Conservation at the University of Kent at Canterbury and graduated with a first class mark in 1996. She then studied successfully for the common professional examination at the University of Westminster. By this stage she had set her sights on practice at the Bar, and to that end she did a number of mini-pupillages and spent time in the prosecuting department of the Ministry of Agriculture. Before enrolling for the Bar Vocational Course at the Inns of Court School of Law, which she did in the Autumn of 1997, she made application for a pupillage through the Pupillage Applications Clearing House scheme, and after a series of interviews was offered a funded 12-month pupillage at a set of common law chambers in The Temple. During her year at the ICSL, for reasons which do not matter for present purposes, she decided to seek a career at the criminal Bar: having obtained her release from the common law chambers already mentioned, she accordingly contacted a number of sets of chambers specialising in crime to see if any places for pupils remained for the year beginning in the autumn of 1998. In due course she was invited for interview at Mr Lawson’s chambers at 23 Essex Street, a large and highly-regarded set of criminal chambers. After two interviews, the first largely exploratory, the second intended to test the claimant’s aptitude for criminal practice, the head of the chambers Pupillage Committee offered her an unfunded 12-month pupillage at the chambers. The offer was made over the telephone on 21 August 1998 and was confirmed in writing the same day. The claimant accepted the offer over the telephone, and as requested wrote on 1 September 1998 to accept the offer made in the letter to her.
4. The claimant had already gained some information about pupillage from material published by the Bar Council, from talks on the subject at the ICSL and from the Inner Temple of which she was a member. On arrival at 23 Essex Street as a pupil she was given a document entitled “Selection of Pupils, Pupil Training and Recruitment”, to which a Pupillage Code was appended. She also received a pupillage checklist, listing the requirements which had substantially to be met during the first six months of pupillage in order in qualify for the issue of a provisional practising certificate. The second defendant acted as the claimant’s pupil-master for her first six months of pupillage, during which she attended the courts, attended three training courses (two of them paid for by the chambers) and carried out the tasks necessary to qualify her for a provisional practising certificate, which she gained in April 1999. During the second six months of the pupillage, during which the third defendant was her pupil-master, the claimant spent a significant amount of time working on her own account, for which she was paid either privately or by the Legal Aid Board. She devilled one piece of work for a member of the chambers (not named in these proceedings) who paid her £150.
5. In years past, as Sullivan J. helpfully explains in the course of his lucid judgment, pupillage was a very informal, personal, hit-or-miss affair. While some pupil-masters conscientiously ensured that pupils were properly trained and educated in the professional skills and ethical standards required for practice at the Bar, others relied very largely on the capacity of an apt pupil, exposed over months to the incidents of a busy practice, to recognise the skills and learn the lessons which would fit him or her for professional practice. Save that the pupil would proffer a traditional fee of 100 guineas at the outset of a 12-month pupillage, which the pupil master might or might not choose to accept, the master-pupil relationship lacked any structure. There was no curriculum, and no formal monitoring of performance by master or pupil. The pupil’s work experience would largely depend on the work which came the pupil-master’s way during the term of the pupillage, and his future prospects would very much depend on the personal rapport he established with his pupil-master (and, in some cases, on the judgment of an experienced clerk). The system, if it be so described, did not exclude the possibility of partiality and prejudice, and the playing field on which pupils competed was not always level.
6. Since then, the relationship of pupil-master and pupil has been transformed. The reasons for this transformation are not immediately germane to the issues on this appeal; but heightened recognition that access to a profession should be open and fair and that the public are entitled to require high standards of competence and professionalism from those holding themselves out as skilled legal practitioners no doubt played a part. The documents before the court in this case, to which reference will be made below, reflect this transformation. The emphasis in the documents is, as we read them, twofold: first, to ensure so far as possible that the process of recruiting and selecting pupils is open, fair, objective and non-discriminatory; and secondly to ensure, again so far as possible, that pupils uniformly receive thorough, structured and monitored training and education in the practical and ethical aspects of practice in their chosen field at the Bar to complement the academic knowledge and skills which, by this stage of their careers, they should already possess.
7. The Act and the Regulations
8. The object of the National Minimum Wage Act 1998 was not, as we understand, to enlarge the categories of those entitled to be paid wages but to ensure that those entitled to be paid wages are not paid at anything less than a specified minimum level. Certain classes of worker were specifically included within the scope of the Act, such as crown servants (section 36), and staff of the House of Lords (section 38) and the House of Commons (section 39). Others are expressly excluded, such as members of the armed services (section 37), share fishermen (section 43), unremunerated voluntary workers (section 44), residential members of religious and other communities (section 44A) and prisoners (section 45). Section 1 of the Act, so far as relevant, provides:
“(1) A person who qualifies for the national minimum wage shall be remunerated by his employer in respect of his work in any pay reference period at a rate which is not less than the national minimum wage.
(2) A person qualifies for the national minimum wage if he is an individual who –
(a) is a worker;
(b) is working, or ordinarily works, in the United Kingdom under his contract; and
(c) has ceased to be of compulsory school age.
(3) The national minimum wage shall be such single hourly rate as the Secretary of State may from time to time prescribe.”
9. Section 54 of the Act contains definitions crucial to this appeal:
“(2) In this Act “contract of employment” means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.
(3) In this Act “worker” … means an individual who has entered into or works under (or, where the employment has ceased, worked under) –
(a) a contract of employment; or
(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual;
and any reference to a worker’s contract shall be construed accordingly.”
10. Section 2 of the Act empowers the Secretary of State to make regulations governing hourly rates and other matters pertinent to calculation of the minimum wage. Section 3 empowers the Secretary of State to make regulations in relation to persons under the age of 26 or who are participating in a scheme designed to provide training, work experience or temporary work. In the case of such persons the Secretary of State may by regulation prevent them from being persons qualifying for the national minimum wage or may prescribe that they shall receive a national minimum wage other than that prescribed for others. There is a duty on employers to keep records (section 9), there are enforcement provisions and offences are created (section 31). Section 28(1) provides that where in civil proceedings any question arises whether an individual qualifies for the national minimum wage, it shall be presumed that he does qualify unless the contrary is established.
11. We were referred to the National Minimum Wage Regulations 1999 (SI 1999 No. 584). Regulation 12 provides:
“(2) A worker who –
(a) has not attained the age of 26,
(b) is employed under a contract of apprenticeship or, in accordance with paragraph (3), is to be treated as employed under a contract of apprenticeship, and
(c) is within the first 12 months after the commencement of that employment or has not attained the age of 19,
does not qualify for the national minimum wage in respect of work done for his employer under that contact.
(3) A worker is to be treated as employed under a contract of apprenticeship for the purposes of paragraph (2)(b) if, and only if, he is engaged under the arrangements made by the Government known as Modern Apprenticeships.”
It is because the claimant is over 26 that she is said to qualify for the minimum wage. The regulation goes on to make detailed provisions governing workers participating in schemes designed to provide them with training, work experience or temporary work.
12. The regulation of pupillage
13. Part V of the Consolidated Regulations of the Inns of Court in force at the relevant time contained very detailed provisions concerning pupillage. Satisfactory completion of 12 months’ pupillage is a necessary qualification for private practice at the Bar. A provisional practising certificate must be obtained on completion of the first 6 months’ pupillage if the pupil is to progress further. Such a certificate entitles the pupil to practise on his own account during the second 6 month period. A full practising certificate must be obtained at the end of 12 months. Regulation 54 lays down the duties of a pupil. The first paragraph only is relevant for present purposes:
“During each pupillage or period of alternative service it is the duty of the pupil to be conscientious in receiving the instruction given, to apply himself full time thereto, to preserve the confidentiality of every client’s affairs, and to comply with such other rules or guidelines relating to pupillage as may be approved from time to time by the Bar Council in consultation with the Inns’ Council (including the Code of Conduct).”
14. The duties of a pupil-master are set out in Regulation 54A:
“The duties a Pupil-Master are set out in Part II of Annex A to the Code of Conduct, or such other rules or guidelines relating to pupillage as may be approved from time to time by the Bar Council in consultation with the Inns Council.”
15. The Code of Conduct of the Bar of England and Wales in force at the relevant time required barristers in independent practice to have regard to the published guidance issued from time to time by the Bar Council concerning pupillage (paragraph 304) and required heads of chambers to take all reasonable steps to ensure that proper arrangements were made in their chambers for dealing with pupils and pupillage (paragraph 305). Part VII of the Code contained sections on pupil-masters and pupils:
“Pupil-masters
701.1. A barrister who is a pupil-master must
(a) comply with Part V of the Consolidated Regulations of the Inns of Court (reproduced in Section 4 of the Code);
(b) comply with the relevant requirements of paragraphs 304 and 305;
(c) take all reasonable steps to provide his pupil with adequate tuition and experience.
701.2. Subject to paragraph 701.3. a barrister must remunerate any pupil (or in the case of an employed barrister ensure that a pupil is remunerated) for any work done for him which because of its value to him warrants payment.
701.3. Paragraph 701.2. shall not apply in the case of a pupil who is in receipt of an award which is paid by the chambers in which he is a pupil on terms that it is in lieu of remuneration which he might otherwise expect to receive from his pupil master or any other barrister.
Pupils
702. A barrister who is a pupil (whether in chambers or with an employed barrister) must:
(a) comply with Part V of the Consolidated Regulations of the Inns of Court (reproduced in Section 4 of the Code);
(b) apply himself full-time to his pupillage save that a pupil may take part-time employment which does not materially interfere with his pupillage;
(c) preserve the confidentiality of every client’s affairs and accordingly paragraph 603 applies to him as if the clients of his pupil master and of every barrister whom he accompanies to Court or whose papers he sees were his own clients.”
16. In Annexe A to the Code of Conduct the Bar published Pupillage Guidelines. These required every set of chambers taking pupils to prepare a document setting out generally its policies in relation to the choice and number of pupils, the finance available to pupils, the role and duties of pupils in those chambers, the pattern of pupillage, the checklist used for pupillage and the general policy as to recruitment of tenants and pupils not taken on as tenants. The general obligations and functions of a pupil-master were prescribed in these terms:
“(1) He should ensure that the pupil is well grounded in the rules of conduct and etiquette of the Bar.
(2) He should ensure that his pupil is provided with and retains the check list referred to in Part I paragraphs C1 and C4 and completes it conscientiously and accurately.
(3) He should require his pupil to read his papers and draft pleadings and other documents including opinions and should require his pupil to accompany him to court on sufficient occasions so that the pupil has the opportunity to do all such work and gain all such experience as is appropriate for a person commencing practice in the type of work done by the pupil master and in any event so as to enable the pupil to complete the check list.
(4) He should take all reasonable steps to enable his pupil to see work done by junior members of chambers.
(5) He should require his pupil to attend at least sufficient conferences to enable the pupil to obtain experience in how to conduct a conference.
(6) In the second six months he should take a direct interest in and monitor all work his pupil does on his own. In particular he should in relation to court appearances by his pupil give assistance before he goes into court and the opportunity for discussion afterwards. He should however take all reasonable steps to ensure that his pupil does not do so much work of his own that his pupillage is impaired.
(7) He should encourage a relationship between himself his chambers’ colleagues and his pupil whereby the pupil is encouraged to discuss problems and receive information on matters relating to practice and etiquette. He may and in appropriate circumstances should arrange for his pupil to spend time with and see the work of other members of chambers.
(8) He must if it is proper for him to do so provide for his pupil the appropriate certificate required by the pupil pursuant to the Consolidated Regulations at the end of each relevant period of pupillage or take the necessary steps to ensure that some other person entitled by the Consolidated Regulations to sign such a certificate does so.”
The obligations and functions of the pupil were not prescribed. An expanded version of the Pupillage Guidelines was issued in 1998: this elaborated the duties of the pupil-master but made no reference to the duties of the pupil.
17. In 1998 the Bar published a Pupillage File intended to promote good practice and greater consistency between pupillages. Section 1.2 was entitled “The duties of pupils”. The first part of this section dealt with registration. There followed a section on conduct:
“1.2.2. Conduct
Section 702 of the Code of Conduct and Part V of the Consolidated Regulations set out your duties during pupillage. You are required to be conscientious in receiving the instruction given and to apply yourself full-time to your pupillage (save that you may take part-time employment that does not materially interfere with it). You are required to preserve the confidentiality of every client’s affairs, including clients of your pupil master/mistress and other barristers with whom you work. You must also comply with any other rules or guidelines relating to pupillage which are approved by the Bar Council. The rules which the Bar Council has approved in relation to continuing education during pupillage are set out in section 2.3.5.”
The duties of pupil-masters were specified by reference to Part II of Annex A to the Code of Conduct and the expanded guidelines referred to above. Holidays and hours were a matter to be agreed between pupil-master and pupil. A handbook on “Chambers, Pupillages and Awards” issued by the Bar Council made reference to the new economic and competitive climate in which the Bar had to compete and laid emphasis on greater competition and higher professionalism as the watchwords of the profession.
18. The document in which Mr Lawson’s chambers outlined their pupillage prospectus described pupillage as “a professional apprenticeship”. The chambers Pupillage Code provided:
“(1) There must be a total two-way commitment between pupil and pupil master.”
It went on to provide:
“(5) Pupils should be encouraged to do research, preparation and other work to assist members of chambers other than pupil masters BUT no requests to do such work should be made without first clearing it with the pupil master concerned.”
19. The first issue: was there a contract?
20. The claimant contended, and the judge held, that there was a contract between her and all those who were members of Mr Lawson’s chambers on 1 October 1998, made by the chambers’ offer of a 12-month pupillage and her acceptance of that offer. Before the judge and on appeal before us the defendants resisted that conclusion. The grounds of resistance were, first, that there was no intent to create legal relations and, secondly, that the pupillage agreement was unsupported by consideration moving from the claimant as promisee and so lacked an essential ingredient of a legally binding contract.
21. Whether the parties intended to enter into legally binding relations is an issue to be determined objectively and not by enquiring into their respective states of mind. The context is all-important. From the defendants’ point of view the written offer of pupillage to the claimant came at the end of a long, time-consuming and expensive process. It was also a process of great long-term consequence to them since, although barristers in practice are independent self-employed practitioners, it is of benefit to all, at every level, that chambers as a whole consist of talented and hardworking members, and the defendants’ like other chambers recruit most of their tenants from the pool of those recruited as pupils. So, quite apart from considerations of professional duty and the public interest, it is of direct practical consequence to chambers to attract and select the ablest pupils. That is why, in part at least, many chambers including the defendants’ fund pupillages for a proportion of their pupils, sometimes very generously. From the pupil’s point of view, obtaining a pupillage in a flourishing set of chambers practising in the pupil’s chosen field is a step with potentially immense consequences, both professional and financial, in both the short and the long term. Obtaining a pupillage does not of course guarantee a tenancy, but it guarantees the pupil an opportunity to show his quality and thereby seek a tenancy. When, as the culmination of a long process of application, short-listing and interview an offer is formally made and formally accepted it would in our judgment be surprising to infer that the parties intended to bind themselves in honour only.
22. In arguing that there was no intent to create legal relations Mr Goudie QC for the defendants relied on the educational nature of the arrangement, suggesting that it lacked the characteristics of a commercial contract and involved no payment by the pupil. It was a voluntary and gratuitous offer by the chambers to provide education and training. He also relied on the doubt which, he said, existed as to who entered into the arrangement on the chambers’ side. There was, he suggested, no need for a contract because the relationship was already regulated by the documents to which reference has been made above, and if chambers should resile from a undertaking to provide pupillage the pupil would have ample redress through the Bar disciplinary machinery, which would in practice preclude such dishonourable behaviour. The absence of written terms and conditions, he argued, pointed strongly against any intention to contract.
23. Neither singularly nor cumulatively do we find these points in any way persuasive on the question of intent. It is true that the content of the arrangement was educational, but as already pointed out the practical implications of the arrangement for both parties were potentially very significant and, subject to the point on consideration discussed below, there is no reason why a binding contract cannot be made for the provision of education and training. Whereas once the arrangement of pupillage was a one-to-one engagement between pupil and pupil-master, that has ceased to be so, as evidenced by the responsibility imposed on and accepted by heads of chambers, by the procedure in practice adopted by chambers and by the management of pupillage as a chambers responsibility. The claimant was not interviewed, nor was the offer of pupillage made, by either of those who became her successive pupil masters, and when the offer was made and accepted she did not know who they would be. The regulatory materials governing pupillage (only a small part of which we have quoted) were impliedly incorporated by reference into the arrangement made between the parties, and to that extent the terms of the arrangement were recorded in writing; but the functions and obligations of the parties were so clearly specified in these materials that any detailed negotiation of terms and conditions to be recorded in a written agreement between the parties was rendered unnecessary. It is of course unlikely that any chambers, certainly any reputable chambers, having made an offer of pupillage which has been accepted, would resile from that arrangement without very good reason, but the existence of a disciplinary sanction does not in our view point against the existence of a contract. To our mind this arrangement had all the characteristics of a binding contract. It makes no difference that, if the pupil defaulted, the chambers would be most unlikely to sue; the same is true if an employer engages a junior employee under an employment contract which is undoubtedly binding, and the employee fails to turn up on the appointed day.
24. The defendants’ argument on consideration is, we think, much stronger, for while chambers undertake to provide a closely prescribed curriculum of education and training the pupil no longer pays any fee and does not in our view undertake to do anything beyond that which is conducive to his or her education and training. In working on the pupil master’s papers (making factual summaries, or drafting chronologies, or writing advices or preparing pleadings) the pupil will be seeking to acquire, under the tutelage of the pupil master, the skills of a professional adviser, pleader and advocate, even though the pupil-master will often benefit from the pupil’s work and from discussion with him. If the pupil carries out legal research or keeps a note in court, he is again learning and applying professional skills necessary for practice. If the pupil produces any work of real value, whether to the pupil master or any other member of the Bar, the beneficiary is under a professional duty to remunerate the pupil. While any pupil of ordinary common sense would, if asked, carry out mundane tasks (such as photocopying authorities or making a cup of tea) which do not in any way promote his professional development there is in our view no obligation or duty on the pupil to do anything for the pupil-master which is not conducive to his own professional development.
25. This conclusion, if correct, would we think be fatal to any argument that there was a contract between the pupil and the individual pupil-master, for the pupil would provide no consideration for the pupil-master’s educational services. But the claimant does not rely on any contract said to have been made with an individual pupil-master and we think a broader view has to be taken of the relationship between chambers and pupil. For reasons on which we have already touched, members of chambers have a strong incentive to attract talented pupils, and their future prospects will to some extent depend on their success in doing so. The funding of awards is not an exercise in pure altruism but reflects an obvious (and wholly unobjectionable) element of self-interest. The agreement of the claimant and other pupils to undertake pupillage at chambers such as the defendants’ provides a pool of selected candidates who can be expected to compete with each other for recruitment as tenants. We do not regard this argument as undermined by the fact that some pupils who are accepted as such may be regarded as unlikely candidates for tenancy. The process must be viewed in the round, and not on a pupil by pupil basis, and chambers may well see an advantage in developing close relationships with pupils who plan to practise as employed barristers or to practise overseas. On balance we take the view that pupils such as the claimant provide consideration for the offer made by chambers such as the defendants’ by agreeing to enter into the close, important and potentially very productive relationship which pupillage involves.
26. We agree with the judge, although for somewhat different reasons, that the claimant did make a legally binding contract with the defendants.
27. The second issue : if there was a contract, was it a “contract of employment”?
28. To be entitled to the national minimum wage a person must, under section 1(2)(a) of the Act, be “a worker”. Subject to the issue raised by the claimant’s cross-appeal discussed below, “a worker” is someone who has entered into or worked under a “contract of employment” (section 54(3)(a)). A “contract of employment” means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing (section 54(2)). It was not argued in this case that the claimant had entered into or worked under a contract of service. The argument was that the claimant had entered into or worked under a contract of apprenticeship. That is the argument which the judge accepted, and which the defendants now challenge.
29. A contract of apprenticeship is, in law, a contract with certain features peculiar to itself. It is, for instance, less readily terminable by the employer than an ordinary contract of employment (see, for example, Newell v. Gillingham Corporation [1941] 1 All ER 552; McDonald v. John Twiname Ltd [1953] 2 QB 304; Wallace v. CA Roofing Services Ltd [1996] IRLR 435). While there has since 1814 been no requirement that a contract of apprenticeship be made by deed, it remains the law that an executory contract of apprenticeship, to be enforceable, must be made in writing (Kirkby v. Taylor [1910] 1 KB 529; McDonald v. John Twiname Ltd, above; Wallace v. CA Roofing Services Ltd, above). An oral contract of apprenticeship, although legally valid, is unenforceable unless and until acted upon. Since section 54(2) appears to contemplate an oral or even an implied contract of apprenticeship, we infer that Parliament intended a relatively unlegalistic view to be taken of what modern apprenticeship entails (although we note that the draftsman of the Regulations distinguished between a worker employed under a contract of apprenticeship and a worker who was to be treated as so employed). In our judgment Parliament probably intended to cover contracts of apprenticeship strictly so called and also relationships equivalent thereto, which would be quite as appropriate to learned professions as to skilled trades or crafts. We note that in The Parish of St Pancras case (see below) an attorney’s clerk, articled by indenture, was held to be an apprentice and to gain a settlement as such for poor law purposes.
30. A contract of apprenticeship or any equivalent contract is in our judgment a synallagmatic contract in which the master undertakes to educate and train the apprentice (or pupil) in the practical and other skills needed to practise a skilled trade (or learned profession) and the apprentice (or pupil) binds himself to serve and work for the master and comply with all reasonable directions. These mutual covenants are in our judgment cardinal features of such a relationship. This is in our view borne out by authority. In The Parish of St. Pancras, Middlesex v. The Parish of Clapham, Surrey (1860) 2 El. & El. 742 at 749 Cockburn CJ said:
“As to the first point, in legal acceptation an apprentice seems to be a person who is bound to and who serves another, for the purpose of learning something which the other is to teach him.”
Crompton J. at page 752 agreed:
“The meaning, in law, of the word “apprentice” is well known. He is a person bound to serve a master who is bound to teach him. Such was the meaning of the term, when the statute [of 1814] passed, no less than it is at present.”
Blackburn J., at page 754, took the same view:
“I have always thought that by “apprentice” is meant one who gives his services in order to be taught.”
In the more recent case of Waterman v. Fryer [1922] 1 KB 499 at 506 Shearman J. expressed a similar view:
“The authorities show that in the early days there was the greatest reluctance to break any contract of apprenticeship. It was considered of very great importance that children should be taught a trade, and the Courts, in view of the great power which masters then had over apprentices, who generally resided with them, held that the obligation of the apprentice to serve and that of the master to teach were not interdependent but independent covenants. It was at the bottom of the reasoning in the older cases that the master could make the apprentice serve, even though the latter was unwilling.”
31. Authoritative commentators have taken a similar view. In Apprenticeship Law (Myer, 1910), it was said at page 12:
“The apprentice must obey all the lawful commands of his master in connection with the business.”
In the Report of an Enquiry into Apprenticeship and Training addressed to the Ministry of Labour in 1928, apprenticeship was described at page 7 as
“the contractual relationship between an employer and worker under which the employer is obliged to teach the worker or to cause him to be taught any trade or business and in consideration of such teaching the worker is to serve the employer as an apprentice throughout an agreed period on stated terms.”
32. The obligation of the apprentice to serve is reflected, for example, in the specimen form of indenture annexed by Myer to his work already cited, whereby
“the Apprentice with the consent of the Parent doth hereby place and bind himself with and to the Master during the term aforesaid during all which time the Apprentice shall faithfully honestly and diligently serve him the Master and obey and perform all his lawful and reasonable commands and requirements …”.
This language has an old-fashioned ring, and was designed for a minor becoming an apprentice in a skilled trade. We have, however, been supplied with a specimen form of contract issued by the Law Society for contracts between solicitors and trainee solicitors. Under this document the trainee solicitor covenants:
“13. The Trainee Solicitor will:
(a) carry out duties given by partners or employees of [the Training Establishment] faithfully and diligently and follow all reasonable instructions; …”
33. We have cited above, in relation to consideration, every statement known to us of a pupil’s duty and obligation. As already indicated, we can find no trace of any duty or obligation binding on the pupil to do anything not conducive to the pupil’s own training and development. Where such obvious care has been taken to express the duty of pupil-master and pupil, it would not in our view be right to imply any duty, and it is by no means clear how any implied duty would be expressed. While any well-advised pupil would seek to commend himself to his pupil-master by doing anything within reason which the pupil-master wanted, this has no bearing when the issue relates to the content of a contractual relationship. It seems to us quite clear that a pupil-master could not withhold from a pupil any certificate needed by the pupil to enable him to practise on the ground of any failure not directly related to the education and training of the pupil. This was not an argument which was addressed to the judge in quite this form, and he accordingly made no specific finding upon it. It must attract the scepticism which attaches to any argument originating with the court. It was, however, adopted with some enthusiasm by Mr Goudie, and we see no effective answer to it.
34. Since the issue in this case is whether pupil barristers aged over 26 are entitled to be paid the national minimum wage, it cannot be conclusive that pupils are not now generally paid. This is true even of funded pupils since, as we understand, chambers grants are treated as professional earnings for tax purposes only in part. But the fact that the generality of barrister pupils have been unpaid, not just in the distant past but also in modern times, is in our view of significance in determining whether a relationship of or equivalent to apprenticeship exists. For although trade apprentices have always received reduced wages, reflecting both the value of the practical training they receive and their reduced productivity, they have always in modern times received some wages and in earlier times received board and lodging. In Dunk v. George Waller & Sons Ltd [1970] 2 QB 163 at 169 Widgery LJ said:
“A contract of apprenticeship secures three things for the apprentice: it secures him, first, a money payment during the period of apprenticeship; …”
While solicitors’ articled clerks may once have been in very much the same position as pupil barristers, they have in more recent times been entitled to payment. The fact that pupil barristers have up to the present been unpaid in our view reflects the lack of expectation that they will render services of value; hence the requirement in the Code of Conduct that, if they do produce work of value, they shall be paid.
35. The freedom of a pupil who has obtained a provisional practising certificate to practise during the second six months of pupillage, not for the benefit of the chambers or the pupil master but for his own sole benefit and reward, would be highly anomalous if this were anything approaching an orthodox employment or apprenticeship relationship. While a small point in itself, it is in our view another pointer against such a relationship. A pupil-master’s lack of formal control or disciplinary power over a pupil is not in our view of significance in a relationship between two members of a learned profession.
36. Differing from the judge, although in large measure on the strength of an argument not addressed to him, we conclude that the claimant did not enter into or work under a contract of apprenticeship or an equivalent contract.
37. The third issue : section 54(3)(b)
38. The claimant has raised by notice of cross-appeal an argument based on section 54(3)(b) which the judge rejected. In our view he was right to reject it.
39. The argument was that if the claimant had not (contrary to other submissions) entered into or worked under a contract of service or apprenticeship, she had entered into or worked under another contract whereby she undertook to do or perform personally work or services for another party to the contract whose status was not, by virtue of the contract, that of a client of a profession carried on by the claimant. As put in the respondent’s notice, the contract between the claimant and the defendants was one whereby the claimant undertook to do or perform personally work or services for any assigned pupil master or other members of chambers as might reasonably be requested of her during her pupillage. When the claimant performed work or services during pupillage for any assigned pupil master or other member of chambers those individuals were not (it was pleaded) clients of the claimant.
40. In our view there are two conclusive answers to these contentions. The first is that by the contract made with the defendants the claimant did not, for reasons already given, undertake to do or perform any work or services for any member of the defendants’ chambers. The second is that if and to the extent that the claimant on an ad hoc basis undertook any work for any member of the defendants’ chambers for which, by virtue of the Code of Conduct, she was entitled to be paid, the beneficiary of her work was in our view a client of the claimant for purposes of the professional practice carried on by her. Such earnings would, we think, be taxable as a professional receipt, and we see no anomaly in regarding the beneficiary of her professional work as a client. Even if the claimant were entitled to be paid the national minimum wage for the work which she devilled for an unnamed member of chambers, and this is not the case which the claimant makes, we have no reason to think that the £150 she received was less than the national minimum wage would have been.
41. In the result we allow the defendants’ appeal and dismiss the claimant’s cross-appeal. In our judgment the claimant was not “a worker” within the meaning of the 1998 Act. Both parties have sought a ruling on the issue of legal principle raised, and this we have endeavoured to give. We were not addressed on the potentially far-reaching questions of policy which arise, and which are better considered elsewhere.
42. This is the judgment of the court.
Order: Permission to appeal Refused
Methodist Conference v Preston (Rev 1)
[2013] UKSC 29 (15 May 2013)
[2013] WLR(D) 179, [2013] 2 WLR 1350, [2013] IRLR 646, [2013] ICR 833, [2013] UKSC 29, [2013] 4 All ER 477, [2013] 2 AC 163
LORD SUMPTION (with whom Lord Wilson and Lord Carnwath agree)
The Respondent, Haley Anne Preston (formerly Moore), a Minister in the Redruth Circuit of the Methodist Church until 2009, wishes to prosecute a claim against the Church in an employment tribunal for unfair dismissal. Under section 94 of the Employment Rights Act 1996, only an employee has the right not to be unfairly dismissed. Section 230 uncontroversially defines an employee as someone who has entered into or works under a contract of service or apprenticeship. The question at issue on this appeal is whether Ms Preston was an employee. The tribunal held that she was not. That decision was, however, reversed by the Employment Appeal Tribunal in a decision subsequently upheld by the Court of Appeal.
The current state of the authorities
Disputes about the employment status of ministers of religion have been coming before the courts ever since the introduction of national insurance in 1911 made it necessary to classify them for the first time. There is now a substantial body of authority on the point, much of it influenced by relatively inflexible tests borne of social instincts which came more readily to judges of an earlier generation than they do in the more secular and regulated context of today. Until recently, ministers of religion were generally held not to be employees.
Two recurrent themes can be found in the case-law.
The first is the distinction between an office and an employment. Broadly speaking, the difference is that an office is a position of a public nature, filled by successive incumbents, whose duties were defined not by agreement but by law or by the rules of the institution. A beneficed clergyman of the Church of England is, or was until recent measures modified the position, the paradigm case of a religious office-holder. But at an early stage curates in the Church of England were recognised as having the same status for this purpose: see In re Employment of Church of England Curates [1912] 2 Ch 563. The position of other ministers was taken to be analogous. In Scottish Insurance Commissioners v Church of Scotland (1914) SC 16, which concerned an assistant minister in the United Free Church of Scotland, Lord Kinnear said at 23 that the status of an assistant minister “is not that of a person who undertakes work defined by contract but of a person who holds an ecclesiastical office, and who performs the duties of that office subject to the laws of the Church to which he belongs and not subject to the control and direction of any particular master.” In Diocese of Southwark v Coker [1998] ICR 140, the Court of Appeal held that a stipendiary assistant curate was not an employee. They held that his duties were derived from his priestly status and not from any contract. Both Mummery LJ (at 147) and Staughton LJ (at 150) considered that there was a presumption that ministers of religion were office-holders who did not serve under a contract of employment.
The second theme is a tendency to regard the spiritual nature of a minister of religion’s calling as making it unnecessary and inappropriate to characterise the relationship with the church as giving rise to legal relations at all. In Rogers v Booth [1937] 2 All ER 751, 754, Sir Wilfred Green MR, delivering the judgment of the Court of Appeal, held that membership of the Salvation Army gave rise to a relationship “pre-eminently of a spiritual character” which was not intended to give rise to legal relations. More recently, in Davies v Presbyterian Church of Wales [1986] 1 WLR 323, the House of Lords held that the mere fact that a relationship founded on the rules of a church was non-contractual did not mean that that there were no legally enforceable obligations at all. But they were inclined to find those obligations in the law of trusts, and adhered to the familiar distinction between an employment and a religious vocation. At p 329, Lord Templeman, with whom the rest of the committee agreed, said:
“My Lords, it is possible for a man to be employed as a servant or as an independent contractor to carry out duties which are exclusively spiritual. But in the present case the applicant cannot point to any contract between himself and the church. The book of rules does not contain terms of employment capable of being offered and accepted in the course of a religious ceremony. The duties owed by the pastor to the church are not contractual or enforceable. A pastor is called and accepts the call. He does not devote his working life but his whole life to the church and his religion. His duties are defined and his activities are dictated not by contract but by conscience. He is the servant of God. If his manner of serving God is not acceptable to the church, then his pastorate can be brought to an end by the church in accordance with the rules. The law will ensure that a pastor is not deprived of his salaried pastorate save in accordance with the provisions of the book of rules but an industrial tribunal cannot determine whether a reasonable church would sever the link between minister and congregation. The duties owed by the church to the pastor are not contractual. The law imposes on the church a duty not to deprive a pastor of his office which carries a stipend, save in accordance with the procedures set forth in the book of rules.”
President of the Methodist Conference v Parfitt [1984] QB 368 was a decision of the Court of Appeal on a claim for unfair dismissal by a Methodist minister. It is therefore directly in point on the present appeal. The Court held that the minister was not an employee, but the reasons of its members differed. Dillon LJ considered the spiritual character of the Methodist ministry to be fundamental to constitution and standing orders of the Methodist Church, but he reached the conclusion by an analysis of their terms. He does not appear to have been influenced by the distinction between an office and an employment, and regarded the earlier authorities as of no assistance. May LJ, on the other hand, adopted the analysis of the dissenting judgment of Waterhouse J in the Employment Appeal Tribunal, who had considered that the spiritual character was in itself inconsistent with the existence of a contractual relationship. Sir John Donaldson MR agreed with both judgments.
The leading modern case in this area is the decision of the House of Lords in Percy v Board of National Mission of the Church of Scotland [2006] 2 AC 28. The Appellant was an associate minister in a parish of the Church of Scotland, who wished to bring a sex discrimination claim against the Church. It was accepted that she did not have a contract of service. But the statutory test of “employment” for the purposes of sex discrimination claims is broader than the test for unfair dismissal claims. Under the Sex Discrimination Act 1975, it extended to those who “contract personally to execute any work or labour.” Ms Percy claimed to come within that category. In spite of the difference between the tests for unfair dismissal and sex discrimination, the House took the opportunity to revisit both of the themes which had featured in the authorities to date on the question whether a minister was employed under a contract of service.
The leading speech for the majority was delivered by Lord Nicholls, with whom Lord Scott and Baroness Hale agreed. Lord Nicholls regarded office-holding as an unsatisfactory criterion, at any rate on its own, for deciding whether a person was employed. The concept is clear enough but the boundaries are not, except in the case of holders of a small number of offices which have long been recognised as such by the common law, such as constables and beneficed clergymen of the Church of England. Moreover, offices and employments are not always mutually exclusive categories. A contract of employment is capable of subsisting side by side with many of the characteristics of an office. It followed that the classification of a minister’s occupation as an office was no more than one factor in a judgment that depended on all the circumstances. Turning to the spiritual character of a minister’s calling, Lord Nicholls recognised its relevance but pointed out that it could not be conclusive. At paras 23-25, he said:
“23. There are indeed many arrangements or happenings in church matters where, viewed objectively on ordinary principles, the parties cannot be taken to have intended to enter into a legally-binding contract. The matters relied upon by Mr Parfitt in President of the Methodist Conference v Parfitt [1984] QB 368 are a good example of this. The nature of the lifelong relationship between the Methodist Church and a minister, the fact that he could not unilaterally resign from the ministry, the nature of his stipend, and so forth, all these matters made it impossible to suppose that any legally-binding contract came into being between a newly-ordained minister and the Methodist Church when he was received into full connection. Similarly with the Church’s book of rules relied on by the Reverend Colin Davies in Davies v Presbyterian Church of Wales [1986] I WLR 323. Then the rebuttable presumption enunciated by the Lord President in the present case, following Mummery LJ’s statements of principle in Diocese of Southwark v Coker [1998] ICR 140, 147, may have a place. Without more, the nature of the mutual obligations, their breadth and looseness, and the circumstances in which they were undertaken, point away from a legally-binding relationship.
24. But this principle should not be carried too far. It cannot be carried into arrangements which on their face are to be expected to give rise to legally-binding obligations. The offer and acceptance of a church post for a specific period, with specific provision for the appointee’s duties and remuneration and travelling expenses and holidays and accommodation, seems to me to fall firmly within this latter category.
25. Further, in this regard there seems to be no cogent reason today to draw a distinction between a post whose duties are primarily religious and a post within the church where this is not so. In President of the Methodist Conference v Parfitt [1984] QB 368, 376, Dillon LJ noted that a binding contract of service can be made between a minister and his church. This was echoed by Lord Templeman in your Lordships’ House in Davies v Presbyterian Church of Wales [1986] I WLR 323, 329. Lord Templeman said it is possible for a man to be employed as a servant or as an independent contractor to carry out duties which are exclusively spiritual.
26 The context in which these issues normally arise today is statutory protection for employees. Given this context, in my view it is time to recognise that employment arrangements between a church and its ministers should not lightly be taken as intended to have no legal effect and, in consequence, its ministers denied this protection.”
Applying these principles to Ms Percy’s case, Lord Nicholls had no difficulty in finding that she had contracted “personally to execute any work or labour”. This was because of the manner in which she had been engaged. The relevant committee of the Church of Scotland had invited applications, referring to the duties, the terms of service and the remuneration associated with the job. Ms Percy had responded, was offered the job and sent a full copy of the terms. She replied formally accepting it. These circumstances suggested a contractual relationship, and nothing in the terms was inconsistent with that.
Lord Hope, in a concurring judgment, reached the same conclusion, pointing out that the manner of appointment of an associate minister was significantly different from the induction of a minister to a charge. He considered that if the relationship was contractual at all, the contract was one which engaged the anti-discrimination provisions of the statute. He accepted that Ms Percy was appointed to an office. But, like Lord Nicholls, he thought that there was no reason why the duties of that office should not be performed under a contract. The circumstances in which Ms Percy was engaged showed that this was what the parties had intended in her case.
It is clear from the judgments of the majority in Percy that the question whether a minister of religion serves under a contract of employment can no longer be answered simply by classifying the minister’s occupation by type: office or employment, spiritual or secular. Nor, in the generality of cases, can it be answered by reference to any presumption against the contractual character of the service of ministers of religion generally: see, in particular, Baroness Hale at para 151. The primary considerations are the manner in which the minister was engaged, and the character of the rules or terms governing his or her service. But, as with all exercises in contractual construction, these documents and any other admissible evidence on the parties’ intentions fall to be construed against their factual background. Part of that background is the fundamentally spiritual purpose of the functions of a minister of religion.
The constitution and standing orders of the Methodist Church
Methodist ministers have no written contract of employment. Their relationship with the Church is governed by its constitution, which is contained in the Deed of Union, by the standing orders of the Methodist Conference, and by such specific arrangements (if any) as may have been made with a particular minister. It is convenient to deal first with the position of the Methodist ministry generally, before examining any special arrangements with Ms Preston.
Ms Rose QC, who appeared for the President of the Methodist Conference, invited us to approach these instruments on the footing that in the absence of anything in them amounting to an express contract of employment, it was necessary to imply one. For this purpose, she submitted, the test was one of necessity. If the essential features of the arrangements described in the Deed of Union and the standing orders were capable of being explained without reference to an employment relationship, then no such relationship should be held to exist. I reject this submission for three reasons. In the first place, in modern conditions, against the background of the broad schemes of statutory protection of employees, it should not readily be assumed that those who are engaged to perform work and receive remuneration intend to forgo the benefits of that protection, even where the work is of a spiritual character. Secondly, as Lord Hope pointed out in Percy, at para 107 the practical effect of the suggested approach is to reintroduce the presumption of non-contractual status in the case of ministers of religion, which he, along with the majority in that case rejected in principle. Third, whatever the legal classification of a Methodist minister’s relationship with his Church, it is not sensible to regard it as implied. It is documented in great detail in the Deed of Union and the standing orders. The question is whether the incidents of the relationship described in those documents, properly analysed, are characteristic of a contract and, if so, whether it is a contract of employment. Necessity does not come into it.
The Deed of Union, in its original form, was agreed in 1932 when the Wesleyan Methodist Church united with the Primitive Methodist Church and the United MethodistChurch and other Methodist denominations to form the Methodist Church of Great Britain. The governing body of the Church is the Conference, which meets annually and transacts business in two sessions, the Representative Session and the Ministerial Session. The Representative Session comprises designated office-holders and representatives. The Ministerial Session comprises those members of the Representative Session who are ministers, together with certain other categories of ministers. The senior officer of the Church is the President of the Conference, who is designated as such by a vote of the previous Conference. Detailed provision is made for every aspect of the government of the Church by standing orders made by the Conference. For the purposes of its ministry, the Church is divided into geographical circuits, each of which is governed by its Circuit Meeting, Circuit Stewards, and committees appointed for special purposes.
The Church adheres to the doctrine of the priesthood of all believers. Section 2, clause 4 of the Deed of Union records,
“Christ’s ministers in the church are stewards in the household of God and shepherds of his flock. Some are called and ordained to this sole occupation and have a principal and directing part in these great duties but they hold no priesthood differing in kind from that which is common to all the Lord’s people and they have no exclusive title to the preaching of the gospel or the care of souls.”
Section 7, clause 23(h) of the Deed of Union provides that to become a minister a candidate must first obtain the judgment of the Ministerial Session that he or she is fit to be admitted into “full connexion” and ordination. The Representative Session must then resolve that he or she is to be admitted and ordained. The candidate is then ordained by laying on of hands. Standing order 700(2) provides that “[b]y receiving persons into full connexion as Methodist ministers the Conference enters into a covenant relationship with them in which they are held accountable by the Church in respect of their ministry and Christian discipleship, and are accounted for by the Church in respect of their deployment and the support they require for their ministry.” Standing order 740(1)(a) provides that “[i]n this relationship they accept a common discipline of stationing and collegially exercise pastoral responsibility for the Church.”
“Stationing” is a critical part of the management of the Church. It is the formal act by which a minister is assigned to particular duties. Section 20 of the Deed of Union requires the Conference annually to station ministers and probationers, although by section 29 they may be stationed between Conferences by the current President of the Conference.The standing orders make detailed provision for the process by which a minister is stationed. The first stage is an invitation from a Circuit, which is issued by the Circuit Invitation Committee, on the proposal of the Stewards: see standing order 540. The next stage is that current invitations issued by the Circuits are reported to the Stationing Committee of the Conference under standing order 782 once a year by an appointed date. This body then makes recommendations to the Representative Session of the next Conference. It is the Conference which makes the final decision: see standing order 322.
Standing order 700(1) provides that “[m]inisters are ordained to a life-long presbyteral ministry of word, sacrament and pastoral responsibility in the Church of God which they fulfil in various capacities and to a varying extent throughout their lives.” It is clear that the life-long character of the ministry is more than just an aspiration. A minister can cease to be in full connexion only in limited circumstances, none of which is wholly dependent on his or her wishes. Under standing order 760, he or she may send a notice of resignation to the President of the Conference, but it is up to the President, advised by a special committee, to decide whether to accept it. Otherwise, a minister may cease to be in full connexion if a disciplinary charge is brought and a Disciplinary Committee exercises its power under standing order 1134 to decide that he or she shall “cease to be a minister… in full connexion.” It should be noted that the disciplinary scheme is the same for ministers and lay members, so far as the distinction is meaningful in a church in which the ministry is not a distinct order or class. Standing order 1100(3)(ii) provides that “there should be no difference in principle between ordained and lay people in the way in which complaints against them are dealt with.”
For as long as a minister remains in full connexion he or she must be stationed, save in two cases. The first is that one of the exceptions in standing order 774 applies, i.e. the minister receives a discretionary exemption from the Ministerial Session of the Conference, or is required to be without appointment by the Stationing Committee on the ground that no appointment can be found. The second is that they are permitted by the Ministerial Session of the Conference to become “supernumeraries” (i.e. retire) under standing order 790 on account of their age, length of service or ill-health or on compassionate grounds. Retirement is, however, a relative term. Even supernumerary ministers are required under standing order 792 to continue to exercise their ministry “as he or she is able”. All ministers in full connexion who are not permitted to be without appointment under one of these provisions, are defined by section 1 of the Deed of Union as being “in the active work.”
Section 80 of the standing orders provides for the “support and maintenance” of ministers. Under standing order 801, all ministers in active work and all stationed probationers are entitled to a stipend throughout their ministry, including periods of unlimited duration when they may be unable to perform their duties on account of illness or injury. In addition, they are entitled under standing order 803 to a manse to serve as a home and as a base for their ministry. Neither the stipend nor the manse are regarded by the Methodist Church as the consideration for the services of its ministers. They regard them as a method of providing the material support to the minister without which he or she could not serve God. In the Church’s view, the sale of a minister’s services in a labour market would be objectionable, as being incompatible with the spiritual character of their ministry.
If the arrangements governing the ministry described in the Deed of Union and the standing orders are a contract between the minister in that capacity and the Methodist Church, then it seems to me inevitable that they must be classified as a contract of employment. But that only increases the difficulty of regarding them as a contract at all. Three points seem to me to be cumulatively decisive. First, the manner in which a minister is engaged is incapable of being analysed in terms of contractual formation. Neither the admission of a minister to full connexion nor his or her ordination are themselves contracts. Thereafter, the minister’s duties are not consensual. They depend on the unilateral decisions of the Conference. Secondly, the stipend and the manse are due to the minister by virtue only of his or her admission into full connexion and ordination. While he or she remains in full connexion and in the active life, these benefits continue even in the event of sickness or injury, unless he or she is given leave of absence or retires. In addition to the stipend and the manse, the minister has certain procedural rights derived from the disciplinary scheme of the Deed of Union and the standing orders, which determine the manner in which he or she may be suspended or removed from ministerial duties. But the disciplinary scheme is the same for all members of the Church whether they are ministers or ordinary lay members. Third, the relationship between the minister and the Church is not terminable except by the decision of the Conference or its Stationing Committee or a disciplinary committee. There is no unilateral right to resign, even on notice. I conclude that the ministry described in these instruments is a vocation, by which candidates submit themselves to the discipline of the Church for life. Unless some special arrangement is made with a particular minister, the rights and duties of ministers arise, as it seems to me, entirely from their status in the constitution of the Church and not from any contract.
Ms Preston’s ministry
Conscious of the difficulties posed by the Deed of Union and the standing orders, Mr Bowers QC (who appeared for Ms Preston) founded his case mainly on the particular circumstances in which his client came to be stationed at the Redruth Circuit. These, he suggested, did amount to a special arrangement with his client, analogous to the one which was held to be contractual by the majority in Percy.
The facts are that Ms Preston was initially stationed by the Conference as a probationer minister in Taunton Circuit in September 2001. She was admitted to full connexion by the 2003 Conference and thereupon ordained. She was then stationed as a full minister by the same Conference at the Taunton Circuit where she had been working as a probationer for the past two years. In November 2005, she was invited by the Invitation Committee of the Redruth Circuit to become a Superintendent Minister there. A Superintendent Minister is the senior minister of a circuit with a number of other ministers. The Redruth Circuit Steward wrote to her on 19 November 2005 confirming the invitation in the following terms:
“Following our telephone conversation last Monday, I can confirm the invitation made by the Redruth Methodist Circuit to offer you the position of Superintendent Minister commencing September 2006 for a period of five years.”
On 22 November, Ms Preston replied:
“Many thanks for your letter officially inviting me to serve as Superintendant Minister in the Redruth Circuit from September 2006. I write to confirm my acceptance of the invitation and express my thanks to the invitation committee.”
In other contexts, an exchange of letters like this one might well have given rise to a contract. The difficulty here is that the exchange occurred within the framework of the standing orders, from which it is clear that it was only part of a much longer procedure. Under the standing orders, the circuits have no power to make an appointment. The circuit’s invitation is no more than a proposal to the Conference Stationing Committee that they should recommend the candidate to the Conference for stationing in their circuit. While every effort is made to meet the preferences of both circuits and ministers, the decision is reserved to the Conference. It may be delegated only to the President of the Conference,and then only if the appointment has to be made between Conferences. The relevant relationship is between the minister and the Conference, which may move him or her from one circuit to another even before the end of the period for which the circuit invited the candidate to serve. There is no fresh relationship with each invitation or even with each appointment. It follows that Ms Preston was serving as a minister at Redruth not pursuant to the five-year relationship envisaged in the exchange of letters, but pursuant to the life-long relationship into which she had already entered two years before the exchange of letters, when she was ordained. The nature of that relationship was wholly dependent on the Deed of Union and standing orders under which she took that step. It makes no difference to this analysis that Ms Preston was appointed as a Superintendant Minister at Redruth. That was simply the role for which she was stationed by the Conference.
The decisions of the Employment Appeal Tribunal and the Court of Appeal
The Employment Appeal Tribunal and the Court of Appeal considered that Ms Preston was an employee, essentially because a Methodist minister served under arrangements of a kind which, in the words of Lord Nicholls in Percy, at para 24, “on their face are to be expected to give rise to legally binding obligations.” This was because they provided for the minister’s duties, remuneration, accommodation, and the like. It is somewhat unclear at what stage and by virtue of what acts the parties entered into the contract of employment which they discerned. The Employment Appeal Tribunal appears to have thought that the contract was made “by the offer and acceptance of a Church post for a specified period” when Ms Preston was invited to serve in the Redruth Circuit: [2011] ICR 819. The Court of Appeal endorsed their conclusion generally, without giving specific attention to this aspect of the matter: [2012] QB 735.
This conclusion gives rise to three principal difficulties. First, if it is correct, it would mean that almost any arrangements for the service of a minister of religion would be contractual unless the minister was a non-stipendiary volunteer. Secondly, the analysis which makes the circuit’s invitation and its acceptance into a contract is not consistent with the function of the invitation under the standing orders. The difficulty of identifying any acts by which the contract can be said to have been made is symptomatic of a broader problem of fitting the supposed contract within the scheme of the Church’s constitution, which the courts below have not really addressed. Third, and fundamentally, the conclusion of the courts below brought them up against the difficulty that Lord Nicholls, at para 23, apparently endorsed the decision in Parfitt, in which the facts were indistinguishable from those of the present case and the terms of the Deed of Union and standing orders were in all relevant respects the same. They surmounted this difficulty by subjecting the speeches to a minute analysis, what Maurice Kay LJ in the Court of Appeal called the “fine toothcomb” treatment. From this, they concluded that Lord Nicholls’ observations about Parfitt were inconsistent with his own test and with the speeches of those who agreed with him, and might therefore properly be disregarded. Underhill J, delivering the judgment of the Employment Appeal Tribunal, thought that he might have been describing only the historic position, but acknowledged that that is not what he appeared to be saying.
In my view both courts below over-analysed the decision in Percy, and paid insufficient attention to the Deed of Union and the standing orders which were the foundation of Ms Preston’s relationship with the Methodist Church. The question whether an arrangement is a legally binding contract depends on the intentions of the parties. The mere fact that the arrangement includes the payment of a stipend, the provision of accommodation and recognised duties to be performed by the minister, does not without more resolve the issue. The question is whether the parties intended these benefits and burdens of the ministry to be the subject of a legally binding agreement between them. The decision in Percy is authority for the proposition that the spiritual character of the ministry did not give rise to a presumption against the contractual intention. But the majority did not suggest that the spiritual character of the ministry was irrelevant. It was a significant part of the background against which the overt arrangements governing the service of ministers must be interpreted. Nor did they suggest that the only material which might be relevant for deciding whether the arrangements were contractual were the statements marking the minister’s engagement, although it so happened that there was no other significant material in Ms Percy’s case. Part of the vice of the earlier authorities was that many of them proceeded by way of abstract categorisation of ministers of religion generally. The correct approach is to examine the rules and practices of the particular church and any special arrangements made with the particular minister. What Lord Nicholls was saying was that the arrangements, properly examined, might well prove to be inconsistent with contractual intention, even though there was no presumption to that effect. He cited the arrangements governing the service of Methodist ministers considered in Parfitt as an example of this, mainly for the reasons given in that case by Dillon LJ. These were, essentially, the lifelong commitment of the minister, the exclusion of any right of unilateral resignation and the characterisation of the stipend as maintenance and support. There is nothing inconsistent between his view on these points and the more general statements of principle appearing in his speech and in the speeches of those who agreed with him.
Conclusion
I would allow the appeal and restore the order of the Employment Tribunal dismissing Ms Preston’s claim.
Careful written arguments were presented to us on the question whether, and if so on what basis, a minister could enforce a claim to a stipend and to the occupation of a manse in the absence of a contract. I am inclined to think, with Lord Templeman in Davies v Presbyterian Church of Wales [1986] 1 WLR 328, that the answer to that question is that these benefits are enforceable as part of the trusts of the Church’s property, but I should prefer to leave that question to a case in which it arises and in which fuller material is available for resolving it.
LORD HOPE
For the reasons given by Lord Sumption, I too would allow the appeal and restore the order of the Employment Tribunal.
We were urged by the respondent to recognise the true nature of her relationship with the Church in the modern sense indicated by Lord Nicholls in Percy v Board of National Mission of the Church of Scotland [2006] 2 AC 28, paras 25 and 26. I have no difficulty with that proposition so far as it goes, or with the points that Lady Hale makes that we can approach the issue with an open mind and without the distractions of a presumption either one way or the other: see paras 35 and 45. Although section 2, clause 4 of the Deed of Union declares that Christ’s ministers in the Church are stewards in the household of God and shepherd of his flock and the standing orders build on that principle, this does not mean that they cannot be in the employment of those who decide how their ministry should be put to the service of the church: Baroness Hale of Richmond in Percy, para 146. But it does not solve the problem which the respondent faces in this case, due to the fact that she did not have the benefit of an express contract of employment with the Church, whether written or oral, and to the absence of clear grounds for holding that a contract of employment can be implied.
Much of the argument in Percy was directed to the question whether the matters which Ms Percy wished to raise were “matters spiritual” within the meaning of section 3 and Article IV of the Declaratory Articles annexed to the Church of Scotland Act 1921. Section 3 provides that nothing in that Act shall affect or prejudice the jurisdiction of the civil courts in relation to a matter of a civil nature. But the effect of Article IV is that the civil authority has no right of interference in the proceedings and judgments of the Church in the sphere of its spiritual government and jurisdiction. So it was necessary for the appellate committee to satisfy itself that the exercise of the exclusive jurisdiction of the Church in spiritual matters did not extend to the question whether Ms Percy’s relationship with the Church was one of “employment” for the purposes of the Sex Discrimination Act 1975.
The Church accepted the principle of equal treatment, but claimed exclusive jurisdiction to deal with Ms Percy’s claim that she had been wronged by the Church’s failure to apply that principle to her. Her claim failed in the Court of Session on the ground that her agreement with the Board was for her to perform duties which were, in their very essence, spiritual: 2001 SC 757, para 11, per Lord President Rodger. In para 14 he said that the formality of the documents did not disclose an intention to create relationships under the civil law. Rather, it reflected the serious way in which the Church regulated matters falling within the spiritual sphere. But, as Lord Nicholls explained, by any ordinary understanding of the expression “matters spiritual”, if the Church authorities enter into a contract of employment with one of its ministers, the exercise of statutory rights attached to the contract would not be regarded as a spiritual matter: [2006] 2 AC 28, para 40; see also paras 132, 133. So the exercise of the exclusive jurisdiction of the Church in spiritual matters did not extend to a claim by persons “employed” within the meaning of section 82(1) of the 1975 Act that they had been unlawfully discriminated against.
The spiritual character of Ms Percy’s ministry was, therefore, part of the background to her case. But, once it had been decided that the question was a civil and not a spiritual matter, the question was simply whether the employment arrangements which plainly existed between Ms Percy and the Board were intended to have legal effect so that it could be held that a contract existed. The spiritual background had no part to play in that assessment. As Lord Nicholls said in para 25, there seemed to be no cogent reason for drawing a distinction between a post whose duties were primarily religious and a post within the church that was not so.
In this case, however, the question is whether there were any arrangements of an employment nature at all. One cannot simply ignore the Church’s doctrinal reasons for regarding such arrangements as unnecessary. On the contrary, they provide an essential part of the factual background. They explain why the situation in which the respondent found herself was as it was. In finding that there was no contract, the court is not ignoring the modern approach to these matters. What it cannot ignore is the fact that, because of the way the Church organises its own affairs, the basis for the respondent’s rights and duties is to be found in the constitutional provisions of the Church and not in any arrangement of the kind that could be said to amount to a contract.
LADY HALE (dissenting)
The issue in this case concerns the essential character of the relationship between a Minister in full connexion with the Methodist Church who holds a particular appointment within the Church and the governing body of the Church. Is it a relationship which gives rise to legal rights and duties on both sides? If so, what are those rights and duties? And are they to be characterised as a contract of employment? If they are, it is not possible to contract out of the rights conferred by the Employment Rights Act 1996: section 203. Just as there is nothing in the relevant documentation which says that the relationship in this case was a contract of employment, there is nothing which says that it is not. We can approach the issue with an open mind.
Until the decision of the House of Lords Percy v Board of National Mission of the Church of Scotland [2005] UKHL 73, [2006] 2 AC 28, such questions were clouded by two matters. The first was an assumption that because a minister is called upon to serve her God in a particular way, there cannot be a contract between the minister and her Church. But the relationship between a minister of religion and her Church, which is a temporal one, is not to be confused with the relationship between a minister of religion and her God, which is a spiritual one. As Ms Rose QC on behalf of the Methodist Church properly accepts, there is nothing intrinsic to religious ministry which is inconsistent with there being a contract between the minister and the Church. It is normal for rabbis to be employed by a particular synagogue, for example. Priests appointed in the Church of England are now engaged on terms which expressly provide that they have the right to complain of unfair dismissal to an employment tribunal (and existing holders of a benefice may opt in to the new arrangements should they so wish). Now that this assumption has been cleared out of the way, we can get down to the real task of analysing the relationship, although of course the spiritual nature of some (but by no means all) of the duties involved is an important part of the context.
The other matter which has clouded the question is that many of the posts held by ministers of religion may be characterised as offices, in the sense that the post has a permanent existence irrespective of whether there is currently an incumbent. It was for a long time the law that people who held offices in the service of the Crown did not have contracts of employment. This still applies to police officers, but it no longer applies to the generality of civil servants. But outside the service of the Crown, it has always been possible for a person to be both an office holder and an employee. Managing directors are the most obvious example. Another is University teachers, who may hold the office of (say) Professor at the same time as having a contract of employment: see Thomas v University of Bradford [1987] AC 795.
Universities have a good deal in common with organised religion, being charitable bodies with a written constitution, consisting of a foundational document, the Charter, together with the Ordinances, Statutes and Regulations made under it. These have typically given rights to both staff and students, rights which were traditionally superior to those given them by the common law. The constitutional documents of the Methodist Church bear a strong resemblance to such documents.
The Methodist Church as we know it today was formed from the union of the Wesleyan Methodist Church, the Primitive Methodist Church and the United MethodistChurch, under a deed of union (DU) executed on 20 September 1932 pursuant to the Methodist Church Union Act 1929, which was repealed and replaced by the MethodistChurch Act 1976. The Constitutional Practice of the Church is governed by the 1976 Act and some other local Acts dealing with aspects of the administration of the Church, the Deed of Union as from time to time amended by the Methodist Conference, which is the governing body of the Church, and the Standing Orders (SO) made under clause 19 of the Deed of Union. It is these documents, coupled with any correspondence between individuals in pursuance of them, which tell us whether there is a contract between a Minister and the Church and if so, what sort of a contract it is.
The Church ‘holds the doctrine of the priesthood of all believers’, so Ministers are not a class apart from any other member of the Church; rather, they are people who hold ‘special qualifications for the discharge of special duties’ (DU, clause 4). Candidates who are chosen and trained for the Ministry are admitted to ‘full connexion’ with the Church in the representative session of the Methodist Conference, provided that the ministerial session judges that they are fit for admission and ordination (DU, clause 23(h)). If not already ordained, they shall be ordained by the laying on of hands at a service held during the same meeting (SO, 728(6)). They are ‘ordained to a life-long presbyteral ministry of word, sacrament and pastoral responsibility . . . which they fulfil in various capacities throughout their lives’ (SO, 700(1)). ‘By receiving persons into full connexion as Methodistministers the Conference enters into a covenant relationship with them in which they are held accountable by the Church in respect of their ministry and Christian discipleship, and are accounted for by the Church in respect of their deployment and the support they require for their ministry’ (SO, 700(2)). They accept a ‘common discipline of stationing’ (SO, 740(1)), and most have a responsibility to engage in ‘reflective learning and development’ (SO, 743), and in ‘further study, training and professional development’ (SO, 745).
Most ministers are in ‘active work’ but some are not. Those who are not may be temporarily released to go abroad (SO, 700(4), or be supernumerary (basically, those retired from active work) or without appointment (basically, those for whom no suitable station can be found), but they are expected to continue to exercise their ministry as far as they are able (SO, 700(5)). By seeking permission to become a supernumerary, a minister ‘thereby requests an alteration in the terms and conditions of his or her service’ (SO, 791). Ministers in ‘active work’ exercise their ministry primarily where they are stationed (SO, 700(3)). Stationing is a crucial part of the relationship between the Church and those in active work. The Conference ‘shall annually station as ministers, deacons and probationers such persons as it thinks fit’ (DU, clause 20).
There are several different types of station, but the principal station is in a Circuit appointment in a home District (SO, 780(1)(i)). If a Circuit needs a minister, the Circuit authorities will follow the Guidance on how to go about issuing an invitation to a particular person (SO, 541), who may indicate her willingness to accept it (Guidance on the Stationing of Ministers and Deacons, D(4)). The initial invitation is for a period of five years (SO, 543). The invitation is then forwarded to the Stationing Committee of Conference. Nothing in the Standing Orders about Circuit invitations detracts from the ultimate authority of Conference over appointments annually (SO, 549). The Stationing Committee gathers the information about the ministers seeking a station and the Circuit or other bodies seeking to make appointments, matches them and prepares a draft list of proposed stations which is then submitted to Conference (SO, 782). There is scope for amendment, but eventually a list is adopted by Conference. Ministers who are moving to a new appointment are expected to move in the first week in August and to take up their duties on 1st September (SO, 785).
Part 8 of the Standing Orders is headed ‘Terms of Service’. These deal with the right to a stipend (SO, 801), the right of a Circuit minister to be provided with a manse as a base for the work of ministry as well as a home (SO, 803), membership of the pension scheme (SO, 805), parenthood (SO, 806), including antenatal care, maternity, paternity, adoption and parental leave (SO, 807 to 807D). There is a Connexional Allowances Committee which annually recommends stipends to Conference. There is a standard stipend and allowances for extra responsibilities, including those of a superintendent minister.
Part 11 of the Standing Orders deals with complaints and discipline. It does apply to all members of the Church but it also deals with a wide range of complaints, only some of which will involve ‘charges’. There is a special procedure for charges of serious breaches of Church discipline, which could result in the removal of a minister from full connexion (SO, section 113). The complaints team is expected to assess whether a complaint should be dealt with under a different process (SO, 1123(5)). This includes the process for Circuits to decide that the appointment of a minister should be curtailed, which is the more appropriate process where a Circuit and a minister are at odds with one another but there has been no serious breach of church discipline (SO, 544). It also includes ‘requesting the President to inquire into a relevant Circuit’ (SO, 1123(6)), which is what seems to have happened in this case.
Now that we are able to concentrate on the details of the relationship, without the distractions of a presumption against legal relations or the characteristics of an office, several things become clear. The first is that it would be very odd indeed if a minister who was not paid her stipend or was threatened with summary eviction from her manse could not rely upon the terms of her appointment either to enforce the payment or to resist a possession action. Some time was devoted at the hearing to discussing what legal redress would be available to her if she could not rely upon the terms of a contract. The suggestion was that she would be a beneficiary under the trusts upon which the Church holds its property. The trouble with this is that the Church holds property under any number of different trusts, whereas the stipend is paid centrally even if the funds with which to pay it are raised locally. The body which controls her and is responsible for her remuneration and accommodation is Conference.
The second is that a distinction has to be drawn between being a minister – being in full connexion with the Methodist Church – and having a particular ‘station’ or ‘appointment’ within it. That distinction was not as fully explored in the courts below as it was with us. But once it is, in my view the position becomes clear. Admission to full connexion brings with it a life-long commitment to the Church and its ministry. Quite apart from the individual covenant which every member makes with her Church and with her God, the Methodist Church is an evangelical Church (DU, clause 4). That is why retired ministers are still expected to do what they can to further the work of the Church and no person in full connexion can give up her commitment to do this without its permission..
But that can be contrasted with the particular posts to which a minister is assigned. There is a process of assignment which begins with the invitation and acceptance at Circuit level (and no doubt something similar for other stations), continues into the matching process at Stationing Committee level, and is confirmed by Conference (although nominally an annual process, this is clearly a rubber stamp during the expected five years of a particular Circuit appointment). The assignment is to a particular post, with a particular set of duties and expectations, a particular manse and a stipend which depends (at the very least) on the level of responsibility entailed, and for a defined period of time. In any other context, that would involve a contract of employment in that post.
The spiritual nature of some of the duties entailed does not necessarily entail a different conclusion. There is a spiritual component on each side of this covenant relationship. The main factor which tells against there being a contract between the minister and the Church in relation to the particular station to which the minister is assigned is that the minister has no choice. She must go where Conference stations her. The reality is almost certainly completely different (although we do not have much evidence about this): ministers do have to go where they are put, but it would be a very foolish Stationing Committee which assigned a minister to a station where she was not willing to serve. The assignment would not be specifically enforceable. But I do not think that a prior commitment to go where you are sent negates a mutual contractual relationship when you are sent and agree to go to a particular place. Yet this is the main reason for denying a contractual relationship in this case.
Everything about this arrangement looks contractual, as did everything about the relationship in the Percy case. It was a very specific arrangement for a particular post, at a particular time, with a particular manse and a particular stipend, and with a particular set of responsibilities. It was an arrangement negotiated at local level but made at national level. The Church may well have had good reasons to be troubled about the respondent’s performance. But the allegation is that, instead of addressing those directly, they reorganised the Circuits so as, in effect, to make any investigation of whether or not those complaints were justified unnecessary, thus depriving the respondent of her post by organising it out of existence, without any of the safeguards to which she would otherwise have been entitled.
In my view, the EAT and the Court of Appeal reached the right result in this case and I would dismiss this appeal.
Tennents Building Products Ltd -v- O’Connell
[2013] IEHC 197 (17 April 2013)
JUDGMENT of Mr. Justice Hogan delivered on the 17th April, 2013
1. In these proceedings the plaintiff company, Tennants Building Products Ltd. (“Tennants”) claims the sum of €293,841 on foot of a personal guarantee given by the defendant, Mr. O’Connell, in October, 2008 in respect of (admitted) obligations incurred by O’Connell Dry Lining Ltd (“Dry Lining”) to that plaintiff. The defendant was the effective owner of Dry Lining and this company is now in voluntary liquidation. The defendant maintains that he only give the guarantee on foot of a representation by the plaintiff’s agent that it was simply for presentational purposes and that it would never be used. The essential question, therefore, is whether this guarantee binds the defendant.
2. The plaintiff is a distribution company for building materials such as suspended ceilings, partitions, fire protection insulation and external cladding. Up to the commencement of these proceedings, the plaintiff had an excellent business relationship with Dry Lining, a company owned by the defendant and of which he was the director. Indeed, Dry Lining was one of the plaintiff’s biggest customers. But by 2008 the downturn in the construction business was affecting Dry Lining. It was experiencing difficulties in securing payment from its own customers and, indeed, as Mr. O’Connell explained in evidence, it was obliged to write off some of this debt. All of this was in turn was affecting its ability to pay Tennants. Tennants had insurance cover on the account, but because of late payments, this was cover was withdrawn.
3. At this stage Dry Lining was indebted to Tennants for significant sums which were not insured. It was at this point that Tennants made clear that some further security was required if the existing trading terms were to continue since the capacity of Dry Lining to discharge these sums was by then in doubt. There is equally no doubt but that Mr. O’Connell was most reluctant to execute a personal guarantee in respect of the trading debts of Dry Lining, as indeed he had been since the very start of the trading relationship between the parties. Yet it is not disputed but that he did so at some stage in early October, 2008 in consideration of Tennants “supplying goods and services to [Dry Lining] on credit both prior to the date of this guarantee and from here on…”
4. The guarantee is, in fact, undated. It is, however, date-stamped as having been received by Tennants on 8th October, 2009. I think that this is more likely to have been a secretarial slip and that it was actually received on 8th October, 2008.
5. It would seem that Mr. O’Connell executed the guarantee to some degree against his better judgment. It may be that he perhaps felt under pressure to do so if he wanted the business relationship to continue. Mr. O’Connell maintains, however, that he was personally asked at a meeting in Galway on 8th October, 2008, by Mr. Cullen, the general sales manager of Tennants, to sign the guarantee on the basis that it would not be enforced. He said that Mr. Cullen told him that the purpose of the guarantee was to re-assure the London head office and that it would be simply “put into the drawer.”
6. In this respect Mr. O’Connell’s evidence was re-inforced to some degree by Mr. Ronan Coffey. Mr. Coffey was at the time a director of the company, but he negotiated a severance package at some stage in 2009. At the time, however, he was Mr. Cullen’s immediate superior.
7. Mr. Coffey acknowledged that the company was under pressure to secure some additional comfort in respect of Dry Lining’s debt exposure. He had discussions with Mr. O’Connell in that regard in September, 2008 with regard to a personal guarantee, as otherwise all credit facilities would thereafter be withdrawn. He indicated to Mr. O’Driscoll that he hoped that it would never be activated and he may even have hinted that it most was most unlikely that the personal guarantee would ever be activated. To that end he sent Mr. Cullen to Galway (where Mr. O’Connell was based) at the end of September or early October, 2008 in order to have the personal guarantee signed. Mr. Coffey said that Mr. Cullen was unsuccessful in that regard, but that the guarantee had arrived by post about one week later. As it happens, Mr. Coffey placed the guarantee in a drawer and did not distribute it.
8. For his part Mr. Cullen emphatically denied that he had visited Galway for this purpose. He contended that Mr. O’Connell had in fact sent him a text message by mobile phone on 6th October, 2008 (i.e., two days before any meeting on October 8th) confirming that he had just signed the personal guarantee. Although the actual text message was (understandably) no longer to hand, counsel for the plaintiff, Ms. Geoghegan, then sought to tender an email which Mr. Cullen sent to his credit controller, Ms. McCausland, on that day following receipt of the text message. This email stated, inter alia, stated that “he has signed the personal guarantee on his account and is putting it in the post today!”
9. Counsel for the defendant, Mr. Buckely, sought to object to the admissibility of the email as violating the rule against self-corroboration. Of course, the entire object of the rule against narrative is to ensure that litigants do not seek to re-inforce the credibility of their evidence by invoking self-serving statements and correspondence which were conveniently created by them after the events the subject of the dispute. It is clear, however, that where the credibility of a witness is impugned, he may way of exception to the rule against narrative re-inforce his own testimony by reference to documents created before the actual happening of the event which might be otherwise thought to taint his objectivity qua witness, even if as Gibson J. put it in R. v. Coll (1889) 24 L.R.Ir. 522, 529-530, any attempt at definition “of the conditions necessary to justify the reception of such evidence [would be] a difficult, perhaps impossible, task.”
10. It is true that there are passages in the judgment of Gibson J. in Coll (which were approved by the former Irish Court of Appeal in Flanagan v. Fahy [1918] 2 I.R. 361) which might suggest that such evidence may be tendered only to rebut a cross-examination along the lines that the witnesses’ account of certain facts is a recent invention. Yet I think that this should be regarded only as a specific example of the court’s more general jurisdiction to admit such evidence.
11. In the present case I disallowed Mr. Buckley’s objection to the admission of the email in response to a specific question asked of Mr. Cullen in evidence in chief by Ms. Geoghegan, since I considered that the present case provides almost a textbook example of both the reason for the rule and the reason for the exception to it. Had a witness in the position of Mr. Cullen become aware that the question of whether he was physically present when the personal guarantee was executed was to become an issue in later litigation, then the temptation to create a self-serving record of these events might be considerable. This is in effect why the common law precludes the tendering of such evidence by reason of the rule against narrative.
12. It is, however, different where the record is created before the event giving rise to the controversy. Leaving aside the fact that Mr. Cullen (like the other witness who gave evidence before me) is a witness of integrity, the critical fact is that this email was created before any question of the circumstances in which the personal guarantee was created could possibly come into controversy. The email, in other words, is plainly an authentic and spontaneous contemporary record, created in circumstances where Mr. Cullen could not possibly have anticipated that the issue of the personal guarantee would later become an issue in litigation. It was inherently probative and it would be wholly artificial to confine its admission in evidence to circumstances where the credibility of the witness’s account had first been challenged in cross-examination, not least when it was obvious that the credibility of Mr. Cullen (in the wider legal sense of that term) on this point would be challenged by the defendant.
13. At all events, from October 2008 onwards, however, Tennants would only supply Dry Lining on a cash basis so far as new orders were concerned. No action was, however, taken by Tennants against the company in respect of the existing debt because, as Mr. Cullen, in evidence, the personal guarantee supplied by Mr. O’Connell covered the debt due by Dry Lining. These difficulties notwithstanding, the relationship between the parties remained commendably amicable and it is clear that within Tennants, Mr. O’Connell was (and is) regarded as an accomplished businessman
14. Both parties accordingly sought an accommodation whereby the Dry Lining’s debt could be reduced. To this end Mr. O’Connell had two meetings concerning this debt with Mr. Peden, the new managing director of Tennants in both March, 2009 and April, 2010. At the latter meeting, Mr. O’Connell and Mr. Peden had informally agreed on an arrangement whereby the debt would be reduced by sixteen staggered payments of €12,000. This agreement ultimately broke down, in part because Tennants were, for their own understandable commercial reasons, unwilling to reduce this agreement to writing. Mr. Peden.
15. Significantly, however, Mr. Peden was emphatic that at these meetings no issue had been raised by Mr. O’Connell regarding the enforceability of the personal guarantee. Quite the contrary: Mr. Peden maintained that at the April, 2010 he had raised the guarantee with Mr. O’Connell and indicated that it would be invoked if no satisfactory arrangement could be reached with regard to the outstanding debt.
16. In the wake of the March, 2009 meeting no further payments were made with regard to the outstanding debt. It is accordingly not disputed but that Dry Lining ultimately defaulted on its obligations. Mr. O’Connell did ultimately offer a voluntary scheme of arrangement offering 20% of the debt, but this was rejected by Tennants on the basis that it had a personal guarantee. This, accordingly, is the backdrop to the present proceedings.
17. In view of the acknowledged failure of Dry Lining to honour its contractual obligations and given that these were personally guaranteed, it follows, therefore, that Mr. O’Connell is accordingly prima facie liable on foot of that guarantee.
18. This brings us directly to the heart of the legal and factual issues which I cam now required to consider. Mr. O’Connell maintains that he only signed the guarantee on foot of an explicit assurance that the guarantee was simply for presentational purposes and so that the plaintiff’s head office in London would be placated. This immediately presents the question of whether a claim along these lines is permissible and, assuming that it is, whether such an explicit assurance was actually given.
The parol evidence rule, oral representations and collateral contracts
19. The defendant’s contention is in effect that he executed the contract following an assurance or representation that the guarantee would be not be unilaterally enforced without his consent. If we assume for a moment that this is what actually happened, could the defendant escape liability on foot of the guarantee? The traditional argument against a defence of this kind is that to do otherwise would be inconsistent with the parol evidence rule. By virtue of this rule, the parties to a written contract are presumed to have reduced the entirety of their agreement to writing and that to permit one party to introduce new oral evidence which in effect contradicts the terms of the written agreement would be destructive of legal certainty.
20. It is certainly true that a party cannot be allowed to lead evidence as to what he or she subjectively believed the contract to mean: see, e.g., the Supreme Court’s decision in Macklin v. Graecen & Co. [1983] I.R. 61. Yet the full rigour of the parol evidence rule has been consistently diluted by doctrines such as non est factum, misrepresentation and the collateral contract rule. If the parol evidence rule were to be applied with remorseless and unbending logic, it might create a form of immunity for those who would carelessly, recklessly and perhaps even falsely misrepresent the terms of the written agreement, often to the disadvantage of the weaker party, thus undermining the very public policy on which the very existence of the parol evidence rule rests. While perfect consistency is impossible, the courts have nonetheless sought to strike a balance between the certainty of the written word on the one hand and guarding against the possible injustice which would be visited on those who entered into written agreements on the basis of an incorrect and even deliberately false representation on the other. This would be especially true where (as here) the written document has been prepared by one side for execution by the other.
21. This very principle is re-inforced by the Supreme Court’s decision in ICDL GCC Foundation FZ-LLC v. European Computer Driving Licence Foundation Ltd. [2012] IESC 55 where Fennelly J. observed:
“This passage, particularly paragraph 4, should not be misunderstood as advocating a loose and unpredictable path to interpretation. A court will always commence with an examination of the words used in the contract. Moreover, words will, as Lord Hoffman emphasises, normally be interpreted in accordance with their ‘natural and ordinary meaning….’ Business people will be assumed to know what they are doing and will normally be bound by what they have signed. The exercise is to be conducted objectively. The parties are not permitted to give evidence of their subjective intentions or of the negotiations leading to the conclusion of the contract. Keane J, as he then was, summarised the law briefly but comprehensively in his still unreported judgment in the High Court in Lac Minerals Ltd. v Chevron Mineral Corporation (High Court, unreported 6th August 1993).
Evidence of the surrounding circumstances, but not of subjective intentions, may be admitted to explain the subject-matter and even what particular words used should be understood as referring to. Such evidence will not normally be allowed to alter the plain meaning of words. In truth, there is no real issue in the present case concerning background or surrounding circumstances.”
22. In that respect, therefore, it is plain that evidence can be given of the surrounding circumstances which led up to the execution of the guarantee. If Mr. O’Connell could establish that he only executed that agreement on the express assurance of the plaintiff’s agent that the guarantee was merely an empty formula designed to placate his head office, then in such circumstances he could obtain relief either for misrepresentation or by reason of the existence of a collateral contract or, for that matter, on the basis that the parties had not actually intended to create legal relations.
23. This point is well illustrated by the judgment of Finlay Geoghegan J. in AIB v. Galvin [2011] IEHC 314. Here preliminary contractual documents (known as the “Heads of Terms”) prepared by the bank indicated that the recourse to the borrowers was to be limited to 50% of the loan actually drawn down, yet the personal guarantees subsequently given by the defendants were not limited in this fashion. Finlay Geoghegan J. nevertheless found that there existed a collateral contract according to which AIB agreed to limit its right of recourse to 50% of the drawn debt:
24. She continued:
“ I am using ‘collateral contract’ in the sense explained by Cooke J., in the Supreme Court of New Zealand in Industrial Steel Plant Ltd. v. Smith [1980] 1 N.Z.L.R. 545, at p. 555, quoting with approval from Cheshire and Fifoot on Contracts (5th N.Z. Ed. 1979, 53-54):
“The name is not, perhaps, altogether fortunate. The word ‘collateral’ suggests something that stands side by side with the main contract, springing out of it and fortifying it. But, as will be seen from the examples that follow, the purpose of the device usually is to enforce a promise given prior to the main contract and but for which this main contract would not have been made. It is rather a preliminary than a collateral contract. But it would be pedantic to quarrel with the name if the invention itself is salutary and successful.”
…..It is clear that not every statement or promise made in the course of negotiations for a contract may give rise to a finding that a collateral contract exists. To be so treated, a statement must be intended to have contractual effect, see ‘Chitty on Contracts’, 29th Ed., para. 12-004 and cases referred to therein.”
Finlay Geoghegan J. then stated:
“On the facts herein, the statement relied upon by GDK and the Galvin Brothers is that reduced to writing in the Heads of Terms in relation to recourse, to the effect that AIB would have joint and several recourse to the Galvin Brothers for 50% of the drawn debt and to Mr. Shee and Mr. Hanrahan for 50% of the drawn debt. The first question is whether or not this was a statement intended to have contractual effect. The Heads of Terms is a commercial agreement and must be construed objectively in accordance with the principles in Analog Devices B.V. . The Heads of Terms were not intended to constitute an unconditonal binding agreement between the parties to make available or take the facilities referred to therein. Neither, however, construing them in accordance with their terms in the relevant factual matrix were they intended to be devoid of contractual effect. AIB were aware at the time that the Heads of Terms were being sought for the purpose of the Galvin Brothers taking further steps to enter into a co-ownership agreement with Mr. Shee and Mr. Hanrahan and for the purpose of permitting the joint venture parties enter into an agreement to purchase the lands in question. The joint venture parties needed to know that facilities would be made available. Each of those steps took place prior to the issue of letters of sanction. The final paragraph of the Heads of Terms states:
“The facilities, and Terms and Conditions attaching, as outlined in this Term Sheet, are subject to formal approval by the Bank and the issuance of a Formal Letter, including the Bank’s standard Terms and Conditions, for acceptance by the Borrower.”
The Heads of Terms, in my judgment, were a representation by AIB that subject to two conditions, it would make facilities available, on the terms and conditions indicated or any variation agreed to the five named persons as joint venturers in the Coolegrean project for purchase and development. The two conditions were formal approval by AIB and the issuance of a formal letter of sanction. The representations were intended to induce the potential borrowers to continue in negotiations with AIB to obtain the facilities referred to therein. In particular, as already stated, the proposal for funding was sought on the basis of a 50/50 recourse to the parties to the joint venture. The representation made by AIB in the Heads of Terms that it was prepared to make facilities available with a limited 50% recourse to each party to the joint venture was intended to and did induce the parties to continue in negotiations with AIB. This was known to AIB to be a fundamental term as far as the Galvin Brothers were concerned. On the evidence, I find that if AIB, in its Heads of Terms, had not represented a willingness to restrict recourse to each side of the joint venture to 50% of the drawn debt, that the Galvin Brothers, as a matter of probability, would have sought facilities for the Coolegrean project elsewhere.
25. It is clear that in Galvin the relevant pre-contractual documents formed part of the surrounding circumstances in the sense later explained by Fennelly J. in ICDL GCC Foundation. In effect, AIB had represented to the defendants that if they entered into the contract that their recourse exposure would be limited to 50% of the debt actually drawn down. By contrast in Ulster Bank v. Deane [2012] IEHC 248 McGovern J. would not accept that generalised assertions said to have been made by bank officials made in the course of negotiations could be relied for the purposes of qualifying the terms of facility letters governing a loan. He stressed that by contrast with the situation in Galvin:
“The defendants have offered no evidence other than verbal discussions which they say altered the terms of the facility letters, but such evidence is inadmissible, being in breach of the parol evidence rule and is a long way short of what was held to constitute a collateral agreement in City and Westminster Properties [1934] Ltd. [v. Mudd [1958] 2 All E.R. 733.]”
26. In Mudd the pre-contractual documents showed clearly that the tenant intended to use a business premises as a private dwelling. It was found that the tenant was induced to enter into a different lease which made no reference to this matter following assurances by the landlord that this clause would not be enforced. This was held to amount to a collateral contract which bound the landlord.
27. The effect of this case-law may be said to be that while the courts will permit a party to set up a collateral contract to vary the terms of a written contract, this can only be done by means of cogent evidence, often itself involving (as in Mudd and in Galvin) written pre-contractual documents which, it can be shown, were intended to induce the other party into entering the contract. By contrast, generalised assertions regarding verbal assurances given in the course of the contractual negotiations will often fall foul of the parol evidence rule for all the reasons offered by McGovern J. in Deane.
Application of these principles
28. It remains then to apply these principles to the present case. As ever, faced with a conflict of evidence between otherwise credible witnesses, all of whom who evidently doing their best to give fair and truthful evidence, the court’s task is not an easy one. What, then, are the objective indicators which can assist in the resolution of these evidential conflicts?
29. It may first be noted that unlike cases such as Mudd and Galvin, Mr. O’Connell can adduce no written evidence of any kind to suggest that an assurance of this kind regarding the non-enforceability of the personal guarantee was ever in contemplation. While not fatal to an otherwise compelling case, the absence of such written pre-contractual documents of this kind must nevertheless be regarded objectively as weakening that case.
30. Second, if the general background to the guarantee clearly shows that if Mr. O’Connell was reluctant to give such a guarantee, then by the same token Tennants were unwilling to supply Dry Lining without some further letter of comfort such as a personal guarantee. Mr. Peden acknowledged that the personal guarantee may well have been intended for the benefit of the London office, but he also stressed – correctly, in my view – that this was not the same thing as a commitment to the effect that the guarantee would never be activated.
31. Third, with the exception of Mr. O’Connell’s own evidence, no witness has actually stated in express terms that an assurance of this kind was given. Mr. Cullen denied that such was given and as I interpret Mr. Coffey’s evidence he did not quite go so far as to say that Mr. O’Connell was given such an unequivocal commitment that the guarantee would never be used.
32. Fourth, the contemporary record supplied by Mr. Cullen’s email strongly suggests that Mr. O’Connell signed the personal guarantee without Mr. Cullen being physically present and that this occurred on 6th October, 2008. This is re-inforced by the fact that Tennants’s date stamp on the personal guarantee suggests that it was received by post by them on Friday, 8th October, 2008.
33. Fifth, I accept the evidence given by Mr. Peden that he did raise the issue of the personal guarantee with Mr. O’Connell at the meeting in April 2010 and that there was, in fact, no suggestion that the guarantee was not enforceable.
Conclusions
34. In conclusion, therefore, I would summarise my principal findings as follows:
A. The guarantee was signed and duly executed by Mr. O’Connell. It is, therefore, prima facie binding.
B. If Mr. O’Connell could have shown by cogent evidence that it had been represented to him that the guarantee was not intended to be binding, it would have been open to him to establish the existence of a collateral contract to this effect or even, indeed, that there was no intention to create legal relations. To do this, however, it is often in practice necessary to point to some documentary material or perhaps other unequivocal evidence which demonstrates the existence of such a representation.
C. Viewed objectively, the evidence does not support this claim, as there was, at most, pre-contractual representations that it was unlikely that the personal guarantee would have to be called upon. Critically, however, the email sent by Mr. Cullen to Ms. McCausland on 6th October, 2008, bears out the plaintiff’s contention that the guarantee was signed by Mr. O’Connell on that day. This evidence accordingly undermines the defendant’s contention that the guarantee was signed two days later at a meeting in Galway. It also further undermines the contention that at such a meeting there was a representation by Mr. Cullen to the effect the guarantee would not be enforced and that its execution was required simply for presentational reasons.
34. For these reasons, therefore, I find myself compelled to the conclusion that the guarantee binds the defendant. In these circumstances, I must accordingly give judgment for the plaintiff in the sum of €293,841.
Blue v Ashley (Rev 1) [2017] EWHC 1928 (Comm) (26 July 2017)
URL: http://www.bailii.org/ew/cases/EWHC/Comm/2017/1928.html
Cite as: [2017] EWHC 1928 (Comm)
III. The requirements for a contract
Generally speaking, it is possible under English law to make a contract without any formality, simply by word of mouth. Of course, the absence of a written record may make the existence and terms of a contract harder to prove. Furthermore, because the value of a written record is understood by anyone with business experience, its absence may – depending on the circumstances – tend to suggest that no contract was in fact concluded. But those are matters of proof: they are not legal requirements. The basic requirements of a contract are that: (i) the parties have reached an agreement, which (ii) is intended to be legally binding, (iii) is supported by consideration, and (iv) is sufficiently certain and complete to be enforceable: see e.g. Burrows, “A Restatement of the English Law of Contract” (2016) section 2. Points have been taken by Mr Ashley in relation to each of these requirements.
(i) Agreement
In general, the agreement necessary for a contract is reached either by the parties signing a document containing agreed terms or by one party making an offer which the other accepts. Acceptance may be by words or conduct. Typically, acceptance involves promising to do something but in one kind of contract known as a “unilateral contract”, where the offer made by A is to reward someone for doing something, a contract is established when the recipient of the offer (B) starts to perform the action required to earn the reward, even though B does not promise A to do anything. The example of a “unilateral contract” taught to all first year law students is an offer by A to pay B £100 if B walks from London to York.[1] B is not obliged to walk to York, but if B sets out on the journey, A’s offer becomes contractually binding.
Counsel for Mr Blue submitted that the most accurate legal characterisation of the offer which they say was made by Mr Ashley in this case is that it was a unilateral offer: Mr Blue did not undertake on 24 January 2013 to do any work directed towards increasing the share price of Sports Direct, but the offer became binding once Mr Blue began to undertake such work.
For the purpose of the law of contract, an offer is an expression, by words or conduct, of a willingness to be bound by specified terms as soon as there is acceptance by the person to whom the offer is made: see e.g. Burrows, “A Restatement of the English Law of Contract” (2016) section 7.3; and Chitty on Contracts (32nd Edn, 2015), vol 1, para 2-003. There can be circumstances in which a person uses the language of offer without expressing a genuine willingness to be bound. For example, if someone says at a party “I will give you a million pounds, if you can speak for a minute on [a random subject] without hesitation, deviation or repetition”, this is unlikely to be interpreted as an offer despite the literal words used. That is because it is unlikely that anyone would reasonably have thought that the words were meant seriously. In such circumstances the words uttered would not be capable of creating any obligation, even a purely moral obligation, let alone one that is legally enforceable.
This point can be illustrated by Carlill v Carbolic Smoke Ball Co [1892] 1 QB 256, another case which all law students learn. In that case the defendant company published an advertisement offering to pay £100 to anyone who contracted influenza despite having used one of the company’s smoke balls three times daily for two weeks according to the printed directions supplied with each ball. The plaintiff dutifully followed the instructions but nevertheless contracted influenza. She claimed the sum of £100, which the company refused to pay. One of the company’s defences was that the statement made in the advertisement was not intended to be a promise or offer at all, as it could not reasonably be supposed that the company seriously meant to promise to pay money to anyone who contracted influenza at any time after using one of its smoke balls. That argument failed on the facts, not least because the advertisement stated that the company had deposited a sum of £1,000 with a bank to show its sincerity in the matter. But it is clear that on different facts such an “offer” might be regarded as a mere “puff”.
A key question in this case is whether what Mr Ashley said in the conversation on 24 January 2013 was a serious offer which expressed a willingness to be bound.
(ii) Intention to make a legally binding contract
Even when a person makes a real offer which is accepted, it does not necessarily follow that a legally enforceable contract is created. It is a further requirement of such a contract that the offer, and the agreement resulting from its acceptance, must be intended to create legal rights and obligations which are enforceable in the courts, and not merely moral obligations. Not every agreement that people make with each other, even if there is consideration for it and the terms are certain, is reasonably intended to be enforceable in the courts. For example, if two people agree to meet for a drink at an appointed place and time and one does not turn up, no one supposes that the other could sue to recover his wasted travel expenses. Examples of agreements which have been held not to amount to contracts for this reason include an agreement to give a prize to the winner of a golf competition where “no one concerned with that competition ever intended that there should be any legal results flowing from the conditions posted and the acceptance by the competitor of those conditions”: Lens v Devonshire Club, The Times, 4 December 1914, referred to in Wyatt v Kreglinger & Fernau [1933] 1 KB 793, 806. The same conclusion was reached in relation to an agreement between members of a band who were also friends to share publishing income from songs credited to one of the band members: Hadley v Kemp [1999] EMLR 589, 623. Many other examples can be found but it is not helpful to multiply them as each case depends on its own facts.
Factors which may tend to show that an agreement was not intended to be legally binding include the fact that it was made in a social context, the fact that it was expressed in vague language and the fact that the promissory statement was made in anger or jest: see Chitty on Contracts (32nd Edn, 2015), vol 1, paras 2-177, 2-194 and 2-195.
Again, it is in issue in this case whether, if any genuine agreement was made as a result of anything said by Mr Ashley on 24 January 2013, that agreement was intended to be legally binding.
(iii) Consideration
It is traditionally said that, to be legally binding, an agreement (unless made by deed) must be supported by consideration. The basic idea is that English law will not enforce a promise for which nothing at all has to be done in return. Thus, an offer to pay Mr Blue £15 million if the Sports Direct share price reached £8 per share which Mr Blue merely said that he was accepting without doing or promising to do anything at all on his part could not give rise to a legally binding contract. On any view of what was discussed, however, Mr Blue had to “get” the Sports Direct share price to £8, or at least to do work which was aimed at increasing the share price to that level, in order to qualify for the payment. The requirement of consideration therefore does not cause a problem. It would be unusual if it did, as I am not aware of any case in the twenty-first century in which a claim founded on an agreement has failed for want of consideration.
In Mr Ashley’s statement of case a defence was put forward that there was no consideration for his alleged offer of payment because the services which Mr Blue says that he provided in reliance on it were services that he was already obliged to provide under the Management Services Agreement. There used to be a rule that a promise to perform, or actual performance of, a pre-existing duty could not constitute consideration. That rule may sometimes have helped to protect contracting parties against exploitation through the other party refusing to do what it had contracted to do unless some extra payment or other benefit was provided. But it is now recognised that this mischief is better addressed by other doctrines such as economic duress and public policy. The decision of the Court of Appeal in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1999] 1 QB 1 effectively rendered the rule obsolete by accepting that performance or a promise to perform an existing duty can satisfy the requirement of consideration by providing a practical benefit to the other party, which it will invariably do. In any event, the purported rule could not have applied in this case as the duties under the Management Services Agreement were owed by Aspiring Capital Partners to Sportsdirect.com Retail Limited, whereas any duty to provide services under the alleged oral agreement would have been owed by Mr Blue to Mr Ashley.
The defence of lack of consideration was accordingly hopeless and was quite rightly not pursued by counsel for Mr Ashley at the trial.
(iv) Certainty and completeness of terms
Vagueness in what is said or omission of important terms may be a ground for concluding that no agreement has been reached at all or for concluding that, although an agreement has been reached, it is not intended to be legally binding. But certainty and completeness of terms is also an independent requirement of a contract. Thus, even where it is apparent that the parties have made an agreement which is intended to be legally binding, the court may conclude that the agreement is too uncertain or incomplete to be enforceable – for example, because it lacks an essential term which the court cannot supply for the parties. The courts are, however, reluctant to conclude that what the parties intended to be a legally binding agreement is too uncertain to be of contractual effect and such a conclusion is very much a last resort. As Toulson LJ observed in Durham Tees Valley Airport v bmibaby [2010] EWCA Civ 485, [2011] 1 Lloyd’s Rep 68, at para 88:
“Where parties intend to create a contractual obligation, the court will try to give it legal effect. The court will only hold that the contract, or some part of it, is void for uncertainty if it is legally or practically impossible to give to the agreement (or that part of it) any sensible content.” (citing Scammell v Dicker [2005] EWCA Civ 405, para 30, Rix LJ).”
It has nevertheless been argued on behalf of Mr Ashley that the alleged oral agreement on which Mr Blue’s claim is based was so vague and uncertain that, even if it was intended to create a contractual obligation, it cannot be given any sensible content and is unenforceable for that reason.
The objective test and evidence of subjective belief
In determining whether an agreement has been made, what its terms are and whether it is intended to be legally binding, English law applies an objective test. As stated by Lord Clarke in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH and Co KG [2010] UKSC 14; [2010] 1 WLR 753:
“The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.”
As with all questions of meaning in the law of contract, the touchstone is how the words used, in their context, would be understood by a reasonable person. For this purpose the context includes all relevant matters of background fact known to both parties.
There is, at least arguably, a limitation on the objective nature of the test where one party’s subjective intention is actually known to the other: see Novus Aviation Ltd v Alubaf Arab International Bank BSC(c) [2016] EWHC 1575 (Comm); [2017] 1 BCLC 414, para 56. But no reliance has been placed on any such principle in this case. What is accepted by counsel on both sides is that where, as here, the court is concerned with an oral agreement, the test remains objective but evidence of the subjective understanding of the parties is admissible in so far as it tends to show whether, objectively, an agreement was reached and, if so, what its terms were and whether it was intended to be legally binding. Evidence of subsequent conduct is admissible on the same basis. In the case of an oral agreement, unless a recording was made, the court cannot know the exact words spoken nor the tone in which they were spoken, nor the facial expressions and body language of those involved. In these circumstances, the parties’ subjective understanding may be a good guide to how, in their context, the words used would reasonably have been understood. It is for that reason that the House of Lords in Carmichael v National Power Plc [1999] 1 WLR 2042 held that evidence of the subjective understanding of the parties is admissible in deciding what obligations were established by an oral agreement.
IV. Evidence based on memory
It is rare in modern commercial litigation to encounter a claim, particularly a claim for millions of pounds, based on an agreement which is not only said to have been made purely by word of mouth but of which there is no contemporaneous documentary record of any kind. In the twenty-first century the prevalence of emails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic footprint. In the present case, however, such a footprint is entirely absent. The only sources of evidence of what was said in the conversation on which Mr Blue’s claim is based are the recollections reported by the people who were present in the Horse & Groom on 24 January 2013 and any inferences that can be drawn from what Mr Blue and Mr Ashley later said and did. The evidential difficulty is compounded by the fact that most of the later conversations relied on by Mr Blue were also not recorded or referred to in any contemporaneous document.
I have no reason to think that (with the possible exception of Mr Leach when he retreated from what he had said to Mr Blue’s solicitors) any of the witnesses were doing anything other than stating their honest belief based on their recollection of what was said in relevant conversations. But evidence based on recollection of what was said in undocumented conversations which occurred several years ago is problematic. In Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm), at paras 16-20, I made some observations about the unreliability of human memory which I take the liberty of repeating in view of their particular relevance in this case:
“16. While everyone knows that memory is fallible, I do not believe that the legal system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people’s memories are unreliable and believe our memories to be more faithful than they are. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.
17. Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called ‘flashbulb’ memories, that is memories of experiencing or learning of a particularly shocking or traumatic event. (The very description ‘flashbulb’ memory is in fact misleading, reflecting as it does the misconception that memory operates like a camera or other device that makes a fixed record of an experience.) External information can intrude into a witness’s memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory).
18. Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time.
19. The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party’s lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces.
20. Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness’s memory has been ‘refreshed’ by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness’s memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events.”
In the light of these considerations, I expressed the opinion in the Gestmin case (at para 22) that the best approach for a judge to adopt in the trial of a commercial case is to place little if any reliance on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.
A long list of cases was cited by counsel for Mr Blue showing that my observations in the Gestmin case about the unreliability of memory evidence have commended themselves to a number of other judges. In some of these cases they were also supported by the evidence of psychologists or psychiatrists who were expert witnesses: see e.g. AB v Catholic Child Welfare Society [2016] EWHC 3334 (QB), paras 23-24, and related cases. My observations have also been specifically endorsed by two academic psychologists in a published paper: see Howe and Knott, “The fallibility of memory in judicial processes: Lessons from the past and their modern consequences” (2015) Memory, 23, 633 at 651-3. In the introduction to that paper the authors also summarised succinctly the scientific reasons why memory does not provide a veridical representation of events as experienced. They explained:
“… what gets encoded into memory is determined by what a person attends to, what they already have stored in memory, their expectations, needs and emotional state. This information is subsequently integrated (consolidated) with other information that has already been stored in a person’s long-term, autobiographical memory. What gets retrieved later from that memory is determined by that same multitude of factors that contributed to encoding as well as what drives the recollection of the event. Specifically, what gets retold about an experience depends on whom one is talking to and what the purpose is of remembering that particular event (e.g., telling a friend, relaying an experience to a therapist, telling the police about an event). Moreover, what gets remembered is reconstructed from the remnants of what was originally stored; that is, what we remember is constructed from whatever remains in memory following any forgetting or interference from new experiences that may have occurred across the interval between storing and retrieving a particular experience. Because the contents of our memories for experiences involve the active manipulation (during encoding), integration with pre-existing information (during consolidation), and reconstruction (during retrieval) of that information, memory is, by definition, fallible at best and unreliable at worst.”
In addition to the points that I noted in the Gestmin case, two other findings of psychological research seem to me of assistance in the present case. First, numerous experiments have shown that, when new information is encoded which is related to the self, subsequent memory for that information is improved compared with the encoding of other information. Second, there is a powerful tendency for people to remember past events concerning themselves in a self-enhancing light.[2]
Mindful of the weaknesses of evidence based on recollection, I will make such findings as I can about what was said in the conversations on which Mr Blue relies and in particular in the crucial conversation on 24 January 2013 on which his claim is founded.
V. What was said on 24 January 2013?
Everyone present at the drinks in the Horse & Groom on 24 January 2013 recalls that there was some talk about the Sports Direct share price and how much Mr Ashley’s shares would be worth if the share price reached various levels. I think it likely that this conversation was mostly between Mr Ashley, Mr McEvoy and Mr Clifton, as they and Mr Tracey all recall. That would have been natural both because the object of the drinks was for Mr Ashley to “bond” with Mr McEvoy and Mr Clifton and because, as traders, share prices are their bread and butter. It was probably Mr Clifton who introduced the question of how Mr Ashley was going to reward or incentivise Mr Blue on the basis of the share price, as Mr Clifton recalls himself doing. No doubt various different numbers were suggested and Mr Blue may well have proposed a target for himself of £7.20, as he says he did. All the participants (except for Mr Ashley, who remembers none of this part of the conversation) remember the group settling on a target of £8 per share. It is inherently probable that they are right about this, as a target of £8 had an obvious logic to it, being approximately double the then current price of Sports Direct’s shares.
I think it likely that in this conversation Mr Ashley did say something along the lines recalled by Mr Blue to the effect that, if Mr Blue could get the stock to £8 per share, why should he (Mr Ashley) care how much he paid Mr Blue, as he would have made so much money that it would not matter. No doubt others concurred with this sentiment. It is in keeping with what seems to have been the general tone of the conversation, including the comparison which Mr Clifton as well as Mr Blue recalled that, if the Sports Direct share price were to reach £8 per share, its market capitalisation would be the same as that of Marks & Spencer.
Recollections of particular numbers mentioned are much more problematic. It is apparent, however, that this conversation meant much more to Mr Blue, who was the subject of it, than it did to the others – or at any rate than it did to the ESIB representatives for whom it could have been no more than some amusement. I am prepared in the circumstances to accept as more likely than not to be correct Mr Blue’s recollection of the discussion first settling on a figure of £10 million and of this figure then being increased to £15 million. Mr Blue’s recollection that either Mr Clifton or Mr McEvoy, on returning from the toilets, suggested doubling the number in view of how much money Mr Ashley would make if Mr Blue could get the stock to £8 a share is supported by Mr Clifton’s independent recollection of saying something exactly along these lines when he re-joined the group after a visit to the toilets. I note too that, although when his witness statement was prepared Mr Blue could not remember whether it was Mr Clifton or Mr McEvoy who came back from the toilets and suggested doubling the amount, an email sent by Mr Blue’s solicitors in June 2015 shows that Mr Blue’s recollection at that time was that it was Mr Clifton.
Mr Clifton thought that £10 million was the final number, arrived at by adopting his suggestion of doubling the amount, and did not recall Mr Ashley saying that he would split the difference. Mr McEvoy also thought that the final number was £10 million and Mr Tracey thought that it might have been £8 million. However, as I have indicated, I consider that they are less likely than Mr Blue to remember accurately how the conversation ended and what the final figure was. The fact that Mr McEvoy said in evidence that he recalled Mr Clifton suggesting that the amount should be doubled and Mr Ashley then splitting the difference provides some additional support for Mr Blue’s recollection of the process by which the final figure was reached. No one has ever suggested that the final figure might have been £7.5 million and it is impossible using round numbers to arrive at £10 million by first doubling a figure and then splitting the difference.[3] I therefore think it most likely that the final number was £15 million, as Mr Blue recalls, and that the £10 million recalled by Mr Clifton was the number arrived at before it was increased after Mr Clifton’s return from the toilets.
Mr McEvoy may well be right in recalling that, when the final number was settled by Mr Ashley, Mr Ashley and Mr Blue shook hands. I see no reason to doubt the evidence of Mr Tracey and Mr McEvoy that everyone was laughing during the conversation, nor the evidence of Mr Tracey that during the conversation Mr Blue had a big grin on his face and was looking “over the moon”.
I am not, however, prepared to place reliance on Mr Blue’s evidence that a period of three years in which to reach the share price target was specified. As with the final figure of £15 million, Mr Blue is the only person who recalls this. (As mentioned earlier, Mr Tracey recalled a period of 18 months or two years, while neither Mr Clifton nor Mr McEvoy recalled any period of time being discussed.) However, whereas the sum of £15 million is mentioned in the timeline that Mr Blue prepared in January 2015 and in the letter that he handed to Mr Ashley on 13 March 2015, there is no reference in either document to a three year timescale for achieving the £8 target and I think it likely that this is a later reconstruction on his part.
In accepting Mr Blue’s evidence that the figure of £15 million was settled on, I have not overlooked the evidence of those witnesses who recalled Mr Blue mentioning different figures to them in subsequent conversations. Referring first to Mr Hellawell, none of the participants in the conversation on 24 January 2013 recalled a figure anywhere near as low as £1 million being discussed – which is the number that Mr Hellawell recalls Mr Blue mentioning in a conversation which he believes took place on 27 February 2014 (see paragraph 30 above). If a figure of one million was indeed mentioned to Mr Hellawell it is likely to have been the million shares that Mr Blue stood to receive if he joined the employee share scheme. Mr Leach remembered overhearing a conversation between Mr Ashley and Mr Blue at around the end of January 2014 in which Mr Ashley said that Mr Blue would be “on the million shares, same as the rest of them” – which Mr Leach took to be referring to what would happen if Mr Blue became the Finance Director – and Mr Blue might well have mentioned this to Mr Hellawell.
As for Mr Cowgill, the conversation that he recollects occurred on 12 May 2015, some two months after Mr Blue had written to Mr Ashley maintaining that there was an agreement to pay him £15 million and only around two weeks before this allegation was repeated and amplified by Mr Blue’s solicitors in a formal letter of claim. Mr Cowgill gave evidence that Mr Blue told him that Mr Ashley should have paid him £8 million. But I am sure that Mr Blue would not have mentioned a different amount of money to Mr Cowgill from the amount that he was in fact already claiming. Indeed, I think it unlikely that Mr Blue would have mentioned a specific amount of money to Mr Cowgill at all. Mr Cowgill may well have confused a reference to the share price target of £8 per share.
I accordingly find that the substance of the “agreement” made between Mr Ashley and Mr Blue at the Horse & Groom on 24 January 2013 was that, if Mr Blue could get the Sports Direct share price to £8 per share (within an unspecified time), Mr Ashley would pay him £15 million.
VI. Was a binding contract made?
The next question is whether what was said on 24 January 2013 gave rise to a binding contract. In answering this question, the key issue is whether, when Mr Ashley said that he would pay Mr Blue £15 million if he could get the Sports Direct share price to £8 per share, this would reasonably have been understood as a serious offer capable of creating a legally binding contract. Having heard the evidence, I am quite sure that it would not. I have reached this conclusion for eight main reasons.
The setting
The first is the setting. As described by Mr Tracey, it was “five guys and a barman in a pub”. A fair amount of alcohol had been consumed. Those circumstances by themselves do not prevent a contract from being made – any more than did the fact that in MacInnes v Gross [2017] EWHC 46 (QB) the relevant discussion took place over dinner in a smart restaurant. As Coulson J said in that case (at para 81), a contract can be made anywhere in any circumstances. But an evening of drinking in a pub with three investment bankers is an unlikely setting in which to negotiate a contractual bonus arrangement with a consultant who was meeting them on behalf of the company.
It was argued on behalf of Mr Blue that, while this might be true in the case of an ordinary businessman, Mr Ashley is not an ordinary businessman but is someone who adopts an “unorthodox approach to taking business decisions in informal settings while consuming substantial amounts of alcohol”. In particular, Mr Blue relied on the fact that, at Sports Direct’s weekly senior management meetings he had witnessed Mr Ashley (and others) drinking alcohol, sometimes allegedly in copious quantities. When Mr Blue was working at Sports Direct such meetings were held at the Lion Hotel in Worksop. Between 10 and 20 members of Sports Direct’s senior management would typically attend and Mr Blue attended these meetings regularly. The meetings would begin by, at latest, 8pm with people first congegrating in the bar area. There is a conference facility at the hotel where the main part of the meeting would take place and where food would be served at around 9:30pm. The purpose of the meetings was for senior managers to update each other on the performance of the business and current developments. The meetings were divided into two parts, each around an hour long. One part would consist of a presentation from someone on a particular topic. Topics that featured regularly included: (i) retail operations, (ii) online strategy, (iii) IT and infrastructure, (iv) international expansion, (v) brand management, and (vi) property. The other part of the meeting consisted of going through a “management pack” of information and receiving a weekly update on each area of the business.
Mr Ashley agreed that at these meetings alcohol was frequently consumed and said that, at a typical meeting, he might drink four pints of beer followed by wine with the food or, if he stayed with beer, say six pints of beer during the evening. Mr Blue said that he thought Mr Ashley made alcohol freely available at these meetings as a deliberate strategy to encourage his senior managers to speak more openly than might otherwise be the case in a more formal meeting environment. He described this approach as typical of Mr Ashley’s personality and business style. He may well be right about this but the evidence about these meetings does not seem to me to carry Mr Blue’s case very far. The Sports Direct senior management meetings certainly show that Mr Ashley is happy to combine discussion of business matters with the consumption of alcohol. But there is no evidence to suggest that Mr Ashley has ever negotiated or concluded a contract at one of these meetings. The evening at the Horse & Groom was, in any event, a considerably less formal occasion than the senior management meetings, as there was no agenda or structure for the occasion and the conversation was largely social or general chat, rather than being specifically directed to any business subject.
(ii) The purpose of the occasion
In addition to its setting, a second significant feature of the context in which the conversation on 24 January 2013 took place is the purpose of the occasion. Counsel for Mr Blue are plainly right in saying that the meeting with the ESIB traders was not merely social and that it had a business purpose. But that purpose was not to discuss Mr Blue’s work for Sports Direct or terms for his remuneration. It was an outward-facing occasion in which Mr Ashley and Mr Blue were both representing Sports Direct in meeting the representatives of a prospective service provider. In particular, the aim was to enable the senior people on the trading side of ESIB to meet Mr Ashley in an informal setting in order to build a commercial relationship with Mr Ashley / Sports Direct. I accept Mr Blue’s evidence that, given the demands on his time, Mr Ashley would not have agreed to attend the meeting, let alone have invested the time and energy in it that he did, had he not believed that securing the services and enthusiastic support of ESIB as the company’s new corporate broker was important for Sports Direct. But that very fact is inconsistent with the notion that it was an occasion to agree with Mr Blue a personal incentive bonus plan. Not only is it inherently unlikely that a matter personal to Mr Blue would have been the subject of serious discussion in the presence of strangers, but such a discussion would have been completely extraneous to the serious purpose which the meeting had.
(iii) The nature and tone of the conversation
The third feature of the occasion which is inconsistent with an intention to make a serious contractual offer to Mr Blue is the nature and tone of the conversation. Before the topic of the Sports Direct share price came up, there had been talk about football in which Mr Ashley had been impressing and flattering the ESIB traders by talking about potential purchases of players in the transfer market and making them feel they were getting an inside track on Mr Ashley’s role as the owner of a Premier League club. When the conversation turned to the Sports Direct share price, it was obviously jocular, with some joshing about just how wealthy Mr Ashley would be if the share price were to reach various levels. It was, as I have found, probably not Mr Ashley who introduced the idea of a payment to incentivise Mr Blue, but rather Mr Clifton who was (in his own description) “feeling a bit mischievous”. Mr Ashley took up the idea but, apart from asking Mr Blue what he thought an appropriate share price target might be, carried on the conversation primarily with the ESIB traders, who made their own obviously facetious suggestions about how Mr Blue should be incentivised or rewarded. I have found, based partly on Mr Blue’s own recollection, that the final figure was arrived at after Mr Clifton proposed doubling the number on his return from a visit to the gents. Mr Ashley then said that he would split the difference between the new number (of £20 million) and the previous figure (of £10 million) and Mr Blue said that he thought this sounded fair.
No skilled businessman in Mr Ashley’s position would have fixed the amount of a contractual bonus payment for a consultant on the basis of numbers being bandied about by some City traders who had no knowledge of or particular interest in how much Mr Blue was paid – all the more so when it must have been obvious that Mr Clifton’s proposal to double up was being made with tongue in cheek. The tone of the discussion is also apparent from the evidence of the ESIB witnesses, which I accept, that everyone was laughing throughout. No one could reasonably have understood this to be a serious business discussion.
I do accept that “banter”, as the ESIB witnesses all described it, can have a more serious underlying intent. Mr Tracey’s perception was that Mr Ashley was using the discussion about how high the Sports Direct share price might go and how to incentivise Mr Blue as a way of conveying to the traders his faith in the company and the potential for its shares to increase in price. Mr Tracey also thought that Mr Ashley was trying to make Mr Clifton and Mr McEvoy view Mr Blue as important and assumed that he was doing this because he wanted Mr Blue rather than himself to be the main point of contact for ESIB. I see no reason to doubt Mr Tracey’s reading of the situation. It reinforces the point that Mr Ashley was not interested in making a deal with Mr Blue but was focussed on cultivating the relationship with ESIB.
(iv) Lack of commercial sense
The fourth reason why no reasonable business person would have thought that a serious contractual offer was being made is that Mr Ashley had no commercial reason to offer to pay Mr Blue £15 million as an incentive to do work aimed at increasing the Sports Direct share price. I do not accept the submission made on Mr Blue’s behalf that he was at that stage “a trusted and close business associate of Mr Ashley”. He had only been working as a consultant for Sports Direct for around two months and Mr Ashley did not know Mr Blue particularly well. Their only period of close contact had been two weeks spent making “roadshow” presentations to investors during the Sports Direct IPO some six years earlier. Mr Blue’s main point of contact when he did some work for Sports Direct in connection with the Debenhams bids had been Mr Mellors. It was Mr Forsey who had engaged Mr Blue’s services as a consultant under the Management Services Agreement: Mr Ashley was not involved in the discussions. And in the two months since he had started work most of Mr Blue’s dealings had been with Mr Forsey and Mr Mellors. There is no suggestion that Mr Blue had expressed any dissatisfaction with the remuneration that Sports Direct had agreed to pay for his services or had asked for any kind of bonus or incentive. Nor is there any evidence that Mr Ashley has ever offered anyone at Sports Direct – even those at the heart of the business – an incentive payment or bonus of anything like as much as £15 million.
Counsel for Mr Blue argued that promising to pay Mr Blue £15 million if he could get the share price above £8 made “obvious” or “perfect” commercial sense for Mr Ashley. Their argument was that, if Mr Blue managed to achieve the £8 share price target, Mr Ashley would personally be worth an additional £1.6 billion – or around a hundred times what he would have to pay Mr Blue. If, on the other hand, the share price did not reach £8 per share, Mr Ashley would still benefit from Mr Blue’s efforts without them costing him anything at all.
It seems to me that there are two major flaws in this argument. The first is that, had Mr Ashley been having a serious business discussion about paying Mr Blue an incentive bonus, I am sure that he would not have approached it by remarking how enormously the value of his shares in Sports Direct would increase if the share price were to double to £8 per share. No entrepreneur who has built up a successful business decides whether or how much money to pay for something purely on the basis of what they might gain: they are also concerned not to incur an unnecessary cost. My impression from the evidence accords with the submission of Mr Blue’s counsel (made in the context of the £1 million payment) that Mr Ashley is “clearly a person who understands the value of money … He is simply not the kind of person to throw one million pounds at Mr Blue …” The same applies with all the more force to a sum of £15 million. Had Mr Ashley thought that Mr Blue’s efforts could make a significant difference to the share price and that it was desirable to offer Mr Blue a bonus to incentivise him, I am sure that he would have assessed how much he would need to offer in order to provide such an incentive. For that purpose he would have looked at how much Mr Blue was being paid by Sports Direct – which amounted to £250,000 per year if Mr Blue were to work a five day week. It would plainly have provided a massive incentive to Mr Blue to offer him a bonus of, say, £2.5 million (that is, ten times his annual earnings). A sum of £10 million or £15 million was on any view far more than Mr Ashley could possibly have thought it necessary or sensible to offer: it would simply have involved throwing money at Mr Blue. Nor in any serious business discussion would Mr Ashley, having arrived at a figure which itself would have far exceeded Mr Blue’s wildest hopes or expectations, then have increased it by a further 50% through an arbitrary process of splitting the difference between the figure first arrived at and a figure which was double that amount.
In short, it is plain from the way in which big numbers were being tossed around that the conversation in the Horse & Groom was not a serious discussion about creating an incentive bonus arrangement for Mr Blue but was banter in which Mr Ashley was displaying his wealth and the scale of his ambitions.
A second flaw in the argument made by Mr Blue’s counsel is that it assumes that Mr Blue’s efforts had the potential to increase the Sports Direct share price by a substantial amount. I see no reason to make any such assumption, nor to suppose that Mr Ashley would have made such an assumption, having regard to Mr Blue’s role at Sports Direct.
Plainly, there is room for many different opinions about the relative importance of different factors in influencing a company’s share price. No expert evidence was adduced by Mr Blue to support his assertion that the kind of work that he did is likely to have had a significant impact on the share price of Sports Direct. In the absence of such evidence, I see no reason to suppose that it did. As discussed in section VII below, I do not doubt that Mr Blue did useful work in supporting the corporate brokers in their efforts to improve relations with investors and potential investors. But I see no a priori reason to assume that such steps would have a significant effect on the investment decisions made by experienced fund managers.
(v) Incongruity with Mr Blue’s role
This point goes further than merely showing the absence of a good commercial reason to offer Mr Blue a £15 million incentive. Mr Blue’s evidence – which I have accepted as probably accurate – is that Mr Ashley said he would pay the £15 million to Mr Blue if Mr Blue could “get” the Sports Direct share price above £8 per share. However, on even the most generous view of the value of Mr Blue’s services, the idea that he could somehow, through his skills and contacts in corporate finance, “get” the share price to double its then level seems plainly fanciful. No one would seriously suppose that any human being has such powers, let alone someone performing a role which, as Mr Blue agreed, would typically command remuneration of no more than, say, £300,000 to £400,000 per year (and was also a role of which Mr Blue had no previous direct experience). I think it would have been obvious to anyone with any experience of investment and financial markets that such an offer could not be meant seriously. That was certainly the perception of Mr McEvoy who said in evidence:
“Being a trader, for me, for the share price to double based on Jeff’s role I just thought that was – obviously it was a joke.”
Mr Blue’s response to this point was to suggest that Mr Ashley did not actually mean what he said and that what he must in fact have meant, or should reasonably be understood to have meant, is that he would pay Mr Blue £15 million if (a) Mr Blue did work with the aim of increasing Sports Direct’s share price and (b) the share price in fact rose above £8 per share – without it being necessary to show any connection between the work done by Mr Blue and the increase in the share price. It seems to me that the fact that Mr Blue is seeking to re-cast Mr Ashley’s “offer” in this way only serves to underline the point that it could not have been seriously meant.
Furthermore, if the offer made by Mr Ashley had been the version suggested by Mr Blue, it would no doubt have seemed less humorous to the City traders but would not have been any less absurd. To pay Mr Blue £15 million if the share price – for reasons which may have had nothing whatever to do with him – subsequently reached £8 on condition only that Mr Blue could show he had done some work (the nature and extent of which were left completely unspecified) with the aim in mind of increasing the share price, would be an utterly unbusinesslike arrangement. It is unrealistic to suppose that anyone with business experience – let alone someone with the business acumen of Mr Ashley – would seriously entertain it. Thus, the fifth reason for my conclusion that no reasonable person would have understood Mr Ashley to be making a serious offer is that a contract made on the terms discussed would have been inherently absurd.
(vi) Vagueness of the “offer”
This leads to the sixth reason why no reasonable person would have understood Mr Ashley to be making a contractual offer, which is that the “offer” was far too vague to have been seriously meant. Any serious discussion of a £15 million payment to incentivise Mr Blue would have required consideration of exactly what work Mr Blue was going to do to earn this bonanza and how the utility or effect of his work was going to be measured. It is not suggested by Mr Blue that such matters came into the conversation in the pub at all (or were ever mentioned afterwards). An essential element of any contract would also have been a specified period within which the share price target would have to be achieved. As indicated earlier, I am not satisfied that any timescale was agreed. Furthermore, if, as suggested by Mr Blue, the potential benefit to Mr Ashley would be the increased value of his shares (at least on paper), it would be reasonable to expect discussion of a period of time for which the share price would need to stay above the target price in order for the bonus payment to accrue. For the share price to peak above £8 for a day or an hour or a minute before falling precipitously would defeat the suggested object of the incentive. Precisely for that reason, when Mr Tracey realised that Mr Blue was taking Mr Ashley seriously, he suggested that Mr Blue should aim at trying to keep the share price above £8 for at least 30 days. But no such discussion ever took place with Mr Ashley. That is yet another indication that no binding agreement between Mr Ashley and Mr Blue was ever seriously contemplated.
(vii) Perceptions of the ESIB witnesses
The seventh reason why I am confident that no reasonable person would have understood Mr Ashley to be making a contractual offer is that none of the three witnesses from ESIB who took part in the conversation thought that he was being serious.
I have noted that, although the test of whether an offer was made and intended to be legally binding is objective, in a case such as this where the relevant statements were oral, evidence of how they were understood by the parties themselves is admissible. That logic applies equally to the subjective understanding of other people who witnessed or took part in a conversation. It is therefore telling that all three of the ESIB representatives – Mr Tracey, Mr McEvoy and Mr Clifton – perceived the conversation about incentivising Mr Blue as no more than banter.
Counsel for Mr Blue did not suggest that the evidence given by these witnesses of their understanding was untruthful. But it was argued that what may have seemed like banter to them would not have seemed so if they had had the same prior knowledge as Mr Blue of Mr Ashley and his “unorthodox” business practices. This comes back to the contention that Mr Ashley was not an ordinary businessman but was, extraordinarily, the sort of person who would be willing to make a legally binding deal through what would seem to those who did not know him like banter in a pub. For reasons already given, the evidence relied on by Mr Blue does not bear out that contention.
It may be added that Mr Tracey did have a previous acquaintance with Mr Ashley, having been head of the team at Merrill Lynch that worked on the Sports Direct IPO. He was also a friend of Mr Blue and discussed with Mr Blue on several occasions in the following months what had been said by Mr Ashley in the Horse & Groom. An additional advantage enjoyed by Mr Tracey as an observer is that he was the only person present who was not drinking alcohol. It is clear – and Mr Blue did not dispute – that Mr Tracey’s perception was that Mr Ashley was not being serious when he said that he would pay Mr Blue a bonus if Mr Blue got the share price to £8. Mr Tracey was in a much better position to take an objective view than Mr Blue, who had not only drunk two or three pints of lager on an empty stomach by the time the conversation took place, but whose judgment may have been impaired by the excitement of hearing his name mentioned in connection with very large sums of money.
(viii) Mr Blue’s perception
My eighth and last main reason for concluding that, objectively, there was no intention to make a contract is that I am satisfied that Mr Blue himself did not understand there to be such an intention at the time when the conversation in the Horse & Groom took place or in the period immediately afterwards. That is indicated by Mr Tracey’s evidence that he did not understand Mr Blue to be taking the conversation seriously when they first spoke about the evening (probably within the next day or so) but only gained this impression some months later at or around the time of the barbecue at Mr Blue’s house on 10 August 2013. This conclusion is also demonstrated by the objective facts. It is improbable that a person with as much business experience as Mr Blue, had he truly believed when the conversation in the Horse & Groom took place that Mr Ashley had agreed to pay him £15 million if he got the Sports Direct share price to £8 (or if the Sports Direct share price got to £8) would have thought it unnecessary to make any written record of what had been agreed. It is even more improbable – indeed, in my view, wholly incredible – that, if Mr Blue had believed there to be a binding oral agreement, he would have waited nearly a year – as on his own case he did – before ever mentioning what had been said in the Horse & Groom to Mr Ashley.
Mr Blue’s explanation for why he did not mention the subject to Mr Ashley until, on his evidence, late December 2013 is that he saw no need to do so because their agreement was clear and he trusted Mr Ashley to honour it. But that explanation does not stand a moment’s scrutiny. Even if Mr Blue had believed that Mr Ashley was being serious, the circumstances in which the conversation took place – an informal meeting with Sports Direct’s new corporate brokers in a pub in which the drinks were flowing, people were laughing, and when Mr Blue (on his own admission) had been surprised when the idea of offering him an incentive had been discussed – would at the very least have signalled the need to get Mr Ashley’s confirmation of the arrangement in the light of day. The ambiguity about what Mr Blue had to do in order to become entitled to the payment would also have cried out for some clarification. Moreover, if, as Mr Blue claims, he did work of various kinds on the strength of what Mr Ashley had said, I find it unbelievable that he would not have mentioned to Mr Ashley that he was embarking on such work.
Furthermore, it was not just a matter of clarity and trust. There was a need to make sure that Mr Ashley remembered what had been said and had the same recollection as Mr Blue. Even if Mr Blue is right that Mr Ashley was not at all drunk when the conversation took place, he must have learnt (from Mr Tracey, if not from Mr Ashley himself) that after he had left the pub at around 8.30pm the drinking session carried on late into the night. Given the well known fact that alcohol consumption impairs memory, I cannot believe that, if Mr Blue had thought at the time that he had made a contract with Mr Ashley under which he stood potentially to receive £15 million, he would have regarded it as unnecessary for months afterwards ever to check that Mr Ashley recalled what had been said.
All these points would have force enough if it had been expected on 24 January 2013 that the Sports Direct share price might double within the next few weeks or months. But, realistically, no one present in the Horse & Groom could have thought it likely that the share price would double within that sort of time frame. As mentioned, Mr Blue’s evidence is that a period of three years was specified. I have not found this proved. But on any view, Mr Blue must have contemplated that it might be a matter of years rather than months before the £8 target was reached, if it was ever reached at all. However much Mr Blue trusted Mr Ashley, he could not sensibly count on Mr Ashley remembering what might be a year or more later an arrangement agreed in a conversation in a pub, if the arrangement had never been put in writing or ever mentioned again in the meantime. In my view, the irresistible inference from the fact that Mr Blue did not, on his own evidence, make any reference at all in any conversation with Mr Ashley to what had been said in the Horse & Groom (let alone any written record of it) for the next 11 months is that Mr Blue did not believe at the time of that conversation that he and Mr Ashley had made an agreement.
I think it likely that Mr Blue started to attach more significance to the conversation and invested it with more weight in hindsight when the Sports Direct share price climbed rapidly in around June and July 2014. At that point, as mentioned earlier, the possibility of the share price reaching £8, which may have seemed remote in January, no doubt started to seem realistic. It was then that Mr Blue made it clear to Mr Tracey that he was taking what Mr Ashley had said seriously and began to dream of holidays in Barbados and buying the next door house.
Mr Tracey said that, when he realised that Mr Blue was taking Mr Ashley seriously, he advised Mr Blue to get their agreement put in writing. It was obvious advice to give and advice which I am sure that Mr Blue would himself have given if someone else in such a situation had spoken to him. Not only did Mr Blue not follow Mr Tracey’s advice, he still even then did not raise the subject of the potential bonus payment in conversation with Mr Ashley. The reason why he did not, as it seems to me, must have been that, although he was by now convinced (or had convinced himself) that Mr Ashley had been serious when he had said that he would pay Mr Blue £15 million if he got the share price to £8 per share, Mr Blue still did not believe that Mr Ashley had intended to make a legally binding agreement. Rather, Mr Blue’s silence only seems to me explicable on the basis that he was regarding what Mr Ashley had said as a statement of intention which he hoped that Mr Ashley would adhere to but which might at most have given rise to a moral obligation rather than a legally binding contract.
Work done by Mr Blue
Mr Blue has claimed that, although he did not mention the conversation in the Horse & Groom to Mr Ashley for the next eleven months, he was nevertheless doing a lot of work during that time in reliance on what Mr Ashley had said which was outside the scope of his consultancy agreement with Sports Direct. Mr Blue has said that such work fell into the following four categories:
i) The appointment of corporate brokers;
ii) Expanding the range and quality of equity research coverage;
iii) Improving investor relations; and
iv) Improving the liquidity of Sports Direct shares by arranging the sale of blocks of Mr Ashley’s shares, thereby increasing the “free float”.
More particularly, as regards the second and third of these categories, Mr Blue gave evidence that his work included meeting and arranging visits to the Sports Direct headquarters in Shirebrook for equity research analysts, attending over one hundred meetings with shareholders or potential investors, preparing and frequently updating a presentation to investors and financial model, launching a new corporate website and drafting announcements for Sports Direct and the company’s interim and annual reports.
I agree that this work is outside the scope of the Management Services Agreement, as that agreement had been drafted, but I do not accept that Mr Blue did the work as a result of anything said by Mr Ashley in the Horse & Groom. I noted earlier that, although the services specified in the Management Services Agreement were services on “strategic development opportunities and related matters”, from the moment he started working for Sports Direct Mr Blue became involved in other areas which could not fairly be described as related to strategic development opportunities, including work concerned with improving investor relations. Mr Blue was asked by Mr Forsey to do this work because, although Mr Blue had never done it before, he had general familiarity with such work through his experience in the City and, by taking it on, helped to reduce the heavy burden on Mr Forsey. This did not occur, however, as a result of anything said by Mr Ashley in the Horse & Groom. It occurred at the request of Mr Forsey and Mr Mellors, and Mr Blue was already engaged in such work by the time of the meeting with the ESIB brokers on 24 January 2013. Indeed, that meeting was part of it. As well as looking for a new corporate broker, other work in the field of investor relations on which Mr Blue had by that time already embarked included the preparation of the investor presentation and financial model, which he undertook at Mr Forsey’s request.
Moreover, although the wording of the Management Services Agreement was not apt to cover investor relations work and some of the other work that Mr Blue did, it is clear that no one in practice paid any attention to that fact or saw any need to amend the agreement. The work was simply treated as part of Mr Blue’s role as it evolved and was counted as part of the four days – and later five days – per week for which his firm, Aspiring Capital Partners, charged and was paid for his services by Sportsdirect.com Retail Limited. Thus, the monthly invoices which he submitted on behalf of Aspiring Capital Partners contained descriptions of work done which included frequent references to “corporate broking”, “IR presentation”, “IR materials”, “investor meetings”, “corporate website” and other matters which Mr Blue now says were not part of his role because they were not covered by the wording of the agreement. The itemised work even included work for MASH Holdings Limited, the company through which Mr Ashley owned his shares in Sports Direct. It is plain that all this work was treated, without distinction, as part and parcel of the services that Mr Blue (through Aspiring Capital Partners) was providing and being paid for under the Management Services Agreement.
Despite this, Mr Blue in his oral evidence denied that he had billed Sports Direct for items relating to corporate broking and investor relations, maintaining that he had included such references in the invoices that he submitted only so that “Mr Forsey had complete oversight in terms of the work I was doing”. This piece of sophistry did Mr Blue no credit and showed the extent to which his evidence has been shaped by the claim he is making in these proceedings rather than the other way around.
Mr Blue’s evidence of later conversations
In reaching a conclusion about whether Mr Ashley made a contractual offer, I have considered Mr Blue’s evidence of conversations which he allegedly had with Mr Ashley from December 2013 onwards, in which he claims that Mr Ashley acknowledged an obligation to pay him a bonus arising from what had been said in the Horse & Groom. I have also taken account of the payment of £1 million made by Mr Ashley on 27 May 2014 which has been put at the forefront of Mr Blue’s case. It is important to note, however, the limited extent to which this evidence is relevant. Mr Blue has not advanced any case that, if what Mr Ashley said on 24 January 2013 did not give rise to a contract, a contract nevertheless arose from something that Mr Ashley said or did afterwards. The later conversations and the payment of £1 million are relevant and are relied on by Mr Blue only in so far as they shed any light on what the state of mind of Mr Ashley (and that of Mr Blue) was on 24 January 2013 at the moment when Mr Ashley said that he would pay Mr Blue £15 million if Mr Blue could get the Sports Direct share price to £8 per share. Their states of mind at that time are in turn relevant only in so far as they tend to show how a reasonable person would have understood what Mr Ashley was saying. There are, however, a number of difficulties in relying on the evidence of later events to reason backwards in this way.
One difficulty is that, as already mentioned, apart from the note that Mr Blue made in his Moleskine notebook on 25 February 2014 (quoted at paragraph 28 above), there is no written record or reference in any contemporaneous document to any of the later conversations on which Mr Blue relies. In addition, apart from a snippet of conversation which Mr Leach overheard at the Lion Hotel on 14 January 2014, there was no independent witness to any of these later conversations. Moreover, from having heard and seen him give evidence, I think it plain that Mr Ashley has no recollection of any of them. That is unsurprising given that any mention of a bonus for Mr Blue was a matter of far more significance to Mr Blue than it was to Mr Ashley. With very limited exceptions, therefore, the only evidence of the alleged conversations consists of Mr Blue’s testimony based on his memory. I do not regard that without more as a reliable basis on which to make factual findings.
Second, the fact that by late 2013 Mr Blue had, as I have found, come to believe that Mr Ashley had been serious about paying him a bonus if the share price rose to £8 per share created ample scope for Mr Blue to over-interpret casual remarks in a way that reinforced his belief by reading much more into them than was warranted. The very brief exchange with Mr Ashley on 25 February 2014 which Mr Blue noted in his Moleskine notebook is a case in point. On Mr Blue’s own account of this conversation, it involved no more than Mr Blue asking Mr Ashley whether Mr Ashley had seen that the share price had reached £8 and Mr Ashley replying that he had seen it. It is possible to conceive how Mr Blue could have interpreted a response which, from Mr Ashley’s point of view, was no more than an acknowledgment that the share price had reached £8 as a sign that Mr Ashley recalled the conversation in the pub thirteen months earlier and was willing to pay Mr Blue a bonus on the strength of it. Such an interpretation, however, seems irrationally optimistic.
Mr Blue’s earlier conversation with Mr Ashley in December 2013, assuming that there was such a conversation, could well have been along similar lines. I do not find it credible that Mr Blue, without ever having mentioned what was said in the Horse & Groom again to Mr Ashley in the meantime, had only to say “Mike, can I have a word? … I just want to make sure that we’re still on with our agreement”, in order for Mr Ashley immediately to recall – without any need for any further reminder – exactly what had been said on 24 January 2014 and to tell Mr Blue that he had “got it” and was “cool” with it. I am sure that, if Mr Blue made any allusion at around that time in any brief exchange with Mr Ashley to his hope of a bonus, it would have been expressed in different – although no doubt equally oblique – terms and that he would not have referred to “our agreement”.
The question that Mr Blue recalls being asked on some unspecified occasion by Mr Forsey may also be an instance of over-interpretation by Mr Blue. According to Mr Blue, Mr Forsey unexpectedly asked him: “So what’s your deal with Mike, then?” Mr Blue has not suggested that Mr Forsey told him that he (Mr Forsey) had been told by Mr Ashley of any deal with Mr Blue. The hypothesis that there had been such a prior conversation between Mr Ashley and Mr Forsey which prompted Mr Forsey’s question is unfounded speculation on Mr Blue’s part. If Mr Forsey did indeed ask Mr Blue such a question (an assertion first made in Mr Blue’s witness statement), it seems to me most likely to have been prompted by something that Mr Blue had previously said – either to Mr Forsey or to someone else such as Mr Leach or Mr Hellawell who had spoken to Mr Forsey – to suggest that he might have some deal with Mr Ashley.
Counsel for Mr Blue submitted that the court ought to draw an adverse inference from the failure of Mr Ashley to call Mr Forsey as a witness to address this point in Mr Blue’s evidence. Such an inference could only be appropriate, however, if Mr Blue’s evidence about the question Mr Forsey allegedly asked would, if not rebutted, found the edifice that Mr Blue has sought to build on it regarding a putative prior discussion between Mr Ashley and Mr Forsey. In my view, it does not begin to do so.
In the same vein, counsel for Mr Blue submitted that the court should infer from the refusal of Sports Direct in June 2016 to conduct a voluntary search for potentially relevant documents, in circumstances where Sports Direct had previously given Mr Ashley’s solicitors access to Mr Blue’s archived emails, that such a search would have revealed evidence supporting Mr Blue’s case. I do not accept this. An inference of that kind may be legitimate where, for example, a party who has a duty to disclose relevant documents is found to have deliberately destroyed or concealed such documents. However, it has not been argued on behalf of Mr Blue that Sports Direct had a duty to provide documents to Mr Ashley for the purpose of disclosure in these proceedings, nor that Mr Ashley had the power or duty to obtain and disclose documents in the custody of Sports Direct. If any such argument was to be made, it would need to have been made much earlier in the proceedings at a case management conference. In these circumstances, although the request made by Mr Ashley’s solicitors to the in-house lawyer at Sports Direct for the company’s agreement to search for documents may be described as, at best, perfunctory, I do not consider that any adverse inference of the kind suggested can properly be drawn from the response.
I attach somewhat greater weight to Mr Blue’s evidence that the subject of a prospective bonus was mentioned at the Lion Hotel on 14 January 2013 (see paragraph 23 above). The conversation must again have been extremely brief because it is said to have occurred in whatever short time it took for Mr Ashley and Mr Blue to walk from the men’s toilets to the bar. But Mr Blue’s evidence that the rise in the Sports Direct share price was mentioned on that occasion is supported by the evidence of Mr Leach. The remark that Mr Leach remembers overhearing is consistent at least with Mr Blue having claimed credit for initiatives which he believed had helped to boost the Sports Direct share price and asking whether Mr Ashley was willing to pay him a bonus. I therefore think it possible that Mr Ashley did say something on that occasion which encouraged Mr Blue’s hopes.
Change in Mr Blue’s standing
A further relevant factor in evaluating Mr Blue’s evidence about his conversations with Mr Ashley in 2014 is that there had, as I perceive, been a change in their relationship since the time of the meeting in the Horse & Groom. Although I have rejected the suggestion that Mr Blue was “a trusted and close business associate of Mr Ashley” in January 2013, I think this much nearer to the mark as a description of their relationship a year later. During that year Mr Blue had had regular contact with Mr Ashley and had gained his trust and confidence. This is apparent from, among other things, Mr Ashley’s evidence that he asked Mr Blue to assist him with personal investments. It is also apparent from the fact that Mr Ashley wanted Mr Blue to become the Chief Financial Officer of Sports Direct in succession to Mr Mellors. Mr Blue and Mr Ashley both confirmed that this possibility was first discussed in late 2013. Another conversation which Mr Leach partly overheard indicates that it was being mentioned by Mr Ashley again at around the end of January 2014 (see paragraph 27 above). It is against that background that a conversation took place between Mr Ashley and Mr Blue in March 2014 in which Mr Blue says that the issue of Mr Ashley paying him a bonus was raised.
The conversation in March 2014
I think it inherently probable that there was such a conversation some time in March 2014. I very much doubt that Mr Ashley initiated the conversation, as Mr Blue has claimed. It is much more likely to have been Mr Blue who raised the subject of his being paid a bonus. But the likelihood that Mr Blue did indeed raise this subject with Mr Ashley is supported by the text messages exchanged with his wife on 25 February 2014, which show that Mr Blue hoped or expected – and had led his wife to expect – that he would be paid a bonus by Mr Ashley if the share price reached £8 per share. I see no reason to doubt Mr Blue’s evidence that his wife afterwards pressed him to pursue the matter with Mr Ashley – which fits with her insistence already in one of the text messages sent on 25 February 2014 that Mr Ashley needed to send an email “to back this up”.
I am not convinced that the conversation in which the subject was raised necessarily took place on 7 March 2014 at the Manicomio Café, as Mr Blue now believes. That is evidently a pure piece of reconstruction on his part, as in the timeline that he prepared in January 2015, and when he wrote the letter that he handed to Mr Ashley on 13 March 2015, he thought that the conversation had taken place on 27 March 2014. The latter date fits with the text messages that Mr Blue exchanged with Mr Tracey on 27 March 2015, telling Mr Tracey that he had news. It is unclear why Mr Blue would have waited 20 days before sending a text to Mr Tracey to tell him news which, from the tone of the message, Mr Blue had only just learnt. Be that as it may, it is apparent that, whenever the conversation did take place, it led Mr Blue to believe that the role of Finance Director would now be his.
I reject as improbable Mr Blue’s evidence that Mr Ashley said that he was going to “re-negotiate their deal”, although this is no doubt how Mr Blue now perceives the effect of their discussion. On the other hand, I find it plausible that, when Mr Blue raised the question of a bonus based on the share price exceeding £8, Mr Ashley brushed this aside by saying that it did not matter as Mr Ashley wanted Mr Blue to become Finance Director, which would result in him being handsomely rewarded through the executive bonus share scheme. I do not doubt that Mr Ashley genuinely regarded Mr Blue at that time as the most suitable person to take on the role of Finance Director following the retirement of Mr Mellors. It makes sense that in these circumstances Mr Ashley would have wanted to keep Mr Blue happy by deflecting the discussion onto the benefits that he would receive as Finance Director rather than directly addressing his expectation or hope of a bonus on account of what had been said in January 2013 in the Horse & Groom.
It also makes sense that, as part of the discussion of Mr Blue becoming Finance Director, Mr Blue would – as he says he did – have pointed out that the annual salary for the job (of £150,000) would be less than his annual income under the Management Services Agreement (of £250,000) and that this would cause him some cash flow issues until he received shares under the executive share bonus scheme and was able to sell them. I accept as probably accurate Mr Blue’s evidence that Mr Ashley responded to this point by indicating that he would personally be willing to advance £1.5 million on account of the bonus shares that he expected to receive.
The £1 million payment
I also accept Mr Blue’s evidence that he had a further conversation with Mr Ashley in late May 2014, shortly before Mr Ashley paid him £1 million on 27 May 2014, in which Mr Blue expressed frustration that nothing had happened and mentioned that his wife was also very unhappy. The frustration that Mr Blue expressed, however, could not have been at Mr Ashley’s failure to “honour their agreement” to pay him a £15 million bonus, as Mr Blue implied in his witness statement. Nor does it make sense that Mr Blue would have asked Mr Ashley for “a sign of his commitment” to their “agreement”, nor that Mr Ashley would have agreed to pay £1 million to Mr Blue as a sign of such a commitment. That is because, on Mr Blue’s own evidence, Mr Ashley had made it clear to him in their discussion in March that the only form of bonus that he could expect to receive would be by way of shares issued to him under the executive share bonus scheme which he would join on becoming Finance Director. Against that background, Mr Blue’s frustration must have been that nothing had happened since March to implement the discussion of him becoming Finance Director and therefore joining the executive share bonus scheme for which approval was going to be sought from shareholders in the near future at a General Meeting. This finding is supported by Mr Blue’s note of this conversation in the timeline that he prepared in January 2015.
Mr Ashley struggled in his evidence to explain why he agreed to pay Mr Blue £1 million and transferred this sum to Mr Blue’s bank account. Having listened to Mr Ashley’s evidence, I think the reality is that he has no real recollection now of his reasons for making the payment but has tried to think of things that would explain why he did so. Neither of the suggestions that he made, however, credibly accounts for the payment for reasons which were pointed out by Mr Blue’s counsel. Mr Ashley’s first suggestion was that he was rewarding Mr Blue for his work in getting Mr Ashley included in the employee share bonus scheme. However, as mentioned earlier, Mr Ashley believed strongly that he should not be part of the employee scheme but should have his own separate scheme with much more demanding performance targets. That objective had not been achieved. Nor at the end of May 2014 had Mr Ashley’s inclusion in the employee scheme yet been approved by shareholders, even if such approval seemed assured. It does not make sense to suppose that Mr Ashley would pay Mr Blue £1 million to reward him for his efforts in helping to secure Mr Ashley’s inclusion in a scheme which had not yet been approved and which Mr Ashley did not want to be in (and in fact withdrew from just two weeks after it was approved by the shareholders).
Mr Ashley’s second suggestion was that the payment was also referable to work done by Mr Blue in arranging an £8 million property investment for Mr Ashley and advising him on other investment proposals, which were rejected. It was clear that this suggestion was an afterthought which Mr Ashley came up with for the first time in the witness box. It was not convincing. Whilst such assistance with investments may well have contributed to the confidence with which Mr Ashley evidently reposed in Mr Blue at the time and to his desire to keep Mr Blue happy, some other factor is needed to explain why Mr Ashley paid him £1 million.
In my view, the best explanation of how the payment came about is provided by the timeline which Mr Blue prepared in January 2015. This contains the following entry for 23 May 2014:
“MA insisted on a delay to JB’s appointment as Group FD.
JB frustrated by delay and requested that MA demonstrate commitment to previous arrangement.
MA agrees to pay JB £1.0m.”
Although Mr Blue did not accept this in his oral evidence, I think it reasonably clear – both from the document itself and for the reasons stated at paragraph 126 above – that the “previous arrangement” referred to in this note was the arrangement made in March 2014 when Mr Ashley had indicated that Mr Blue could expect to become the Group Finance Director and join the employee bonus share scheme. I have accepted Mr Blue’s evidence that, as part of that discussion, Mr Ashley had agreed to advance Mr Blue £1.5 million. I think it likely that, as his note suggests, Mr Blue asked Mr Ashley to demonstrate his commitment to this arrangement by paying Mr Blue all or part of the £1.5 million that Mr Ashley had previously agreed to advance to Mr Blue on account of the proceeds that Mr Blue could expect to receive from his joining the employee bonus share scheme. This may also explain Mr Ashley’s recollection that Mr Blue requested £1.5 million but that he (Mr Ashley) thought this too high and agreed to pay £1 million.
Whatever was or was not discussed between Mr Ashley and Mr Blue in late May 2014, however, and whatever Mr Ashley’s reasons were for agreeing to pay Mr Blue the sum of £1 million, I am sure that Mr Ashley did not say anything at that time to suggest – and that Mr Blue did not understand – that in making the payment Mr Ashley was acknowledging an obligation arising from the conversation in the Horse & Groom in January 2013 to pay Mr Blue £15 million, of which the payment of £1 million was intended to be a first instalment. Had that been Mr Blue’s understanding, I cannot conceive that he would have turned down Mr Ashley’s offer – which he said that he specifically recalls – to have the arrangement recorded in writing. I also cannot conceive that, if that had been his understanding, Mr Blue would have sat on his hands in the following months without making any request for a further payment and without even asking Mr Ashley when he could expect to receive another payment. Yet Mr Blue did not make any such request. After he received the payment of £1 million Mr Blue said nothing to Mr Ashley (or to anyone else) to suggest that Mr Ashley owed him any money until after he had resigned from Sports Direct, in the letter that he handed to Mr Ashley on 13 March 2015.
I infer that, after he had received the payment of £1 million, Mr Blue was not expecting to be paid any more money by Mr Ashley. What he was expecting was to be made Finance Director of Sports Direct, an expectation which Mr Ashley had encouraged. When he heard nothing further about this, Mr Blue became increasingly frustrated and disappointed. His frustration finally boiled over at the end of November 2014 when he raised the issue with Mr Ashley in a conversation of which he made a contemporaneous note (quoted in paragraph 39 above). It is telling that the only issue raised in that conversation was the issue of Mr Blue becoming Finance Director and that no suggestion was made by Mr Blue that Mr Ashley owed him any money. It is even more telling that no such suggestion was made in Mr Blue’s resignation letter dated 24 December 2014, even though the letter was addressed to Mr Ashley personally. The complaints made in that letter referred to recent changes in Mr Blue’s role and responsibilities and “a complete lack of clarity in regards to my position going forward”. There was no suggestion that Mr Blue was discontented because Mr Ashley had promised to pay him a £15 million bonus of which only £1 million had been paid. It was only after Mr Blue had resigned that, as I interpret the sequence of events, he looked back and formed the belief that, in circumstances where he had not been given the Finance Director role which he had seen (with some encouragement from Mr Ashley) as replacing the bonus that he had expected, he had an entitlement to be paid more money by Mr Ashley.
Conclusion
I conclude that the events after the conversation in the Horse & Groom, including the payment of £1 million in May 2014, do not support the suggestion that Mr Ashley believed that he had promised to pay Mr Blue a bonus if the share price reached £8. Nor does the evidence of those events show that Mr Blue believed that he had a right to such a payment before he advanced such a claim after he resigned. Still less does the evidence of subsequent events provide grounds for inferring that, at the time when the conversation in the Horse & Groom took place, Mr Ashley or Mr Blue thought that the talk of a bonus for Mr Blue was a serious contractual offer. I am sure that neither of them had any such understanding at the time, any more than did Mr Tracey, Mr McEvoy or Mr Clifton. I am also satisfied, for the all reasons given earlier, that no reasonable person present on 24 January 2013 would have had such an understanding.
Was the arrangement sufficiently certain to be enforceable?
I mentioned earlier that it has also been argued on behalf of Mr Ashley that what he said in the Horse & Groom was too vague and incomplete to give rise to a legally binding agreement.
There is, as I have indicated already, substantial difficulty in giving the statement of what Mr Blue had to do in order to qualify for the £15 million bonus any sensible content. On the one hand, to interpret what was said literally as meaning that Mr Blue had to show that he had caused the share price to reach £8 per share would make the payment condition in practice impossible to satisfy. On the other hand, it is difficult to interpret what was said as meaning that Mr Blue merely had to show that he had done work aimed at increasing the share price and that the share price had in fact risen to £8, since that is also an uncommercial intention to attribute to the parties, particularly when the work that Mr Blue had to do was left entirely undefined. Those are reasons (amongst others) for inferring that no contract was intended.
It does not follow, however, that if a clear intention had been shown to make a contract on terms that Mr Ashley promised to pay Mr Blue £15 million in the event that Mr Blue could get the Sports Direct share price to £8 a share, such an agreement would have been regarded as too vague to be enforceable. Suppose, for example, that a formal document had been signed by both parties recording an agreement in such terms. As indicated earlier, a court would in such circumstances do to its utmost to give a meaning to what had been agreed.
What, in my view, would defeat such an attempt, even if an intention to make a contract had been shown, is Mr Blue’s failure to prove that a particular period was agreed within which the share price had to reach £8. That gap is not one which the court can fill. There are many situations in which an agreement is silent about the time within which something must be done and the court can give content to it by implying a term that the obligation will be performed within a reasonable time. But that is only possible when a court can apply some yardstick of what is reasonable. For example, in a contract for the carriage of goods when no date for delivery is specified, the court can assess what constitutes a reasonable period within which to expect delivery in the light of any past dealings and ordinary commercial usage, and imply a term on that basis. This does not seem to me, however, to be an approach which is available in the present case. There is no objective standard which the court can invoke to identify a period within which Mr Blue would need to get the share price to £8 in order to be paid £15 million. That is a matter which could only be decided by express agreement between the parties themselves. As Mr Blue has failed to prove that a specific period was agreed, I conclude that the “offer” made by Mr Ashley could not create a contract for the further reason that it lacked an essential term.
VII. Was payment triggered?
I also referred earlier to Mr Ashley’s alternative defence that, if there was a binding contract made, Mr Blue is not entitled to payment under it unless he can show that his actions caused the Sports Direct share price to reach £8 per share, which he cannot do. To decide whether this defence is well founded, it would first be necessary to decide whether the condition which had to be fulfilled in order to trigger payment can be given a sensible meaning and, if so, what that meaning is. In circumstances where I have concluded that there was no intention to create any contract, I do not consider this a fruitful exercise to attempt. I will, however, record my finding that Mr Blue has not proved that he caused the Sports Direct share price to increase to £8 per share.
I have referred (at paragraph 108 above) to the four categories of work which Mr Blue says he undertook in reliance on his “agreement” with Mr Ashley and have rejected his claim that he did this work as a result of anything said by Mr Ashley on 24 January 2013. Mr Blue also maintains that this work had a material, positive impact on the Sports Direct share price. Even if that is true, however, it is not the same as saying, let alone showing, that Mr Blue’s actions caused the share price to rise to the level of £8 per share reached on 25 February 2014. Generally speaking, in order to show for a legal purpose that a person’s conduct has caused a particular outcome, it is necessary (though not sufficient) to prove that, but for the conduct concerned, the outcome would not have arisen. It cannot be said that the ‘but for’ test is satisfied in this case. No evidence has been adduced from which a court could possibly conclude that the Sports Direct share price would not have reached £8 but for Mr Blue’s actions. The same is true even if the ‘but for’ test is not applied and it is treated as sufficient to show that Mr Blue’s actions made a substantial contribution to the doubling of the share price. Again, no evidence has been adduced from which a court could properly draw that conclusion.
The first three categories of work identified by Mr Blue all fall into the general area of marketing the company to investors. Everyone agrees that two factors which affect share prices are a company’s financial performance and the general economic climate. I would accept without the need for expert evidence that these are not the only relevant factors and that investor sentiment about a company which is not based solely on the company’s results can have a positive or negative influence on its share price. The very fact that companies retain corporate brokers to provide advice and support with investor relations and seek to stimulate demand for the company’s shares shows that such activities are perceived to be capable of having some impact. The same applies to the fact – which I am prepared to accept on the basis of Mr Blue’s evidence – that companies the size of Sports Direct typically employ at least one person to deal with investor relations. But without expert evidence – which would, as it seems to me, need to include statistical analysis – it is impossible to gauge the potential or likely extent of such impact, either generally or in the specific case of the investor relations work that Mr Blue undertook as part of his role at Sports Direct. Indeed, it seems to me that the latter question may be intrinsically unanswerable as there is no means of running a counterfactual experiment to see what would have happened to the Sports Direct share price if Mr Blue had not been retained as a consultant during the relevant period.
Counsel for Mr Blue suggested that the court could form a view about the likely impact of Mr Blue’s actions on the Sports Direct share price based on the “inherent probabilities” and “economic common sense”. I cannot accept that those concepts provide a basis on which anyone, whatever their expertise in capital markets, can make a rational judgment on this question. They certainly do not enable a judge, who is a lawyer and not an economist or financial analyst, to do so without evidence. If required to express an untutored view about what the “inherent probabilities” and “economic common sense” suggest, however, mine would be that Mr Blue’s actions are unlikely to have had more than a marginal effect on the market price of Sports Direct shares. At any rate there is no evidence that indicates otherwise.
The fourth category of work identified by Mr Blue is “improving trading liquidity”. This refers to the fact that between January 2013 and February 2014 (when the share price reached £8) two large blocks of shares beneficially owned by Mr Ashley were sold. The transactions were: (i) the sale of 25 million shares on 25 February 2013 at a price of £4 a share; and (ii) the sale of 16 million shares on 23 October 2013 at a price of £6.625 a share. These sales significantly increased the “free float”, i.e. the pool of shares not controlled by Mr Ashley, whose holding was reduced in consequence from 68.6% to 61.7% of the issued share capital. The point made by Mr Blue, which was endorsed by the ESIB witnesses and which I accept, is that increasing the liquidity of Sports Direct shares by this means is likely to have had a positive impact on the share price. In cross-examination, however, Mr Blue acknowledged that it was Mr Ashley’s decision to sell these shares. Nor is it true that (as Mr Blue claimed in his witness statement) he “arranged, negotiated and executed” the trades. That was done by the placing brokers, Goldman Sachs. Mr Blue’s role was a merely administrative one of liaising with the brokers. For Mr Blue to claim credit on the strength of this role for improving trading liquidity seems to me a piece of grandiosity on his part.
VIII. Conclusion
In the course of a jocular conversation with three investment bankers in a pub on the evening of 24 January 2013, Mr Ashley said that he would pay Mr Blue £15 million if Mr Blue could get the price of Sports Direct shares (then trading at around £4 per share) to £8. Mr Blue expressed his agreement to that proposal and everyone laughed. Thirteen months later the Sports Direct share price did reach £8. But no reasonable person present in the Horse & Groom on 24 January 2013 would have thought that the offer to pay Mr Blue £15 million was serious and was intended to create a contract, and no one who was actually present in the Horse & Groom that evening – including Mr Blue – did in fact think so at the time. They all thought it was a joke. The fact that Mr Blue has since convinced himself that the offer was a serious one, and that a legally binding agreement was made, shows only that the human capacity for wishful thinking knows few bounds.
Note 1 The example is based on the old case of Rogers v Snow (1573) Dalison 94. [Back]
Note 2 For example, when US college students were asked to remember their high school grades and their memories were checked against records of their actual results, they were highly accurate for A grades (89% correct) but extremely inaccurate for D grades (29% correct). See Daniel Schacter, “How the Mind Forgets and Remembers: The Seven Sins of Memory” (2001) pp150-1. [Back]
Note 3 The starting figure would have to be £6,666,666, which is highly unlikely to have been a figure suggested. [Back]
O’Keefe v. Ryanair Holdings plc
[2002] IEHC 154 (19 June 2002)
JUDGMENT of Mr. Justice Kelly delivered the 19th day of June. 2002.
Introduction
The Plaintiff claims damages for breach of contract. The defendant denies that it ever had any contract with the plaintiff. Rather, it alleges that this litigation is about a gift made to the plaintiff and the claim is therefore unsustainable.
In her statement of claim the plaintiff alleges that on the 20th October, 1988 she entered into a contract with the defendant under which it offered her the opportunity to be selected as its one millionth passenger. In consideration of this the plaintiff agreed to offer her services for publicity to the defendant should she be selected, Furthermore she agreed to forego her constitutional right to privacy. She alleges that it was a term of that contract that if she was successful she would be entitled to free travel for herself and a nominated person on any route operated by the defendant for the rest of her life.
In its defence the defendant admits that on the date in question it made an offer to the plaintiff when she was the one millionth passenger travelling with it but denies that she was contracted to provide publicity services or to give up her constitutional right to privacy. The defendant alleges that the offer was in the nature of a gift but is remarkably unsure of its terms. It puts forward no fewer than five different alternative terms governing the gift. It furthermore contends that if the court concludes that there was a contract as between the plaintiff and the defendant that it was not in breach of such contract.
It is necessary to look at the facts as adduced in evidence in order to make sense of these competing claims.
The Plaintiff
In 1988 the plaintiff was 21 years of age and working as a secretary in London. In October of that year she returned to Ireland to attend her grandmother’s funeral. She planned to go back to London by air on the 20th October, 1988. In order to do so she purchased a ticket from the defendant for a direct flight from Dublin to London on that day.
On the 20th October, 1988 she presented herself at the check-in desk at Dublin airport so as to be able to board the flight. It is the events which took place on that occasion which constitute the genesis of these proceedings.
The Events at Check-in
When the plaintiff presented herself at the check-in desk the defendant’s representative enquired of her as to whether she was aware of the fact that she might be the one millionth passenger flying with the airline. She was told that she might be that passenger and was asked if she would be prepared to participate in publicity in such event. She indicated that she would be so prepared and was given a badge which was placed on her lapel. This badge contained the defendant’s logo and the legend “1 in a million”.
The plaintiff moved on into the duty free area where she was approached some little time later by a representative from the defendant. She was told that the name of the millionth passenger was about to be called.
A short time later the then chief executive of the defendant Mr P.J. McGoldrick announced the plaintiffs name as the one millionth passenger. As such the defendant represented to her that she would have unlimited travel for herself and her nominee for the remainder of her life.
The whole event was designed to and did in fact attract enormous publicity. It was on radio and television news bulletins that evening and night. There was publicity in the national newspapers. The event itself had an accompanying champagne reception; a band was present as was the well known street character known as the “Diceman”. A video of the whole affair was taken and was put in evidence.
As the plaintiff herself said she thought she was getting involved in a publicity stunt whereby the millionth passenger would receive, in return for publicity, unlimited free flights for life. She agreed to and did in fact fully participate and comply with all of the requirements of the defendant in that regard.
Her belief as to what she was involved in is in my view borne out by the evidence of the present chief executive (Mr O’Leary) of the defendant. In October, 1988 he was the chief financial officer of the defendant and was aware of what was going on. In the course of his evidence he made it quite clear that “the purpose of the thing was to generate some publicity for Ryanair”. The whole affair was carefully stage managed by the defendant. It appears to have had little enough to do with whether or not the plaintiff was actually the millionth passenger travelling. In fact it is most unlikely the plaintiff was in reality the one millionth passenger.
As the chief executive said, the defendant knew that at some stage during the particular week in October, 1988 the defendant would carry its millionth passenger. The marketing men were keen to generate publicity for that event. So they picked out a passenger on a day of the week that was quiet i.e. midweek when they could be guaranteed to get photographers to Dublin airport. Furthermore, it is clear from the evidence of Mr O’Leary that if a passenger at check-in had indicated that they would not become involved in publicity they would not have been picked as the supposed millionth passenger at all.
Later Events
Having been chosen by the defendant the plaintiff was given a giant sized replica of an airline ticket which bore the legend “Passenger ticket and baggage check for our millionair passenger. Valid for free air travel for life”. The figure 1,000,000 is contained in the top right hand corner.
Some weeks after the event the plaintiff received a written communication from the defendant. It took the form of a letter from the defendant’s commercial director to which there was attached an agreement. The plaintiff recollects that this agreement set out how the arrangement was to work for herself and her nominee. She read through it and showed it to her father and it seemed quite a straightforward document. She recalled that one of the stipulations was that she was obliged to nominate somebody to be her travelling companion. At that stage she was only 21 and was unmarried. She felt that she could not nominate somebody for the rest of her life so she contacted the marketing manager an Ann O’Callaghan by phone and explained her difficulty to her. She made an arrangement with Ms O’Callaghan who was very understanding of her situation and indicated that the defendant would be prepared to consider allowing her to nominate on a year by year basis. The plaintiff left the written contract with Ms O’Callaghan so as to enable the necessary amendments to be contract was ever furnished.
Notwithstanding that however, it is quite clear that the arrangement as between the plaintiff and the defendant worked smoothly for many years up to 1997.
1988 to 1997
During these years the plaintiff utilised her entitlement with the defendant without difficulty. Her use of the free travel facility was on any view modest. During most years she took three or four flights and certainly never exceeded five. In one year she used the entitlement as little as once. Despite the lack of documents the arrangement worked well.
Typically, the plaintiff would telephone the marketing department of the defendant, identify herself and notify them of the booking that she required. She did this about two weeks before flying. There was usually a designated person whom she would contact. Having phoned through her reservation she would receive either a fax or a telephone call giving her a reservation number. Armed with that she would then attend at Dublin airport on the day of the flight and would be issued with the tickets. She never experienced any hitch in this arrangement save on one occasion in 1994 when she had to deal with a new official who did not know her. That official pointed out that she had no documentation about the plaintiff on file. The plaintiff faxed through the official press clippings concerning the events of October, 1988 and no further problem was encountered.
In October, 1997 events which are at the root of this litigation occurred. There is a serious conflict of testimony in respect of a number of them and it will be necessary for me to resolve that conflict.
15th October 1997
The plaintiff contends that on this date she followed her normal practise and telephoned her contact person in Ryanair who was known to her as Emer. This lady is in fact Emer Purcell who gave evidence in this trial. The plaintiff says that she asked Ms Purcell to reserve two seats to Edinburgh departing on the 31st October, 1997 and returning on the 2nd November. The defendant only flew to Glasgow so the plaintiff and her husband were going to travel on from there to Edinburgh.
The plaintiff says that she had a conversation with Ms Purcell. Ms Purcell checked while she was on the phone for availability of flights. They discussed the various times and flight options that best suited the travel arrangements because the plaintiff was taking time off work to make this trip. Ms Purcell confirmed that seats were available and took the booking. The booking was concluded as normal and Ms Purcell said that she would fax through the reservation and booking number within a couple of days. On the plaintiffs version of events that did not occur and resulted in her telephoning the defendant on the 28th October to ask for the booking number.
The defendants contend that no such reservation was made on the 15th October and that the first that they knew of the plaintiffs desire to make this journey occurred a few days before flight when they were contacted at the end of October.
There is a conflict of evidence between the plaintiff and Ms Purcell concerning this alleged arrangement of the 15th October, 1997.
Insofar as that conflict is concerned I have come to the conclusion that the plaintiffs version of events is correct and Ms Purcell’s is not. I have come to that conclusion for a number of reasons. First, I think it highly unlikely that the plaintiff would have left the making of this booking to the last minute as the defendant suggests. She was at this time six months pregnant and believed it to be the last time that she would be able to fly to see for her and her husband concerning this visit. She was also taking time off work. In such circumstances I think it most unlikely that the attempt to book the flight was left to the last minute as was suggested. Secondly, the plaintiff was quite clear in her recollection and steadfast in her testimony concerning this event. That was not the case with Ms Purcell. Cross-examination of the plaintiff was conducted on the basis that Ms Purcell had no recollection of this event. At one stage in her testimony that was the expression she herself used. At other places in her testimony she denied that the event occurred. There is a world of difference between an event not taking place and a person not having a recollection of it. The plaintiffs testimony was, unlike that of Ms Purcell, unwavering.
Furthermore, having had the opportunity of seeing both the plaintiff and Ms Purcell, observing their demeanour and having an opportunity of assessing them I prefer the evidence of the plaintiff. In addition, when the plaintiff encountered difficulties with the defendant at the end of October she committed her recollection to writing in a contemporaneous note. That clearly records the events of 15th October. No such records were kept or produced by the defendant.
The normal practise for the plaintiff was to make her travel arrangements about a fortnight in advance and I see no reason why she would have departed from that arrangement in the present case. In fact, there was every reason why she should adhere to it given her pregnant condition, and the family arrangements that fell to be made.
I find as a fact that the plaintiff did make the arrangement with Ms Purcell on the 15th October, 1997. For whatever reason that arrangement was not followed through by the defendant and the plaintiff was not notified of her booking or reservation number. This brings me to the next event.
28TH/29TH October, 1997
On the 28th October the plaintiff, in the absence of a reservation or booking number, telephoned Ryanair in order to speak to Ms Purcell. Ms Purcell was not available so the plaintiff left a message. On the following day another member of the defendant’s staff called Sharon telephoned the plaintiff. She said that she had been asked by Ms Purcell to fax through the plaintiffs reference but she was unable to do so. So Sharon telephoned the plaintiff and asked for the flight numbers and the dates and times. These were given. The plaintiff was told that she would be faxed a booking reference. That did not happen. At this stage the plaintiff was getting anxious as there was only a few days to go before travel. She telephoned that afternoon. She spoke once again to Sharon, who told her that there were no seats left on the original flights and that no booking had been made. The plaintiff enquired as the availability of seats on other flights on the chosen dates and was told that there were such seats available. She asked Sharon to book these but was told that that could not be done because Sharon did not have authority to do so. She did however, say that she would try to hold these seats. Sharon said that on the following day namely the 30th October when Emer and her boss Mr Tim Jeans were back in the office they would deal with the matter. This was the first time that the plaintiff had ever heard of Mr Jeans.
30th October. 1997
At 9.30 am on the 30th October, 1997 the plaintiff again telephoned the defendant. She spoke to Ms Purcell (with whom of course, she had been dealing over a number of years). She transferred her to Mr Jeans, the marketing director. Having introduced himself Mr Jeans enquired if she had anything in writing from Ryanair and she told him that she did not. She explained however, that she had been availing of her entitlement for the previous nine years without any problems and without having anything in writing. She did tell him however, that she had the video tape and press clippings of the events of October, 1988. She informed him that the video tape demonstrated the then chief executive telling her that she had won unlimited free flights on any Ryanair flights for the rest of her life.
When making this request of the plaintiff Mr Jeans was fully aware of the fact from Ms Purcell that the plaintiff had indeed for years beforehand availed herself of flights on foot of this entitlement.
Notwithstanding this however, he told her that in the absence of a written contract between her and the defendant limits would be imposed on her entitlement. There is a conflict of evidence between the plaintiff and Mr Jeans as to the extent of that limitation. The plaintiff is clear in her recollection and in her contemporaneous note that she was told that she would be limited to one flight per year. Mr Jeans says that his recollection is that he told her she would be limited to one flight per month. Unfortunately for Mr Jeans his contemporaneous note does not support his testimony. It records that he told her that her limit would be one flight per year. Having had an opportunity to assess both the plaintiff and Mr Jeans in the witness box I have no hesitation in resolving this conflict in favour of the plaintiff. I find as a fact that Mr Jeans informed her that she would be limited to one flight per year in the absence of a written contract.
This information was, as the plaintiff said, “a bolt out of the blue”. She told him that she thought that it was unacceptable and felt that the defendant could not randomly change the details of the contract as it suited it.
Insofar as there is any conflict between the plaintiff and Mr Jeans as to the discussion which took place concerning her flight for the next day, I likewise resolve that conflict in favour of the plaintiff. I find that the conversation between herself and Mr Jeans ended with him indicating to her that somebody would telephone her in that regard. At this stage I am satisfied that Mr Jeans was aware of the fact that there were a number of seats available on the flights which were sought but they were what was known to Ryanair as S-class seats. That is they were the most expensive seats and the airline was not prepared to make them available to the plaintiff.
I accept the plaintiffs evidence that as nobody had telephoned her by 10.30 am she again called the defendant and was assured that Ms Purcell would telephone her back. That did not happen and the plaintiff telephoned again at 11.30 am. Once more, she was told that either Ms Purcell or Mr Jeans would telephone her. That did not happen either.
At 12.30 pm the plaintiff telephoned again. In the meantime she had telephoned Ryanair reservations and was told that there were seats available on the relevant flights.
Again, I accept the plaintiffs version of events as to what occurred when she made this 12.30 pm phone call. She spoke to Mr Jeans who indicated to her that there were no seats available the following day to Prestwick. She told him that that was not so. His response was that the issue had now gone to the managing director of the defendant and that he had dictated that there were to be no more flights to be given until the matter had been clarified. Insofar as there is any conflict between the testimony of the plaintiff and Mr Jeans in this regard I accept the plaintiffs version of events as being the more probably correct and I find as a fact that the conversation which I have just recounted did in fact take place.
The plaintiffs next port of call was to telephone the chief executive of the defendant Mr O’Leary. She spoke to him on the telephone. Again, there is a conflict of testimony between what the plaintiff said occurred on this occasion and the evidence given by Mr O’Leary.
On Mr O’Leary’s own evidence Mr Jeans had spoken to him a number of times on the morning of the 30th October prior to the plaintiff making contact with him. He knew that there were seats available on the flights sought by the plaintiff but they were not in the cheapest class. His version of events is that the plaintiff had had this fact already explained to her and that he told her that in order for her to obtain those flights the company needed to receive reasonable notice in advance and making a call the day before one wanted to travel was not reasonable notice. He said that the plaintiff did not tell him that she had already done so two weeks beforehand. He described the plaintiffs allegation of hostility on his part as “nonsense”. He said the company’s position was quite clear. There was no availability on the cheaper seats on the flights to Prestwick that weekend and consequently Ryanair would not be offering her free seats on the basis that she was simply calling up the day before. He denied that he raised his voice to her. He made it clear that she was not going to get free flights the following day and the phone call he says, concluded on the basis of her undertaking to write in to him the following week.
The plaintiffs version of events is dramatically different. She says that he was extremely hostile to her from the start. He asked her who did she think she was, phoning up demanding flights. He said that flight sought was unavailable and therefore she could not travel. She said that she told him there was an earlier flight available but he said that the seats were at a higher rate and she was not entitled to them. She suggested that she was being very badly treated by the defendant and that it was trying to put the onus on her to prove the legitimacy of her prize whereas the fact that it had nothing on file was its fault. Mr O’Leary responded that it was her problem. She says that he told her not to phone anyone in Ryanair again and to send in the tape and that he would look into it. She asked him not to bully her and found it difficult to make herself heard.
Having had the opportunity of observing the demeanour of the plaintiff and Mr O’Leary throughout their testimony I am quite satisfied that the plaintiffs account of the telephone conversation in question has about it the ring of truth and is an accurate account of what occurred. It is supported by her own contemporaneous note whereas the defendant did not attempt to adduce any note of the conversation in question. I found the plaintiff a more persuasive witness than Mr O’Leary and I therefore find as a fact that the version of events given by the plaintiff is what occurred. I reject Mr O’Leary’s assertion that he was not hostile or aggressive or bullying towards the plaintiff. I find that he was.
The net effect of all of this was that the plaintiff was now left without her entitlement to travel and furthermore, future entitlements were in doubt, certainly insofar as they might exceed one trip per year.
Subsequent Events
On the 6th November, 1997 the plaintiff wrote to Mr O’Leary enclosing the video tape and the press clippings relating to her entitlements. In her letter she pointed out that the then managing director of the defendant stated quite clearly that she was entitled to unlimited travel on any Ryanair flight for life for herself and a friend. The letter went on to point out that she was unable to make the trip to Glasgow Prestwick on the preceding Friday and that this had caused her and her family great inconvenience.
This letter was responded to by Mr Jeans by letter of the 17th December, 1997. His letter set out details of how the defendant proposed to operate the plaintiffs by now admitted entitlement to concessionary free travel on Ryanair services from the 1st January, 1998 onwards. The terms that were proffered were as follows:
“1. Travel on Ryanair services is for Miss Jane O’Keeffe and one other nominated person. Travel will be available to these two named individuals only, and both individuals must be travelling together, (please revert with the name of your nominated companion).
2. Travel is available on Ryanair services only. No travel can be made on other carrier’s flights, including any “code share” flights that
Ryanair may operate in future, in cooperation with other carriers.
3. Travel can be made on Ryanair services up to a maximum of one return flight per annum (i.e. up to twelve flights per annum), (sic) and
entitlement cannot be carried forward.
4. Requests must be made in writing two weeks prior to departure to Ryanair’s sales department at the above address. These are subject to
the availability of ‘H” class seats at the time of booking. Should the designation of ‘H” class alter in future, then travel will be available
where the lowest published fare class is available.
5. Your entitlement to travel is not transferable, and has no alternative cash value.
6. On your death, the entitlement of the other nominated individual will cease also.
7. You agree to be available for PR and promotional activity for Ryanair.
I would appreciate your confirming acceptance of the enclosed conditions by signing both copies of the enclosed letter and return these to me. One will then be countersigned by Ryanair and return (sic) to you for your records. I trust that by having a proper system in place, we can avoid any misunderstanding in future, and we look forward to welcoming you on board our services for many year sin (sic) the future.”
A number of features of this letter caused concern to the plaintiff. First, she read paragraph (1) as meaning that both herself and her nominated companion had to travel together for either to get free travel. She knew that her nominated companion would not be able to travel without her but she thought that she should be able to travel without the companion. Secondly, the proposition in paragraph (3) was clearly a nonsense. On the one hand it was offering one return flight per annum and in the same sentence spoke of up to twelve flights per annum. That was obviously an error. Thirdly, the reference to “H” class seats was a mystery to her. She did not know what that was all about and had never heard of it beforehand. The only other time during her many years of dealing with Ryanair where classes of seats were mentioned was in her dealings with the defendant on the 30th October when she was told by Mr O’Leary of seats at a higher rate being the only ones available on the flights in question.
The plaintiff did not know how many seats were normally available on a flight at the lowest published fare. She had never been told of this situation prior to the letter of the 17th December, 1997.
She contacted the defendant and arranged to meet Mr Jeans. She did so.
They had an amicable conversation concerning these points of worry. He undertook to clarify these matters and said that he would issue her with a new letter. In the course of her conversation he accepted that she would not have to travel with her nominated companion and that point (1) in the letter was incorrect. He also accepted that point (3) was incorrect and that she would be limited to twelve flights per annum. He also undertook that he would clarify the designation of “H” class seats. She was not satisfied with the explanation which he gave her verbally in that regard.
After this meeting she decided to take legal advice on the question and thereafter correspondence took place between solicitors.
In the course of the correspondence it was arranged that she would be able to take a Ryanair flight and she went to Rimini on that single occasion. Apart from that flight she has not availed herself of the facility further and the matter has resulted in the present litigation.
Was there a Contract?
The contention made by the defendant both in its pleadings and submissions is that there was no contract in existence between the plaintiff and the defendant. Rather it is said that the defendant conferred a gift on the plaintiff. Insofar as the terms of that gift are concerned the defendant appears to be in some considerable doubt. Five different alternatives are set forth in the defence and on the closing day of the trial leave was sought and granted even to amend those.
A gift is defined in the Concise Oxford Dictionary (seventh edition) as a “voluntary transference of property without compensation”.
In the present case I am quite satisfied that on any reasonable view of what occurred in this case the entitlement given to the plaintiff to avail herself of free tickets on the defendant’s flights was not gratuitous. The only basis upon which the defendant had any interest in the plaintiff arose from her agreement to participate in the public relations exercise which was undertaken by it. Had she not so consented she would have had no entitlement to participate in the proposal which was put to her. The whole object of the exercise was to generate publicity for the defendant and the plaintiffs active participation was required in that. She gave her consent and it was on that basis that the entitlements in question were made available to her.
I am quite satisfied therefore, that there is no question of a gift being involved here. The defendant had a very clear idea as to what it wanted from the plaintiff and it got it.
It is trite law that in order for there to be a valid contract there must be agreement between the parties, consideration for such agreement and an intention to create legal relations.
In my view there was agreement between the parties that in consideration of the plaintiff consenting to participate in the publicity sought by the defendant she would be eligible for nomination as its millionth passenger. Should she be so nominated she was to cooperate in the publicity being generated for the defendant’s benefit. In return she was to be entitled to unlimited travel on Ryanair routes for herself and a nominated person for the remainder of her natural life.
Under the doctrine of consideration a promise has no contractual force unless some value has been given for it. The court is not concerned with the adequacy of value. (Haigh v Brooks [1839] 10 A & E 309; Wild v Tucker [1914] 3 K.B. 36; Midland Bank v Green [1981] AC 513). The consideration to support a contract must however be real, that is to say capable of estimation in terms of value. It must be of some value in the eye of the law. (Thomas v Thomas [1842] 2 Q.B. 851). Certainly, the participation of the plaintiff in the publicity generated on the day in question was regarded as being of value by the defendant and I see no reason why the law should not regard it as likewise being of value. The surrender by the plaintiff of her anonymity and privacy and her active participation in the generation of the publicity that was created on the day in question in my view amounted to a real consideration and sufficient to support a valid contract.
Insofar as an intention to create legal relations was concerned it was never seriously suggested that such was absent on the defendant’s part. The onus of proving that there was no such intention is on the party who asserts that no legal effect is intended, and the onus is a heavy one (see Edwards -v- Skyways Limited 1964 1 WLR 349). As I have already noted there was no real effort to make such a case here apart from the suggestion that what was involved on the part of the defendant was a gift. Indeed, it would have been difficult to make such a case because it seems to me that there was much about the conduct of the parties here which demonstrated the existence of a contractual animus. The obtaining of the consent of the plaintiff, the furnishing to her of the large ticket setting forth her entitlements, the subsequent furnishing of the written contract reiterating the terms of the arrangement are all indicative of a lack of intention on the part of the defendant to negative the creation of a legal relationship.
I am therefore satisfied that an enforceable contract was made between the plaintiff and the defendant. I am likewise satisfied that the plaintiff carried out her side of the bargain in full and to the complete satisfaction of the defendant. The next question which arises is as to whether or not the defendant breached its obligations to the plaintiff.
Was there a breach?
The evidence satisfies me that until 1997 the arrangement between the plaintiff and the defendant operated smoothly and without a hitch. I have already found as a fact that the plaintiff followed her usual routine and attempted to make a booking approximately two weeks before the date upon which she intended to fly. In the event this was not honoured. The dishonour of those arrangements occurred at a time when there was seating capacity available to take her and her husband to Glasgow Prestwick and back on the days sought. But because those seats were not the cheapest available they were not provided for her. It was never a term of the arrangement made between the plaintiff and the defendant that she should be restricted to seats of a particular class on the aircraft.
In her attempts to have the matter rectified the plaintiffs position disimproved. The defendant refused not merely to honour the arrangement which she had made with it for that particular weekend, but indicated in unequivocal terms that thenceforth, her entitlement would be limited to a single flight per annum. In the letter of the 17th December, 1997 this was altered to twelve flights per annum albeit in a slipshod and not very impressive manner. New terms were also sought to be introduced in that letter such as confining her entitlement to “H” class seats and requiring her to be available for further promotional activity for the defendant.
This refusal to grant to the plaintiff her entitlements continued throughout this litigation and it was not until the third day of the hearing that it was finally acknowledged by Mr O’Leary that this attempt to limit her to twelve flights per annum was wrong, ought not to have been made and that no such restriction was applicable.
I am quite satisfied therefore, that the defendant has been in breach of its contractual obligations to the plaintiff and has persisted in denying her her proper entitlements up to and including the third day of the trial.
I should at this stage mention an event which occurred whilst the plaintiff was in the witness box under cross-examination. Shortly before the trial resumed on its second day she was presented with an open letter from the defendant. It offered to settle the proceedings on the basis that the plaintiff and a nominated companion would have free flights on all Ryanair flights, subject to availability, this dependent upon the notification period given by the plaintiff, but on the understanding that if there were seats on a flight at the date of the plaintiffs booking that she would be entitled to them. It offered compensation for the harm done to date and also agreed to pay her costs.
She rejected this offer which, as I say was put to her a very short time before her cross-examination resumed and which quite clearly caused her even more anxiety than she was already suffering as a result of the ordeal of litigation. She rejected the offer because as she said and I quote
“I don’t trust Ryanair anymore. I feel that if they had lived up to their initial promise to me I wouldn’t be sitting here today. I also feel that I would feel very awkward having to ring up and ask for flights given all that’s taken place, given the fact that everybody will know now who I am now, and know what has happened. And I just feel that still it’s also slightly ambiguous. It doesn’t mention “H” class, for example, or any class. It says ‘dependent on notification’, dependent on whether there are seats on a flight, ‘subject to availability’. All of the same things that have caused me concern and has led to us being here. As I say, it’s an issue of trust with me now. And I, that’s why I feel that I think I’m not sure that Ryanair would live up to the obligation based on what my experience of Ryanair is and how they have treated me to date”.
It appears to me that that reaction on the part of the plaintiff could not be described as unreasonable having regard to all that had taken place up to then.
I am therefore satisfied that the defendants are guilty of a breach of contract and that the plaintiff has a remedy in respect of it.
Damages
The plaintiff is entitled to damages for breach of her contract. She is entitled to damages for her inability to utilise the entitlement from the date of the breach in 1997 to date. She is also entitled to the capital value of her entitlement into the future. I will deal with each of these heads of damage separately.
Loss to Date
The plaintiffs use of her entitlement has on any view of it been modest. Her family circumstances at present with two young children aged four and two respectively mean that she is not in a position to make any more extensive use of the facility than has been the case to date. Accordingly, I conclude that I ought to fix the number of journeys which she is, likely to have made since 1997 to date as four per annum. That would be four round trips for herself and one other person.
I have had substantial evidence argument and debate over the value to be attributed to each of these trips. The plaintiffs actuary went into the defendant’s website, extracted a range of prices which were available for one-way flights and averaged them out as being €112 per flight. The defendants say that is not the appropriate way of approaching the matter and they have put in evidence returns which they have made to the United States regulatory authorities. Those returns demonstrate that the average passenger fare is of an altogether lower figure namely of the order of €55 – €60 per one way trip. But these are averages and do not necessarily reflect the actual loss.
For the purposes of the loss to date I think it reasonable to assume an average fare of €150 per round trip (€75 per flight one way) giving a loss of €600 per annum to the plaintiff for herself and a further €600 in respect of her nominated companion. That amounts to a total loss of €1,200 per annum for the last five years giving a loss of €6,000 to date.
In addition, following Jarvis -v- Swan Tours (1973 1 All ER 71), I think she is also entitled to be compensated for the disappointment, frustration and upset that was suffered by her in respect of the holiday weekend in October of 1997 arising from the unpleasant and shabby treatment which she suffered on that occasion. I will therefore award an additional €1,500 to deal with that. That gives an award of €7,500 for loss to date.
The Future
The first task which I must undertake is to make what I believe to be a reasonable assessment of the number of trips that are likely to be taken by the plaintiff and her nominated companion over the remainder of her life. I think it likely that the plaintiffs use will continue at the rate of four per annum until her children become older. I have little doubt but that at that stage, as she said herself, her use will increase and I think as a matter of probability, substantially. In addition the routes being flown by the defendant are continually increasing and that is likely to be the case in future. Weekend trips to close locations will increase as will holidays to places further afield. If, as she hopes, she purchases a premises abroad then even greater use will be made of the entitlement. As she gets into old age use of it will decrease. Taking one thing with another therefore, I have come to the conclusion that an allowance often trips per annum would not in the circumstances be unreasonable.
I accept the defendant’s evidence that in recent times airline prices have tended to reduce and that that is likely to continue for some time into the future. I do not accept that a stage will be reached where the cost will be zero and the defendant will be making its money solely from ancillary services.
I have already indicated how the plaintiffs actuary acquired his average of €112 per flight (one way). The defendant adduced evidence of returns which it has made to its United States regulatory authorities of the average passenger fare over the years. These figures are on the basis of a one way trip and over the past eleven years demonstrate an average fare of as little as €48.38 to as much as €60.09. Those figures are of course averages and therefore may not necessarily represent the actual loss which the plaintiff would be likely to incur in any one year. In the circumstances it seems to me to be not unreasonable to take a figure of €60 per one way trip as being the appropriate sum on which to make the calculation. The round trip would therefore be €120 and that of course must be doubled to take account of the loss of the trip of the plaintiffs companion. That gives an annual loss of €2,400 which then has to be capitalised.
I have had evidence from actuaries on both sides giving me the benefit of their views of capital value on different figures and having regard to the tax status of the plaintiff. Their evidence does not of course take into account unforeseen possibilities concerning both the plaintiff and the defendant. I must make allowance for them as best I can (Reddy v Bates). I hold that inflation will apply to future ticket prices and whilst therefore there will be a reduction in net cost, inflation will to some extent offset that. In these circumstances I have come to the conclusion having regard to all of the evidence that the appropriate sum to be awarded to the plaintiff in respect of future loss is the sum of €60,000.
To that must be added the €7,500 for loss to date giving a grand total of €67,500.
There will be judgment accordingly.
Keaney -v- O’Sullivan & ors
[2017] IESC 23 (05 April 2017)
Judgement of Ms. Justice Dunne delivered on the 5th day of April, 2017
This is an appeal by the plaintiff/appellant, hereinafter referred to as “Mr. Keaney”, from the judgment of the late Mr. Justice Feeney delivered on the 19th December, 2008 ([2008] IEHC 372) and the order made on the 13th January, 2009, perfected on the 30th January, 2009 dismissing Mr. Keaney’s claim against the first, fourth and eighteenth defendant/respondent. The first defendant will be referred to hereinafter as “Mr. Sullivan”, the fourth defendant as “Mr. Nolan” and the eighteenth defendant as “Mrs. Nolan”.
The procedural history of this matter is complicated. As can be seen from the title hereof, originally, Mr. Keaney initiated proceedings against some eighteen defendants. In the course of the earlier part of the proceedings, Mr. Keaney reformulated his claim against the various defendants in a series of amended statements of claim, some of which were amended with the leave of the High Court, some not. Ultimately, a number of motions were issued by various of the defendants with the result that following a four day hearing before the High Court all claims against the third, eighth, ninth, tenth, eleventh, twelfth, thirteenth, fourteenth, fifteenth, sixteenth and seventeenth named defendants were struck out and the claims as against the first, fourth and eighteenth named defendants were limited. (See the judgment of the High Court (Finlay Geoghegan J.) of the 16th January 2007, ([2007] IEHC 8,) Subsequently, on the 26th March, 2007 a further order was made striking out all claims against the fifth, sixth and seventh named defendants. (See the order of the High Court (Kelly J.) made on 26th March, 2007 and perfected on 14th April, 2007). At that point it was ordered that a further statement of claim be delivered pleading the surviving causes of action allowed and permitted to be pleaded by the judgment of the Court. Thereafter, a series of statements of claim were delivered in purported compliance with orders of the Court and a number of motions were brought on behalf of the remaining defendants, namely, Mr. Sullivan, Mr. Nolan and Mrs. Nolan, claiming that the statement of claim delivered was not in compliance with previous court orders. Ultimately, on the 26th June, 2008 the High Court made an order directing that portions of the statement of claim be excised so as to ensure compliance with the order of the High Court made on the 26th February, 2007 and a statement of claim in compliance with that order was duly delivered on the 1st July, 2008. It was that statement of claim which was before Feeney J. at the hearing the subject of this appeal. It should also be noted that Mr. Keaney did not proceed against the second named defendant and thus the claim proceeded against Mr. Sullivan, Mr. Nolan and Mrs. Nolan in relation to the eight statement of claim delivered on behalf of Mr. Keaney on the 1st July, 2008. I will refer to the nature of the claims permitted and allowed to be made against Mr. Sullivan, Mr. Nolan and Mrs. Nolan later on the course of this judgment.
Background
The background to this matter was set out in the judgment of Feeney J. and I gratefully adopt what he said in this regard in the course of his judgment:
“The plaintiff is a businessman from Cobh in the County of Cork. In the early 1990s he won the lotto and received a seven figure sum. Out of his winnings he bought a number of properties, one of those was the Old Cunard White Star building or Scott’s Building in the centre of Cobh. It was the old terminal building used in the period when Cobh was a port on the trans-Atlantic liner route.
The plaintiff decided to develop the old terminal building and set about obtaining urban renewal status for the building. The plaintiff proposed to use the building as a theme pub and restaurant to be called ‘The Titanic Bar and Restaurant’. As part of that plan the plaintiff obtained a license at a cost of approximately IR£78,000 in 1999. He also succeeded in his attempts to have the building designated from urban renewal status. The plaintiff’s evidence was that he had purchased the building for IR£110,000 and thereafter expended considerable sums in an attempt to bring the project to a stage where it could open. The plaintiff gave evidence that he expended in the region of IR£430, 000 to IR£470, 000 on the project. However, by early 2000 the plaintiff was in financial difficulties and had no more capital. He had also borrowed extensively in an attempt to complete the project. The plaintiff had a loan agreement with Allied Irish Banks in Cobh. By early 2000 the plaintiff had exceeded the limit of his sanction and owed a figure of some IR£475,000. The plaintiff faced real problems in endeavouring to complete the project. He sought investment from third parties. The plaintiff in evidence stated that in or about February, 2000, ‘there were a number of people interested in coming on board, coming on board with me to rescue the project’. By this stage the building works had come to a near standstill and urgent investment was needed to enable the project to be brought to completion. The plaintiff summarised the position as of February, 2000, in the following terms:-
“. . . Mr. Declan Malone was a quantity surveyor and he recommended a costing of the building and the costing of the building was put at X and we engaged an engineer and a very good builder and between the jigs and the reels we discovered that the building ran into trouble due to there was some heavy engineering required that we could not have planned for. So that caused an overrun and AIB in Cobh was a small operation and the overrun ran to the extent . . . . they pulled the plug and felt that project could use superior business acumen and business knowledge. . . . we had gone as far as we possibly could.’”
It was at that stage that Mr. Keaney came into contact with a number of potential investors and ultimately in connection with Mr. Sullivan and Mr. Nolan. (At this point I should observe that Mrs. Nolan has had little or no hand, act or part in the matters at issue in these proceedings and was apparently sued solely because she was a party to a deed of the 30th September, 2004).
The pleadings
I have already referred to the fact that this case has had a complicated procedural history. As a result of the manner in which the case was pleaded, the statement of claim had to be amended on several occasions. In addition, the case pleaded against a number of the defendants was struck out on the basis that the pleadings did not disclose a reasonable cause of action on the pleadings. Thus so far as the case against the tenth to sixteenth defendant was concerned the basis of the claim against them was that they were vicariously liable for alleged wrongs in the professional or business dealings of Mr. Sullivan. It appears that the basis for seeking to make those defendants liable for any alleged wrong on the part of Mr. Sullivan arose from the fact that both Mr. Sullivan and those defendants practised in Cork from the same premises in 2000. This issue was dealt with in detail by Finlay Geoghegan J. in her judgment previously referred to and she concluded that Mr. Keaney had not established a reasonable cause of action against the tenth to sixteenth defendants by reason of vicarious liability in respect of the alleged wrongs of Mr. Sullivan. Thus she struck out the entirety of Mr. Keaney’s claim against those defendants. Finlay Geoghegan J. then considered the claims against Mr. Sullivan and insofar as he was concerned she permitted the claim against Mr. Sullivan to continue insofar as the allegations made against him were in relation to negligence, breach of duty and breach of contract. So far as other claims were concerned, she struck those out on the basis that the pleadings before her were not such as to allow any other claims pleaded to be maintained. In like manner, Finlay Geoghegan J. considered the case being made on the pleadings against Mr. Nolan and as a result of that exercise Finlay Geoghegan J. noted at page 35 and 36 as follows:
“All claims against the fourth defendant are struck out other than
(a) The claim for damages for breach of contract in respect of the alleged agreements of 2000 in relation to the matters pleaded in paragraphs 27, 32(i) and 57 concerning the discharge of debts of Pollyexfen (sic) Design Limited. No substantive objection was made to this claim.
(b) The claim in relation to the deed of assignment dated the 30th September, 2004, between the plaintiff and the fourth and eighteenth defendants as pleaded in paragraph 73(i) – (vi) and the first sentence of paragraph 74 subject to such sentence being amended to be confined to the Deed of Assignment now dated the 30th September, 2004 between the plaintiff and the fourth and eighteenth defendants in respect of the premises Scotts Buildings, Cobh, Co. Cork.
(c) A claim for damages for breach of contract in respect of the agreement and breach thereof alleged at paragraphs 91 and 92 of the statement of claim in relation to the Tregan Building subject to amendment to claim and particularise loss and damage alleged.
…
All claims against the eighteenth defendant are struck out except the claims in paragraphs 73(i) – (vi) and 74 subject to the amendment as directed above.”
In order to understand the nature of the allegations made against Mr. Sullivan it is necessary to quote from the amended statement of claim before Feeney J. Paragraph 28 thereof stated as follows:
“28. The First Named Defendant owed the following contractual duties and/or of care, including professional duties, to the Plaintiff in his personal capacity.
(i) To render independent, arms-length professional advice and to negotiate professionally with any potential investor/partner, fearlessly on behalf of the Plaintiff.
(ii) To disclose and/or avoid any potential or actual conflict of interest.
(iii) . . .
(iv) To use all due care and skill in advising the Plaintiff on all accountancy/financial aspects of any proposed dealing with a partner/investor and not to undermine his own advice in conflict of
interest. . . .
29. By his acts or omissions the First Named Defendant acted and/or in breach of his Consultancy contract both express and implied with a Plaintiff and/or in breach of the said duties of care including professional duties of independence and/or negligently, in consequence whereof the plaintiff suffered loss and damage.
30. The First Named Defendant (James Sullivan) inter alia:-
(a) Negligently and in breach of contract failed to disclose to the Plaintiff his conflict of interest in that –
(i) he had acted as agent/accountant/business associate of the Fourth Named Defendant and in relation to multiple companies controlled by the Fourth Named Defendant;
(ii) . . .
(iii) AIB Midleton was the branch repeatedly used by the Fourth Named Defendant, the First Defendant’s associate. This explains why the Bank never informed the Plaintiff of irregularities.
(iv) Mr. Sullivan acted negligently and in breach of contract as an undisclosed agent for the Fourth Named Defendant in the negotiations which led to the said 2000 Heads of Agreement.
(b) He failed to negotiate in an independent manner with Mr. Edwin Fitzgibbon as a potential investor, and ultimately assisted the Fourth Named Defendant in paying him off so that the Plaintiff’s only realistic potential partner or investor became the Fourth Named Defendant; who was (as it turned out) a wholly professionally inappropriate choice.
(c) He failed to advise the Plaintiff of the financial disadvantage of entering into the said 2000 Heads of Agreement with Mr. Nolan, where effectively all the Plaintiff was to get was the £165,000 Pollexfen debts to be paid, in return for his first half title (and this new money did not even happen).
(d) James Sullivan negligently and in breach of contract negotiated, and did so aggressively, as undisclosed agent of the Fourth Named Defendant, to make the Plaintiff enter into the said 2000 Heads of Agreement when he should have been protecting the plaintiff.
(e) . . .”
Judgment of the High Court
It will be seen that insofar as Mr. Sullivan is concerned, a number of distinct matters require to be considered, namely the contractual arrangement between Mr. Sullivan and Mr. Keaney, the negotiations that took place with Edwin Fitzgibbon and the alleged undisclosed conflict of interest arising because of Mr. Sullivan’s business connection with Mr. Nolan. The hearing before the High Court commenced on the 22nd July, 2008 and was at hearing on the 23rd, 24th, 29th and 30th July. The matter was then adjourned for legal submissions which were heard on the 24th and 31st October, 2008. Thereafter a comprehensive written judgment was furnished by Feeney J. on the 19th December, 2008.
A number of crucial findings of fact were made by Feeney J. in the course of his judgment as regards the role of Mr. Sullivan and the nature of the contractual arrangement between Mr. Keaney and Mr. Nolan.
First of all Feeney J. concluded that Mr. Sullivan’s involvement with Mr. Nolan was known to Mr. Keaney. It was through that connection that Mr. Sullivan was in a position to introduce Mr. Keaney to Mr. Nolan. Mr. Sullivan was in a position to show Mr. Keaney around the Oyster Bar, another public house business owned by Mr. Nolan. Mr. Sullivan met him in the Oyster Bar and was able to show him around the premises demonstrating various systems including the stores and giving Mr. Keaney an explanation as to how the bar and financial systems operated.
Secondly, Feeney J. concluded that there was no contractual arrangement between Mr. Keaney and Mr. Sullivan. He accepted the evidence given by Mr. Sullivan that his role was that of a “dealmaker” between potential business parties. Neither Mr. Keaney nor Mr. Nolan were employing him in this regard. Feeney J. accepted that Mr. Sullivan had sought to be professionally engaged on a fee per day basis but that such proposal had been expressly refused by Mr. Keaney. This was confirmed by Mr. Keaney in his evidence. As Feeney J. concluded (at p. 13):
“The evidence is clear that Mr. Sullivan offered to work for Mr. Keaney for a fee and that such offer was refused and that no fee was ever paid by Mr. Keaney.”
Thus there was a clear finding by Feeney J. that there was no contractual relationship between Mr. Keaney and Mr. Sullivan.
Nevertheless it was also contended by Mr. Keaney that Mr. Sullivan owed him a duty of care. The duty of care alleged by Mr. Keaney against Mr. Sullivan was “to render independent, arm’s length professional advice and to negotiate professionally with any potential investor/partner, fearlessly on behalf of the plaintiff”. Having outlined the nature of the tort of negligence against a professional person, Feeney J. examined the nature of the claim against Mr. Sullivan, namely that he failed to render independent, arm’s length, professional advice. Feeney J. analysed the allegations made against Mr. Sullivan and commented (at p. 40):
“There can be no basis for that claim in the light of the evidence. The evidence establishes that Mr. Sullivan was providing the produce of his work to both Mr. Keaney and Mr. Nolan and that both of them were aware of such fact. The evidence shows that after the discussion documents were produced by Mr. Sullivan, that they were considered by Mr. Keaney and Mr. Nolan, who had direct negotiations with the assistance of independent legal advice. Such duty of care as may have been present on Mr. Sullivan was limited to the duty to provide services so as to facilitate the negotiations and discussion between Mr. Keaney and Mr. Nolan. There is no evidence whatsoever that any action taken or words spoken by Mr. Sullivan were in breach of that duty or were in any way negligent.”
He concluded (at p. 41):
“In those circumstances it would be impossible, on the facts of this case, for the plaintiff to establish the necessary causative link between any action undertaken by Mr. Sullivan or words spoken by him and any alleged damage suffered by Mr. Keaney.”
Thus, having analysed all the evidence and the particulars alleged against Mr. Sullivan, Feeney J. stated that (at p. 45):
“Mr. Keaney has failed to establish that Mr. Sullivan was negligent or in breach of duty. He has also failed to establish a breach of contract and indeed has failed to identify or establish any contract. Further it is clear that in relation to all the matters alleged against Mr. Sullivan, which were permitted to be pursued by the order of Ms. Justice Finlay Geoghegan, that such actions as were undertaken by Mr. Sullivan or such statements as were made by him did not result in or cannot be said to have caused the plaintiff to take any step which has caused him any damage. All the plaintiff’s claims against the first named defendant must be dismissed.”
The claims against Mr. Nolan were summarised by Feeney J. as including the following:
“(a) alleged breach of contract concerning a claim that the fourth named defendant was obliged to discharge the debts of Pollexfen Design Limited, and
(b) that the fourth named defendant breached the 2000 agreement by failing to discharge the debts due by Pollexfen Design Limited. The defence denies that there was the 2000 agreement as alleged and contends that the only agreement is to be found in a letter dated the 19th July, 2000 from the fourth named defendant to the plaintiff and signed by the plaintiff on the 20th July, 2000 and further that such agreement makes no provision for the discharge by the plaintiff of any Pollexfen Design Limited debts.
Another remaining claim against the fourth named defendant concerns the Tregan building and claims a breach of agreement by the fourth named defendant and seeks declaratory relief. … The defendant denies that any such agreement was concluded and claims that such agreement as was concluded made no reference to Tregan shares and further that such offer as was made in relation to the Tregan shares was not accepted or acted upon by the plaintiff. The final claim relates to the deed of assignment dated the 30th September, 2004. It is to be found at paragraphs 42 and 56 of the final statement of claim. It alleges that the deed has been interfered with by the fourth named defendant in a number of ways and that the figure identified for consideration was blank on the day upon which the plaintiff signed the deed and that no cash consideration passed and that the deed does not have a true or correct consideration inscribed thereon and that the true value and nature of the transaction was not disclosed to the Revenue and it is claimed that by reason of the foregoing the deed is void or voidable and it is claimed that the deed is properly to be dated the 24th July, 2003. . . . There is a full denial of all claims by the remaining defendants.”
As can be seen from the above a key issue related to what is contended to be the 2000 Agreement. This centered around two specific dates. As can be seen from the judgment of Feeney J. much of the consideration concerned whether or not Mr. Keaney and Mr. Nolan had entered into an agreement on the 27th March, 2000 by reference to a document entitled “Heads of Agreement” of that date. Mr. Nolan by contrast contended for an agreement entered into on the 20th July, 2000 which he sent to Mr. Keaney on the 19th July, 2000 and which was signed by Mr. Keaney on the 20th July, 2000. The significant difference between the two agreements was that in the March 2000 Heads of Agreement of it was proposed that Mr. Nolan would discharge the debts of a company called Pollexfen Design Limited whereas the July 2000 agreement made no such provision. From the point of view of Mr. Keaney this was a significant issue. Feeney J. dealt comprehensively with the pleadings, evidence and submissions in respect of Mr. Keaney’s contention that the March Heads of Agreement constituted a binding agreement between Mr. Keaney and Mr. Nolan. He noted that as of the 27th March, 2000 when it was contended that this alleged binding agreement had been concluded between Mr. Nolan and Mr. Keaney, Mr. Keaney had already entered into an agreement with a Mr. Edwin Fitzgibbon on the 24th March in similar terms in relation to the ownership and operation of the Titanic project. On the day that Mr. Keaney entered into that agreement with Mr. Fitzibbon he also made arrangements to have Mr. Nolan discharge an outstanding invoice from a builder who was carrying out work on the project. Feeney J. referred to the evidence given by Mr. Keaney in which Mr. Keaney said that the March 2007 Heads of Agreement “should have been draft Heads of Agreement to be honest” and that he went on to describe that document as one of many proposed Heads of Agreement. He expressly stated that the Heads of Agreement of the 27th March, 2000 was not a final document. He agreed that the March 2000 Heads of Agreement was drawn up by Mr. Sullivan but that he, Mr. Keaney, was going to be guided by his solicitor in relation to same. Feeney J., in the light of the pleadings, the evidence and the submissions, commented as follows (at p. 17):
“In the light of the above evidence it is remarkable that the case was pleaded and opened on the basis that there was a binding agreement between the plaintiff and Mr. Nolan as of the 27th March, 2000. On the plaintiff’s own evidence and from a cursory examination of the documents, including the document of the 27th March, 2000 itself, there was no basis for such contention. It is also noteworthy that such a plea was made in circumstances where the plaintiff had already entered into an agreement with a third party in respect of the same project.”
Feeney J. went on to conclude that there was not and could not have been a binding agreement between Mr. Nolan and Mr. Keaney as of the 27th March, 2000. He then went on to describe the other discussions that took place between the parties which led ultimately to the document of the 19th July, 2000. Having reviewed the evidence in relation to the letter of 19th July, 2000 sent by Mr. Nolan to Mr. Keaney, Feeney J. concluded that that letter constituted the agreement between them. As he stated, at page 30 of the judgment:
“The agreement between Mr. Keaney and Mr. Nolan is to be found in the document of the 19th July, 2000. When Mr. Keaneysigned his name, as the Court is satisfied he did, beneath the words ‘I confirm my agreement’ he was accepting Mr. Nolan’s offer and an agreement was concluded. Matters discussed prior to that date and not included in the agreement do not form part of the agreement. Mr. Keaney seeks to incorporate certain matters into the ‘agreement’ but fails to give any evidence of terms being agreed outside the 19th July, 2000 document either in writing or orally and gives no evidence of any term coming into existence by both offer and acceptance.”
Thus it is clear so far as the judgment of Feeney J. is concerned that the agreement between the parties was that concluded and signed off by Mr. Keaney on the 19th July, 2000 and was not the alleged agreement set out in the 27th March Heads of Agreement.
A number of other issues were dealt with by the learned trial judge in the course of his judgment. One of those issues related to the purchase of a building known as the Tregan Building. Following the sending of the draft Heads of Agreement dated the 27th March, 2000, further correspondence took place between Mr. Keaney and Mr. Nolan. On the 31st March, 2000, Mr. Nolan sent a document including terms which Mr. Nolan was prepared to agree with Mr. Keaney and in that letter reference was made to the future development by reference to the possible acquisition of the Tregan Building. In that letter it was indicated that if it was possible to acquire the building next door “And I can raise the majority or all of the finance personally then it will be included into the project without any dilution of shares”. Based on that paragraph Mr. Keaney has asserted an entitlement to an interest in the Tregan Building which was subsequently acquired by Mr. Nolan and his wife when they bought in the shareholding in Tregan Properties Limited. Mr. Keaney claimed a 50% shareholding in Tregan Properties Limited. Feeney J. concluded that the offer made in relation to the Tregan Building in the letter of the 31st March, 2000 was not accepted. In the course of his evidence, Mr. Keaney indicated that the Tregan Building was to be purchased on the basis that each party would contribute IR£100,000 to purchase the building together with borrowings for which each would be jointly and severally liable in respect of any balance. Mr. Keaney accepted that he did not pay IR£100,000. Accordingly, Feeney J. concluded that the Tregan Building/shares were purchased by Mr. Nolan from his own assets and that no contribution was made by Mr. Keaney. In the course of the judgment Feeney J. went on to describe how it had been intended by Mr. Keaney that he would finance his contribution by means of a sale of another property. At the time when the purchase was completed by Mr. Nolan and his wife, the agreement had been entered into on the 19th July, 2000 and there was no agreement in relation to the Tregan Building in that agreement as the possible purchase of that building was at that time an aspiration only. Subsequently Mr. Nolan in his evidence was willing to have Mr. Keaneytake an interest in the property when it became available for purchase but this was always predicated on the basis that Mr. Keaney would put in IR£100,000 into the purchase of the property. This was never done by Mr. Keaney and in those circumstances Feeney J. rejected the contention that there was a purported agreement relating to the purchase of that building to be found in the letter of the 31st March, 2000. As Feeney J. said the Tregan Building/shares was not included in the agreement which was agreed in the document of the 19th July, 2000. At that point in time the future purchase of the Tregan Building/shares was an aspiration. It was only at a later date when the building shares became available that a separate agreement was concluded. That agreement was dependent upon Mr. Keaney paying his portion of the purchase price. He never paid anything. The offer which Mr. Nolan made to Mr. Keaney to provide him with an opportunity of joining in the acquisition of the Tregan Building/shares on terms was an offer which was never accepted by Mr. Keaney. Feeney J. concluded that there was no legal basis upon which Mr. Keaney can now seek to enforce an alleged contract.
After the 19th July agreement was concluded, a company, Titanic Queenstown Company Limited was set up to operate the business. Mr. Sullivan was engaged as a consultant/financial/professional adviser and was paid by the company. A number of issues arose in relation to the banking arrangements in respect of the company and in particular Mr. Keaney had claimed that Mr. Sullivan was negligent and in conflict of interest “by engaging in negligent banking practice”. As Feeney J. pointed out such an allegation was in an earlier version of the statement of claim but such claims in that regard were struck out by Ms. Justice Finlay Geoghegan. Accordingly the plaintiff was precluded from maintaining such allegations. In any event, Feeney J. considered that there was no evidence to support any such claim. In those circumstances it is not necessary to consider the issues in relation to banking.
Unfortunately the business was unprofitable. As a result, Mr. Nolan, who had continued to invest in the project, ultimately came to the conclusion that he was not in a position to continue to do so in respect of a loss-making business. Accordingly the business ceased to operate on the 2nd December, 2002. This led to further negotiations between the parties and ultimately a further Heads of Agreement document was signed by them on the 2nd July, 2003. Both Mr. Keaney and Mr. Nolan had the benefit of legal advice during the course of the discussions leading to that agreement. The basis of that agreement was described by Feeney J. as being that Titanic Queenstown Trading Company Limited was to be taken over 100% by Mr. Nolan with a guarantee in relation to its debts and that Mr. Nolan would lease back the property to a new company to be incorporated by Mr. Keaney at an agreed rent and there was also a buy-back option contained in the agreement. A series of legal documents were then prepared by the respective solicitors for Mr. Nolan and Mr. Keaney and those agreements and documents were signed and completed on the 24th July, 2003. In order to understand the issues that arose in this regard it is appropriate to refer in some detail to the judgment of Feeney J. in some detail. At page 50 he stated as follows:
“Those agreements included firstly, an agreement relating to the sale of Mr. Keaney’s shares in the company to Mike Nolan. Secondly, there was an option agreement whereby Mike Nolan and Tregan Properties Limited gave an option to Titanic Cobh Trading Company Limited (Mr. Keaney’s new company) to acquire the Scott’s building and the Tregan building. Thirdly, there was a contract for sale of Mr. Keaney’s share of the Scotts building to Mike Nolan. In the special conditions of that contract the parties agreed the value of Vincent Keaney’s share of the property at a figure of €525,000 and further agreed that that sum was paid or satisfied by Mike Nolan taking over responsibility for the mortgage on the property which at that time was in the joint names of Mike Nolan and Vincent Keaney. The uncontested evidence available to the Court was that that sum of €525,000 was the agreed consideration arrived at following discussions between Mr. Keaney’s and Mr. Nolan’s representatives. The evidence as to how that sum was precisely calculated was unclear at the hearing before the Court. However what was clearly established was that the figure was agreed. The fourth document forming part of the suite of agreements of the 24th July, 2003 was a deed of release made between Mike Nolan, Q.E.F., Magpie International Trading Company Limited, Vincent Keaney and AIB Bank. Q.E.F. and Magpie were two companies owned and controlled by Mr. Nolan who had provided various services to the company. The purpose of the deed of release was to provide a clean break between the parties with each of them releasing the other, including their related companies, from ‘every form of liability, indebtedness, and obligation’. The parties waived and released ‘any claims against each other, against any and all loss of liability of any nature incurred directly or indirectly by any party as a consequence’. The intention of the deed of release was to ensure that if there were any outstanding liabilities between Mr. Nolan and Mr. Keaney, that those liabilities would be covered by the release. The fifth and sixth documents were new leases for the Scott’s building and the Tregan building to Titanic Cobh Trading Company Limited. The seventh document was an agreement between Mr. Nolan, the company, Mr. Keaney and Titanic Cobh Trading Company whereby Titanic Cobh Trading Company Limited agreed to take responsibility for a leasing agreement with Woodchester Bank.”
One of the documents concerned was an option agreement which allowed Titanic Cobh Trading Company Limited to purchase the Scott’s building and the Tregan Building for a consideration of €2.8m at any time during the period from January 2004 to January 2009 subject to certain terms and conditions. Unfortunately Titanic Cobh Trading Company Limited ultimately ended up being in breach of its obligations under the leases and as such the option ceased and became null and void. That was a point made by letter from Mr. Nolan’s solicitor to Titanic Cobh Trading Company Limited on the 24th September, 2004. Feeney J. concluded that he was satisfied that there was no breach of any agreement by Mr. Nolan with Mr. Keaneybut that even if he had concluded otherwise he was satisfied that Mr. Keaney would not be entitled to maintain any claim in relation to alleged breaches by virtue of the agreement encapsulated in the deed of release dated the 24th July, 2003. He concluded (at p. 53):
“The plaintiff has failed to identify any basis upon which the deed of release can be impugned. Mr. Keaney entered into the deed of release with the advice of his solicitor. He is bound by the terms of that document.”
Feeney J. then went on to consider the final issue raised by Mr. Keaney. That concerns a deed of assignment dated the 30th September, 2004. The deed of assignment was in respect of Scott’s building and effectively transferred Mr. Keaney’s interest in the building to Mr. Nolan and his wife. Mr. Keaney sought to argue that the deed of assignment was void and in that respect he raised a number of issues. They include an allegation that the date of the deed was the 24th July, 2003 and not the 30th September, 2004 and that the deed was post-dated in order to evade stamp duties, penalties and interest. The second issue raised concerned the consideration recited in the deed in respect of the assignment. Feeney J. in the course of his judgment summed up the complaints made in this regard as follows (at p. 55):
“In the submissions to the court counsel for the fourth and eighteenth named defendants identified ten matters which were alleged in those paragraphs [in the final statement of claim], namely:-
(1) The date of the first execution was properly 24th July, 2003,
(2) The date inscribed on the deed is a deliberate and misleading date,
(3) Mr. Nolan perpetrated the misrepresentation in July 2006 in open Court,
(4) Mr. Cahalan perpetrated the lie as to the date of true execution in the memorial of the deed,
(5) The alleged post-dating of the deed was to evade stamp duty penalties and interest,
(6) The recited consideration on the deed was in fact blank on the day on which the plaintiff signed,
(7) No cash consideration passed on the day as recited,
(8) The deed had not the true or the correct consideration inscribed thereon,
(9) The deed had not been stamped on the basis of fifty per cent of correct market value,
(10) The connectedness of the deed to other events or documents was not disclosed for stamping purposes.”
In the course of his judgment Feeney J. then set out in detail the evidence given in relation to this aspect of the matter. He set out the evidence given by Mr. Denis Cahalan who had acted as a solicitor for Mr. Nolan but who was called in evidence by the plaintiff. Insofar as the date of the deed was concerned he rejected the contention of Mr. Keaney that it had been signed on the 24th July, 2003. He concluded, having heard from a number of witnesses on this issue, that the evidence established that the date of the deed was the date of signing by Mr. and Mrs. Nolan and was inserted in accordance with normal practice, and therefore he accepted that it was signed on the 30th September, 2004. Insofar as the issue in relation to the stamping of the deed was concerned he concluded as follows (at p. 63):
“It is also clear that there was no attempt to avoid any stamp duty and that it cannot be contended, on the facts of this case, that there was any intent to defraud or deceive.”
He concluded that even if there was an error in the dating of the deed that would not result in it becoming invalid or rendered a nullity.
Insofar as the complaints made in relation to the consideration were referred to, Feeney J. stated as follows (at p. 64):
“The evidence of the two solicitors establishes that there is no factual basis for the claim that the recited consideration of the deed was blank upon the day upon which the plaintiff signed. The plaintiff’s own solicitor’s evidence clearly demonstrates otherwise.
The fact that no consideration passed on the day was well known to the plaintiff and his advisers. There was no expectation or agreement that the plaintiff would be paid cash in consideration for the transfer of his half interest in the lease of Scotts building. The agreed consideration, well known to the plaintiff and his advisers, was that Mr. Nolan agreed to take responsibility for all the indebtedness relating to the property in question. The consideration agreed and identified was in fact conferred on the plaintiff. . If there was any doubt in relation to that it is confirmed by paragraph 11 of the special conditions in the contract which was initialled by Mr. Keaney which stated: –
‘The vendor acknowledges that the purchase price for the property in sale is paid by the purchaser taking over the AIB loan attaching to the property. The parties agree that the value attributable to the property in sale is €525,000.’”
Feeney J. went on to conclude that there was no evidence that cash was to be paid and that the plaintiff acknowledged receipt of the consideration and that it was not open to him to go behind the recital contained in paragraph 11 of the special condition and there was no evidence to support an attempt to go behind that recital. Accordingly, Feeney J. rejected the complaints of Mr. Keaney in that regard. It was pointed out also by Feeney J. that attempting to call into question the consideration for the deed of assignment was in conflict with the judgment of Finlay Geoghegan J. Nevertheless Feeney J. was satisfied that there was an agreed consideration. In those circumstances he concluded that there was no legal basis as to why the deed was not valid and enforceable. Accordingly, Feeney J. concluded his judgment by stating that the plaintiff had failed in all his claims and all claims against the first, fourth and eighteenth defendants were dismissed.
Discussion
This Court has had the benefit of having the transcripts of the hearing before Feeney J., the judgment of Finlay Geoghegan J., the judgment of Feeney J. and the written submissions on behalf of Mr. Keaney, Mr. Sullivan and Mr. and Mrs. Nolan. The Court also had the benefit of oral submissions.
In the course of the submissions, it was contended on behalf of Mr. Keaney that Feeney J. was wrong in concluding that there was no contract between Mr. Keaney and Mr. Sullivan. Mr. Keaney is critical of the conclusions of the learned trial judge and has asserted that Feeney J. failed “to take properly into account many materials facts and inferences presented to him and even as evidenced in his judgment, that the first defendant was engaged . . .”. Reference is then made to some of the evidence in the case. It is also contended that the trial judge misdirected himself when he held that Mr. Sullivan was a deal maker providing professional services to both Mr. Nolan and Mr. Keaney and that both were aware of that. Further Mr. Keaney is critical of the finding of the learned trial judge in relation to the allegation that Mr. Sullivan failed to disclose his existing relationship with Mr. Nolan. Running through the submissions is a contention that there was a valid and binding agreement entered into on the 27th March, 2000. Thus, for example, it is contended that “the signed Heads of Agreement dated the 27th March 2000 drafted by the first defendant strongly favoured the fourth defendant”.
Turning to the position of Mr. Nolan and Mrs. Nolan, again, the findings of the learned trial judge are put in issue and the following questions are raised:
“The questions under appeal can be summarised into:
(1) Which was the guiding agreement between the parties – an agreement dated the 27th March, 2000 or that of 19th July, 2000 and other subsequent agreement (s)(?).
(2) Did consideration pass between the plaintiff and the defendants in either of the agreements dated 27th March, 2000 or 19th July, 2000? If so was it full consideration?
(3) What of the second deed dated 30th September, 2004? Did the respondents give consideration?
(4) Are parties to a deed of conveyance allowed to insert a random sum as consideration?
(5) Does deed of release, release all events both future and past events between the parties therein even when the deed of the release was entered under a material mistake of fact.”
In the course of the submissions on behalf of Mr. Sullivan it was submitted that the trial judge correctly determined that there was no contract between Mr. Keaney and Mr. Sullivan and no negligence or any causal connection between Mr. Sullivan’s actions and any losses allegedly sustained by the appellant. It was noted that Mr. Keaney persisted at trial and appears still to persist in relying upon the purported “agreement” of the 27th March, 2000 even though at that time he had entered into a binding agreement with another party. Reference is made to the comments of Feeney J. in that context. Nevertheless even though Feeney J. concluded that there was no contract between Mr. Sullivan and Mr. Keaney,Feeney J. went on to consider whether or not Mr. Keaney had made out a claim in negligence and/or breach of duty against Mr. Sullivan and it was pointed out that Feeney J. concluded that on the facts of the case it would be impossible for Mr. Keaney to establish the necessary causative link between any action undertaken by Mr. Sullivan or words spoken by him and any alleged damage suffered by Mr. Keaney and in those circumstances he dismissed any remaining claim against Mr. Sullivan.
In their submissions, counsel on behalf of Mr. and Mrs. Nolan placed particular reliance on the deed of release entered into on the 2nd July, 2003 but notwithstanding that, went on to argue that there was no basis for overturning the learned trial judge’s conclusions on the nature of the contract concluded between Mr. Keaney and Mr. Nolan. Thus it is contended that there was no binding agreement entered into on the 27th March, 2000 and that the binding agreement was that found in the letter of the 19th July, 2000 sent by Mr. Nolan to Mr. Keaney and signed by Mr. Keaneyon the 20th July, 2000. There is criticism of the submissions furnished on behalf of Mr. Keaney which does not refer in any shape or form to the evidence given by Mr. Keaney in which he disavowed that the Heads of Agreement of March 2000 were a final and binding contract and further why there was no explanation in the submissions as to why the document of the 20th July, 2000 did not represent the entire deal between Mr. Nolan and Mr. Keaney. Indeed as was pointed out, Mr. Keaney in his present submissions argued that the document of the 19th July, 2000 was “no more than a record of work in progress in terms of dealings between the parties”. It certainly is not a contract for the very simple reason that it is not complete, it is not specific as to the debtors of the plaintiff’s previous company and has no direction, time and actual consideration for the contract. In the course of their submissions, counsel on behalf of the Nolans went on to outline the evidence in relation to the claim to shares in respect of the Tregan Building and the issues raised in relation to the deed of assignment of the 30th September, 2004. In the context of the Tregan Building, Feeney J. had concluded that there was nothing in the document of the 19th July, 2000 as to the acquisition of the Tregan Building. Insofar as the deed of the 30th September, 2004 was concerned, the learned trial judge dealt with this issue in detail and concluded that the issues raised by Mr. Keaney seeking to have that deed declared void were not made out. In any event, reliance is placed on the deed of release insofar as that might have a bearing on some of the issues raised by Mr. Keaney.
In the course of this judgment I have set out at length the allegations made by Mr. Keaney against Mr. Sullivan and Mr. Nolan. I have referred at length to the judgment of Feeney J. and in particular to his findings of fact in relation to the evidence before him in respect of the allegations made against Mr. Sullivan and Mr. Nolan. I have done so in great detail for the purpose of highlighting and demonstrating the care with which Feeney J. dealt with the allegations, summarised the evidence and explained the findings he had reached in relation to the issues before him based on the facts and circumstances as presented in the course of the evidence.
Decision
This is a case which centres around the findings of fact made by the learned trial judge in relation to the various allegations and issues raised by Mr. Keaney. Thus a key question was whether or not there was an agreement between Mr. Keaney and Mr. Nolan entered into on the 27th March, 2000. Likewise issues were raised in relation to the role of Mr. Sullivan, the circumstances leading to the acquisition of the Tregan Building by Mr. Nolan, the issues surrounding the deed of assignment of the 30th September, 2004 and so on. Mr. Keaney has challenged head on the various findings of fact made by the learned trial judge. The role of the Supreme Court on appeal from a judge in first instance was stated in the well known case of Hay v. O’Grady [1992] 1 I.R. 210 as follows (at page 217):
“(1) An appellate court does not enjoy the opportunity of seeing and hearing the witnesses as does the trial judge who hears the substance of the evidence but, also, observes the manner in which it is given and the demeanour of those giving it. The arid pages of a transcript seldom reflect the atmosphere of a trial.
(2) If the findings of fact made by the trial judge are supported by credible evidence, this Court is bound by those findings, however voluminous and, apparently, weighty the testimony against them. The truth is not the monopoly of any majority.
(3) Inferences of fact are drawn in most trials; it is said that an appellate court is in as good a position as the trial judge to draw inferences of fact. (See the judgment of Holmes L.J. in “Gairloch,” The S.S., Aberdeen Glenline Steamship Co. v. Macken [1899] 2 I.R. 1, cited by O’Higgins C.J. in The People (Director of Public Prosecutions) v. Madden [1977] I.R. 336 at p. 339). I do not accept that this is always necessarily so. It may be that the demeanour of a witness in giving evidence will, itself, lead to an appropriate inference which an appellate court would not draw. In my judgment, an appellate court should be slow to substitute its own inference of fact where such depends upon oral evidence or recollection of fact and a different inference has been drawn by the trial judge. In the drawing of inferences from circumstantial evidence, an appellate tribunal is in as good a position as the trial judge.
(4) A further issue arises as to the conclusion of law to be drawn from the combination of primary fact and proper inference – in a case of this kind, was there negligence? I leave aside the question of any special circumstance applying as a test of negligence in the particular case. If, on the facts found and either on the inferences drawn by the trial judge or on the inferences drawn by the appellate court in accordance with the principles set out above, it is established to the satisfaction of the appellate court that the conclusion of the trial judge as to whether or not there was negligence on the part of the individual charged was erroneous, the order will be varied accordingly.
(5) These views emphasise the importance of a clear statement, as was made in this case, by the trial judge of his findings of primary fact, the inferences to be drawn, and the conclusion that follows.”
Taking the last of those principles first, I think it can be said that a perusal of the judgment of Feeney J. as a whole indicates that Feeney J. followed precisely the approach to be taken by a trial judge in that he very clearly set out in the course of his judgment on the various issues raised his findings of primary fact, the inferences to be drawn and the conclusions that followed from those findings of fact and inferences. I cannot see any basis upon which Mr. Keaney has demonstrated that the findings of fact made by the trial judge in this case were not supported by credible evidence. That being so, this Court is bound by those findings. Equally I cannot see any basis upon which it could be said that the trial judge erred in relation to any of the inferences of fact drawn by him. If I were to highlight one aspect of the case that illustrates this, perhaps better than any other, it concerns the assertions made on behalf of Mr. Keaney in relation to the draft Heads of Agreement of the 27th March, 2000. In that context although the case was opened on the basis that the draft Heads of Agreement of the 27th March, 2000 constituted a concluded agreement between Mr. Keaney and Mr. Nolan, Feeney J. found as a fact that as of the 24th March, 2000, Mr. Keaney had entered into a legally binding agreement with a Mr. Fitzgibbon. He went on to refer to the evidence given by Mr. Keaney in respect of the Heads of Agreement document where Mr. Keaney stated:
“It says ‘Heads of Agreement’, I would take absolute umbrage to that, because it should have been draft Heads of Agreement to be honest.”
Feeney J. went on to recite the fact that in cross-examination Mr. Keaney expressly stated that the Heads of Agreement was not a final document and that in his view there were serious omissions in respect of the document and that “what Mr. Sullivan had done was draw up a draft Heads of Agreement and he, Mr. Keaney, was ultimately going to be guided by his solicitor, Mr. Donegan and any sound solid legal or financial adviser”. Feeney J. was rightly critical in the course of his judgment as to the manner in which the case was opened by asserting that the 27th March, 2000 Heads of Agreement document was being relied on as a contractually binding agreement notwithstanding the evidence that was in fact subsequently given by Mr. Keaney which contradicted that position. One might observe rhetorically that when Feeney J. came to the conclusion that the 27th March, 2000 Heads of Agreement was not a concluded agreement what other finding could have been made by him? However, suffice it to say that this Court is satisfied on this issue that there was ample credible evidence not just from Mr. Sullivan and Mr. Nolan but also from Mr. Keaney himself to the effect that the 27th March 2000 Heads of Agreement was no more than a draft document. I would also make the observation that it is still apparently contended notwithstanding that evidence given by Mr. Keaney himself that Feeney J. was wrong in reaching that conclusion. It is quite inappropriate to maintain that position at this stage of the proceedings having regard to the evidence given by Mr. Keaney himself.
In short this Court is satisfied that Mr. Keaney has not established any basis upon which to challenge the judgment of Feeney J. and this Court is satisfied that the findings of fact, inferences drawn and conclusions reached by Feeney J. were supported by credible evidence and that there is no basis for overturning his decision. In those circumstances I would dismiss the appeal in this case.
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URL: http://www.bailii.org/ie/cases/IESC/2017/S23.html
Keaney -v- O’Sullivan & ors [2017] IESC ~ (05 April 2017)
Barbudev v Eurocom Cable Management Bulgaria Eood & Ors [2012] EWCA Civ 548 (27 April 2012)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2012/548.html
Cite as: [2012] EWCA Civ 548Lord Justice Aikens :
Synopsis
The question on this appeal is whether a “Side Letter” dated 12 April 2006, which was signed by the appellant, Mr Georgi Velichkov Barbudev, and on behalf of the first respondent, a Bulgarian corporation, is legally enforceable by Mr Barbudev. In order to explain how the question has arisen, it is necessary to set out some of the background, although it is not necessary to repeat many of the detailed findings of fact made by Blair J in his full and careful judgment[1] which was handed down on 17 June 2011 after a 7 day trial in May 2011.
Mr Barbudev is a Bulgarian businessman who built up a successful cable television and internet business in the Plovdiv area of south central Bulgaria in the years 1995-2004. The company was called Eurocom Plovdiv EOOD (“EP”). Mr Barbudev was the CEO and major shareholder. By 2004 EP had become the second largest cable company in Bulgaria and Mr Barbudev and the other shareholders decided to sell their interests in it. Several potential purchasers were interested, including the American company Rumford Alliance Ltd (“Rumford”) and the Warburg Pincus Group, (“WPG”) a private equity consortium, which included all three respondents.
By late 2005 there were competing offers to buy EP from Rumford and WPG. In November 2005 Mr Barbudev signed two “Term Sheets” with WPG, both of which were expressed to be governed by English law. The Term Sheet dated 27 October 2005 stated that EP would be sold to the third respondent, FN Cable Holdings BV. With some exceptions the terms of the sheets were stated not to be legally binding. One important exception, however, was that the EP shareholders were legally committed to deal only with WPG for an exclusivity period which would expire on 15 April 2006.
The judge found that from late 2005 Mr Barbudev made it clear to WPG that he wanted to reinvest some or all of the price he obtained for his EP shares in the new, WPG entity/EP merged business. That was an important issue for him.[2]
It was Mr Barbudev’s case at the trial that on 12 December 2005 an agreement was reached in principle between him and Mr Robert Feuer, then an Associate of the second respondent, that Mr Barbudev would have a 10% participation in the proposed new combined business of Eurocom Cable Management Bulgaria EOOD, the first respondents (“ECMB”). Mr Barbudev said that this led him to sign a Declaration on 14 December 2005 that there were no other deals in prospect preventing those wishing to sell EP from selling to WPG or its nominated entity. This entity was always going to be ECMB, which had already bought another Sofia based operation called Eurocom Cable EAD.
From December 2005 there were negotiations on the terms of a Share Purchase Agreement (“SPA”) between the shareholders of EP and WPG. There were also discussions on how Mr Barbudev’s proposed stake in the new combined business was to be valued and how much he was to pay for it. By early March 2006 negotiations on the form and content of the draft SPA were well advanced. On 5 March 2006 Mr Barbudev emailed Mr Feuer asking for a draft of the contract for his purchasing 10% of the shares in the new entity. Mr Feuer replied on 7 March 2006 that an Investment and Shareholders Agreement (“ISA”) would be prepared once the SPA had been agreed and signed.
Clause 6 of the draft SPA contained the conditions that had to be fulfilled before there could be a “Closing” of the SPA. Clause 6.1 provided:
“Closing shall be conditional on the following Conditions having been fulfilled or waived in accordance with this Agreement….(e) the Purchaser, [Mr Barbudev] (and if applicable any entity nominated by [Mr Barbudev] which is acceptable to the Purchaser) having legally, duly and validly executed the Investment Agreement conditional only upon closing”.
In the draft SPA the term “Investment Agreement” was defined as “the investment and shareholder’s agreement to be entered into between the Purchaser and [Mr Barbudev] in relation to the Investment”. The term “Investment” was defined as “the €1,650,000 investment by George Barbudev in consideration for a combination of shareholder debt and registered share capital of the Purchaser which shall represent ten (10) per cent of the registered share capital of the Purchaser as at the date of the Investment Agreement”. It was accepted at the trial that, at some point, Mr Barbudev and WPG had agreed the figure of €1,650,000 as the price of Mr Barbudev’s investment and 10% of the registered share capital as the extent of his investment.
However, clause 6.5 of the draft SPA provided that the condition precedent to the Closing that was set out in clause 6.1(e) could be waived by written notice from either the Seller or the Purchaser. From Mr Barbudev’s point of view, the unconditional right of the Purchaser (ie. WPG) to waive the condition in clause 6.1(e) made that term valueless to him. If WPG could waive that condition, it would mean that the SPA would become effective, but Mr Barbudev would not have obtained an Investment Agreement by which he would invest €1.65 million in return for a 10% stake in the new business, which he was anxious to do. The judge found, at [33], that the existence of the “waiver” condition in clause 6.5 was unacceptable to him.
The question of whether the Purchasers should maintain the right to waive the condition in clause 6.1(e) was debated between the parties and their lawyers in the period until early April 2006. At [40] of his judgment, Blair J found that around 5 April 2006, when it was clear that an ISA would not be ready for signing at the same time as the proposed signing of the SPA, the idea of a Side Letter emerged in discussions between Mr Barbudev, Mr Feuer and Mr Yordan Naydenov, WPG’s Bulgarian lawyer.
The Side Letter was drafted by Mr Paul Doris, a senior associate of Freshfields Bruckhaus Deringer LLP (“Freshfields”), who had been instructed to advise WPG on English and Dutch law aspects of WPG’s acquisition of EP. Mr Doris was instructed by Mr Feuer to draft the Side Letter on 10 April 2006. Once Mr Feuer had approved the draft Side Letter, it was circulated, with other documents, on 12 April 2006. The Side Letter was signed that day by Mr Barbudev, Mr Feuer, on behalf of ECMB and Mr Lorand Horvath, also on behalf of ECMB. All three men initialled each page of the document. However, the judge found that “contrary to the submissions that have been made by the parties, there is no firm evidence that any of these individuals gave any particular thought to the legal effect of the proposed document”.[3]
At the trial there was an important dispute about what Mr Barbudev was told by Mr Feuer and (on Mr Barbudev’s case) by Mr Horvath (who was the chief financial officer of the third respondent) in the course of a meeting which took place on the afternoon of 12 April 2006 in Zurich. It was alleged by Mr Barbudev that Mr Feuer gave him an oral assurance that the Side Letter was an additional agreement or contract between him and WPG giving him legal rights to invest in the purchaser company. Mr Barbudev further maintained that the Side Letter was presented as the solution to Mr Barbudev’s concerns about the ability of WPG to waive signing of the ISA as a condition precedent to the closing of the SPA, which, as explained above, would enable WPG to prevent Mr Barbudev from obtaining his 10% investment in the new entity. Mr Feuer denied he gave any such assurance and Mr Horvath said that he had no recollection of Mr Feuer saying that the Side Letter was intended to protect Mr Barbudev’s reinvestment.
At [49] of his judgment, Blair J found that neither Mr Feuer nor Mr Horvath gave Mr Barbudev any assurance that the Side Letter was like a separate contract, the purpose of which was to protect Mr Barbudev’s right to invest in the combined business. But the judge also found that Mr Barbudev was not told that the Side Letter was not legally binding. He said:
“I am not satisfied that anything was said to him one way or the other as to [the Side Letter’s] binding nature. I find that Mr Feuer used the Side Letter to reassure [Mr Barbudev] that the intention was that his investment would go ahead, and in the light of that Mr Barbudev signed the SPA, even though [WPG] retained the unilateral right to waive the requirement that the execution of the ISA was a precondition of the closing”.
The terms of the Side Letter are obviously central to the case and to this appeal. I have set the letter out in full in the Appendix to this judgment. Mr Barbudev’s case at the trial was that the Side Letter constituted a contractual obligation on the part of all three respondents to execute an Investment Agreement, viz. the ISA, by which Mr Barbudev would invest €1,650,000 for 10% of the share capital of the reformed ECMB. However, the judge found that the second and third respondents were not parties to the Side Letter[4] and that conclusion is not appealed.
At the trial, it was argued for Mr Barbudev that, at all times after the Side Letter was signed, Mr Barbudev and the respondents regarded it as binding and that this was made clear by the fact that draft ISAs were circulated by Freshfields thereafter. The first was sent out on 9 May 2006 and further drafts followed. They contemplated Mr Barbudevinvesting in the revamped ECMB by paying €1,000,271 for 10% of the share capital of the company and lending €649,729, making a total of €1,650,000. There were many other draft terms.
The judge rejected the submission that Mr Joseph Schull (Managing Director of Warburg Pincus International) and Mr Feuer, on behalf of the three respondents, proceeded on the basis that the two “key terms” set out above were “set in stone” and would be enforceable by Mr Barbudev whatever the final structure of the ISA. In the judge’s view, what followed the signing of the Side Letter was a negotiation only.[5]
The Closing under the SPA took place at EP’s offices in Plovdiv on 6 and 7 July 2006. A waiver of the condition of signing the ISA as a pre-condition to the closing of the SPA was also signed on behalf of ECMB and Mr Barbudev. The wording of the waiver stated:
“[ECMB] and [Mr Barbudev] shall continue their negotiations for the determination of the structure and the entering into an investment agreement immediately after the Closing with a view of having the said agreement executed as soon as reasonably possible”.
But there were delays in executing an ISA. The judge found (at [64]) that WPG’s enthusiasm for Mr Barbudev’s participation in the venture waned during 2006. There was also a difficult problem about ECMB’s possible liability for withholding tax: see [65]. The judge found that, from November 2006, the drafting of the ISA “went to sleep”: [68].
Finally, on 24 April 2008 there was a meeting in the offices of ECMB in Sofia, which was attended by Mr Barbudev, his lawyer Dr Thomas Winkler, Mr Stefan Neytchev (a major shareholder in EP), Mr Horvath, Mr Petyo Staykov, the CEO of ECMB, Mr Naydenov and others. Neither Mr Schull nor Mr Feuer were present. There were negotiations, mostly in Bulgarian, about the terms of a document which would, ostensibly, settle outstanding matters. The final version, as in the original draft, was headed “Final Settlement”. The first three clauses dealt with outstanding payments under the SPA.
The final version of this document contained a clause 5 which provided:
“The Seller confirms that once the payments identified in the preceding clauses 1 – 3 have been made all of the obligations (of payment or otherwise) of the Purchaser [ie. ECMB] towards the Seller under the [SPA] shall be fully performed and neither the Seller nor any other Party shall have any claim of any nature against the Purchaser whatsoever under the [SPA] or otherwise”.
Blair J noted (at [78]) that Mr Barbudev’s own evidence was that it was for him to decide what to do and that he read the wording of clause 5 for himself and he decided that it did not extinguish his rights. The judge concluded (at [78]) that whilst Mr Barbudev made it clear he was not happy signing what became known as the “Final Protocol”, nothing was done by either Mr Horvath or Mr Naydenov which could reasonably be taken as giving the impression that they agreed with Mr Barbudev that the Final Protocol was not intended to impact on his rights under the Side Letter.
The Final Protocol was duly signed on 24 April 2008. Nothing much then happened until May 2009, when Mr Barbudev heard that WPG intended to sell ECMB. Mr Barbudev arranged to meet Mr Schull and Mr Feuer at the WPG offices in London on 19 May 2009, but it was made clear to him that he would get nothing. Mr Barbudev’s solicitors wrote a letter making a claim in June 2009. ECMB was sold in October 2009. The present proceedings were begun by Mr Barbudev in January 2010 in which he claimed damages for the loss he said he had sustained as a result of the respondents’ failure to honour the terms of the Side Letter. This led to the trial before Blair J in May 2011.
The arguments before the judge and his conclusions concerning the Side Letter
As already noted, before the judge it was argued on behalf of Mr Barbudev that he was given an oral assurance before he signed the Side Letter to the effect that it was intended to protect his right to invest in the new enterprise, ECMB. It was said that this assurance meant either that the contract evidenced by the Side Letter was partly in writing and partly oral or that there was a collateral contract to that contained in the Side Letter. The respondents argued that there was no oral assurance and that the Side Letter was not intended to create binding legal relations between the parties to it; it was, at best, a Letter of Comfort pending the conclusion of the proposed ISA. The respondents also argued that the Side Letter was, on its proper interpretation, only an “agreement to agree” which was unenforceable. Lastly, the respondents argued that the Side Letter was not a sufficiently complete and certain contractual agreement to be effective.
I have already mentioned one of the two subsidiary arguments before the judge, viz. whether the second and third respondents were parties to the Side Letter. The second was whether, on the assumption that the Side Letter constituted a legally enforceable agreement, the Final Protocol of 24 April 2008 released ECMB from any obligation that it may have had to allow Mr Barbudev to invest in the new ECMB entity. On the latter point the judge held that the arguments on construction were “finely balanced” but found for Mr Barbudev. HREF=’#note6′>[6] This issue only becomes relevant on this appeal if Mr Barbudev succeeds on the question of whether the Side Letter is an enforceable contract, to which at least the first respondent was a party.
On the issues concerning the status of the Side Letter, the judge held: (1) The agreement between the parties was contained solely in the written terms of the Side Letter. It was not contained partially in that document with the addition of some other, oral, terms.[7] (2) He could not see that an agreement could be intended to create legal relations “if it is unenforceable in its entirety”. So the answer on the question of whether the parties intended to create legal relations by the Side Letter depended on the other two key issues, viz. whether the parties had, by the Side Letter, created more than an unenforceable “agreement to agree” and, if so, whether the contract had sufficient certainty.[8] (3) On the correct construction of the Side Letter itself, the agreement between the parties was that Mr Barbudev was to have the opportunity to invest on terms to be agreed which would be set out in an ISA, which the respondent parties agreed to negotiate with Mr Barbudev in good faith. That constituted an “agreement to agree” which was unenforceable.[9] (4) The agreement to negotiate in good faith extended also to the price to be paid by Mr Barbudev and the percentage he was to acquire.[10] (5) Although the parties had agreed in principle on the key terms of price and percentage before 27 February 2006, that prior agreement was not conclusive. The terms of the Side Letter (in its surrounding circumstances) demonstrated that the parties had not actually reached agreement.[11] (6) The Side Letter was an agreement to negotiate an “Investment Agreement”, viz. an investment and shareholders agreement, or ISA. The Side Letter did not contain essential terms that would be required for a shareholders’ agreement of this kind.[12] (7) Various matters remained unagreed and continued to be so, as identified by the judge in [108]. The result was that Mr Barbudev could not invoke the Side Letter as a complete and enforceable agreement because essential terms for an ISA were not addressed by it.[13] (8) It followed from the judge’s conclusion that the Side Letter was only an agreement to agree and was too uncertain to constitute a binding contract that, on his reasoning, the parties could not have intended to enter into legal relations: see (2) above.
The arguments of the parties and the issues arising on the appeal
Mr John Wardell QC, who appeared on the appeal on behalf of Mr Barbudev, submitted that the judge fell into a fundamental error of approach by considering the effect of the Side Letter by reference only to its terms. He failed to see the Side Letter in its commercial context, which was the existence of the “waiver” provision in clause 6.5 of the SPA and its importance to Mr Barbudev. If clause 6.5 had not been present, then Mr Barbudev would effectively have had a contractual right to invest in the merged ECMB before the SPA could be closed, by virtue of clause 6.1(e) of the SPA. Mr Wardell asked, rhetorically, why would Mr Barbudev make his position worse by agreeing to a Side Letter which had no legal effect whatsoever? He submitted that all the key terms were agreed before 12 April 2006 and continued to be agreed thereafter. That was clear from the correspondence.
Mr Wardell also submitted that the judge erred in concluding that Mr Feuer did not give an oral assurance to Mr Barbudev before he signed the Side Letter. Mr Wardell submitted that this was not an attack on a finding of primary fact by the trial judge but a question of an analysis of the evidence, particularly that of Mr Horvath and Mr Barbudev, as well as the inherent probabilities. Mr Wardell realistically recognised that this had to be a secondary submission to his main one on the effect of the Side Letter itself.
In the event we did not call for oral argument from Mr Patton, appearing for the respondents. His written submission was that the judge was correct to hold that the Side Letter was unenforceable for the three reasons that the judge gave and that the appeal should be dismissed for those reasons. As a fall back, the respondents also submitted that the judge erred in his conclusion on the effect of the Final Protocol of April 2008. Their case was that, on its true construction, it did extinguish any rights Mr Barbudev may have had.
There are, therefore, four, or possibly five, issues for this court to consider. Logically the first issue is whether the judge erred in concluding that Mr Feuer did not give Mr Barbudev an oral assurance before Mr Barbudev signed the Side Letter. The appellant’s case was that this assurance was to the effect that the Side Letter was a solution to Mr Barbudev’s concerns about clause 6.5 of the SPA terms and that the Side Letter was like a separate contract to protect his right to invest in the new merged business. If that issue succeeds, then it would amount to a collateral contract and could be relied on by Mr Barbudev. If it fails then the second issue is whether the parties intended to create legal relations by virtue of the Side Letter, set in its commercial surroundings. The third issue concerns the nature of the Side Letter, in its context: was it an “agreement to agree” or was it an enforceable contract giving Mr Barbudev rights to purchase a stake in the merged ECMB? Fourthly, if the Side Letter was, in principle, a binding contract giving Mr Barbudev such rights, was it nevertheless unenforceable because of uncertainty of terms?
The potential fifth issue, concerning the construction and effect of the Final Protocol, only arises if we allow the appeal on the effect of the Side Letter.
The Law
The legal principles to be applied to these issues are not in doubt. On the issue of whether the parties intended to create legal relations, the leading case is now RTS Flexible Systems Limited v Molkerei Alois Müller GmbH & Co KG.[14] The court has to consider the objective conduct of the parties as a whole. It does not consider their subjective states of mind. In a commercial context, the onus of demonstrating that there was a lack of intention to create legal relations lies on the party asserting it and it is a heavy one.[15]
If, as I conclude below, the agreement is found to be wholly in writing (which must be a question of fact), then the exercise of construction is a “unitary exercise” in which the court must consider the language used and ascertain what a reasonable person (ie. one with all the background knowledge reasonably available to the parties in the situation that they were in) would have understood the parties to have meant. The court must have regard to all the relevant circumstances and, in a business context, it should prefer the construction that is more consistent with business common sense.[16]
On the question of an enforceable contract or not, it is for the parties to decide at what stage they wish to be contractually bound. To use the vivid phrase of Lord Bingham (as Bingham J) the parties are “masters of their contractual fate”.[17] They can agree to be bound contractually, even if there are further terms to be agreed between them.[18] The question is whether the agreement is unworkable or fails for uncertainty. However, where commercial men intend to enter into a binding commitment the courts are reluctant to conclude that such an agreement fails for uncertainty.[19]
Issue One: Was there an oral assurance?
Contrary to the submission of Mr Wardell, in my view this is an issue of primary fact which the judge had to decide principally on the oral evidence of the witnesses, but put in the commercial context. Mr Wardell criticised the finding at [49] of the judgment because he said that the judge failed to take account of the fact that Mr Horvath said that he was not particularly paying attention at the time. Bearing in mind that the judge had concluded that he could not place much weight on Mr Feuer’s evidence,[20] but that he found Mr Barbudev generally reliable,[21] Mr Wardell submitted that the judge’s conclusion was against the weight of the evidence.
I do not agree. The judge’s conclusion was based almost entirely on his appreciation of the oral evidence of the witnesses: Mr Feuer, Mr Horvath and Mr Barbudev. At the trial the parties made detailed submissions on the reliability of the various witnesses. It was the judge’s task to assess their evidence both generally and on particular issues. The judge did find Mr Barbudev generally reliable but he specifically pointed out that he could not accept his evidence on every issue. One of those was obviously whether he was given a specific assurance by Mr Feuer before the Side Letter was signed. On that issue the judge preferred the evidence of Mr Horvath, who was accepted as being an honest witness. The judge must have taken account of the submission of Mr Wardell that Mr Horvath was not really paying attention at the time.
This is a finding of primary fact by the judge. This court is very reluctant indeed to overturn such a finding, particularly when based upon oral evidence of witnesses the judge heard and saw and we have not. To overturn it the appellant has to demonstrate that the judge’s conclusion resulted from a fundamental error concerning the evidence; that his conclusion was not possible on the evidence or that it was unreasonable. I am not satisfied that any of those tests can be met in this case, despite the cogent submissions of Mr Wardell. There was material in the cross-examination of Mr Horvath by Mr Wardell that could found the conclusion that the judge reached.[22]
I therefore reject the appellant’s submission on this issue.
Issue Two: Intention to create legal relations
On this issue, I respectfully disagree with the judge. Mr Wardell pressed us to consider this issue in the commercial context of the history of the SPA, both before and after the Side Letter was signed. I agree that the issue of whether the parties intended to create legal relations is to be examined in the light of all the surrounding circumstances. But I do not need to go that far to reach my conclusion; it is very clear from the terms of the Side Letter itself that the parties intended to create legal relations. For a start, it was drafted by Freshfields. Secondly, its language is that of legal relations; see eg. the wording of the second paragraph and that of the third, starting “in consideration of you agreeing to enter into….”. Thirdly, the reference to the Contracts (Rights of Third Parties) Act 1999 and the agreement that the letter would be governed by and interpreted in accordance with English law all point to an intention to create legal relations between the parties. Fourthly, the parties clearly intended that the confidentiality agreement in the letter would be contractually enforceable between them, whatever might be the status of other parts of the letter.
But that conclusion does not necessarily assist Mr Barbudev. The parties can have intended to create legal relations between themselves but it does not follow that the effect of the Side Letter is that it created a legally enforceable contract giving Mr Barbudev the right to purchase a 10% stake in the new, merged business for €1,650,000. The court has to go on to examine the nature of the legal relations that were actually created. To take an obvious example: two parties may orally agree to sell and purchase some land and in doing so may well have intended to create legal relations. But such a contract would be unenforceable in the absence of an agreement in writing.[23] So the court has to analyse carefully the nature of any agreement which the parties have reached, at least ostensibly, in order to see whether it constitutes an enforceable contract.
Issue Three: the nature of the Side Letter in its context: was it an “agreement to agree” or an enforceable contract?
At the trial it was Mr Barbudev’s case that there was a partly oral and partly written agreement. In support of this the claimant had pleaded reliance on the alleged oral assurance given by Mr Feuer and also on the fact that Mr Barbudev had told Mr Feuer that he was willing to pledge the shares in ECMB that he was to purchase to ING bank so as to assist in satisfying the terms of a loan agreement between that bank and the purchaser of the shares in EP.[24] The judge rejected the first argument and I have concluded that he was right to do so. On the pledge, Mr Wardell accepted the judge’s findings at [52] that there was a brief discussion about the pledge at the time the Side Letter was signed on 12 April 2006 but that it was only on 21 April 2006 that Mr Barbudev finally agreed to pledge his shares and Mr Doris of Freshfields was so informed. Mr Wardell also accepted that this meant that the question of a share pledge did not form part of any concluded agreement with the Side Letter.[25] However, Mr Wardell says that it is important to take account of the circumstances in which the pledge of the shares was sought as this shows the nature of the agreement created by the Side Letter and the judge failed to appreciate the importance of that fact.
In my view the judge was plainly correct to conclude that any agreement between the parties was solely contained in the Side Letter, for the reasons that he gave at [88] of his judgment, which are persuasive and cannot be attacked on the facts.
Accordingly, the effect of the Side Letter has to be determined by its terms, albeit in the commercial context in which the Side Letter is placed. I accept that the context was that: (1) Mr Barbudev wished to buy a 10% stake in the new, merged business and he wished to spend €1.65 million in doing so and (2) that position was safeguarded by the terms of clause 6.1(e) of the proposed SPA, but that would be fatally undermined if ECMB exercised its right to “waive” that condition using clause 6.5 of the proposed SPA; so that (3) Mr Barbudev wished to find a means of safeguarding his position so he would be able to exercise his right to buy a share in the new, merged business and that (4) safeguarding this right was important to him.
I therefore accept that it was Mr Barbudev’s intention to have a binding agreement in the Side Letter that contractually safeguarded his right to purchase a 10% stake. The question is whether he succeeded in this. That necessarily involves a close examination of the terms of the Side Letter itself, set against the commercial background which I have summarised.
The key paragraph in the Side Letter is the one under the heading “Investment Agreement”. The “Purchaser”, viz. ECMB, agrees, in consideration of Mr Barbudeventering into the SPA and signing the “Transaction Documents”[26] that it will “offer you the opportunity to invest in the Purchaser on the terms to be agreed between us which shall be set out in the Investment Agreement and we agree to negotiate the Investment Agreement in good faith with you…”. The paragraph then sets out what terms “without limitation” shall be included in the Investment Agreement. The chief term is that Mr Barbudev “..shall invest an aggregate amount of not less than €1,650,000 in consideration for a combination of shareholder debt and registered shares which shall represent 10% of the registered share capital of the Purchaser on the date of the Investment Agreement”.
In my view this Side Letter is, without doubt, no more than an “agreement to agree”. It is an agreement to offer Mr Barbudev “the opportunity to invest in the Purchaser on the terms to be agreed between us”. That is not the language of a binding commitment and no amount of taking account of the commercial context and Mr Barbudev’sconcerns and aims can make it so. Moreover, the next phrase makes it clear that the terms of the Investment Agreement are not agreed; they are to be negotiated “…in good faith with you”.
I accept that particular terms are then set out, but even those are not certain. The first is that Mr Barbudev will invest an aggregate amount of “…not less than €1,650,000…’ leaving open the possibility that it will be more; a point which, presumably, was to be the subject of the future negotiations in good faith. Mr Wardell emphasised that, in the subsequent draft ISAs, the sum was never changed, nor was the 10% stake. But, as Mr Patton pointed out in his written submissions, those facts cannot assist in the proper construction of the Side Letter. Moreover, as Mr Patton also pointed out, the question is whether either side could certainly have changed the figures. In my view they could have increased either Mr Barbudev’s percentage stake and the monetary amount, even if they could not have lowered them.
Mr Wardell accepted that if the Side Letter is no more than an “agreement to agree” then it constitutes an unenforceable agreement between the parties. That is clear from many authorities, not least the House of Lords decision in Walford v Miles.[27] This conclusion necessarily means that Mr Barbudev’s appeal must fail. However, as we heard argument on the issue of certainty of terms I will express my conclusion on that point as well.
Issue Four: certainty of terms
The Side Letter contemplates the negotiation, in good faith, of terms to be set out in an “Investment Agreement”, which term meant, according to the SPA, an “investment and shareholders’ agreement”, to be entered into between Mr Barbudev and the Purchaser (ECMB). As the judge pointed out,[28] Mr Barbudev and ECMB were not contemplating a simple sale of a certain number of shares in the new, merged, business, for a certain price. They were contemplating an agreement that would determine the relationship between one shareholder in a Bulgarian private stock company who had a large majority of shares (in the region of 90% but perhaps less) and a minority shareholder, Mr Barbudev.
So the question is whether the Side Letter contained sufficient agreed terms to make an investment and shareholders agreement workable and sufficiently certain. In [108] of the judgment, the judge identified six matters which, in his view, needed to be agreed before an investment and shareholder agreement would be sufficiently certain so as to be workable. He described them as “.essential terms for an ISA” which were not dealt with in the Side Letter and that failure to have those agreed meant that the Side Letter was too uncertain to be an enforceable contract.
Mr Wardell submitted that the judge asked himself the wrong question. He argued that the judge erred because he compared what was in the Side Letter with the later drafts of the ISA that were produced, which dealt with these six matters that the judge identified which the Side Letter did not. Mr Wardell submitted that the question was whether the Side Letter itself was sufficiently certain in its terms and no regard should be taken of subsequent turns of negotiation.
In my view the judge was right to ask the question: what was it that the parties contemplated at the time of the Side Letter? That determined what needed to be agreed between the parties to have a contract that was sufficiently certain. Although a simple share sale agreement for an agreed percentage of shares at an agreed price could have been contemplated, I agree with the judge that it was not what the parties intended. They intended that Mr Barbudev would have an “opportunity to invest in the Purchaser” on terms to be set out in an investment and shareholder agreement which would regulate relations between the two sets of shareholders. It must also be remembered that Mr Barbudev was to remain as a manager of EP. The ISA had to deal with what might happen to his shares if he was a “good leaver” or a “bad leaver”. Identifying the minimum sum of investment and the minimum amount of shares and shareholder debt was insufficient to create certainty as to the proposed relations between the parties. The details of other critical matters, such as when and how Mr Barbudev could be bought out or get out of his investment had to be agreed. The fact that “tag along” and “drag along” provisions were mentioned in the Side Letter demonstrates that the parties had appreciated that the agreement to be negotiated consisted of more than a simple sale of a certain number of shares at an agreed price.
Mr Wardell showed us a manuscript note by Mr Doris of a meeting between Mr Barbudev and Mr Feuer on 5 June 2006 which dealt with the proposed ISA amongst other things. The note shows that there were detailed discussions on precisely how Mr Barbudev could exercise a “put option” to get the purchasers to buy him out and how the purchaser could exercise a “call option” to buy out Mr Barbudev. There also appears to have been discussion of the “tag along” and “drag along” provisions. All those had to be in place so as properly to regulate the relationship between Mr Barbudev as a minority shareholder. That note simply illustrates the point that there remained many crucial matters that were not agreed in the Side Letter which had to be agreed before there could be a sufficiently certain contract which was in the form of an ISA, which is what the parties contemplated.
Accordingly, I agree with the judge’s conclusion, at [108], that Mr Barbudev cannot invoke the Side Letter as a complete and enforceable agreement, because the essential terms for what the parties contemplated, viz. an investment and shareholder agreement, were not dealt with in the Side Letter. So even if, contrary to my view, the Side Letter was more than an “agreement to agree” it was not sufficiently certain to be an enforceable contract.
Conclusion and disposal
For these reasons, although I disagree with the judge on the issue of the intention of the parties to create legal relations, I agree with him that the Side Letter is not an enforceable contract. I would therefore dismiss this appeal.
Lord Justice Lloyd
I agree.
President of the Queen’s Bench Division
I also agree.
Appendix
The Side Letter of 12 April 2006
Private and Confidential
EUROCOM CABLE MANAGEMENT BULGARIA EOOD
24 Patriarch Evtimii Blvd
Sofia
1000
Bulgaria
Georgi Barbudev
3, Z. Stoyanov str
4000 Plovdiv
Bulgaria
12 April 2006
Dear Georgi
Project Fair
We refer to the proposed acquisition of the entire registered capital of Eurocom Plovdiv EOOD pursuant to a sale and purchase agreement dated on or around 12 April 2006 between Tracer (software) Europe B.V. (the Seller), Eurocom Cable Management Bulgaria EOOD (the Purchaser), and the Warrantors (as such term is defined therein) (the Agreement).
Save as otherwise defined herein, words and expressions defined in the Agreement shall have the same meanings in this letter.
Investment Agreement
In consideration for you agreeing to enter into the Proposed Transaction and to sign the Transaction Documents, the Purchaser hereby agrees that, as soon as reasonably practicable after the signing of the Agreement by all Parties, we shall offer you the opportunity to invest in the Purchaser on the terms to be agreed between us which shall be set out in the Investment Agreement and we agree to negotiate the Investment Agreement in good faith with you. Such terms shall include, without limitation, the following:
1. you shall invest an aggregate amount of not less than €1,650,000 in consideration for a combination of shareholder debt and registered shares which shall represent ten (10) percent of the registered share capital of the Purchaser on the date of the Investment Agreement;
2. we shall use reasonable commercial endeavours to obtain debt financing, where reasonably practicable, for the purpose of making further acquisitions and, in turn, to enable the shareholders of the Purchaser from time to time to make financial savings; and
3. tag along and drag along provisions which are customary for a transaction of this nature shall be included in the Investment Agreement.
Management Contract
We also agree that you shall be offered the opportunity to continue as the manager of the Company on the terms and basis set out in the Management Agreement from the Closing Date.
Confidentiality
The existence and terms of this letter are strictly confidential and we and you agree not to disclose the existence or terms of this letter (other than with the prior written consent of the other party hereto) to any individual, body corporate, company partnership, fund, joint venture, trust or any other entity or organisation, other than to its legal advisers or to the extent required by law or any government or regulatory authority (in which case the relevant party shall inform the other party hereto in writing prior to such disclosure, unless prohibited by law o otherwise from doing so) or, in the Purchaser’s case, to any member of the Purchaser’s Group.
For the avoidance of doubt, the terms of this letter shall not prevent the Purchaser or any of its Affiliates or Connected Persons or any of their respective Representatives from referring to or producing this letter in any dispute resolution or legal proceedings.
General
No person who is not a party to this letter shall have any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any of its terms.
This letter shall be governed by, and interpreted in accordance with, English law and the courts of England shall have exclusive jurisdiction to settle any disputes arising under or in connection with this letter.
This letter may be executed in any number of counterparts, but will not take effect until each party has executed at least one counterpart. Each counterpart will constitute an original, but all the counterparts together will constitute a single agreement.
Please confirm your agreement to the terms of this letter by signing the enclosed copy and returning it to us.
Yours sincerely,
…………………………… ……………………………
Robert Feuer Loránd Horvath
for and on behalf of for and on behalf of
EUROCOM CABLE MANAGEMENT EUROCOM CABLE MANAGEMENT
EOOD EOOD
Acknowledged and Agreed:
SIGNED by ) Signature
GEORGI VELICHKOV BARBUDEV )
) Name:____________
Date: 12 April 2006
Note 1 [2011] EWHC 1560 (Comm) [Back]
Note 2 [22] [Back]
Note 3 [40] [Back]
Note 4 [114]-[116] [Back]
Note 5 [54] [Back]
Note 6 [128] [Back]
Note 7 [88] [Back]
Note 8 [96] [Back]
Note 9 [103] [Back]
Note 10 [103] [Back]
Note 11 [103] [Back]
Note 12 [107] [Back]
Note 13 [108] [Back]
Note 14 [2010] 1 WLR 753: particularly at [45] per Lord Clarke of Stone-cum-Ebony JSC [Back]
Note 15 Edwards v Skyways [1964] 1 WLR 349 at 355 per Megaw J. [Back]
Note 16 See in particular: Rainy Sky v Kookmin Bank [2011] 1 WLR 2900 at [21] per Lord Clarke of Stone-cum-Ebony JSC. [Back]
Note 17 Pagnan Spa v Feed Products Limited [1987] 2 Lloyd’s Rep 601 at 611. [Back]
Note 18 RTS Flexible Systems case (supra) at [48] [Back]
Note 19 Hillas v Arcos Ltd (1932) 147 LT 503 at 514 per Lord Wright. [Back]
Note 20 [46] [Back]
Note 21 [10] [Back]
Note 22 See Day 5 page 191 lines 11-17 [Back]
Note 23 For an example of a commercial contract where the judge held that the parties intended to create legal relations but the contract was not enforceable, see Dhanani v Crasnianski [2011] 2 All ER (Comm) 799. [Back]
Note 24 See [52] and [85] of judgment. [Back]
Note 25 Judge’s finding at [87] [Back]
Note 26 As defined in the SPA [Back]
Note 27 [1992] 2 AC 128. [Back]
Note 28 [107] [Back]
Horan v. O’Reilly & Ors
[2004] IEHC 425 (3 December 2004)
NOTE OF EX TEMPORE JUDGMENT of Mr. Justice Clarke delivered on the 3rd December, 2004.
It hardly goes without saying that the circumstances of this case are most unfortunate, involving a group of friends, some of them good friends, who have fallen out over the winnings of the lotto.
As pointed out in the Australian case cited to me by the Defendants of Cole v. Crain S.Ct. NSW 8/89 [1989] NSW Lexis 11361 BC8901838, one of the difficulties in respect of issues of this type is that the detailed legal analysis that has to be gone into when a dispute arises is very far from the informal arrangement entered into when parties set up a lottery syndicate.
The starting point is the legal framework. In that regard I am grateful for the New South Wales Court decision which Mr. Smyth has referred me to – a case which operates within a similar legal regime. This decision is persuasive as to the law applicable in Ireland. The issues can be presented in one of three ways. Firstly, a breach of fiduciary duty, a breach of trust on the part of the person organising the syndicate. Secondly, the way that the syndicate is conducted may give rise to a plea of estoppel. Thirdly and most practically and of most relevance, is the plea of a breach of contract. This arises when the arrangements for the establishment of a syndicate amount to a contract, there is an obligation to abide by that contract, and thereby abide by the rules of the syndicate.
A problem arises since people investing a small amount of money are unlikely to draw up detailed rules in a formal way for the conduct of such a syndicate. It is only when an issue such as in this case arises that an attempt must be made to establish what were the terms of the contract entered into by the parties.
It seems to me that this is the key legal question – what were the terms of the arrangements between the parties. Do they require that Mr. Horan is entitled to be considered a remaining member of the syndicate and thus entitled to share in the winnings?
It was pointed out in the Australian case that a person who seeks to show that he has a share in a ticket which was bought at a time when he did not pay for the ticket has a difficult case to make. However, on the facts of the New South Wales decision there was only very scant evidence that anyone had had tickets bought for them in circumstances when they had not been paid.
It is clear in this case that Mr. O’Brien did operate such a system for at least some period of time. Mr. Horan was carried by the syndicate notwithstanding that he was in arrears.
This case on its facts is significantly different from the New South Wales case. It was clearly established that for some period of time there was a process whereby tickets were bought where Mr. Horan had not paid up front. Mr. O’Brien bore that expense, he could recoup it from Mr. Horan at a later date.
It was common case that this happened on at least one occasion. It was also common case that there did exist a syndicate in which Mr. Horan was a member and that for at least some period of time tickets were bought when Mr. Horan was not in credit, which tickets were funded by Mr. O’Brien in respect of the Mr. Horan’s share. On one occasion at least, payment to catch-up was accepted.
The key differences between the parties on the facts were firstly the length of time for which Mr. Horan was in arrears in October 2000. Secondly and more importantly the events of a meeting, in October were highly controversial. It was agreed that a meeting did take place in that month in some shape or form Both counsel accepted that this meeting was central to the issues between the parties. I agree that the key to this case turns on that meeting in late October.
If what happened was as Mr. Horan said, then the facts were as follows:
Mr. Horan was in arrears from time to time, and when he was approached for payment in October, he made the payment requested. The winning ticket was bought in January 2001, at which stage he was still in arrears, but not to any greater extent than the custom and practice that had been allowed to develop.
If these are the true facts, then Mr. Horan is entitled to succeed, on the basis that the contract between the parties permitted arrears and the arrears at the relevant time were within permitted and established bounds.
On that basis and whatever the views of the other defendants, they allowed Mr. O’Brien to be the manager of the syndicate. Mr. O’Brien allowed arrears to build up, and therefore it seems that all the defendants are bound by the arrangements he made.
Therefore if it is as he alleges, Mr. Horan remained in the syndicate, and was a member of the syndicate when the winning ticket was drawn.
Equally, if I accept the evidence tendered by the Defendants, it is clear that Mr. Horan owed a more significant sum, and in substance refused to pay a sum of money in late October 2000 to clear those arrears.
Even on the defendants case it would have been better if there was a more formal indication given by Mr. O’Brien that Mr. Horan was no longer in the syndicate at that stage. It would therefore have been difficult for Mr. Horan to maintain that the syndicate continued with him as a member after such an action. If the plaintiff was formally asked to clear the arrears he either paid up or refused to pay up and brought the syndicate to an end.
In attempting to reach a conclusion as to these disputed facts, I am not required to be certain as to what happened. This is a case of civil jurisdiction, and I must decide it on the balance of probabilities. I am required to do the best I can.
Both sides in the course of closing submissions accepted that there is a real risk in circumstances such as this of people’s memories being muddied by subsequent discussions, particularly when issues which at the time were not very important, have subsequently become very important.
The issues that arose in January 2001 after the ticket was drawn gave rise to very active debate in the locality. Therefore, even though there are significant contradictions on the evidence, I am sure that at least in many cases the parties are telling the truth as they now believe it to be but that does not mean that they are accurate as to what did, in fact, happen.
It was pointed out that I should try to isolate “islands of fact”. Any hard and fast facts tend to give some guidance to the Courts, particularly in a case like this.
On Mr. Horan’s account, the meeting in October 2000 was an entirely non-descript event. He was asked for money and he paid it. Even on the account of Mr. O’Brien it is difficult to see that the meeting at the time would be considered to have been important. Unfortunately in this case there were few enough islands of fact.
At one stage it appeared that the question of the purchase of a tractor might give clues as to whose recollection might be correct. But at the end of the day the difference between the parties was again as to who was to be believed.
It was common case that the tractor was handed over in the beginning of June 2000, and paid for in November 2000. The issue was whether the tractor went back to the plaintiff before it was paid for.
One matter that I do feel is of some relevance is the question of the winnings of the syndicate. It was common case that there were some small winnings which the syndicate had won from the period of formation either to October 2000 or to January 2001.
Some of the facts in relation to those winnings are clear. Both Mr. Horan and Mr. O’Brien agreed that Mr. Horan had not been told that the winnings were to be invested in extra lines in the lotto. Mr. O’Brien’s explanation for this was that he did not see Mr. Horan. He said he did tell the other defendants. But what is certain in those circumstances is that it is difficult to see the justification for spending Mr. Horan’s share of the winnings on additional lines. Mr. Horan’s share of the winnings cannot be taken into account for defraying what Mr. O’Brien had spent on Mr. Horan’s account, as it was common case that there was no agreement that winnings they were to be used as a set-off. Nonetheless the winnings had to be dealt with in some way and in particular if the syndicate came to an end so far as Mr. Horan was concerned.
There was no explanation, and particularly no explanation from Mr. O’Brien as to why some arrangement was not made as to the winnings if, as he asserts, Mr. Horan had departed from the syndicate. It might have been that Mr. O’Brien might have used it as a set-off, but he did not say that that was agreed or that that was what happened.
Mr. O’Brien was very unclear as to the total amount of the winnings. He said that the accumulated winnings never exceeded £46.00 or £47.00. It was reported in the newspaper that it might have been £100.00. It did not seem clear if the £47.00 was the total amount of winnings, or the height of the accumulation.
If there was a definitive end to Mr. Horan being in the syndicate as is alleged by the defendants, something would have had to be done with his share of these winnings. No attempt was made to deal with those winnings at all. I place some reliance on this fact.
It is undoubtedly the case that in respect of some of his evidence Mr. Horan was unclear, to the point of being exasperating. I have come to the conclusion that this is due to his nature rather than an attempt to be evasive or untruthful.
I find on the balance of probabilities that the facts are broadly as outlined by Mr. Horan and for the reasons indicated earlier this means that I find for the plaintiff. I accept that Mr. Horan is broadly correct and in particular that the substance of the meeting in early October is as he has stated. Having reached this conclusion and I find as a fact that the syndicate operated in a way which vested in Mr. O’Brien the authority to carry out all practical matters. Mr. O’Brien permitted the system to operate whereby Mr. Horan would be in arrears, as he was trustworthy. At Mr. O’Brien’s request in late October 2000, Mr. Horan paid the arrears. At the time the winning ticket was drawn he was not in any greater arrears than in the past. I find no facts from which it can be inferred that Mr. Horan had refused to pay arrears and removed himself from the syndicate. Therefore I am driven to the conclusion that he remained in the syndicate up to the date when the winning ticket was drawn. Therefore he is entitled to share in the proceeds of the winning ticket.
As I understand it the sum is lodged pending the outcome of the proceedings. I therefore make the declaration sought, that the plaintiff is beneficial owner of one fifth of the monies comprised in the National Lottery Lotto Jackpot of the 6th day of January 2001. I further direct that the monies held be paid to the plaintiff, together with costs. There is a stay for 21 days, and thereafter in the event of an appeal.
Approved: Clarke J.
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URL: http://www.bailii.org/ie/cases/IEHC/2004/425.html
Walsh -v- Walsh [2017] IEHC 181 (02 February 2017)
URL: http://www.bailii.org/ie/cases/IEHC/2017/H181.html EX TEMPORE JUDGMENT of Mr. Justice Richard Humphreys delivered on the 2nd day of February, 2017
1. I would like to thank senior and junior counsel and solicitors on both sides for their assistance. All the lawyers performed their task with considerable skill and gave me great assistance in what was a difficult case.
General comments regarding ex tempore judgments
2. I want to begin by making some brief comments about ex tempore judgments. A first point to be stressed is that there a number of decisions of appellate courts in other jurisdictions favouring the giving of ex tempore decisions. The New South Wales Court of Appeal in Hadid v. Redpath [2001] N.S.W.C.A. 416, at para. 45, per Heydon J.A., urged judges to adopt a “routine practice” of delivering unreserved judgments: “It is a technique with which famous names can be associated.”
3. Likewise, in Shirt v. Shirt [2012] EWCA Civ 1029, at para. 35, Lord Phillips M.R. stated; “As far as practicality is concerned, if the law is too constraining on judges improving their ex tempore judgments, then they will be loath to give ex tempore judgments. The delay caused by reserved judgments, and the extra time required from judges to prepare reserved judgments, are such that we should not discourage judges from giving ex tempore judgments. Once one accepts that it is open to a judge to amplify his judgment in this way, if he gives the judgment ex tempore, it seems to me very difficult to avoid the conclusion that, if a judge chooses to give oral judgment some time after the hearing, he should have the similar opportunity to amplify and improve the judgment when he receives it back in transcript form.”
4. This leads on to the second, related, point that there is considerable recognition of the proposition that an approved note of an ex tempore judgment is not to be equated with a note of a charge to a jury commanding stenographic exactitude. Such an approved note may develop and revise the verbatim transcript, and may “amplify and improve the judgment” in Lord Phillips M.R.’s phrase, including by way of giving fuller or clearer reasons for the result arrived at.
5. Kirby J. stated, in “Ex tempore judgments – reasons on the run” (1995) 25 Western Australian Law Review 213 at p 229, that “it is always possible, and entirely proper, for a judicial officer to revise ex tempore reasons, even extensively, without altering their substance or the orders which they sustain.”
6. Lord Neuberger, in a speech to annual conference of Supreme Court of New South Wales, “Sausages and the judicial process, the limits of transparency” 1st August 2014, at para. 23, said that “[o]f course, one of the secrets of the ex tempore judgment, at least in England, is that the judge gets the opportunity to “approve” the transcript of the judgment before it goes to the parties. I use inverted commas because, while some judges just improve the punctuation and the syntax, many judges use the opportunity to effect a fairly comprehensive rewriting. I have rewritten sentences even paragraphs. I have transposed paragraphs or even whole sections. I have even deleted sentences or paragraphs – sometimes because I simply could not understand what I had been trying to say. Once I added a paragraph because a brilliant new reason had occurred to me justifying my decision. In due course my decision was overturned and the Court of Appeal said that the new point was a particularly bad one – showing that cheats do not prosper. If I was going to add a point, I should have made it clear that it was a piece of esprit de l’escalier.”
7. Similarly, it was stated by McMurdo P., that “[e]x-temps are not like summing-ups or final directions to juries where every word said to the jury must be accurately recorded. You can revise ex-temps as long as the changes do not do too much violence to the meaning of what was said in court: “From Ex-Temps To Treatises; How Leading Judges Write”, Judicial Conference Of Australia Colloquium, 8th October 2016, at p. 2.
8. A third point to be emphasised in relation to ex tempore decisions is that while there are some advantages in terms of speed and immediacy, there are some ways in which the judgment so produced will differ from a reserved decision. For example, the immediate context of the ex tempore removes the necessity to recite a great deal of detail, particularly regarding matters that are not fundamental, and the need to recite facts not in dispute, because the parties present in court are immediately aware of those matters. Reasons may also be more summary than in a reserved judgment, sometimes severely more so. Kitto J. has stated that “The most common case of an insufficiently disciplined judgment is one which recites the facts in a degree of pedestrian detail that scorns to discriminate between those that really bear on the problem, those that may interest a story-lover but not one possessing the lawyer’s love of relevance, and those that are not even interesting but just happen to be there.” (“Why Write Judgments” (1992) 66 Australian Law Journal 787, p 792).
9. Munby L.J. in In re A. and L. (Children) [2011] EWCA Civ 1611, at para. 35, stated “I should add that there is no obligation for a judge to go on and give, as it were, reasons for his reasons” As Kirby J. has said, “the findings of fact need not be lengthy. They can be confined to the barest outline” ((1995) 25 Western Australian Law Review 213 at p 226). Indeed there has been some comment in Australia to the effect that appellate courts make allowances for the inherent limitations of ex tempore decisions at first instance.
10. A fourth point in relation to ex tempore decisions is there are a number of authorities, particularly Eagle Trust Company Ltd vPigott-Brown [1985] 3 All E.R. 119 and English v. Emery [2002] EWCA Civ 605, to the effect that it is the issues that are of importance to the judge that need to be specified rather than all of the issues identified by the parties. In Eagle Trust Co Ltd, at p. 122, Griffiths L.J. stated that reasons “need not be elaborate. I cannot stress too strongly that there is no duty on a judge, in giving his reasons, to deal with every argument presented by counsel in support of his case. It is sufficient if what he says shows the parties and, if need be, the Court of Appeal the basis on which he has acted.”
11. It was stated at para. 19 of English v Emery that “this does not mean that every factor which weighed with the judge in his appraisal of the evidence has to be identified and explained. But the issues the resolution of which were vital to the judge’s conclusion should be identified and the manner in which he resolved them explained. It is not possible to provide a template for this process. It need not involve a lengthy judgment. It does require the judge to identify and record those matters which were critical to his decision.”
12. Munby L.J. in A. and L. said at para. 43, “The fact that [the judge] did not deal in his judgment with every matter to which [counsel] draws attention does not of itself invalidate either his reasoning or his conclusions.” That is in the context of authority to the effect that there is a “huge virtue in brevity of judgment”, as Thorpe L.J. put it in Re B (Appeal: Lack of reasons) [2003] ECA Civ 881.
13. There is no obligation to deal with every point made, but having said that it is often good practice to identify what the parties say the issues are; and hence I requested the parties in this case to prepare an issue paper, and I am grateful to them for their assistance in that process (albeit that they could not agree on an issue paper and produced competing versions) and in their written and oral submissions in identifying the elements of the case on which they place reliance.
14. While in some cases reasons should be expressly stated (see O’Mahony v Ballagh [2002] 2 IR 410), in other cases they may be implicit. The decision of Charleton J. in Lyndon v. Collins [2007] IEHC 487 (Unreported, High Court, 21st January, 2007) (cited in Foley v. Murphy [2007] IEHC 232 [2008] 1 IR 619) is illustrative of this point. Here, a District Court Judge ruled that he was “satisfied that the State has proved its case”, without providing further reasons for this decision. Charleton J. was satisfied that such a reason was lawful because it was “clearly implied in what the learned district judge said that she was convicting the accused because of the fact that she completely rejected his testimony and accepted instead the testimony of the prosecution” (at para. 11).
15. A fifth and final point for present purposes is that stressed in A and L by Munby L.J. at para 47 “[the judge] found himself faced with the dilemma, familiar to any family judge, of adjourning to prepare a written judgment, with all the further delays that might cause, or delivering an immediate extempore judgment so that plans for the children could be moved forward with minimal delay. [Counsel] submits, and I agree, that such extempore judgments should not be discouraged. On the contrary. The safeguard is the ability – indeed the duty – of the parties to seek further elaboration or explanation from the judge if they feel that something is missing.”
16. That safeguard, the ability and indeed the duty of the parties to seek further elaboration or explanation from the judge if they feel that something is missing, whether an aspect of the case not being dealt with or reasons (or adequate reasons) not being given in relation to any conclusion, or some other error or omission, is one that should not be confined to any particular category of ex tempore decision and obviously for my part I want to be taken as applying that safeguard to any ex tempore judgement I might give, whether the present or any future one.
Overview
17. With those preliminary remarks out of the way, I now turn to an outline of the present case. This action concerns a dispute regarding a lottery jackpot on the 22nd January, 2011. The prize money was €3,389,794. The plaintiff, represented by Ms. Dervla Browne S.C. (with Mr. Kenneth Bredin B.L.), is the son of the late Peter Walsh who died testate on 26th of December 2011. The defendant, represented by Mr. Michael Delaney S.C. (with Mr. Darren Lehane B.L.) is the widow of the deceased. Between the 23rd and the 27th of January 2011 six persons signed the back of the winning ticket: the deceased, the defendant, the plaintiff, Kevin Black, Anthony Daly and Jason Daly; Kevin Black being a relative of the deceased and Anthony Daly and Jason Daly being sons of the defendant. The same six persons signed the National Lottery prize winner claim form. The National Lottery refers to a group of people who win the lottery collectively as a syndicate, possibly a somewhat exotic term with overtones of the sort of organisation that might have been encountered by an intrepid reporter in Chicago in 1931. The lottery instructions for syndicates state that all members of the syndicate must sign the back of the ticket and, as only one cheque is issued, that the syndicate must nominate one person to receive the prize-winning cheque. The nominated person completes the claim form giving full details, and the declaration form is proof that all members of the syndicate are deemed to be part-owners of the winning ticket and that their share of the prize is tax-free in accordance with the National Lottery Act 1986.
18. In the wake of the win, the defendant was nominated as the person to collect the prize. She contends that she was the sole winner and that the other signatories were added to the ticket on the advice of the lottery to ensure that any gifts she might see fit to make to them were exempt from tax. She made various distributions to the other signatories. Subsequently, the house belonging to Peter Walsh (which had been earlier transferred into joint ownership with the defendant) was conveyed to the plaintiff. The defendant contends that the plaintiff had been put to his election of a choice of either €200,000 out of the winnings, or getting the house.
Key issues
19. In terms of disputed questions of fact there were a large number of disputes on matters of fact big and small, perhaps so many that even a reserved judgment couldn’t address them all, but I will attempt to identify the key issues:
(i) Firstly, was Mrs. Walsh the sole purchaser and sole owner, or was the ticket bought as a joint exercise with the late Peter Walsh.
(ii) Secondly, did Peter Walsh have discussions with the plaintiff to the effect that they would share lottery winnings.
(iii) Thirdly, was the defendant advised by Mr. Eamon Hughes of the National Lottery that if she wished to give any gifts to persons she should have them sign the ticket and claim form so that such gifts would be exempt from tax.
(iv) Fourthly, was the plaintiff given the option of €200,000 or the house.
(v) Fifthly, did the deceased create a syndicate or did the six signatories otherwise constitute themselves a syndicate conferring on the plaintiff an entitlement to a one-sixth share.
(vi) Sixthly, by signing the claim form did the defendant and the deceased acknowledge the plaintiff’s co-ownership of the winning ticket.
(vii) Seventhly, did the deceased create an express trust by his words and actions.
20. In terms of disputed questions of law that require resolution the key issues seem to be as follows:
(i) Firstly, did the signature on the ticket confer joint ownership on the plaintiff.
(ii) Secondly, do the facts give rise to a constructive trust.
(iii) Thirdly, is the defendant precluded, as a matter of public policy, from relying on an intention to avoid tax as a basis for having been party to the arrangement whereby the plaintiff signed the ticket.
(iv) Fourthly, is the defendant precluded by her conduct from denying the plaintiff’s part ownership.
(v) Fifthly, would the plaintiff be unjustly enriched if successful such that he should hold the house on trust for the defendant.
Reliefs sought
21. The reliefs sought by the plaintiff are as follows:
(i) An Order declaring that the plaintiff is entitled to the sum of €564,965.66 from the €3,389,794.00 Lotto Prize Money and that the defendant received same as trustee for the plaintiff.
(ii) An Order that the defendant is liable to account to the plaintiff for the sum of €564,965.66.
(iii) An Order directing that the defendant to pay the plaintiff the sum of €564,965.66.
(iv) Further or in the alternative a Declaration that the plaintiff is entitled to trace the sum of €564,965.66.
(v) A Declaration that the defendant and/or the estate of the deceased holds the sum of €564,965.66 in trust for the plaintiff.
(vi) Further and in the alternative a Declaration that by his words and actions there was a valid Declaration of Trust by the deceased of one-sixth of the Lotto Prize Money being €564,965.66.
(vii) An Order for the taking of all accounts and enquiries.
(viii) An Order for all necessary and consequential orders and reliefs.
(ix) Damages.
(x) Such preliminary Orders for injunctive relief as may be required to preserve and/or protect the amount of €564,965.66 in the hands of the Defendant pending the determination of these proceedings.
(xi) An Order for the costs of these proceedings.
Factual issues
Was Mrs. Walsh the sole purchaser of the ticket?
22. I now turn to my findings of fact in relation to the seven key issues of fact I have identified. The first issue was whether Mrs. Walsh was the sole purchaser and sole owner, or was the ticket bought as a joint exercise with the late Peter Walsh. Mrs. Walsh’s evidence was that initially she was the sole purchaser and owner: as she puts it, she won the lotto. Having had the benefit of seeing and hearing her in the witness box I reject that evidence. I am satisfied she was an evasive and unreliable witness and that her evidence was characterised by ducking and weaving, self-contradiction and contradiction of more reliable evidence.
23. Independently of that, she has established what she thinks of the duty to give accurate sworn evidence by her approach to the Inland Revenue affidavit. I am satisfied that having been advised of the requirement to include full details of assets she made a conscious and deliberate decision to swear an affidavit that she knew was false. Not only did she intentionally tell untruths on oath, but I’m satisfied from the evidence that she did so for the purpose of concealing her assets from persons including the plaintiff who had a legal right to access that information. It is beyond credible that she could assert at the hearing that her omission of her assets was a mistake or that she would deny that it was for the explicit purpose of hiding assets from the plaintiff, given that the whole process was meticulously documented by her solicitors in contemporaneous notes.
24. I am satisfied the defendant is a person capable of very considerable calculation and design. I note her solicitor’s view that she was very careful to put all the deceased’s assets in joint names. Putting that design in place must have involved quite some effort on her part, including the establishment of a large number of bank accounts and having the house, previously in her husband’s sole name, transferred to joint names. She previously had had the Walsh family business transferred to her sole name. The really novelistic feature of the story was that having made all of those efforts she was tripped up by one single account in NIB, in an amount which was modest in the context of the overall €3.3m. She tried to get NIB to pay out without probate, and if they had agreed to do so, then the deceased would have left no estate. But the plot twist in this case was that NIB refused to pay out, so once the defendant was informed of that refusal, the only way to access the money was that she had to apply for probate and swear an Inland Revenue Affidavit. In that process she made a conscious decision to swear to something that she was fully aware was false.
25. Further insight into the mind-set and the calculating nature of the defendant is given by the destination of the money. The defendant had done fairly well out of the Walsh family before the lotto win, having had the business transferred to her sole name and half of the house transferred to her; legitimately so, I don’t criticise her in any way for that. But in that context her idea of a fair, proper and appropriate distribution of the €3.3million was to give less than €300,000 to her husband’s blood relatives while €3 million ended up with her and her blood relatives or at her disposal, bearing in mind the caveat that the full distribution of the money has not been explained or accounted for.
26. It was also striking that the defendant had a history of playing the lotto with the deceased as a joint exercise and she claimed she would buy tickets for both the deceased and herself. Yet when it came to the winning ticket this was converted in her mind and in her evidence into her sole win. The plaintiff had given evidence of the significance of the winning numbers to the deceased. That wasn’t contradicted in evidence by the defendant and I accept the plaintiff’s evidence in that regard.
27. A further insight into the defendant’s mind-set is that she made a special point of instructing her solicitors so the cheque was in her sole name and that she had a photocopy of it, as if this was a proof of title or a proof of some point in her favour. However, she was actually fully aware when she so instructed her solicitors that the Lottery only issue one cheque to a representative person nominated by the syndicate. Thus, a totally bogus point was being made and she fully knew of the facts which made it bogus. That was one of a number of attempts by the defendant to retrospectively create alternative facts or shift the goalposts.
28. The story of a sole win was also contradicted by the fact that, contrary to her instructions to her present solicitors on which the defence was drafted, the cheque was lodged to a joint account in full prior to the making of any payments from it. She attempted to make a virtue of that in evidence saying she was happy to share with her husband but I’m of the view that a more probable situation was that this purchase of the ticket was a joint exercise, and her husband’s involvement was more than just an act of unilateral generosity on her part.
29. Mr. Shane Feeney of Ulster Bank gave evidence in relation to the mandate whereby Mary Walsh was to be the sole signatory for the account into which the lottery money was lodged, an account in the name of Mary Walsh and Peter Walsh. Mr. Delaney in the course of his able submission contends that it is a matter of significance that Mary Walsh was the only signatory on that account. However, the defendant said in evidence that she handled the family finances. The fact that she was the sole signatory in that account does not establish that she was the sole owner. In any event, it seems to me it is not open to the defendant to make that case given that in her evidence under cross-examination she accepted the money was owned 50/50 with the deceased. In cross-examination she also accepted that the tickets were bought from money deriving from joint funds of herself and the deceased which reinforces the view I would have arrived at independently. Mr. Delaney says it is not pleaded that she drew money from joint funds, but I’m of the view it doesn’t have to be pleaded. That aspect (which reinforces, but is far from the only, or a necessary, basis for my conclusion on this issue) is a matter of evidence going to a question on which issue is joined in the pleadings. The arrangement in this case was the sort of family arrangement that was discussed by the Family Court of Australia in Zyk v. Zyk [1995] Fam CA 135 or the informal family situation discussed in Paul v. Constance [1977] 1 WLR 527.
30. An issue arose as to the plaintiff’s evidence that the deceased told him that he had won the lotto; saying words to the effect of “you should bring champagne, we’re after winning the lotto”. I am satisfied that the plaintiff’s evidence of what the deceased said is admissible as part of the res gestae in the sense that it is proximate to the discovery of the win and to the statement of the deceased to the plaintiff that he would get his share, and explains subsequent dealings discussions and celebrations in the aftermath of that statement. The People (D.P.P.) v. Lonergan [2009] 4 IR 175 indicates that even in the criminal context the question of proximity in time for the purposes of admitting res gestae is not rigid, but is one of a number of matters to be considered. I have considered the possibility of concoction (i.e., that the statement by the deceased could have been concocted because it was too remote in time from the fact to which it related, namely the lotto win) as well but I’m satisfied that evidence is admissible. Mr. Delaney submits the phone call could have been twelve hours after the lotto win and therefore there is a possibility of concoction, but that assumes that knowledge of the win was arrived at the time of the live lotto draw, which certainly has not been established. It is not the law that, as Mr. Delaney put it, the possibility of concoction cannot be excluded, and therefore the res gestae exception does not apply. The issue is what weight should be given by the court to any lapse of time. There is not much lapse of time anyway and I am satisfied that the statement by the deceased is sufficiently proximate to the event which it explains.
31. Even if I am wrong about all of that, the challenge doesn’t get the defendant anywhere because she accepted in evidence that she was sharing ownership of the money 50/50. It is not necessary therefore in this case to seek to expand exceptions to the hearsay rule; although it is notable historically that equity began with a concern as to injustice not only as to the substance of common law but also as to the rules of evidence (for example, Lord Campbell in Lives of the Lord Chancellors (2nd ed.) (London. John Murray, 1846) vol. I, p. 10, cites “suppression of documents” by virtue of common law rules as one impetus for the development of the chancery jurisdiction), which is perhaps a good argument for the proposition that the hearsay rule should be relaxed where its equitable to do so. However, that issue will have to be left to another case for further exploration.
32. As I say, even if I’m wrong about the admissibility of this statement it is not essential to my conclusions but simply reinforces a conclusion arrived at independently. Having heard and seen the plaintiff in the witness box I accept his evidence generally and in particular on the issue we are dealing with at present namely that the deceased saw himself as having won the lotto. The plaintiff’s evidence overall was broadly consistent internally, unlike the evidence of the defendant. Furthermore the content of the plaintiff’s evidence was broadly such that it could be relied on, having regard to the other evidence, unlike the evidence of the defendant.
33. I am satisfied on the balance of probabilities that the evidence of the plaintiff is honest and generally reliable. The point is made that he delayed in raising the issue of the lotto win or raised the issue of the will first rather than raising it as a claim to a share in the lotto. However it seems to me that the approach of the plaintiff makes sense in the sense that he thought that his entitlement to the winnings might have been dealt with in the will. On the balance of probabilities I am satisfied that the ticket was purchased as a joint exercise between the defendant and the deceased. Even if I am wrong about that, it does not in fact affect the result of the case having regard to other conclusions I reach in the light of events subsequent to the purchase.
Did Peter Walsh have discussions with the plaintiff to the effect that they would share a lottery winning?
34. The second factual issue is: did Peter Walsh have discussions with the plaintiff to the effect that they would share a lottery win? For the reasons I have referred to I accept the evidence of the plaintiff generally and in particular regarding discussions he had with the deceased that they would share lottery winnings and I reject the evidence of the defendant in that regard. On the balance of probabilities on the evidence I am satisfied such discussions did take place.
35. Ms. Browne argues that such discussions were in effect a pre-existing contractual arrangement and she says such contractual arrangement arises from the case pleaded at para. 4 of the statement of claim, which alleged that the deceased had regularly spoken to the plaintiff about sharing his money. This was dealt with on behalf of the plaintiff in replies to particulars by saying this was a matter of evidence for the hearing of the action. The evidence of the plaintiff at the hearing of the action was that he and his father played the lottery and gambled on other sports including GAA and horse racing over many years and in that context had spoken to him about sharing money won in the lottery. The plaintiff’s evidence was their mutual agreement and intention was that winnings were to be shared. Ms. Browne, as I say, calls this a pre-existing contractual arrangement which came to fruition with the signature of a ticket. Mr. Delaney says a pre-existing contract is not pleaded, and that the pleadings refer only to previous discussions. I think that calling it a pre-existing contractual arrangement is possibly over-formalising it. The issue is: what was the intention of the parties at the time of the transactions at issue in this case? Intention can be inferred from all of the circumstances, including previous discussions with the father, so it is relevant to that extent. I don’t think that relying on the previous discussions in that way takes Ms. Browne beyond para. 4 of the statement of claim. I am of the view that, from the deceased’s point of view, a win was not going to be something to benefit him as such but rather his wider family, including his own blood relatives and the plaintiff in particular.
36. This is not a case therefore where it would be accurate to say that a syndicate was retrospectively formed after the win. It is a case where it was in the contemplation of the deceased, as a player, that playing was for the benefit of himself and other family members. Thus, in my view it would not be correct to consider that the deceased was giving the plaintiff a gift by asking to sign the ticket. Rather, he was giving tangible expression to his intention and contemplation prior to having won, that any win would be for the benefit of family members, including the plaintiff.
37. Again, Zyk v. Zyk [1995] Fam CA 135 is of assistance in that regard. Here, it was stated that “In the ordinary run of marriages a ticket is purchased by one or other of the parties from money which he or she happens to have at that particular time. That fact should not determine the issue. Where both parties are in receipt of income and where their marriage is predicated upon the basis of each contributing their income towards the joint partnership constituted by their marriage, the purchase of the ticket would be regarded as a purchase from joint funds in the same way as any other purchase within that context and would be treated accordingly: see Anastasio [(1981) FLC 91-0193]. Where one party is working and the other is not the same conclusion would ordinarily apply because that is the mode of partnership selected by the parties. The income of the working member is treated as joint in the same way as the domestic activities of the non-working partner are regarded as being for their joint benefit. … In the sort of case to which we have referred above the conclusion would be that the ticket was purchased by joint funds and the contribution of the prize would be seen as a contribution by the parties equally. There may be cases where the parties have so conducted their affairs and/or so expressed their intentions that this would not be the appropriate conclusion, but in the generality of cases with which this Court would normally deal this appears to us to be the correct approach and the correct outcome” (paras. 50-51).
38. While that decision related to the informality of purchase from joint or individual funds, the more general point is that family arrangements may have a certain informality of execution but are underpinned by a prior intention of joint benefit (a similar point arises from Paul v. Constance, to which I will return). That principle extends beyond husbands and wives to include family arrangements intended to benefit other family members. The win in this case was an exemplification of that broader concept to the extent that the deceased intended in advance that any potential win would be for the benefit of his family members including the plaintiff. The arraignment for subsequent signature of the ticket was simply a formalisation of that prior arrangement and intention.
Was the defendant advised that anyone she wished to benefit by gift should sign the ticket in order to avoid capital acquisitions tax?
39. The third factual issue is whether the defendant was advised by Mr. Eamon Hughes of the National Lottery that if she wished to give any gifts to persons she should have them sign the ticket and claim forms so that such gifts would be exempt from tax. Mr. Hughes was emphatic that he had absolutely no recollection whatsoever of the defendant or of any dealings with her, yet at the same time, very unwisely, he seemed prepared to assume that he had given that advice to the defendant. He was totally unable to back up that assumption or give any reason for it and he resiled from it in cross-examination. Given that he has no recollections at all, his testimony on this matter is totally speculative and is devoid of real evidential value. Maybe he was influenced by the fact that he had been called by the defendant and in that process had had prior exposure to her story, or maybe not – the reason why he foolishly chose to give that evidence without any basis for doing so does not fundamentally matter for present purposes. The most one can say is that sometimes he drew winners’ attention to tax implications because he repeatedly said that Capital Acquisitions Tax thresholds were in the public domain. His evidence was however somewhat contradictory in the sense that he also said that the lottery didn’t give people advice, and that what they did with their money was their own business.
40. The most one can take from his evidence is that he might have referred to the tax position in conversation with the defendant but then again he might not. He was keen to stress the tax thresholds, and their being in the public domain, yet at the same time the defendant claimed to be unaware of them. She would hardly have been unaware of them if Mr. Hughes had drawn attention to them.
41. A further issue was as to the time when the phone call took place with Mr. Hughes. Mr. Delaney asked in re-examination a question to the effect that if a syndicate of say ten people won would Mr. Hughes send an email to his colleagues straight away. The particular hypothetical in the question – “if a syndicate of say ten people won” – was heavily relied on by Mr. Delaney in argument. However, the reply was that Mr. Hughes would contact colleagues forthwith because it takes time for money to be transferred from the Central Bank to the Bank of Ireland. Mr. Hughes’ emails to colleagues are on the Tuesday rather than on the Monday when the defendant says she called the lotto. Mr. Delaney seemed to be of the view that this answer supported the idea that the defendant could not have represented herself as part of a syndicate on the premise that she called on the Monday. However the answer seems just as open to the opposite conclusion, namely that she did not call on the Monday but rather first called on the Tuesday afternoon and that that call prompted a number of emails from Mr. Hughes all concentrated around that time. The content of those emails supports the proposition that she informed the lottery of the syndicate win. Mr. Hughes’ answer that it would take time for money to be transferred from the Central Bank to the Bank of Ireland, is just as valid when he received a call from a sole winner, as it is from a syndicate winner. The money has to be transferred either way. The answer contains nothing specific to a syndicate, still less to a syndicate of “say ten people”, and certainly isn’t at all supportive of the proposition that some more immediate action is required for a syndicate win than for a sole win.
42. Mr. Delaney suggested in argument that more time would be needed for a syndicate win because of additional formalities, particularly the claim form, but that speculation on his part was not something that the witness actually relied on and was not a proposition that he in fact dared to attempt to draw from the witness. Mr. Delaney also submitted there was no reason to put together a syndicate in the absence of, or prior to, the defendant having receiving advice from Mr. Hughes, but in fact there was every such reason, namely the family arrangement and the wishes of the deceased. In the absence of reliable supportive evidence I do not consider that it has been established on the balance of probabilities that Mr. Hughes actually gave any particular advice to the defendant to the effect that she should put other persons on the back of the ticket to avoid the imposition of tax. As I say, I find her evidence unreliable, both generally and on this issue. But even if I’m wrong about that, it does not follow that that any such advice in any way influenced the intentions of the deceased or the dealings of the plaintiff with other members of the syndicate.
43. Independently of that, the defendant’s story that six names were on the ticket for tax purposes does not make sense on a number of levels. If it was, as she claims, her ticket, no tax would be payable by the deceased, by Jason Daly on €300,000, or by the plaintiff, whether he took €200,000 or the house worth €135,000. So on her story, three of the five named added to the ticket were superfluous for tax purposes.
Was the plaintiff given the option of choosing €200,000 or the house?
44. The fourth question of fact is whether the plaintiff was given the option of €200,000 or the house. The defendant’s evidence on this issue is not credible. She suggests that she mentioned this alleged choice of €200,000 or the house to her solicitor Jack Duncan once and once only, in 2011, but never again. Jack Duncan was never called to give evidence, and there is absolutely nothing to suggest that he wasn’t available. It is not possible to accept that this issue would not have come up in discussions with his partner Aileen Giblin, particularly when going through the pros and cons of transferring the house to the plaintiff. It would have been a very simple answer to all the pros and cons to say – no, we’re doing this because Mr. Walsh agreed to take the house in lieu of a lotto win. It is even more incredible that if this happened, it would not have been mentioned when the plaintiff first made his claim in relation to the lotto. A letter was sent replying that the house was transferred but there was a complete absence of a suggestion that there had been an agreement that this was in lieu of him taking a share in the lotto.
45. In any event the idea that the plaintiff was given a choice of €200,000 or the house is not inherently plausible as it is evident from the evidence, which is unchallenged, that the house was worth €135,000. There is no apparent reason why the plaintiff would do himself out of €65,000. If the offer was to take the house or €135,000 then that might be more plausible, but as presented by the defendant this scenario does not strike me as one that commands acceptance as a matter of probability.
46. Furthermore, it is suggested that the plaintiff was offered a share in the lotto or the house before signing the claim form, but then signed the claim form and had already decided to take the house prior to the win being claimed. The supposed choice wouldn’t make sense in that context. If there was such a supposed choice, it would be inconsistent with the plaintiff being asked to sign the ticket, thus making him a co-owner under the lottery rules which I’ll come to. The defendant’s evidence is fundamentally inconsistent with such a choice having been offered in relation to what happened next.
47. Another feature which I rely on in rejecting the defendant’s evidence on this issue is that she accepts in her evidence that she was somewhat unwilling to transfer the house. She went out of her way to say from the witness box that the plaintiff didn’t deserve it. One must ask then why would she be so unwilling if she had already agreed to such a transfer in return for the plaintiff waiving his claim to the lotto win. That attitude could only be understood on one of two grounds; either there was no such agreement or there was an agreement and she was reluctant to honour it. Neither conclusion is terribly flattering for the defendant. I think having heard the evidence that the more likely option was that there was no such agreement. It is also notable that the defendant didn’t pass on any of this alleged information regarding tax implications that she said she received from the lottery. I also have regard to the reasons already mentioned for rejecting the defendant’s evidence generally and accepting the plaintiff’s evidence generally. On the balance of probabilities having heard the evidence I am satisfied that there was no agreement whereby the plaintiff was offered or took the house in lieu of €200,000 as his share of the lottery win.
Was a syndicate created by the deceased or otherwise constituted conferring an entitlement on the plaintiff to a one-sixth share?
48. The fifth issue is whether the deceased created a syndicate or whether the six signatories otherwise constituted themselves a syndicate conferring on the plaintiff an entitlement to a one-sixth share. There were a litany of acts by the six signatories individually and collectively which were consistent with them forming, and holding themselves out as, a syndicate. On the balance of probabilities on all the evidence, I conclude that the six persons did constitute themselves a syndicate by signing the ticket and the claim form and in their dealings with the lotto and indeed individually with the Revenue. I am satisfied on the evidence they did constitute a syndicate and the defendant held them out to the lotto as a syndicate and indeed the defendant and Jason Daly accepted as much in evidence.
Did Peter Walsh and Mary Walsh acknowledge the plaintiff’s co-ownership of the ticket?
49. The sixth question is whether, by signing the claim form, the defendant and the deceased acknowledged the plaintiff’s co-ownership of the winning ticket. I would answer that in the affirmative, having regard to the reasons as set out above, and ultimately the defendant, under cross-examination in the witness box, accepted that the other signatories were co-owners.
Did Peter Walsh create an express trust by his words and actions?
50. The seventh issue is whether the deceased created an express trust by his words and actions. The defendant gave evidence that the deceased knew that she was the winner. I reject her evidence in that respect for the reasons set out already regarding rejection of other related evidence. The evidence that the deceased informed the plaintiff that he would get his share and not have to worry about money was not challenged as to admissibility. Having regard to the matters as I have set out already, I accept the plaintiff’s evidence that the deceased said that the plaintiff would be taken care of, will get his share, and he won’t have to worry about money for the rest of his life.
51. The evidence as to whether there was a get-together on the Sunday was contradicted by the defendant, but I reject the defendant’s evidence to the contrary having regards the matters I have referred to. The plaintiff puts Jason Daly at the meeting although Jason Daly denies this. Jason Daly’s evidence was highly unsatisfactory. He changed his position multiple times on the question of gift versus loan, and seemed unnaturally eager to change his sworn evidence to avoid contradicting his mother. If he was unwilling to contradict her on the loan issue, I infer he would be probably unwilling to contradict her on the question of whether he was in attendance at the house or at what time. He bends with the wind. I am not satisfied that his evidence as to his involvement at the time of the win is credible or correct. Even if, contrary to my finding, the plaintiff’s recollection as to who was present in the house was incorrect, Jason Daly was only a figure at the periphery and the plaintiff never claimed to have seen him sign the ticket. I am satisfied the plaintiff’s recall of the key element namely his conversation with the deceased and the context of that conversation were honestly given and reliable having regard to the matters referred to. I am satisfied the acts of the deceased were such that they create an express trust in favour the plaintiff for one-sixth of the winnings. Reference to his share is properly understood in context as reference to an equal share. The point is made by Mr. Delaney that the one-sixth did not crystallise immediately so certainty was lacking. In that regard I accept Ms. Browne’s submission that it is irrelevant as to when the signatories signed the ticket because the defendant stated that it was agreed from an early stage that there would be six signatories; when they actually signed isn’t relevant for this purpose. The amount therefore was certain from an early stage, on the Monday or Tuesday even on the defendant’s own evidence. One has to look at the words and actions of the deceased overall when the decision was made to have six signatories, which at an early stage fixed and crystallised the terms of the trust that the deceased in my viewintended to create. The fact that the deceased did not expressly say “you are getting one-sixth” does not defeat the plaintiff’s claim in this regard. I am of the view that “you are getting your share” means an equal share, and the deceased’s actions, including having the ticket signed by six persons, clarifies what this means; namely, one sixth. As there could only be one nominated cheque recipient, that nominee, the defendant, was consequently to hold one-sixth of the money on trust for the plaintiff.
52. The Court of Appeal decision in Paul v. Constance [1977] 1 WLR 527 is of assistance, particularly the statement at p. 530 analysing transactions where parties were “unaware of the subtleties of equity but understanding very well indeed their own domestic situation”. The Court of Appeal concluded that the High Court in that case was correct to hold an express declaration of trust made to the deceased even though it is “not easy to pin-point a specific moment of declaration” per Scarman L.J.
53. I also derive assistance from the decision in Re Golay’s Will Trusts [1965] 1 W.L.R. 969 where Ungoed-Thomas J. concluded that it is open to the court to interpret the phrase “a reasonable income” so as to quantify the precise extent of what that meant; and that the involvement of the court in quantifying the extent of the interest did not create such uncertainty as to prove fatal to the trust. Thus, the trust was not avoided on grounds of uncertainty, and reference is made to the fact that the courts were constantly required to make objective assessments as to what was or was not reasonable.
54. Now if it had been necessary for me to determine what share was to be enjoyed by the plaintiff based only on the words spoken by the deceased in the context of an intention to have the ticket at a future point signed by six people, I would have held that the interest was to be a one-sixth interest, but of course we don’t have to speculate about what would have happened because the deceased did invite the plaintiff to sign the ticket and to participate in arrangement for a total of six persons, and that was then completed by the signature of the claim form and the presentation of the ticket and claim form to the lottery. Therefore there is no uncertainty that requires resolution, or that would prevent me from being satisfied as to the existence of a trust.
Questions of law
55. I now turn to the legal issues. The main legal submissions made on behalf of the defendant fall away having regards to my findings of fact. Indeed a number of those submissions do not even get off the ground having regard to the defendant’s evidence particularly under cross-examination.
Did the signature on the ticket confer joint ownership?
56. The first legal issue is whether the signature on the ticket conferred joint ownership. My attention has been drawn to an interesting discussion by the Supreme Court of India of the legal nature of lottery tickets in H. Anraj and Government of Tamil Nadu [1985/1986] A.I.R. 63, where it was held that a lottery ticket comprised two rights, both of which were capable of being transferred, assigned or sold. But again, I find that the issue of ownership was conceded in evidence by the defendant herself and Jason Daly. The defendant ultimately accepted that the transactions of the lotto were such that the plaintiff was a co-owner. That seems to me to be a resiling from the case as pleaded that the plaintiff was not an owner. It seems to me to have been clearly acknowledged in the evidence that the plaintiff was a co-owner. That conclusion seems totally inconsistent with the argument that what the plaintiff was to get is a matter of gift and concession on the part of the defendant. If I am wrong about that, the rules of the game clearly confer ownership on the plaintiff having signed the ticket and the claim form. That is the distinction between this case and Horan v. O’Reilly [2008] IESC 65 where the ticket was not signed.
57. The National Lottery Act 1986, s.1, defines a National Lottery ticket as “entitling its owner to participate in the National Lottery” and a winning ticket as “a ticket the owner of which is entitled to a prize in the National Lottery”. The plaintiff is an owner under the rules of the lottery and therefore is “entitled to a prize”, according to the definitions in the 1986 Act. Mr. Delaney argues that signature of the ticket doesn’t confer equal ownership but that such ownership depends on the intentions of the formers of the arrangement, in this case the defendant. That however is an argument based on a false premise. First of all I hold that, arising from the plaintiff’s discussions with the deceased regarding sharing winnings and from the dealings between the deceased and the plaintiff prior to the win being claimed, there was an express, or if I am wrong about that, alternatively an implied, agreement that the plaintiff would receive a share equal to the share of any other player involved. It therefore follows on that the signature of the ticket by the plaintiff in the circumstances of this case conferred a one-sixth ownership. That conclusion is reinforced by the overall circumstances I have held that the purchase was a joint operation between the deceased and the defendant. Therefore, it would make sense and has logical appeal that the winnings would be divided equally between the deceased and his blood relatives, and the defendant and her blood relatives. The choice of six signatories is consistent with this in the sense of their being three signatories on each side of the family. As is the evidence which I have accepted that the deceased was the person who communicated with the plaintiff; it would be logical for the head of each side of the family to communicate with the members on that side. The agreement that there would be, in addition to the deceased and the defendant, two persons on the deceased’s side and two persons on the defendant’s side is very much in the spirit of equality, and of course equity favours equality.
58. The arrangement of three on each side would not make sense, or certainly wouldn’t make as much sense, if the amounts of their shares were to be out of kilter, or at the very least if the overall amount on each side were to be out of kilter. At most, the defendant’s submission amounts to the proposition that it may be that the three persons on the defendant’s side agreed to divide the money differently amongst themselves but, if so, that is a matter for them. The arrangements on her side don’t establish that there wasn’t intended to be an equal division between the two sides. I also have regard to the fact that at the end of her cross-examination the defendant accepted she couldn’t contradict the plaintiff’s view that he was getting a sixth. Mr. Delaney sought to object to that, but I think it was a legitimate question, and the answer only reinforces the conclusion I have arrived at independently.
59. The submission was made that the plaintiff didn’t assert a right to a one-sixth share prior to receiving a letter from the lotto saying that he was part of a six person syndicate. But that is a specious point because there is simply no logical connection between receiving such a letter and asserting a claim. The plaintiff knew at all times that he was one of six people who were signatories to the ticket, and to the claim form, and the letter didn’t tell him anything that he didn’t already know in that regard.
60. The next submission was that the evidence of the plaintiff was not consistent with an argument that everybody who signed the ticket was entitled to one-sixth each because of the fact that other persons received other amounts of money as opposed to exactly one-sixth. However, Jason Daly’s evidence was that there was an agreement between himself and the defendant, and for whatever reason, Anthony Daly was not called and again there is absolutely nothing to suggest he wasn’t entirely available to give evidence. The case is not about what agreements were made with other people individually on the defendant’s side of the family.
61. If I’m wrong about all of that, the alternative situation arises that in my view, in all the circumstances even if there wasn’t a positive express or an implied agreement that the plaintiff would be a one-sixth owner, the circumstances are such as to confer equal joint ownership on the plaintiff in the absence of an agreement of the contrary, again having regard to the principal that equity favours equality, and I find there was no such contrary agreement. I am satisfied on the balance of probabilities that the intention was the plaintiff’s share was to be on a one-sixth basis.
Do the facts of the case give rise to a constructive trust?
62. The second question of law is whether the facts give rise to a constructive trust. Given that the rules of the game states that the nominated person collects on behalf of all members, it axiomatically follows that the nominated person, in this case the defendant, holds the winnings in trust for all members to the extent of their ownership. In the case of the plaintiff I hold that there is an express trust in favour of the plaintiff to the extent of one-sixth of the winnings, but even I am wrong about an express trust the defendant holds one-sixth of the winnings on a constructive trust for the plaintiff. Mr. Delaney suggested that preconditions for a constructive trust were not established, but I have regard to the view of Barron J. in N.A.D. v. T.D. [1985] I.L.R.M. 153, at p. 160, that a “constructive trust is imposed by operation of law independently of intention in order to satisfy the demands of justice and good conscience”. I accept Ms. Browne’s submission that a constructive trust is imposed in any situation or if one person is in possession of property belonging to another and does not account for that. In this situation we have the twin requirements of ownership and failure to account, and a trust is to be, and must be, imposed in that situation.
63. Reliance was placed by Mr. Delaney on the High Court of Australia decision in Russell v. Scott [1936] 55 C.L.R. 440, and that in Lynch v Burke [1995] 2 IR 159 which discussed rebutting the presumption of a result in trust by evidence in particular circumstances, but if anything those authorities seem to me to support the position of the plaintiff rather than the defendant.
64. Mr. Delaney submits that the beneficial ownership of the lottery monies falls to be determined by reference to the intention of the person who was the original owner of the ticket; on his submission the defendant, prior to the formation of the syndicate. He says the evidence establishes that Ms. Walsh’s intention was that the other persons would not be entitled to a portion as of right but would receive a payment of such amount as she and her discretion saw fit to make to them, as he put it. He says she has that discretion because the rules are silent on division and there was no pre-existing contractual arrangement. There are a number of fundamental problems with that submission.
65. Firstly, the factual basis for the submission does not exist. The defendant was not the original owner; the purchase was a joint exercise. Secondly, it wasn’t a case where the syndicate was born after the event. The syndicate was a crystallisation and a giving expression in concrete form to an intention that existed ab origine and was an intention in the mind of the defendant prior to buying the ticket. Further, there was an agreement between the plaintiff and the deceased that the plaintiff would get one-sixth and furthermore it is fundamentally contradictory to accept that the plaintiff was a co-owner and yet contend that the extent of his interest is totally discretionary and a matter of gift on the part of the defendant. It seems to me under the rules that the plaintiff wasn’t just the equitable owner but was the legal owner of the ticket in terms of the rules having signed it.
66. I find that there was an understanding and agreement between the plaintiff and the deceased and I also find that the defendant and the other signatories acquiesced by their conduct in that understanding and agreement that the plaintiff would get an equal share, namely a one-sixth share. If I am wrong about that, again I consider the share should be taken to be an equal share in all the circumstances in the absence of an agreement to the contrary and there has been no such agreement. On the facts, I am satisfied that the signature of the ticket was a concretisation of a family arrangement, not a gift to the plaintiff. Thus the approach in Dickerson v. Commissioner of Internal Revenue (2012) T.C. Memo 2012-60 whereby ownership fluctuated as between holding an unsigned and then a signed ticket, which was regarded as having been a transfer assignment or gift, doesn’t seem to me to arise.
67. If, contrary to the approach I have taken, asking the plaintiff to sign was a gift or an assignment of a chose in action, it was good in equity (an analogous situation arose in McEneany v Shevlin [1912] I.R. 32, relating to the assignment of deposit monies.) I note that Halsbury states (Vol. 13 para. 33) that “an assignment of an equitable chose or thing in action will be enforced, even though voluntary, provided that the donor has done everything required to be done by him in order to transfer the debt or fund”, and a similar rule applies to the equitable assignment of a legal chose in action. In the present case everything has been done to make the assignment complete in equity. The plaintiff and the other members of the syndicate signed the ticket, completed the claim form, and presented the documentation to the National Lottery which, in turn, was satisfied that everything was in order and confirmed that it regards the six persons concerned as the owners of the winning ticket. I draw support by analogy from Murray v.Murray [1939] I.R. 317 for the conclusion that (if I am wrong about an express trust) a constructive trust does arise on the facts as to one-sixth of the winnings.
Does public policy preclude the defendant from relying on an intention to avoid tax as a basis for having been party to an arrangement whereby the plaintiff signed the ticket?
68. A third legal issue is whether the defendant is precluded as a matter of public policy from relying on an intention to avoid tax as a basis for having been party to an arrangement whereby the plaintiff signed the ticket. It is better, I think, to speak in terms of preclusion rather than estoppel, in that preclusion is perhaps a broader equitable concept. Historically, estoppel has been an excessively technical doctrine, although, as Mr. McDermott’s work on The Law on Res Judicata and Double Jeopardy (Bloomsbury, 1999) (Ch. 9) points out, requirements, for example, of mutuality have been severely cut back in recent years. I am rejecting the defendant’s evidence that the reason the plaintiff signed the ticket was to avoid tax in the context of proposed discretionary gifts, but if I am wrong about that conclusion, it would be contrary to public policy to give effect to such an agreement having regard to the principles discussed in Gascoigne v. Gascoigne [1918] 1 K.B. 223 and McEvoy v. Belfast Banking Co. Ltd [1935] A.C. 24, Parkes v. Parkes [1980] I.L.R.M. 137.
69. In Revenue Commissioners v. Droog [2016] IESC 55, at para. 1.1, Clarke J. refers to a distinction between tax evasion, which involves “the improper concealment of facts from the tax authorities so as to unlawfully reduce tax, on the one hand, and tax avoidance on the other”. Here, on the defendant’s evidence, it seems to me that the facts amount to a situation where there was improper concealment. On her case, the recipients of the win were held out as owners, but were in fact at the mercy of the defendant who would give them such gifts if any as she wished to give in her discretion. Droog is dealing with tax avoidance versus evasion in the formal context of the Taxes Acts. Here we are dealing with the broader context of public policy. It seems to me that to permit the defendant to make the case she seeks to make would be to allow the operation of the statutory tax exemption in favour of lotto winners to be carried out in such a way as to undermine statutory policy regarding the taxation of capital acquisitions in the context of, and perhaps this is the important point, an essentially incorrect representation that the donees were actual owners as opposed to persons who are simply intended recipients of gifts. Such situation would in my view be contrary to public policy.
70. Mr. Delaney submits that it is a point in his favour that the defendant was not herself to benefit from the tax evasion. That is not the case because she derived utility from her sons not having to pay gift tax (for example, because the financial benefit thereby conferred lessened any need for them to make further calls on her resources at a future point). But even if she didn’t, such an arrangement is still contrary to public policy. Thus, any such agreement should be disregarded and, on that basis, the plaintiff is entitlement to a one-sixth share would stand.
Does the defendant’s conduct preclude her from denying the plaintiff’s part-ownership?
71. The fourth question of law then is whether the defendant is precluded by her conduct from denying the plaintiff’s part-ownership. I find as a fact the defendant held the plaintiff out as an owner, and in my view she is precluded in equity from denying his part-ownership. She hasn’t established any agreement for an unequal share to be held by the plaintiff. In my view,preclusion or estoppel clearly arises. The plaintiff did act to his detriment in signing the claim form in the sense that he could have sought to have the beneficiaries nominate someone else. If he had dug his heels in, it is accepted that the defendant would not have been able to collect the cheque. Therefore, by signing the claim form he conferred a benefit on the defendant and waived the possibility of using the leverage of signature so as to ensure a more neutral nominee would be appointed. Even if I am wrong about estoppel in the formal sense, I consider the defendant is precluded in equity from denying the plaintiff’s part-ownership. Again, I come to the point that in evidence the defendant accepted the plaintiff’s part-ownership in cross-examination which reinforces the conclusion I have independently arrived at.
If successful in the action, would the plaintiff be unjustly enriched?
72. The fifth, and final, question of law is whether the plaintiff would be unjustly enriched if successful in the action such that he should hold the house on trust for the defendant (see Corporation of Dublin v. Building and Allied Trade Union [1996] 1 I.R. 468, p. 483 per Keane J.). Mr. Delaney states that his argument regarding unjust enrichment is based on the evidence that he was offered the choice between €200,000 or the house; evidence I have obviously rejected already. He also submits that even if this evidence is rejected, which it is, there was a close temporal connection between the lotto win and being told he was getting the house and that he would not have got the house without the win. The evidence regarding the house transfer is clear. There was no mention of lotto winnings from beginning to end. It is clear that the plaintiff’s father wished to benefit him by transferring the house to him. I am satisfied on the evidence on the balance of probabilities that the intention was clearly to make an unconditional gift of the house to the plaintiff. That conclusion is supported by documentary material at the time including solicitor’s attendances, and that it was also the intention of the defendant to do so. Thus, I reject the proposition that the house is held on a constructive trust. No agreement at the time of the house transfer has been established that it was to be done in the context of the lotto, and again it is almost incredible that it can be suggested that that would be the case given that it is not mentioned at any stage in the very detailed contemporaneous documentary materials. That there may have been a close temporal connection, and that he might not have got the house without the lotto win, are not sufficient in equity to establish that there would be unjust enrichment or that there was a constructive trust or that there is any other basis for the counterclaim to succeed as pleaded. The onus to prove the counterclaim rests on the defendant and she has failed to discharge that onus. I have rejected her evidence on this issue for reasons set out earlier.
73. In any event to transfer the house to the defendant now would unjustly enrich the defendant given the manner in which he dealt with the proceeds of a lottery win. Furthermore, the defendant’s breach of trust and calculated deception to conceal her assets are such that she fails the clean hands test and would not present as a compelling candidate to be granted equitable relief. On that issue and on the issue of preclusion, the comments of the Supreme Court in Carrigaline Community Television Broadcasting Co. Ltd. v.Minister for Transport [1997] 1 I.L.R.M. 241 are apposite. The court may refuse equitable relief to plaintiffs whose legal rights have been infringed where they have themselves been guilty of inequitable conduct. That long-established maxim of equity will apply even though the inequitable conduct of the party concerned has not directly affected the other party, as illustrated in Parkes v.Parkes [1980] I.L.R.M. 137.
74. This is illustrative of the legal principle of more general application, ex turpi causa non oritur actio. That maxim recognises the reluctance of courts to allow those who have themselves repudiated legal obligations to invoke the law when it seems expedient for them to do so.
75. Accordingly there will be a mandatory order directing the defendant to pay to the plaintiff the sum of €564,065.66 forthwith, and I will dismiss the counterclaim.
Consequential orders
76. Costs follow the event. In relation to the question of terms of a stay and the question of an injunction and the question of a return date for discovery in aid of execution, I have regard to a number of matters. Firstly, the fact that I have found that the defendant intentionally gave false evidence on oath as to her assets to the Revenue Commissioners. Secondly, that she did so for the purpose of concealing her assets from persons who had a legal entitlement to know about them including the plaintiff in particular. Thirdly, that she gave inaccurate, evasive and unreliable evidence from the witness box. Fourthly, in particular, that inaccurate evidence included her denying that she had intentionally made a false statement from the Revenue affidavit and further denying that she had done so with the intention of concealing her assets in the manner described.
77. Further, I have regard to my finding that she is a person of considerable calculation and design. I have regard to the fact that the lottery winnings have not been fully accounted for and finally to the fact that payments out of the winnings in replies to particulars were not fully disclosed on behalf of the defendant and to all the circumstances and the matters set out above.
78. So, having regard to all those factors I am prepared to give the defendant a stay on the order in favour of the plaintiff, but the stay would be on the actual enforcement of the judgment and the actual enforcement of, as opposed to taxation of, the costs. That stay does not stay any interim measures such as injunctive relief, discovery in aid of execution or any other steps to be taken by the plaintiff to protect the order in his favour that I have made. So I would grant that stay for 28 days and if a notice of appeal is lodged within 28 days until the determination of the appeal by the Court of Appeal, but in the circumstances and having regard to the matters that I have referred to, the stay needs to be on terms that are sufficient to ensure that the order I have made in favour of the plaintiff is protected.
79. I am unhappy to put it at a minimum at the suggestion that the defendant might be spending the plaintiff’s money in order to prevent the plaintiff from getting access to his money, but independently, the plaintiff is entitled to assurance that he will be able to protect the award and a sum for costs, as otherwise the award would be diminished by having to pay costs out of it. So I am going to act on the basis of the rough estimate of costs I have been given on behalf of the plaintiff. I have not been given a counter-figure on behalf of the defendant. I appreciate time is short but I will deal with that by giving liberty to apply to vary the amount of the lodgement. So the term of the stay will be that the stay will be operative as and when the defendant lodges in the High Court, to the credit of the action, the sum of €929,965.66 which is made up of €564,965.66 by way of judgment, €300,000 by way of an estimate of the costs in this court, and €65,000 by way of an estimate of 50% of the costs of an appeal. There will be liberty to apply to vary that figure if the defendant wants to dispute it or to suggest an alternative figure.
80. In relation to injunctive relief, the suggestion that the plaintiff should proceed, even for the purposes of an application today, on affidavit and by way of notice of motion is unnecessarily formalistic in the context where I have heard oral evidence and made findings on the basis of that. So I will provide for an injunction to prevent the defendant from reducing her assets below the sum of €929,965.66 and I will give everyone liberty to apply and Ms. Browne can have a return date of Monday 6th February, 2017 at 12 o’clock for a motion for discovery in aid of execution or any other relief she wants to apply for, the motion to be served by close of business tomorrow and to be returnable for 11:45 on Monday.