Performance Issues
Cases
Cutter v Powell
(1795) 101 ER 573
The arguments for the plaintiff.
“ The plaintiff is entitled to recover a proportionable part of the wages on a quantum meruit for work and labour done by the intestate during that part of the voyage that he lived and served the defendant; as in the ordinary case of a contract of hiring for a year, if the servant die during the year, his representatives are entitled to a proportionable part of his wages. If any defence can be set up against the present claim, it must arise either from some known general rule of law respecting marine service, or from the particular terms of the contract between these parties. But there is no such rule applicable to marine service in general as will prevent the plaintiff’s recovering, neither will it be found, on consideration, that there is any thing in the terms of this contract to defeat the present claim. It is indeed a general rule that freight is the mother of wages; and therefore if the voyage be not performed, and the owners receive no freight, the sailors lose their wages; though that has some exceptions where the voyage is lost by the fault of the owners, as if the ship be seized for a debt of the owners, or on account of having contraband goods on board; in either of which cases the sailors are entitled to their wages though the voyage be not performed. Vin. Abr. “Mariners,” 235. But here the rule itself does not apply, the voyage having been performed, and the owners having earned their freight. There is also another general rule, that if a sailor desert, he shall lose his wages: but that is founded upon public policy, and was introduced as a mean of preserving the ship. But that rule cannot apply to this case; for there the sailor forfeits his wages by his own wrongful act, whereas here the canon was prevented completing his contract by the act of God.
So if a mariner be impressed, he does not forfeit his wages; for in Wiggins v Ingleton[1] Lord Holt held that a seaman, who was impressed before the ship returned to the port of delivery, might recover wages pro tanto. Neither is there any thing in the terms of this contract to prevent the plaintiff’s recovering on a quantum meruit. The note is a security, and not an agreement; it is in the form of a promissory note, and was given by the master of the ship to the intestate to secure the payment of a gross sum of money, on condition that the intestate should be able to, and should actually, perform a given duty. The condition was inserted to prevent the desertion of the intestate, and to ensure his good conduct during the voyage. And in cases of this kind, the contract is to be construed liberally.
In Edwards v Child,[2] where the mariners had given bonds to the East India Company not to demand their wages unless the ship returned to the port of London, it was held that as the ship had sailed to India and had there delivered her outward bound cargo, the mariners were entitled to their wages on the outward bound voyage, though the ship was taken on her return to England. This note cannot be construed literally, for then the intestate would not have been entitled to any thing though he had lived and continued on board during the whole voyage, if he had been disabled by sickness from performing his duty. But even if this is to be considered as a contract between the parties, and the words of it are to be construed strictly, still the plaintiff is entitled to recover on a quantum meruit, because that contract does not apply to this case. The note was given for a specific sum to be paid in a given event; but that event has not happened, and the action is not brought on the note. The parties provided for one particular case: but there was no express contract for the case that has happened; and therefore the plaintiff may resort to an undertaking which the law implies, on a quantum meruit for work and labour done by the intestate. For though, as the condition in the note, which may be taken to be a condition precedent, was not complied with, the plaintiff cannot recover the sum which was to have been paid if the condition had been performed by the intestate, there is no reason why the representative of the seaman, who performed certain services for the defendant, should not recover something for the work and labour of the intestate in a case to which the express contract does not apply.”
Arguments on behalf of the defendant.
“ Nothing can be more clearly established than that where there is an express contract between the parties, they cannot resort to an implied one. It is only because the parties have not expressed what their agreement was that the law implies what they would have agreed to do had they entered into a precise treaty: but when once they have expressed what their agreement was, the law will not imply any agreement at all. In this case the intestate and the defendant reduced their agreement into writing, by the terms of which they must now be bound: this is an entire and indivisible contract; the defendant engaged to pay a certain sum of money, provided the intestate continued to perform his duty during the whole voyage; that proviso is a condition precedent to the intestate or his representative claiming the money from the defendant, and that condition not having been performed, the plaintiff cannot now recover any thing. If the parties had entered into no agreement and the intestate had chosen to trust to the wages that he would have earned and might have recovered on a quantum meruit, he would only have been entitled to 8l.; instead of which he expressly stipulated that he should receive thirty guineas if he continued to perform his duty for the whole voyage. He preferred taking the chance of earning a large sum in the event of his continuing on board during the whole voyage to receiving a certain, but smaller, rate of wages for the time he should actually serve on board; and having made that election, his representative must be bound by it.
In the common case of service, if a servant who is hired for a year die in the middle of it, his executor may recover part of his wages in proportion to the time of service:[3] but if the servant agreed to receive a larger sum than the ordinary rate of wages on the express condition of his serving the whole year, his executor would not be entitled to any part of such wages in the event of the servant dying before the expiration of the year. The title to marine wages by no means depends on the owners being entitled to freight; for if the sailors desert, or do not perform their duty, they are not entitled to wages though the owner earn the freight. Nor is it conclusive against the defendant that the intestate was prevented fulfilling his contract by the act of God; for the same reason would apply to the loss of a ship, which may equally happen by the act of God, and without any default in the sailors; and yet in that case the sailors lose their wages. But there are other cases that bear equally hard upon contracting parties; and in which an innocent person must suffer if the terms of his contract require it; e.g. the tenant of a house who covenants to pay rent and who is bound to continue paying the rent, though the house be burned down.[4]
Lord Kenyon Ch.J
I should be extremely sorry that in the decision of this case we should determine against what had been the received opinion in the mercantile world on contracts of this kind, because it is of great importance that the laws by which the contracts of so numerous and so useful a body of men as the sailors are supposed to be guided should not be overturned. Whether these kind of notes are much in use among the seamen, we are not sufficiently informed; and the instances now stated to us from Liverpool are too recent to form any thing like usage. But it seems to me at present that the decision of this case may proceed on the particular words of this contract and the precise facts here stated, without touching marine contracts in general. That where the parties have come to an express contract none can be implied has prevailed so long as to be reduced to an axiom in the law. Here the defendant expressly promised to pay the intestate thirty guineas, provided he proceeded, continued and did his duty as second mate in the ship from Jamaica to Liverpool; and the accompanying circumstances disclosed in the case are that the common rate of wages is four pounds per month, when the party is paid in proportion to the time he serves: and that this voyage is generally performed in two months. Therefore if there had been no contract between these parties, all that the intestate could have recovered on a quantum meruit for the voyage would have been eight pounds; whereas here the defendant contracted to pay thirty guineas provided the mate continued to do his duty as mate during the whole voyage, in which case the latter would have received nearly four times as much as if he were paid for the number of months he served. He stipulated to receive the larger sum if the whole duty were performed, and nothing unless the whole of that duty were performed: it was a kind of insurance. On this particular contract my opinion is formed at present; at the same time I must say that if we were assured that these notes are in universal use, and that the commercial world have received and acted upon them in a different sense, I should give up my own opinion.”
Ashhurst J
“ We cannot collect that there is any custom prevailing among merchants on these contracts; and therefore we have nothing to guide us but the terms of the contract itself. This is a written contract, and it speaks for itself. And as it is entire, and as the defendant’s promise depends on a condition precedent to be performed by the other party, the condition must be performed before the other party is entitled to receive any thing under it. It has been argued however that the plaintiff may now recover on a quantum meruit: but she has no right to desert the agreement; for wherever there is an express contract the parties must be guided by it; and one party cannot relinquish or abide by it as it may suit his advantage. Here the intestate was by the terms of his contract to perform a given duty before he could call upon the defendant to pay him any thing; it was a condition precedent, without performing which the defendant is not liable. And that seems to me to conclude the question: the intestate did not perform the contract on his part; he was not indeed to blame for not doing it; but still as this was a condition precedent, and as he did not perform it, his representative is not entitled to recover”
Grose J
“ In this case the plaintiff must either recover on the particular stipulation between the parties, or on some general known rule of law, the latter of which has not been much relied on. I have looked into the laws of Oleron; and I have seen a late case on this subject in the Court of Common Pleas, Chandler v Greaves.[6] I have also inquired into the practice of the merchants in the city, and have been informed that these contracts are not considered as divisible, and that the seaman must perform the voyage, otherwise he is not entitled to his wages; though I must add that the result of my inquiries has not been perfectly satisfactory, and therefore I do not rely upon it. The laws of Oleron are extremely favourable to the seamen; so much so that if a sailor, who has agreed for a voyage, be taken ill and put on shore before the voyage is completed, he is nevertheless entitled to his whole wages after deducting what has been laid out for him. In the case of Chandler v Greaves, where the jury gave a verdict for the whole wages to the plaintiff who was put on shore on account of a broken leg, the Court refused to grant a new trial, though I do not know the precise grounds on which the Court proceeded. However in this case the agreement is conclusive; the defendant only engaged to pay the intestate on condition of his continuing to do his duty on board during the whole voyage; and the latter was to be entitled either to thirty guineas or to nothing, for such was the contract between the parties. And when we recollect how large a price was to be given in the event of the mate continuing on board during the whole voyage instead of the small sum which is usually given per month, it may fairly be considered that the parties themselves understood that if the whole duty were performed, the mate was to receive the whole sum, and that he was not to receive any thing unless he did continue on board during the whole voyage. That seems to me to be the situation in which the mate chose to put himself; and as the condition was not complied with, his representative cannot now recover any thing. I believe however that in point of fact these notes are in common use, and perhaps it may be prudent not to determine this case until we have inquired whether or not there has been any decision upon them. ”
Lawrence J
“ If we are to determine this case according to the terms of the instrument alone the plaintiff is not entitled to recover, because it is an entire contract. In Salk. 65 there is a strong case to that effect; there debt was brought upon a writing, by which the defendant’s testator had appointed the plaintiff’s testator to receive his rents and promised to pay him 100l. per annum for his service; the plaintiff shewed that the defendant’s testator died three quarters of a year after, during which time he served him, and he demanded 75l. for three quarters; after judgment for the plaintiff in the Common Pleas, the defendant brought a writ of error, and it was argued that without a full year’s service nothing could be due, for that it was in nature of a condition precedent; that it being one consideration and one debt it could not be divided; and this Court were of that opinion; and reversed the judgment. With regard to the common case of an hired servant, to which this has been compared; such a servant, though hired in a general way, is considered to be hired with reference to the general understanding upon the subject, that the servant shall be entitled to his wages for the time he serves though he do not continue in the service during the whole year. So if the plaintiff in this case could have proved any usage that persons in the situation of this mate are entitled to wages in proportion to the time they served, the plaintiff might have recovered according to that usage. But if this is to depend altogether on the terms of the contract itself, she cannot recover any thing. As to the case of the impressed man, perhaps it is an excepted case; and I believe that in such cases the King’s officers usually put another person on board to supply the place of the impressed man during the voyage, so that the service is still performed for the benefit of the owner of the ship. ”
Bolton v Mahadeva
[1972] EWCA Civ 5 [1972] WLR 1009, [ [1972] 2 All ER 1322, [1972] 1 WLR 1009
Cairn LJ
The main question in the case is whether the defects in workmanship found by the Judge to be such as to cost £174 to repair — that is, between one-third and one-quarter of the contract price — were of such a character and amount that the Plaintiff could not be said to have substantially performed his contract. That is, in my view, clearly the legal principle which has to be applied to cases of this kind.
The rule which was laid down many years ago in the case of Cutter v. Powell in relation to lump sum contracts was that unless the contracting party had performed the whole of his contract, he was not entitled to recover anything. That strong rule must now be read in the light of certain more recent cases to which I shall briefly refer. The first of those cases is Dakin v. Lee, reported in 1916 1 King’s Bench, 566, a decision of the Court of Appeal, in which it was held that where the amount of work which had not been carried out under a lump-sum contract was very minor in relation to the contract as a whole, the contractor was entitled to be paid the lump sum, subject to such deduction as might be proper in respect of the uncompleted work. It is necessary to observe that the head-note of Dakin v. Lee was based, not upon the Judgments in the Court of Appeal, but upon the Judgments that had been delivered in the Divisional Court; and, as was pointed out in the case of Vigers v. Cook (1919 2 King’s Bench, 475, at page 483),that head-note does not properly represent the grounds of the decision of the Court of Appeal in that case. The basis on which the Court of Appeal did decide Dakin v. Lee is to be found in a passage of the Judgment of the Master of the Rolls, Lord Cozens-Hardy, on pages 578 and 579. I do not think it is necessary to read it in full, but I read this short passage from page 579: “But to say that a builder cannot recover from a building owner merely because some item of the work has been done negligently or inefficiently or improperly is a proposition which I should not listen to unless compelled by a decision of the House of Lords. Take a contract for a lump sum to decorate a house; the contract provides that there shall be three coats of oil paint, but in one of the rooms only two coats of paint are put on. Can anybody seriously say that under these circumstances the building owner could go and occupy the house and take the benefit of all the decorations which had been done in the other rooms without paying a penny for all the work done by the builder, just because only two coats of paint had been put on in one room where there ought to have been three?”
Then, in the case of Eshelby v. Federated European Bank (reported in 1932 1 King’s Bench, page 423), another case in the Court of Appeal, the position differed from that in Dakin v. Lee and the position in the present case, in that the claim in Eshelby was not against the principal to the contract with the contractor, but was against a surety. It was on that basis that Lord Justice Scrutton, giving the first Judgment, distinguished Dakin v. Lee. However, Lord Justice Greer, at page 431, took the view that that was not a ground on which Dakin v. Lee could be distinguished because, unless the principal contracting party was liable, the surety could not be liable. Lord Justice Greer dealt with Dakin v. Lee in this way:
“If the appellant in the present case had not broken his contract so as to make himself liable in damages, but had only through some trifling omission failed, as the plaintiffs in Dakin v. Lee were held to have failed, to recover the full contract price, then I am inclined to think that Taglioni on receiving the stipulated notice would have been liable to make the agreed payments, and that consequently the respondents on receiving the appropriate notice would have been liable in this action”.
Lord Justice Slesser agreed at the foot of page 431 and said:
“The agreement between the parties by clause 11 provides for the liability of Taglioni in certain events. He agrees with the appellant and with the respondents, and undertakes that Olympus, Ltd., shall ‘subject to the works being duly executed in accordance with this agreement’ make to the appellant the payments mentioned in clause 2. It has been found as a fact that the works never were duly executed in accordance with the agreement”;
and it may be material to note that in that case it was a contract for £1500, payable in four instalments. The instalment which was the subject-matter of the claim was £375; and the extent to which the work fell short of the standard required was valued at £80. That was held to be sufficient, at any rate in the judgment of Lord Justice Slesser, who deals most positively with the point, to reach the conclusion that the work had not been duly executed in accordance with the agreement.
Perhaps the most helpful case is the most recent one of Hoenig v. Isaacs, reported in 1952 2 All England Reports, page 176. That was a case where the plaintiff was an interior decorator and designer of furniture who had entered into a contract to decorate and furnish the defendant’s flat for a sum of £750; and, as appears from the statement of facts on page 177, the Official Referee who tried the case at first instance found that the door of a wardrobe required replacing, that a book-shelf which was too short would have to be re-made, which would require alterations being made to a book-case, and that the cost of remedying the defects was £55. 18s. 2d. That is on a £750 contract. The ground on which the Court of Appeal in that case held that the plaintiff was entitled to succeed, notwithstanding that there was not complete performance of the contract, was that there was substantial performance of the contract and that the defects in the work which there existed were not sufficient to amount to a substantial degree of non-performance.
I do not accept that this means that the Plaintiff is entitled to payment if the defects are of such a trifling nature that they can be disregarded under the de minimis rule, but that otherwise he is entitled to no payment. Assuming for the moment that the Judge is right on the figures, certainly it could not be said here that the defects could be regarded as being de minimis. But, in my view,that is quite a different test from the test of whether it can be said that the failure to complete was substantial. I do not think that the test can be based wholly on quantum. I think to some extent it depends upon the nature of the defects.
The main matters that were complained of in this case were that when the heating system was put on, fumes were given out which made some of the living rooms (to put it at the lowest) extremely uncomfortable and inconvenient to use; secondly, that by reason of there being insufficient radiators and insufficient insulation, the heating obtained by the central heating system was far below what it should have been. There was conflicting evidence about those matters. The Judge came to the conclusion that because of a defective flue, there were fumes which affected the condition of the air in the living rooms, and he further held that the amount of heat given out was such that, on the average, the house was less warm than it should have been with the heating system on, to the extent of 10 per cent. But, while that was the average over the house as a whole, the deficiency in warmth varied very much as between one room and another. The figures that were given in evidence and, in so far as we heard, were not contradicted, were such as to indicate that in some rooms the heat was less than it should have been by something between 26 and 30 per cent.
The learned Judge, having made those findings, came to the conclusion that the defects were not sufficient in degree to enable him to hold that there was not substantial performance of the contract. He expressed that conclusion in these terms: “The Defendant’s main complaints against the Plaintiff — that is, the style of radiators, fumes from the boiler flue, and inadequacy of heat provided by the system — neither by themselves nor in combination amount to a sufficiently important part of the Plaintiff’s obligation to prevent there being substantial performance”.
Now, certainly it appears to me that the nature and amount of the defects in this case were far different from those which the Court had to consider in the cases of Dakin v. Lee and Hoenig v. Isaacs. For my part, I find it impossible to say that the Judge was right in reaching the conclusion that in those circumstances the contract had been substantially performed. The contract was a contract to install a central heating system. If a central heating system when installed is such that it does not heat the house adequately and is such, further, that fumes are given out, so as to make living rooms uncomfortable, and if the putting right of those defects is not something which can be done by some quite small amendment of the system, then I think that the contract is not substantially performed.
The actual amounts of expenditure which the Judge assessed as being necessary to cure those particular defects were 540 in each case. Taking those matters into account and the other matters making up the total of £174, I have reached the conclusion that the Judge was wrong in saying that this contract had been substantially completed; and, on my view of the law, it follows that the Plaintiff was not entitled to recover under that contract.
I have reached that conclusion without taking into account an argument that was pressed upon us in this Court by Mr Mahadevato the effect that it was a term of the contract that no payment should become due until the work had been completed to such an extent and in such a manner that he could properly sign a satisfaction note to be handed to an insurance company which was guaranteeing payment of the contract price. That contention must necessarily depend upon the existence of some implied term to that effect, because there is nothing expressly in the contract about it. If the Defendant wanted to rely upon such an implied term, I think it was necessary for him to plead it, which he did not. It does not seem that any evidence was directed at the hearing to any such implied term, and no reference to the matter is made in the notice of appeal. I therefore disregard that part of the Defendant’s argument in this Court.
It is unnecessary, having regard to the view that I have taken on the main point, to say anything about the contention that the Judge failed to give sufficient weight to the evidence of the Defendant’s independent witness. If it were relevant, my view would be that it would be quite impossible to say that the Judge, having heard two expert witnesses, was wrong in preferring, in so far as he did prefer, the evidence of one to the evidence of the other.
So far as the Defendant’s claim in respect of fees for the report which he obtained from his expert is concerned, it seems to me quite clear that that report was obtained in view of a dispute which had arisen and with a view to being used in evidence if proceedings did become necessary, and in the hope that it would assist in the settlement of the dispute without proceedings being started. In those circumstances, I think that the Judge was right in reaching the conclusion that that report was something the fees for which, if recoverable at all, would be recoverable only under an Order for costs.
So far as concerns the damages in respect of the inconvenience to which the Defendant was put, the Judge, as I have said, assessed that inconvenience at £15. I must say that, on the evidence, it seems to me to be a low figure; but obviously it is a figure which is incapable of any exact assessment, and I am not prepared to say that the Judge was wrong in assessing that sum.
It is unnecessary to say anything about the Defendant’s application for leave to amend his notice of appeal in order to advance an argument in relation to costs, because clearly the situation in relation to costs will be different after the Judgments have been given in this Court from that which it was at the end of the hearing before the learned Judge.
It appears to me that the result should be this, that the appeal should be allowed and the Judgment in favour of the Plaintiff should be set aside. It is not, I think, contested that there is in respect of the extras a sum of £61 which was due to the Plaintiff at the commencement of the action; that, of course, is far less than the £400 which had been paid into Court.
If my Lords agree with the Judgment which I have delivered, it will be for consideration then as to the exact form of the Order that this Court should make.
Photo Production Ltd v Securicor Transport Ltd
[1980] UKHL 2 [1980] AC 827, [1980] 1 All ER 556
Lord Wilberforce
It is first necessary to decide upon the correct approach to a case such as
this where it is sought to invoke an exception or limitation clause in the contract.
The approach of the Master of the Rolls in the Court of Appeal was to consider
first whether the breach was “fundamental”. If so, he said, the court itself
deprives the party of the benefit of an exemption or limitation clause ([1978]
1 W.L.R. 863). The Lords Justices substantially followed him in this argument.
The Master of the Rolls in this was following the earlier decision of the
Court of Appeal, and in particular his own judgment in Harbutt’s “Plasticine”
Ltd. v. Wayne Tank & Pump Co. Ltd. [1970] 1 Q.B. 447. In that case Lord
Denning distinguished two cases (a) the case where as the result of a breach of
contract the innocent party has, and exercises, the right to bring the contract
to an end, (b) the case where the breach automatically brings the contract to
an end, without the innocent party having to make an election whether to
terminate the contract or to continue it. In the first case the Master of the Rolls,
purportedly applying this House’s decision in the Suisse Atlantique case [1967]
1 A.C. 361, but in effect two citations from two of their Lordships’ speeches,
extracted a rule of law that the “termination” of the contract brings it, and with
it the exclusion clause, to an end. The Suisse Atlantique case in his view
“affirms the long line of cases in this court that when one party has been guilty
“of a fundamental breach of the contract . . . and the other side accepts it, so
“that the contract comes to an end . . . then the guilty party cannot rely on an
“exception or limitation clause to escape from his liability for the breach”
(Harbutt’s case p.467). He then applied the same principle to the second case.
My Lords, whatever the intrinsic merit of this doctrine, as to which I shall
have something to say later, it is clear to me that so far from following this
House’s decision in the Suisse Atlantique it is directly opposed to it and that
the whole purpose and tenor of the Suisse Atlantique was to repudiate it.
The lengthy, and perhaps I may say sometimes indigestible speeches of their
Lordships, are correctly summarised in the headnote—holding No. 3—”That
“the question whether an exceptions clause was applicable where there was a
“fundamental breach of contract was one of the true construction of the
“contract”. That there was any rule of law by which exceptions clauses are
eliminated, or deprived of effect, regardless of their terms, was clearly not the
view of Viscount Dilhorne, Lord Hodson, or of myself. The passages invoked
for the contrary view of a rule of law consist only of short extracts from two
of the speeches—on any view a minority. But the case for the doctrine does
not even go so far as that. Lord Reid, in my respectful opinion, and I recognise
that I may not be the best judge of this matter, in his speech read as a whole,
cannot be claimed as a supporter of a rule of law. Indeed he expressly disagreed
with the Master of the Rolls’ observations in two previous cases (Karsales
(Harrow) Ltd. v. Wallis [1956] 1 WLR 936 and U.G.S. Finance Ltd. v. National
Mortgage Bank of Greece [1964] 1 Lloyd’s Rep. 446 in which he had put forward
the “rule of law” doctrine. In order to show how close the disapproved doctrine
is to that sought to be revived in Harbutt’s case I shall quote one passage from
Karsales:
“Notwithstanding earlier cases which might suggest the contrary, it is
“now settled that exempting clauses of this kind, no matter how widely
“they are expressed, only avail the party when he is carrying out his
“contract in its essential respects. He is not allowed to use them as a cover
“for misconduct or indifference or to enable him to turn a blind eye to his
“obligations. They do not avail him when he is guilty of a breach which
“goes to the root of the contract”. (I.c. p.940).
Lord Reid comments as to this that he could not deduce from the authorities
cited in Karsales that the proposition stated in the judgments could be regarded
as in any way “settled law” (p.401).
His conclusion is stated on p.405: “In my view no such rule of law ought to
“be adopted”—adding that there is room for legislative reform.
My Lords, in the light of this, the passage cited by the Master of the Rolls
has to be considered. For convenience I restate it:
“If fundamental breach is established the next question is what effect,
“if any, that has on the applicability of other terms of the contract. This
“question has often arisen with regard to clauses excluding liability, in
“whole or in part, of the party in breach. I do not think that there is
“generally much difficulty where the innocent party has elected to treat
“the breach as a repudiation, bring the contract to an end and sue for
“damages. Then the whole contract has ceased to exist including the
“exclusion clause, and I do not see how that clause can then be used to
“exclude an action for loss which will be suffered by the innocent party
“after it has ceased to exist, such as loss of the profit which would have
“accrued if the contract had run its full term.” (Suisse At/antique [1967]
1 A.C. at p.398.)
It is with the utmost reluctance that, not forgetting the “beams” that may
exist elsewhere, I have to detect here a note of ambiguity or perhaps even of
inconsistency. What is referred to is “loss which will be suffered by the innocent
“party after (the contract) has ceased to exist” and I venture to think that all
that is being said, rather elliptically, relates only to what is to happen in the
future, and is not a proposition as to the immediate consequences caused by
the breach: if it were that would be inconsistent with the full and reasoned
discussion which follows.
It is only because of Lord Reid’s great authority in the law that I have found
it necessary to embark on what in the end may be superfluous analysis. For I
am convinced that, with the possible exception of Lord Upjohn whose critical
passage, when read in full, is somewhat ambiguous, their Lordships, fairly
read, can only be taken to have rejected those suggestions for a rule of law
which had appeared in the Court of Appeal and to have firmly stated that
the question is one of construction, not merely of course of the exclusion clause
alone, but of the whole contract.
Much has been written about the Suisse Atlantique. Each speech has been
subjected to various degrees of analysis and criticism, much of it constructive.
Speaking for myself I am conscious of imperfections of terminology, though
sometimes in good company. But I do not think that I should be conducing
to the clarity of the law by adding to what was already too ample a discussion
a further analysis which in turn would have to be interpreted. I have no second
thoughts as to the main proposition that the question whether, and to what
extent, an exclusion clause is to be applied to a fundamental breach, or a breach
of a fundamental term, or indeed to any breach of contract, is a matter of
construction of the contract. Many difficult questions arise and will continue
to arise in the infinitely varied situations in which contracts come to be breached
—by repudiatory breaches, accepted or not, anticipatory breaches, by breaches
of conditions or of various terms and whether by negligent, or deliberate action
or otherwise. But there are ample resources in the normal rules of contract Law
for dealing with these without the superimposition of a judicially invented rule
of law. I am content to leave the matter there with some supplementary observa-
tions.
1. The doctrine of “fundamental breach” in spite of its imperfections and
doubtful parentage has served a useful purpose. There was a large number of
problems, productive of injustice, in which it was worse than unsatisfactory
to leave exception clauses to operate. Lord Reid referred to these in the Suisse
Atlantique (p.406), pointing out at the same time that the doctrine of fundamental
breach was a dubious specific. But since then Parliament has taken a hand: it
has passed the Unfair Contract Terms Act 1977. This Act applies to consumer
contracts and those based on standard terms and enables exception clauses
to be applied with regard to what is just and reasonable. It is significant that
Parliament refrained from legislating over the whole field of contract. After
this Act, in commercial matters generally, when the parties are not of unequal
bargaining power, and when risks are normally borne by insurance, not only
is the case for judicial intervention undemonstrated, but there is everything to
be said, and this seems to have been Parliament’s intention, for leaving the
parties free to apportion the risks as they think fit and for respecting their
decisions.
At the stage of negotiation as to the consequences of a breach, there is every-
thing to be said for allowing the parties to estimate their respective claims
according to the contractual provisions they have themselves made, rather than
for facing them with a legal complex so uncertain as the doctrine of fundamental
breach must be. What, for example, would have been the position of the respon-
dents’ factory if instead of being destroyed it had been damaged, slightly or
moderately or severely? At what point does the doctrine (with what logical
justification I have not understood) decide, ex post facto, that the breach was
(factually) fundamental before going on to ask whether legally it is to be re-
garded as fundamental? How is the date of “termination” to be fixed? Is it the
date of the incident causing the damage, or the date of the innocent party’s
election, or some other date? All these difficulties arise from the doctrine and
are left unsolved by it.
At the judicial stage there is still more to be said for leaving cases to be
decided straightforwardly on what the parties have bargained for rather than
upon analysis, which becomes progressively more refined, of decisions in other
cases leading to inevitable appeals. The learned judge was able to decide this
case on normal principles of contractual law with minimal citation of authority.
I am sure that most commercial judges have wished to be able to do the same
(cf. Trade & Transport Inc. v. lino Kaiun Kaisha Ltd. [1973] 1 W.L.R. 210,
232 per Kerr J.). In my opinion they can and should.
2. The case of Harbutt must clearly be overruled. It would be enough to
put that upon its radical inconsistency with the Suisse Atlantique. But even if
the matter were res Integra I would find the decision to be based upon un-
satisfactory reasoning as to the “termination” of the contract and the effect of
“termination” on the plaintiffs’ claim for damage. I have, indeed, been unable
to understand how the doctrine can be reconciled with the well accepted prin-
ciple of law, stated by the highest modern authority, that when in the context of
a breach of contract one speaks of “termination”, what is meant is no more than
that the innocent party or, in some cases, both parties, are excused from
further performance. Damages, in such cases, are then claimed under the con-
tract, so what reason in principle can there be for disregarding what the con-
tract itself says about damages—whether it “liquidates” them, or limits them,
or excludes them? These difficulties arise in part from uncertain or inconsistent
terminology. A vast number of expressions are used to describe situations
where a breach has been committed by one party of such a character as to
entitle the other party to refuse further performance: discharge, rescission,
termination, the contract is at an end, or dead, or displaced; clauses cannot
survive, or simply go. I have come to think that some of these difficulties can
be avoided; in particular the use of “rescission”, even if distinguished from
rescission ab initio, as an equivalent for discharge, though justifiable in some
contexts (see Johnson v. Agnew [1979] 1 All E.P. 883) may lead to confusion in
others. To plead for complete uniformity may be to cry for the moon. But what
can and ought to be avoided is to make use of these confusions in order to
produce a concealed and unreasoned legal innovation: to pass, for example,
from saying that a party, victim of a breach of contract, is entitled to refuse
further performance, to saying that he may treat the contract as at an end, or
as rescinded, and to draw from this the proposition, which is not analytical
but one of policy, that all or (arbitrarily) some of the clauses of the contract
lose, automatically, their force, regardless of intention.
If this process is discontinued the way is free to use such words as “discharge”
or “termination” consistently with principles as stated by modern authority
which Harbutt’s case disregards. I venture with apology to relate the classic
passages: In Heyman v. Darwins Ltd. Lord Porter said:
“To say that the contract is rescinded or has come to an end as
“ceased to exist may in individual cases convey the truth with snt
“accuracy, but the fuller expression that the injured party is thereby
“absolved from future performance of his obligations under the contract
“is a more exact description of the position. Strictly speaking, to say that,
“on acceptance of the renunciation of a contract, the contract is rescinded is
“incorrect. In such a case the injured party may accept the renunciation as
“a breach going to the root of the whole of the consideration. By that
“acceptance he is discharged from further performance and may bring an
“action for damages, but the contract itself is not rescinded.” ([1942]
A.C.356, 399)
and similarly Lord Macmillan at p.373: see also Boston Deep Sea Fishing &
Ice Co. Ltd. v. Ansell 39 Ch.D. 339, 361 per Bowen L.J. In Moschi v. Lep Air
Services Ltd. [1973] A.C. 331, 350, my noble and learned friend Lord Diplock
drew a distinction (relevant for that case) between primary obligations under a
contract, which on “rescission” generally come to an end, and secondary
obligations which may then arise. Among the latter he includes an obligation
to pay compensation, i.e., damages. And he states in terms that this latter
obligation “is just as much an obligation arising from the contract as are the
“primary obligations that it replaces”. My noble and learned friend has
developed this line of thought in an enlightening manner in his opinion which
I have now had the benefit of reading.
These passages I believe to state correctly the modern law of contract in the
relevant respects: they demonstrate that the whole foundation of Harbutt’s
case is unsound. A fortiori, in addition to Harbutt’s case there must be over-
ruled the case of Wathes (Western) Ltd. v. Austins (Menswear) Ltd. [1976]
1 Lloyd’s Rep. 14 which sought to apply the doctrine of fundamental breach
to a case where, by election of the innocent party, the contract had not been
terminated, an impossible acrobatic, yet necessarily engendered by the doctrine.
Similarly, Charterhouse v. Tolly [1963] 2 Q.B. 683 must be over-ruled, though
the result might have been reached on construction of the contract.
I must add to this, by way of exception to the decision not to “gloss” the
Suisse Atlantique a brief observation on the deviation cases, since some reliance
has been placed upon them, particularly upon the decision of this House in
Hain Steamship Co. Ltd. v. Tate & Lyle Ltd. [1936] 2 All E.R. 597 (so earlier
than the Suisse Atlantique) in the support of the “Harbutt” doctrine. I suggested
in the Suisse Atlantique that these cases can be regarded as proceeding upon
normal principles applicable to the law of contract generally viz., that it is a
matter of the parties’ intentions whether and to what extent clauses in shipping
contracts can be applied after a deviation, i.e., a departure from the con-
tractually agreed voyage or adventure. It may be preferable that they should
be considered as a body of authority sui generis with special rules derived from
historical and commercial reasons. What on either view they cannot do is to lay
down different rules as to contracts generally from those later stated by this
House in Heyman v. Darwins (I.c.). The ingenious use by Donaldson J. in
Kenyon Son & Craven Ltd. v. Baxter Hoare & Co. Ltd. [1971] 1 W.L.R. 519
of the doctrine of deviation in order to reconcile the Suisse Atlantique with
Harbutt’s case, itself based in part on the use of the doctrine of deviation, illu-
strates the contortions which that case has made necessary and would be
unnecessary if it vanished as an authority.
It is not necessary to review fully the numerous cases in which the doctrine
of fundamental breech has been applied or discussed. Many of these have now
been superseded by the Unfair Contract Terms Act 1977. Others, as decisions,
may be justified as depending upon the construction of the contract (cf.
Levison v. Patent Steam Carpet Cleaning Co. Ltd. [1978] Q.B. 69) in the light of
well known principles such as that stated in Alderslade v. Hendon Laundry
Ltd. [1945] K.B. 189.
In this situation the present case has to be decided. As a preliminary, the nature
of the contract has to be understood. Securicor undertook to provide a service
of periodical visits for a very modest charge which works out at 26p per visit. It
did not agree to provide equipment. It would have no knowledge of the value of
the plaintiffs’ factory: that, and the efficacy of their fire precautions, would be
known to the plaintiffs. In these circumstances nobody could consider it
unreasonable, that as between these two equal parties the risk assumed by
Securicor should be a modest one, and that the respondents should carry the
substantial risk of damage or destruction.
The duty of Securicor was, as stated, to provide a service. There must be
implied an obligation to use due care in selecting their patrolmen, to take care
of the keys and, I would think, to operate the service with due and proper
regard to the safety and security of the premises. The breach of duty com-
mitted by Securicor lay in a failure to discharge this latter obligation. Alterna-
tively it could be put upon a vicarious responsibility for the wrongful act of
Musgrove—viz., starting a fire on the premises: Securicor would be responsible
for this upon the principle stated in Morris v. Martin [1966] 1 Q.B. 716, 739.
This being the breach, does condition 1 apply? It is drafted in strong terms,
“In no circumstances”. . . “any injurious act or default by any employee”.
These words have to be approached with the aid of the cardinal rules of con-
struction that they must be read contra proferentem and that in order to escape
from the consequences of one’s own wrongdoing, or that of one’s servant, clear
words are necessary. I think that these words are clear. The respondents in fact
relied upon them for an argument that since they exempted from negligence
they must be taken as not exempting from the consequence of deliberate acts.
But this is a perversion of the rule that if a clause can cover something other
than negligence, it will not be applied to negligence. Whether, in addition to
negligence, it covers other, e.g., deliberate, acts, remains a matter of construction
requiring, of course, clear words. I am of opinion that it does, and being free to
construe and apply the clause, I must hold that liability is excluded. On this
part of the case I agree with the judge and adopt his reasons for judgment. I
would allow the appeal.
Lord Diplock
my lords,
My noble and learned friend Lord Wilberforce has summarised the facts
which have given rise to this appeal. The contract which falls to be considered
was a contract for the rendering of services by the defendants (“Securicor”) to
the plaintiffs (“the Factory Owners”). It was a contract of indefinite duration
terminable by one month’s notice on either side. It had been in existence for
some two-and-a-half years when the breach that is the subject matter of these
proceedings occurred. It is not disputed that the act of Securicor’s servant,
Musgrove, in starting a fire in the factory which they had undertaken to protect
was a breach of contract by Securicor; and since it was the cause of an event,
the destruction of the factory, that rendered further performance of the contract
impossible it is not an unnatural use of ordinary language to describe it as a
“fundamental breach”.
It was by attaching that label to it that all three members of the Court of
Appeal found themselves able to dispose of Securicor’s defence based on the
exclusion clause restricting its liability for its servants’ torts in terms which
Lord Wilberforce has already set out, by holding that where there had been a
fundamental breach by a party to a contract, there was a rule of law which
prevented him from relying upon any exclusion clause appearing in the contract,
whatever its wording might be.
The Court of Appeal was, I think, bound so to hold by previous decisions of
its own, of which the first was Harbutt’s Plasticine v. Wayne Tank Co. [1970] 1
Q.B. 44. It purported in that case to find support for the rule of law it there laid
down in the reasoning of this House in Suisse Atlantique v. Rotterdamsche Kolen
Centrale [1967] A.C. 361. I agree with Lord Wilberforce’s analysis of the
speeches in Suisse Atlantique, and with his conclusion that this House rejected
the argument that there was any such rule of law. I also agree that Harbutt’s
Plasticine and the subsequent cases in which the so-called “rule of law” was
applied to defeat exclusion clauses should be overruled, though the actual
decisions in some of the later cases might have been justified on the proper
construction of the particular exclusion clause on which the defendant relied.
My Lords, the contract in the instant case was entered into before the passing
of the Unfair Contract Terms Act 1977. So what we are concerned with is the
common law of contract—of which the subject-matter is the legally enforceable
obligations as between the parties to it of which the contract is the source. The
“rule of law” theory which the Court of Appeal has adopted in the last decade
to defeat exclusion clauses is at first sight attractive in the simplicity of its logic.
A fundamental breach is one which entitles the party not in default to elect to
terminate the contract. Upon his doing so the contract comes to an end. The
exclusion clause is part of the contract, so it comes to an end too; the party
in default can no longer rely on it. This reasoning can be extended without undue
strain to cases where the party entitled to elect to terminate the contract does not
become aware of the breach until some time after it occurred; his election to
terminate the contract could not implausibly be treated as exercisable nunc pro
tunc. But even the superficial logic of the reasoning is shattered when it is
applied, as it was in Wathes (Western) Ltd. v. Austins (Menswear) Ltd. [1976]
1 Lloyd’s Rep. 14, to cases where, despite the “fundamental breach”, the party
not in default elects to maintain the contract in being.
The fallacy in the reasoning and what I venture to think is the disarray into
which the common law about breaches of contract has fallen, is due to the use
in many of the leading judgments on this subject of ambiguous or imprecise
expressions without defining the sense in which they are used. I am conscious
that I have myself sometimes been guilty of this when I look back on judgments
I have given in such cases as Hong Kong Fir Shipping Co. Ltd. v. Kawakasi Kisen
Kaisha Ltd. [1962] 2 QB 26; Ward v. Bignall [1967] 1 Q.B. 534; Moschi v. Lep
Air Services [1973] A.C. 331; and in particular Hardwick Game Farm v.
S.A.P.P.A. [1966] 1 W.L.R. 287, when commenting unfavourably on the then
budding doctrine of fundamental breach in a portion of my judgment in the
Court of Appeal that did not subsequently incur the disapproval of this House.
My Lords, it is characteristic of commercial contracts, nearly all of which
to-day are entered into not by natural legal persons, but by fictitious ones, i.e.
companies, that the parties promise to one another that some thing will be done;
for instance, that property and possession of goods will be transferred, that goods
will be carried by ship from one port to another, that a building will be con-
structed in accordance with agreed plans, that services of a particular kind will
be provided. Such a contract is the source of primary legal obligations upon
each party to it to procure that whatever he has promised will be done, is done.
[I leave aside arbitration clauses which do not come into operation until a party
to the contract claims that a primary obligation has not been proved.]
Where what is promised will be done involves the doing of a physical act,
performance of the promise necessitates procuring a natural person to do it; but
the legal relationship between the promisor and the natural person by whom the
act is done, whether it is that of master and servant, or principal and agent, or of
parties to an independent sub-contract, is generally irrelevant. If that person
fails to do it in the manner in which the promisor has promised to procure it to
be done, as, for instance, with reasonable skill and care, the promisor has failed
to fulfil his own primary obligation. This is to be distinguished from “vicarious
liability”—a legal concept which does depend upon the existence of a particular
legal relationship between the natural person by whom a tortious act was done
and the person sought to be made vicariously liable for it. In the interests of
clarity the expression should, in my view, be confined to liability for tort.
A basic principle of the common law of contract, to which there are no excep-
tions that are relevant in the instant case, is that parties to a contract are free to
determine for themselves what primary obligations they will accept. They may
state these in express words in the contract itself and, where they do, the state-
ment is determinative; but in practice a commercial contract never states all the
primary obligations of the parties in full; many are left to be incorporated by
implication of law from the legal nature of the contract into which the parties
are entering. But if the parties wish to reject or modify primary obligations
which would otherwise be so incorporated, they are fully at liberty to do so by
express words.
Leaving aside those comparatively rare cases in which the court is able to
enforce a primary obligation by decreeing specific performance of it, breaches
of primary obligations give rise to substituted or secondary obligations on the
part of the party in default, and, in some cases, may entitle the other party to be
relieved from further performance of his own primary obligations. These
secondary obligations of the contract breaker and any concomitant relief of the
other party from his own primary obligations also arise by implication of law—
generally common law, but sometimes statute, as in the case of codifying
Statutes passed at the turn of the century, notably the Sale of Goods Act 1893.
The contract, however, is just as much the source of secondary obligations as it
is of primary obligations; and like primary obligations that are implied by law,
secondary obligations too can be modified by agreement between the parties,
although, for reasons to be mentioned later, they cannot, in my view, be totally
excluded. In the instant case, the only secondary obligations and concomitant
reliefs that are applicable arise by implication of the common law as modified
by the express words of the contract.
Every failure to perform a primary obligation is a breach of contract. The
secondary obligation on the part of the contract breaker to which it gives rise
by implication of the common law is to pay monetary compensation to the
other party for the loss sustained by him in consequence of the breach; but,
with two exceptions, the primary obligations of both parties so far as they have
not yet been fully performed remain unchanged. This secondary obligation to
pay compensation (damages) for non-performance of primary obligations I will
call the “general secondary obligation”. It applies in the cases of the two
exceptions as well.
The exceptions are:
Where the event resulting from the failure by one party to perform a
primary obligation has the effect of depriving the other party of substantially
the whole benefit which it was the intention of the parties that he should
obtain from the contract, the party not in default may elect to put an end
to all primary obligations of both parties remaining unperformed. (If the
expression “fundamental breach” is to be retained, it should, in the
interests of clarity, be confined to this exception).
Where the contracting parties have agreed, whether by express words or by
implication of law, that any failure by one party to perform a particular
primary obligation (“condition” in the nomenclature of the Sale of Goods
Act 1893), irrespective of the gravity of the event that has in fact resulted
from the breach, shall entitle the other party to elect to put an end to all
primary obligation of both parties remaining unperformed. (In the interests
of clarity, the nomenclature of the Sale of Goods Act 1893, “breach of
“condition” should be reserved for this exception.)
Where such an election is made (a) there is substituted by implication of law
for the primary obligations of the party in default which remain unperformed a
secondary obligation to pay monetary compensation to the other party for the
loss sustained by him in consequence of their non-performance in the future and
(b) the unperformed primary obligations of that other party are discharged. This
secondary obligation is additional to the general secondary obligation; I will
call it “the anticipatory secondary obligation”.
In cases falling within the first exception, fundamental breach, the anticipatory
secondary obligation arises under contracts of all kinds by implication of the
common law, except to the extent that it is excluded or modified by the express
words of the contract. In cases falling within the second exception, breach
of condition, the anticipatory secondary obligation generally arises under
particular kinds of contracts by implication of statute law; though in the case
of “deviation” from the contract voyage under a contract of carriage of goods
by sea it arises by implication of the common law. The anticipatory secondary
obligation in these cases too can be excluded or modified by express words.
When there has been a fundamental breach or breach of condition, the coming
to an end of the primary obligations of both parties to the contract at the election
of the party not in default, is often referred to as the “determination” or
“rescission” of the contract or, as in the Sale of Goods Act 1893 “treating the
“contract as repudiated”. The first two of these expressions, however, are mis-
leading unless it is borne in mind that for the unperformed primary obligations
of the party in default there are substituted by operation of law what I have
called the secondary obligations.
The bringing to an end of all primary obligations under the contract may also
leave the parties in a relationship, typically that of bailor and bailee, in which
they owe to one another by operation of law fresh primary obligations of which
the contract is not the source; but no such relationship is involved in the instant
case.
I have left out of account in this analysis as irrelevant to the instant case an
arbitration or choice of forum clause. This does not come into operation until
a party to the contract claims that a primary obligation of the other party has
not been performed; and its relationship to other obligations of which the
contract is the source was dealt with by this House in Heyman v. Darwins Ltd.
[1942] A.C. 356.
My Lords, an exclusion clause is one which excludes or modifies an obligation,
whether primary, general secondary or anticipatory secondary, that would
otherwise arise under the contract by implication of law. Parties are free to agree
to whatever exclusion or modification of all three types of obligations as they
please within the limits that the agreement must retain the legal characteristics
of a contract; and must not offend against the equitable rule against penalties;
that is to say, it must not impose upon the breaker of a primary obligation a
general second obligation to pay to the other party a sum of money that is
manifestly intended to be in excess of the amount which would fully compensate
the other party for the loss sustained by him in consequence of the breach of the
primary obligation. Since the presumption is that the parties by entering into
the contract intended to accept the implied obligations exclusion clauses are to
be construed strictly and the degree of strictness appropriate to be applied to
their construction may properly depend upon the extent to which they involve
departure from the implied obligations. Since the obligations implied by law in a
commercial contract are those which, by judicial consensus over the years or by
Parliament in passing a statute, have been regarded as obligations which a
reasonable businessman would realise that he was accepting when he entered
into a contract of a particular kind, the court’s view of the reasonableness of any
departure from the implied obligations which would be involved in construing
the express words of an exclusion clause in one sense that they are capable of
bearing rather than another, is a relevant consideration in deciding what mean-
ing the words were intended by the parties to bear. But this does not entitle the
court to reject the exclusion clause, however unreasonable the court itself may
think it is, if the words are clear and fairly susceptible of one meaning only.
My Lords, the reports are full of cases in which what would appear to be very
strained constructions have been placed upon exclusion clauses, mainly in what
to-day would be called consumer contracts and contracts of adhesion. As Lord
Wilberforce has pointed out, any need for this kind of judicial distortion of the
English language has been banished by Parliament’s having made these kinds
of contracts subject to the Unfair Contract Terms Act 1977. In commercial
contracts negotiated between business-men capable of looking after their own
interests and of deciding how risks inherent in the performance of various kinds
of contract can be most economically borne (generally by insurance), it is, in my
view, wrong to place a strained construction upon words in an exclusion clause
which are clear and fairly susceptible of one meaning only even after due
allowance has been made for the presumption in favour of the implied primary
and secondary obligations.
Applying these principles to the instant case; in the absence of the exclusion
clause which Lord Wilberforce has cited, a primary obligation of Securicor under
the contract, which would be implied by law, would be an absolute obligation
to procure that the visits by the night patrol to the factory were conducted by
natural persons who would exercise reasonable skill and care for the safety
of the factory. That primary obligation is modified by the exclusion clause.
Securicor’s obligation to do this is not to be absolute, but is limited to exercising
due diligence in its capacity as employer of the natural persons by whom the
visits are conducted, to procure that those persons shall exercise reasonable
skill and care for the safety of the factory.
For the reasons given by Lord Wilberforce it seems to me that this apportion-
ment of the risk of the factory being damaged or destroyed by the injurious
act of an employee of Securicor while carrying out a visit to the factory is one
which reasonable business-men in the position of Securicor and the Factory
Owners might well think was the most economical. An analogous apportionment
of risk is provided for by the Hague Rules in the case of goods carried by sea
under bills of lading. The risk that a servant of Securicor would damage or
destroy the factory or steal goods from it, despite the exercise of all reasonable
diligence by Securicor to prevent it, is what in the context of maritime law would
be called a “misfortune risk”—something which reasonable diligence of neither
party to the contract can prevent. Either party can insure against it. It is generally
more economical for the person by whom the loss will be directly sustained
to do so rather than that it should be covered by the other party by liability
insurance. This makes it unnecessary to consider whether a later exclusion
clause in the contract which modifies the general secondary obligation implied
by law by placing limits on the amount of damages recoverable for breaches of
primary obligations, would have applied in the instant case.
For the reasons given by Lord Wilberforce and in application of the principles
that I have here stated, I would allow this appeal.
Lord Salmon
MY LORDS,
The contract with which this appeal is concerned is a very simple commercial
contract entered into by two highly experienced business enterprises—the
appellants whom I shall call Securicor and the respondents whom I shall call
Photo Productions.
This appeal turns in my view entirely upon certain words in the contract
which read as follows :—
“Under no circumstances shall [Securicor] be responsible for any injurious
“act or default by any employee of [Securicor] unless such act or default
“could have been foreseen and avoided by the exercise of due diligence on
“the part of [Securicor] as his employer.”
We are not concerned with the Unfair Contract Terms Act 1977 since the
present contract was entered into before that Act was passed. Accordingly, I
prefer to express no view about the effect of that Act as the result of this appeal
depends solely on the common law.
The facts relevant to this case are very short. Indubitably, one of Securicor’s
servants called Musgrove committed an injurious act or default which caused
Photo Productions’ factory to be burned down; and as a result, Photo
Productions’ suffered a loss of £615,000. This disaster occurred when Musgrove
was visiting the factory on patrol one Sunday night and deliberately threw a
lighted match on some cartons lying on the floor of one of the rooms he was
inspecting. Whether Musgrove intended to light only a small fire or to burn
down the factory, and what his motives were for what he did were found by the
learned trial judge to be mysteries which it was impossible to solve.
No-one has suggested that Securicor could have foreseen or avoided by due
diligence the act or default which caused the damage or that Securicor had been
negligent in employing or supervising Musgrove.
The contract between the two parties provided that Securicor should supply a
patrol service at Photo Productions’ factory by four visits a night for seven
nights a week and two visits every Saturday afternoon and four day visits every
Sunday. The contract provided that for this service, Securicor should be paid
£8.15 a week. There can be no doubt that but for the clause in the contract
which I have recited, Securicor would have been liable for the damage which was
caused by their servant, Musgrove, whilst indubitably acting in the course of his
employment: Morris v. Martin [1966] 1 Q.B. 716. To my mind, however, the
words of the clause are so crystal clear that they obviously relieve Securicor from
what would otherwise have been their liability for the damage caused by
Musgrove. Indeed the words of the clause are incapable of any other meaning.
I think that any business man entering into this contract could have had no
doubt as to the real meaning of this clause and would have made his insurance
arrangements accordingly. The cost to Photo Productions for the benefit of the
patrol service provided by Securicor was very modest and probably substantially
less than the reduction of the insurance premiums which Photo Productions
may have enjoyed as a result of obtaining that service.
Clauses which absolve a party to a contract from liability for breaking it are
no doubt unpopular—particularly when they are unfair, which incidentally, in
my view, this clause is not. It is, I think, because of the unpopularity of such
clauses that a so called “rule of law” has been developed in the Court of Appeal
to the effect that what was characterised as “a fundamental breach of contract”,
automatically or with the consent of the innocent party, brings the contract to
an end; and that therefore the contract breaker will then immediately be barred
from relying on any clause in the contract, however clearly worded, which would
otherwise have safeguarded him against being liable inter alia in respect of the
damages caused by the default; see for example Karsales (Harrow) Ltd. v.
Wallis [1956] 1 W.L.R. per Denning L.J. at p.946 and Harbutt’s “Plasticine”
Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Q.B. 447.
I entirely agree with my noble and learned friend Lord Wilberforce’s analysis
of the Suisse Atlantique case which explains why the breach does not bring
the contract to an end and why the so-called “rule of law” upon which Photo
Productions rely is therefore non-existent. This proposition is strongly sup-
ported by the passage recited by Lord Wilberforce in Lord Porter’s speech in
Heyman v. Darwins Ltd. [1942] A.C. 356 at p.399.
Any persons capable of making a contract are free to enter into any contract
they may choose: and providing the contract is not illegal or voidable, it is
binding upon them. It is not denied that the present contract was binding upon
each of the parties to it. In the end, everything depends upon the true con-
struction of the clause in dispute about which I have already expressed my
opinion.
My Lords, I would accordingly allow the appeal.
Lord Keith of Kinkel
MY LORDS,
I agree with the speech of my noble and learned friend Lord Wilberforce,
which I have had the advantage of reading in draft and to which I cannot
usefully add anything.
Accordingly I too would allow the appeal.
Hoenig v Isaacs
[1952] EWCA Civ 6
Denning LJ
“This case raises the familiar question: Was entire performance a condition precedent to payment? That depends on the true construction of the contract.
In this case the contract was made over a period of time and was partly oral and partly in writing, but I agree with the Official Referee that the essential terms were set down in the letter of 25th April, 1950. It describes the work which was to be done and concludes with these words:
“The foregoing, complete, for the sum of £750 nett. Terms of payment are nett cash, as the work proceeds; and balance on completion.”
The defendant paid £150 on 12th April, 1950, and another £150 on the 19th April, 1950. On 8th August, 1950, the plaintiffs said that they had carried out the work in absolute compliance with the contract and demanded payment of the balance of £450. On the 30th August, 1950, the defendant paid £100, but said that there were defects and omissions in the work and that he would call in someone else to make them good and deduct the cost from the plaintiffs’ bill. He did not do this but entered into occupation of the flat and used the furniture. The plaintiffs then brought this action for the balance of £350. They denied that there were any defects at all. The Official Referee found that there were defects in three of the items of furniture and that the cost of remedying them was £55.18s.2d. He deducted that sum from the £350 and gave judgment for the plaintiffs for £294.1s.l0d.
The question of law that was debated before us was whether the plaintiffs were entitled in this action to sue for the £350 balance of the contract price as they had done. The defendant said that they were only entitled to sue on a quantum meruit. The defendant was anxious to insist upon a quantum meruit, because he said that the contract price was unreasonably high. He wished therefore to reject that price altogether and to pay simply a reasonable price for all the work that was done. This would obviously mean an inquiry into the value of every item, including all the many items which were in compliance with the contract as well as the three which fell short of it. That is what the defendant wanted. The plaintiffs resisted this course and refused therefore to claim on a quantum meruit. They said that they were entitled to the balance of £350 less a deduction for the defects.
In determining this issue the first question is whether, on the true construction of the contract, entire performance was a condition precedent to payment. It was a lump sum contract, but that does not mean that entire performance was a condition precedent to payment.
When a contract provides for a specific sum to be paid on completion of specified work, the Courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects or omissions. The promise to complete the work is therefore construed as a term of the contract, but not as a condition. It is not every breach of that term which absolves the employer from his promise to pay the price, but only a breach which goes to the root of the contract, such as an abandonment of the work when it is only half done. Unless the breach does go to the root of the matter, the employer cannot resist payment of the price. He must pay it and bring a cross-claim for the defects and omissions, or alternatively set them up in diminution of the price. The measure is the amount which the work is worth less by reason of the defects and omissions, and is usually calculated by the cost of making them good; see Mondel v Steel[1] and the notes to Cutter v Powell in the 13th Edition of Smith’s Leading Cases II., 19-21.
It is, of course, always open to the parties by express words to make entire performance a condition precedent. A familiar instance is when the contract provides for progress payments to be made as the work proceeds, but for retention money to be held until completion. Then entire performance is usually a condition precedent to payment of the retention money, but not, of course, to the progress payments. The contractor is entitled to payment pro rata as the work proceeds, less a deduction for retention money: but he is not entitled to the retention money until the work is entirely finished, without defects or omissions.
In this case the contract provided for “nett cash as the work proceeds and balance on completion.” If the balance could be regarded as retention money, then it might well be that the contractor ought to have done all the work correctly, without defects or omissions, in order to be entitled to the balance. But I do not think the balance should be regarded as retention money. Retention money is usually only 10 per cent, or 15 per cent, whereas this balance was more than 50 per cent. I think this contract should be regarded as an ordinary lump sum contract. It was substantially performed. The contractor is entitled therefore to the contract price, less a deduction for the defects.
Even if entire performance was a condition precedent, nevertheless the result would be the same; because I think the condition was waived. It is always open to a party to waive a condition which is inserted for his benefit. What amounts to a waiver depends on the circumstances. If this was an entire contract, then when the plaintiff tendered the work to the defendant as being a fulfilment of the contract, the defendant could have refused to accept it until the defects were made good, in which case he would not have been liable for the balance of the price until they were made good. But he did not refuse to accept the work. On the contrary, he entered into possession of the flat and used the furniture as his own, including the defective items. That was a clear waiver of the condition precedent. Just as in a sale of goods, the buyer, who accepts the goods, can no longer treat a breach of condition as giving a right to reject but only a right to damages: so also in a contract for work and labour, an employer who takes the benefit of the work can no longer treat entire performance as a condition precedent, but only as a term giving rise to damages. The case becomes then an ordinary lump sum contract governed by the principles laid down in Mondel v Steel and Dakin v Lee. The employer must therefore pay the contract price subject to a deduction for defects or omissions.
I would point out that in these cases the question of quantum meruit only arises when there is a breach or failure of performance which goes to the very root of the matter. On any lump sum contract, if the work is not substantially performed and there has been a failure of performance which goes to the root of it, as, for instance, when the work has only been half done, or is entirely different in kind from that contracted for, then no action will lie for the lump sum. The contractor can then only succeed in getting paid for what he has done if it was the employer’s fault that the work was incomplete; or there is something to justify the conclusion that the parties have entered into a fresh contract: or the failure of performance is due to impossibility or frustration, see Appleby v Myers[2] and Sumpter v Hedges (1898) 1 Queen’s Bench 673, and section 1 (3) of the Frustrated Contracts Act 1943. In such cases the contractor can recover in an action for restitution such sum as he deserves, or in the words of the Act, “such sum as the Court considers just.” Those cases do not, however, apply in this case, because in this case the work has been substantially performed.
In my opinion the Official Referee was right and this appeal should be dismissed.”
Terry v. Albion Enterprises Ltd.
[2001] IEHC 161 (14th November, 2001)
Judgment of Mr Justice McCracken delivered the 14th day of November 2001
1. The plaintiff had for some years carried on a joinery and veneer business in premises forming part of the Parnell Industrial Trading Estate at Parnell Street in the City of Dublin as a tenant of the second to seventh named defendants (hereinafter called “Herron Brothers”). In or about 1995 he entered into negotiations with Herron Brothers for a lease of a different portion of the Industrial Estate, known as number 21 Parnell Industrial Trading Estate (hereinafter called “the premises”). Ultimately by lease dated 1st December 1996 Herron Brothers agreed to let the premises to the plaintiff for a period from 1st December 1996 to 31st August 1999 at a monthly rent of £900 to be paid by bankers order on or before the seventh day of each calendar month. The lease also provided:-
“A non-returnable deposit of £2,700 in the form of a bank draft or cash is to be paid upon signature of this lease by both parties – this is to be deemed as rental for the period 1/6/99 to 31/8/99 if this lease should run its term, otherwise it is non-returnable.”
2. The lease also contains certain special conditions which give rise to these proceedings. The first of these conditions appears in fact to be in conflict with the provision in relation to which I have quoted above, and reads:-
“On the signing hereof the tenant shall pay to the landlord a deposit of £2,700 as security for the due payment of the rent hereby reserved and for the performance of the tenants obligations under this agreement, such deposit to be retained by the landlord until the end of this tenancy or any extension thereof and so that the landlord shall not be bound to apply the same or any part thereof in payment of any monies owing by the tenant during the currency of the tenancy.”
3. The lease contained two further special conditions which give rise to these proceedings. They read as follows:-
“3. The tenant shall have the option to purchase the premises from the landlord for the sum of £130,000 on or before the 31st of January 1998.
4. The landlord shall within six months from the date hereof furnish satisfactory evidence of his title to the premises and shall furnish a copy of the map attached and referred to in an Indenture of Conveyance and Assignment dated the 23rd of December 1991 Hill Street Developments of the one part and John Herron, Stanislaus Herron, Michael Herron, Charles Herron, Augustine Herron and Brian Herron of the other part.”
4. At the date of the lease the plaintiff was in fact already in possession of the premises, and he duly furnished a standing order in favour of Herron Brothers for the rent and also paid the deposit of £2,700.
5. By a conveyance dated the 22nd July 1997 Herron Brothers conveyed inter alia their interest in this property to the first named defendant (hereinafter called “Albion”). The contract for sale in relation to this conveyance is dated 22nd July 1997, and in relation to these premises recites:-
“Occupied by J. Terry for a term of five years from April 1997 with an option to purchase at £130,000. Annual rent is £10,000 – copy agreement attached”.
6. While this is in fact an incorrect recital of the plaintiff’s interest, it is quite clear that Albion were aware of the option to purchase, and had in fact seen the plaintiff’s tenancy agreement. The plaintiff was not notified of this conveyance for some months, and continued to pay his rent by bankers order to Herron Brothers until October 1997. He then cancelled the bankers order, and did not in fact pay rent to either party.
7. By letter dated 9th January 1998 the plaintiff’s solicitors wrote to Albion in the following terms:-
“Dear Sirs,
We are instructed on behalf of John Terry care of 21 Parnell Trading Industrial Estate, Dublin 1.
We were instructed that by memorandum of agreement dated the 1st of December 1996 and made between John Herron and others to our client, it was agreed, inter alia, that our client had the option to purchase the premises from the landlord for the sum of £130,000 on or before the 31st of January 1998.
We note that you have since acquired the premises from John Herron and others and we hereby notify you on behalf of our client that our client is exercising the said option.
Please advise if you wish to proceed on the basis of the option agreement in which event, you might please furnish title deeds by return. In the alternative, if you require formal contracts to be executed, you might please furnish a draft now for approval.”
8. Albion’s solicitors replied by letter dated 13th January 1998, which letter was headed “subject to contract/contract denied. Strictly without prejudice.” That letter read:-
“Dear Sir
Your registered letter, addressed to our client company, Albion Property Company Limited has been forwarded to this office for attention.
We note that you act for Mr John Terry, trading as the Complete Fitout Company and understand that Mr Terry currently occupies the property known as 4 Temple Lane, Dublin 1.
As you are aware, our client recently purchased the entire of the Parnell Trading Estate from Herron Brothers on foot of a contract for sale dated the 22nd of July 1997.
The vendors did indicate to us that there was a possible option agreement in existence with Mr John Terry, however, we do not appear to have a copy of the memorandum of agreement dated the 1st of December 1996 referred to in your letter, and would appreciate hearing from you by return with a full copy of it.
Our client notes your client’s intention to exercise his option in respect of this property.
We have been asked to point out to you that your client is seriously in arrears with rent payable on the property and we are enclosing a note of the monies due to date.
We have specific and categoric instructions not to forward contracts for sale of the property unless and until your client complies with his obligations under his existing lease.
We have also been instructed to seek from you evidence that your client has a full written loan approval in respect of the premises before proceedings further with this matter.
Lastly, and as a matter of profession courtesy only, we would specifically draw attention to the fact that all of the original title documents to the property at 4 Temple Lane have been lost or destroyed for many years. Under the terms of our contract for sale we were precluded form raising any objections or requisitions in relation to this matter and the only title documents we have in our possession are:-”
9. There is then a list of five documents, four of which are memorials and the fifth is a statutory declaration.
10. The letter ends with a statement that Albion’s solicitors have no authority to bind their client in any manner and that no contract shall be deemed to exist. On 23rd January the plaintiff’s solicitors wrote to Albion’s solicitors enclosing a copy of the agreement of the 1st of December 1996, and explaining that rent for August, September and October 1997 had been paid to Herron Brothers because their client had not been notified of the change of ownership, and further stated that the plaintiff had thought that the deposit of £2,700 would pay the rent for the last three months, namely November, December and January. They again requested copies of the title deeds.
11. On 26th January 1998 Albion’s solicitors sent copies of the title documents and also stated:-
“We refer you to special condition number three in the lease furnished with your letter of the 23rd inst., and would advise that we require payment of the consideration in the sum of £130,000 no later than close of business on Monday next the 2nd of February, being the first business day after the 31st of January .”
12. This appears to have been followed by a telephone conversation between the respective solicitors, the contents of which are recorded in a letter from the plaintiff’s solicitors to Albion’s solicitors dated 29th January 1998, which reads as follows:-
“Dear Sirs
We refer you to the above and to our telephone conversation of even date with your Mr Flynn.
We note that your client is to arrange to issue contracts of sale in the standard Law Society format 1995 edition and we look forward to hearing from you in this regard.
In relation to the question of outstanding rent, we refer you to our telephone conversation of even date and to the contents of our letter of the 23rd of January last. We note that you are to contact Herron Brothers, Mr John Murchan directly in relation to the payments made by direct debit for the months of August, September and October. As our client was never notified of the change of ownership, he was not in a position to cancel the direct debit.
We confirm that we shall arrange for our client to put you in funds in respect of the last three months rent in the sum of £2,700 by close of business tomorrow.”
13. Apparently a cheque in that sum was furnished by the plaintiff, which was not acceptable to Albion, and on 2nd February the plaintiff’s solicitors sent a bank draft in the sum of £2,700 to Albion’s solicitors and sought the return of the cheque and also again sought the copy title documents. By letter dated 16th February 1998 the plaintiff’s solicitors again sought evidence of title and threatened specific performance proceedings.
14. The response to this was a letter of 17th February 1998 from Albion’s solicitors which provided as follows:-
“Dear Sirs
We are in receipt of your fax of the 16th inst.
We have discussed the alleged option agreement in detail with our client and with counsel and are satisfied that our client as successor in title to the original party namely John Herron and others is not bound by the alleged option agreement. In this regard please note:-
no memorial of the alleged option appears to have been registered in the Registry of Deeds, to put our client on notice of the existence and nature of the option.
there has been no novation of any alleged option agreement.
insofar as any alleged right, interest or covenant is created or has come into existence by virtue of special condition number three of the memorandum of agreement, made the 1st of December, 1996 and furnished with your letter of the 23rd ult., it is entirely a matter between your client and the original landlords.
the above mentioned special condition number three is not incorporated by reference into the lease and is of no effect and void.
At present your client is in fundamental breach in the terms of the lease as there remains outstanding rent for the months of August, September and October.
As previously advised, your client was personally notified of the change of ownership. If the outstanding rent is not paid within seven days of the date hereof, our client will have no option but to avail of the appropriate remedies including but not limited to forfeiture of the lease.”
15. I have heard evidence from the plaintiff and from Mr Conor McCormack who managed the Parnell Trading Estate at the relevant time. I am satisfied that the plaintiff first knew of the change of ownership in middle or late September 1997 and that he did pay rent for August, September and October 1997 to Herron Brothers. It would appear that he had allowed the direct debit payable in early October to go through after he became aware of the change of ownership, but this could be the only possible default in payment to Albion. I am also satisfied that he believed, wrongly, that the deposit could be used for the payment of the rent for November, December and January if he was exercising the option as of 31st January. In fact this is not what was envisaged by the terms of the Lease, which only provided that the deposit could be used to pay the rent for the last three months of the term granted by the Lease, if the Lease ran its full term. By exercising the option, of course, the plaintiff ensured the Lease did not run its full term. However, this would appear to have been put right by the payment of the three months rent, initially by cheque dated 30th January and subsequently by the bank draft on 2nd February.
16. I have quoted the correspondence in detail because it is the only evidence proffered to me of the events between 9th January 1998 when the plaintiff purported to exercise the option and 17th February 1998 when Albion, for the first time, challenged the option. I find the contents of the letter of 17th February to be quite astonishing. For the first time it put forward four grounds upon which it is alleged that Albion is not bound by the option agreement, none of which grounds have the slightest validity, and more significantly, none of which were relied upon in argument before me other than a suggestion that the option was personal to the plaintiff to exercise and therefore should be considered to be personal to the Herron Brothers. This contention is clearly untenable, as the option forms part of the tenancy agreement in which it is provided that the expression “the tenant” shall include his successors in title and the expression “the landlord” shall include the immediate reversioner for the time being expectant on the term created by the Lease. It is quite clear, therefore, that the option was not personal to either the plaintiff or Herron Brothers.
17. There were two principle submissions made on behalf of Albion. Firstly, it is said that the option was to purchase the premises on or before 31st January 1998, and that the proper construction of this is that the sale must be completed by 31st January 1998. The second argument is that the option could only be exercised if the plaintiff was not in breach of covenant at the time of the exercise of the option, and that as he was in arrears with his rent, the exercise of the option was invalid. I would propose to deal with these individually.
18. In relation to the first argument, Albion seeks to rely on the judgment of Kenny J., in Cassidy v. Baker 103 I.L.T.R. 40. In the course of his judgment the learned judge commented that it was very much a matter of first impression, but also stated that:-
“It is a general rule that any matters which by the terms of an option are made conditions precedent to its exercise, must be reasonably strictly observed.”
19. This statement was made in the context of an option which required three months notice of its exercise, while the purported exercise of the option did not give notice, and indeed if it had given three months notice, the notice would have expired outside the term of the lease in which the option was granted. In the present case, assuming that “purchase” means complete the sale of, there is undoubtedly an argument to be made that time should be of the essence of the contract, and that once 31st January had passed the plaintiff had no right to have the sale completed. In my view this could not be a valid argument in the present case because under special condition four the landlord was bound to furnish evidence of title within six months from the date of the lease, and this they clearly failed to do. It is quite understandable that time should be of the essence of the contract if the plaintiff had already been satisfied as to title, but the result of the landlord’s default to furnish the title meant in effect that the plaintiff could not complete within the specified time. In those circumstances I do not think there could be any question of time being of the essence of the contract or the plaintiff being bound to complete by 31st January.
20. In any event, it appears that on 29th January Albion’s solicitors agreed to issue contracts for sale in the standard Law Society form. Although they did not in fact do this, their undertaking to do so shows that they clearly were not treating the 31st January as being the closing date. Under all these circumstances I do not think that the plaintiff was in default in this regard so as to prevent the exercise of the option.
21. The other argument put forward by Albion is that the plaintiff was in breach of covenant at the date he purported to exercise the option, as he was at that date in arrears of rent. Undoubtedly he was technically in arrears of rent when the option was exercised, due to his mistaken belief that he could use the deposit to pay the last three months rent. However, by 31st January he had at least given a cheque for the rent, and on 2nd February, the first working day after 31st January, he furnished a bank draft. It should be noted that the option agreement does not contain any express provision making it a condition precedent to the exercise of the option so that there should be no breach of covenant. I am not prepared to imply such a condition precedent in the absence of any evidence that this might have been the intention of the parties.
22. In all the circumstances, therefore, I hold that the plaintiff validly exercised the option to purchase, and Albion wrongfully refused to complete.
23. Albion puts forward one further argument, namely that specific performance is an equitable remedy, and that I should refuse such a remedy on the grounds it would not be just and equitable to do so. This of course would not preclude me from making an award in damages.
24. I fully accept that I have a discretion, and that I have power to refuse an equitable remedy on the basis that the person seeking the remedy has acted improperly or inequitably. In the present case, the only way which the plaintiff acted improperly was in failing to pay the rent for the last three months, but when the error was pointed out to him, he did in fact make a payment reasonably quickly. On the other hand, for over a month after the exercise of the option Albion appeared to accept its exercise, and then out of the blue put forward a number of quite unsustainable arguments as to why it should not complete. I do not think there was anything inequitable in the plaintiff’s behaviour which would warrant a refusal of the remedy of specific performance and accordingly I will grant a Declaration that Albion is bound by the option agreement and I will order a specific performance thereof.
Cara Environmental Technology Ltd. v. McGovern
[2005] IEHC 92 (18 March 2005)
EX-TEMPORE OF MS. JUSTICE FINLAY GEOGHEGAN ON FRIDAY, 18 MARCH 2005
Before me in these proceedings is a preliminary issue which was directed to be heard. The issue in terms agreed between the parties is set out in an issue paper and reads:
“Having regard to the fact that neither the proceedings bearing Record number 2002/12082P and entitled SCHURMANS & VAN GINNEKEN by Plaintiff and AHP MANUFACTURING BV trading as WYETH MEDICA IRELAND AND CARA ENVIRONMENTAL TECHNOLOGY LIMITED and OTHERS, Defendants nor the proceedings brought in the Netherlands against the Plaintiff and referred to in the Plaintiff’s statement of claim have been determined and having regard to the fact that the plaintiff herein has not been found liable in either set of proceedings referred to, can the Plaintiff sue the Defendant for the breaches of contract pleaded in the statement of claim herein”.
The origin of the preliminary issue is to be found in paragraph 1 of the defence delivered in these proceedings. That paragraph reads:
“The Plaintiff’s claim discloses no cause of action. Further, the Defendant notes that neither the proceedings bearing record number 2002/12082P and entitled SCHURMANS & VAN GINNEKEN by Plaintiff and AHP MANUFACTURING BV trading as WYETH MEDICA IRELAND AND CARA ENVIRONMENTAL TECHNOLOGY LIMITED and OTHERS nor the proceedings brought in the Netherlands against the Defendant have been determined. The Defendant says that pending the determination of the said actions the Plaintiff’s action is divorced from any or any adequate factual matrix, is hypothetical, is premature and serves no practical purpose. The granting to the Plaintiff of the relief sought in this action at this time will not resolve the dispute or potential dispute between the Plaintiff and the Defendant”.
There was, as directed, an agreed statement of facts upon which the preliminary issue was to be determined. It appears from those agreed statement of facts that the Plaintiff in these proceedings took out a policy of insurance which is described as a ‘general liability insurance policy’ and which includes both a public liability and product liability insurance. That policy was initially taken out on 22 November 2000 and appears to have been renewed in October 2001, and also a period from August 2001 to August 2002 and again from August 2002 to August 2003. Nothing turns on the relevant dates. In July 2002, the Plaintiff notified the Defendant of a possible claim. In September 2002, the first set of proceedings referred to with a claim against the plaintiff herein bearing record number 2002/12082P were instituted in this jurisdiction. I will refer to those as the Irish proceedings. There were also proceedings instituted in the Netherlands inter alia against the plaintiff in these proceedings. Certain correspondence which passed between the Plaintiff and the Defendant in these proceedings also formed part of the agreed statement of facts. It appears from that correspondence that the plaintiff herein having notified the defendant, who is a representative of Lloyds in this jurisdiction of both the Irish proceedings and the Dutch proceedings, that the defendant appointed liability adjusters and the plaintiff was represented by its broker Marsh Ireland limited. In the initial correspondence it is clear that a question was raised on behalf of the Defendant as to whether or not against the claims made in the Irish and Dutch proceedings against the Plaintiff herein fell within the insurance policy held by the plaintiff from the defendant. There is a letter of 30 July 2003 from the liability adjuster Mr. Goldsbury to Mr. McCann of Marsh Ireland. Thereafter there appears to have been a number of meetings and there was a formal submission, or what was described as a formal submission, made by Mr. McCann of Marsh Ireland on behalf of the Plaintiff to Mr. Goldsbury to the effect that the claims made against the Plaintiff in the Irish and Dutch proceedings fell within the public liability or product liability portions of the policy issued by the Defendant to the Plaintiff.
At the time of the institution of these proceedings on 14 December 2004, no final decision appears to have been taken on behalf of the defendant following that submission. However, by an e-mail of 5 January 2005, a decision was given and in that e-mail from Mr. Goldsbury having referred to the earlier exchanges and the formal submission he stated and I quote: “The underwriters have instructed to me
to notify you that they have carefully studied all aspects of the matter in the context of the policy wording and they have taken legal advice in view of the significant potential of the claim that has been made against Cara Environmental (and others). In the final analysis, underwriters have reached the conclusion that Cara’s claim for indemnity under the terms of the policy does not arise for consideration and thus that no liability cover is available to the policyholder in relation to this particular claim.
Whilst it may transpire that Cara can avail of cover under some other policy of insurance, underwriters are satisfied that in relation to their combined liability policy there is no cover available to the policyholder”.
The Plaintiff in these proceedings appears at the same time as the issue of the plenary summons to have delivered a statement of claim. In these statements of claim, which pre-dates the e-mail with the refusal of cover, to which I have referred, the Plaintiff having pleaded the relevant policy and the indemnity, which it is contended it includes in respect of public liability and product liability, refers to both the Irish and the Dutch proceedings, and then pleads that the Plaintiff has furnished the Defendant with full particulars of the claims and the Plaintiff accepts that it is obliged to discharge the excess applicable under the policies.
The most important part of the pleading is paragraph 12 of the statement of claim which sets out the essential cause of action of the Plaintiff against the Defendant and I quote:
“The Defendant having been called upon by the Plaintiff to comply with its obligations pursuant to the policy and indemnify the Plaintiff has wrongfully failed, neglected and refused to do so”.
It is then pleaded that as a result of the alleged breach of contract that the Plaintiff has suffered, and continues to suffer, loss and damage, the form of relief claimed is a declaration of which I will return to and also damages for breach of contract.
Having regard to that background and paragraph 1 of the defence, I indicated that it appeared appropriate that the preliminary issue as agreed between the parties in which the essential question that is put before this Court is:
“Can the Plaintiff sue the Defendant for the breach of the contract pleaded in the statement of claim herein…”
Must be understood to mean in the first instance; should the Plaintiff be entitled to sue the Defendant or to continue at this stage suing the Defendant for the breaches of contract? That must be construed as meaning; ‘does the Plaintiff’s claim, as pleaded, disclose in the context of the agreed facts a cause of action against the Defendant? That is the issue which I propose considering. I wish to observe at that stage that it was not suggested on behalf of the Defendant that if the Plaintiff’s presently has a cause of action against the Defendants’ for breach of contract that there was any other reason for which it should not now be permitted to proceed with this action.
The Defendant’s contention that the Plaintiff’s statement of claim does not, in the context of the agreed facts, disclose a cause of action, is based essentially on three decisions to which I was referred: namely, the Post Office –v- Norwich Fire Insurance Society Ltd 1967, 108,577. Bradley –v- Eagle Star Insurance Company Limited, 1989 1 All ER 961 and in this jurisdiction a decision of the former President of the High Court, Morris J. In McManus –v- Cable Management (Ireland ) Limited unreported in the High Court, 8 July 1994. It is submitted on behalf of the Defendant that those decisions establish that until such time as the Plaintiff herein has become legally liable to pay to the third party claimants a sum of money in respect of a claim which is covered by the insurance policy that the Defendant is not under any obligation to indemnify the Plaintiff pursuant to the terms of the policy.
Each of the cases to which I have referred are concerned with a direct claim by a third party against an insurance company. The English cases concern a right of action under an English statute and underlying English decisions is the provision pursuant to that statute that the third parties can have no better entitlement against the insurance company than the insured.
While counsel on behalf of the Plaintiff sought to rely upon a decision in Charter Reinsurance Company 1996, 2 WLR, 726 to suggest a different construction of the policy at issue in these proceedings. I propose considering the Defendant’s submission at this stage upon the basis that insofar as the policy at issue in these proceedings entitles the Plaintiff to an indemnity in respect of a claimant’s costs, damages, costs and expenses under the heading of either public liability or product liability, that under the terms of this policy, the indemnity from the insurance company to the Plaintiff insured only arises when the Plaintiff becomes legally liable to pay to the claimant a sum for damages and costs.
I am making that assumption without necessarily deciding that that is the way that these policies should be so construed. The question, therefore, as to whether the Plaintiff now has a cause of action is dependant upon a resolution of the question as to whether even making that assumption there is, on the agreed facts, a claim for an alleged breach of contract which can now be pursued. In order to identify what is the alleged breach of contract, it is necessary to refer again to paragraph 12 of the statement of claim in which it is effectively alleged, that the Plaintiff has failed to comply with its obligations pursuant to the policy and has failed to indemnify the Plaintiff.
The submission made by counsel on behalf of the Plaintiff is, that even if one assumes that the policy at issue here, in terms of the indemnity in respect of what I refer to as the public liability claim or the product liability claims is to be construed as I have indicated, and one accepts the English decisions as authorities for the proposition that the entitlement to an indemnity only arises when the insured, the Plaintiff in this instance, becomes legally liable to pay, that it does not mean, on the facts herein, that there is no present cause of action for breach of contract.
The submission is twofold. Firstly, it is submitted, in particular, in reliance upon the judgment of Lord Denning in the Post Office case at page 580 that he specifically has excluded from the principle, for which that case is authority, the type of situation which has occurred on the facts of this case. In that judgment starting at page 579, Lord Denning stated:
“Under Section 1 of the Act of 1930, the injured person cannot sue the insurance company, except in such circumstances as the insured himself could have sued the insurance company. Potters could have sued for an indemnity only when their liability to the third person was established and the amount of the loss ascertained. In some circumstances an insured might sue earlier for a declaration, e.g., if the insurance company were repudiating their policy for some reason; but where the policy is admittedly good the insured cannot sue for an indemnity until his own liability to the third person is ascertained”.
It is to be noted in that quotation that in respect of the circumstances in which Lord Denning envisages that an insured might sue for an earlier declaration he simply gives as one example, “if the insurance company were repudiating their policy for some reason”. On the facts of this case there has been no repudiation of the policy by the insurance company. In the defence it is expressly pleaded that the policy is admitted to have been in force for the relevant periods. However, in the e-mail of 5 January 2005, to which I have referred, it is expressly denied that the insurers are on cover in respect of the claims made against the Plaintiff in both the Irish and the Dutch proceedings.
It appears to me that this is an analogous type of situation to a repudiation referred to by Lord Denning and to be within the type of circumstances envisaged by Lord Denning in which an insured may be entitled before its liability to a third party has been determined to bring proceedings seeking a declaration. It is clear from the exchanges which have taken place that the Defendant herein has made it clear that no indemnity will be available to the Plaintiff in the event that the third party claimants succeed against it in the Irish or Dutch proceedings.
Counsel on behalf of the Plaintiff has drawn attention, in particular, to certain of the admitted facts which mean that the Plaintiff should be entitled to now claim a declaration by reason of alleged breach of contract in denying that the Defendant is on cover for the claims being made in the Dutch and Irish proceedings and refers in particular to the size of the claims. In the Irish proceedings the special damages as pleaded aggregate in excess of 92 million Euro and in the Dutch proceedings in excess of 8 million Euro. It is submitted on behalf of the Plaintiff, that if it had to firstly continue with the Irish and Dutch proceedings to the point of judgment and wait until after that period to determine whether it was entitled to an indemnity that, as matter of probability, it could not survive if awards of that order were made against it.
Secondly, my attention was drawn to general condition Number 3 in the policy of insurance which provides that having firstly required notice of any claim or proceedings to be given to the underwriters provides:
“…no admission, offer, promise or payment shall be made or given by or on behalf of the Assured without the written consent of the Underwriters who shall be entitled to take over and conduct etcetera…”
It was submitted that in the light of this provision that if the Plaintiff is not now entitled to litigate its dispute with the Defendant as to whether the Defendant is on cover for the claims made against it, and if such litigation is put off until after the Irish and Dutch proceedings, that if in the course of those proceedings any admission was made by the Plaintiff or, indeed, it sought to enter into any settlement, and did so and then subsequently proceeded with the present litigation against the Defendant, even if it were successful the Defendant might be entitled to avoid liability under the express terms of the policy and that that would produce such an unjust result that it could not be intended.
On that ground alone I would find that there is a cause of action at present which is entitled to proceed, but the Plaintiff also relies on the fact that under the policy at issue in these proceedings, there is an additional indemnity to which the Plaintiff is entitled, under this policy, which is not dependent upon it becoming legally liable to pay a third party in respect of a claim made against it under the product liability or public liability clauses in the policy.
It is the provision in relation to what are defined as “Legal Costs” and appears in the policy under a heading of ‘Memoranda for Section 1, 2 and 3’ at page 7 of the policy and states , and I quote:
“The Underwriters will in addition pay Legal Costs in connection with any occurrence which is or may be the subject of indemnity under these Sections unless otherwise stated”.
It is common case that it is not “otherwise stated”. The submission made on behalf of the Plaintiff is that there is a present obligation to indemnify the Plaintiff against Legal Costs in respect of the claims being made in the Irish and Dutch proceedings as they are claims which relate to an occurrence which “may be the subject of an indemnity”. Further that there has been a failure and effective refusal to date to indemnify the Plaintiff against such Legal Costs.
On behalf of the Defendant it is submitted that there has been no application to discharge the Legal Costs and on the correspondence undoubtedly that is true. However, it does not appear to me that such fact affects the issue which I have to determine for this reason. In the light of the categoric decision contained in the e-mail of 5 January 2005 that there is no cover under this polity in respect of the claims being made against the Plaintiff herein, in the Irish and Dutch proceedings there does not appear to me to be any point in the Plaintiff having written seeking specifically the payment of the Legal Costs.
Further, the Plaintiff has made clear in the replies to particulars which were furnished on 20 January 2005, that it is maintaining that the Defendant is obliged, in addition, to pay Legal Costs in connection with any occurrence which is, or may be, the subject of an indemnity. Further, it has indicated in such replies that it has already paid in excess of 230,000 Euro (inclusive of VAT) in legal fees in the Irish and Dutch proceedings and that the failure to confirm in the first place whether or not was providing the indemnity and laterally refusing to provide cover, has had an effect on the future planning of the Plaintiff’s business. There is no suggestion on behalf of the Defendant that it is now willing to discharge such Legal Costs. Hence, I consider this submission on behalf of the plaintiff also to be well-founded.
I have concluded that the Plaintiff does now have a present cause of action which it may pursue and that cause of action is fairly stated and claimed at paragraph 12 of the statement of claim as being a claim for breach of contract. I just wish to add that insofar as I have determined that there is a present entitlement to make the claim for beach of contract in relation to the Legal Costs, I do not intend in any way at the moment to hold that the costs as claimed are Legal Costs within the meaning of the policy. That is the claim which the plaintiff’s are now entitled to pursue. It is obviously still a matter in issue and it may be separately a matter in issue between the parties.
The last matter that I wish to deal with is, the objection made on behalf of the Defendant to the form of declaration claimed. One of the reasons for which I have determined that there is a cause of action is in reliance upon the exception envisaged by Lord Denning in the Post Office case that there may be a claim in certain circumstances to a declaration. The declaration as drafted in the statement of claim is very wide. However, where the issue before the Court is whether or not the Plaintiff has a cause of action, such that it may be entitled to continue, or to put it another way, whether the Defendant is correct in asserting that there is no sustainable cause of action, it does not appear to me that the fact that the Plaintiff may have currently drafted the precise form of declaration sought more widely than it would be entitled to even on the cause of action pleaded, is a reason for which this Court should refuse to permit the Plaintiff to proceed.
It appears to be similar to the principle to which I was referred in the case of Sun Fat Chan –v- Osseous in [1992] 1IR 425 and, in particular, McCarthy J. in relation to taking into account any amendment which might save a statement of claim.
So, I will answer the precise issue as put in the issue paper to the effect that the Plaintiff can now sue the Defendant for breaches of contact pleaded in the statement of claim.
Hickey (t/a Hickeys Pharmacy) -v- The Health Service Executive
[2008] IEHC 290 (11 September 2008)
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 11th day of September, 2008
The first named plaintiff, Mr. Hickey, is a pharmacist and the majority shareholder of the second named plaintiff. The second named plaintiff is a holding company which owns twenty-four shops which trade as “Hickeys Pharmacies”. The third to eighth named plaintiffs are companies within the Hickeys Pharmacy Group which have entered into individual community pharmacy contractor agreements for the provision of community pharmacy services, under the Health Act, 1970 (“CPC agreement”). Those agreements are each in standard form and were agreed in 1996 following negotiations between the Minister for Health and Children (“the Minister”) and the Irish Pharmaceutical Union (“IPU”).
The defendant is the body established by the Health Act, 2004 to manage the health services and perform the functions assigned to it by that Act. The CPC agreements entered into by the third to eighth named plaintiffs prior to 2004, were with the relevant health board. Pursuant to s. 63 of the Act of 2004, those agreements now have effect as if the defendant is substituted for the health board and are enforceable by and against the defendant.
In this judgment, save where I expressly otherwise state, insofar as I refer to the plaintiffs, I am referring to the third to eighth named plaintiffs who are now parties to a CPC agreement with the defendant.
The plaintiffs claim that the defendant is in breach of its contracts with them in reducing the amount paid for the reimbursement of cost in the payment in respect of the cost of drugs dispensed under the GMS scheme and other community drugs schemes. Such reductions were decided upon by the defendant in September 2006 and September 2007. The defendant denies that it is in breach of contract and asserts that if the Court was to uphold certain of the contractual terms contended for by the plaintiffs that they are void, by reason of section 4 (1) of the Competition Act 2002.
The plaintiffs’ claims, and the defendant’s defence thereto, requires the Court first, to determine what were the relevant contractual provisions between the plaintiffs and the defendant in September 2006 and September 2007 in relation to the payments which have been reduced by the defendant. Whilst there are almost no facts relevant to those issues in dispute between the parties, it is necessary, for a full consideration of the contractual arrangements, to set out the relevant factual background in relation to the supply and distribution of medicines dispensed under the GMS and other community drugs schemes leading to the 1996 CPC agreements and the contested decisions taken by the defendant in 2006 and 2007.
The persons participating in the supply and distribution of drugs in Ireland and the arrangements made in relation thereto for supply, under the General Medical Services (GMS) scheme, include the following:
The manufacturers and importers of proprietary and non-proprietary drugs and their representative organisations which, at different times, were the Pharmaceutical and Allied Industries Association, the Federation of Irish Chemical Industries (“FICI”) and the Irish Pharmaceutical Healthcare Association (“IPHA”).
The wholesalers and their representative body, the Pharmaceuticals Distributors Federation (“PDF”).
The pharmacists, referred to in the agreements as “the contractor”, and their representatives, the Irish Pharmaceutical Union (“IPU”), and its committee, the Pharmaceutical Contractors’ Committee (“PCC”).
The Minister and his/her Department (“the Department”).
The health boards.
The GMS (Payments) Board.
The defendant, as successor to the health boards and GMS (Payments) Board.
The Health Act, 1970 provided for the reorganisation of the health services and the introduction of the General Medical Services (“GMS”) scheme. It also provided for the establishment of health boards. Section 59 (1) obliged the health boards to make arrangements for the supply, without charge, of drugs, medicines, and medical and surgical appliances, to persons with full eligibility. It also permitted health boards to make provision for the supply of such drugs, medicines, etc., to other persons. From the outset, it was intended that drugs be dispensed by privately owned pharmacies free of charge to eligible persons and that such pharmacies be remunerated for such supply by the health boards.
In 1971, the Minister (through his Department) and the IPU, entered into a memorandum of agreement in relation to the proposed arrangements for the supply of drugs by pharmacies, for the purposes of the GMS scheme (“the 1971 memorandum”). The 1971 memorandum envisaged that a standard form of agreement, to be entered into between a pharmacist and the relevant health board, would be negotiated between the Department and the Joint Negotiation Committee representing community pharmacists.
Paragraph 13 of the 1971 memorandum stated: “It is proposed that in general the provisions of the agreement shall be based on the terms of this memorandum”.
The 1971 memorandum, under a heading of “Basis of Remuneration” provided at paras. 20 and 22, the following:
“20. The pharmacist will be remunerated on the basis of the recoupment to him of the ingredient cost of prescription items dispensed for eligible patients under the scheme, together with a fee for each item (subject to paragraph 25). The fee will contain specific elements to cover the cost of containers, capital investment and obsolescence . . .
The price of a proprietary item to the pharmacist will be taken as the basic ex-wholesale price ruling during the month the prescription was dispensed. The ingredient cost of non-proprietary items will be arrived at on the basis of lists agreed between the Department of Health and the Joint Negotiating Committee . . .”
The 1971 memorandum then sets out at paras. 23 to 33 under a heading of “Details of Remuneration”, certain detailed fees to be applied, and also made provision for advance payments.
A standard form contract was subsequently agreed in 1971. This was the agreement entered into between each pharmacist (“the contractor”) and their relevant health board, between that date and the introduction of the new CPC agreement in 1996. The only provisions relevant to payments to be made to the pharmacist are those at paras. 10 and 11 which provide:
“10. The board shall in consideration of the service provided by the contractor in accordance with these terms and conditions and on foot of claims made in the form and at the times directed by the Minister for Health make payments or arrange for payments to be made to the contractor in accordance with such rates as may be approved of or directed by the Minister from time to time after consultation with the Pharmaceutical Contractors’ Committee.
11. The contractor shall not demand or accept any payment or consideration whatsoever, other than payments made under paragraph 10 in reward for the supply of medicines and appliances under section 59 (1) of the Health Act, 1970”.
From 1971, all payments to the pharmacists under the GMS scheme were paid through a central payment service known as the General Medical Services (Payments) Board. Those functions have now been taken over by the defendant. The GMS (Payments) Board was responsible for the verification of the accuracy of claims made by pharmacists, the calculation of payments to be made to the pharmacists for the services provided, and the making of such payments. I am satisfied, on the evidence of Mr. Burke, a former Chief Officer of the GMS (Payments) Board, and the evidence given by Mr. Hickey and other pharmacists on behalf of the plaintiff, that, essentially, the same system (albeit modernised by the use of electronic equipment and communication), was operated by the GMS (Payments) Board in relation to the making of payments. In respect of each item dispensed by a pharmacist under the GMS scheme, a claim was made identifying the relevant code of the product and the quantity dispensed. The payment due to the pharmacist was then calculated and, for example, in respect of the GMS scheme, it was the addition of two separately identified elements of the payment, one being termed the ingredient cost and the other the fee.
Even prior to 1971, it appears that the Minister, through his Department, had entered into agreements with representatives of the manufacturers and importers of medicines. Copies of many of the successive agreements entered into were admitted in evidence by consent. The first such agreement produced is of July 1969, between the Pharmaceutical and Allied Industries Association and the Department of Health. A curious feature of this, and many of the successive agreements, is that it sets out what will be done by persons not represented by the parties to the agreement, in addition to those represented. The 1969 agreement provides that “manufacturers and principal importers shall supply wholesalers at normal wholesale prices”, and also that, “wholesalers shall supply retail pharmacists at normal trade prices”. The wholesalers were not represented by either party to the agreement.
It is not in dispute between the parties that the normal trade price or, as sometimes referred to, the “ex-wholesale price”, at the time of the 1969 agreement, and at the time of the 1971 memorandum, was the ex-factory price plus 17.66%. In certain documents it is explained in a different way, namely, that the normal wholesale margin in Ireland was 15% of the trade price or the Irish trade price. Both result in the same margin for wholesalers.
The 1969 agreement with the Pharmaceutical and Allied Industries Association appears to have remained in place until 1983 when it was replaced by an agreement between the Federation of Irish Chemical Industries (FICI) and the Department of Health. The 1983 agreement commenced a pattern which was repeated in successive agreements between the Department and the manufacturers. The agreements sought to determine the Irish trade price, i.e. the price to the pharmacist, by reference to United Kingdom prices. In relation to General Medical Services, the 1983 agreement provided:
“General Medical Services
In regard to drugs and medicines for the General Medical Services it is agreed that;
manufacturers and principal importers shall supply wholesalers at normal wholesale discounts;
wholesalers shall supply retail pharmacists at the trade price;
manufacturers and importers shall themselves be free, if they so wish, to supply to retail pharmacists at the trade price.
The General Medical Services Payments Board on behalf of the health boards, will re-imburse retail pharmacists for the drugs properly dispensed by them under the scheme.”
It is again common case between the parties that the “normal wholesale discounts” referred to is 15% of the trade price, and further, that the trade price was then the ex-factory price plus 17.66%.
Similar agreements were subsequently entered into between the Department and FICI in 1986, 1987 and 1990, with substantially similar provisions. The agreements sought to fix the Irish trade price by reference to the United Kingdom price and contained provisions similar to the above in relation to how the different persons in the chain of supply for the GMS Scheme were to behave, including the wholesalers who were not represented by the parties to the agreements. In 1990, the phrase “appropriate wholesale discount” rather than “normal wholesale discount” was used in the statement in relation to General Medical Services. It was not submitted that this change was relevant; the wholesale discount remained at 15% of the trade price.
The agreement between the Department and FICI in 1993 provided for reductions in the ex-factory prices to wholesalers and retained a similar statement in relation to General Medical Services, save that in relation to reimbursement by the General Medical Services (Payments) Board, which provided:
“The General Medical Services (Payments) Board, on behalf of the health boards, will reimburse retail pharmacists at cost (emphasis added) for the medicines properly dispensed by them under the Scheme.”
In evidence, this was stated to be an indication of the intention of the Department to confine reimbursement to the cost to the pharmacist of the drugs supplied to them by the wholesalers. The other change in the 1993 agreement was that it sought to fix the price of new medicines at the level of the price to the wholesaler, rather than, as in previous agreements, the price to the pharmacist.
A similar agreement was entered into in 1997 between the Department and the Irish Pharmaceutical Healthcare Association (IPHA), which was the successor to FICI, with the same provisions in relation to the General Medical Services scheme.
In 2006, the defendant and others entered into agreements with IPHA and APMA, of a quite different nature. The 2006 agreements did not include any statement in relation to the supply by manufacturers to wholesalers, or wholesalers to pharmacists in relation to the GMS scheme, nor made provision in relation to the reimbursement to pharmacists for drugs dispensed under such scheme. Those agreements provided for reduction in the ex-factory prices. They were explained in evidence as being the first step in the reduction of the cost to the State of the provision of drugs under the GMS scheme and in hospitalsin implementation of Cabinet committee decisions taken in April 2005.
It is common case between the parties that from 1971 to 2006 the price at which wholesalers invoiced retail pharmacists for drugs, and which was referred to as the Irish trade price, the trade price, or the ex-wholesale price or basic ex-wholesale price, was the ex-factory price plus 17.66%. It is also common case that the Irish wholesale margin during this period was considered to be 15% of the trade price.
However, notwithstanding that the price at which individual items were invoiced by wholesalers to retail pharmacists continued to be the ex-factory price plus a constant mark-up of 17.66%, there were very considerable changes which occurred in the wholesale distribution sector and the arrangements entered into between wholesalers and retailers. First, there appears to have been significant competition and consolidation through the 1980s and early 1990s of wholesalers in Ireland, resulting in only three significant wholesalers continuing to supply the retail pharmacists.
Secondly, and more significantly to the issues which the Court has to consider in this claim, wholesalers commenced granting significant discounts and rebates to pharmacists. I find that in 1971, there does not appear to have been any significant practice of wholesalers granting discounts to pharmacists. The practice appears to have commenced possibly in the late 1970s and had become relatively widespread during the 1980s. It was well established and quite significant by the early 1990s. The discounts given by wholesalers to pharmacists are a matter of individual negotiation between wholesalers and pharmacists and normally apply on settlement of accounts by the pharmacists.
From the evidence of Mr. Hickey, and the other pharmacists who gave evidence on behalf of the plaintiffs, which I accept, it appears that the general practice is for each pharmacy to have a primary wholesaler from whom it obtains most supplies, and to have a second line wholesaler from whom the pharmacy may need to obtain supplies from time to time. The amount of the discount allowed by a wholesaler relates to matters such as the quantities purchased; the credit terms and compliance with the credit terms; electronic ordering and arrangements for bulk ordering; and location and delivery arrangements. Mr. Hickey gave evidence that the discounts generally earned by the plaintiffs from its primary wholesaler, was in the order of 11% – 12%. However, he emphasized that this would vary from month to month and from pharmacy to pharmacy, and that, in particular, where an individual pharmacy did not meet the time for payment under its credit terms it would lose part of its discount. His evidence was that a lesser discount was available to the plaintiffs from their second line wholesale supplier provided the individual plaintiff achieved a specified threshold of purchases.
There was some dispute between the parties as to the timing and extent of the knowledge within the Department of the practice of wholesalers giving discounts to the pharmacies. The Minister is not a party to these proceedings. The defendant’s witnesses did not dispute that there was knowledge of the practice of discounting within the Department, certainly by the late 1980s, but submits that there is no evidence that the Department was aware of the extent of the discounting at that time. From the oral evidence given on this issue, and the documents produced in evidence, I am satisfied on the evidence before me, as a matter of probability, relevant officials within the Department were aware by the late 1980s, that there existed a practice of wholesalers giving significant discounts to pharmacies which related inter alia to products dispensed under the GMS and other community drugs schemes. Correspondence between the GMS (Payments) Board and the Department in October 1988 has being admitted into evidence in which a Mr. Byrne of the former draws the attention of the Department to what he describes as “the established accounting practice” of offering settlement discounts, typically of the order of 2% to 3%, in return for prompt payment. He also draws attention to discounts substantially in excess of this, and in one instance at 15%, on invoices supplied to them. This was explained as being a special case to an ex-employee.
I also find, as a matter of probability, that the relevant officials in the Department did not have, what Mr. Hathway referred to in evidence as, “verifiable evidence” of the level of discount being granted by wholesalers to pharmacists. However, it appears by 1990 some officials were in a position to make an educated guess. A Departmental memorandum produced in evidence which appears to date from 1990, and related to proposals to reduce the margin for wholesalers from 15% to 12.5%, under a heading of “Discounting”, stated:
“It is strongly submitted that the wholesalers co-operation should be obtained to assist the termination of the practise of discounting in return for the Department not looking for a more significant reduction in their margins.
It is well known that wholesalers give major discounts to pharmacists. However, these discounts are not taken into account by the G.M.S Payment Board when it is re-imbursing pharmacists. As a result pharmacists not only obtain a fee from the G.M.S. Scheme for dispensing, they also keep the discounts as profit. Even in the United Kingdom, where this discounting is monitored and ‘clawed-back’ by the national health service, the discounts [are] around 10% and there is no reason to believe that they are any less here. However, there is no comprehensive evidence on the extent and percentage of discounting here. If one assumes that discounting is at the level of 10% across the board then it could be argued that pharmacists are effectively de-frauding the G.M.S. Payments Board of around £11m per annum.
As a first step it could be mooted that a 5% discount will be assumed and that pharmacists’ re-imbursements will be reduced by the amount. If the wholesalers and the I.P.U. object to this we will agree that an independent agency, perhaps the Director of Consumer Affairs, will conduct an enquiry based on sampling to establish the true level and extent of discounting. The United Kingdom has successfully monitored discounting on this basis for a number of years and has reduced the prices re-imbursed to pharmacists by 10% as a result.”
There was no evidence of any effective steps taken pursuant to this memorandum in the early 1990s, either to reduce the wholesaler’s margin or to reduce the rate at which pharmacists were reimbursed the cost of drugs dispensed by them.
Subsequent to 1971, there were a number of additional schemes added to the GMS scheme under which pharmacies were to provide drugs free to patients and be paid by, or on behalf of, the health board or defendant for so doing. It is not necessary to refer to all of these. The practice appears to have been that on the introduction of each scheme a memorandum of agreement was entered into between the Department and the IPU. One such agreement was a 1990 agreement in relation to the Drugs Cost Subsidy Scheme (DCSS), now the Drugs Refund Scheme. That scheme provided for the supply, free of charge to certain persons, of drugs in excess of a specified amount per month, then IR£28.00. The agreement, at para. 5, set out detailed provisions in relation to the making of claims by pharmacists and then, in relation to payment, stated:
“Payment will be calculated as follows:
reimbursement of ingredient cost, i.e. the basic ex-wholesaler price current in the month the items were dispensed, and, in accordance with the code or product name, as appropriate, and the quantity claimed;
normal 50% mark-up on ingredient cost; and
an inclusive fee of 123.6p (as at 1 Jan 90) to be increased in line with Public Service Pay Awards (inclusive of container and broken bulk allowances).”
The plaintiffs lay much emphasis on the fact that this agreement was entered into at a time when, as they contend and I have found, the officials of the Department were aware of a widespread practice of discounts being allowed by wholesalers to pharmacists. Notwithstanding this, the Department agreed to the reimbursement of ingredient cost at the basic ex-wholesaler price current in the month the items were dispensed. I am satisfied and find that in 1990, the basic ex-wholesaler price referred to in this agreement was the Irish trade price or the ex-factory price plus 17.66% determined in accordance with the FICI agreements. The evidence of Mr. Burke makes clear that such price for each individual item was established from prices determined by the FICI agreements by a committee in which the Department participated and maintained in a list with products identified by code. Further, that such list was used by the GMS (Payments) Board for the purposes of all payments and available to pharmacists.
In 1996, following extensive negotiations, the Department and the IPU entered into a further memorandum of agreement in June 1996. That agreement included terms and conditions for a new Community Pharmacy Contractor agreement which was appended to the memorandum between the Department of Health and the IPU. The 1996 memorandum did not contain any new provisions in relation to the basis of the remuneration of pharmacists. The 1996 CPC agreement was to replace the 1971 agreement. Clauses 12(1) and 13(1) of the 1996 agreement substantially repeated clauses 10 and 11 of the 1971 agreement, and provide:
“12. (1) The board shall in consideration of the service provided by the pharmacy contractor in accordance with these terms and conditions and on foot of claims made in the form and at the times directed by the Minister, make payments or arrange for payments to be made to the pharmacy contractor for prescriptions dispensed at his/her contracted community pharmacy in accordance with such rates as may be approved or directed by the Minister from time to time after consultation with the Pharmaceutical Contractors’ Committee.
13. (1) The pharmacy contractor shall not demand or accept any payment or consideration whatsoever other than payments under clause 12(1) in reward for the supply of medicines which under the Health Act, 1970, are to be supplied without charge.
The changes made in the wording of clauses 12(1) and 13(1) of the 1996 CPC agreement, when compared with clauses 10 and 11 of the 1971 agreement, are not relevant to any issue in these proceedings.
The plaintiffs rely on clauses 19 (3) and (5) of the 1996 agreement which provide:
“(3) This agreement is to be construed as contingent upon the terms agreed or to be agreed between the Minister and the Pharmaceutical Contractors’ Committee regarding arrangements for the provision of pharmaceutical services under the provisions of the Health Act, 1970. The pharmacy contractor and the board agree that any changes in the terms of such arrangements, which may be agreed between the Minister and the Pharmaceutical Contractors’ Committee, shall be incorporated into this agreement and the terms of this agreement shall be construed accordingly, following the issue of a notification of such agreed changes by the Minister.
(5) The terms and conditions of this (sic) agreement between the Pharmaceutical Contractors’ Committee and the Minister may be subject to review after a period of five years. In default of agreement on any such review, the matters of disagreement shall be subject to mediation and recommendation by a third party appointed by the Minister following consultation with the Pharmaceutical Contractors’ Committee. Any alterations to the agreement between the Minister and the Pharmaceutical Contractors’ Committee arising from the review provided for in this clause, shall be incorporated into this agreement and the terms of this agreement shall be construed accordingly, following the issue of a notification of such agreed changes by the Minister. The terms and conditions of this agreement may also be extended for specified periods with the agreement of the Minister and the Pharmaceutical Contractors’ Committee.”
The plaintiffs entered into CPC agreements with the relevant health board, or laterally, the defendant, on dates between 1996 and 2004. In summary, I am satisfied on the evidence that the factual position was that the payments made to the plaintiffs in respect of drugs and other items dispensed under the GMS scheme from the date of contract were, in respect of each item dispensed, a single payment which was made up of two elements:
the ingredient cost which was, by that time, the ex-factory price (determined in accordance with the relevant agreement between the Department of Health and FICI or IPHA), plus 17.66%, and,
a fee, which was increased from time to time.
Similarly, in respect of several of the other schemes, including the DCSS, each plaintiff received, in respect of each item dispensed, a single payment made up of, in most incidences, three elements: the ingredient cost, a fee, and a mark-up of 50% of the ingredient cost.
I also find that since the commencement of the CPC agreements, the pharmacists were invoiced by the wholesalers for each individual item at the same price as allowed as the ingredient cost in the payment arrangements operated by or on behalf of the health boards. The plaintiffs were, and are, also granted significant discounts on their monthly accounts from their primary wholesaler, and whilst such discounts vary from pharmacy to pharmacy and from month to month, are now in the order of 11% to 12%. The plaintiffs are also entitled to some discount, albeit lesser and subject to threshold purchases, from their second line wholesale suppliers.
The evidence is that in April 2005, the Cabinet committee on health considered a range of issues intended to reduce the rate of increase in the cost of community drugs schemes and of hospitals supplies. In November 2005, the Chief Executive Officer of the defendant established a pharmaceutical steering group to implement the Cabinet committee decision. The defendant first concluded the 2006 agreements with IPHA and APMI, the two bodies then representing manufacturers and importers of pharmaceutical products. Those agreements were estimated to provide savings in the order of €250 million.
The next step intended by the defendant was a review of the wholesale arrangements for the supply of medicines to hospitals and through the community drugs scheme. Mr. Sean Hurley, who chaired the joint negotiation team consisting of members of the Department and the defendant which pursued this review, gave clear and helpful evidence of the steps taken. The joint negotiation team commenced negotiations with the Pharmaceuticals Distributors Federation (“PDF”) who represented the wholesalers. The intention was to attempt to reduce the “wholesale mark-up”. Initial meetings were held in July and August 2006, but ultimately, discussions ceased by reason of the position taken by the PDF that discussions on price would be contrary to section 4 (1) of the Competition Act, 2002.
In the course of the July and August meetings, a document was produced by the PDF to the joint negotiation team for the purpose of outlining the impact of the 2006 IPHA agreement on wholesalers. This document quantified the discounting arrangements then entered into by wholesalers with retailers at approximately €100 million per year. Mr. Hurley’s evidence, which I accept, was that this was the first occasion on which the members of the joint negotiating team, including the representatives of the Department, were aware of the full extent of both the practice of discounting and the disparity between what the pharmacists were reimbursed by the State in respect of the cost of drugs and what they paid to wholesalers (net of discounts).
Mr. Hurley’s evidence, which I accept, is that following the refusal by the PDF to enter into negotiations and the reservations expressed in relation to potential breaches of competition law, the joint negotiation team decided to begin a process based on a mechanism recommended by the Competition Authority known as “unilateral fee setting by the payer”. He explained the process as being one under which the payer (the defendant) determines the fee it is willing to pay based on its own market knowledge. In order to gather the market knowledge a public consultation process is conducted, inviting submissions from the public on what it considers to be an acceptable fee.
On 21st December, 2006, the defendant published, pursuant to this strategy, a call for public submissions into the provision of pharmaceutical wholesale and distribution services to both community pharmacy contractors and other healthcare locations in the Republic of Ireland. The process was conducted between December and February 2007, and the evidence is that a total of 162 submissions (including 143 from community pharmacy contractors and a submission from the IPU) were received.
In January 2007, the defendant also procured an independent economic analysis from INDECON consultants. That report was completed in March 2007. The evidence is that INDECON were asked to provide an analysis of the Irish and European wholesale markets with a view to enabling the defendant to make an informed decision identifying a realistic cost for the provision of pharmaceutical wholesale distribution services, to both community pharmacies and the Irish health service.
The evidence of Mr. Hurley is that, following this process, the joint negotiation team estimated that wholesalers then paid an average of over half of their then margin to retailers in the form of rebates and discounts. Following a recommendation from the joint negotiation team, the defendant, he states, arrived at a new realistic wholesale mark-up of 7% to 8%. It is the decisions taken by the defendant in the course of, and following this process, which give rise to the reduction in the payments to the pharmacies to reimburse the cost of drugs, which are contested in these proceedings, and alleged to be in breach of the individual plaintiffs’ CPC agreements with the defendant.
Mr. Hurley accepted in evidence, and I find as a matter of fact, that there was no consultation with the IPU in relation to the decisions to change the rate at which pharmacists, including the plaintiffs, were to be reimbursed the ingredient cost of drugs dispensed by them under the GMS and other community drugs schemes.
The defendant communicated directly with each pharmacist during the work of the joint negotiation team, by a letter dated 18th January, 2007, from Professor Sabra, the Head of the Corporate Pharmaceutical Unit of the defendant. In that letter Professor Sabra explained the steps taken by the joint negotiation team, the decision not to engage in negotiations with the IPU or PCC in relation to fees by reason of competition law issues, the public consultation process then underway, and the reduction in the price of medicines pursuant to the 2006 IPHA and AMPI agreements which were to take effect from 1st March, 2007. He then stated:
“As a result of a recent PDF submission to the DOHC, the negotiation team learned that various rebates, discounts and other trading benefits are granted by wholesalers to pharmacy contractors. The existence of these previously undisclosed trading practices raises some concerns. The HSE brings to your attention the terms of Clauses 12 (1) and 13 (1) of your Pharmacy Contractor’s Agreement.”
He then set out the terms of clauses 12 (1) and 13 (1) and reminded the pharmacists that all trading practices in relation to the provision of community pharmacy services under the Health Act of 1970, must fully comply with the terms of the contractors’ agreement.
Contested decisions
In September 2006, the defendant decided to reduce the amount it would pay as reimbursement of the ingredient cost of new medicines from the ex-factory price plus 17.66%, to the ex-factory price plus 15%. There was no public announcement of the decision at the time, and it appears that it took some time for the plaintiffs to become aware of this decision and its impact.
In September 2007, the defendant determined to reduce the price at which it would reimburse pharmacies the ingredient cost of medicines under the GMS and community drugs schemes from the ex-factory price plus 17.66% to the ex-factory price plus 8%, with effect from 1st December, 2007,. It also determined to further reduce the amount payable from 1st December, 2008, to the ex-factory price plus 7%. This decision and the reasons therefor were communicated by a letter dated 17th September, 2007, to community pharmacists, including the plaintiffs, in the following terms:
“Re: Wholesalers’ margin
Dear Pharmacist
Under current arrangements, the HSE reimburses pharmacy contractors for medicines purchased from wholesalers and supplied under the GMS and Community Drugs Schemes at the ex-factory price of medicines plus an assumed wholesalers’ margin calculated on the ex-factory price. These prices are available from the HSE at any time.
Reimbursable prices are based on a margin for wholesalers of 15% of the ex-factory price for distributing items, which have become reimbursable under the GMS and Community Drug Schemes since 1 September 2006 and 17.66% in respect of items, which became reimbursable prior to that date.
It has come to the attention of the HSE that these margins frequently exceed the actual margins charged by wholesalers for medicines supplied under the GMS and Community Drugs Schemes.
As you know, the HSE advertised and commenced a public consultation process in December 2006 aimed at determining an appropriate wholesalers’ margin for the provision of wholesale services at the current service levels. This consultation process was completed in February 2007. The HSE received a significant volume of submissions from manufacturers, wholesalers, community pharmacists and other stakeholders. The HSE also commissioned an independent economic analysis of the pharmaceutical wholesale sector. The HSE intends to publish this report on the HSE’s website at www.hse.ie shortly.
Having considered the submissions and economic analysis, the HSE is satisfied that the appropriate wholesalers’ margin is no more than 7-8% of the ex-factory price. As a result of the review, the HSE has determined that arrangements for the reimbursement of drugs supplied under the GMS and Community Drugs Schemes will be as follows:
In respect of all prescription items supplied by community pharmacists, on or after 1st December 2007, the HSE will pay a wholesale margin of 8% calculated on the ex-factory price of all medicines reimbursable under the GMS and Community Drug Schemes, i.e. all claims received in respect of December 2007 and onwards will have the revised prices applied to them.
In respect of all prescription items supplied, by community pharmacists, on or after 1st December 2008, the HSE will pay a wholesale margin of 7% calculated on the ex-factory price of all medicines reimbursable under the GMS and Community Drug Schemes, i.e. all claims received in respect of December 2008 and onwards will have the revised prices applied to them.
The wholesalers’ margin will thereafter be reviewed from time to time.
The HSE appreciates the value of the Community Pharmacist in the delivery of a quality health service.
Yours faithfully”
There were certain further clarifications given in subsequent correspondence which are not relevant to the issues which I have to determine and the implementation date deferred to 1st March, 2008.
Each of the September 2006 and September 2007 decisions are pleaded as, and not denied to be, decisions taken by the defendant. Evidence was given that, prior to the announcement of the decision of September 2007, a meeting was held with the Minister for the purpose of informing her of the proposed decision and at which she indicated approval for the defendant’s proposed decision.
There is no evidence of any consultation between the Minister or the defendant with the PCC in relation to the decisions to reduce the rate at which the ingredient cost of medicines under the GMS and other community schemes would be reimbursed to pharmacies, including the plaintiffs.
I am satisfied on the evidence that, since the implementation of the reduction of reimbursement price paid on behalf of the defendant, wholesalers have continued to invoice the plaintiffs for drugs supplied at the ex-factory price plus 17.66%. They have also continued to grant discounts. The plaintiffs do not allege that the reduced amounts paid as reimbursement of ingredient cost have been less than the net amount paid by them to purchase the drugs, taking into account the discounts allowed to them on settlement of their invoices/monthly accounts.
Issues
The plaintiffs claim that the decisions taken by the defendant in September 2006 and September 2007, to reduce the amount paid to the plaintiffs as the ingredient cost of medicines reimbursable under the GMS and community schemes, is in breach of the plaintiffs’ CPC agreement with the defendant.
It is important to emphasize that the only issues with which the Court is concerned are what are the relevant contractual terms between the plaintiffs and the defendant and whether the decisions taken were in breach of those terms? The reason I emphasize this is that a significant portion of the evidence adduced before the Court related to the respective merits of the positions of the parties in relation to the reduction in the amount of the reimbursable cost decided upon by the defendant and its impact on the overall provision of services by community pharmacies in the GMS and other community drugs schemes and payments therefor. It forms no part of the Court’s function to form any view on the respective merits of the position of the parties. The Court is confined to determining what are the relevant contractual provisions between the parties and whether the decisions taken were in breach of those contractual provisions. The defendant has also raised competition law issues which only arise if the Court was to find for the plaintiff on certain of its contractual submissions.
The identification of the relevant terms of the contract between the individual plaintiffs and the defendant, in relation to the provision of community pharmacy services, is complex by reason of the multiplicity of parties involved in concluding these arrangements, and the existence of memoranda agreed between the Minister and the IPU, alongside individual contracts in standard form entered into between the plaintiffs and the defendant and its predecessors, but not negotiated by them. These contractual arrangements have already been the subject of considerable analysis by Clarke J. in the case of Irish Pharmaceutical Union and Ors. v. Minister for Health and Children and Ors. [2007] IEHC 222, albeit in relation to a different contractual obligation, namely, the making of advance payments. The plaintiffs seek to rely on the analysis of Clarke J. in support of their submissions herein.
The issues which the Court has to determine appear to be the following:
What contractual obligation and/or right existed between the defendant and the plaintiffs in September 2006 in relation to payments to reimburse the ingredient cost of products dispensed under the GMS and community schemes to eligible persons? I have identified September 2006 as there is no evidence to suggest any change in the contractual arrangements between September 2006 and 2007.
What, if any, contractual arrangements applied between the parties in relation to any alteration in the amount so payable?
If necessary, whether any of the contractual provisions found to exist are void by reason of section 4 of the Competition Act 2002?
The plaintiffs’ primary submission is that they have a contractual entitlement to be paid by the defendant as reimbursement of the ingredient cost of medicines supplied, a price which they call “the basic ex-wholesale price”. In the pleadings, and at the outset of the case, they defined the basic ex-wholesale price as being “the normal cost price charged by a wholesaler to a community pharmacist before discounts or rebates or any other special terms”, and asserted that the amount equates, or equated, to the amount of the ex-factory price plus a mark-up of 17.66%. It would appear from the closing submissions made by counsel on their behalf that they may have refined that submission to one in which the basic ex-wholesale price to which they allege a contractual entitlement is the ex-factory price plus a mark-up of 17.66%. As will appear, nothing turns on this slight variation. The refinement was made in response to hypothetical queries put by the Court as to what the plaintiffs contended the contractual obligation to be in the event, for example (which did not occur), that a wholesaler increased the price at which it invoiced medicines to a pharmacist to a price which exceeded the ex-factory price plus 17.66%. The plaintiffs conceded that they are not contending an entitlement to be reimbursed a price invoiced by a wholesaler, which amounted to, for example, the ex-factory price plus 30%.
The plaintiffs submit that such contractual entitlement is an implied term of each plaintiff’s CPC agreement with the defendant. They submit that such term is implied, either by custom and usage, or by reason of clause 19 (3) of the 1996 CPC agreement. The plaintiffs do not rely on clause 12 (1) of the 1996 CPC agreement, and submit that payments made to them by or on behalf of the defendant, as reimbursement of the ingredient cost, are not payments referred to in clause 12 (1) of the CPC agreement. The plaintiffs submit that those payments made on behalf of the defendant which represent fees for dispensing, or an amount which is a mark-up on the ingredient cost, are payments which come within clause 12 (1) of the 1996 CPC agreement.
The defendant’s submission is that it accepts that the defendant is contractually obliged to reimburse a pharmacist for the cost of medicines supplied under the GMS and other community drug schemes. Whilst the defendant, initially in the defence as pleaded, maintained that payments intended to reimburse at cost formed part of the payments made pursuant to clause 12 (1) of the 1996 CPC agreement, it changed its position on that issue at the hearing of the action. The submissions made by counsel on its behalf at the hearing were that, on reflection, the defendant agreed with the submission made by counsel for the plaintiffs that the payments intended as reimbursement of ingredient cost did not form part of the payments referred to in clause 12(1) of the 1996 CPC agreement. The ultimate submission of the defendant, through its counsel in closing, was that the contractual obligation of the defendant was an implied term of the CPC agreement between the plaintiffs and the defendant, and was to reimburse the plaintiffs for the cost of medicines supplied at a price or rate which originally the Minister, but now the defendant, determined to be an average or proximate cost across the pharmacy market. The defendant submitted that such term was implied from the 1971 memorandum but not by reason of clause 19 (3) of the CPC agreement (“terms agreed or to be agreed”), which clause, it asserted, was concerned with non-pay issues.
In summary, both parties agree that the CPC agreement includes a contractual right for the plaintiff to be paid, by or on behalf of the defendant, an amount to reimburse the cost of medicines dispensed under the GMS and other drugs schemes, but dispute the exact nature of the contractual term and the basis for same in the CPC agreement.
Conclusions on contractual terms
The starting point of any consideration of the contractual terms that exist between the plaintiffs and the defendant must be the express terms of the written agreement between the parties, i.e. the 1996 CPC agreement.
There is no dispute between the parties as to the principles which the Court should apply in construing the terms of that agreement. They include those approved of by the Supreme Court in Igote Ltd. v. Badsey Ltd. [2001] 4 IR 511.
In Igote Ltd. v. Badsey Ltd., the parties were in dispute as to the meaning of a particular clause in a share subscription agreement. Murphy J. (who delivered the single judgment with which there was unanimous agreement), at p. 516, quoted with approval a passage in the judgment of Keane J. (as he then was) in the case of Kramer v. Arnold [1997] 3 I.R. 43, at p. 55, as succinctly expressing the rule as to the construction of a contract and the context in which it is to be achieved:-
“In any case, as in this case where the parties are in disagreement as to what a particular provision of a contract means, the task of the court is to decide what the intention of the parties was, having regard to the language used in the contract itself and the surrounding circumstances.”
Murphy J. had, earlier in the judgment, quoted with approval from the well known speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 W.L.R. 1381 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989. In Prenn v. Simmonds Lord Wilberforce said at p. 1383:-
“The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations . . . We must . . . inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object appearing from those circumstances, which the person using them had in view.”
In Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen he repeated his views at pp.995 and 997:-
“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 a knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating … what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were”.
Murphy J. also referred to the dangers in exploring the background or surrounding circumstances to a contract under construction and the limitations which must be placed upon the factual matrix rule, as explained by May L.J. in Plumb Brothers v. Dolmac (Agriculture) Ltd. (1984) 271 E.G. 373, at p.374:-
“There has grown up a tendency to speak about construing documents in or against what is described as the ‘factual matrix’ in which the contract or documents first saw the light of day. In truth that is only, I think, a modern way of saying what has always been a rule for a long time that, in construing a document, one must look at all of the circumstances surrounding the making of the contract at the time it was made. There is the danger, if one stresses reference to the ‘factual matrix’ that one may be influenced by what is in truth a finding of the subjective intention of the parties at the relevant time, instead of carrying out what I understand to be the correct exercise, namely, determining objectively the intent of the parties from the words of the documents themselves in the light of the circumstances surrounding the transaction. It is not permissible, I think, to take into account the finding of fact about what the parties intended the document to achieve when one is faced with the problem some five, ten or many years later of construing it. In deciding what the document did in fact achieve, all that one can look at are the general circumstances surrounding the making of the document and in which it was made, and deduce the intention of the parties from the actual words of the document itself. The contract between the parties is what they said in the relevant document. It is not for this or any court to make a contract for the parties different from the words that the documents actually use merely because it may be that the parties intended something different.”
As appears, the primary rule of construction is that the Court must determine objectively the intent of the parties from the words of the document itself, in the light of the surrounding circumstances (or factual matrix of the transaction).
The judgment of Clarke J. in IPU v. The Minister for Health and Children [2007] IEHC 222, does not necessarily support the contention of the plaintiffs to have an implied contractual right to be made payments which include reimbursement of ingredient cost at the basic ex-wholesale price being the ex-factory price plus 17.66%. That decision concerns a claim to a contractual entitlement to be made advance payments as part of the arrangements with pharmacists for the GMS scheme. As appears from paragraph 3.9 of the judgment of Clarke J. he held that neither the !996 CPC agreement nor the 1971 agreement made reference to advance payments and it was only in the absence of an express provision relating to advance payments that Clarke J. went on to consider the application of clauses 19(3) and 19(5) of the CPC agreement to the claim.
In this action, the plaintiffs’ claim relates to one element of the payment to which they allege a contractual entitlement for the supply of drugs under the GMS and other community drug schemes. The 1996 CPC agreement contains an express provision relating to the entitlement of the plaintiff to receive payments from the defendant in respect of services provided under the agreement. Clause 12 (1) provides:
“12. (1) The board shall in consideration of the service provided by the pharmacy contractor in accordance with these terms and conditions and on foot of claims made in the form and at the times directed by the Minister, make payments or arrange for payments to be made to the pharmacy contractor for prescriptions dispensed at his/her contracted community pharmacy in accordance with such rates as may be approved or directed by the Minister from time to time after consultation with the Pharmaceutical Contractors’ Committee.”
In accordance with the above principles, this clause must be construed objectively from the plain meaning of the words used and in the relevant matrix of fact of the 1996 CPC agreement. There are a number of such undisputed facts. The first is that the 1996 agreement replaced the 1971 agreement. In particular, clause 12 (1) replaced clause 10 of the 1971 agreement. Apart from minor terminological changes, each clause is identical.
It appears to me that, logically, the first question which the Court must consider is whether the payments which are the subject matter of the dispute in these proceedings are included in the payments referred to in clause 12(1) of the CPC agreement. It is only if they are not that the Court has to consider their alleged inclusion as an implied term and inter alia the decision of Clarke J. in IPU v. The Minister in relation to clause 19(3) of the CPC agreement. The final positions of the parties to the proceedings are that whilst the payments referred to in clause 12(1) and 10 of the 1971 agreement include those payments made on behalf of the defendant for drugs and other items supplied by the plaintiffs to eligible persons which are the fee in GMS scheme and the fee and 50% mark up on ingredient cost in the Drugs Refund scheme they do not include the payments made as reimbursement of ingredient cost for the same supply of drugs and other items.
It is unusual for the Court not to accept an agreed position of the parties as to the meaning of a provision in an agreement which is the subject matter of a dispute between them. The parties who are in dispute contend for differing implied terms and for different reasons none of which appear to me to be correct in law or on the facts. The agreements at issue between the parties are not agreements negotiated by the parties. I indicated in the course of the hearing, my tentative view that clause 10 of the 1971 agreement and clause 12(1) of the CPC agreement might apply to the payments in dispute, and gave counsel for both parties an opportunity of addressing the issue. I have carefully reconsidered the submissions made prior to reaching the conclusions set out herein.
Notwithstanding the submissions of the plaintiffs, and the final submissions of the defendant, I have concluded that construing clause 12 (1) of the 1996 CPC agreement in accordance with the principles set out above, and the relevant matrix of fact, that the payments in dispute in these proceedings, i.e. those payments intended as reimbursement of ingredient cost of medicines supplied, are included in the payments referred to in clause 12(1). Further, that to construe clause 12(1) in any other way would not be in accordance with the agreed legal principles in that it would be contrary to the plain meaning of the words used by the parties when construed in the relevant factual matrix.
As already indicated, clause 12 (1) must be construed as including the same type of payments as were included in clause 10 of the 1971 agreement. The 1971 agreement was drawn up as the standard contract to be entered into by pharmacists, following the 1971 memorandum concluded between the Minister and the IPU. The basis of remuneration for pharmacists providing services, to which the 1971 agreement applied, was set out at para. 20 where it stated:
“The pharmacist will be remunerated on the basis of the recoupment to him of the ingredient cost of prescription items dispensed for eligible patients under the scheme together with a fee for each item . . .”
In substance, this provided that each pharmacist was to be paid for the services to be provided by the making of a payment which would have two distinct elements, one of which was intended as reimbursement of the ingredient cost of the medicines, and the other as a fee.
As already observed, the 1971 agreement was intended, in accordance with para. 13 of the 1971 memorandum, to be based on the terms of the memorandum. Where, in 1971, the parties agreed in clause 10 that the health boards should make payments, or arrange for payments to be made to the pharmacist in consideration of the services provided, and having regard to both the plain meaning of the words “to make payments for services provided” and the factual matrix, which includes clause 20 of the 1971 memorandum, it appears to me an inescapable conclusion that the parties intended that the health board would make payments of the type referred to in para. 20 of the memorandum i.e. a payment which comprised a fee and an amount to reimburse the ingredient cost of the medicine supplied to the GMS patient.
The parties correctly, in my view, contend that clause 10 did and clause 12(1) does include the fee element of the payments. To construe clauses 10 of the 1971 agreement and 12 (1) of the CPC agreement as excluding payments intended to reimburse the ingredient cost, the Court would have to find from the plain meaning of the words used in the 1971 agreement, or in the 1996 CPC agreement, an intention by the parties that the reference to “payments” in those clauses was only intended to refer to some, but not all, of the payments to which it is common case the pharmacy contractors had an entitlement to be paid for drugs dispensed, pursuant to the GMS and other drugs schemes. It does not appear to me that any such intention can be deduced from the words used in clauses 10 or 12 (1), or any of the remaining provisions of the 1971 agreement or the 1996 CPC agreement. On the contrary, clause 11 of the 1971 agreement and clause 13 (1) of the 1996 CPC agreement (which are in similar terms), expressly state that the contractors are not entitled to accept any payment “whatsoever” other than payments made under clause 10 (or clause 12 (1)) in reward for the supply of medicine which, under the Health Act, 1970, are to be supplied without charge. These clauses emphasize that the payments referred to in clauses 10 and 12 (1) respectively were intended by the parties to be all the payments which the pharmacist was entitled to be paid inter alia by the defendant in respect of drugs and other items dispensed by them. Such payments include an amount to reimburse the cost of the drugs or other items supplied by the pharmacist to which there is an agreed contractual entitlement (with only a dispute between the parties as to the amount).
The parties also submitted that the reference in clause 10 to the payments being made “in accordance with such rates as may be approved of or directed by the Minister”, implied that the payment referred to did not include the element of the payment directed to reimbursement of cost. This does not appear to me a sustainable submission, for the following reason.
It appears to me from the 1971 memorandum that the then intention of the Minister and the IPU, in accordance with para. 20, was that the payment to pharmacists would comprise two elements; one to recoup the pharmacist the ingredient cost of the medicine dispensed, and one as a fee. However, it also appears to me from para. 22 of the 1971 memorandum that the parties then agreed what amount would be considered as the ingredient cost to the pharmacist for the purposes of such payment. At para. 22, the memorandum states, “the price of a proprietary item to the pharmacist will be taken [emphasis added] as the basic ex-wholesale price . . .” . The words “will be taken” indicate that such price is to be used as the amount of the cost for the purpose of reimbursement. Another way of stating in substance the same thing, would be that the rate at which pharmacists will be reimbursed the ingredient cost will be “the basic wholesale price . . .” . What was agreed between the Minister and the IPU, as declared in the 1971 memorandum, appears to me to be that all pharmacists would be reimbursed the cost at a rate then agreed and set out in the memorandum, as distinct from the actual cost to the individual pharmacist.
When the 1971 agreement was drawn up and entered into by the then community pharmacists, the Minister had approved rates for both elements of the payments to be made to the community pharmacist (reimbursement of cost and fees) as set out in the 1971 memorandum. The payments to be made pursuant to clause 10 were certain and ascertainable.
Between the 1971 agreement and the 1996 CPC agreement, there were a number of community drugs schemes added to the services provided by pharmacists under the CPC agreement. As already stated , the detail of one such agreement was referred to in evidence, namely, the DCSS, in relation to which agreement was reached in 1990 between the Minister (through his Department) and the IPU. At para. 29. of this judgment, I have set out the agreement reached between the Department and IPU in relation to payments to be made under that scheme. As appears, the agreement referred to a single payment to be calculated by the addition of three elements: (a) reimbursement of ingredient cost (as defined); (b) normal 50% mark-up on ingredient cost, and (c) an inclusive fee then specified at 123.6p to be increased in line with public service pay awards.
In respect of this scheme, it appears envisaged from the outset that a single payment would be made which comprises three elements and a rate was agreed for each element of the payment. This approach is consistent with the construction which I have placed on clause 10 of the 1971 agreement. In addition, insofar as the additional community drugs schemes formed part of the factual matrix at the time of agreement on the 1996 CPC agreement, it would not appear that there is anything in the arrangements made in respect of payments for drugs dispensed under those schemes which suggests that any different meaning should be placed on clause 12(1) of the 1996 CPC agreement from that given to clause 10 of the 1971 agreement. On the evidence, I am satisfied that at the time each of the plaintiffs entered into the CPC agreement with the defendant or its predecessor, that the payments to which they became contractually entitled by reason of clause 12(1) included in respect of each of the relevant schemes a payment one element of which was the reimbursement of ingredient cost at a rate which had then been approved by the Minister. On the evidence, I find that at all material times such rate was the basic ex-wholesale price current in the month the items were dispensed, and that further, such basic ex-wholesale price was equal at all material times to the current ex-factory price plus 17.66%.
I am also satisfied there was no material change in that position between the date upon which each of the plaintiffs entered into the contracts, and September 2006. The rate which the Minister had approved for the reimbursement of ingredient cost in the GMS and other drugs schemes, had, for many years, been the ex-factory price plus 17.66%. I am expressing this as “for many years” as it appears to me that there may have been a period in which the basic ex-wholesale price was fixed in the FICI agreement, and the factory price deduced by a reduction on the margin of 15%, rather than the fixing of the factory prices and the establishment of the basic ex-wholesaler price by a mark-up of 17.66%. If such a system applied, then it was prior to 1993, and as the relevant percentages remained constant, it was only a question of the starting point and not of any material relevance to the issues which the Court has determined. Since the 1993 FICI agreement, at latest, the basic ex-wholesaler price appears to have been determined by the ex-factory price plus 17.66%.
Whilst Mr. Hurley gave evidence that it was his view, and that of the joint negotiation team, after the conclusion of the 2006 agreements with IPHA and APMI, which no longer provided for the price at which wholesalers should supply to pharmacists, that there did not exist a basic ex-wholesaler price, no submission was made on behalf of the defendant, in my view correctly, that these agreements in any way altered the rate which had been approved long prior to that date, by the Minister, for reimbursement of ingredient cost to pharmacists under the CPC agreement.
Accordingly, I am satisfied that in September 2006, each of the plaintiffs with a CPC agreement with the defendant (the third to eighth named plaintiffs), had a contractual right, pursuant to clause 12 (1) of its CPC agreement, to receive a payment in respect of items dispensed under the GMS and other community drugs schemes which included a payment for reimbursement of ingredient cost at a rate which was commonly referred to as the basic ex-wholesale price, and which was the ex-factory price prevailing in the month in which the item was dispensed plus 17.66%.
I have also concluded from the terms of clause 12 (1) of the CPC agreement, that the rate of such payments was capable of being varied from time to time, but that, in accordance with its express terms, the rate could only be varied by a decision taken by the Minister, after consultation with the Pharmaceutical Contractors’ Committee, to approve of or direct a new rate. This appears to follow from the express words used in clause 12 (1) “ . . . in accordance with such rates as may be approved or directed by the Minister from time to time (emphasis added) after consultation with the Pharmaceutical Contractors’ Committee”. Such a construction of clause 12 (1) in relation to variation was not disputed on behalf of the plaintiffs.
No submission was made on behalf of the defendant that any provision of the Health Act, 2004 transferred to it the functions assigned to the Minister by clause 12(1) of the CPC agreement. Section 63 of the Act of 2004, substitutes the defendant for “a specified body” in any agreement to which it refers. A “specified body” is defined in s. 56 for that purpose, and the Minister is not a specified body.
As already indicated, there is no evidence that the Minister approved or directed any change in the rate at which ingredient cost would be reimbursed prior to the decision made by the defendant in September 2006. In relation to 2007, whilst there was evidence of information given to the Minister in relation to the proposed decision and her assent to it being implemented, there is no evidence of any consultation by the Minister with the Pharmaceutical Contractors’ Committee in advance of the meeting at which she is contended to have approved the reduction proposed by the defendant.
Whilst not strictly relevant as it was not conducted by the Minister, I think I should add that I am not satisfied that the public consultation undertaken by the defendant could amount to consultation with the PCC for the purposes of clause 12 (1) of the CPC agreement in relation a change of a rate at which a payment is to be made to pharmacy contractors under the CPC agreement. That consultation, as appears from the public advertisement and briefing document, was a consultation in the context of a review by the defendant of “the provision of pharmaceutical wholesale and distribution services to both community pharmacy contractors and other healthcare locations . . .” While such a consultation may have relevance to the determination of a change in the rate at which pharmacy contractors might be reimbursed the ingredient cost of medicines and other items supplied to eligible persons, it is not the type of consultation which appears to me envisaged by the express terms of clause 12 (1). That must be a consultation which relates to a potential change in the rate, or rates, of payments or elements of payments to pharmacy contractors, under the CPC agreement. The evidence suggests that there are many and differing issues which might arise in such a consultation, having regard to developments in the pharmacy market since 1971, the differences between pharmacies, the differing commercial arrangements with wholesalers and the connection between the rate at which cost is reimbursed and the fee structure for the various schemes.
As I have found that the plaintiffs were, in September 2006, expressly entitled, pursuant to clause 12(1) of the CPC agreement, to a payment in respect of reimbursement costs at a rate which was then approved by the Minister as being the ex-factory price plus 17.66%, it is unnecessary for me to consider further the submissions made that a right to such a payment is implied in the CPC agreement, either by custom and usage or by reason of clause 19(3).
Competition law issues
The defendant contended that if the Court held that plaintiffs have a contractual entitlement to be paid for the ingredient cost at the ex-factory price plus 17.66% implied by reason of agreements reached between the Minister and the IPU, or incorporated by reason of clause 19 (3), such provisions are void pursuant to s. 4 (1) of the Competition Act, 2002, as being an agreement between undertakings (i.e. the pharmacists) under the umbrella of the IPU or PCC in relation to prices. Those issues do not now arise by reason of the conclusions reached on the nature of the contractual entitlement of the plaintiffs and the basis for same in clause 12 (1) of the 1996 CPC agreement.
The defendant did not plead or contend that clause 12 (1) of the 1996 CPC agreement was void as being contrary to s. 4 of the Act of 2002, even at a time when it contended that the payments which were in dispute in these proceedings were made pursuant to that clause. It is clear from the terms of clause 12 (1) that the contractual entitlement of the plaintiffs is to be made payments at a rate, or rates, unilaterally determined by the Minister by approval or direction, following consultation. The contractual entitlement of the plaintiffs and the contractual obligation of the defendant do not require the Minister to reach agreement with the IPU on the rate at which a payment is to be made by the defendant to the plaintiffs. Undoubtedly, as I have held the Minister, in 1971, approved as the rate of payment for reimbursement of costs, a rate which he had agreed with the IPU. However, he was not contractually bound to do so. It does not appear to me, on the decisions of the European Court of Justice and of the Supreme and High Courts, relied upon by the defendant, that there is any authority for the proposition that the provisions of clause 12 (1) should be regarded either as including an agreement between undertakings in relation to price, or a decision of an association of undertakings in relation to price, such that it is void, pursuant to section 4 of the Act of 2002. The contractual provision in clause 12(1) is for payment at a rate approved or directed by the Minister.
Whilst counsel for the defendant submitted in his closing submission that a requirement to consult with the IPU in relation to variation, such as included in clause 12(1), could give rise to a decision of an association of undertakings or concerted practices in relation to price contrary to s. 4 of the Act of 2002, it does not appear to me that there is, amongst the decisions referred to, any authority for the proposition that the Court should conclude that the consultation procedure prior to a unilateral decision of the Minister, envisaged by clause 12(1), gives rise as a matter of probability to any such activities which are contrary to section 4(1) of the Act of 2002. In those circumstances, it does not appear to me that a contractual obligation to consult with representatives of the undertakings, in advance of the Minister unilaterally determining the rates of payment, should be considered contrary to section 4(1) of the Act of 2002.
Relief
Having regard to the claims made by the plaintiffs and my findings herein, I have determined that the plaintiffs are entitled, at this stage in the proceedings, to the following declarations:
Each of the third to eighth named plaintiffs was entitled in September 2006 and September 2007, pursuant to clause 12 (1) of its CPC agreement with the defendant, to a payment which included reimbursement of the ingredient cost of medicines and other items supplied under the GMS and other drugs schemes at the rate of the ex-factory price prevailing in the month in which the item was dispensed plus 17.66%.
The defendant’s decisions of September 2006 and September 2007, reducing the price at which it would reimburse the plaintiffs the ingredient cost of medicines and other items supplied by them under the GMS and other drugs schemes, were in breach of contract, being in breach of clause 12(1) of the CPC agreement with each of the third to eighth named plaintiffs.
Damages
The plaintiffs’ claims include a claim for damages for breach of contract. However, it was agreed that all issues in relation both to the liability of the defendant for damages, and the quantification of any such damages, would be left over until after the determination by the Court as to whether the defendant was, or was not, in breach of contract to the plaintiffs in the decisions taken and implemented. I will hear counsel as to the manner in which the claims for damages for breach of contract should now be pursued, at a date to be fixed.
Kiely -v- Delaney & Anor
[2008] IEHC 69 (14 March 2008)
JUDGMENT of Mr. Justice John MacMenamin delivered the 14th day of March, 2008.
1. By agreement in writing following an action dated 28th May, 2002, made between the plaintiff (‘Ms. Kiely’) as vendor and a Mr. James Gallagher in trust for the defendants (‘the Delaneys’) as purchasers, Ms. Kiely agreed to sell, and the Delaneys agreed to purchase, all that and those lands at Bettydoyle, Ballyboughal, in the County of Dublin, being land comprised from Folio number DN 3399 of the Register of Freeholders. The agreed purchase price of the lands in question was €88,000. It was a term of the agreement that the sale would be completed by 25th June, 2002.
2. The said land was acquired by Ms. Kiely from her predecessor in title Desmond Byrne, now deceased, on the 26th of September, 2000. She had previously rented the land from Desmond Byrne. It was stated in the Folio that the land benefited from an appurtenant right of way leading from a nearby road to the boundary of the lands.
3. Until the Delaney’s solicitors, Messrs McGowans raised requisitions on title regarding this right of way, Ms. Kiely states that she believed that the land comprised in the folio benefited from the right of way. Ms. Kiely says she accessed the land thereby from the time she went into possession of the land as a tenant, and continued to do so up to the date of sale by auction. It appears from correspondence that Ms. Kiely was permitted to tarmacadam or gravel the path along the right of way.
4. The importance of this right of way is shown by the fact that it permitted access to the land in question from a main road. It is clearly of considerable importance as an amenity to the land.
5. It is asserted in affidavit sworn on behalf of the plaintiff that Mr Gallagher, a friend of the Delaneys who acted on their behalf at the auction, was informed by Thomas Potterton, Auctioneer, that the land could be accessed by the right of way. After the auction, Mr Gallagher says he specifically discussed the question of access both with the auctioneer and Mr Laurence Tierney, Ms. Kiely’s solicitor. There is an apparent conflict of evidence as to whether he was shown both the folio and the file plan. This issue is dealt with later in this judgment. On the basis that access was by right of way as described on the folio, Mr Gallagher signed the sale agreement on behalf of the Delaneys.
6. As matters transpired, Ms. Kiely’s predecessor, Desmond Byrne, on 21st May, 1998, had sold a plot of land which was then comprised in the same folio as the subject lands of the sale. Critically, this included a narrow strip of land which intervened between the boundary of the subject lands, and the right of way. While not creating a land lock, it unfortunately affected access. That plot of land now comprises Folio 123918F County Dublin. The registered owners thereof are Sean and Bernadette Boylan who are not parties to these proceedings.
7. In the 1998 sale to the Boylans, Desmond Byrne did not expressly except or reserve a grant of right of way for all purposes over the strip of land in that Instrument of Transfer. The original Folio, DN 3399 was not amended to reflect the transfer. It continued to describe the lands as previously comprised in the Folio, and so described at the auction, as benefiting from the appurtenant right of way.
Chronology
8. While the contract was signed after auction on 28th May, 2002, it was only on 5th July of that year that Mr Tierney, the vendor’s solicitor, wrote enclosing the file plan, which he had “now belatedly received”. This was five weeks after the auction. In the course of that letter, Mr Tierney described the right of way as depicted in yellow. But at that point he did not mention the essential problem. On 8th of July, 2002, Messrs. McGowans, the Delaneys’ solicitor replied, pointing out that the right of way did not extend to the subject lands. On 12th July, McGowans sent a draft declaration as to user of the right of way for completion by Ms. Kiely as vendor. On 15th August, 2002, McGowans wrote to say that the declaration which had by then come to hand referred only to the right of way as far as a gap, that is to say did not go as far as the boundary to the subject lands.
9. On 3rd September, 2002, McGowans wrote saying that the Delaneys would require a right to pass and re-pass over the Boylans’ lands in order to gain access to the lands. Despite the fact that correspondence was initiated in July 2002, it was only on 13th December, 2002, that Ms. Kiely’s solicitor acknowledged the problem which had obviously existed all along in relation to the gap in the right of way. On 20th December, 2002, McGowans wrote requesting that an approach to the Boylans be made. She was met with a request she says was unreasonable to persuade a third party to grant a right of way to the Boylan’s at another unspecified location. There is no evidence on which to make a judgment as to whether Ms. Keily’s position on this particular issue was reasonable or unreasonable.
10. The negotiations with the Boylan’s broke down on 7th March, 2003, Ms. Kiely’s solicitor wrote again. He again acknowledged the absence of the right of way and offered to refund the deposit of €8,500. On 14th April, 2003, the Delaney’s solicitor served a completion notice. On 24th April, 2003, by then some eleven months after the contract, McGowans, relying Condition 33 (b) of the contract (quoted later) said that the purchaser would proceed, but would be claiming €25,000 in compensation. They asked Ms. Kiely’s solicitor to propose three arbitrators if this sum was unacceptable. By letter of 15th May, 2003, Ms. Kiely’s solicitor offered €5,000 compensation and said they would take their client’s instructions in relation to an arbitrator. The financial offer was subsequently rejected. In the light of subsequent events it is most regrettable that matters were not either resolved by sensible negotiation. If this proved impossible, then the arbitration should have proceeded then.
11. Subsequently, the vendor/plaintiff, Ms Kiely, changed her solicitor. From 24th July 2003 onwards, McGowans were in correspondence with Messrs. Kilrane & Company, Ms. Kiely’s present solicitors.
12. At some time during the course of 2003, Judge John Buckley, a former distinguished Judge of the Circuit Court and an acknowledged expert in this aspect of law, was appointed as an arbitrator by the parties. Lengthy but one sided correspondence took place on procedure.
13. On 13th October, 2003, the arbitrator wrote to Kilrane & Company complaining about their delay and the fact that they had not replied to his previous correspondence. He felt constrained to write further reminders on 21st October, 2003 and 6th November, 2003. Ultimately, by letter on 30th January, 2004, the arbitrator fixed the 22nd February as the date of the arbitration. A copy of the letter was furnished by McGowans to Kilrane & Company on the same date. Further correspondence took place between McGowans and the arbitrator on 30th January, 2004, setting in train procedures for the arbitration itself. Even as of 30th January, 2004 the thrust of the correspondence between the arbitrator and Messrs. Kilrane & Company was quite explicit. Ms. Kiely had been dilatory in making arrangements for the arbitration. It was unclear as to whether Ms. Kiely, intended to defend the arbitration at all. This conduct was regrettable. The blame for it can only be laid at Ms. Kiely’s door.
14. It is noteworthy, and unexplained, that between September and November 2003, the arbitrator sent Ms. Kiely’s solicitor no less than seven letters without eliciting even a response. Further correspondence took place into January and February 2004. (The arbitration had been postponed) Only on 26th May, 2004, by now two years after the contract, Messrs. Kilrane & Company furnished the arbitrator with any substantive response, to the effect that they had received instructions from Ms Phelan to defend the arbitration proceedings and to put in a defence.
15. There was yet a further delay in June and July 2004. On 31st July, 2004, the arbitrator sent another letter to Messrs. Kilrane stating that he was surprised to learn (as they had stated in correspondence) that they did not have a copy of the points of claim. The arbitrator furnished a copy of these on 25th August, 2004. Remarkably, on 6th September, 2004, Messrs. Kilrane again contacted the arbitrator with the same request, and in he turn forwarded yet a further copy of the points of claim. On 8th September, 2004, Messrs. Kilrane stated that their barrister was preparing points of defence. These were eventually received at the end of the month of September, 2004.
16. On 26th November, 2004, the arbitrator wrote to Messrs. Kilrane stating that he would be available to conduct a hearing on each Monday or Tuesday during the month of January, 2004. Messrs. McGowans, acting on behalf of the Delaneys, contacted Messrs. Kilrane on 7th January, 2005, suggesting three alternative dates in January or February, 2005. There was no response. Messrs. McGowans sent repeated reminders. On 24th January, 2005, Messrs. McGowans requested the arbitrator to fix a date. Repeated efforts were made to identify and fix a date. Ultimately, it was decided that 22nd February, 2005, would be a convenient date for the hearing. This was apparently postponed yet again, at the request of Messrs. Kilrane until the morning of the 8th March. Then a request was made by Mr Kilrane by a phone call to the arbitrator, requesting that the commencement of the arbitration be put back to the afternoon, apparently because of counsel’s unavailability in the morning. The arbitrator pointed out that the arbitration had been fixed for 8th March instead of 22nd February because of the unavailability of Counsel from the earlier date. Ultimately, the arbitrator indicated that he proposed to proceed with the arbitration hearing at 10.30am on 8th March.
17. Six days before the date of the arbitration hearing, on 2nd March, 2005, Messrs. Kilrane wrote, stating that they wished specifically to put Messrs. McGowans, the Delaneys’ solicitors, on notice that their client would now contend that the lands the subject matter of these proceedings, actually did enjoy the benefit of the right of way via the laneway at the northern boundary of the lands which currently was used to gain access to the lands; that at all material times this was used, and continue to be used, to gain access to the lands. Messrs. Kilranes indicated an intention to call evidence of this at the hearing of the arbitration on the day the plaintiff was said to be ill. The arbitration yet again was postponed. Tentative dates of 12th April or 26th April were suggested. Ultimately, a date of 26th April, 2005 was proposed. On 20th of April, 2005, six days before the next date of the arbitration Messrs. Kilrane sent a lengthy letter to McGowan & Company. They then asserted that, despite the fact that the right of way as marked stopped slightly short of their client’s property, the “reality on the ground” was that the right of way continued on into their client’s property and had been exercised as a right of way and was the only means of access to the property. They contended that no-one had ever raised any objection in relation to this and that this continued to be the situation. They stated that their client was prepared to give a statutory declaration verifying this. Thus, within a period of two months two different positions had been adopted by the vendor as to the gap in the right of way. And the arbitration had been postponed or adjourned twice, by reason of a letter written on a date close to the date fixed.
18. At this point and for the first time, Messrs. Kilrane asserted that General Condition 18 of the Conditions of Sale was applicable.
19. This provides:
“If the purchasers shall make and insist on any objection or requisition as to the title, the Assurance to him or any other matter relating or incidental to the Sale which the Vendor shall, on the grounds of unreasonable delay or expense or other reasonable ground, be unable or unwilling to remove or comply with, the Vendor shall be at liberty (notwithstanding any intermediate negotiation or litigation or attempts to remove or comply with the same) by giving to the purchasers or his solicitor not less than five working days notice to rescind the Sale. In that case unless the objection or requisition in question shall in the meantime have been withdrawn, the Sale shall be rescinded at the expiration of such notice”.
20. Three years after the auction, therefore, Messrs. Kilranes now asserted that as their client was unable and unwilling to comply with the requisition on title as to the right of way. They were requiring McGowans as solicitors for the purchasers, not later than 29th April, 2005, being a date in excess of five working days from the date of receipt of the letter, to withdraw the requisition and objection raised in relation to the right of way. They said that unless this objection and requisition was withdrawn, the sale would be regarded as rescinded by their client and the deposit would be returned.
21. Messrs. McGowans replied, noting that the defence in the arbitration did not refer to General Condition 18, and enquiring whether it was the intention to apply to the arbitrator to amend the defence. They requested confirmation that the arbitrator was to have jurisdiction to deal with any such issue.
22. Further delays took place, again attended by yet more reminders from the arbitrator. On 17th May, 2005, he stated that if there was no response from Messrs. Kilranes by close of business on 23rd of May, he would have to consider calling a further meeting of the arbitration. It appears there had been an inconclusive meeting earlier but what transpired is not in evidence.
23. On 10th June, 2005, Messrs. Kilranes wrote to McGowans stating that they had discussed the matter with their client and that their instructions were to rescind the contract and return the deposit in the sum of €8,500. The arbitrator indicated that he would refrain from proceeding with the arbitration unless there was a response to the issues raised in correspondence as to his jurisdiction.. Messrs. Kilranes did not so inform him.
24. On 21st June, 2005, the vendor’s solicitors wrote that their client had rescinded the contract pursuant to General Condition 18 and that if this was not accepted, that Court proceedings should be initiated. Yet further correspondence took place between the arbitrator, Messrs. Kilranes and McGowans, on the specific question as to whether or not the former had jurisdiction to deal with the question of Condition 18. This included a proposal made on 27th June, 2005, by the arbitrator, that he states a special case for the High Court pursuant to the Arbitration Acts for a decision on the issue. This offer was not availed of. More correspondence dealt, inter alia, with considerations on relevant legal authorities, cited in correspondence, and the legal situation pertaining to the impasse.
25. A letter of 28th June, 2005 from Messrs. McGowans, set out their understanding of the legal position on a number of issues then arising: one such issue was as to the circumstances in which a vendor might rescind. Messrs. McGowans pointed out that Ms. Kiely had consistently and for a period exceeding three years, adopted an approach to this matter both in correspondence and following the emergence of the difficulty that was fundamentally at odds with the position now being adopted. As a result of this, their client had engaged in a lengthy, stressful and costly process in which Ms. Kiely had also participated. Thus they said to purport to rescind at that point was unreasonable, arbitrary and capricious, particularly in circumstances where the purchasers were not insisting that the vendor remedy the defect on title at all, but merely required compensation for the error and the resulting loss of value relative to this bargain.
26. Throughout the months of July, August and September, 2005, further efforts were made to establish a hearing date for the arbitration.
27. On 27th September, 2005, Messrs. Kilranes wrote to McGowans stating that they had received an authority from a further firm of solicitors, Messrs. Greg O’Neill & Company, who, they said, were now acting for Ms. Kiely and indicating that they may not have any further instructions. There was no change of solicitor.
28. Ultimately, on 30th November, 2005, Messrs. Kilranes issued the special summons herein and requested McGowans to confirm that they had instructions to receive service thereof. The summons does not appear to have been served with any speed as on 13th December, 2005, Messrs. McGowans wrote a letter to Kilranes indicating they intended to issue Circuit Court proceedings to deal with the matter as expeditiously as possible. Ultimately, on 14th December, 2005, the special summons herein was served.
Findings on evidence
29. A number of points arise from the course of events described at length. First, I am satisfied that Ms. Kiely engaged in what can only be seen as procrastination, delay and excuses in an effort to avoid the arbitration taking place. With the benefit of hindsight, it is difficult to avoid the conclusion that not only was the correspondence (and its absence) discourteous to the arbitrator, it was misleading. The correspondence unfortunately does not allow for any conclusion other than that there was an effort to frustrate the arbitration taking place by any expedient available. This can only be laid at Ms. Kiely’s door. She was instructing her solicitor who was acting on her instructions.
30. Second, a point which also emerges is that, on 13th December, 2002, Ms. Kiely’s then solicitor was prepared to acknowledge that a problem existed. But even from that point onwards, her stance was that any difficulty was inconsequential. As of 27th September, 2004, the defence received by the arbitrator again included a denial that any error had been made by the vendor in the contract of sale.
31. Third, as pointed out earlier, the vendor’s position shifted on at least two if not three occasions between the time of the auction and the bringing of the summons herein.
32. Fourth, Ms. Kiely’s conduct and delay led the Delaneys to act to their detriment. By any standard the issue could have and should have been resolved satisfactorily when the problem first came to light. This could have been done promptly by negotiation or arbitration. The policy was simply one of avoidance of any conclusion. All these events took place when the property market in Ireland was extremely active and when prices were escalating.
33. Fifth, in conjunction with the conduct which I consider was most regrettable, Ms. Kiely was guilty of delay of the most substantial kind before first raising the issue of the contractual conditions some three years after the auction. I consider this delay was substantial and blameworthy.
Consideration
34. On the particular facts which arise in this case I would have concluded that Ms. Kiely, is by her conduct and delay, estopped from relying on Condition 18 by reason of such conduct and delay – if estoppel could be relied upon in a contractual situation such as this. The position here stands entirely outside anything that might have been reasonably contemplated within the terms of condition 18 itself. A court would in equity not countenance or permit the vendor to avail of a right of rescission in such circumstances.
35. In the circumstances, however, the issues are best seen within the context of reasonableness, as it is defined in the authorities to which reference is made later.
36. While Ms. Kiely now seeks to rely on Condition 18 of the contract, the Delaneys in turn, rely on Condition 33 of the Conditions of Sale. This condition provides:
“33. (a) In this Condition, ‘error’ includes any omission, non-disclosure, discrepancy, difference, inaccuracy, misstatement or misrepresentation made in the Memorandum, the Particulars or the Conditions or the Non-Title Information Sheet or in the course of any representation response where negotiations leading to the Sale and whether in respect of measurements, quantities, descriptions or otherwise.
(b) The Purchaser shall be entitled to be compensated by the Vendor for any loss suffered by the Purchaser in his bargain . . . as a result of an error made by or on behalf of the Vendor provided, however, that no compensation shall be payable for loss of trifling materiality unless attributable to recklessness or fraud on the part of the Vendor nor in respect of any matter of which the Purchaser shall be deemed to have had notice under section 16 (a) nor in relation to any error in a location or similar plan furnished for identification only.
(c) Nothing in this Memorandum, the Particulars or the Conditions shall:
(i) Entitle the Vendor to require the Purchaser to accept property which differs substantially from the property agreed to be sold whether in quantity, quality, tenure or otherwise, if the Purchaser would be prejudiced materially by reason of any such difference,
or
(ii) Affect the right of the Purchaser to rescind or repudiate the Sale where compensation for a claim attributable to a material error made by or on behalf of the Vendor cannot be reasonably assessed.
(d) Save as aforesaid, no error shall annul the Sale or entitle the
Vendor or the Purchaser, as the case may be, to be discharged therefrom”.
These provisions will now be considered.
The Law
37. The right of rescission sought by Ms. Kiely as vendor is a restriction on the purchaser’s rights. A court must be alert to ensure that it is not abused. Thus, a number of qualifications to such right of rescission have been identified in relevant case law. The vendor must exercise such right in a reasonable manner or, as is more usually put, must not invoke it without reasonable cause. He or she must not act capriciously or arbitrarily and may have to convince the Court that the objection or requisition which has led to the invocation of a right of rescission is one which will cause substantial expense or involvement in litigation if there is to be compliance with it. Thus, such right may not be used as a method of extracting the vendor from a contract with a purchaser in order to accept a higher offer from a third party. The findings and conclusions made on the estoppel issue are relevant and applicable here also.
38. The Courts will refuse to allow a vendor to invoke the right where he was guilty of “recklessness” in entering into the contract. This is to be distinguished from fraud or dishonesty. It generally consists of an indifference towards the purchaser as regards whether they will obtain the title contracted to be sold. Thus, a vendor must not induce a purchaser to enter into a contract by making some misrepresentation to where there was little ground for believing such was true and then purport to exercise a right of rescission when the purchaser raises an objection or requisition about the same matter. Other circumstances are not here material.
Has the right of rescission been exercised in a reasonable manner?
39. In the light of the findings earlier in this judgment the conclusion here is self evident. It is clear that a vendor may not invoke the right of a rescission without reasonable cause, and must not act capriciously or arbitrarily. She may have to persuade a court that the right is one which will cause him substantial expense or involve him in litigation if he is to comply with or remove it. (See Wiley: Irish Conveyancing Law 2nd edition, paras. 15.27 to 15.35). There is no such evidence.
40. In Selkirk v. Romar Investments Limited [1963] 1 W.L.R. 1415, Viscount Radcliffe observed that: “The vendor must not act arbitrarily, capriciously or unreasonably”, and that “He must not use the power of rescission to get out of a sale ‘brevi manu’ since by doing so he makes a nullity of the whole elaborate and protracted transaction”. The Judge in that case observed that the vendor’s solicitor “On receiving the relevant requisitions, showed no arbitrary or highhanded temper in replying to them but, on the contrary, made a serious attempt to meet them and to allay the [purchaser’s] misgivings. In Smith v. Wallace (1895) 1 Ch. 385, Romer J. observed that the vendor, in exercising his contractual right of rescission, “was bound to exercise the [right] fairly, and to determine promptly whether he would emphasise the power or not” (emphasis added). In Lyons v. Murphy [1986] I.R. 666, Murphy J. decided the issue as to whether the vendor was entitled to exercise the right of rescission on the basis of whether or not there had been reasonable conduct on his part stating “it could hardly be suggested that a purchaser who insists upon a right to be compensated for damage to property in which he is interested is acting unreasonably”. (at p. 681)
41. He added:
“Under the terms of the contract for sale and in accordance with established legal principles the purchaser is entitled to be paid a substantial sum by the vendor by way of compensation for the vendor’s wrongdoing. Whilst in my view it is entirely understandable that the vendor should wish to escape this liability, I could not accept that it would be reasonable for a vendor to invoke a rescission clause so as to escape a liability which was caused by and indeed consisted of his or her wilful default.”
42. On this basis, Murphy J. concluded that the rescission clause had not been validly invoked, and in so doing made it clear that a court is entitled to have regard to the question of reasonableness, not merely of the vendor, but of both parties. He also made clear that the question of reasonableness is one to be judged on the basis of the post-contract conduct of the parties. This latter point is also of particular relevance to the findings made. The vendor’s conduct was not reasonable here. I will adopt and apply the dictum of Murphy J.
43. In Williams & Anor. v. Kennedy (the Supreme Court, Unreported, 19th July, 1993) Finlay C.J. observed that one of the four principles identified as governing the invocation by the vendor of Condition 18 is that “it must be shown … that he has acted reasonably, not arbitrarily, not capriciously”. I again apply this principle.
44. In the context of this case it is necessary only to refer to the unfortunate sequence of events described earlier in the chronology, starting from and including the auction onwards. As I have already found, the conduct of the vendor was, by silence, misleading in that the purchaser was misled more than once into concluding that a meaningful arbitration process was going to take place. Unreasonable too in the manner in which Ms. Kiely, on a number of occasions postponed the process of arbitration or hearings taking place; or put matters on a long finger by excuses, or by seeking to adjourn the arbitration date, once it was fixed. This procrastination and avoidance endured for a period from 28th May, 2002 until December, 2005, more than three and a half years.
45. As pointed out above, this must be seen in the context where the vendor, more than once, changed her stance as to whether or not a problem existed at all and if so, what she proposed should be done. These changes of stance took place at widely spaced intervals. The purported invocation of Condition 18, so late in the day, created yet another obstacle to the arbitration.
46. This sequence of events occurred also against a background where property prices were rising sharply. If the vendor was seeking to exercise her right to rescind in a reasonable fashion, this should have been done promptly and without delay, one of the indicia identified by Romer J. in Smith v. Wallace. Furthermore, when the vendor eventually purported to exercise her right of rescission she did not offer to reimburse the purchaser’s costs incurred in the interim period which had been incurred by reason of the fact that the purchasers had (they might have thought) embarked upon a joint arbitration process. There is no indication in the negotiation other than that the purchasers bear this expense. The unreasonableness of the vendor is, in the circumstances, the more remarkable, having regard to the fact that the purchasers did not insist on the right of way being included in the conveyance (which could not be achieved in any case) but instead merely insisted upon compensation in the form of an abatement of the purchase price. Consequently, the purchaser was merely asking to purchase what the vendor could actually sell.
47. The fact that this case proceeded to hearing in the High Court, with all its attendant cost and expense, must be seen in light of the fact that at a point earlier identified in negotiations, the only issue between Ms. Kiely and the Delaneys was whether the abatement or compensation should be €5,000 or €25,000. It would hardly require imagination to envisage that there should have been some sensible middle ground which might have been arrived at, although obviously, the court cannot be apprised of any without prejudice negotiations. On more than one occasion during the course of the hearing the parties were urged to negotiate. Unfortunately, they were unable to avail of these opportunities.
48. I conclude, therefore, that the vendor was not entitled to rescind on the basis of her capricious, arbitrary and unreasonable conduct and the delay which has taken place.
49. I am fortified in my conclusion by a further aspect of Ms. Kiely’s conduct, already briefly touched upon.
50. Although it is true that a vendor can rescind under General Condition 18, notwithstanding the fact that there has been intermediate negotiation or litigation, Wiley points out that ‘negotiation’ is not the same as ‘dispute’ so that the vendor is not protected by the provision if he instead denies that any defect exists which should justify the objection or requisition. Clearly, and on more than one occasion this was the position here. The defence ultimately delivered in the arbitration proceedings on 27th September, 2004, two years and three months after the auction, pleaded, inter alia, that the claimants (i.e. the Delaneys in these proceedings) were deemed to purchase the property in sale with the full knowledge of all rights of way that might affect same (and) to have inspected the property and:
“Further or in the alternative the respondent claims that no error was made by or on her behalf in relation to the sale of the property.”
This defence was delivered on behalf of Ms Kiely after months of involvement in an arbitration process predicated on the basis that the defect did exist. In addition to the defence, on 2nd March, 2005, immediately prior to the next date fixed for the arbitration hearing, the purchaser’s solicitors received a letter from the vendor’s solicitors again reiterating that the respondent would contend that the lands the subject matter of the proceedings has the benefit of a right of way via the laneway at the northern boundary of the lands and that it was intended to call evidence of this at the hearing of the arbitration.
51. The effect of both this letter and the specific point of defence were to make it clear that the vendor was then asserting that the right of way did indeed exist and that she actually required the purchasers to complete the contract on that basis. Indeed, it apparently was pointed out during an inconclusive hearing of the arbitration by counsel for the vendor that the vendor was asserting the existence of a right of way and that the arbitrator had no jurisdiction to determine this issue. This stance is hardly consistent with averments contained in affidavits sworn on behalf of Ms. Kiely that –
“as soon as Ms. Kiely became aware of the defect in title she acknowledged that defect in the title and did not as alleged seek to deny it. She did so in open letter sent by her solicitor, Mr. Lawrence Tierney, to the defendant’s solicitors dated 13th December, 2002 and dated 7th March, 2003”
Nor is it consistent with an averment that –
“in agreeing to refer the matter to arbitration Ms. Kiely was again acknowledging that there was a defect in the title and was prepared to attempt to resolve the matter by way of arbitration having failed to negotiate a resolution with the defendant.”
(See affidavit of Ms. Kiely’s solicitor, sworn 21st June, 2006)
52. In Gardom v. Lee (1865) 6 H&C 651, a contract for sale included a condition permitting the vendors in the event of the purchaser making any requisitions or objections, either to answer them or to rescind the contract, returning the deposit without interest. A further condition provided that the vendor’s right of rescission should not be waived or affected or prejudiced by any negotiation as to any objections or requisitions or an attempt to obviate or comply with same. The purchaser became aware that the vendor had no power of sale. He pointed this out suggesting the contract be rescinded. The vendor asserted his power of sale and called on the purchaser to complete the purchase. The purchaser then incurred expense in investigating the title, the result of which was that his concerns were upheld. Thereupon, the purchaser purported to exercise his right to rescind. The court held that the vendor had lost his right to rescind, essentially by reason of having insisted that the purchaser were mistaken and that the contract should be performed.
53. In the course of his judgment, Pollock C.B. observed:
“There was no negotiation or attempt to obviate any objection, but a dispute, the vendees saying that the vendor had no power to sell, the vendor saying that he had.”
He continued:
“The vendor should either have obviated the objection when called upon, or at once have rescinded the contract. But they did neither and much too long a period elapsed before they expressed any intention to rescind”
54. In Gardom, a period of just under one year had elapsed between the objection and the communication of the decision to rescind. The comparable period in this case is thirty-three months, a period which speaks for itself.
55. I am satisfied that on the basis of the conduct in this regard also, Ms. Kiely lost her power to rescind.
Imprudence or recklessness?
56. A further circumstance disentitling a vendor to rescind is whether the vendor was guilty of recklessness (see Selkirk v. Romar Investments). There would appear to be some uncertainty as to whether the appropriate test is imprudence or recklessness. It cannot be denied that these are different criteria (see Baines v. Tweddle (1959) Ch. 679; Merrett v. Schuster (1920) Ch. 240; In re Jackson and Haydens Contract (1906) Ch. 412; Kennedy v. Wrenn [1981] I.L.R.M. 81, Costello J.). It is noteworthy that in Williams v. Kennedy, a case in 1993 and referred to earlier, Finlay C.J. adopted the traditional test of recklessness.
57. In this context, however, it is necessary to examine carefully the evidence as to the conduct of Ms. Kiely and her then solicitor.
58. Mr. William Devine, an eminent conveyancing solicitor, swore an affidavit in the proceedings admitted without objection. He states that where lands in sale do not abut a public highway, and they are not sold subject to any express restriction relating to access, it is the duty of the vendor to satisfy himself that they have the benefit of a right of way and that any restriction on the exercise of that right of way is notified to potential purchasers.
59. Mr. Devine points out that the manner in which this issue can be dealt with is to inspect the file plan, which takes approximately six to eight weeks following a request being made for it. There is little practical reality to any purchaser procuring such a plan from the Land Registry in advance of an auction. This was an additional reason why the vendor’s solicitor should have ensured that a copy of the file plan was taken up prior to the auction. It would not be sufficient for the vendor’s solicitor to rely on the entries on the folio for the purpose of confirming the existence of a right of way appurtenant to the lands because it is well known that such entries are often not updated and are often out of date and inaccurate. Mr. Devine also avers that it would be insufficient for a vendor’s solicitor to rely on assurances from his client that the lands had been in fact accessed over a particular route, particularly where the period of such user is less than twenty years. It will remain incumbent on the vendor’s solicitor in such circumstance to ascertain by consulting the file plan or the instrument creating the easement, whether a registered or express easement exists and that for the vendor’s solicitor to advise a prospective purchaser that the lands benefit from an express or registered right of way in circumstances where the file plan disclosed to the contrary would invariably amount to carelessness.
60. No response in evidence has been provided to this affidavit as part of the case. Consequently, the point must be approached on the basis of having gone evidentially uncontested. Whether or not the purchaser’s solicitor might have discovered the problem for himself is not to the point. The question here is whether the vendor may avail of a contractual provision for rescission. It is the conduct of the vendor or her agents that is in issue. I do not consider that mere imprudence on the part of a purchaser could excuse conduct on the part of the vendor to induce the vendor’s agents in making a positive statement to induce bids which apparently happened at auction. This must be seen in the context of the fact that it was a point then raised by the purchaser’s representative. The obligations of Ms. Kiely’s then solicitor must be seen in the light of the fact that there appears very considerable doubt in the light of correspondence as to whether Ms. Kiely’s solicitors then had in fact then requisitioned the file plan. It is difficult to reconcile averments by affidavit to the effect that the file plan had been obtained prior to auction, and the subsequent correspondence already referred to on 2nd July, 2002 where Ms. Kiely/vendor’s then solicitor wrote that he had “again requested the Land Registry to furnish [him] with a map showing the right of way duly coloured”. In a further letter on 5th July, 2002, he wrote that he had “now belatedly received the map from the Land Registry”. In an averment in the grounding affidavit sworn on behalf of the vendor, it is said that the purchaser’s representative, Mr. Gallagher, discussed the question of access to the lands after the auction with the auctioneer and Laurence Tierney, Ms. Kiely’s solicitor at the time and “was shown the folio and file plan and informed that access was by right of way as described on the folio”. This conflict must be seen in the light of the fact that the deponent in this affidavit, Ms. Kiely’s present solicitor was not present at the time of the auction and is acting on instructions and received information. Neither Ms. Kiely nor Mr. Shields nor the auctioneer swore any affidavits in the proceedings. No notice to cross-examine was served.
61. In the present case, the vendor furnished prospective purchasers with a copy of the folio and folio map. There is conflict as to the special file plan. The folio stated that there was a right of way. The folio map appeared to depict a right of way to the northern end of the lands. In the circumstances, any prospective purchaser inspecting the documentation furnished by the vendor could be expected to assume that the entry relating to the right of way was accurate. This belief would have been bolstered by confirmation by the auctioneer that access to the lands was “via a laneway to the northern end of the lands”.
62. The map prepared by the auctioneers depicts the lands that were transferred out of the folio and now comprised in a different folio. An examination of the manner in which they were depicted suggests, as was the position, that they might once have formed part of folio 3399. The right of way as depicted on this map runs only as far as a point close to the boundary of the lands for sale. All these facts, combined with the statement on folio 3399 that two parts thereof had been transferred out of the folio, should at the minimum, I consider, have alerted the vendor’s solicitors to the possibility that the right of way no longer served the plot in sale without an easement.
63. I do not consider that the authorities fully establish that ordinary imprudence on the part of a vendor’s solicitor would be sufficient to prevent rescission. But what occurred here must be seen as a preparedness on the part of the vendor’s solicitor to take a calculated risk when there were significant warning signs to the contrary. I think this fell well short of what would be considered ordinary prudent conveyancing practice. This was compounded by the statements made by the auctioneer prior to bidding. All these circumstances, taken together, justify a finding of a very high degree of imprudence sufficient on the facts to constitute a bar to rescission.
Reliance on General Condition 18
64. For completeness, a further question which may arise (if necessary) is whether Ms. Kiely would in law be entitled to rely on General Condition 18 (recited earlier) to avoid completion of the contract at an abated price by reason of her own default.
65. A number of additional observations are relevant here. The first is that the defendant purchasers opted first for compensation under condition 33. A misrepresentation by Ms. Kiely and her agents of what she had to sell was “an error” within the definition of that term given in General Condition 33(a) of the contract. I consider that that is compensable by condition 33(b).
66. Furthermore, there has been a finding that the conduct of the vendor prior to reliance on the condition has been unreasonable, capricious and has put the purchaser to additional expense. Ms. Kiely only sought to rely on General Condition 18 only on 20th April, 2005, some thirty-three months after the purchasers pointed out the error and almost a month after the first hearing date of the arbitration. There was extreme indecision and unjustifiable delay. General Condition 18 may not be relied upon by a vendor who on the facts first denied the existence of the difficulty affecting the sale on which the purchaser is insisting. Ms. Kiely repeatedly denied that there was a problem with the promised right of way.
67. In the instant case it is possible to summarise the position of the parties thus. Ms. Kiely said:
“Even though the problem originates with my own error and even though the purchasers say they will take the land even with the defect, subject only to an abatement in price that will limit what they have to pay to that which they still have to give me, nevertheless I may use my own error to get out of the contract entirely.”
68. The Delaneys say:
“Even though the problem is the vendor’s mistake, we are still willing to proceed with the bargain and we will not insist in the impossible or on what it would cost or take too long to achieve. We are still willing to buy the land at, in general, the agreed price, subject only to an abatement to ensure we will only pay for that which, as it transpires, the vendor can give us.”
69. In re Terry & White’s Contract (1886) 32 Ch. 14 is of little assistance to Ms. Kiely, because, the case turned on the fact that the contract excluded any right to compensation so that the resolution sought by the purchaser was impermissible. It is noteworthy that in that case the condition provided inter alia:
“No error, misstatement or misrepresentation shall annul the sale, nor shall any compensation be allowed in respect thereof.”
This quite clearly is at variance with the provisions of the conditions in the instant case. Furthermore, the observations of the judges in that case are, in their general tenor, supportive of purchasers who might make the same claim in similar cases where there was no exclusion of compensation.
70. On the very different facts of this case and the findings thereon outlined earlier, I do not consider that the authority cited by counsel for the vendor of Ashburner v. Sewell (1891) 3 Ch. 409 is of assistance, even if it still constitutes a persuasive authority. The facts, here as described earlier are so different as to render it of no value to Ms. Kiely. It is doubtful whether it is in any case decisive of the issue which might arise in this case, that is an apparent conflict between Condition 18 and Condition 33.
71. While the decision in Ashburner is stated to be reliant on the decision of the Court of Appeal in Mawson v. Fletcher (1870-1) 6 Law Reports Ch. App. 91, Mawson is not an authority for preferring a clause giving a vendor a right of rescission over a clause giving a purchaser a right to compensation and excluding the vendor’s right to rescind from cases where compensation is taken. The court held that the defect, if any, was not a misdescription within the meaning of the compensation clause and that therefore the vendor having acted bona fide, was entitled to invoke his statutory right of rescission. The rationale for the decision was that the defect, if any, did not come within clause 14 (the provision for compensation).
72. Ashburner v. Sewell has seldom been followed. The decision does not appear to address the conflict between conditions that might arise where, as here, they may both apply to the same error and from the provision in the compensation clause against annulment for error save with the purchaser’s limited option. I do not think that the assessment of the contract outlined in that judgment can be said to be reliant upon objective reasonableness.
73. In fact clause 18 and clause 33 as they now are, are reconcilable, even where they do apply to the same errors but only by recognising that to treat a claim for compensation as “insistence” within the meaning of clause 18 might be to create a direct contradiction between the clauses. Clause 18 says the vendor may rescind and clause 33 says she may not, so that in respect of errors within clause 33 a claim of compensation must take the case out of clause 18 by removing the element of “insistence” required for it to apply. One cannot give the concept of insistence a meaning which produces a direct contradiction between the clauses. I consider that clause 18 is designed to protect a vendor from the trap of being obliged to give what he or she cannot reasonably give. That trap is removed where a purchaser can and does opt for compensation. I do not consider that Ms. Kiely had a right to rescind under clause 18 for the reasons outlined earlier and where the Delaneys sought compensation, and indeed had done so and progressed the claim almost to hearing before Ms. Kiely made any effort to rescind.
74. Condition 18 is not an unfettered licence to avoid a contract in reliance of one’s own error. Because of the plaintiff’s conduct and delay, her solicitor’s very substantial imprudence to the initial and subsequent denials that there was any misdescription, and because of the capriciousness and unreasonableness in seeking to rely on condition 18 at such a late stage, I do not consider reliance on Condition 18 is available to the plaintiff either for the reasons outlined above. I consider that the plaintiff’s claim fails under this heading also.
75. In the light of the foregoing, I must decline the relief sought in the summons herein on the various grounds identified in this judgment. The Court will hold that the sale has not been rescinded by the plaintiff in accordance with Condition 18 of the contract the question to be determined in the vendor and purchasers summons herein.
Airscape Ltd -v- Heaslon Properties Ltd
[2008] IEHC 82 (31 March 2008)
JUDGMENT of Mr Justice John Edwards delivered on the 31st day of March, 2008.
Introduction – the proceedings in outline.
1. This is a breach of contract action based upon an acknowledged agreement of the 5th of March 2002 under which the plaintiff was to carry out certain building works to a premises supplied by it to the defendant. The plaintiff claims that it was an implied term of the said agreement that the defendant would not unreasonably withhold its co-operation for the carrying out of the works in question, that the defendant did not in fact co-operate with the plaintiff, and that as a result of the defendants lack of co-operation the plaintiff could not fulfil its obligations under the agreement. The plaintiff says that in the circumstances the defendant was guilty of breach of contract; that that breach was a fundamental breach; and that by virtue of the defendant’s fundamental breach the plaintiff is entitled to be discharged from any further obligation pursuant to the agreement. The plaintiff claims an order directing the return of a retention sum of €317,434.52, and any interest accrued thereon, held pursuant to the agreement on joint deposit account by the parties’ respective Solicitors pending completion of the works. The plaintiff further claims a declaration that it is discharged from its obligations pursuant to the said agreement. The plaintiff further, or in the alternative, claims damages for breach and/or repudiation of contract.
2. The defendant has sought to fully defend the plaintiff’s claim. In substance the defence alleges unjustifiable non performance by the plaintiff, and that the plaintiff did not in fact make any or any reasonable attempts to carry out the works, nor to satisfy what the defendant characterises as its “reasonable requests concerning works of repair to the roof”. The defence asserts that it is the plaintiff that is in breach of contract rather than the defendant, and the plaintiff’s entitlement to relief is denied.
3. The defendant in turn counterclaims against the plaintiff for breach of contract. The defendant alleges that the agreement of the 5th of March 2002 was in fact supplemental to an earlier agreement of the 18th of July 2000. The defendant variously alleges that, on the one hand, there was a failure to carry out certain agreed works, and on the other hand, that works in fact carried out were carried out in “a grossly defective and incompetent fashion”. In the circumstances the defendant claims that the plaintiff is guilty of breaches of both agreements. The defendant claims to have suffered loss, damage and expense on account of plaintiff’s said alleged breaches of contract and counterclaims for damages for breach of contract and also, in the case of the agreement of the 5th of March 2002, a declaration as to the plaintiff’s breach of contract..
4. In its reply and defence to the defendant’s counterclaim the plaintiff, in substance, denies the alleged breaches of contract and asserts that the agreement of the 5th of March 2002 superseded the earlier agreement and that any claims that the defendant might have arising from the earlier agreement (which were not admitted) were “fully compensated …within the terms of the subsequent agreement.” Further the claim of repudiatory breach by the defendant is reiterated, and there are also pleas, in the alternative, of negligence, breach of duty, breach of contract and unreasonable conduct on the part of the defendant.
The hearing.
5. There was a full plenary hearing in this matter. Evidence was heard over five days in the course of which both sides called and cross-examined witnesses and produced copious documentation by way of exhibits.
Facts relevant to the liability issue as established in evidence.
6. For many years the Semperit Tyre Company operated a substantial tyre manufacturing plant at Gallanstown, Ballyfermot, Co Dublin. Unfortunately, during the mid 1990’s the Semperit factory closed with the loss of many jobs. Following the closure the factory buildings and appurtenant lands were acquired by the plaintiff, a property development company. The plan was to convert the Semperit campus, so to speak, into an industrial park comprising a number of self contained industrial units for commercial letting to businesses. The development was to be called the “Park West Industrial Estate”. The plan, as conceived, involved subdividing the existing factory premises into a number of smaller units and the construction of a number of additional units on lands not previously built on. The plan further envisaged the provision of critical infrastructure within the campus such as roadways, paths, parking areas, loading bays, public lighting, signage and so forth. Planning permission was duly applied for, and successfully obtained, by the plaintiff. Works commenced in due course and by 1999 matters had progressed sufficiently to enable the plaintiff to begin letting units.
7. The lettings were conducted through two firms of Industrial Sales and Letting Agents, namely Palmer, McCormack Lambert, Smith, Hampton and DTZ Sherry Fitzgerald.
8. During 1999 DTZ Sherry Fitzgerald introduced a client to the plaintiff as a potential tenant. That client was an office furniture manufacturer, then based in Chapelizod, incorporated as Europlan Furniture Ltd and trading as Europlan Furniture. It was looking to relocate to new premises as its existing premises was too small, and in any case was unsuitable. It was decided to move the business to a 65,000 sq ft unit in the Park West Industrial Estate, being Unit S4, a unit in the now subdivided former tyre factory building.
9. Although the former tyre factory building had been physically subdivided, significant additional works required to be done to Unit S4 to render it suitable for Europlan Furniture to relocate there. Accordingly, on the 18th of July 2000 the plaintiff entered into a Contract of Sale with the defendant company (a company associated with Europlan Furniture Ltd) to sell Unit S4 to the defendant on the basis of a long lease, coupled to a Development Agreement of the same date and on foot of which the significant additional works were to be carried by the plaintiff to render Unit S4 suitable for Europlan Furniture to use as its new manufacturing centre. The total consideration payable by the defendant to the plaintiff in respect of both the Contract of Sale and the Development Agreement was IR£4,235,625 (equivalent to €5,378,134) apportioned equally between both contracts.
10. It is important at this stage to deal in a little more detail with the relationship between the defendant and Europlan Furniture Ltd. The defendant Heaslon Properties Ltd is one of four associated companies, which I shall loosely refer to as the “Europlan companies”. The others are Europlan Furniture Ltd, Europlan Office Furniture Ltd, and Contract Powder Coatings Ltd. The basis of these associations is that all of these companies have common shareholders and directors. However there is no common subsidiary relationship or holding company relationship. Accordingly, they do not form a Group of companies. The defendant’s managing director, Mr Frans de Ru, explained the practical reality of the relationship between the Europlan companies in the course of his testimony. He told the Court that Europlan Furniture Ltd is the manufacturing company. Heaslon Properties Ltd owns the premises in which the business is carried on. Europlan Office Furniture Ltd holds the patents for the products manufactured by Europlan Furniture Ltd. Contract Powder Coatings Ltd carries out powder coating of components produced and used by Europlan Furniture Ltd, and also does contract work for outside companies.
11. Returning to the Development Agreement, the works to be carried out were specified in a document entitled “Outline Specification Incorporating Materials to be used in the Re-furbishment / Construction of Industrial & Warehouse Units at Unit S4 Ex Semperit Factory for Europlan Ltd” (hereinafter called “the specification document”). This specification document was prepared by the plaintiff’s architects and annexed to the said Development Agreement. Although the specification document covers all of the work to be done, there are two particular aspects of that work that feature centrally in the disputes between the parties with which this Court is concerned, namely concrete flooring works and roofing works. Accordingly it is appropriate that I should recite those parts of the specification document dealing with those works. Section 3 of the specification document is entitled CONCRETE WORK. Within that section, paragraph 3.3 states:
“Floors:
New Concrete floors internally will be power floated concrete slabs, on damp proof membrane on blinded hardcore designed to Engineers requirements. Where appropriate and possible existing floors to be retained, top level taken off, and levelled with screed to accommodate required loadings, allowing for bonding to existing. All existing pits etc to be stripped out and filled with hardcore, then slab as necessary – all to structural engineer’s specification and details.”
Section 6 of the specification document is entitled ROOFING WORK and states at paragraph 6.1:
“All existing roofs to be inspected to assess suitability for re-roofing, over roofing or retention.
For existing roof, existing ‘Trocal’ or similar flat roof membrane/sheeting on insulation on metal decking on vapour check on secondary steel structure to be retained. Existing roof lights to be retained, refurbished where necessary.”
12. There was another important aspect of the works to be carried out that requires to be mentioned at this stage which, while not central to the disputes that developed between the parties, nevertheless had implications for both the roofing works and the flooring works. This was the intended removal of a large steel gantry from the roof of the former tyre factory, and its supporting stanchions one of which was within the CPC area of Unit S4 encased by a blockwork wall. The gantry in question was one of a pair that had supported air conditioning plant for the tyre factory. Each gantry spanned 60 meters without touching the roof and was completely independent of the roof. When the gantry was eventually removed a special crane was required to remove it, such was its size and weight. Originally, all of the gantry legs were outside of the Semperit building. However, what is now the CPC area of Unit S4 represents an extension to the original building and this extension incorporates one leg of a gantry. It was explained in evidence by Mr Barry Kelly, Architect, that at the time of construction of this extension it would have been impossible to satisfactorily address a roof covering around the gantry leg. Accordingly, what they did was they created a well in which the leg sat, effectively an external space, by building a block wall around it. The Development Agreement called, inter alia, for removal of the gantry in question and the supporting leg or stanchion that was within the CPC area, and also demolition of the encasing block wall. This block wall partially supports the roof of the CPC area. Mr Kelly explained that the structural engineers for the project had proposed that, to allow for demolition of the wall in question, works should be carried out to the roofing steelwork to enable it to be tied back into the main structure so that the roof would be supported. This could be done either before or after the roof was resurfaced, although it would be preferable to do it before resurfacing.
13. Although both the Contract of Sale and the Development Agreement are dated the 18th of July, 2000 Europlan Furniture was allowed into occupation much earlier than that. The circumstances surrounding this were also explained in evidence by Mr de Ru. Originally Europlan Furniture had hoped that the acquisition of Unit S4 would be completed by the end of December 1999, particularly as the defendant had, in turn, had entered into an agreement to sell the Chapelizod premises to a property developer. However, for reasons that it is not necessary to go in to, it was not to be. Mr de Ru explained that in the course of pre-contractual negotiations in 1999 the defendant was particularly concerned about the concrete floors within the building, which had surface defects and differences in levels. The plaintiff agreed to install a new floor prior to Europlan Furniture entering into occupation. However, when it became apparent that the transaction could not be completed before the end of 1999 it was then further explained to the plaintiff that Europlan Furniture had acquired specialised equipment from a supplier in Holland for the powder coating section of its business. This equipment, scheduled for delivery in February 2000, would consist of an array of dipping tanks (variously containing detergent solution, a mild acid or “acid type” solution, and clean water) for cleaning metal components prior to powder coating, and a special oven for baking on the powder coating once it was applied to the cleaned metal. Europlan Furniture urged upon the plaintiff that it would make no sense to have this equipment installed in their existing Chapelizod premises, only to have to move it again a few months later when their business would be transferred to Park West.
14. In the circumstances the plaintiff agreed that Europlan Furniture could have the new equipment delivered directly to Park West and installed there in February of 2000. Moreover, the plaintiff agreed to have the new floor installed in time for the arrival of the new equipment. Without going into the reasons for it, there were delays in installing the new floor. This was to be an engineered floor in accordance with the specification document. It was originally envisaged that a new floor would be laid throughout the entire premises as a single job. As a consequence of the delays the plaintiff subsequently agreed to split the work and afford priority to the laying of a temporary new floor in the CPC area, where the new equipment would be installed, before a permanent new and engineered floor was laid throughout the unit. The temporary floor would not be an engineered floor and involved placing a temporary screed on top of the existing floor in the CPC area.
15. However, by February the temporary floor in the CPC area had still not been laid. The new equipment arrived from Holland and had to be placed in storage in another part of the premises, while the installers returned to Holland. By April the temporary floor in the CPC area was finally completed. The installers returned and the new equipment was duly installed. At the end of May or in early June somebody within the plaintiff company apparently became concerned about the insurance implications of Europlan Furniture’s occupation of the CPC area of Unit S4 on a permissive basis, and the defendant was then asked to enter into a Licence Agreement. A Licence Agreement was duly entered into on the 14th of June, 2000 and the licence continued until formal possession was taken of the entire of Unit S4 pursuant to the aforementioned Contract of Sale and Development Agreement of the 18th of July, 2000.
16. The Contract of Sale provided for a closing date of six calendar weeks from the date of the contract. The concurrent and collateral Development Agreement provided for a date of practical completion of “31st October 2000 or as soon as possible thereafter”. However the schedule slipped again and again, and by the end of 2001 the works covered by the Development Agreement were still not completed, and the sale was still not closed. The situation was most unsatisfactory from Europlan Furniture’s point of view. Their business was now split between the Chapelizod site and the Park West site. The main part of their manufacturing operations was still being conducted in the premises at Chapelizod, whereas the CPC part of their business was being conducted in a portion of Unit S4 at Park West. Moreover, they were being placed under enormous pressure to move out of the Chapelizod premises from the developer who had acquired it. This developer threatened to issue High Court proceedings against them; such was his frustration at the delay. Furthermore, the temporary new floor that had been laid in the CPC area in April 2000 subsequently developed cracks because the temporary screed had not fully cured before it was put to use.
17. The delays generated extensive correspondence between the parties respective solicitors, and there were innumerable meetings and so forth in an effort to move things on. A Certificate of Practical Completion was issued on the 17th of December 2001 by the plaintiff’s architect, who certified that the works were practically completed on the 17th of December 2001; save for “snagging items” on a list attached thereto which still required to be attended to. This Certificate of Practical Completion was rejected by the defendant for reasons that it is not necessary to go in to.
18. Matters finally came to a head in early March of 2002 when, following a series of direct meetings between representatives of the plaintiff and defendant companies, respectively, the parties arrived at a new agreement. The status of this new agreement is disputed as between the parties. The plaintiff contends that it replaced the original Development Agreement of the 18th of July 2000. The defendant, however, contends that it was merely a supplement to, and amounted to no more than a variation of certain aspects of, the original Development Agreement. This Court will have to resolve this dispute in due course. Be that as it may, the terms of this new agreement were recorded in a letter dated the 5th of March 2002 from the plaintiff’s solicitors to the defendant’s solicitors. That letter records:
“The following revised terms are agreed in full and final settlement of all outstanding issues between the parties with regard to this premises and the development agreement between the parties:-
1. Completion of the development agreement to take place this afternoon by discharge of the balance proceeds by bank draft so that your client can take possession of the premises on Wednesday. The bank draft to be couriered to us and we will send you the completed documents by return courier.
2. A retention sum of €317,434.52 (IR£250,000) will be held on joint deposit account by Partners at Law, Solicitors and Maurice J. Bannon and Co Solicitors with interest accruing to Airscape Limited. The €317,434.52 (IR£250,000) retention will be released on practical completion of the attached list of items (‘the list’) to be signed by Pat Power and Frans De Ru.
3. Airscape Limited will use its reasonable endeavours to practically complete the items on the list within four calendar months of the date of payment pursuant to clause one of this letter with the exception of the roof. Airscape will use it reasonable endeavours to practically complete the roof within eight weeks of the payment of the balance proceeds pursuant to clause one of this agreement. However, Airscapes endeavours to practically complete the items on the list within four calendar months is subject to the movement by the occupier of the equipment in the CPC area at its expense to permit the works to be carried out to the CPC area.
4. On practical completion of all the items on the list or of all of the items save for the works to the CPC area, your client’s architect will be notified and a joint inspection of same will take place with our client’s architect within three working days. Practical completion is to be agreed between our client’s architect and your client’s architect who will both sign a practical completion certificate to this effect. In the event of a dispute with regard to the practical completion of the items listed the matter will be referred to the decision of an independent architect who will be required to give a decision within five working days of being requested to do so. The decision of the independent architect shall be final and binding on the parties. The independent architect for the purpose of all matters in dispute will be acting as an expert and not as an arbitrator. ‘Independent architect’ means such independent architect as may be agreed between the parties but failing agreement between the parties within four working days, one will be appointed on the application of either party, by the President or acting President for the time being of the Royal Institute of Architects of Ireland.
5. In the event that all other items of work on the list have practically completed and certified in accordance with clause 4, save to the works to the CPC area the sum of €253,948 (IR£200,000) plus interest on this amount will be released immediately to Airscape Limited. The balance of €63,486.90 (IR£50,000) will be released, subject to the removal of the equipment and machinery on the CPC area by Heaslon, when the works to the CPC area have been practically completed and certified in accordance with clause 4.
6. A reduction of €65,000 is agreed from the balance proceeds in full and final settlement of the windows omitted from the building and the work involved in moving the equipment and machinery in the CPC area.
7. The balance proceeds therefore to be paid by bank draft by your client is the sum of €2,649,555.52 in accordance with the attached invoice of which the retention sum of €317,434.52 will be held by Partners and Law, Solicitors and Maurice Bannon on joint deposit account in accordance with these terms.”
19. A schedule, representing “the list” referred to, was attached to this agreement in the following terms (reproduced with capitals and formatting preserved):
“Euro Plan
List of Items
· Removal of the overhead gantry and air handling units. To include the removal of the wall in CPC and making good to the roof and wall.
· Existing roof to be recovered to specification to be agreed, to include tower and 60/65 No New Sky Lights.
· Credit to Europlan of €65,000 in respect of Labour to CPC area and glazing omitted to tower.
· New/Remedial work to floor to CPC area to be completed between 22nd July, 02 and 29th July, 02 when platforms are to be removed. A written undertaking will be given so that the work under the oven and tanks to take place at a later date. This does not affect the release of the €63,487 (£50,000) retention on work in the CPC area.
· Three Fire Doors to CPC area to be supplied by developer and fitted by Europlan.
· Fire alarm to be installed to CPC and P & M and completed elsewhere. Specification to be discussed/approved.
· ESB mains connection.
· Bollards to the South Elevation Pathway.
· Windows at high level to CPC area to be made good where necessary and painted.
· All Cladding and Flashing and guttering to be snagged including down pipes etc.
· Concrete splashed on claddings and doors.
· Flashing installation doors in P & M in progress.
· Doors Scratched and Damaged (To be inspected).
· Footpath and Entrance to Acute Precision.
· CPC Smurfit Junction block work damaged.
· All Raw steel work to roller shutter door runners to be painted in the house colour (Silver).
· Movement to Office Glazed North Elevation to be made good.
· Repairs to Suspended ceilings in Office area due to leaks and movement.
· All fire doors and Roller shutters to be snagged and made good in relation to mechanism/closing etc.”
20. The evidence establishes that following the agreement of the 5th of March 2002, the plaintiff, through an agent Park West Construction Ltd, engaged the services of a specialist roofing contractor Gerard F May Roofing Ltd to carry out the roofing works, and supplied that firm with terms of reference based upon the specification document hereinbefore referred to. Gerard F May Roofing Ltd in turn prepared a detailed specification and a proposed programme of work and furnished that to the plaintiff. Upon receipt of Gerard F May Roofing Ltd’s specification and proposed programme of work the plaintiff’s Architects, Carew Kelly, forwarded these documents to the defendant on or about the 26th of April 2002, with a view to securing the defendant’s agreement to what was being proposed. It is clear from the evidence that Carew Kelly did not anticipate any objection. Moreover, it is equally clear that the plaintiff didn’t either, because the evidence establishes that at an early stage, before the specification and proposed programme of work was furnished to the defendant, a firm order was placed with Gerard F May Roofing Ltd by Park West Construction Ltd.
21. Having received a firm order Gerard F May Roofing Ltd in turn ordered the materials that it needed for the works from suppliers in Germany and the UK. These materials were delivered to the site on the 29th of April, 2002. They were left at ground level on that date. However, on the 7th of May, 2002 representatives of Gerard F May Roofing Ltd returned to the site, equipped with a mechanical hoist, with the intention of lifting the materials in question on to the roof and starting work. They were stopped and prevented from doing so by a representative or representatives of the defendant.
22. The evidence is somewhat conflicting in respect of the stoppage. In the course of his evidence Mr de Ru stated that the following exchange occurred:
“I went out and said ‘Listen, lads, what are you doing here?’ [The reply received was] ‘We are here to do the roof work’ I said; ‘But you can’t.’ [The reply to that was] ‘Oh, yes, we are. e are instructed by Parkwest to carry out the work.’ I said; ‘Sorry, I cannot let you on the roof for a few reasons. First of all I never knew you were coming. We weren’t notified. Secondly, I have not seen a health and safety statement or a risk assessment at all of the work to be carried out. Thirdly, none of your company has come to me previous to this and got a walk-through through the premises and see what equipment …..’.” [the sentence was unfinished due to an interjection.]
However, notwithstanding that the court had received this testimony from Mr de Ru, Mr Seamus Kennedy, an interior architect, employed by Europlan Furniture, later testified that it was he (Mr Kennedy) who ordered the men to stop work. His evidence was “I told them; ‘What are you doing here? Nothing has been agreed (sic) to the roof yet.’.” Mr Kennedy further testified that he then got on to Mr Kelly’s office and said “They are here and nothing has been agreed yet.”
23. At any rate it is clear from the foregoing that various reasons are being advanced for the stoppage. One of the reasons for it was that, apparently, the defendant did not agree with Gerard F May’s specification and proposed programme of work. That much is clear. As regards whether there really were other reasons the position is less clear. This is so notwithstanding Mr de Ru’s testimony. One of the defendant’s contentions is that it was concerned to see a health and safety plan, and in particular the contractor’s safety statement, before it could allow the workmen on to the roof. It is true that in the course of his evidence Mr de Ru did say that he told the workmen that he had not seen a health and safety statement and a risk assessment. However, although it was put to some of the plaintiff’s witnesses that the plaintiff had these concerns it was never put to the representative of Gerard F May Roofing Ltd that this was one of the reasons given to its workmen. Further, although it was put to some of the plaintiff’s witnesses that the defendant also had insurance worries and required confirmation of the insurance position before it could allow the contractor on to the roof, neither Mr de Ru, nor Mr Kennedy, made any mention of insurance being a concern on the day. There is no convincing evidence that at any time either prior to, or in the immediate aftermath of the stoppage, the defendant made a request to either the plaintiff, or its contractor Gerard F May Roofing Ltd, for reassurance in respect of health and safety or insurance matters, or to see documentary evidence of the position in regard to either or both of those matters. While Mr de Ru does contend that he was not notified that the workmen were coming on that day, and the evidence does seem to bear that out, that fact alone does not dispose of the court’s concerns, particularly as Mr de Ru’s company had only just recently entered into an agreement whereby roofing works were to be undertaken as a matter of priority, and his company had also been sent the Gerard F May Roofing Ltd specification and proposed programme of work and, by the date of the stoppage, had not intimated having any problem or difficulty with it.
Moreover, Mr Kennedy’s evidence was expressed using the conditional mood, as witnesses sometimes do, namely that “We would have been requesting for (sic) insurances and health and safety statements, all of that.” (my emphasis). However when pressed subsequently to give precise details of these requests he couldn’t give any. There was certainly no correspondence, nor is there a paper trail of any sort, to support these alleged requests. The plaintiff denies receiving such requests.
I am satisfied from a consideration of all of the evidence that the main reason for the stoppage was that the defendant did not agree with Gerard F May’s specification and proposed programme of work, and that concerns about insurance or health and safety, if they existed at all, were peripheral.
24. In regard to the specification and proposed programme of work, there were differences between the parties both as to the materials to be used, and as to the methodology to be employed. The defendant then put forward a counter proposal involving a specification drawn up by another firm of roofing contractors, namely Moy Materials Limited. However, the plaintiff’s Architects were not happy with the counter-proposal and a stand-off developed.
25. The principal difference between the parties with respect to the materials to be used was that Gerard .F. May Roofing Ltd proposed to use a Sika-Trocal type membrane whereas Moy Materials Ltd proposed using an alternative product namely Paralon. The plaintiff’s architects were of the firm view that the Sika Trocal product was superior. In the course of being cross-examined by counsel for the defendant on day 2 of the trial, Mr Barry Kelly of Carew Kelly, Architects, stated that he found it “amazing” that the specification put forward by Moy Materials Ltd was being insisted upon by the defendant, as it only carried a ten year guarantee, whereas the Sika Trocal specification advocated by Gerard F May Roofing Ltd carried a fifteen year guarantee. He stated that he just could not understand the logic of it. This was not countered in evidence by the defendant’s architect.
26. The principal difference between the parties with respect to methodology concerned how openings in the roof were to be covered. Mr Seamus Kennedy, an interior architect, representing the defendant, wanted these openings made good with flush coverings. The plaintiff’s architect, however, felt that covering existing opes in the roof with “boxes”, which allowed the formation of an upstand, with Trocal membrane dressed up around each box, represented a much better and safer detail for closing these openings. The defendant’s architect disagreed, being of the view that water bunding would occur in the vicinity of the upstands. The plaintiff’s architect’s answer to that was that bunding was usual and to be expected with Trocal membrane, and that it was irrelevant to, and would not affect, the integrity of the watertight seal.
27. While the document trail is somewhat incomplete it appears that some correspondence was exchanged in the weeks following the 7th of May, 2002, and some meetings may also have occurred, all aimed at resolving the impasse. Ultimately this was to no avail. The solution, eventually agreed to by both parties, was that the disputes would be referred to an independent arbitrator, the late Mr David Keane, MRIAI., for his decision, which was to be binding on the parties. The referral was in October of 2002 and Mr Keane was furnished with all relevant documentation. He also visited the site and walked the roof accompanied by Mr Barry Kelly, Architect, and Mr Dermot Arthur, Head of Group Construction, representing the plaintiff, and Mr Seamus Kennedy, Interior Architect, representing the defendant. The respective proposals were apparently discussed in some detail during this walk. Mr Arthur’s evidence is that Mr Seamus Kennedy specifically raised with Mr Keane his worries about water bunding around the proposed upstands if the G.F. May Roofing Ltd proposal was proceeded with. In any event Mr Keane issued his determination on the 10th of April 2003, and upheld the plaintiff’s proposal. He stated, inter alia:
“It seems to me, therefore, that in the circumstances the works proposed by Airscape Ltd, taking both the general tenor of the original agreements into account and also the guarantee offered by Sika Trocal, should be considered satisfactory.”
28. It should also be stated, for the purpose of maintaining the chronology, that during the month of March 2003, and while the parties were still awaiting Mr Keane’s determination, the gantry was removed. However, the leg in the CPC area remained in situ, the block wall encasing it remained to be demolished, and the hole in the roof above the leg-well remained to be closed over.
29. The defendant’s representatives were clearly unhappy with Mr David Keane’s determination. They have contended, and continue to maintain, that his determination only dealt with the materials to be used and not with the proposed methodology, particularly the use of box coverings as opposed to flush coverings for openings. The defendant sought to refer the matter back to Mr Keane but Mr Keane refused to entertain it. Having carefully considered the terms of Mr Keane’s determination I am against the defendant with respect to its contention that Mr Keane’s determination is to be construed narrowly and as referring only to the question of materials. Having walked the roof with representatives of both sides Mr Keane was fully aware of what was being proposed, and of the parties’ respective concerns. In the paragraph that I have quoted Mr Keane clearly endorses the “works proposed by Airscape”.
30. Following Mr Keane’s determination the plaintiff set about making fresh arrangements to carry out the required roofing works. Mr Pat Power, on behalf of the plaintiffs stated in evidence that they assumed that that was the end of the disputes and that it was just a case of getting on and doing the work. Gerard F May Roofing Ltd was contacted and asked to proceed with the works. They were prepared to do so but only subject to an additional “restocking charge” of €5, 328.89 which the plaintiff agreed to pay.
31. On the 25th of April 2003 Mr Barry Kelly, on behalf of the plaintiff, wrote to Mr Frans de Ru, on behalf of the defendant, in the following terms:
“Re: Roofing works to Europlan at Unit S4, Park West.
Dear Frans,
Following on from David Keane’s decision in respect of the proposed works to the roof, we are currently in the process of organising the contractor to commence the works. In order to co-ordinate with yourselves and to ensure the works can be carried out with as little disruption as possible to yourselves, can you indicate what timeframe suits you best – we would intend to start within the next couple of months, to ensure good weather.
I would be grateful if you could revert to me in connection with the above, and we will set the process going.
Yours etc.”
32. There does not appear to have been any response to this letter. According to Mr. Kelly this was just one of a number of attempts on his part to get agreement from the defendant as to when the works could start but the defendant did not reply to any of his communications. Matters dragged on for some weeks and eventually, the plaintiff instructed its solicitors to write to the defendant’s solicitors about the matter. By letter of 28th May, 2003 from Partners at Law, solicitors for the plaintiff, addressed to Maurice J. Bannon & Company, solicitors for the defendant, the plaintiff’s solicitors wrote in the following terms:-
“Re: Premises Unit S4, Park West Industrial Estate
Dear Sirs,
We refer to the above and to previous correspondence. We are instructed by our client that they have endeavoured on numerous occasions to contact your client with a view to agreeing a date and time for access to be granted to the roof contractor to carry out the works, without success.
In the circumstances, if your client does not propose allowing access to the roof contractor to carry out the works, please confirm by return that the retention can be released. We await hearing from you.
Yours etc.”
That letter was apparently despatched by fax.
33. Maurice J. Bannon & Company, Solicitors, in turn replied by fax on the same date in the following terms:-
“Re: Premises Unit S4, Park West Industrial Estate.
Dear Sir,
We refer to the abovementioned matter and thank you for your fax on the 28th May, 2003. We are awaiting clarification from David Keane in relation to the following:
1. Ponding of water to rear of tower area.
2. Upstands/boxing on roof.
3. Closing/removal, open area to gantry legs.
We will contact you in the near future.
Yours etc.”
34. As previously alluded to, notwithstanding this attempt by the defendant to refer certain matters back to Mr. Keane, Mr. Keane declined to revisit the matter. The correspondence indicates that the attempt to refer matters back to Mr. Keane was by means of a letter from Maurice J. Bannon & Company, Solicitors dated 27th May, 2003. Mr. Keane’s letter declining to revisit matters is dated the 9th June, 2003.
35. On the 17th June, 2003 the plaintiff’s solicitors wrote again to the defendant’s solicitors pointing out that as Mr. Keane had made his decision he was functus officio and that there was no basis for the defendant seeking to re-open the matter. The letter went on to state the position of Mr. Barry Kelly, of Carew Kelly, Architects, with respect to the three items mentioned in the defendant’s solicitors fax of 28th May, 2003 and then, in conclusion, stated:-
“We would suggest, at this stage, that your client’s attention be focused on a schedule for executing the roof and any further works required.
Our client is anxious to have all matters resolved and awaits your cooperation in this regard. Our client proposes to have the work carried out in July and you might please let us have proposed dates in this regard. We look forward to hearing from you.
Yours etc.”
36. Neither the plaintiff’s solicitors nor the plaintiff itself received an immediate response to that letter. Accordingly, on the 26th June, 2003 Mr. Barry Kelly wrote again to Mr. Frans de Ru. He stated:-
“Re: Roofing works to Europlan at Unit S4, Park West.
Dear Frans,
Further to my letters of 25/04/03 and the 20/05/03 in connection with the carrying out of works to the roof at Europlan (Unit S4) we would request that you would reply in writing within seven days, if we receive no reply, Airscape Ltd, will be forced to initiate the appropriate legal proceedings.
Yours etc.”
37. It seems that this letter did elicit some form of response. Apparently a fax was sent by Mr. Seamus Kennedy, Interior Architects, to Mr. Barry Kelly. Unfortunately that fax has not been exhibited before me. However, it is referred to in a subsequent letter from Mr. Barry Kelly addressed to Mr. Seamus Kennedy and dated the 30th June, 2003 which is in the following terms:-
“Re: Roofing Works to Euro Plan at Unit S4, Park West.
Dear Seamus,
Further to your fax of 27/6/03 in connection with the roofing works to Unit S4, we would note that we will be carrying out the works in accordance with the specification and scope of works submitted to the arbitrator, and approved by him. We will not be removing or treating the upstands other than as part of the recovery works. It is intended to close over the roof at the gantry support location and treat the area behind the tower, but the removal of the wall at the CPC side of the factory did not form part of the arbitration, and is not relevant to the issue of roofing works.
We would note that our letter of the 26/06/03 states that written agreement must be received within seven days and we would reiterate that this remains the position particularly as the arbitrator has given his clear decision.
Yours sincerely.”
38. The next thing that occurred was by letter of 2nd July, 2003 the defendant’s solicitors wrote to the plaintiff’s solicitors seeking the plaintiff’s consent to a supplemental referral of the three issues mentioned in their fax of 28th May, 2003 to Mr. David Keane. There was some delay on the plaintiff’s side in replying to this. The plaintiff appears to have changed solicitors around this time. At any rate the plaintiff’s new solicitors (Sheehy Donnelly, Solicitors) eventually replied to the defendant’s solicitors said letter by a letter of the 28th October, 2003 in the following terms:-
“Dear Sirs,
We refer to previous correspondence in this matter and in particular your letter of the 2nd July, 2003.
1. Our client’s architect has advised that the issue of the ponding of the water has been addressed in Gerard F. Mays revised proposal, it will be dealt with as part of the recovering of the roof.
2. The issue of the upstands does not relate directly to the referral to Mr. Keane. As our client’s architect has noted on previous occasions, he regards the covering of the existing opes in the roof with ‘boxes’ which allows the formation of an upstand, as a much better and safer detail for closing these openings. Our client does not propose to change them, which our client is advised by its architect will allow for the possibility of leaks and will be more dangerous as weak points (which flush coverings of openings would be) will not be obvious on the roof. Our client’s architect is of the opinion that the detail provided is best practice and that he would not be prepared to stand over the flush finishing of opes, as it is not a good detail.
We trust that this deals with the issues raised. In these circumstances can you please confirm your client’s permission to our client to commence work on the roof?
Yours etc.
39. A reminder was sent by the plaintiff’s solicitors on the 10th of November, 2003 as no response had been received by that stage. The end of the year came and went and there was still no response. Accordingly, on the 5th of February 2004 the plaintiff’s solicitors wrote in comprehensive terms to the defendant’s solicitors placing the defendant on notice that a continued failure to nominate a commencement date for the roofing works would result in proceedings being commenced by the plaintiff against the defendant on the basis that the defendant had repudiated the agreement. The plaintiff’s solicitors went on to call upon the defendant, within 7 days of the date of that letter, to nominate a date for the commencement of the roofing works, failing which High Court proceedings would issue.
40. The 13th of February 2004, being seven clear days after the letter of the 5th of February 2004 came and went without the defendant nominating a commencement date.
41. The Plenary Summons herein issued on the 3rd of June 2004.
42. In the course of the evidence before me it was put to the plaintiff’s witnesses by counsel for the defendant, and the defendant’s own witnesses, particularly Mr de Ru and Mr Kennedy, expressed the view on behalf of the defendant, that notwithstanding the existence of an on-going dispute between the parties concerning the proposed roofing works, there was no reason why the plaintiff could not have carried out the remainder of the works that required to be done under the agreement of the 5th of March 2002. To adopt a phrase used by Mr Gilhooley S.C., it was strenuously urged that “there was no critical path”.
43. The plaintiff’s witnesses, particularly Mr Power and Mr Kelly, rejected the suggestion that there was no critical path. On the contrary they maintained that it was central to the agreement between the parties that the roof was to be done first. This was why the agreement of the 5th of March 2002 provided for the shorter time period of eight weeks for the carrying out of the roofing works, so says the plaintiff. In particular Mr Kelly, in the course of his evidence in chief, and in response to a question as to what was the anticipated sequence of works, described the roofing works as “the key element”. He went on to describe proffering the Gerard F May Roofing Ltd specification to Europlan and being unable to obtain agreement on it. He then stated:
“In the meantime we wished to proceed with the other works which involved the repairing of the floor in the CPC area, the removal of the wall in that particular area and various other minor works within that area primarily. Unfortunately, we were never able to gain access because the equipment in that CPC area was required to be removed. We did understand and, I believe there was an agreement, that it would be moved at the end of July 2002 in order that we would get in and do the work in a safe manner.”
44. An issue arose in the course of Mr de Ru’s evidence on day 4 of the trial as to the extent to which it was in fact necessary to move equipment out of the CPC area for the purpose of doing works other than the roofing works. Mr de Ru suggested that to remove all of the equipment from the CPC area in one go would involve a shut down of CPC operations for 7 to 8 weeks. He was fully aware of this, having discussed the matter with the Dutch equipment installers, at the time of negotiating the agreement of the 5th of March 2002, and it was not something that he was prepared to contemplate at that time. Accordingly, he says that he agreed with Mr Power on behalf of the plaintiff, that part only of the equipment would be removed from the CPC area at the end of July 2002, and that the tanks and the oven would specifically not be moved at that time. He stated that these items of equipment were coming to the end of their working life and were going to have to be replaced “within a space of six to eight months” anyway. That being so, the plan was to lay a new floor around, but not under, the tanks and oven in July 2002 and then when the tanks and oven were being replaced at a later date the plaintiff’s workmen would come and do the portion of floor on which the tanks and oven had been standing. Mr de Ru pointed out that the following paragraph from “the list” annexed to the agreement of the 5th of March 2002, reflects this:
“New/Remedial work to floor to CPC area to be completed between 22nd July, 02 and 29th July, 02 when platforms are to be removed. A written undertaking will be given so that the work under the oven and tanks to take place at a later date. This does not affect the release of the €63,487 (£50,000) retention on work in the CPC area.”
45. Mr de Ru went on to state that at this stage the new equipment has in fact been installed. However, neither the flooring work nor demolition of the gantry leg-well has taken place. His evidence as to exactly what has been done then became rather confused. He initially stated that the “new equipment” was installed about a year previously (c. January 2007, as the witness was giving his evidence in January 2008). He also gave the impression that both tanks and oven had been replaced. He later seemed to suggest that only the oven was in fact replaced, that it had been replaced “a year later” (ie a year after the agreement of 5th March 2002) and that “now” (ie at the time of the case) “we are in the process of taking the tanks out because we are not using them anymore”. When asked by the Court if Mr Power was notified “that the old equipment has now gone out of the premises and if you want to carry out the [outstanding] works now is your opportunity”, Mr de Ru stated:
“Well at that stage when that was all done there was a big dispute going on and they refused to do any work in our premises, regarding the floor, the gantry wall and the roof. They just point blank refused to come and talk to us or do any work for us at all.”
46. The evidence before me suggests that up to late May 2002 both sides were in the course of preparations for works to be carried out during the proposed shutdown of operations, scheduled to occur from 22nd of July 2002 to the 29th of July 2002. (This week had been chosen deliberately and specified in the agreement of the 5th of March because it was immediately prior to a week of annual holidays during which the factory would be closed in any event. Accordingly the actual window available for the carrying out of the necessary works was two weeks.) The defendant retained the services of the Dutch equipment installers to move the spray equipment and so forth to facilitate the works, and there is evidence of a payment to them of IR£15, 227 (being 33,500 Dutch Guilders) in that regard. The evidence is not satisfactory as to whether it was the defendant itself or another of the Europlan companies that actually issued this cheque, or as to how it was accounted for, but I am, on balance, satisfied that the Dutch equipment installers were paid such a sum. On the plaintiff’s side its personnel were engaged in discussions with Seamus Kennedy concerning the logistics of carrying out the proposed works to the gantry leg well and this is reflected in an exchange of correspondence between the plaintiff’s project manager, a Mr Peter Howcroft, and Mr Seamus Kennedy. On the 28th of May 2002 Mr Kennedy stated in a letter to Mr Howcroft:
“I spoke to Barry Kelly and Dermot Arthur last week and they are due to come back with a proposal for removal of the wall and roofing of the former gantry area. It is now vital that this is agreed so that works can go as planned.”
Mr Howcroft replied by letter of 30th May 2002 enclosing the requested proposal (i.e. a technical drawing) and stating:
“This proposal has been discussed in detail between our structural engineers D.B.F.L. and our steelwork contractor (Paddy Wallis) and in both their opinions it is the safest most practical solution to the works.
We await your comments”
47. There is no evidence that Mr Howcroft’s letter of 30th May 2002 was responded to. Indeed Mr Seamus Kennedy did not recall receiving it but I am completely satisfied that he did receive it. The context, of course, is that this correspondence was exchanged just three weeks after the refusal to allow G.F. May Roofing Ltd’s workmen access to the roof, and during a period of deteriorating relations between plaintiff and defendant.
48. In the course of his evidence on day 4 of the trial Mr de Ru sought to suggest that a major variation to the timeframe provided for under the agreement of the 5th of March 2002 was discussed as between himself and Mr Peter Howcroft in a meeting held on or about the 11th of July 2002. He stated that Mr Howcroft came to him and stated that the intended works involving the gantry leg well was “a bigger job than they anticipated” and that it couldn’t be done in the time available. His evidence was that Mr Howcroft asked:
“…would I be agreeable to not to carry out the work, get an engineer to come out after the summer holidays and investigate exactly what work had to be done on the repair job on the gantry wall and could they then come out another time, preferably the Christmas holidays to carry out all that work.”
Mr de Ru’s response, according to his testimony, was as follows:
“I said; ‘listen, what I will do is, if you come and do all that work I will close down that part of the factory for an extra week so we have three weeks to do all the work; the gantry leg, the wall and the floor. We do it in a three week period. I have one condition, I have paid the people in Holland already 15,000. If you are prepared to pay them the same amount again for them to come over to do that work, I will close down the factory for a week for you to carry out all the work.’ He said; ‘I have to go back to my superior and discuss it all. In the meantime an engineer from DBFL will come over after the summer holidays to do a further investigation and we will report back to you.’ Which somebody did come out and met me on site and went through the whole lot. He went off and he said; ‘You will be hearing from us.’ And to date I have heard nothing.”
49. The plaintiff strenuously denies that the alleged variation was agreed, and it is suggested that if Mr de Ru did have discussions with Mr Howcroft about the logistics and timeframe for the carrying out of the gantry leg well works, those discussions occurred much earlier. The Court has some difficulty in resolving this issue because Mr Howcroft was not called by the plaintiff. Apparently he no longer works for the plaintiff and was not available to be called as a witness. That having been said, I regard the evidence of Mr de Ru on this issue as somewhat unsatisfactory and I have significant doubts about the reliability of his testimony. His contention is not corroborated or supported by any documentation. Given the background to the matter, and in particular (i) the supposed exasperation of the defendant with a string of persistent delays on the part of the plaintiff; (ii) the existence of an agreement concluded as recently as the 5th of March of that same year after lengthy negotiations, and containing a specific timeframe for the carrying out of outstanding works; and (iii) the development of a new dispute about the specification for roof works which was now causing further delays, it seems highly improbable that such a discussion could have taken place in July of 2002 as suggested by Mr de Ru. If, indeed, it did take place, one would have expected to see follow up correspondence, or some paper record of it, given the extent of the proposed departure from what had been agreed in March. In particular, one would have expected strong written complaints from the defendant’s side at the failure of the plaintiff company to revert after the proposed DBFL inspection, as had been allegedly promised by Mr Howcroft. There were none. Indeed, it was put to Mr de Ru by Mr McDowell S.C., representing the plaintiff company that the plaintiff’s proposed engineering solution, approved by DBFL, Consulting Engineers, was sent to the defendant on the 30th of May 2002 (in which case Mr de Ru was wrong about the July date), and it was put that the failure to revert was in fact the defendant’s. Mr de Ru’s response was to disavow any knowledge of the letter of the 30th of May 2002 and to claim that he had never seen it before. The plaintiff’s position, unlike that of the defendant, is supported by documentation. On balance I am satisfied that I must resolve this conflict in favour of the plaintiff.
50. Furthermore, a close scrutiny both of witness testimony at the trial, and of the documents put before the Court, concerning events subsequent to the 30th of May 2002 reveals no evidence, apart from Mr de Ru’s say so, of a complete refusal on the part of the plaintiff to do any work for the defendant, or of a point blank refusal to talk to the defendant. On the contrary there is a complete absence of the sort of supporting documentation that one would expect to see were that really the case. There is not a single document to suggest that the plaintiff was requested to get on with the outstanding works apart from the roofing works. For example, there is not a single letter, fax, e-mail or telephone attendance to suggest that the defendant confirmed to the plaintiff that, notwithstanding the dispute about the roofing works, the premises would still be made available during the two week closure originally envisaged (i.e., the agreed factory shut down period from 22nd of July 2002 to the 29th of July 2002, and the subsequent week, being the first week of August, during which the factory would be closed for holidays in any event), and that the plaintiff was expected to proceed with those works during that period. There is no correspondence complaining that they didn’t turn up, or offering alternative dates or anything of that sort. Moreover, in the aftermath of Mr Keane’s award it is quite clear that it was the plaintiff that was pressurising the defendant for confirmation as to when its roofing contractor could get back to work with a view to the plaintiff fulfilling its contract. There is not one single letter, fax or e-mail from the defendant to the plaintiff suggesting that, notwithstanding the ongoing dispute about the roof, there was no reason why the plaintiff could not get on with the flooring works and demolition of the gantry leg-well. Moreover, it is clear from Mr de Ru’s evidence that the plaintiff was not informed when new equipment was being installed and offered an opportunity to do the works at that time.
51. It also requires to be noted in this review of the evidence relevant to liability that on day 2 of the trial Mr Barry Kelly gave evidence, which was not challenged, that a great many of the items of work specified in the schedule accompanying the agreement of the 5th of March 2002 have in fact been completed by the plaintiff. The only works that remain to be done are those relating to the gantry leg well, the floor in the C.P.C. area and the roof. While the defendant’s witness Mr Blaise Alexander, inspected the premises in August 2004 for the purpose of identifying defects in the building and cross referencing/comparing them to the works listed in aforementioned schedule, the major items identified by him as needing to be attended to are those relating to the gantry leg well, the floor in the C.P.C area and the roof. As it is common case that these works have not yet been done, and that at this stage they urgently require to be done, his evidence is not of major assistance to me, at least in terms of deciding on liability. Moreover his inspection post-dated the 13th February, 2004, the date upon which the plaintiff claims the contract terminated due the defendant’s breach.
52. Finally I should say that Mr Alexander’s evidence is of some significance in the context of the counterclaim in as much as he does not significantly criticise those works that have been performed since the 5th of March 2002. While he had some minor criticisms with respect to vegetation in gutters, loose flashing and so forth he was understood by the Court as accepting in cross examination that these problems could have arisen after the fact in which case they would be maintenance issues for the occupier. All in all his evidence does not satisfy me that such works as have been carried out by the plaintiff were carried out negligently or in a substandard fashion. I regard it as of some significance that there are no complaints in the inter partes correspondence about the quality of the plaintiff’s work in the period from the 5th of March 2002 to the 13th of February 2004.
The plaintiff’s legal submissions with respect to liability
53. There are essentially two legal strands to the plaintiff’s case on liability.
(a) That there was an implied term in the agreement of the 5th March, 2002 that the defendant would not unreasonably delay the carrying out of the agreed works and/or unreasonably withhold its co-operation for the carrying out of the works;
(b) That in refusing to allow the plaintiff to carry out the agreed works, the defendant was guilty of repudiatory breach, in which circumstances the plaintiff is entitled to be discharged from any further obligation pursuant to the agreement;
The implied term
54. The Court was referred to para. 7.45 et seq of Contract Law by Paul Anthony McDermott (2001:Lexis Nexis Butterworths) wherein the author explains both the business efficacy test and the officious bystander tests respectively.
55. McDermott states that the leading statement of the business efficacy test is to be found in The Moorcock [1889] 14 PD64 wherein it was stated:
“the law is raising an implication from the presumed intention of the parties, with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, what the law desires to affect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties”.
As McDermott points out, the test as formulated in The Moorcock has been cited with approval by the Irish Supreme Court in Tradax (Ireland) Ltd. v. Irish Grain Board [1984] I.R. 1.
56. The officious bystander test was formulated in Shirlaw v. Southern Foundries Ltd. [1939] 2 K.B. 206 where MacKinnon J. stated:
“Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a comment of ‘oh, of course!’”.
McDermott points out that this test has been cited with approval in a number of Irish cases including Carna Foods Ltd. v. Eagle Star Insurance [1997] 2 I.L.R.M. 499; Sullivan v. Southern Health Board [1997] 3 I.R. 123 and Sweeney v. Duggan [1997] 2 I.L.R.M. 211.
57. The plaintiff submits that it was at all times essential for the performance of the contract that the defendant would agree to reasonable specifications for work to be done; would indicate such agreement within a reasonable time and would co-operate with the execution of the works following such agreement. The plaintiff further submits that if such terms were not implied in the contract, it would make a nonsense of the timeframes stipulated by the defendant in the letter of the 5th March, 2002, and, further, would mean that the defendant would be in a position to reject every offer made by the plaintiff of specifications for and/or the execution of work, and would enjoy an open-ended right to sue the plaintiff for breach in the event of the works not being done.
58. The plaintiff further submits that a contract which allowed the defendant assume such a position would be fundamentally improvident and on such basis the obligation to act reasonably must be imposed on the defendant by implying such a term into the contract.
Repudiatory breach
59. The plaintiff contends that the evidence before the Court establishes that the plaintiff was ready, willing and able to perform the works as agreed on the 5th March, 2002. The plaintiff points out that it engaged contractors who presented themselves on site, only to be turned away by the defendant. The plaintiff had submitted specifications and expert reports for the works to the roof but the defendant refused even to debate their merits. The plaintiff co-operated with the reference to the independent architect, Mr Keane, and, having been fully vindicated by Mr Keane’s decision, again offered to undertake the work. Notwithstanding this, the defendant failed to co-operate with, and facilitate the plaintiff, in having the works carried out. The plaintiff contends that the defendant, by effectively preventing the plaintiff from performing its duties under the contract, was in breach of contract.
60. The plaintiff further contends that the defendant’s particular breach is a properly to be characterised as a repudiatory breach because it was the defendant who refused to co-operate with the performance of the contract, despite the fact that it may appear to all the world that the failure was on the part of the plaintiff to carry out the works. In that regard the Court was referred to Chitty on Contracts, 27th Edition, para. 24-027 at p.11168 where it is stated:
“It has been noted that the Court will readily imply a term that each will co-operate with the other to secure performance of the contract and that neither party will, by his own act or default, prevent performance of the contract. If one party is in breach of his duty to co-operate, so the performance of the contract cannot be affected, the other party will be entitled to treat himself as discharged”.
61. The plaintiff further contents that it is clear from the evidence of the plaintiff’s witnesses that the plaintiff repeatedly tendered to perform his contractual obligations. The plaintiff submits that the rule that a tender performance is equivalent to performance is particularly applicable in this case. In support of this rule, the Court has been referred to the case of Start-up v. McDonald [1843] 6 Man & G.593.
62. The plaintiff further contends that although the plaintiff was frustrated by the defendant’s conduct, it was so only in the literal sense. The plaintiff submits that the legal doctrine of frustration has no application in this case.
The Defence filed
63. With respect to the defence filed by the defendant, the plaintiff says that no cause of action or grounds of defence can lie based upon any alleged delay or defect of workmanship prior to the 5th March, 2002. The plaintiff contends that the defendant did not adduce credible evidence of “reasonable requests concerning works of repair to the roof” as alleged in the defence. Instead, the defendant furnished the Court with extensive lists of outstanding works which pre-date the 5th March, 2002 and with letters which outline dissatisfaction post-dating the 13th February, 2004, the date upon which the plaintiff claims the contract terminated due the defendant’s breach.
64. The plaintiff further submits that the defendant is estopped from relying on any alleged breach of contract on the part of the plaintiff prior to the 5th March, 2002. The plaintiff acknowledges that it has not carried out the final works agreed in March 2002 but contends that this is solely because of the defendant’s refusal to co-operate. The plaintiff acknowledges that the evidence of Mr Frans De Ru for the defendant asserted that he had discussed the works to the roof, the floor, to the CPC, the removal of the gantry leg and wall and the high level decoration with representatives of the plaintiff, named as Mr Pat Doherty and Mr Peter Howcroft. The plaintiff submits that Mr de Ru may be mistaken regarding the timing of such discussions and/or the persons named and that he is incorrect in his assertion.
65. The plaintiff further submits that the defendant did not raise reasonable issues regarding the specification for the works to the roof and the plaintiff further submits that even if the defendant had such issues, its signal failure to communicate same to the plaintiff is a matter for which the defendant should bear total responsibility.
The Counterclaim
66. The plaintiff further seeks to address the counterclaim put forward by the defendant. The defendant asserts that the plaintiff failed to carry out the works in the agreed list appended to the letter of the 5th March, 2002 in the time specified in a proper and workmanlike fashion. The defendant further claims that the plaintiff carried out works pursuant to the development agreement in a grossly defective and incompetent fashion. The defendant alleges that as a consequence of these matters it suffered loss, damage and expense. In so far as legal submissions are concerned the plaintiff relies upon its assertion that the agreement of the 5th of March 2002 was “in full and final settlement of all outstanding issues between the parties” with regard to the premises and the development agreement, and says that in the circumstances so much of the defendant’s counterclaim as relates to pre 5th March 2002 issues is misconceived and is not justiciable by this Court.
67. Further, with respect to that aspect of the defendant’s counterclaim relating to works to be performed under the agreement of the 5th of March 2002, the plaintiff reiterates its defence and says that it was unable to carry out the required works in the time specified due to the defendant’s non co-operation and repudiatory breach. The plaintiff rejects the defendant’s allegation that such works as were performed were not performed in a proper and workmanlike fashion, and contends that this is not supported by the evidence.
The Defendants’ Legal Submissions with respect to Liability
68. The defendant contends that the agreement of the 5th March, 2002, did not put an end to the development agreement. The defendants’ position is that this agreement was merely supplemental to the development agreement and had the effect of varying aspects of it. The defendant points in particular to Clause 29 of the Development Agreement which is in terms that it:-
“… will continue in full force and affect after the date of Practical Completion in so far as anything remains outstanding on the part of any of the parties to it and the Covenants and Conditions contained therein shall not in any way be extinguished or affected by the Practical Completion of the Development”.
69. The defendant strongly contends that its refusal to allow the plaintiff’s contractors access to the premises to carry out roofing works was not unreasonable. The defendant says that the plaintiff has sought to categorise this refusal as a type of objection to the position of the late Mr. David Keane in the arbitration process and relies upon this refusal as repudiating the agreement of the 5th March, 2002. The defendant submits that the evidence clearly discloses that the defendant accepted the decision of the late Mr. Keane insofar as decision was confined to the choice of material to be used to cover the roof.
70. The defendant further submits that, while the defendant was disappointed with Mr. Keane’s decision, it sought clarification as regards the particular methodology for the execution of the roof works, from both Mr. Keane initially, and thereafter, from the plaintiff. The defendant submits that to characterise the invocation of a contractual right to arbitration, on foot of the original agreement, as being in some way unreasonable is manifestly absurd. The defendant submits that the issues relied upon by the defendant relating to the time scale, methodology and ancillary matters, regarding the execution of the outstanding works were never satisfactorily answered by the plaintiff, and thus the plaintiff cannot claim that full or even partial responsibility for the failure to complete works lies with the defendant.
71. The defendant admits and accepts that the court will, where necessary, imply a term into a contract that each party will co-operate with the other to secure a performance of the contract and that neither party will, by his own act of default, prevent performance of the contract. The defendant has referred the court to the decision in Mackay v. Dick, [1881] 6 App. Cas. 251. The defendant contends that if the plaintiff is seeking to contend that the implied term as to co-operation was a condition precedent it is then for the court to determine what was the standard of endeavour which the plaintiff itself must have satisfied before it may attempt to rely upon a breach of condition precedent. The defendant also refers to Contract Law by McDermott, wherein the author states at para. 19.64 thereof:-
“[w]here the contract has not expressly stated the particular standard of endeavour, the courts will imply a term requiring reasonable efforts to be made”.
72. The defendant submits that if the plaintiff is to rely on the failure of the defendant to allow the workers on site as a breach of a condition precedent to the contract it must also establish that it made reasonable efforts to agree the roofing specification or other preliminary requirements, to ensure its subcontractors were permitted access to the work side. If that had been done, the plaintiff would be in a position to claim unreasonableness, since it would have duly performed all of the duties required of it prior to commencing work. However, the defendant submits that, as only one attempt was made to access the premises, and as the plaintiff failed to attempt to address the concerns of the defendant as raised subsequent to the refusal of entry to the premises, the plaintiff failed to satisfy this burden. The court is further referred to the decisions in Rooney v. Byrne [1933] I.R. 609 and Conor v. Pukerau Store Ltd [1981] 1 NZLR 384 in support of this submission.
73. The defendant further alleges that the plaintiff, in failing to agree a specification for the roof and in failing to consult adequately with the defendant, and in failing to address outstanding health, safety and insurance issues, was itself in breach of contract. The defendant’s position is that while this was a breach of contract it was not one which could properly be classified as repudiatory but it did entitle the defendant to turn the plaintiff’s contractors away from the site pending some attempt from the plaintiff to demonstrate that it was in compliance with its obligations. The defendant contends that no serious attempt was made by the plaintiff to return to the site to complete the work to the roof, at any stage up to the issue of proceedings.
74. The defendant further contends that if the court should find that the actions of the defendant in refusing the plaintiff’s contractors entry to the premises amounted to a breach of an implied term of the contract, such a breach was not in fact a repudiatory breach. The court has been referred to the statement in Ross Smyth and Company Limited v. Bailey Son and Co, [1940] 3 All ER 60 at 71 to the effect that whether or not a particular breach amounts to a repudiation is “a serious matter not to be likely found or inferred”.
75. The defendant submits that what falls for the determination of the court in this respect is whether the plaintiff has established that the refusal of the defendant to allow access to the plaintiff’s contractors, on the single occasion on which they attempted to gain entry to the premises, amounted to a breach of a term of the contract that goes to its route. The defendant’s submits that the case law suggests that in arriving at the decision on this the court is obliged to consider all the facts of the case. The court was referred to case of Decro-Wall International v. Practitioners in Marketing, [1971] 2 All E.R. 216 wherein the English Court of Appeal held that a number of delays in making payment pursuant to a contract did not constitute a fundamental breach of its terms giving rise to an entitlement to rescind, as the contract did not make time of essence in respect of payment, and the plaintiffs did not give notice that if late payment continued the contract would be terminated. The defendant submits that, likewise, the defendant’s refusal of entry to the plaintiff’s contractors did not constitute a repudiation of the contract in the particular circumstances of this case. 76. As to what are the circumstances of the case, the defendant firstly points to the fact that no notice was given to the defendant of the date on which the work was to be commenced. Secondly, it says that its refusal to allow the roofing contractor access was not an act done with the intention of preventing the contract from being performed. Thirdly, while the turning away of the plaintiff’s contractors may indeed have delayed the performance by the plaintiff of its contractual obligations, and may have entitled the plaintiff to damages in respect of that delay, the circumstances of the case reveal that it would be impossible for the plaintiff to now claim that time was of the essence in the contract, given its delay in the performance of its obligations under the agreements of the 18th July, 2000, and the 5th March, 2002. Fourthly, the evidence does not establish that the defendant did not intend to be bound by the contract. On the contrary, the defendants refusal to the allow the plaintiff’s contractors on the premises was an act done in good faith and was founded upon genuine concerns as to compliance on the part of the plaintiff with various contractual obligations and statutory obligations. Fifthly, it is important not to view the incident in which the contractors were turned away from the premises in isolation. The court is referred again to Contract Law by McDermott, at para. 21.112, wherein the author states:
“conduct which, a first sight, may seem repudiatory may be held not to be so when the court examines the history of dealings between the parties”.
Sixthly, it is a relevant matter to be considered by the court, in determining whether a breach amounted to repudiation of the contract, as to whether or not notice was given by the party seeking to establish the repudiation, that it viewed the breach as giving rise to its entitlement to terminate the contract. The Decro-Wall International case previously referred to was also cited in support of this proposition.
77. The defendant further submits that even if it was guilty of a repudiatory breach of contract the plaintiff did not accept the defendant’s repudiation. The defendant refers to Heyman v. Darwins Limited, [1942] A.C. 356 at 361 as authority for the proposition that in order for a party to rescind the contract, not only must there be a repudiatory breach, but the party seeking to rely on that breach must accept the repudiation. The court was further referred to the following passage from Chitty on Contracts, (27th Ed.) wherein it is stated at para. 24-011, p.1158:
“This usually done by communicating the decision to terminate to the party in default, although it may be sufficient to lead evidence of an ‘unequivocal overt act which is inconsistent with the subsistence of the contract’…without any concurrent manifestation of intent directed to the other party’. Unless and until the repudiation is accepted the contract continues in existence for ‘an unaccepted repudiation is a thing write in water’. Acceptance of a repudiation must clear and unequivocal and mere inactivity or acquiescence will generally not be regarded as acceptance for this purpose”.
Decision on Liability
78. I am satisfied on the evidence that has been adduced before me that up until the 5th of March 2002 the plaintiff was in significant default in the performance of its obligations under the Development Agreement of the 18th of July 2000, and that the defendant had multiple legitimate grievances arising out of that default. Counsel for the plaintiff very fairly acknowledged this in opening the case before me, and at no time since then has the plaintiff attempted to resile from that acknowledgement.
79. However, I am also satisfied that by the agreement of the 5th of March 2002 the defendant settled with the plaintiff in respect of all and any claims that it had, or may potentially have had, against the plaintiff as of that date in respect of non-performance by the plaintiff of its contractual obligations under the development agreement and grievances on the part of the defendant arising therefrom. I regard the agreement of the 5th of March 2002 as being clear and unequivocal in terms of its objectives and intended effect. It expressly states that it is “in full and final settlement of all outstanding issues with regard to this premises and the development agreement between the parties.” I further consider that the new obligations assumed by the plaintiff under the agreement of the 5th of March 2002 were intended to provide the defendant with satisfaction and accord in respect of those claims or potential claims. 80. I do not consider that the agreement of the 5th of March 2002 put a complete end to the development agreement. It did not do so because the development agreement of the 18th of July 2000, in addition to providing for the carrying out of works, also covered matters such as the developer’s insurance obligations, site security, advertising, site safety and so on. The agreement of the 5th of March 2002 does not address such issues and it is to be inferred that it was never the intention of the parties that they should be released from their respective obligations in respect of issues of that variety. The correct interpretation is therefore that the development agreement continued to subsist after the 5th of March 2002 but that it was supplemented, and very significantly varied, by the new agreement. In essence in so far as any works scheduled to be performed under the development agreement of the 18th of July 2000 remained to be done, the plaintiff was relieved of its obligation in that regard, and instead assumed a replacement obligation to perform such works as were specified in the agreement of the 5th of March 2002 according to the timetable provided for in the new agreement.
81. I hold that even though the agreement of the 5th of March 2002 did not put a complete end to the development agreement of the 18th of July 2000, the variations effected by the new agreement were so far reaching as to render the plaintiff correct in its assertion that no cause of action or grounds of defence can lie based upon alleged delay, or defective workmanship, in respect of works carried out, or to be carried out, under the original development agreement..
82. In addition the plaintiff is correct in saying that the defendant is estopped from complaining about any issue relating to the premises or the development agreement, that pre-dates the 5th of March 2002.
83. It is common case that the Court will, where necessary, imply a term into a contract that each party will co-operate with the other to secure a performance of the contract and that neither party will, by his own act or default, prevent performance of the contract. I consider that the implication of such terms is indeed necessary in the circumstances of this case. However, the plaintiff suggests that the Court should go further and, applying the business efficacy test and/or the officious bystander test, imply terms requiring the defendant (i) to agree to reasonable specifications for work to be done; (ii) to indicate such agreement within a reasonable time and (iii) to co-operate with the execution of the works following such agreement. I think that it is not necessary to go that far. The implication of a general term requiring that the parties should co-operate with each other to secure a performance of the contract is sufficient. I am further satisfied that this implied term is fundamental to the contract and that compliance with it constitutes a condition precedent. Whether or not a particular party has truly co-operated is a question of fact to be decided upon the evidence. A single transient instance of non co-operation would not, I think, be sufficient to be deemed a breach of the implied term. Conversely, a persistent single episode, or multiple or successive instances of non-co-operation might indeed be sufficient to be deemed a breach of the implied term.
84. The plaintiff in this case contends that there has been a lack of co-operation on the part of the defendant, on multiple fronts, dating from in or about the 7th of May 2002 when the roofing contractor’s workmen were denied access to the roof. The plaintiff says that there has been a breach of the implied term, and moreover that this constituted a fundamental breach entitling the plaintiff to treat the contract as having been discharged.
85. I am satisfied that the defendant was entitled to be consulted with respect to the roofing specification and that its agreement to any proposed specification was required before any works could be carried out. The plaintiff, perhaps unintentionally and out of an excess of zeal, did act in a somewhat cavalier manner towards the defendant in placing a firm order for roofing works with Gerard F May Roofing Ltd before securing the defendant’s agreement. Accordingly I find that the defendant was within its rights in calling a halt to roofing works pending agreement being reached on specification. There was not a failure to co-operate at this stage. Moreover, the defendant cannot be criticised for insisting upon an arbitration when, after some period of engagement between the parties concerning the roofing specification, it proved impossible to get agreement on specification.
86. However, what has concerned me throughout this case is the obstructive attitude of the defendant that seems to have developed within weeks of the work stoppage. I am satisfied that the evidence establishes that from the beginning of June 2002 there was a complete unwillingness on the part of the defendant to co-operate with the plaintiff, or indeed to engage meaningfully with the plaintiff, to facilitate the carrying out of the other major works, apart from the roofing works, that required to be performed, or indeed with respect to any issue. While the agreement envisaged that ideally the roofing works should be carried out first, the evidence establishes that it would have been perfectly possible, had co-operation been forthcoming from the defendant, to carry out the flooring and gantry leg well works in advance of the roofing works in circumstances where the roofing works were being unavoidably held up on account of a referral to arbitration. Ironically it was Counsel for the defendant who contended that there was no critical path. In fact there was a critical path, but it could be deviated from providing that the defendant was willing to facilitate deviation. What was required was that the defendant should shut down the CPC area and move some of the equipment out for a limited period so as to provide the plaintiff with unimpeded access to enable the necessary non roofing works to be carried out. The agreement of the 5th of March 2002 envisaged that this would be done towards the end of July of that year. The significant point is that this deadline was missed through the defendant’s default and there is no evidence of any attempt by the defendant to discuss with the plaintiff (who was, I am satisfied on the evidence before me, anxious to get on with the job) as to an alternative date when the works might be conveniently done. It was for the defendant to take the initiative and make the premises available to the plaintiff. The plaintiff could do nothing unless the defendant moved out temporarily. The defendant was in control of the premises but failed to facilitate, co-operate or engage with the plaintiff in that regard. There were other occasions subsequent to July 2002 when the premises could conveniently have been made available, such as when the new equipment was being installed, but the plaintiff was never notified concerning, or requested to avail of, the opportunity. In all the circumstances I am satisfied therefore that from the beginning of June 2002 onwards there was a lack of co-operation by the defendant and that it has persisted, and indeed it has broadened (particularly in the aftermath of David Keanes’s ruling), to such an extent as to constitute a breach of the implied term requiring co-operation.
87. I accept in principle the defendant’s submission that it is for this Court to determine the standard of endeavour which the plaintiff must have satisfied before it can rely upon a breach of condition precedent, as constituting a fundamental breach of contract. I am satisfied that the preponderance of evidence supports numerous attempts by the plaintiff to engage with the defendant in a meaningful way in an effort to progress matters, only to be ignored or rebuffed by the defendant. I am satisfied that these efforts constituted a sufficient endeavour by the plaintiff to allow it to rely upon breach of condition precedent.
88. I am satisfied from the inter partes correspondence, and in particular the letter of the 5th of February, 2004, that it was made abundantly plain to the defendant that the plaintiff, in specifying an ultimate deadline of seven clear days from the date of that letter, viz the 13th February 2004, was effectively making time of the essence of the contract, and that a failure on the defendant’s part to respond within that time with a firm proposal as to when the works might be permitted to commence would result in the plaintiff treating the contract as having been discharged.
89. I find both as a matter of fact and of law that the defendant has been guilty of a fundamental breach of contract, and that the plaintiff must succeed in its action. Accordingly, the plaintiff is entitled to a declaration that it is discharged from any further obligation under the contract.
90. The plaintiff is also entitled to the return of monies held by way of retention and I will deal further with this under a separate heading below. The plaintiff is also entitled to recoup by way of special damages the restocking charge in the sum of €5,238.89 paid to Gerard F May Roofing Ltd.
91. I am further satisfied that the defendant’s counterclaim must be dismissed. In so far as it purports to relate to events pre- 5th of March 2002 it is misconceived. In so far as works subsequent to the 5th of March 2002 are concerned I find no evidence of negligence, breach of duty or breach of contract on the part of the plaintiff. While the roof is continuing to leak, and damage has been caused by water ingress, this has not been due to any breach of the agreement of the 5th of March 2002 by the plaintiff. It is the view of this Court that, since the date of Mr Keane’s award, total responsibility for the fact that the roofing works provided for in the agreement of the 5th of March 2002 have yet to be carried out, rests with defendant.
The monies retained
92. The Plaintiff has submitted that if the defendant is due anything further from the plaintiff that it can only amount to the monetary value of the works not performed by the plaintiff at the cost of such works to the plaintiff at the time when it was reasonable for such works to be carried out.
93. The plaintiff asserts that in the agreement of the 5th of March, 2002 it was expressly agreed between the parties that a sum of IR£250,000 (€317,434.52) would be retained on joint deposit pending completion of the agreed outstanding works. Despite some exchange of correspondence prior to the agreement offering valuations for various items of work, there was no attempt in the letter of the 5th March, 2002 to ascribe any particular value to the works or any component part or parts thereof. Although there is acknowledgement that IR£200,000 could be released when all works were complete, save those to the CPC area, it was essentially a sum held in terrorem over the plaintiff as an additional incentive for the plaintiff to carry out the agreed works. It was not an agreed retention based on any valuation. The plaintiff submits that if the plaintiff is not required to carry out all the works on the list due to repudiatory breach and breach of an implied term to co-operate, then it may be argued that the plaintiff would be unjustly enriched were the entire of the retention to be released to the plaintiff. The plaintiff’s position is that it seeks no unjust enrichment and is desirous only to secure such sum from the retention as is just. The plaintiff contends that as it was ready, willing and able to proceed in April 2003 with the agreed works which at that time remained undone, it is that date upon which the plaintiff values such works and submits such value should be released to the defendant pending further adjustment by this honourable Court, if appropriate. The plaintiff submits that such date is important not only because the value has increased by 17% according to the plaintiff’s quantity surveyor since that date, but also because, crucially, in April 2003, the plaintiff had significant ongoing construction activities at Park West, which meant that labour, plant and other costs would have been very much reduced. The plaintiff submits that any later date for valuation of the works will unreasonably penalise the plaintiff for not carrying out the work when it wished to, and at the same time unjustly reward the defendant for persistently failing and refusing to co-operate with the execution of the works.
94. I consider that the plaintiff’s position is commendable and reasonable. At the end of December 2007 the balance of funds in the joint deposit account was €328,829.03 inclusive of interest. In the circumstances, and in accordance with evidence that I have received, I direct the repayment to the plaintiff of the sum of €194,716.30 and the repayment to the defendant of the sum of €134,112.73. The plaintiff is also entitled to a decree in the sum of €5,238.89 in respect of damages for breach of contract.
Costs
95. In the absence of exceptional circumstances, costs must follow the event on both claim and counterclaim respectively. Accordingly, the plaintiff is entitled to its costs on both claim and counterclaim, respectively, to include any and all reserved costs. I further direct that the costs on both claim and counterclaim respectively are to be taxed in default of agreement.
Drocarne Ltd -v- Seamus Murphy Properties and Developments Ltd
[2008] IEHC 99 (17 April 2008)
JUDGMENT of Ms. Justice Finlay Geoghegan delivered the 17th day of April 2008
The plaintiff is a company owned as to two-thirds by Treasury Holdings, the developer, and as to one-third by Mr. Dermod Dwyer.
The defendant is a company owned by Mr. Seamus Murphy. Mr. Murphy is a successful businessman with extensive interests in lands in north County Dublin, and Counties Meath and Louth. His particular expertise appears to be in taking options over lands zoned for agricultural use and when rezoned, selling them on at a profit for development. By late 1999, the defendant had options over lands both to the west and east of the then proposed route of the M1 at a proposed interchange at Tullyallen Co. Louth.
Mr. Dwyer and Mr. Murphy were both clients of Mr. Louis Healy of Gore & Grimes, solicitors. They were introduced to each other in late 1999 or early 2000. Negotiations commenced in relation to a joint venture for the development of lands over which the defendant had options at Tullyallen (“the Tullyallen lands”).
Negotiations continued throughout 2000. Mr. Ronan and Mr. Barrett of Treasury Holdings, in addition to Mr. Dwyer, were involved for the plaintiff and for the defendant, in addition to Mr. Murphy, Ms. Patricia Rooney, who is the chief executive of the defendant and also Mr. Murphy’s partner in life. The plaintiff was advised and assisted by Messrs. Arthur Cox, solicitors, and the defendant by Gore & Grimes, solicitors. On 21st December, 2000, the plaintiff and defendant entered into the Master Development Agreement (the “MDA”). The MDA seeks to provide for the development of the Tullyallen lands in accordance with the terms and conditions set out therein.
In December, 2000, the Tullyallen lands remained zoned for agricultural use. Louth County Council had initiated two relevant planning reviews. The development of the Tullyallen lands was dependent upon a rezoning of the Tullyallen lands. This in turn was dependent upon a variation to the Louth County Development Plan and adoption of an Area Action Plan for the north Drogheda environs.
The Tullyallen lands were not rezoned until July, 2004 following the adoption of the Area Action Plan. A new Louth County Development Plan was finalised in 2003. This was later than anticipated in December, 2000.
On 11th January, 2006, the defendant indicated that it considered the MDA to be at an end and that it was no longer bound by the terms of same.
On 24th March, 2006, the plaintiff commenced these proceedings seeking specific performance of the MDA and/or damages.
The defence to the plaintiff’s claim as pleaded was materially different in certain important respects to that pursued to the end of the hearing. The defendant pleaded that the plaintiff was not entitled to specific performance because, inter alia, it acted in fundamental breach of the MDA. Particulars of such fundamental breach were delivered on 14th November, 2006. Those particulars were of alleged failures by the plaintiff to take steps required by clauses 8.1 and 8.3 of the MDA all of which ought to have been taken, it was contended, long prior to January, 2005.They did not include any alleged breach of clause 8.4 of the MDA.
The defendant maintained such a defence up to and including the commencement of the trial. However, in the course of the hearing, counsel for the defendant informed the Court that it was no longer relying upon any alleged breach of the MDA prior to January, 2005. Further, Counsel for the defendant indicated, in response to clarification sought by the Court that the defendant was now contending that as of January, 2005, the MDA was alive and well and the plaintiff would have been entitled to an order for specific performance as of that date.
The departure from the pleadings was not only on the defendant’s part. In the statement of claim delivered on 14th July, 2006, the plaintiff pleaded that it used it’s best endeavours to comply with the terms of the MDA but that it had not been possible to progress the development in accordance with the timescales laid down, by reason of facts outside of the party’s control. At the hearing it contended that the obligation to use best endeavours was not a general obligation but was confined, by clause 7.1, to the achievement of certain objectives by Key Dates. This became of little importance as the plaintiff was not relying on any alleged breach prior to January, 2005.
The defence pursued on behalf of the defendant is that the plaintiff is not entitled to an order for specific performance by reason of one or more of the following:
(i) The plaintiff, as the person seeking an order for specific performance of the MDA, must satisfy the Court that it has complied with the material terms of the MDA. The defendant contends that as the plaintiff has not complied with a material term of the MDA, it is not entitled to specific performance. The alleged breach of the MDA since January, 2005 is in not applying for planning permission for the Overall Scheme Plan deemed to have been approved in January, 2005 in breach of clause 8.4.
(ii) The plaintiff treated the MDA as discharged or at an end following the decision of An Bord Pleanála in relation to the factory retail outlet at Ballymascanlon and is now estopped from denying that it is at an end.
(iii) The MDA was discharged in March, 2005 by application of the doctrine of frustration by reason of the decision of An Bord Pleanála to uphold the planning permission granted for the retail factory outlet at Ballymascanlon.
The particular breach of clause 8.4 of the MDA now relied upon was not pleaded or particularised by the defendant. Nevertheless, it did not appear that there was any specific prejudice to the plaintiff in my permitting the defendant to rely on it as part of the defence as there is no factual dispute that a planning application was not submitted and there is no dispute as to why this occurred. The resolution of the issue primarily depends upon the proper construction of the MDA. As will appear, there is one factual issue relevant to this defence and the frustration relied upon where the plaintiff (by agreement of the defendant) was given permission to put part of the Louth County Council Development Plan 2003 into evidence after the formal end of the evidence in the proceedings.
The issues raised by the plaintiff’s claim and the above defences include disputes as to the proper construction of certain clauses of the MDA and in particular clauses 8.3, 8.4 and 28. These, and the remaining issues, have to be considered in the context of the entire of the MDA and what had or had not taken place prior to January, 2005. Notwithstanding that the defendant is no longer contending that the plaintiff was in breach of the MDA in January, 2005, the then factual matrix in which both parties now consider the MDA to have been subsisting is relevant.
The Master Development Agreement
The MDA is in essence an agreement to develop the lands over which the defendant then held options at Tullyallen. The bones of the scheme as provided by the MDA are:
(i) The plaintiff brings to the MDA its expertise as a developer (Recital B).
(ii) The defendant brings to the MDA the lands over which it then held options (Recital A and Appendix 1).
(iii) The joint objective of the parties is “to implement the development of the Scheme in accordance with the Overall Scheme Plan in order to maximise the return therefrom having regard to all the circumstances prevailing from time to time during the currency of this Agreement” (clause 2.1).
(iv) The separate objective of the defendant is “to secure in the disposal of each Unit Site by means of the Ground Lease at a Ground Rent . .” (clause 2.2). This was stated to be the securing of an income stream to the defendant by the granting of ground leases. . The MDA provides for an Agreed Percentage of 17.5% of rents to the defendant.
(v) The separate objective of the plaintiff may be summarised as providing and maintaining a high class development and maximising the return to it thereon (clause 2.3).
(vi) The development in planning and design stage is at the plaintiff’s expense (clause 8) as it is in the construction phase subject to an agreed contribution not exceeding 15% from the defendant (clause 9).
(vii) The plaintiff only gets a propriety interest in the development on the grant of a ground lease of a unit which is normally at practical completion. (clause 11)
(viii) Many of the steps to be taken by the plaintiff in the development have to be agreed by the defendant or failing agreement the MDA provides for determination by independent experts in relation to specific matters (e.g. clause 8.3). The MDA also seeks to provide a general mechanism for determining how the parties should deal with unforeseen obstacles to implementation of the MDA in accordance with its terms (clause 28).
The factual matrix in which the MDA must be construed includes that the development of the Tullyallen lands in accordance with the MDA was dependent upon a rezoning of the lands by Louth County Council. The zoning for lands to the west of the proposed M1 interchange raised very sensitive issues by reason of their proximity to the Boyne valley area. The rezoning in turn was dependent upon a variation to the Louth County Council Development Plan and/or the adoption of an appropriate Area Action Plan. By December, 2000 Louth County Council had initiated two planning reviews, one, a strategic review of the north Drogheda environs by the Strategic Planning Alliance and the other of the new and proposed interchanges on the M1 with their suitability for industrial and commercial uses. In each case, the reviews were with a view to preparing either an Area Action Plan and/or a variation of the Louth County Council Development Plan (see clause 8.2).The timescale envisaged for the variation to the Louth County Development Plan appears at the time of the MDA to have been in the order of two years (see clause 8.2).
The “Scheme” is defined in the MDA as “the scheme of development to be undertaken pursuant to this Agreement in accordance with the Overall Scheme Plan”.
The Overall Scheme Plan is defined as “the master plan to be prepared by the Developer and to be approved by Murphy or otherwise agreed or determined pursuant to the provisions of clause 8.3 hereof”.
As appears at the date of the MDA, the Overall Scheme Plan had not been prepared, approved, agreed or determined. The MDA is therefore, in essence, an agreement with certain shared objectives to carry out an undetermined development. It is an agreement which attempts to set out the procedures by which the actual development to be carried out will be drawn up, prepared and agreed between the parties or in the absence of agreement, how it will be determined and how it will be implemented. The initial procedures as provided for in the MDA were as follows: the plaintiff was to ensure that the Preliminary Scheme Plan was prepared for discussion between the parties within six months of the MDA (clause 8.1). The MDA is silent as to what was to be contained in the Preliminary Scheme Plan. By contrast, the MDA contains relatively detailed provisions in relation to the preparation, agreement or other determination of the Overall Scheme Plan. Clause 8.3 provides: –
“The Developer covenants with Murphy to prepare the Overall Scheme Plan within 6 months from the date of approval by Murphy of the Preliminary Scheme Plan such approval not to be unreasonably withheld or delayed for the development of the Lands. The parties agree that the Overall Scheme Plan shall optimise the development potential of the Lands consistent with the County Louth Development Plan and/or the Draft County Louth Development Plan with a view to meeting perceived market demand for the potential owners and/or occupiers of the various parts of the Lands. The parties acknowledge that the Overall Scheme Plan must be reasonably consistent with the County Louth Development Plan. The Overall Scheme Plan shall provide for the development of the Lands in a manner reasonably consistent with the objectives set out in the County Louth Development Plan. The Developer shall consult with Murphy in relation to the form and content of the Overall Scheme Plan during the course of its preparation. The Developer shall use all reasonable endeavours to submit the Overall Scheme Plan for the final approval of Murphy by the relevant Key Date. Murphy shall furnish his approval or rejection of the Overall Scheme Plan within 14 days after submission of same by the Developer to Murphy and where Murphy objects to the Overall Scheme Plan he shall do so in writing within the said 14 day period and shall also state the component or components to which it objects, the reasons therefore and Murphy’s alternative proposal (if appropriate), all in reasonable detail. Where no such notice of rejection is received by the Developer from Murphy within the said 14 day period the said Overall Scheme Plan shall be deemed approved by Murphy. In the event of an objection being made by Murphy the parties shall endeavour within 14 days of the objection having been made to resolve such objections on an amicable basis having regard to the provisions of this clause 8.3. If following the said period of 14 days a resolution has not been achieved between the parties, the Developer and Murphy shall jointly endeavour to agree upon the terms and conditions of an architectural competition to design the Overall Scheme Plan and to agree upon a list of architects to be invited to participate in such competition. In the event of the parties failing to agree upon the said terms and conditions of the said architectural competition (which shall in any event incorporate an obligation on the part of the participants to adopt the land uses permitted for the Lands as designated by the Planning Authority) or the list of architects to be invited to participate in the said competition or on the winner of such competition either party may refer to the determination of same to the Independent Architect. The Independent Architect shall be entitled to request oral or written submissions by or on behalf of the parties and shall give his decision within the earlier of (i) 1 month of being requested to act where no such submissions are sought and (ii) where written or oral submissions are sought by the Independent Architect 14 days after the date on which the Independent Architect stipulates not being longer than 30 days on which the said written and/or oral submissions must be given to the Independent Architect. The scheme submitted by the winning architect (whether agreed or determined) shall then constitute the Overall Scheme Plan or by agreement of the Developer and Murphy (such agreement not to be unreasonably withheld or delayed by either party requested to so agree). Where the relevant Area Action Plan and /or variation of the Louth County Development Plan is in conflict with the Overall Scheme Plan, the parties agree to make such amendments to the Overall Scheme Plan as are appropriate in order to make the same comply with the said Area Action Plan and/or the variation to the Louth County Development Plan. The preceding provisions concerning approval by Murphy of the Overall Scheme Plan shall apply to any such variation”.
Notwithstanding the more detailed provisions, there remain some uncertainties. The Overall Scheme Plan is to be “reasonably consistent with the County Louth Development Plan” and to provide for the development of the lands “in a manner reasonably consistent with the objectives set out in the County Louth Development Plan”. It is not clear whether that provision refers to the County Louth Development Plan in existence at the date of the MDA or subsequent to the envisaged variation. As the then existing zoning was agricultural, it appears more likely to have been the latter. However, having regard to the envisaged timescale for the preparation of the Overall Scheme Plan (6 months after approval of Preliminary Scheme Plan) and that for the adoption of a variation as set out in clause 8.2 i.e. 31st December, 2002, it appears as if the MDA envisaged the preparation of an Overall Scheme Plan in advance of the variation to the County Louth Development Plan. There is also provision for amendment to the Overall Scheme Plan where it not consistent with the County Louth Development Plan in the final section of clause 8.3 above. I will return to this provision later in the judgment as there is dispute about its meaning.
The Overall Scheme Plan was in fact not prepared until after rezoning of the Tullyallen lands following the adoption of the Louth County Council Development Plan 2003 and the Area Action Plan in July, 2004. As the defendant is not pursuing any alleged breach by the plaintiff of its obligations under clause 8.3 prior to January, 2005 it is not necessary to resolve all of the above uncertainties in the meaning of clause 8.3 . I will return to certain of these later in the judgment.
Subsequent to approval of the Overall Scheme Plan, the next step envisaged is the submission by the plaintiff of all or part of the Overall Scheme Plan to the planning authority for planning permission. Clause 8.4 provides:-
“The Developer shall use all reasonable endeavours, subject to its approval by Murphy or its determination by the Independent Architect, to submit all or part of the Overall Scheme Plan to the Planning Authority for Planning Permission by the relevant date specified for such submission in the Key Dates PROVIDED ALWAYS that in the event of the approval of the Overall Scheme Plan being delayed on account of a failure of the parties to agree upon same, the said relevant date so specified in the Key Dates shall be extended accordingly”.
The relevant Key Date for making the planning application is at paragraph 3 of Appendix 2. This provides:-
“3 months from the later of (i) date of final approval of the Overall Scheme Plan or (ii) the date on which the Lands are rezoned for commercial purposes, or the adoption of an Area Action Plan by the relevant statutory authority which is not subject to Judicial Review proceedings by a third party or if they are so subject the same has been determined upholding such re-zoning or Area Action Plan”.
Clause 7.1 contains a general provision that the parties use their “Best Endeavours” to achieve the objectives set opposite the respective dates in the key dates. ‘Best endeavours’ is defined but ‘reasonable endeavours’ is not defined in the MDA.
The MDA then contains relatively detailed provisions in relation to the actual carrying out of the development, the disposal of sites by way of ground leases, provision for a management company and other ancillary provisions. The only relevance of these provisions to the issues which have to be decided herein is to observe that in many clauses there are provisions for agreement of certain matters between the parties or failing agreement, the determination by a relevant independent third party.
There are three further aspects of the MDA which appear relevant to the issues to be determined. Firstly, the MDA is to remain in being for a long period. The “Term” of the MDA is defined as the period of twelve years “commencing and computed in accordance with clause 4 and any extensions thereof as provided for in this Agreement”. Clause 4 provides that the term shall be calculated from the date which is two months and one day after the date on which the plaintiff obtains a planning permission in respect of the Overall Scheme Plan on terms and conditions reasonably satisfactory to it and where no Judicial Review proceedings are instituted (with certain detailed provisions for extensions in the event of Judicial Review proceeding). That commencement date is itself a date which is not envisaged to occur for many years after the parties entered into the MDA
Secondly, the defendant is given an express right to terminate the agreement in clause 31 but only in two sets of circumstances; the financial failure of the plaintiff or a failure to achieve Key Dates 6 and/or 7 for other than Market Conditions (as defined). Clause 7.2 contains very detailed provisions for the extension of the Key Dates at paragraphs 6 and 7 of Appendix 2 . Those dates relate to the date for construction of a minimum of 100,000 sq.ft. and completion of twenty per cent of the infrastructural works in respect of the entire site and the date for completion of the scheme. There are no similar provisions in relation to either the extension of the Key Dates for approval of the Overall Scheme Plan or the lodging of planning permission or any right to terminate the MDA for any default in relation thereto.
Thirdly, the parties at clause 28 agreed as follows:-.
“The parties acknowledge that in achieving the objectives set out in clauses 2 hereof they shall act bona fide towards one another and give to each other all assistance which would be reasonably required for the purpose of the implementation of this Agreement and completion of the Scheme. If for any reason full effect cannot be given to any term, condition or provision of this Agreement then the parties shall negotiate in good faith in order to agree the terms of a mutually acceptable variation of or alternative provision to the term, condition or provision in question. Where such variation or alternative provision cannot be agreed upon the parties shall submit to the decision of the relevant Independent Expert appropriate to the dispute in question. If the relevant Independent Expert is not so stipulated and the parties cannot agree on which Independent Expert is appropriate to determine the dispute then each party’s stance on the issue in question shall be set out in a Case for Counsel for an Opinion from such Senior Counsel as the parties may agree upon or failing agreement within 7 days to be nominated on the application of either party in writing by the President or next available officer for the time being of the Law Society of Ireland and the Opinion of such Senior Counsel shall be final and binding upon the parties. The parties agree that failure to implement a provision of this Agreement or the invalidity, illegality or unenforceability of any provision hereof shall not affect or impair the continuation in force of the remainder of this Agreement.”
Position achieved by January 2005
In late 2003/early 2004, agreement was reached that two plots of the lands known as “the Berrill and Byrne Options” be released from the MDA on condition that the defendant pay €50,000 to the plaintiff on the disposal of each.
The plaintiff and defendant made submissions to Louth County Council in relation to the zoning of the Tullyallen lands. In July, 2004 Louth County Council approved the Local Area Plan for the north Drogheda environs prepared by Strategic Planning Alliance. In the Local Area Plan, the lands subject to the MDA to the west of the Tullyallen M1 interchange were zoned for tourism related facilities and developments. These were stated to include “hotels, tourist accommodation, as part of an integrated tourism complex and facilities, visitor facilities, interpretative centre, motorway service facilities, tourist retail outlets, restaurant, public house, tourist information, parking, cycle hire and other ancillary commercial and leisure facilities that support the development of the Boyne Valley for tourism”. The Tullyallen lands to the east of the interchange were zoned for residential and industrial uses.
In August, 2004 Murray O’Laoire, architects, on the instructions of the plaintiff, commenced preparing what was referred to as a “master plan” for the Tullyallen lands. Whilst the Local Area Plan did not require a master plan for the Tullyallen lands the planning officials had indicated one would be required. There were discussions between the plaintiff and the defendant in relation to the proposals in the autumn of 2004.
In August, 2004 Dundalk Town Council granted planning permission for a factory retail outlet project at Ballymascanlon to a third party.
In early November, 2004 a presentation of the scheme drawn up by Murray O’Laoire, architects, for the lands at Tullyallen was given to Mr. Murphy and Ms. Rooney. At a meeting held at the Expresso Bar they expressed oral agreement with the proposals. The proposals were for tourist and leisure facilities which included a factory retail outlet centre to the west of the motorway and a residential development to the east of the motorway.
By an email sent on 12th November, 2004, by Ms. Rooney, agreement was expressed by her on behalf of herself and Mr. Murphy with what she describes as “the first draft proposals for the Tullyallen roundabout”. Agreement was given to the development of those proposals for presentation to the Local Authority.
In November, 2004 the defendant completed the purchase of the Tullyallen lands (other than the Byrne and Berrill lands) at a cost of approximately €16 million.
In early December, 2004 Mr Murphy and Ms Rooney went with representatives of the plaintiff to view two factory retail outlet centres in the UK.
On 16th December, 2004, there was a meeting with planning officials of Louth County Council to present to them the proposals. On the following day (17th December), Mr. Sean O’Laoire (of Murray O’Laoire) received a phone call from the Senior Planner present to clarify the position in relation to the retail element of the proposals. The official confirmed that the County retail strategy permitted only one out of town outlet-type retail facility and that such permission had been granted in Dundalk but was currently under review by An Bord Pleanála. He warned that should the permission be confirmed by An Bord Pleanála that such use could not be considered at the Tullyallen site.
By letter dated 14th January, 2005, the solicitor for the plaintiff wrote to the solicitor for the defendant enclosing a letter from the plaintiff to the defendant in the following terms:-
“Re: Master Development Agreement dated 21st December 2000 (“Agreement”)
Dear Sirs
We now attach the Overall Scheme Plan for the purposes of the Agreement and shall be obliged for your formal confirmation that this Overall Scheme Plan is now agreed for the purposes of clause 8.3 of the Agreement. For the avoidance of doubt, the parties acknowledge that the Overall Scheme Plan encompasses the Preliminary Scheme Plan as required by clause 8.3 of the Agreement.
This letter is submitted in duplicate. Please countersign the duplicate to signify your agreement with its terms and return the duplicate to us.
Yours faithfully”
The document enclosed as the Overall Scheme Plan was in diagrammatic form
showing the types of development to be carried out on different portions of the Tullyallen lands. It is not now in dispute that the document represented the then proposals which had been presented in detail to the defendant in November, 2004 and was capable of being an “Overall Scheme Plan“ for the purposes of the MDA..
The solicitor for the defendant sent a formal acknowledgement confirming that he was taking his “client’s instructions” on 17th January, 2005. The requested confirmation was not received. Neither was an objection received as provided for by clause 8.3 of the MDA. As no Notice of Rejection was received from the defendant within fourteen days, in accordance with clause 8.3 of the MDA, the Overall Scheme Plan was deemed approved by the defendant. The intention of clause 8.3 appears to be that such deemed approval occurs at the expiry of the fourteen days for objections. At earliest, this was 28th January, 2005.
It is relevant to note that while there now appears consensus between the parties that there was an Overall Scheme Plan either approved or deemed approved by the end of January, 2005 no such position was expressly taken by either party in 2005. The plaintiff did not follow up the letter of 14 January, 2005, (in the absence of a substantive response) with an assertion that the Overall Scheme Plan was now deemed approved in accordance with clause 8.3 of the MDA. The defendant maintained during the summer of 2005 that the plaintiff had not complied with clause 8.3 in relation to an Overall Scheme Plan. This lack of clarity as to the then status of an Overall Scheme Plan under the MDA coloured the subsequent dealings between the parties.
Alleged breach of contract for failure to lodge planning application
The events subsequent to January, 2005 are best considered in the context of the issues which have to be determined in this judgment. The defendant is correct in its submission that the plaintiff must have complied with the material terms of the MDA to be entitled to an order of specific performance. As, on the facts herein, the defendant now accepts that the MDA was alive and well and capable of being enforced in January, 2005, the Court is not concerned with any alleged breach by the plaintiff prior to that date. The only alleged breach of the terms of the MDA subsequent to January, 2005 is the admitted failure by the plaintiff to lodge an application for planning permission for the Overall Scheme Plan deemed approved in January, 2005.
Clause 8.4 of the MDA obliges the plaintiff to “use all reasonable endeavours” to submit all or part of the Overall Scheme Plan to the planning authority for planning permission by the relevant Key Date. The relevant Key Date for the making of a planning application, as appears from the extract from Appendix 2 set out above, is three months from the later of the date of final approval of the Overall Scheme Plan or two other dates which, on the facts, predated that date.
There was a lack of clarity in the evidence of witnesses, both of the plaintiff and the defendant, as to the nature of the approvals given by or on behalf of the defendant to the then proposals, both orally in November 2004 and in the email from Ms. Rooney of 12th November, 2004. There were differing views as to whether the proposals were a Preliminary Scheme Plan or an Overall Scheme Plan for the purposes of the MDA. The defendant never suggested, in response to the letter of 14th January 2005 seeking approval for the Overall Scheme Plan in accordance with clause 8.3 of the MDA, that approval had already been given.
On the facts, I conclude that there was no formal approval by the defendant of the Overall Scheme Plan for the purposes of the MDA and hence the Overall Scheme Plan was deemed approved at the earliest on 28th January, 2005, pursuant to clause 8.3, in the absence of a notice of rejection within 14 days. Accordingly, the plaintiff, in accordance with clause 8.4, became obliged to use “all reasonable endeavours” to submit all or part of the Overall Scheme Plan for planning approval within three months of 28th January, 2005 i.e. on or before 28th April, 2005. It is undisputed that no such planning application was lodged.
The reason for which no such planning application was lodged was that the Overall Scheme Plan deemed approved in January, 2005 included amongst the tourism/leisure developments on the west side of the interchange at Tullyallen, a retail factory outlet. The County Louth, published, Retail Strategy or Guidelines permitted of only one out of town outlet-type retail facility. Permission had been given by Dundalk Town Council in August 2004, for such an outlet close to the Ballymascanlon interchange on the M1. The plaintiff in particular, through Mr Barrett, appears to have been confident that the decision would be reversed on appeal. However, on 27th February, 2005, An Bord Pleanála upheld the permission. The plaintiff contends that by reason of the decision of An Bord Pleanála planning permission could not be obtained for the Overall Scheme Plan as then proposed and deemed approved. There is no dispute that this was the factual position.
The parties became aware of the decision of An Bord Pleanála on or about 3rd March, 2005. A meeting was called for 30th March, 2005, attended by Mr. Dwyer and Mr. Barrett and two other executives of Treasury Holdings, Mr. Twohig and Mr. Tincknell, on behalf of the plaintiff, and Mr. Murphy and Ms. Rooney on behalf of the defendant. On the evidence given in relation to that meeting and the contemporaneous notes prepared by Mr. Twohig and Ms. Rooney, I have concluded that there was a general acceptance at that meeting by all present that then Overall Scheme Plan deemed approved, could not now proceed with the inclusion of a factory retail outlet.
At that meeting, the plaintiff’s representatives introduced a concept then entitled “Best of Ireland Specialist Retail Centre” to replace the factory retail outlet in the Overall Scheme Plan. The concept was of a multi-tenanted development of Irish manufacturers and producers headed by anchor tenants such as Avoca, John Rocha, Blarney Woollen Mills, Kilkenny Design Centre, etc. The plaintiff appears to have been trying to introduce a retail concept which would be permissible under the tourist retail zoning and not in conflict with the Louth retail strategy which precluded a second factory retail outlet in the county. I find that at that meeting there was acceptance on behalf of the defendant that the plaintiff should pursue the revised proposals and report back to Mr Murphy and Ms Rooney. A further meeting was to be held within a month.
By letter dated 29th April, 2005, a copy of the brochure was sent to Mr. Murphy and Ms. Rooney and their questions invited and opinions sought as to how the brochure might be improved. Mr. Twohig, in the same letter, reported that meetings had been held with some leading Irish designers but that others were still to be met and suggested a meeting be left over until that had been done. An email response was sent by Ms. Rooney saying they had no objection to the course proposed.
A further meeting between representatives of the plaintiff and Mr. Murphy and Ms. Rooney, on behalf of the defendant, was held on 29th June, 2005. Prior to the meeting, Mr. Murphy and Ms. Rooney were given a note prepared by Mr. Twohig entitled “Development Project Update – Site at Tullyallen, County Louth, 21st June, 2005”. This records further meetings held with proposed tenants for the intended Best of Ireland Specialist Retail Centre. It also records the commencement of design work for both the western part of the site and the residential site to the east of the motorway. It recommends a planning application be prepared in the near future.
At the meeting on 29th June, Mr. Murphy appears to have raised for the first time the preparation of a separate planning application for the residential development on the eastern side of the motorway. He made the understandable point that he had now expended approximately €16 million on the acquisition of the lands and that the residential development to the east could go ahead independently of the tourism development on the western side of the motorway.
As will become apparent from the subsequent events, the parties never agreed upon a variation to the Overall Scheme Plan deemed approved in January, 2005. The plaintiff sought approval to a revised Overall Scheme plan by letter of 5th July, 2005, but it is not contended that any such formal approval was ever given. The alleged breach of the MDA is that the plaintiff failed to submit the Overall Scheme Plan deemed approved in January, 2005 with the factory retail outlet for planning permission. It was never asserted on behalf of the defendant in the summer and autumn of 2005 that this should be done. Further, no such breach was asserted or particularised in the pleadings or replies to particulars in advance of the hearing of this action.
I have concluded that the MDA does not impose an obligation on the plaintiff to lodge an application for planning permission for an Overall Scheme Plan in circumstances where it had become apparent before the Key Date that any such application was doomed to failure. The Key Date was 28th April, 2005. The obligation in clause 8.4 is to “use all reasonable endeavours” to lodge such a planning application on or before the Key Date. “Reasonable endeavours” is not defined for the purposes of the MDA.
In clause 7.1 the parties agree to use “Best Endeavours “ to achieve the objectives set opposite the respective Key Dates. “Best Endeavours” is defined in clause 1.1 as meaning:
“An obligation to act in a diligent, efficient and prudent manner and devoting such resources as a diligent, efficient and experienced property owner/property developer would having regard to all the circumstances prevailing, undertake to achieve the relevant objective”.
I accept the submission made by Counsel for the plaintiff that a “reasonable endeavours” obligation must be at least one step down from a “Best Endeavours” obligation in the MDA and that therefore the obligation under clause 8.4 must be something less than the obligation in accordance with the definition of “Best Endeavours”. Whilst clause 7.1 in its general application includes the Key Date by which the planning application should be lodged, as clause 8.4 is a particular clause relating to the planning application it appears probable that the reasonable endeavours obligation applies.
The purpose of lodging a planning application is to obtain planning permission. The relevant objective of lodging a planning application for the Overall Scheme Plan is to obtain planning permission for the Overall Scheme Plan. In circumstances where it had indisputably become apparent that planning permission could not be obtained for the then Overall Scheme Plan, it appears to me, that the MDA could not be construed as including, as part of an obligation to use either reasonable or best endeavours to lodge a planning application by the Key Date, an obligation to devote time, resources and expenditure to preparing and lodging an application which was doomed to failure. In evidence any such application was referred to correctly in my view as a “futile application”. Common sense says no diligent or experienced property owner or developer would devote resources to preparing and lodging a futile planning application.
On the contrary, it appears to me that the steps taken by the plaintiff subsequent to 3rd March 2005 were consistent with an obligation to use reasonable or best endeavours to lodge a planning application by the Key Date. It appears to me to have been essential in accordance with the scheme envisaged by the MDA, that there be an Overall Scheme Plan which was consistent with the planning objectives of Louth County Council and the Louth County Council Development Plan 2003 prior to an application for planning permission. Following the decision of An Bord Pleanála in relation to the Ballymascanlon project, this required an alteration to the retail element of the then Overall Scheme Plan.
Part of the defendant’s submission that the plaintiff was in breach of its obligations under clause 8.4 in failing to lodge the “futile” planning application, is based upon its contention that the MDA did not permit amendment of the Overall Scheme Plan in the factual circumstances which pertained after the An Bord Pleanála decision in February, 2005. For the reasons set out later in the judgment I have concluded that the provisions for amendment of the Overall Scheme Plan in clause 8.3 then applied. The plaintiff sought approval from the defendant for an Overall Scheme Plan (which was a variation of the Overall Scheme Plan deemed approved in January, 2005). Such approval was not forthcoming in the context of the MDA.
Accordingly, I have concluded that the plaintiff was not in breach of its obligations under clause 8.4 of the MDA in failing to lodge a planning application for planning permission for the Overall Scheme Plan deemed approved in January 2005 prior to the relevant Key Date (28th April 2005).
Attitude of plaintiff after March, 2005
The defendant contends that subsequent to the final decision on the Ballymascanlon project, that the plaintiff treated the MDA as at an end. It relies on this factual position, both as a separate ground for opposing the plaintiff’s entitlement to an order for specific performance and in support of its submission that the MDA was discharged by reason of frustration.
The relevant significant events between March and the meeting of 29th June, 2005 are set out above. I find that in that period the plaintiff did not consider the MDA to be at an end. On the contrary, it sought to prepare a revision to the retail element of the Overall Scheme Plan for which it had sought approval in January 2005 pursuant to clause 8.3 of the MDA.
There are two relatively contemporaneous notes of the meeting of 29th June, 2005: one prepared by Mr. Twohig and one prepared, at least within four to five weeks, by Ms. Rooney. I have also had the benefit of evidence from many of the participants at the meeting.
I find that the plaintiff, through its representatives present, did not indicate at that meeting that it accepted the MDA to be at an end nor are any of the statements made or actions taken or proposed to be taken, consistent with such a position. There was uncertainty amongst its representatives about the plaintiff’s legal position under the MDA. However, this related to a concern that the Key Dates in relation to the preparation of the Preliminary Scheme Plan and Overall Scheme Plan had not been met rather than any perceived inability to proceed with a varied Overall Scheme Plan under the MDA. This uncertainty has also to be viewed in the context of earlier exchanges in 2003, at the time of the negotiations relating to the Byrne and Berrill lands, when the plaintiff sought and was refused express confirmation of extension of certain of the Key Dates and the failure of the defendant to substantively respond to the requested confirmations in the letter of 14th January 2005.
It appears to me that there is a clear distinction between the plaintiff’s uncertainty as to its position, having regard to allegations made by the defendant that it was in breach of the MDA by reason of its failure to meet Key Dates in relation to the preparation of a Preliminary Scheme Plan, and the Overall Scheme Plan and an acknowledgement by the plaintiff that the MDA was at an end.
The defendant again repeated the allegation that the plaintiff was in breach of the MDA by having missed Key Dates through Ms. Rooney at the meeting of 29th June, 2005. Notwithstanding that statement, in so far as is relevant I am satisfied that the impression given by Ms. Rooney at that meeting was that the defendant would proceed with the project under the MDA but that the plaintiff would have to trust the defendant’s commitment to the MDA.
The next relevant step taken by the plaintiff was the letter of 5th July, 2005 sent by Mr. Barrett on behalf of the plaintiff to Mr. Murphy and Ms. Rooney. With that letter he enclosed an Overall Scheme Plan (with the revisions then made in relation to the tourist retail element) and sought “your formal confirmation by way of signature, on the copy of this letter and its return, that this is now the Overall Scheme Plan as agreed for the purposes of clause 8.3 of the Agreement”. The defendant was also asked to confirm by such signature its agreement “that the Overall Scheme Plan encompasses the Preliminary Scheme Plan as required by clause 8.1 of the Agreement”.
This letter is consistent with the plaintiff continuing to operate the terms of the MDA and inconsistent with any acceptance by it that the MDA was then at an end.
The first response from the defendant was a letter dated 18th July, 2005, expressed to come from Mr. Murphy and which, it became clear in evidence, was drafted by Ms. Rooney. That letter addressed to Mr. Barrett was in the following terms:-
“July 18, 2005
Re: Tullyallen Development Project
Dear Richard,
Thank you for yours of 5th July, 2005 delivered by courier. Our apologies for not responding more swiftly, however, we are within the time frame as per the agreement.
We agree that much progress was indeed made over the last two meetings by your team in their research of the amended proposals. We also understand that this amendment was necessary following the success of the Ballymascanlon Project in securing approval at appeal and as you had not anticipated this it did rather skew your plans, thereby causing further delay.
Whilst we must point out that it is not our intention to withhold any reasonable consents to aid progress in the development and we have at all times been accessible and available when called upon by you to meet, we are not inclined to sign the letter you forwarded in it’s present form.
Specifically paragraph three of your letter seeking agreement that the present situation satisfies Clause 8.1 of the agreement and also Clause 8.3 we would have issue with.
We agree that we were given an update of the research and progress made since our previous meeting we would point out that this was in tone and content a fairly casual conversational meeting and we were unaware that we were being sought to give formal approval of the Overall Scheme Plan at this point.
Had this been advised to us prior to our arrival we would have sought more detailed and specific information from those people representing your company at the meeting and would have taken a proper minute of the meeting itself.
However, no doubt we can iron out any issues at our next meeting and we are sure that in the interim you will continue to employ your best endeavours to progress this project as we are some five years now since the signing of the Agreement.
Yours sincerely,
_______________
Seamus Murphy”
I find from the terms of this letter that the defendant understood the plaintiff’s letter of 5th July, 2005, to be one written pursuant to the terms of the MDA. The reference to “the time frame as per the agreement” in the first paragraph appears to be a reference to the fourteen day period in clause 8.3 in which the defendant might indicate its objection to an Overall Scheme Plan. Insofar as relevant, that letter does not appear to indicate that the defendant then considered the MDA to be at an end.
However, that letter was then followed by a further letter expressed to be from Mr. Murphy to Mr. Barrett dated 3rd August, 2005. The evidence is that this letter was drafted by the defendant’s solicitor. That letter stated:-
“RE: PROPOSED TULLYALLEN DEVELOPMENT PROJECT
Dear Richard,
The correspondence in relation to this matter refers.
Arising from this somewhat intermittent correspondence, and the various inconclusive meetings which have taken place over the past five years, culminating in the meeting of the 29th of June, and your subsequent letter of the 5th July, I have been giving considerable thought to the entire issue surrounding the current situation.
From my perspective the Agreement of the 21st of December, 2000 is no longer operational, due to the fact that none of the targets, or the key dates in relation to those targets, have been achieved. Not only that, but I now find myself in a serious situation where I have been obliged to make a very substantial financial commitment amounting to €16m, where, even at this late stage, there is no guarantee that any return will be achieved in the foreseeable future. Almost five years down the road since discussions were first initiated nothing has been achieved, save considerable actual financial input by me, with no positive outcome in sight. Clearly, the agreement, such as it was, has been frustrated by these excessive delays, which is all the more apparent by your acceptance of this fact in the presentation, at various intervals, of a number of proposed Variation Agreements.
Obviously, the original proposal of a factory outlet/retail park has now been rendered impossible by virtue of the permission obtained for the same thing at Ballymascanlon Roundabout a little further north from my sites, in Dundalk. This was the guiding rationale behind the original agreement, on the basis that should such a development be achieved the spin-offs would render the balance of the lands viable for development.
In the circumstances I take the view that as the agreed development cannot now be achieved, the agreement itself is no longer viable. Even as late as the meeting of the 29th of June there was still no meaningful presentation. In that regard I feel that your statement in your letter of the 5th July that “it is my understanding of the meeting that this scheme was to your approval” is somewhat disingenuous, as there was no proper scheme put forward, nor was there any suggestion that I had approved of same, as there was nothing to approve of.
I am still willing to consider any realistic proposals which you may have for some portion of the lands, but in view of my exceptionally heavy financial commitments, with no realistic prospect of discharging these on the basis of what we have discussed over the past five years, any proposals must, of necessity, be restricted to a realistic section of those lands, with an immediate prospect of a return in the near future.
I trust you will appreciate the position in which I find myself, albeit with regret, but I have little option but to adopt this course in the present circumstances.
Yours sincerely
__________________
Seamus Murphy”
This letter indicates that the defendant now considered the MDA to be at an end.
The plaintiff’s reaction to this letter was to issue a direction that no further work on the project should take place until “this is sorted out”. A meeting was then arranged between the persons considered to be the principals i.e. Mr. Barrett, Mr. Ronan and Mr. Dwyer and Mr. Murphy and Ms. Rooney. That meeting took place in the Great Southern Hotel at the airport on 17th August, 2005.
There is considerable dispute as to precisely what took place at that meeting. Much of this centred upon a document which had been prepared by Ms. Rooney for the purpose of the meeting and as to whether this was handed over and/or read out in part or in full.
It appears unnecessary to resolve these factual disputes. I find that the document was read out at least in part by Ms. Rooney. In so stating, I am not finding and do not intend to find that it was not read out in full. It may have been. The heading and opening two paragraphs of that document are as follows:-
“Proposed Heads of Agreement
for
a New Agreement Relating to a Joint Venture for Development of the Tullyallen Roundabout
between
Seamus Murphy and Drocarne (Treasury Holdings)
As a result of the failure of the original agreement between the parties to achieve the objectives set out in that agreement particularly the failure of Drocarne as the developer and in order to address the changed circumstances and potential development opportunities without further delaying and damaging the landowner (Seamus Murphy’s) opportunity to realise a return on his substantial investment we propose that a new agreement be drawn up on the following basis:
The original agreement between the parties Seamus Murphy (the landowner) and Drocarne (also referred to herein as Treasury Holdings) is defunct by virtue of failure to perform in accordance with agreed key dates and these Heads of Agreement are proposed to form the framework for a properly drawn up NEW agreement between the parties, not a supplement or variation to the original agreement.”
I am satisfied that at that meeting Ms. Rooney, by reading part or all of the document, made clear to the plaintiff’s representatives that the defendant then considered the MDA to be at an end. This position was consistent with the letter of 3rd August, 2005, already sent and received. The reason for which it is unnecessary to resolve the factual dispute as to whether it was all or part of the document is that the only relevant fact I need to decide from that meeting is whether or not the plaintiff’s representatives at that meeting accepted the defendant’s contention that the MDA was then at an end. I find that they did not for the following reasons.
At the meeting, having listened to Ms. Rooney, it is agreed that the representatives of the plaintiff withdrew from the meeting. They then returned with a proposal which in commercial terms was to decouple the development of the residential lands to the east of the M1 motorway from the development of the tourist amenity lands to the west of the motorway. This was stated to meet what the plaintiff’s representatives understood to be the then primary concern of the defendant, namely to achieve as soon as possible a cash flow which would enable it pay off the acquisition cost of the Tullyallen lands of approximately €16 million. I am satisfied that the proposal put forward, which following discussion found favour with Mr Murphy and Ms Rooney, is that as set out by Mr. Barrett in his email of 19th August, 2005 to Ms. Rooney. That email was in the following terms:-
“Subject: Tullyallen
Hi Patricia
Further to the very useful meeting we had with you and Seamus yesterday at the Great Southern Hotel, I now set out what (subject to the legal agreements to be drawn up reflecting this) we all talked about. This e-mail is not meant to be binding or infer anything, just set out bullet points for you to agree to for the purposes of drafting legal agreements which
(1) Seamus and Patricia wish to have as much as possible of the acquisition debt of all of the lands paid off through sales cashflows. Once that has been achieved, they are content to take a longer term view of the balance of the lands.
(2) The previously projected rate of cashflow needs to be speeded up.
(3) Treasury understand this and have responded with the following proposal:
(i) Remove Site C (residential development site to the east of the motorway) in the Master Development Agreement (“MDA”) from the MDA and place it within a second development agreement between the parties. (This site is marked “Site 2 B” on the enclosed map.
(ii) Proceed to appoint a different architect for this area so that the 2 different firms can progress on the 2 areas of land simultaneously. This ensures quickest possible development. The architects to be suggested will be high density experts (O’Mahony Pike or similar-just waiting to find out which of the top 4 firms in this field have good working relations with the planners and current projects in Drogheda).
(iii) Retention of Area B on yesterday’s Fingal Planning Consultants map (enclosed) as the achievement of residential there is dependent on integration with the tourist planning permission.
(iv) Murphys to approve the Scheme Plan for the existing MDA lands asap and also the papers given to them yesterday.
(4) The revised timescales for the 2 agreements will be as follows:
Event Time Current
Agreement New
Agreement
Produce Residential Preliminary Scheme Plan 4 weeks Hereof
ü
Produce Residential Overall Scheme Plan 6 weeks from Approval of Preliminary Scheme Plan ü
Date for Making Planning Application for Residential 8 Weeks from Approval of Overall Scheme Plan ü
Date by which the Developer shall endeavour to achieve Planning Permission 12 months from the date for making the planning application ü
Produce and approve Tourism Preliminary Scheme Plan Now ü
Approve Tourism Overall Scheme Plan See Clause 8.3 (6 months from Approval of Preliminary Scheme Plan
ü
Date for Making Planning Application of the Tourism Sites 3 months from date of final approval of the Overall Scheme Plan
ü
Date by which the Developer shall endeavour to achieve Planning Permission 12 months from the date for making the planning application
ü
Ok BY YOU BOTH? Please confirm and we’ll get going immediately and make a few quid out of this. I think we can beat the timescales set out above in practice.”
The above proposals do not evidence an acknowledgement by the plaintiff that the MDA is at an end. They do evidence agreement to a significant amendment or variation to the terms of the existing MDA, namely the removal from it of the lands to the east of the motorway zoned for residential development. They also include other more minor variations as to the timescale for the steps to be taken under the existing MDA in relation to the balance of the lands. The proposals in the table make express reference to the “current agreement” which can only refer to the MDA and to its clauses. The proposals recorded in the email are only consistent with the plaintiff’s position that the MDA continued in being and its agreement to make variations thereto and willingness to enter into a new agreement in relation to the lands to be taken out of the existing MDA.
By an email sent on 31st August, 2005, Ms. Rooney stated:-
“Richard
Thank you for the summary, yes we agree that those are the points agreed broadly and the basis upon which we are happy to proceed. My apologies for the delay in the response you are already aware of the reasons. We (Seamus and I) are reviewing the papers you gave us and presume that the next step is to arrange a meeting to approve the MDA I await hearing from you.
Regards
Patricia”
Whilst the reference in the latter email to a meeting “to approve the MDA” may be considered as ambiguous, there can be no doubt that the email from Mr. Barrett to which broad agreement was given, referred expressly to “2 agreements” and made express references to the “Current Agreement” and “New Agreement” in the table. It does not appear to me that there is any basis upon which Mr Barrett’s email of 19th August, could be construed, other than as evidencing intention that the existing MDA would continue with the exclusion of the lands to the east and a revised timetable for the steps to be taken. I am not concerned as to whether the parties reached agreement. I am only determining the issue as to whether the plaintiff’s representatives accepted the MDA was at an end by the broad agreement reached at the meeting of 17th August, 2005. I find they did not.
On 26th September, 2005, Mr. Williams, the in-house lawyer of Treasury Holdings, sent to Mr. Murphy and Ms. Rooney, draft documents to implement the revised arrangements between the plaintiff and the defendant. These included:
(a) A supplemental agreement to the Master Development Agreement of December 2005 relating to the exclusion of certain lands and the revised timescale.
(b) A letter confirming approval of the Overall Scheme Plan and providing acceptance that the Key Date schedule has been satisfied to date in relation to the existing MDA.
(c) A shorter form development agreement in relation to the residential site.
The plaintiff then proposed that the party to that agreement would be a wholly owned subsidiary of the plaintiff.
Those documents are again only consistent with the plaintiff contending for the continuation of the MDA albeit subject to the variations to which it believed there was broad agreement.
No substantive response was ever received to those draft documents. Some meetings and contacts took place particularly between Mr. Dwyer and Mr. Murphy in the autumn of 2005. The defendant seeks to rely inter alia on a set of minutes prepared by Murphy O’Laoire of 22nd September, 2005, insofar as it refers to a “new” agreement and also refers to the defendant having “withdrawn” and “having re-engaged” on a different basis. It does not appear to me that those minutes can be relied upon to contradict the contemporaneous recording in the email of 19th August, 2005, of what was agreed at the meeting of 17th August, 2005, (and to which broad agreement was given) and the subsequent agreements prepared and sent out to implement such broad agreement. If, as now contended by the defendant, the agreement reached on 17th August, 2005, was that there be an entirely new agreement and there was an acknowledgement that the existing MDA was at an end, one would have expected to see an immediate response to Mr. Williams’ letter of 26th September, 2005, to that effect.
Accordingly, I have concluded that the plaintiff did not, at any material time in 2005, or prior to the commencement of proceedings accept or acknowledge that the MDA was at an end. It did indicate willingness to agree to a significant variation to the MDA at the meeting of 17th August 2005.
At the meeting of 11th January, 2006, the defendant, through its solicitor Mr. Healy, orally informed the plaintiff that it no longer considered itself bound by the MDA.
Variation of overall scheme plan
Central to the plaintiff’s contention that the MDA has been discharged on grounds of frustration by reason of the admitted inability to proceed with the Overall Scheme Plan deemed approved in January 2005, is the contention that the MDA does not permit of any variation to an Overall Scheme Plan in the factual circumstances applicable herein. This issue is also relevant as already stated to the alleged breach by the plaintiff of clause 8.4 of the MDA. It appears appropriate to consider this issue prior to the defence of frustration.
The defendants appear to me correct in their submission that the MDA envisages one Overall Scheme Plan and the development of the scheme in accordance with that Overall Scheme Plan. That appears to me to follow from the joint objective of the agreement as set out in clause 2.1 and a number of the subsequent detailed provisions.
However, the defendants do not appear to me correct in their submission that the MDA does not envisage or provide a mechanism for variation to or revision of an Overall Scheme Plan which is deemed approved or agreed in the factual circumstances pertaining herein. My reasons for this conclusion are as follows.
The MDA expressly provides for amendment to an approved Overall Scheme Plan in two circumstances, one of which is relevant namely that envisaged in clause 8.3. Also clause 28 provides a relevant mechanism for dealing with obstacles to implementing the MDA for which there is no express provision.
The final sentences of clause 8.3 provides:-
“Where the relevant Area Action Plan and /or variation of the Louth County Development Plan is in conflict with the Overall Scheme Plan the parties agree to make such amendments to the Overall Scheme Plan as are appropriate in order to make the same comply with the said Area Action Plan and/or the variation to the Louth County Development Plan. The preceding provisions concerning approval by Murphy of the Overall Scheme Plan shall apply to any such variation.”
The plaintiff submits that following the An Bord Pleanála decision granting planning permission for the factory outlet at Ballymascanlon that the Louth County Council Development Plan 2003 was in conflict with the Overall Scheme Plan with the factory retail outlet and hence the parties are obliged by the above provision in clause 8.3 to amend the Overall Scheme Plan to make it comply with the Louth County Council Development Plan 2003. The defendant makes two objections to this submission: firstly, that the proper construction of clause 8.3 is that the amendment only arises if the Overall Scheme Plan is agreed after the adoption of the variation to the County development Plan or the Area Action Plan and not where it is agreed or deemed approved afterwards and secondly, that the plaintiff had not discharged the onus of proving that the Louth County Council Development Plan 2003 was in conflict with the Overall Scheme Plan with the factory retail outlet. Whilst the MDA refers to a variation to the County Development Plan the evidence was that a new Development Plan was adopted in 2003 and that is what is treated as the variation for the purposes of the MDA. Nothing turns on that difference.
The amendment provisions in clause 8.3 are not expressly confined to circumstances where the Overall Scheme Plan was approved prior to variation of the Louth County Development Plan. However, the MDA appears to envisage in some clauses an Overall Scheme Plan in a time frame shorter than the anticipated variation to the County Development Plan and consequent rezoning. Nevertheless, clause 8.3 in the early part relating to preparation of the Overall Scheme Plan states;-
“The parties acknowledge that the Overall Scheme Plan must be reasonably consistent with the County Louth Development Plan. The Overall Scheme Plan shall provide for the development of the Lands in a manner reasonably consistent with the objectives set out in the County Louth Development Plan.”
It is common case that a variation was required to the County Development Plan in existence in 2000 to permit development of the Tullyallen lands. If, as required by the above, the Overall Scheme Plan when prepared had to be reasonably consistent with the County Louth Development Plan then this would have had to be done after variation. Thus it does not appear to me that the MDA should be construed as definitely requiring preparation of the Overall Scheme Plan prior to variation of the County Louth Development Plan.
The purpose of the requirements in clause 8.3 of consistency with the relevant County Development Plan and Area Action Plan is clear. It is the intent of the MDA that planning permission be obtained from Louth County Council for the Overall Scheme Plan and within a reasonable time frame. In practical terms, this requires the Overall Scheme Plan to be consistent with the Area Action Plan and the then current Louth County Development Plan.
Such construction of the MDA is reinforced by the provisions of clause 8.4. In that clause, the defendant has agreed that where the planning authority requests modifications to any of the applications for planning permission, that reasonable variations may be made thereto for the purpose of achieving approval from the planning authority for a scheme “which is reasonably consistent with the Overall Scheme Plan.” Further, the MDA does not envisage planning permission not being obtained for the Overall Scheme Plan or a scheme reasonably consistent with it. Clause 8.4 in its final section provides that in the event of further refusals by the planning authority, that the parties agree that;-
“…one or more further applications (as the particular case may require) shall be prepared and lodged with the planning authority to accommodate the objections of the planning authority with a view to securing a planning permission . . . for a Scheme that is reasonably acceptable to the planning authority and which is reasonably consistent with the Overall Scheme Plan”.
The failure of the plaintiff to obtain planning permission for the Overall Scheme Plan or a scheme which is reasonably consistent with the Overall Scheme Plan is not stated by the MDA to be a ground upon which the defendant may terminate the MDA.
There is nothing in the MDA which either precludes or is inconsistent with a variation to an Overall Scheme Plan subsequent to its approval in circumstances where it becomes apparent that such Overall Scheme Plan, is not then consistent with the relevant Louth County Development Plan with the probable or definitive consequence that it will not obtain planning permission from Louth County Council. On the contrary, the MDA, particularly in clause 8.4, envisages variations being made to the scheme for which planning approval is being sought albeit in a context where such variations are reasonably consistent with the Overall Scheme Plan until such time as there is a scheme which obtains planning permission.
Accordingly, in the absence of an express provision confining the amendment provision in clause 8.3 to circumstances where the Overall Scheme Plan is agreed or deemed adopted prior to the variation to (or as happened, adoption of new) Louth County Development Plan, it does not appear to me consistent with the remaining provisions of the MDA to construe it as being so confined. Hence on the construction of clause 8.3, I have concluded that the amendment provision is not confined to a situation where the Overall Scheme Plan is drawn up or agreed before the Area Action Plan or variation to the County Development Plan.
The next issue is whether the plaintiff had adduced evidence which establishes on the balance of probabilities that in March, 2005 the Louth County Development Plan 2003 was inconsistent with the Overall Scheme Plan deemed approved in January, 2005 which included the factory retail outlet.
Mr. Kearon, the former county engineer with Louth County Council and now in private practice was called by the plaintiff. During cross examination he gave evidence that retail consultants were retained by the County Council to prepare a retail strategy for County Louth as a whole and that their report was now effectively the retail strategy for County Louth which would be considered as part of the overall proper planning and development of the area in the context of a planning application. It was then put to him by counsel for the defendant:-
“It is in that retail strategy that one finds the statement about one factory outlet, isn’t that correct?”
To which he replied:-
“That is correct. I think it was also in the County Development Plan but I couldn’t be certain of that. I would have to look up the County Development Plan.”
Mr. Kearon was not asked by either party to look up the County Development Plan.
When during the closing submissions, counsel for the defendant contended that the plaintiff had not proved as a fact that the retail strategy of one factory outlet for County Louth formed part of the County Development Plan, counsel for the plaintiff, without objection from the defendant, was given permission by me to put into evidence an extract from the Louth County Council Development Plan 2003. It appeared appropriate to permit this, albeit late in the proceedings, by reason of the absence of any objection and the fact that the contention that there was no power to vary the Overall Scheme Plan arose at a late stage in the proceedings and never put to plaintiff’s witnesses who had given evidence of the variation proposed in the summer of 2005. No such objection had been made by the defendant in 2005.
The Louth County Council Development Plan 2003 refers at para. 7.7.2 under a heading of “Retail Strategy for County Louth” to the Retail Planning Guidelines for planning authorities issued under s.28 of the Planning and Development Act 2000 and the Retail Study for County Louth produced in 2001 as required by the Guidelines. It then sets out the recommendation of the study which include that:-
“a factory outlet centre should be located in County Louth”.
It then states:-
“The retail objectives and policies as set out below are derived from those recommended in the retail study.”
The plan sets out at para. 7.7.3 its Strategic Objectives for retail and then at para. 7.7.4 states that having regard to the strategic objective and the Louth Retail Strategy it will be the policy of the council (inter alia:-:
“To facilitate the provision of a factory outlet centre in the county. The assessment of any application for a factory outlet centre will be carried out in accordance with the principles of sustainable development, the Retail Planning Guidelines 2000 and the Louth Retail Strategy 2002.”
I find that the policy of Louth County Council, as stated in the Development Plan 2003, is for “a factory outlet centre” in the County. Accordingly, in March, 2005 by reason of the decision of An Bord Pleanála to grant planning permission for a factory outlet centre at Ballymascanlon, County Louth (which decision was not sought to be judicially reviewed and hence a final decision) the Overall Scheme Plan deemed approved in January, 2005, which included a factory outlet centre also to be in Co Louth, was not consistent with the Louth County Development Plan 2003.
Hence, I have concluded that subsequent to March, 2005 the amendment provisions in clause 8.3 applied to the Overall Scheme Plan deemed approved in January, 2005 on the facts established herein.
It is also relevant to state, that if I am incorrect in the above conclusion, that I have concluded that clause 28 would have then applied to the factual circumstances which pertained following the decision of An Bord Pleanála in February 2005. The Overall Scheme Plan deemed accepted by the defendant was one for which it was then agreed planning permission could not be obtained from Louth County Council. The combined effect of clauses 8.4 and 8.7 of the MDA effectively require the plaintiff to use its reasonable endeavours to lodge a planning application and its best endeavours to procure a planning permission from the planning authority for the Overall Scheme Plan within a period of eighteen months from the date of the application. If the then Overall Scheme Plan is not one for which planning permission could be obtained, then it would appear that those factual circumstances are such that clause 28 applies. As appears from the terms of this clause set out above, it provides inter alia:-
“if for any reason full effect cannot be given to any term, condition or provision of this Agreement then the parties shall negotiate in good faith in order to agree the terms of a mutually acceptable variation or of alternative provision to the term, condition or provision in question”.
The clause goes on to provide that if such variation or alternative provision cannot be agreed upon, that the parties must submit the decision to the relevant independent expert and then default provisions in the event that that person cannot be agreed upon.
The only submission made on behalf of the defendant against the then application of clause 28 to the facts herein after March, 2005 is that when properly construed it only applies to the completion of the scheme in accordance with the Overall Scheme Plan and does not apply at any earlier point in time in the procedures envisaged by the MDA. I do not consider there is any basis for so construing clause 28. The relevant provision applies whenever “full effect cannot be given to any term . . .” of the MDA.
If clause 28 rather than the amendment provision in clause 8.3 applied then the parties were bound to negotiate and a variation to the Overall Scheme Plan is within the type of variation which might be agreed or in default, determined by a relevant expert to resolve the obstacle to giving full effect to the terms which require the plaintiff to use its reasonable endeavours to lodge a planning application and its best endeavours to procure a planning permission from the planning authority for the Overall Scheme Plan.
Frustration
The defendant contends that the MDA has been discharged by application of the doctrine of frustration by reason of the permission granted by An Bord Pleanála for the Ballymascanlon factory retail outlet in February, 2005 as such decision rendered impossible the implementation of a scheme in accordance with the Overall Scheme Plan deemed approved in January, 2005 as planning permission would not be obtainable for same (by reason of inclusion of a factory retail outlet scheme) from Louth County Council.
It is not in dispute that after the An Bord Pleanála decision, planning permission would not have been obtained for the Overall Scheme Plan of January, 2005 as it included a factory outlet retail scheme. The defendant correctly points out that the plaintiff itself relies upon the decision in relation to the Ballymascanlon project as an unforeseen event which justifies it not lodging an application for planning permission for the Overall Scheme Plan of January, 2005.
The legal issue which this Court has to determine is whether the MDA should be considered as discharged on the ground of frustration by reason of the development of the Overall Scheme Plan deemed approved in January, 2005 becoming impossible.
The plaintiff relies upon the relevant statement of principle in Chitty on Contracts, Volume 1, General Principles, 29th Ed., (London Sweet and Maxwell, 2004), par.23-001(at p.1311) that:-
“A contract may be discharged on the ground of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfil the contract or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract”.
The principles which should be applied in this jurisdiction in relation to the frustration of contracts were considered by the Supreme Court in Neville & Sons Ltd. v. Guardian Builders Ltd. [1995] 1 I.L.R.M.1. The defendant submits that the relevant principles are as stated by Blayney J. at p.7 where he said:-
“It is necessary first, therefore, to determine what are the principles which should be applied in relation to the doctrine of the frustration of contracts.
I am satisfied that this issue in effect falls into two separate sub-questions. The first being the necessity to define the circumstances in which frustration takes place and the second being to determine the basis on which, if those circumstances do occur, the court has power to declare that the contract is at an end.
The circumstances in which frustration takes place were defined as follows by Lord Simon in his speech in National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675 at p.700F:
‘Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerous-ness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.’
In the same case Lord Roskill in his speech analysed the circumstances in which frustration occurs in terms which I am satisfied are virtually identical in their effect where at p.717D he stated as follows:
‘There must have been by reason of some supervening event some such fundamental change of circumstances as to enable the court to say; ‘this was not the bargain which these parties made and their bargain must be treated as at an end’ – a view which Lord Radcliffe himself tersely summarised in a quotation of five words from the Aeneid: non haec in foedera veni.’
I am satisfied that these two quotations from the decision of the House of Lords represent a correct statement of the principles of law applicable to frustration in our law and I am prepared to adopt them as being a correct statement of principle.”
He went on further to state at p8 that:-
“ What has to be determined is whether there were in the present case circumstances such as those outlined in the speeches of Lord Simon and Lord Roskill in the case of National Carriers Ltd v. Panalpina (Northern) Ltd. Did an event supervene which so significantly changed the nature of the understanding obligations of Guardian from what the parties could reasonably have contemplated at the time the licence agreement was entered into? Or was there by some supervening event some such fundamental change of circumstances that the court could say, ‘this is not the bargain that these parties made and their bargain must be treated as at an end’? In my opinion the answer to both these questions is no”.
The defendant submits that in applying such principles to the facts herein, I should take into account the approach of the English courts in considering the “frustration of the adventure or of the commercial or practical purpose of the contract”. The defendant referred to the explanation of this concept in Treitel, Frustration and Force Majeure, 2nd Ed., (Thompson Sweet and Maxwell, 2004) at par.2-046 (at pp.67 and 68) where it states:-
“It makes sense to say that a contract may be frustrated by frustration of the adventure; but to say that a contract is frustrated by frustration of contract makes no sense, or is mere repetition. Most commonly, ‘frustration of the adventure’ refers to cases in which performance has not become permanently impossible, but has been merely affected by temporary obstacles which are later removed: for example, by temporary requisition or temporary delay to the arrival of a ship. The point is well put in a definition of ‘frustration of the adventure’ by Bailhache J. as ‘the happening of some unforeseen delay . . . of such a character as that by it the fulfilment of the contract in the only ways in which fulfilment is contemplated and practicable is so inordinately postponed that its fulfilment when the delay is over will not accomplish the only object or objects that both parties to the contract had in view when the contract was made . . .’; this definition was later approved in the Court of Appeal though the actual decision in which it was given was reversed. Delay may not be the only illustration of ‘frustration of the adventure’, but the phrase is generally used to refer to cases of discharge where the impossibility which supervenes is either not total or not permanent.”
It appears to me that the same essential principle underlies the authorities cited with approval by Blayney J. and those referred to in Treitel in its explanation in terms of frustration of the adventure. The Court in each is referred back to an examination of the agreement or bargain made between the parties at the time they entered into the contract alleged to be now discharged on the ground of frustration and a comparison between such agreement or bargain or its then performance and any future performance of the contact in the altered circumstances. There is no difference in the temporal approach of the two sets of authorities. The Court must compare the contract or position of the parties at the time the contact was entered into with that if there were to be performance of the contract after the allegedly frustrating event.
The only difference between the two approaches appears to be in what the Court should examine at the two dates. In National Carriers Ltd v. Panalpina (Northern) Ltd Lord Simon makes the comparison by reference to obligations or rights of the parties under the contract at the time it was entered into and the outstanding obligations and rights if they were to be held to its performance in the altered circumstances. Lord Roskill compares the bargain made (presumably as evidenced by the contact) and what it would be if performed in the altered circumstances. In the decisions referred to by Treitel, many appear to compare the performance intended by the contract when made or what was intended, or as termed “the adventure” with that which would be achieved by the performance of the contract in the altered circumstances. As put by Bailhache J. in Admiral Shipping Company, Limited v. Weidner, Hopkins & Co [1916] 1 K.B. 429 at 437 the court must consider whether the fulfilment of the contract in the altered circumstances:-
“will not accomplish the only object or objects which both parties to the contract must have known that each of them had in view at the time they made the contract…”.
Whether the Court should consider the alleged frustration in terms of changed obligations or rights for the parties; change of bargain or change in what will be achieved by the performance of the contract in the altered circumstances seems to depend on the facts of the case. In some instances this may be different ways of considering very similar questions.
Applying the above principles to the facts found in these proceedings the questions which this Court should now consider appear to be:
· whether, notwithstanding the admitted inability to develop or implement the Overall Scheme Plan (with the factory retail outlet) deemed approved in January, 2005 the Court should now hold that if the MDA continued to be performed with a varied Overall Scheme Plan, this would mean that the plaintiff and defendant cannot now accomplish the object or objects that the parties had when they entered into the MDA in December 2000;or
· as put by Blayney J. does the inability to develop or implement the Overall Scheme Plan (with the factory retail outlet) deemed approved in January, 2005 mean that the future performance of the MDA with a varied Overall Scheme Plan is not the bargain which the plaintiff and defendant made when they entered into the MDA in December, 2000.
It does not appear to me that the alternative question put by Blayney J. namely, whether this event so significantly changes the nature of the outstanding obligations imposed on the defendant, is relevant to the facts herein.
At the time the parties entered into the MDA there was no agreement as to the nature of the Overall Scheme Plan for the proposed development. The defendant asserts that a factory outlet scheme was in contemplation from the outset. I am not satisfied that they have so established on the facts herein. It does not appear to me that the facts proved in evidence support anything more than that it was a possible element of a development which had been referred to on one or two occasions. .
The essence of the MDA entered into by the parties was that it was an agreement for an as yet unspecified and undefined form of development. The fact that the parties have been prevented from developing a scheme which includes a factory retail outlet, does not appear to me to prevent the parties from accomplishing either their joint or separate objectives as recorded in clause 2 of the MDA. These were the objects which they had in view at the time they entered into the MDA. There is no evidence to suggest otherwise. Those objectives do not include the development of a scheme which necessarily includes a factory retail outlet.
A similar analysis leads to the conclusion that the development of a scheme, which of necessity included a factory retail outlet, did not form part of the bargain between the parties when they entered into the MDA. Hence, the inability to develop a scheme with a factory retail outlet does not result in a fundamental change such that the parties bargain made in December, 2000 is at an end.
The alternative basis upon which the defendant contends that continued performance of the MDA would not fulfil the objects of the parties to the MDA in December, 2000 or that there has been a fundamental change in the bargain, is that the MDA envisages the development of the scheme in accordance with the Overall Scheme Plan deemed approved in January, 2005 and that the there is no provision for amendment to or variation of the Overall Scheme Plan once approved on the facts which arose herein in March, 2005.
In the earlier part of this judgment I have analysed the relevant provisions of the MDA in relation to a variation of the Overall Scheme Plan deemed approved in January, 2005 and for the reasons set out reached a conclusion that the MDA provides in clause 8.3 for variation to the Overall Scheme Plan in the circumstances which arose following the An Bord Pleanála decision relating to the factory outlet scheme at Ballymascanlon. . I have also concluded that if the amendment provision in clause 8.3 did not apply, that clause 28 applied on the facts herein and bound the parties to negotiate and enabled them inter alia to agree on a variation to the Overall Scheme Plan.
Accordingly, I have concluded that;
· notwithstanding the admitted inability to develop or implement the Overall Scheme Plan (with the factory retail outlet) deemed approved January, 2005 the continued performance of the MDA, with an amended Overall Scheme Plan (without a factory retail outlet), does not mean that the plaintiff and defendant cannot now accomplish the object or objects that the parties had when they entered into the MDA in December, 2000;and
· the inability to develop or implement the Overall Scheme Plan with a factory retail outlet does not mean that the performance of the MDA with a variation to the Overall Scheme Plan is not the bargain which the plaintiff and defendant made when they entered into the MDA in December, 2000.
In referring above to a varied or amended Overall Scheme Plan I am of course referring to one which is consistent with the objectives of the parties as set out in the MDA. The defendant did not contend that the variation to the retail element of the Overall Scheme Plan proposed in the summer of 2005 was not consistent with its objectives for the MDA.
Hence I have concluded that the MDA did not terminate by reason of frustration following the permission granted by An Bord Pleanála for the Ballymascanlon factory retail outlet in February, 2005.
Relief
In accordance with the above findings and conclusions, it follows and the Court now holds that, the MDA entered into in December 2000 remains in force between the parties (save in respect of the Byrne and Berrill lands).
The plaintiff, as its primary relief, has sought an order for the specific performance of the MDA. The defendant made no submission in the course of the hearing against the granting of an order for specific performance of the MDA as originally entered into (save in respect of the Byrne and Berrill lands) in the event that the Court found that the MDA remains in force between the parties.
As these are adversarial proceedings and the plaintiff has sought an order for specific performance as its primary relief and not waived that claim, and the defendant has made no submissions against the Court exercising its discretion to grant an order for specific performance in the event that the MDA was held not to have come to an end, it appears that the Court should now grant the relief sought by the plaintiff and make an order for specific performance of the MDA.
I wish to add that the making of an order for specific performance of the MDA entered into in December 2000 (save in respect of the Byrne and Berrill lands) does not of course preclude the parties from agreeing to a variation of the MDA. The plaintiff already indicated a willingness to do so in August 2005 to meet the then financial concerns of the defendant following the purchase of the lands. I t is to be hoped that once this litigation is over that the parties will be able to reach agreement on any appropriate variations.
The decision to grant an order for specific performance precludes the necessity of considering any aspect of the plaintiff’s claim for damages. Counsel for the plaintiff clarified in the course of the hearing that it was not seeking any damages if such an order were granted.
Rothwell -v- Arrowdale Ltd trading as Sheehy Motors
[2007] IEHC 395 (29 November 2007)
Judgment of Mr Justice Michael Peart delivered on the 29th day of November 2007:
On the 7th January 2003 the plaintiff attended at the defendant’s premises as he was interested in purchasing a car. It is accepted by the defendant that at the outset the plaintiff specified clearly that he wanted to buy a car which would have a fuel consumption of at least fifty miles per gallon. With that in mind the defendant recommended that he buy a Volkswagen Passat 1.9 tdi Comfort Line – a diesel model – at a cost of €32,500, and he was assured that this model would meet the fuel consumption specification desired by the plaintiff. The plaintiff purchased that car.
The plaintiff has given evidence that within a matter of a couple of weeks he noticed that he was having to fill the fuel tank more often that he expected and he set about checking his fuel consumption by keeping records of how many miles he drove before filling up again and he concluded by this means that he was getting only about 34 miles per gallon (mpg). He contacted the defendants who told him that this was probably a feature of the running-in period and that he should wait and see what the position was after he had driven the car for three thousand miles.
By the end of that running-in period the plaintiff was still dissatisfied with his fuel consumption and went back to the defendant at the end of April 2003. The defendants carried out their own fuel consumption test, and gave the plaintiff a replacement car while those tests were being carried out. Nigel Downes, the service manager of the defendant at that time gave evidence before me and said that when he tested the car he was astonished to find that the result of the test he performed was 27.68 miles to the gallon. He kept the car for a week and further testing resulted in a consumption of between 32 and 34 mpg. In May 2003 further testing by Mr Downes produced a consumption of 31.2 mpg. At that stage it was thought that there may be a problem with the turbo mechanism in the car, and this was checked and repaired and the car was returned to the plaintiff.
The plaintiff continued to be in contact with the defendant about the continuing low fuel consumption during the summer of June and July 2003. According to the plaintiff while immediately after the turbo was attended to he got a reading of 56 mpg, this improvement was short-lived, and in June a test produced a result of only 41.1 mpg. At all times the defendant gave the plaintiff a replacement car while they were checking out his car. Mr Downes stated in evidence that in tests carried out by him in July he obtained readings of 52.1 mpg and 58.4 mpg.
By July the plaintiff states that he told the defendants that he wanted them to take the car back and refund him the cost.
However, it appears that the defendant and the plaintiff agreed that an independent test would be carried out by the AA, and the defendant arranged for this to be done at their expense. The test carried out on the 24th July 2003 by Tony O’Connor, who is an auto engineer with the AA. That test, much to the surprise of Mr Downes, produced a result of 34.69 mpg. In his evidence, Mr O’Connor stated that when this result was produced he was of the view that there must have been some intermittent fault with the car given the fluctuations appearing in the figures at different dates.
By this time the plaintiff was becoming exasperated and communication between him and the defendants became somewhat fraught. The plaintiff stated that he was becoming very agitated about this problem and began to feel that he was being ‘fobbed off’ when he continued to try and make progress with the difficulties. At any rate he was assured that the problem would be solved shortly.
In September 2003 the defendant arranged for a test to be carried out by Motor Distributors Limited, the importers of the car. Mr Frank Glover, a Consulting Automotive Engineer, carried out that test. By this time the car had done about 13600 miles. Without setting out in detail the contents of his report and his evidence, this test produced a result equating to 56.08 mpg, which he considered more than acceptable.
Matters drifted on throughout 2004 and into 2005 during which period the plaintiff stated in evidence that he continued to see consumption at between 37 and 38 mpg.
In March 2005 Mr O’Connor carried out a further test on the car in conjunction with Mr Glover. That test used a slightly different methodology in view of the variations in the previous test results. The result of this test was just over 50 mpg and this was regarded as being in accordance with the manufacturer’s specification. Other diagnostic tests carried out on the car revealed no fault with the car. Mr Glover stated in his evidence that the plaintiff expressed surprise with this result since he was still of the view that he was getting lower mileage per gallon than this, based on the amount of fuel he was purchasing. Mr Glover accepted that the plaintiff was getting lower mileage according to his own tests and records, but stated that all he could say was that on the two occasions on which he carried out tests he achieved acceptable levels of fuel consumption, and he was satisfied that the car was in good working order. He considered that if there were regular fluctuations in fuel consumption this would indicate that there was some other fault with the vehicle, but he was satisfied that there were none.
The plaintiff has stated that he in fact sold the car himself privately in March 2006 for €14,500. The car had by that time done about 56,000 miles. He stated that he had had some difficulty selling it, but the Court has no evidence as to who he sold it to or what efforts he had made to sell it. He believes that he should have been able to sell it for about €22,000 based on what he saw similar cars of that being sold for. The defendants say that this expectation was unrealistic and that the sale value should have been about €18,000.
The plaintiff has sold the car since these proceedings commenced in December 2003. In his Civil Bill he sought an order rescinding the contract and directing the defendant to repay him the cost of the vehicle. In addition he sought damages for negligent mis-statement and/or breach of contract. Since the car has been sold, the claim for rescission is no longer applicable. I should say that even though the plaintiff gave evidence that he had told the defendant in 2003 that he wanted his money back, I am not satisfied that this amounted to a rescission at that time. There certainly was not a complete failure of consideration given the nature of the fault complained of in relation to the levels of fuel consumption. In any event the plaintiff continued to have the use of the car until he sold it in March 2006.
Conclusions:
At the outset it is important that I accept completely the plaintiff’s evidence as to his experience as to fuel consumption. He has given his evidence honestly and in a convincing way. His records have been complied carefully and deliberately and I have no doubt that he is correct that throughout the time he had this car he never, other than for a short period after the turbo was repaired, got a fuel consumption which matched the manufacturer’s specification and the assurance given to him at the time of purchase that this vehicle would meet the specification required by him in order to purchase this model. It is a fact also that on the first occasion on which Mr O’Connor of the AA carried out a test he also achieved a less than acceptable result.
Nevertheless, I have to accept also the results of the other tests carried out both by the defendants themselves and by Mr Glover for the suppliers. There is no reason to question the methodologies used for all these tests, and there is no doubt raised as to the truth of the results. Those tests are of course tests on particular days, and can only be interpreted as showing what occurred on those days alone.
I am also satisfied from the evidence given that there was no underlying fault with the vehicle which would have meant that the car was using more fuel than it ought to, save of course for the fault which was found to exist with the turbo and which was attended to by the defendant.
I am also satisfied that the defendant at all times gave the plaintiff a replacement car to use during times when they kept the car for testing purposes. In addition, it is clear that the defendant dealt with the plaintiff’s complaints courteously, and that is in spite of the statement by the plaintiff in his evidence that in the summer of 2003 relations became somewhat fraught between the parties due to his agitation and exasperation at the continued low levels of consumption he was experiencing and the fact that nothing seemed to be resolving the difficulty. It is natural that such difficulties might occur, but certainly there is no question of there being any evidence that the defendant behaved in any way which should in any element of aggravated damages. There is no question about that. Indeed the plaintiff has not suggested otherwise.
It is also important to say that no suggestion has been made that it is the manner in which the plaintiff may have been driving the car which may have resulted in his achieving low fuel consumption.
On balance I am satisfied that for whatever reason, which has not been established in this case, this car did not perform according to the fuel consumption specified both by the manufacturers and the sales representative of the defendant when the plaintiff purchased the car, in spite of the test results achieved by Mr Glover and by the defendant when acceptable results were achieved.
The issue to be decided is what damages the plaintiff should be entitled to recover. He has sold the car now, and he had the use of the car since January 2003 until March 2006 and he travelled 56,000 miles in it over that period. In my view the level of damages cannot equate to the cost of the car less what he sold it for, or less that what he ought according to the defendant to have been able to sell it for, namely about €18,000. That would be unfair to the defendant, since there was not a complete failure of consideration.
In my view the plaintiff’s loss is the difference in cost of fuel between what he would have spent had the car done 50 mpg to the gallon, and what he actually spent while clocking up 56, 000 miles. The only evidence which the Court has heard as to this difference has been given by Mr Glover who has done a calculation of this figure. The plaintiff did not adduce any evidence in that regard, so the Court has no reason not to accept that calculation.
Mr Glover did his calculation in September 2003 when the car had done 13562 miles. He calculated how many gallons of fuel were used on the basis of a consumption of 36mpg, and another calculation based on 50 mpg. He then converted gallons to litres, and based on a diesel price of 82 cents per litre, arrived at a figure representing how much more the plaintiff had spent on diesel than he ought to have spent. Using the same methodology, I have arrived at the following calculation on the basis of 56000 miles travelled. Travelling that distance at 36 mpg the plaintiff bought 1556 gallons of diesel. Had he achieved 50 mpg per gallon he would have bought 1120 gallons of diesel. That is a difference of 436 gallons of diesel. Converting those gallons to litres produces a total of 1982 litres of diesel. Taking the price of 82 cents of diesel, the plaintiff’s additional fuel cost over 56,000 miles comes to €1625. That is his actual loss over the period of ownership. I have no evidence of current diesel cost per litre, but even if in the last couple of years there was some upward move in this cost it will not alter the loss figure very significantly.
In addition to that actual loss, I am of the view that some element of general damages is justified given the trouble that the plaintiff endured in having the problem addressed. It was undoubtedly a source of considerable aggravation for him since he purchased the car and he was caused a good deal of inconvenience in having to frequently get back to the defendant about it and leave the car back for testing and so forth. The plaintiff has not attempted to overstate this factor. However I believe that a figure of €5000 is a reasonable sum to which the plaintiff should be entitled to recover under this heading.
I will therefore affirm the order of the Circuit Court save for a variation in the amount of the decree to the sum of €6625.
Murphy -v- O’Toole & Sons Ltd & Anor
[2014] IEHC 486 (17 October 2014)
JUDGMENT of Ms. Justice Baker delivered on the 17th day of October 2014
1. The plaintiff is a farmer and agricultural contractor. In 2002, he bought from the first defendant a piece of agricultural machinery for the purposes of his contracting business, namely, an ‘Amazone Four Metre One Pass Sower’. The purchase was financed through a hire purchase-type agreement with the second defendant. This judgment is given in the matter of a preliminary issue raised in the defence of the first defendant, namely, that the plaintiff’s claim is statute barred, and I heard evidence and legal argument from both the plaintiff and the first defendant for that purpose. Judgment was entered by consent in favour of the second defendant against the plaintiff.
Timeline
2. The plaintiff took delivery of the Amazone machine on 30th October, 2002 and in early 2003, the plaintiff had been travelling along the public highway with the machine attached to his tractor, when he was stopped at a Garda checkpoint and informed that the combination of the tractor with the Amazone was not suitable for transportation on the public highway and was not in compliance with road traffic legislation. The plaintiff returned the machine to the first defendant in October 2003, and issued these proceedings on 10th July, 2008.
3. The claim is framed as a claim for breach of contract, and also as a claim in negligence and negligent misstatement, and with regard to this latter claim the statement of claim pleads that the first defendant negligently advised the plaintiff that the machine was suitable for transportation by tractor on a public highway, and/or that the first defendant negligently failed to consider the suitability of the machine to be transported in combination with a tractor on the highway. There is general plea that the first defendant failed to supply a machine suitable for the purpose for which it was required.
4. The first defendant in its Defence pleads by way of preliminary objection that the claim is statute barred by the Statute of Limitations Act 1957. For the purpose of that argument the first defendant argues that time began to run at the date the contract was made, which is argued was in or around the month of April 2002, and that the six-year time limit provided by s. 11 (1)(a) of the Statute of Limitations Act 1957 had run before the proceedings were instituted in July 2008.
5. In the context of that plea, the plaintiff has made a number of arguments. The first argument is that the contract was a conditional contract, conditional upon hire purchase finance, and that the evidence unequivocally points to the fact that the finance was not obtained until October 2002. It is asserted that in those circumstances, time did not begin to run until the condition precedent was satisfied. The plaintiff also argues that time began to run only when the Amazone machine was delivered, namely in October 2002, and that the plaintiff was accordingly in time when he issued proceedings in July 2008. Finally, the plaintiff argues that the claim in negligence accrued when damage or loss was incurred by him, which he says is either the date of delivery or of the finance agreement.
When was the Contract Made?
6. The first question I address is the formation of the contract. The contract was made orally and was not recorded in writing nor was an order form created. Furthermore, the events giving rise to this action occurred some twelve years ago, and the parties were less than clear in their recollection of some of the relevant events.
7. The plaintiff gave evidence that he had been engaged in the business of agricultural contracting since in or around the year 1994, offering to farmers in his area of County Carlow the service of sowing crops on a seasonal basis and assistance with fencing and other farming occupations. He said that in 2002 his business was going well, and he determined to buy a larger capacity seed sower or hopper. His old hopper or sower was transported at the rear of his tractor and he had become aware of an alternative form of sower which was carried in front of the tractor which had much larger capacity, possibly a capacity of double his old machine. His said he picked up a brochure on his first visit to the first defendant’s showrooms and he noted, in particular, an assertion on the brochure that the Amazone hopper or sower was ideally suited for road transport. He made a number of visits to the first defendant’s showrooms and it was not in issue that the plaintiff had been in the past a customer of the first defendant, and had dealt with John O’Toole, a director of the first defendant company and the son of the original founder of that company.
8. The plaintiff provided no documentary evidence of the relevant dates but he says his first visit to the O’Toole showrooms was in June or July 2002, and in support of his assertion, he says that he, in the normal way, would have been too busy in April of any year to have made visits to the showrooms. He said he met both John O’Toole and his father Joe O’Toole on two occasions, and that, while after the second meeting he had come to the view that the Amazone machine was particularly suitable to his needs, he did not at that stage enter into a contract to buy the machine from the first defendant. He said he was aware of the machine before he first visited the O’Toole showrooms and that after the visit he had seen the machine, or a machine of a similar type at the Agricultural Show in Tullow some time between 15th and 18th of August, 2002, and had viewed the actual machine in the first defendant’s showrooms some time in late July or early August 2002, when the machine arrived from the manufacturer. He says he intended to acquire a new Fendt tractor suitable to transport the Amazone hopper and that he would not have bought the Amazone until after he had taken delivery of this on 20th September, 2002. He says he made contact then through his broker with Bank of Scotland (Ireland) and an agreement was reached that that Bank would provide him with funding. He paid a deposit to the first defendant of €10,905.30 in two instalments, both in mid-October 2002, and these dates are established with documentary evidence. The amount of the deposit was the precise amount of VAT chargeable in respect of the machine, and the plaintiff was registered for VAT and ultimately sought and obtained a refund of the VAT from Revenue. The hire purchase agreement with Bank of Scotland commenced on 23rd October, 2002 and the plaintiff took possession of the machine on 30th October, 2002.
9. John O’Toole gave evidence for the defendant and he produced extracts from his business diary for various dates in 2002. The first such entry on the 18th March, 2002 shows an entry of the mobile telephone number of the plaintiff. The second entry on 25th March, 2002 records that he had quoted Paul Murphy for a new Amazone hopper machine, not of the type or size ultimately bought, and this entry also contained a note with regard to another piece of machinery which the plaintiff bought at that time, but which is not relevant to this action.
10. The third entry was for the next day, the 26th March, 2002, and showed Paul Murphy’s name entered on the page and at the end of the page a recording that he had “quoted Paul Murphy for a 4-metre Amazone machine”. In the course of evidence, this was explained as the relevant quotation for the machine which the plaintiff ultimately bought.
11. The entry on 8th April, 2002 records John O’Toole’s note that he “sold” to Paul Murphy a new 4-metre Amazone hopper machine at the price of IR£39,900 plus VAT. There is also an entry that Paul Murphy had asked for a quote on an Amazone 3-metre machine which, in the course of evidence, was explained as a rear-mounted machine which the plaintiff had considered buying to supplement his other machinery.
12. The next entry is on 10th April, 2002, and records a quote to Paul Murphy for a new Amazone rear-mounted machine, and a power harrow, being an attachment for the plaintiff’s existing tractor to accommodate the smaller rear-mounted Amazone machine.
13. The next entry was on 6th May, 2002 which records an order by or on behalf of Paul Murphy for a stop-start kit, at a cost described as an “extra 900 plus VAT”, which in the course of evidence was explained and accepted by the plaintiff as being an optional extra attachment for the 4-metre Amazone which was ultimately bought.
14. There is an entry on 6th July, 2002, which identified Paul Murphy’s name and no more, an entry on the 4th September, 2002, which records the address of Bank of Scotland, the name Ger Murphy, explained and accepted by the plaintiff as being his financial broker, and records the amount of €51,930, the exact Euro equivalent of the purchase price earlier identified in Irish Pounds.
15. An entry on 10th September, 2002 identified Pat Dalton, explained and accepted as another finance broker, and an entry on 27th September, 2002 merely has the name Paul Murphy on the same line as Lombard & Ulster. Pat Dalton’s name appears with a telephone number on an entry on 19th October, 2002 with a reference to BNP (explained as Banque Nationale de Paris), and there is also an entry on that date referring to Bank of Scotland which appears in the same part of the diary as the name and telephone number for the aforementioned Ger Murphy.
16. John O’Toole gave evidence that the diary entries were contemporaneous and the plaintiff is unable to explain why there are entries in regard to enquiries by him as early as in March and April 2002. The plaintiff is adamant that he did not obtain a quotation in April 2002, nor on 6th May, 2002, and also denies that the machine was ordered from the supplier on his behalf on 8th April, 2002. The plaintiff says he could not even have been thinking about the Amazone machine in March or April 2002, and that he would have been too busy. He does accept that he ordered the stop/start machine as an optional extra, although he does not accept that this occurred on or about 6th May, 2002 as reflected in the diary entry. The plaintiff does not deny that the invoices and the diary entries are referable to the items he actually received and what he does not accept is the evidence of the first defendant as to the relevant dates. Again, the plaintiff differs from the first defendant with regard to the date when he was told that the machinery had arrived from the supplier, and he said that this happened in August and not June 2002.
17. I heard evidence, both from the plaintiff and John O’Toole, and I had the benefit of hearing their evidence in chief and in cross-examination. John O’Toole explained that the sale of the Amazone machine to the plaintiff was a large sale in terms of its value for the first defendant, which is a small family business and would not have sold many of those machines or machines of a similar value in any given year. John O’Toole was adamant that the contracts were made in April, and he says the first contact made with the first defendant was a phone call from Paul Murphy on 18th March, 2002 which was taken by a member of his staff. He said he had a number of phone calls between his first contact with Paul Murphy, when he returned his call on that evening, and he also says that on 25th March, 2002, he went to inspect the fitting on the plaintiff’s existing tractor and he also recalled quite clearly the plaintiff seeking to negotiate a reduction in price in an hour long conversation when they agreed on the price.
18. On 8th April, 2002, John O’Toole says he ordered the machine over the phone from the suppliers and he identified an entry in his diary on 10th April, 2002 with regard to the possible acquisition by the plaintiff of a second Amazone machine which would be rear-mounted. He said that on the date of that proposed second sale, in a conversation regarding the second machine, the plaintiff asked him whether he had ordered an Amazone 4-metre machine. He said that the lead-in time between the placing of an order and the delivery of a machine was always a number of months, and he said that as the sowing season would start in early autumn, it was important that the machine be ordered and would be delivered in the summer months.
19. An area of contention in the case is the fact that no order form was created to identify the plaintiff’s ordering of the machine. John O’Toole said that he took orders on a handshake then in 2002, and that the business still operated that way. He also said that he did not have a habit of taking a deposit when an order was placed, and that this is common in the industry and this was how he himself and the company had done, and continue to do, business.
20. In the course of cross-examination, it was put to John O’Toole that another customer, one Roy Elemis, was also interested at the same time in acquiring a 4-metre Amazone machine. John O’Toole accepted that Roy Elemis had expressed an interest in the machine, but his evidence was that no deal was made with Roy Elemis in March or April 2002, and that the machine was ordered for Paul Murphy. He says that a deal was finalised with Roy Elemis in May or June 2002, and denied that he had two customers for the one machine that he ordered on 8th April, 2002.
21. When pressed as to why he did not seek a deposit, and as to why the contract was not evidenced or made in writing, or why an order form was not produced and sought to be executed by a purchaser, John O’Toole said that it did occasionally, although rarely, occur that a person who ordered a machine did not complete the purchase. He said that when this happened, it was relatively easy to sell the machine to another buyer. In his business of dealing with farmers or contractors, such as the plaintiff, “a deal is a deal”, or, as he also put it, “an order is an order”. He accepted, in cross-examination, that he would not have delivered the machine to Paul Murphy without knowing, as he did know in October 2002, when the machine was delivered, that Paul Murphy had finance in place, although it was the case that the machine was delivered some days before the Bank funding came from the third defendant.
22. Evidence was given by John Scrivener, who was the Managing Director of a company, Farmhand Ltd., the importer and supplier of the Amazone machine. He did not specifically recall the placing of the order by John O’Toole, but he did say that these orders were often placed by phone and the deals were done without written documentation. He did recall an order being placed for the optional spare part on 6th May, 2002, after John O’Toole said the Amazone machine was ordered. This order can be linked directly to the plaintiff who accepts that he ordered this optional spare part, albeit he says it was done many months later.
23. In cross-examination, John Scrivener said that if a customer did not have the money to pay for a machine after it had been ordered, another customer would be found. It was standard practice that a retailer would not deliver machinery unless the money was available, but that in the industry machinery was ordered without deposits or formal contract documentation.
Conclusion on Formation of Contract
24. Certain elements of the evidence of John O’Toole deserve comment. His diary entries are contemporaneous. The first entry identifies a price for the Amazone machine in Irish Pounds and a later entry identifies it in Euro, and this is consistent with the fact that the Euro changeover happened in January 2002, and for some time prices were often understood or recorded in the old currency, and the existence of the two entries is suggestive of the accuracy of the diary entries. I found the evidence of Mr. Murphy unconvincing insofar as he purported to be so clear as to the relevant dates of the transaction. In the circumstances, having heard the evidence of both Mr. Murphy and Mr. O’Toole, and noting that John O’Toole’s evidence is supported by contemporaneous evidence, which I find to be an accurate record and useful to identify the relevant dates in issue, I prefer the evidence of John O’Toole. I am also persuaded by the evidence of the independent witness, John Scrivener, that the optional extra fitting was ordered on the 6th May, 2002 and this is supportive of the evidence that the plaintiff did order the Amazone machine on 8th April, 2002. I find as a matter of fact that the plaintiff did attend at the showrooms of the first defendant in March 2002, and thereafter negotiated the purchase by him of the Amazone machine for €51,930. I am satisfied that this occurred in March 2002, and I am also satisfied as a matter of probability that that order was placed on 8th April, 2002. I take particular note of the coincidence of that date with the clear recollection by Mr. Scrivener of the placing of the order for the additional optional extra a short time later.
25. I accept the evidence of John O’Toole that the practice in the trade is for a deal to be done on a handshake. It was the case that this was a particularly large purchase in terms of its value, but equally, a degree of trust existed between the plaintiff and the first defendant as a result of previous dealings. I hold, as a matter of fact, that the entry of 8th April, 2002 accurately reflects the legal position, namely, that on that date, an agreement was entered into with Paul Murphy for the sale to him of the Amazone machine at the identified price.
Conditional Contract?
26. The plaintiff also asserts that the contract was a conditional contract, one allied to and conditional upon the obtaining by the plaintiff of finance from, the second defendant. I turn now to consider this. It is not in issue that the plaintiff was not in a position to purchase the Amazone machine without hire purchase finance. The Bank fully financed the purchase, save for the VAT element.
27. The plaintiff says it is not credible that the first defendant would have regarded itself as contractually bound to deliver this machine unless it was sure the plaintiff could pay for the goods, and that for this reason the agreement was a tripartite agreement which came into operation in October 2002, when the finance was obtained. The plaintiff makes two different points: that the contract was conditional upon a condition precedent that it would not bind him unless and until he had loan finance, or that the contract was a tripartite agreement entered into at the time the finance was drawn down.
28. A contract for the sale of goods or land may be subject to a condition precedent. The case law is replete with examples of contracts for the sale of land which were subject to loan finance. The plaintiff relies on the English High Court decision of Lee-Parker & Anor. v. Izzet & Ors. (No. 2) [1972] 2 ALL ER 800, where the Court accepted that a written agreement for the sale of land, which contained an express provision that the sale was subject to the purchaser obtaining a satisfactory mortgage, was a condition precedent. That case can be distinguished from this case in that the condition precedent relating to finance was expressly made. The other case relied on by the plaintiff is Schweppe v. Harper [2008] ALL ER(D) 311, where the Court of Appeal followed Lee-Parker v. Izzet, but only after holding that the contract did contain a condition precedent that third party financing would be obtained by the plaintiff.
29. If the parties agreed that the agreement to sell the machine to Mr. Murphy would not be binding until finance was obtained, then this contract was a conditional contract. I accept as a matter of fact that the first defendant knew that Mr. Murphy would require third party financing to pay the agreed purchase price, but I do not accept that any discussion was had between the parties that the contract was subject to third party financing. Mere silence, or an assumption, even a correct assumption, that Mr. Murphy would require finance, did not make the attaining of finance an express term of this contract. For a contract to be a conditional contract, it seems to me that such a condition must be express between the parties, and the Court will not imply a financing term, as such a term was not necessary to give business efficacy to this contract which was perfectly capable of being made without such a condition, albeit that performance of the obligation of one party required financing. I hold that Mr. Murphy could and did order the machine without reference to the requirement of third party financing. Indeed were third party loan finance to have been a term of this contract it seems to me as a matter of probability that the first defendant would not have placed the order for the machine until it was sure that the third party financing was in place, and I accept the evidence of John O’Toole that in general his experience in business was that when machines were ordered the buyer did in fact in the majority of cases come up with the funds to complete the purchase.
30. Any arrangement for the funding of the purchase was one made between the plaintiff and the second defendant. The plaintiff urges upon me that the fact an invoice was furnished by the first defendant to the finance company in the middle of October 2002 is evidence that the contract was subject to finance, but it seems to me that the first defendant furnished the invoice to the finance company in lieu of furnishing it directly to the plaintiff for transmission on to the finance company in ease of the plaintiff and to speed up the release of the funds, and not because the finance company was part of the contract for sale.
The Sale of Goods Acts 1893 to 1980
31. The plaintiff further urged upon me the proposition that it is unlikely, or, he suggested, incredible, that the first defendant would have agreed to sell these goods without a deposit, or that the first defendant would have delivered the goods to the plaintiff without being paid. This brings me to consider the transaction in the context of the provisions of the Sale of Goods Acts 1893 to 1980.
32. Section 1 of the Sale of Goods Act 1893 identifies a contract for the sale of goods as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. This particular contract was for the sale of goods, delivery of which would not take place until a future date. Such a contract, by s. 1(3), is identified by statute as being an agreement to sell, which, by s. 1(4), becomes a sale when the time elapses. Section 1 provides as follows:
“1.—(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. There may be a contract of sale between one part owner and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale; but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.”
33. The Act divides contracts of sale into two classes of contracts, cases where there is an immediate sale or what the law in general would call an executed contract, and an agreement to sell, an executory contract where it is agreed that the goods shall pass at a future time. This second class of contract is not a sale in the true sense as in the absence of agreement to the contrary, no interest in the goods passes to the intended transferee at the time of the contract. It is an agreement to sell, containing by implication a duty on the part of the seller to deliver the goods and the property in the goods in accordance with the terms of the contract for sale.
34. The seller contracts to deliver the goods in accordance with the contract, and this includes an obligation to deliver goods which satisfy any implied or express term as to condition or fitness for use. The duty to deliver continues to subsist until the date for delivery arises. The payer contracts to pay for the goods and the Act implies certain terms to that regard.
35. This contract was an agreement to sell governed by s.27 of the Act of 1893 which sets out in clear terms the nature of the duties of seller and buyer to a contract so governed. Sections 27 and 28 provide as follows:
“27. It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale.
28. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer must be ready and willing to pay the price in exchange for possession of the goods”.
36. Accordingly, as a matter of law, the form of this transaction was that the parties entered into an agreement for sale as a result of which the first defendant incurred a liability or an obligation at law to deliver the goods in exchange for the concurrent obligation of the plaintiff buyer to pay for those goods. The mutual rights and obligations of the parties are set out by statute and s.39 of the Act gives certain rights to the unpaid seller within the meaning of the Act who obtains in respect of goods which have passed to the buyer a lien on the goods, a right of resale, a right of stopping the goods in transit in the case of insolvency, or a right to withhold delivery similar and co-extensive with his right of lien and stoppage in transitu. The contracting parties do not need to express these terms which are imported into the contract as a matter of law, and indeed which are reflected in the way in which the plaintiff and the first defendant conducted the business between them. The plaintiff ordered the goods, the first defendant placed the order with the supplier, the first defendant delivered the goods to the plaintiff and the plaintiff had an obligation to pay. The parties agreed an express variation of the contractual formula in that the goods were delivered without the exchange of payment in circumstances where the first defendant knew that the loan finance had been approved and that payment would be made directly to it in respect of the non VAT element of the purchase price within a matter of days of the delivery date.
Conclusion on the Nature of the Contract
37. Accordingly, I do not accept the argument of counsel for the plaintiff that the contract entered into between these parties was one conditional upon the loan finance, or indeed that it was one which did not come into existence and was not formed until the purchase money was available and paid over by the plaintiff. The contract was made in April 2002 and fell within the definition of an agreement for sale in the sale of goods legislation. It accordingly came to have implied as a matter of statute a formula for the performance of the contract by each of the parties to the agreement, the delivery of goods on the part of the seller and the payment for those goods on the part of the buyer. There was nothing in my view in this transaction which rendered it a contract which fell outside of this commonly found formula and the agreement for sale imported as a matter of law the mutual obligations between the parties which came into existence in April of 2002.
38. I reject the submission that this contract was one which was conditional for its enforcement on third party loan finance.
Statute of limitations: the accrual of the cause of action
39. Section 11 (1)(a) of the Statute of Limitations Act 1957 provides a limitation period of six years in breach of contract cases which is to run from the date the cause of action accrues. The general rule in a claim for breach of contract is that the cause of action accrues not when the damage is suffered but at the time of breach and this law is well established. Thus it is not always the case that in a claim for breach of contract the cause of action accrued is the date when the contract was made. The plaintiff in this case argues that the cause of action accrued on the date the goods were delivered, and that it was at that date that the plaintiff took possession of goods which did not meet what he says was the contractually agreed or implied condition, namely that they be fit for use upon public roads. The plaintiff asserts that the cause of action accrued on the date of delivery of the goods in October, 2002. The first defendant argues that the relevant date which the cause of action accrued is the date the contract was made, namely the 8th April, 2002, the date on which I have found that the contract, or the agreement for sale, was made. The first defendant argues that the respective obligations of the plaintiff and the first defendant arose on that date, and that if a breach occurred it occurred then.
40. In Minister for Agriculture and Food v. Thomas Julian [2003] IEHC 144 Dunne J. considered the meaning of the phrase in the Statute of Limitations of “cause of action” and quoted from the classic definition of the phrase in Read v. Brown (1888) 22 Q.B.D.128 where Lord Esher M.R. said at p. 131
“Every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court.”
She considered whether an argument might be made as to whether it was necessary for damage to have occurred at the time of breach and in particular she noted the old case of Gibbs v. Gould [1881] Q.B.D. 296 and accepted, as she put it, “that the cause of action accrues as soon as a breach of contract occurs whether or not damage has being suffered at that time.” A cause of action was defined by Viscount Dunedin in Board of Trade v. Cayzer, Irvine and Co. [1927] A.C. 610 at 617 as “that which makes action possible”.
41. In the light of the authorities is clear to me that the cause of action in contract must be the date on which a breach occurs and not the date when the contract is made. There may of course be incidents where these dates or times are coterminous as was found in the Supreme Court decision of Gallagher v. ACC Bank [2012] IESC 35, which I return to below. In that case the court held as a matter of fact that the cause of action accrued at the date on which the transaction was entered into, the date on which the financial product was sold.
42. As indicated above the plaintiff’s claim is on foot of what is characterized in the Sale of Goods Act 1893 as an agreement for sale where the goods were agreed to be delivered at a later date. There is no direct authority on point as to the running of limitation in the case of an agreement for sale but counsel for the plaintiff referred me to a statement at p. 87 in the recently published text by Martin Canny, Limitation of Actions, (2010) where he says
“If the goods are defective, time starts to run against the vendor from the time the goods were received and not when the defect becomes apparent.”
43. The author quotes the case of Lynn v. Bamber [1930] 2 K.B. 72 but I note that McCardie J. decided that case on an assumption, which was not disputed between the parties, that the breach of contract had occurred on the date the contract was made, namely the date when the defendant sold to the plaintiff, a fruit grower, plum trees described as of a particular high quality species, but were actually trees of an inferior quality, and the case centred on the question of whether active and fraudulent concealment on the part of a defendant constituted a good reply to a plea that a claim was statute barred. It is not authority for the proposition that time begins to run in a contract for the sale of goods to be delivered at a future time at the date of delivery. Canny’s statement might well be intended to point to the absence of a discoverability rule in breach of contract cases rather than be an authoritative statement on the link between breach and delivery.
44. Chitty in volume 1 of his seminal text on the law of contract, Chitty on Contracts, 31st Ed. (London, 2012), refers the old case of Battley v. Faulkner (1820) 3 B. & Ald. 288 at para. 28.052 as authority for the proposition that in the case of an agreement to sell the buyer’s right of action for breach of an express or implied warranty relating to goods accrues when the goods are delivered, although again he makes this comment in the context of another question, not relevant to this case, as to whether there is an argument that time runs from the date a defect is discovered rather than the date of delivery. Battley v. Faulkner involved a contract for the delivery of one kind of wheat and the Court held that the breach was complete on delivery of another kind of wheat and the question for the court was whether it could be said that time ran from the date of knowledge and not of delivery. The court held that time ran from the date the contract was broken and this was the date of delivery.
45. None of the cases referred to in the text books is directly on point, and one must look to first principles and the express terms the Act of 1893. The legislation distinguished between a sale where delivery takes place at the time of the contract and an agreement for sale where delivery is to occur on a future date. It seems to me that breach of agreement for sale occurs on the date when the goods come into possession of the buyer, and it is when the buyer takes custody of goods and it is then that the seller is in breach of the warranties or conditions as to quality or fitness for purpose as in the contract. This is the date when the breach occurred. The date of the delivery of the goods may or may not be the date title in the goods passes, but in this particular case there is no reason to suppose, nor has it been argued before me, that title to the Amazone machine did or could have passed to the buyer before the goods were delivered and before he paid for them. What is clear, however, is that under s.1 of the Act of 1893 the delivery of the goods, and the concurrent obligation to pay for the goods, is the point at which the contract or agreement for sale becomes a sale, and breach, if there was one, occurred at performance or delivery when the contract was no longer executory but was executed.
46. To look at the matter another way, the agreement for sale is an agreement on the part of the seller to deliver at a date in the future the Amazone machine in exchange for the payment by the buyer of the purchase price. The contract was not fully performed or could not be said to have been fully performed by the seller until the goods were delivered and it is at that stage that the breach of contract occurred. The plaintiff could not have commenced an action for breach of contract based on a plea of breach of condition or warranty of fitness for purpose in the period between April 2002, when the agreement was made, and October 2002, when the agreement was performed, because until performance it could not be said that there had been a breach of the obligations of the seller. This gap in time is not, for example, found in a simple contract for the sale of goods where a buyer buys an item in a retail shop as both the agreement for sale and the delivery occur at the same time and usually in the same place. When time separates the agreement for sale from the performance of the conditions in that agreement, the contract is not breached until it can be said that the contract was not fully performed or performed in compliance with the conditions on the part of the seller. It is at the date when the obligations of the parties crystallize, i.e. when the seller must deliver and the buyer must pay, and this is the date which can be properly characterized as the date when the breach occurred.
47. I hold that as a matter of law that the breach of the contract for sale, if there be a breach, occurred at the date of delivery of the Amazone machine to the buyer.
48. Accordingly the plaintiff’s claim for breach of contract is not statute barred in that the cause of action accrued when the Amazone machine was delivered i.e. on the 30th of October, 2002. The proceedings were instituted in July of 2008 and within the six year time limit.
The action in negligence
49. In case I am wrong on the first point, I turn now to examine a further argument of the plaintiff, namely that his claim is framed not merely in contract but also in negligence or negligent misstatement a claim in tort, and accordingly that time does not run until damage is suffered. He relies on Hegarty v. O’Loughran [1990] 1 IR 148 where Finlay C.J. held that a tort is not completed until such time as damage has been caused by a wrong, a wrong which does not cause damage not being actionable. It must be necessarily the case that a cause of action in tort has not accrued until at least such time as the two necessary components referred to as a tort have occurred, namely the wrong and the damage.
50. It is argued by the plaintiff that he had acted in reliance on a representation made by a servant or agent of the first defendant company that the Amazone machine was suitable for use on Irish roads and that this representation was made in late July or early August 2002. Irrespective of the date when the representation was made, it is argued the damage that the plaintiff suffered did not occur until he assumed liability to pay for the goods, or in this particular case to repay to the second defendant finance company the money borrowed. The defendant argues that if there was a representation, which he denies, the representation will be actionable as a matter of law only if it was made before the contract was entered into. I accept that submission by counsel for the first defendant, the submission being one which states a well established proposition of law. A representation is actionable only if it can be shown that it induced a party to enter into a contract, and ipso facto such a representation has to have been made before the contract was made. Counsel for the defendant relies on Colthurst & Tenips Ltd. v. Colthurst (Unreported, High Court, McCracken J., 9th February, 2000) as authority for the proposition that an untrue representation is actionable if “the plaintiffs were induced to enter into the settlement by reason of the representation.”
51. For the purposes of the hearing of the preliminary issue I must act on the assumption that a representation was made that the Amazone machine which the plaintiff bought was suitable for use on Irish roads. If there was such a representation, and if it is to be actionable, it must have been made by or on behalf of the first defendant before the contract was entered into. I have found that the contract was entered into on the 8th April, 2002 and accordingly any actionable representation must be made before then. I accept the argument of the first defendant in this regard.
52. Both counsel relied on the decision of the Supreme Court in Gallagher v. ACC Bank [2012] IESC 35. The plaintiff relies on the case in support of his argument that the plaintiff incurred loss only when he assumed the liability to the second defendant to repay the amount of the finance loan. I do not accept this proposition and in my view the plaintiff assumed a liability to the first defendant to pay for these goods when he entered into the agreement for sale on the 8th April, 2002. I have explained my reasoning for this above and I have found that the availability of finance was not a condition precedent to the existence of the agreement for sale and the plaintiff assumed a liability to pay the first defendant when he entered into the agreement for sale.
53. Counsel for the first defendant relies on the judgment of Fennelly J. in Gallagher v. ACC Bank in particular para. 35 of that judgment where Fennelly J. said the following after concluding his review of the English cases that they:
“stood broadly for the proposition that once a party relies on advice to his detriment by entering into a transaction whereby he fails to get that to which he was entitled, the cause of action is complete, notwithstanding the fact that quantification of the loss may be difficult.”
54. Fennelly J. accepted that there would be cases where there was immediate loss even if there are no difficulties of quantification, and equally that there are cases where the loss is not immediate. It seems to me that if the plaintiff’s cause of action here were solely based on a misrepresentation of suitability of the product that the claim would have crystallized the date the contract was made, i.e. on the 8th April, 2002, because only such representations that were made which would have induced the plaintiff to have entered into that contract, which he did on the 8th April, 2002, were actionable by him. Accordingly I reject the argument by counsel for the plaintiff that time began to run in the plaintiff’s claim, insofar as it is properly speaking a claim in negligence, when the plaintiff assumed a liability to pay. The claim in negligent misrepresentation accrued on 8th April, 2002 and was statute barred when the proceedings were instituted.
55. Counsel for the plaintiff argues this is a claim in tort. The question of characterisation is guided by the important and compelling reasoning of O’Donnell J. in Gallagher v. ACC Bank where the Court asked the question as to whether the claim was properly or centrally a claim in contract or in tort. O’Donnell J. pointed out that the claim made by the plaintiff in that case was one made in contract and in tort, but that they were “in fact identical”. As the learned judge said at paras. 124 and 125:
“The same facts are repackaged as a claim in contract, negligence, and negligent misstatement. The pleadings do not distinguish between those claims. Instead, the same acts are pleaded as “particulars of wrongdoing” and no distinction is made between the legal nature of the wrong alleged.
It is also fair to say, I think, that the cause of action in contract is in truth the central and primary claim here. Indeed there was a time not so long ago and certainly at the time the relevant provisions of the Statute of Limitations Act 1957 were enacted, when the contractual claim would have been regarded as the only possible cause of action arising on the facts here. Even today, it is the contract which creates the relationship giving rise to the obligation in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1965] A.C. 465 to take care in the provision of advice, and the terms of contract could control, limit or even negative any such duty. Once again, if there is a separate duty of care in negligence alone, then it is the contract which creates the proximity between the parties which gives rise to the duty of care.”
56. I am persuaded by this statement of O’Donnell J. that I should not engage upon the artificial exercise of distinguishing between or decoupling the claims in contract and tort. The central and primary claim in this case is a claim for breach of the agreement for sale of a machine, a claim made in contract and under the relevant provisions of the Sale of Goods Act 1893 and 1980.
57. In the English Court of Appeal decision frequently quoted at length, Letang v. Cooper [1964] 3 WLR 573, Lord Justice Diplock identified the problem that had arisen and would continue to arise following the enactment of the Judicature Act of 1893 where forms of action were abolished. As he said at pp. 242 – 243:
“A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person. Historically, the means by which the remedy was obtained varied with the nature of the factual situation and causes action were divided into categories according to the “form of action” by which the remedy was obtained in the particular kind of factual situation which constituted the cause of action. But that is legal history, not current law.”
58. As Lord Justice Diplock said a court in looking at a set of factual circumstances ought not seek to categorise the circumstances into different forms of action, and the name of the form of action is no more than, as he put it, “a convenient and succinct description of a particular category of factual situation which entitles one person to obtain from the court a remedy against another person.” The categorisation does not always properly identify the nature of the action and as he said to forget this would be to encourage the old form of actions “to rule us from their graves.”
59. The abolition by the Judicature Act 1893 of separate forms of action informs me in considering the true nature of the plaintiff’s claim, and I must engage in the exercise of ascertaining what that nature is. This is a claim for damages for the breach of the obligation of the seller of goods to the buyer, governed to a large extent by the Sale of Goods Act 1893 as amended. This is consistent with the view expressed by the Supreme Court in Gallagher v. ACC Bank that the court should look to ascertain the central and primary claim made in litigation and that where appropriate the policy of the law should be to minimise rather than expand the disparity between the running of time in contract and court cases, at least where the wrongdoing alleged is identical. As O’Donnell J. said at para. 127 while the court must consider that “the adaptation of tort claims to a contractual setting necessarily risks having a distorting effect on the law, and more importantly spreading liability, and therefore cost, more widely than is desirable.”
60. I adopt this reasoning, and hold that the facts of this case point to the case being one for breach of contract, the cause of action in which accrued at the date the breach of that contract accrued.
Conclusion
61. The plaintiff’s claim in contract is not statute barred.
Tsyndarius Ltd. v O’Mahony & Ors
[2002] IEHC 167 (11 January 2002)
JUDGMENT OF MR. JUSTICE T.C. SMYTH DELIVERED ON FRIDAY, 11TH JANUARY 2002
The Plaintiff entered into a written contract to purchase 51/52 Thomas Street, Dublin 8, under the terms of a written Tender document incorporating the Law Society’s “General Conditions of Sale” (1995 edition). The sale price was IR£1,211,200, and the deposit paid to the solicitors to the vendors as stakeholders, totalled IR£121,000. After some dispute as to whether the initial contract did or did not disclose the identity of the vendors, the subsequent correspondence in any event indicated that the first two Defendants, being solicitors acting on behalf of the vendors, were acting or selling “as trustees”. A statutory declaration of the first-named Defendant, dated 23rd March 2000, suggested that the third-named Defendant might be a principal along with the first and second Defendants.
The Title offered to the property was a freehold title together with the benefit of a Lessees interest in Number 51 Thomas Street under lease dated 28th October 1985, between George Frederick Thompson and Ors to Nicholls (Thomas Street) Ltd. Other documentation did not disclose that the first-named Defendant had lost the deeds by which the vendors claimed to hold the property. These deeds were not stamped and according to the first- named Defendant, Statutory Declaration of 23rd March 2000, they were being held to the order of the Ulster Bank Ltd. on foot of a solicitor’s undertaking. I think it may be reasonably assumed that the bank lent money on the security of these deeds and had an entitlement to have them. Not central the matters in issue in this case, it appears to me reasonable to assume that at the time of the contract the Defendants, and in particular the first Defendant, could not have been but aware that the deeds were not stamped and that the first- named Defendant knew or ought to have known that the relevant deed(s) were missing. There is a dispute concerning this latter matter in that deeds appear to have been mislaid rather than lost.
The intermediate title to the property was not furnished in accordance with General Condition 7; in response to the objections and requisitions on title sent under cover of a letter of 18th October 1999, and replied to by the vendor on 3rd March 2000, the reply to the requisition and the capacity of the vendor to sell the property was stated to be “to follow”. The fact that the deed was missing was not advised to the solicitors to the Plaintiff until apparently in or around 20th March 2000.
On or about 22nd March 2000, an extract from a contract dated 8th February 1994, whereby Mavis O’Toole and Earaonn O’Brien agreed to sell 51/52 Thomas Street to the first and second Defendants for IR£250,000, was furnished, together with two draft statutory declarations. No copy of the missing deed was furnished and no mention was made of the fact that there was an assignment to Lornall Ltd. By Nicholls (Thomas Street) Ltd. of the leasehold interest to number 51 Thomas Street.
A dispute arose as to how much effort was made at that or at any other stage to obtain a copy of the “lost deed” or adequately vouch by statutory declaration its execution, terms or effect. The statutory declarations furnished did not deal with the stamping of the document nor was an arrangement made to have any copy of the deeds stamped with unpaid duty or particulars delivered stamp impressed. A statutory declaration of a Mavis O’Toole of 30th March 2000 was, so far as the
Plaintiff was concerned, from a purchaser’s point of view, inadequate and inaccurate. This did not deal with the separate assignment of the leasehold interest to Lornall Ltd. Matters took a more focused shape in or about 31st March 2000, when the solicitors for the Plaintiff indicated that the Plaintiff was considering putting an end to the contract. This letter was apparently written without prejudice but was referred to freely during the course of the hearing. The Plaintiff’s solicitors expressed themselves in this way:-
“You might advise as to what your clients’ proposals are in respect of our clients’ losses and damages incurred up to this date in respect of this property, together with estate agency fees and legal fees incurred in the event that our client wishes to bring this call of contract to an end.”
The protracted correspondence in which the Defendants as vendor apparently had really failed to address or otherwise provide satisfactory answers to the problems were clearly exercising the mind of the Plaintiff in terms of obtaining a good title. The response of the vendor was quite unequivocal and by a notice dated 4th April 2000, the vendor called upon the Plaintiff to complete the sale within 28 days. The notice invoked the terms of the provisions of a contract for sale. Typically, the Completion Notice stated that:-
“(2) The vendors are ready, willing and able to complete the sale of all that and those, the hereditaments and premises known as 51 and 52 Thomas Street in the City of Dublin, both in respect of the freehold interest and the leasehold interest referred to in the Contract for Sale.”
The intended effect of the notice was to make time of the essence of the contract. The response to this notice was set out in a letter of 17th April 2000, it rejected the purported Completion Notice and asserted that it was invalid on a number of grounds which are enumerated in the course of a long and detailed letter. It expressly stated at paragraph (d):-
“Our client shall continue to reserve its right to rescind the Contract for Sale due to your clients’ failure to satisfy our client in this regard.”
The regard in which it was referred to was in respect of the adjoinment of a certain fire escape at the rear of the premises. The letter concludes in this way:-
“Please further note that our client has instructed us to issue such proceedings as are necessary to protect its rights on foot of the contract entered between our clients and furthermore any attempts by your client to forfeit our clients’ deposit will be counteracted by such appropriate injunctive proceedings against your client and we further put you on notice that we hold and continue to hold your clients responsible for all such losses, damages, costs and expenses incurred by our client as a result of or arising from the various issues raised above.”
The letter was followed up two days later by a further letter of 19th April, in which the purchasers sought once again the proposals of the vendor for “resolving the various issues as set out in our correspondence”. There followed a series of letters in which proposals were shuttled to and forth with a view to resolving the impasse that had arisen. No resolution was arrived at and by letter dated 25th April 2000, the vendor’s solicitors wrote to say:-
“As far as we are concerned, we have adduced little [sic] in accordance with the contract and are ready, willing and able to complete. We have already served a Completion Notice herein which is due to expire on Tuesday next, 2nd May, and interest continues to accrue against your client in the sum of £3,461.53 per week. Upon expiration of the Completion Notice, it is our client’s intention to lease the property from month to month as they are entitled to the rents and profits from the property in addition to the interest claim against your client per condition 25 (a) (2) of the Agreement for Sale herein.”
Whatever may have been the status of the correspondence or the meetings that were taking place at this time, a letter was written on 26th April 2000, by the purchaser’s solicitor, which (inter alia) stated:-
“We further note that at our meeting you confirmed that you have no intention of forfeiting our clients’ deposit and that the purpose of the Completion Notice served by your client, dated 4th April 2000, the validity of which we dispute, was solely for the purpose of taking an action against our client, if needs be, to specifically perform the Contract for Sale. “
The letter went on to note:-
“… we have not received a formal reply to our letter of 17th April 2000, which raises a number of very pertinent and important issues as to the title of the property and to the various contractual issues involved. We would ask you to now respond to what would seem quite a number of letters that we have sent to you, as your only response to date would seem to have been the service of an invalid Completion Notice.”
On 9th May 2000, the vendor’s solicitors wrote to the purchaser’s solicitors enquiring as to whether they had the authority to accept service of specific performance proceedings or whether the clients should be served personally. This met with an unequivocal and important letter of 5th July 2000, from the purchaser’s solicitors, and is pivotal to the case in its entirety and it reads as follows:-
“We refer to previous correspondence in respect of this matter. We wish to advise that we have obtained senior counsel’s opinion and confirm that your client is in breach of contract in this matter. As a result of this breach, our client is entitled to an immediate return of its deposit, together with interest and costs.
We are hereby requesting your client to return the deposit, together with interest, and provide written confirmation that it will discharge our client’s costs for investigating title in this matter within seven days.”
It is the contention of the Plaintiffs that this letter reaffirms a decision on its part to regard the failure to provide proper title, the service of the Completion Notice as a repudiation by the Defendant and the purchaser’s solicitor’s letter is an effective notice of rescission.
The matter is concluded by a latter of 11th July 2000, from the vendor’s solicitors, in the terms as following:-
“We acknowledge receipt of yours of 5th inst. We can advise that we have now located the deeds of assurance to our clients, which were previously missing. We enclose herewith copies of said deeds. We are presently attending to the stamping and registration of said deeds which should be completed by this week.
These documents are sent to you without prejudice or contention that we have already made title to the property
pursuant to the contract herein.”[emphasis added]
The case of the defendant/vendor is that it was at all times ready, willing and able to furnish title in accordance with the terms of its contract and that the objections or requisitions raised by the purchaser were unreasonable and were in fact properly met, that the Completion Notice was a valid notice and at its date the vendor was ready, willing and able to complete the sale in accordance with its obligations. The case of the plaintiff/purchaser was that the Completion was (a) invalid, and (b) by its letter dated 5th July 2000, it had validly and properly rescinded the contract and that the contract was at and end and, accordingly, that it was entitled to have its deposit returned, together with the costs of investigating title and the costs of the proceedings.
I am satisfied as a matter of law that the giver of a notice to complete a sale by which term time is made of the essence was brought into existence is as equally bound thereby as the recipient of the notice (see Quadrangle Development and Construction Co. Ltd. -v- Jenner [1974] 1 WLR 68). I am satisfied that under the language of the clause, the party giving the notice must be ready and willing at the time of the giving of the notice to fulfill his own outstanding obligations under the contract (per Russel LJ in Quadrangle aforesaid at p.71 of the report). Argument was advanced on behalf of the vendor that whatever defects or deficiencies existed in the documentation prior to the service of the Completion Notice were (a) matters of conveyancing only and did not go to title, and (b) that the purchaser could be obligated to accept evidence of a secondary character concerning title, in all the circumstances of the case set out in the documentation.
In this case, I do not believe that to be so. There were too many inconsistences and frailties in the documentation proffered by the Defendant/Vendor to obligate a purchaser to accept the title in the fashion in which it was being piecemeal advanced and with a number of inaccuracies which only heightened the sense of apprehension of the Plaintiff. I find these to be matters of fact. The fact that the Plaintiff queries the validity of the Completion Notice does not detract from the fact that the vendor held themselves out as ready, willing and able to complete the sale as of the date of the notice, and that any time thereafter up to and including the 28 days of its intended effectiveness. It was never withdrawn and the fact that the matters proceeded at a leisurely pace before or thereafter does not detract from that basic fact. As stated by Russel J in Jennez aforesaid, completion of contract is an activity in which parties co-operate and each party agrees to do all that is necessary to be done to carry out the task. A term of which time becomes of the essence binds both parties and the Plaintiff was entitled to terminate the contract on 5th July 2000, both because of the failure by the Defendant to make good title and the Defendant’s inability to complete the contract in accordance with the Completion Notice. In this regard, there was no waiver by the Plaintiff of its entitleme4nt to treat the inability of the Defendants to close the sale as a repudiation of the contract. Protests about the validity of the Completion Notice do not amount to such a waiver. It is true that there is law to the effect that the right to rescind a contract which has been repudiated may be lost unless it is exercised promptly. I am satisfied that it was exercised promptly in the instant case. Subsequent events and occurrences may readily cause a loss of that right; ie, the vendor may be enabled to mend his hand and restore and revert to his original position, but so long as the vendor maintains the position that gives the right to election, then he preserves and keeps open the purchaser’s right.
In this, as in many other cases of vendor and purchaser, when difficulties arise, there is a good deal of posturing taken up in the correspondence and this was conceded in the submissions made to the court. I am satisfied and find as a matter of fact and of law that this case, that as of the date of the service of the Completion Notice the vendor was not in a position of being ready, willing and able to comply with its obligations. The purchase unequivocally and promptly exercised his right of election to rescind. Consequently, the Plaintiffs are entitled to recover the amount of the deposit, together with interest thereon.
END OF JUDGMENT