Performance Required
Cases
Jackson v Union Marine Insurance
(1874) 10 Common Pleas 125
Bramwell B
“ The first question is, whether the plaintiff could have maintained an action against the charterers for not loading; for, if he could, there certainly has not been a loss of the chartered freight by any of the perils insured against.
In considering this question, the finding of the jury that “the time necessary to get the ship off and repairing her so as to be a cargo-carrying ship was so long as to put an end in a commercial sense to the commercial speculation entered into by the shipowner and charterers,” is all important. I do not think the question could have been left in better terms; but it may be paraphrased or amplified. I understand that the jury have found that the voyage the parties contemplated had become impossible; that a voyage undertaken after the ship was sufficiently repaired would have been a different voyage, not, indeed, different as to the ports of loading and discharge, but different as a different adventure,—a voyage for which at the time of the charter the plaintiff had not in intention engaged the ship, nor the charterers the cargo; a voyage as different as though it had been described as intended to be a spring voyage, while the one after the repair would be an autumn voyage.
It is manifest that, if a definite voyage had been contracted for, and became impossible by perils of the seas, that voyage would have been prevented and the freight to be earned thereby would have been lost by the perils of the seas. The power which undoubtedly would exist to perform, say, an autumn voyage in lieu of a spring voyage, if both parties were willing, would be a power to enter into a new agreement, and would no more prevent the loss of the spring voyage and its freight than would the power (which would exist if both parties were willing) to perform a voyage between different ports with a different cargo.
But the defendants say that here the contract was not to perform a definite voyage, but was at some and any future time, however distant, provided it was by no default in the shipowner, and only postponed by perils of the seas, to carry a cargo of rails from Newport to San Francisco; and that, no matter at what distance of time, at what loss to the shipowner, whatever might be the ship’s engagements, however freights might have risen, or seamen’s wages, though the voyage at the time when the ship was ready might be twice as dangerous, and possibly twice as long, from fogs, ice, and other perils, though war might have broken out meanwhile between the country to whose port she was to sail and some other, still she was bound to take and had the right to demand the cargo of the shippers; who in like way had a right to have carried and were bound to find the agreed cargo, or, if that had been sent on already, a cargo of the same description, no matter at what loss to them, and however useless the transport of the goods might be to them. This is so inconvenient, that, though fully impressed with the considerations so forcibly put by Mr. Aspland, and retaining the opinion I expressed in Tarrabochia v Hickie,[1] I think that, unless the rules of law prohibit it, we ought to hold the contrary.
The question turns on the construction and effect of the charter. By it the vessel is to sail to Newport with all possible dispatch, perils of the seas excepted. It is said this constitutes the only agreement as to time, and, provided all possible dispatch is used, it matters not when she arrives at Newport. I am of a different opinion. If this charterparty be read as a charter for a definite voyage or adventure, then it follows that there is necessarily an implied condition that the ship shall arrive at Newport in time for it. Thus, if a ship was chartered to go from Newport to St. Michael’s in terms in time for the fruit season, and take coals out and bring fruit home, it would follow, notwithstanding the opinion expressed in Touteng v Hubbard,[2] on which I will remark afterwards, that, if she did not get to Newport in time to get to St. Michael’s for the fruit season, the charterer would not be bound to load at Newport, though she had used all possible dispatch to get there, and though there was an exception of perils of the seas.
The two stipulations, to use all possible dispatch, and to arrive in time for the voyage, are not repugnant; nor is either superfluous or useless. The shipowner, in the case put, expressly agrees to use all possible dispatch: that is not a condition precedent; the sole remedy for and right consequent on the breach of it is an action. He also impliedly agrees that the ship shall arrive in time for the voyage: that is a condition precedent as well as an agreement; and its non-performance not only gives the charterer a cause of action, but also releases him. Of course, if these stipulations, owing to excepted perils, are not performed, there is no cause of action, but there is the same release of the charterer. The same reasoning would apply if the terms were, to “use all possible dispatch, and further, and as a condition precedent, to be ready at the port of loading on June 1st.” That reasoning also applies to the present case. If the charter be read, as for a voyage or adventure not precisely defined by time or otherwise, but still for a particular voyage, arrival at Newport in time for it is necessarily a condition precedent. It seems to me it must be so read. I should say reason and good sense require it. The difficulty is supposed to be that there is some rule of law to the contrary. This I cannot see; and it seems to me that, in this case, the shipowner undertook to use all possible dispatch to arrive at the port of loading, and also agreed that the ship should arrive there “at such a time that in a commercial sense the commercial speculation entered into by the shipowner and charterers should not be at an end, but in existence.” That latter agreement is also a condition precedent. Not arriving at such a time puts an end to the contract; though, as it arises from an excepted peril, it gives no cause of action.
The same result is arrived at by what is the same argument differently put. Where no time is named for the doing of anything, the law attaches a reasonable time. Now, let us suppose this charterparty had said nothing about arriving with all possible dispatch. In that case, had the ship not arrived at Newport in a reasonable time, owing to the default of the shipowner, the charterers would have had a right of action against the owner, and would have had a right to withdraw from the contract. It is impossible to hold that, in that case, the owner would have a right to say, “I came a year after the time I might have come, because meanwhile I have been profitably employing my ship: you must load me, and bring your action for damages.” The charterers would be discharged, because the implied condition to arrive in a reasonable time was not performed. Now, let us suppose the charter contains, as here, that the ship shall arrive with all possible dispatch,—I ask again, is that so inconsistent with or repugnant to a further condition that at all events she shall arrive within a reasonable time? or is that so needless a condition that it is not to be implied? I say certainly not. I must repeat the foregoing reasoning. Let us suppose them both expressed, and it will be seen they are not inconsistent nor needless. Thus, I will use all possible dispatch to get the ship to Newport, but at all events she shall arrive in a reasonable time for the adventure contemplated. I hold, therefore, that the implied condition of a reasonable time exists in this charter. Now, what is the effect of the exception of perils of the seas, and of delay being caused thereby? Suppose it was not there, and not implied, the shipowner would be subject to an action for not arriving in a reasonable time, and the charterers would be discharged. Mr. Benjamin says the exception would be implied. How that is, it is not necessary to discuss, as the words are there: but, if it is so, it is remarkable as shewing what must be implied from the necessity of the case.
The words are there. What is their effect? I think this: they excuse the shipowner, but give him no right. The charterer has no cause of action, but is released from the charter. When I say he is, I think both are. The condition precedent has not been performed, but by default of neither. It is as though the charter were conditional on peace being made between countries A. and B., and it was not; or as though the charterer agreed to load a cargo of coals, strike of pitmen excepted. If a strike of probably long duration began, he would be excused from putting the coals on board, and would have no right to call on the shipowner to wait till the strike was over. The shipowner would be excused from keeping his ship waiting, and have no right to call on the charterer to load at a future time. This seems in accordance with general principles. The exception is an excuse for him who is to do the act, and operates to save him from an action and make his non-performance not a breach of contract, but does not operate to take away the right the other party would have had, if the non-performance had been a breach of contract, to retire from the engagement: and, if one party may, so may the other. Thus, A. enters the service of B., and is ill and cannot perform his work. No action will lie against him; but B. may hire a fresh servant, and not wait his recovery, if his illness would put an end, in a business sense, to their business engagement, and would frustrate the object of that engagement: a short illness would not suffice, if consistent with the object they had in view. So, if A. engages B. to make a drawing, say, of some present event, for an illustrated paper, and B. is attacked with blindness which will disable him for six months, it cannot be doubted that, though A. could maintain no action against B., he might procure some one else to make the drawing. So, of an engagement to write a book, and insanity of the intended author. So, of the case I have put, of an exception of a strike of pitmen.
There is, then, a condition precedent that the vessel shall arrive in a reasonable time. On failure of this, the contract is at an end and the charterers discharged, though they have no cause of action, as the failure arose from an excepted peril. The same result follows, then, whether the implied condition is treated as one that the vessel shall arrive in time for that adventure, or one that it shall arrive in a reasonable time, that time being, in time for the adventure contemplated. And in either case, as in the express cases supposed, and in the analogous cases put, non-arrival and incapacity by that time ends the contract; the principle being, that, though non-performance of a condition may be excused, it does not take away the right to rescind from him for whose benefit the condition was introduced.
On these grounds, I think that, in reason, in principle, and for the convenience of both parties, it ought to be held in this case that the charterers were, on the finding of the jury, discharged.
It remains to examine the authorities. The first in date relied on by the defendants is Hadley v Clarke.[3] Now, it may safely be said that there the question was wholly different from the present. There was no question in that case as to the performance of a condition precedent to be ready at a certain or within a reasonable time, or such a time that the voyage in question, the adventure, should be accomplished and not frustrated. That condition had been performed: the ship had loaded and sailed in due time. The plaintiff had had a part of the benefit intended. The defendant had in justice earned part of his freight. Had the plaintiff demanded his goods at Falmouth, he ought to have paid something for their carriage there. He could not, therefore, well have said that he would not go on with the adventure, but undo it. But, if I am right, unless both could, neither could. Further, in that case there was no finding, nor anything equivalent to a finding, that the objects of the parties were frustrated. This case is therefore in every way distinguishable.
Then, there is the case of Touteng v Hubbard.[4] The opinion there expressed was obiter,—of weight, no doubt; but not of the same weight it would have been had it been the ratio decidendi. I cannot think that it would have been so held, had it been necessary to act on it. To hold that a charterer is bound to furnish a cargo of fruit at a time of year when there is no fruit,—at a time of year different to what he and the shipowner must have contemplated, the change to that time being no fault of his, but the misfortune at best of the shipowner,—is so extravagant, when the consequences become apparent, that it could not be. Suppose a charter to fetch a cargo of ice from Norway, entered into at such a time that the vessel would reach its destination, with reasonable dispatch, in February, when there was ice, and bring it back in June, when ice was wanted, and by perils of the seas it could not get to Norway till the ice was melted, nor return till after ice was of no value: can it be that the charterer would be bound to load? that he had agreed in those events to do so?
Another case is Hurst v Usborne.[5] That is a case of which, if I knew no more than I learn from the books, I should say it did not decide the question we have before us. It is true that the report in the Law Journal,[6] as Mr. Aspland pointed out, says that Mr. Justice Cresswell said he knew of no time the shipowner was bound to, except to use reasonable dispatch. Still, I cannot see from the reports that the point now before us was presented to the judges in that case. My Brother Blackburn, who was counsel in the cause, says it was intended to raise this point by the evidence that was rejected at nisi prius. No doubt, therefore, that was so; but I cannot think it so understood by the Court. I see no adjudication on it. Mr. Butt pointed out that the charter was for barley or other lawful merchandise. Even if for barley only, it does not appear that barley might not have been stored at Limerick, nor that barley from Limerick arriving in England at the time it would, had the defendant loaded, would not have been as valuable as barley arriving earlier. I cannot but think it was a hasty decision: a rule was refused; and certainly one would think, after the argument we have heard, that the matter was worth discussing. At the same time, its tendency is favorable to the defendants. I think it is unsatisfactory, and, if a decision on the question now before us, wrong. Mr. Justice Willes did not seem to be of opinion that the law was as he is supposed to have laid it down in that case: see his judgment in M’Andrew v Chapple,[7] where, indeed, there had been a breach of his contract by the shipowner; but the observations are general. I may also properly refer to the opinions, if not of myself, of my Brothers Blackburn and Brett in Rankin v Potter.[8] They undoubtedly assume the law to be as the plaintiff contends.
There is also Geipel v Smith,[9] nearly if not quite in point. The shipowner there was excused, not merely for refusing to take a cargo to a port which became blockaded after the charter, but also in effect for refusing to do so after the blockade was removed. Restraint of princes not only excused, but discharged him. The same, no doubt, would have been held as to the charterers.
Then, there are the cases which hold that, where the shipowner has not merely broken his contract, but so broken it that the condition precedent is not performed, the charterer is discharged: see Freeman v Taylor.[10] Why? Not merely because the contract is broken. If it is not a condition precedent, what matters it whether it is unperformed with or without excuse? Not arriving with due diligence, or at a day named, is the subject of a cross action only. But, not arriving in time for the voyage contemplated, but at such a time that it is frustrated, is not only a breach of contract, but discharges the charterer. And so it should, though he has such an excuse that no action lies. Taylor v Caldwell[11] is a strong authority in the same direction. I cannot but think, then, that the weight of authority, as might be expected, is on the side of reason and convenience.
On the other question, viz. whether, though the charterers by perils insured against had a right to refuse to load the cargo, there has been a loss of freight by perils of the seas,—I am of opinion there has been.
It was argued that the doctrine of Causa proxima, non remota, spectetur, applies; and that the proximate cause of the loss of the freight here was, the refusal of the charterers to load. But, if I am right, that the voyage, the adventure, was frustrated by perils of the seas, both parties were discharged, and a loading of cargo in August would have been a new adventure, a new agreement. But, even if not, the maxim does not apply. The perils of the seas do not cause something which causes something else. The freight is lost unless the charterers choose to go on. They do not. In the case of goods carried part of the voyage, and the ship lost, but the goods saved, the shipowner may carry them on if he chooses, but is not bound. Suppose he does not, his freight is lost. So, if he does not choose to repair a vessel which remains in specie, but is a constructive total loss.
For these reasons, I think the judgment should be affirmed.
My Brothers Blackburn, Mellor, and Amphlett agree in this judgment; as does my Brother Lush, who, however, heard part only of the argument.”
Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos)
[1970] EWCA Civ 4 [1971] QB 164, [1970] 3 All ER 125, [1970] 2 Lloyd’s Rep 43, [1970] 3 WLR 601, [1971] 1 QB 164,
THE MASTER OF THE ROLLS:
The material facts are these. On 35th May, 1965, the shipowners let the steamer Mihalis Angelos to the charterers for a voyage from Haiphong, in North Vietnam, to Hamburg or other port in Europe. In the charter party the shipowners said that she was “expected ready to load under this charter about 1st July, 1965”. The vessel was to proceed to Haiphong and then load a cargo of apatite and carry it to Europe. There was a cancelling clause in case the vessel was not ready to load by 20th July, 1965.
The owners were quite wrong in saying she was “expected to load on 1st July” at Haiphong. They had no reasonable grounds for any such expectation. On 25th May, 1965, the date of the charter, the Mihalis Angelos was in the Pacific on her way to Hong Kong. She was not expecting to reach Hong Kong until 25th or 26th Jure., She would need fourteen days to discharge, thus taking it to 9th or 10th July. She had to have a special survey of two days. That took it to 11th or 12th July. She would take two days from Hong Kong to Haiphong. So she could not reasonably be expected to arrive at Haiphong until 15th or 14th July. Yet the shipowners, quite wrongly, said she was expected to arrive on 1st July.
In point of fact, she made up time across the Pacific, and arrived at Hong Kong on 23rd June: but the discharge at Hong Kong was unexpectedly prolonged. She did not complete it until 23rd July. Meanwhile, however, the charterers had their own troubles. They discovered there was no apatite ore available at Haiphong. They thought it was due to the War in North Vietnam. It was said that the Americans had bombed the railway line to the port. On 17th July, 1965, the charterers cancelled the contract as a case of force majeure. The ship-owners accepted this information as a repudiation of the contract. They did not charter the vessel to anyone else. Instead they sold her on 29th July as she lay in Hong Kong.
The Arbitrators found that if the ship, after discharge at Hong Kong, had proceeded to Haiphong, the charterers would, beyond doubt, have cancelled the charter on the ground that the ship had missed her cancelling date. So the owners, in fact, lost nothing. But they claimed damages on the footing that they lost the charter on 17th July and were entitled to £4,000 damages. The Arbitrators rejected the claim, but the Judge allowed it.
The first point arises on the clause by which the charterers said that the vessel was “expected to arrive ready to load about 1st July, 1965”. The charterers said that this was a condition of the contract: and that it was broken because the owners had no reasonable grounds for any such expectation. The Arbitrators found that “on 25th May, 1965, the owners could not reasonably have estimated that the Mihalis Angelos could or would arrive at Haiphong about 1st July, 1965”.
The charterers did not take this point on 17th July, 1965, when they cancelled the charter. They put it on the ground of force majeure. But the owners admit that, if this point is a good one, the charterers can rely on it. The fact that a contracting party gives a bad reason for determining it does not prevent him from afterwards relying on a good one when he discovers it: see British & Beningtons v. Cachar (1923 A.C.,48 at 71-2) by Lord Sumner.
The contest resolved itself simply into this. Was the “expected ready to load” clause a condition, such that for breach of it the charterers could throw up the charter? Or was it a mere warranty such as to give rise to damages if it was broken, but not to a right to cancel, seeing that cancellation was expressly dealt with in the cancelling clause?
Sir Frederick Pollock divided the terms of a contract into two categories; Conditions and Warranties. The difference between them was this: If the promisor broke a condition in any respect, however slight, it gave the other party a right to be quit of his future obligations and to sue for damages: unless he by his conduct waived the condition, in which case he was bound to perform his future obligations but could sue for the damage he suffered. If the promisor broke a warranty in any respect, however serious, the other party was not quit of his future obligations. He had to perform them. His only remedy was to sue for damages.
This division was adopted by Sir Mackenzie Chalmers when he drafted the Sale of Goods Act, and by Parliament when it passed it. It was stated by Lord Justice Fletcher Moulton, in his celebrated dissenting judgment in Wallis v. Pratt (1910, 2 K.B., 1003, at 1012), which was adopted in its entirety by the House of Lords in 1911 A.C., 394.
It would be a mistake, however, to look upon that division as exhaustive. There are many terms of many contracts which cannot be fitted into either category. In such cases the Courts, for nigh on 200 years, have not asked themselves: Was the term a condition or warranty? But rather: Was the breach such as to go to the root of the contract? If it was, then the other party is entitled, at his election, to treat himself as discharged from any further performance. That is made clear by the judgment of Lord Mansfield in Boone -v- Eyre (1777, 1 H.B1., 273); and by the speech of Lord Blackburn in Mersey v. Naylor (1834, 9 A.C., 434, at 443-4); and the notes to Cutter v. Powell (2 Smith’s Leading Cases, at 16-18). The case of Hongkong Fir Shipping Co. v. Kawasaki Kisen Kaisha (1962, 2 Q.B., 26) is a useful reminder of this large category.
Although this large category exists, there is still remaining a considerable body of law by which certain stipulations have been classified as “conditions” so that any failure to perform, however slight, entitles the other to treat himself as discharged. Thus a statement in a charter-party on 19th October, 1860, that the ship is “now in the port of Amsterdam” was held to be a “condition”. On that date she was just outside Amsterdam and could not get in owing to strong gales. But she got in a day or two later when the gales abated. The Court of Exchequer Chamber held that the charterer was entitled to call off the charter: see Behn v. Burness (1863, 3 B. & S., 751), overruling the Court of Exchequer (1862, 1 B. & S., 877).
The question in this case is whether the statement by the owner: “expected ready to load under this charter about 1st July, 1965” is likewise a “condition”. The meaning of such a clause is settled by a decision of this Court. It is an assurance by the owner that he honestly expects that the vessel will be ready to load on that date and that his expectation is based on reasonable grounds* see Sanday v. Keighley, Maxted & Co. (1922, 27 Commercial Cases, 296). The clause with that meaning has been held in this Court to be a “condition” which, if not fulfilled, entitled the other party to treat himself as discharged; see Finnish Government v. Ford (1921, 6 Lloyds List Reports, 188). Those were Sale of Goods cases. But I think the clause should receive the same interpretation in charter party cases. It seems to me that, if the owner of a ship or his agent states in a charter that she is “expected ready to load about 1st July, 1965” he is making a representation as to his own state of mind; that is, of what he himself expects: and, what is more, he puts it in the contract as a term of it, binding himself to its truth. If he or his agent breaks that term by making the statement without any honest belief in its truth or without any reasonable grounds for it, he must take the consequences. It is at lowest a misrepresentation which entitles the other party to rescind- and at highest a breach of contract which goes to the root of the matter, The charterer, who is misled by the statement is entitled, on discovering its falsity, to throw up the charter. It may, therefore, properly be described as a “condition”.
I am confirmed in this view by the illustration given by Lord Justice Scrutton himself in all the editions of his work on charter parties: “A ship was chartered ‘expected to be at X about the 15th December… shall with all convenient speed sail to X’. The ship was in fact then on such a voyage that she could not complete it and be at X by 15th December. Submitted that the charterer was entitled to throw up the charter”.
I do not regard the case of Associated Portland Cement Manufacturers v. Houlder Bros. (1917, 22 Comm.Cas., 279) as any authority to the contrary. The facts are too shortly reported for any guidance to be got from it.
I hold, therefore, that on 17th July, 1965, the charterers were entitled to cancel the contract on the ground that the owners had broken the ”expected ready to load” clause. In case I am wrong, however, I go on to consider the charterers’ second point. They say that they were entitled to cancel on that day under the cancelling clause, which reads:
“(11) Should the vessel not be ready to load (whether in berth or not)on or before 20 July ’65 Charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessel’s expected arrival at port of loading”.
The charterers said that on 17th July, 1965, it was plain that the vessel would not be ready to load on or before 20th July, 1965: and on that account they were entitled to cancel the charter. But the shipowners said that the charterers could not exercise the option until 20th July, 1965, after office hours on that day.
We were referred to the antecedents of this clause. The part “…such option to be declared”, etc. was inserted to modify the decision of this Court in Moel Tryvan v. Andrew Weir (1910, 2 K.B., 844). We were also referred to The “Helvetia -S” (1960, 1 LlL.R., 540 at 551), and to The “Madeleine” (1967, 2 LlL.R., 224), where the Judges said, of a somewhat similar clause, that a charterer cannot exercise the option to cancel before the cancelling date. That is simply not true of this present clause. Suppose that the vessel was delayed so that she was not expected to arrive at the port of loading until 21st July: and that on 15th July they told the charterer: “She will not be able to arrive until 21st July. Please declare your option”. The charterer would be bound, under this clause, to declare his option at least by 19th July. So on those facts the charterer would not only be entitled, but would be bound, to exercise it before the cancelling date. Seeing that result, it seems to me that the clause is a concise way of expressing this meaning:
“Should the vessel not be ready to load (whether in berth or not), or be in such a position that she will not be ready to load on or before 20th July, 1965, Charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessel’s expected arrival at port of loading”.
So expanded, the clause means that the charterers have the option of cancelling the contract as soon as it becomes plain that the vessel cannot possibly be ready to load on or before 20th July, 1965. This is a sensible interpretation: because, as a matter of commercial convenience, it is better for both sides that, when it is obvious that the vessel will not arrive in time, the charterer should be able to cancel. The charterer can then engage another vessel: and the ship-owner can use his ship elsewhere.
I limit myself, of course, to saying that the charterer is entitled to exercise his option before the cancelling date: not that he is bound_ to exercise it before that date, save in the circumstances described in the second part of the sentence. The Moel Tryvan case still holds good to show that the charterer is not bound to exercise it.
Mr Goff submitted that in any case the charterers cannot rely on the clause, for this reason; They did not exercise the option given to them by the clause. They did not cancel on the ground that the vessel would not be ready to load on or before 20th July, 1965. They cancelled on the ground of force majeure, i.e., that they themselves could not load the vessel. But I think that the principle stated by Lord Sumner in British & Beningtons applies here also. If they had a right to cancel on 17th July, they can rely on it, even though they gave a wrong reason for it. I would hold, therefore, that the charterers on 17th July were entitled to cancel under the cancelling clause.
In case I am wrong on this second point, I come to the third point, It proceeds on the footing that the charterers were wrong in cancelling or. 17th July, 1965, If so, their cancellation was a renunciation of their contract to load the vessel when she arrived at Haiphong. The shipowners accepted this renunciation and called off the charter. They are entitled to damages, But what are the damages? The Arbitrators found that, if the vessel had sailed to Haiphong, the charterers would beyond_ doubt have cancelled the charter, and would be within their rights then in so doing. So the shipowner suffered no loss.
The Arbitrators on this account awarded the shipowners only nominal damages. But the Judge, with regret, found they were entitled to damages of £4,000.
The reason, as I understand it, was as follows:-
The shipowners are entitled to damages for “anticipated breach” of contract. The Court must, therefore, accept that there would inevitably have been a breach by the charterers if the contract had run its full course. The Court cannot listen to any argument which says that the charterers would have committed no breach, not even in reduction of damages.
This reasoning was supported by the statement of Chief Justice Cockburn in Frost v. Knight (1872, L.R., 7 Ex.Cas., at 114):
“The eventual non-performance may, therefore, by anticipation, be treated as a cause of action…”;
and of Mr Justice Devlin in Universal Cargo Carriers v.Citati (1957, 2 Q.B.,401, at 438):
“The injured party is allowed to anticipate an inevitable breach”.
I think that the argument is rooted in fallacy. The words “anticipatory breach” are misleading. The cause of action is not the future breach. It is the renunciation itself. I venture to quote the notes to Cutter v. Powell (2 Smith’s Leading Cases, at 30):
“It is of the essence of every contract that each party thereto should have the right to consider it as of binding force from the moment it is made and should have the right to base his conduct on the expectation of its being fulfilled by the other party. If, therefore, the other side by an unqualified refusal to perform his side of the contract, destroys that expectation, he destroys that which is the basis of the contract: and his conduct may be treated as a breach going to the whole of the consideration”.
Seeing that the renunciation itself is the breach, the damages must be measured by compensating the injured party for the loss he has suffered by reason of the renunciation. You must take into account all contingencies which might have reduced or extinguished the loss. That is made clear by the very first case in which that doctrine of anticipatory breach was established, in Hochster v. De la Tour itself (1853, 2 E. & B. at 686-7). It follows that if the defendant has under the contract an option which would reduce or extinguish the loss, it will be assumed that he would exercise it. Again, if it is reasonable for him to take steps to mitigate his loss, he must do it. And so forth. In short, the Plaintiff must be compensated for such loss as he would have suffered if there had been no renunciation: but not if he would have lost nothing.
Seeing that the charterers would, beyond doubt, have cancelled, I am clearly of opinion that the shipowners suffered no loss; and would be entitled at most to nominal damages. On this point the two experienced Arbitrators (one on each side) were quite agreed. I agree with them. I would allow the appeal and restore the Award, which adjudged that the claim of the owners failed.
LORD JUSTICE EDMUND DAVIES:
The two broad questions raised by this appeal may be thus stated;
(1) On 17th July, 1965, did the charterers of the vessel Mihalis Angelos commit an anticipatory breach of their contract with the shipowners?
(2) If they did, are the owners entitled to recover more than nominal damages?
By their admirably clear and helpful Award, the Arbitrators answered the first question in the affirmative. But they considered that the second question called for a negative answer and, as the charterers had tendered £5 at a sufficiently early date, they held that the owners’ action failed. The learned Judge upheld their finding in relation to the first question but held that the second question must be answered in the affirmative and awarded the owners £4,000 damages.
While these two questions summarise the basic matters raised by this appeal, they have been considered before us under three heads, and it seems right that I should indicate my conclusions regarding each of them.
Issue A. Clause 1 of the Charter party of 25th May, 1965, stated that the Mihalis Angelos was “expected ready to load under this Charter about the 1st July, 1965”. These words mean that, in the light of the facts known to the owner at the time of making the contract, he honestly expected that the vessel would be ready as stated and, further, that such expectation was based on reasonable grounds; Sanday v. Keighley. Maxted & Co. (1922, 27 Com.Cas., 296).
It is undisputed that in the present case the owner had no reasonable grounds to expect that his ship would be ready to load “about 1st July, 1965”. That Clause 1 was a contractual term is not in issue, and is, in any event, established by Corkling v. Massey (1873 L.R., 8 C.P., 39 5). But what is in dispute is its legal nature. In other words, was it a condition of the contract, a breach of which entitled the charterers to repudiate? Or was it a term which, if broken, restricted the charterers to claiming damages? The owners urge the latter, and rely on Associated Portland Cement Manufacturers v. Houlder Bros. (1917, 22 Com. Cas.,279, at 281), where Mr Justice Atkin said:
“The obligation of the defendants to be ready to load on May 25th by reason of the definite alongside date having been given to the plaintiffs is not in my opinion one which it was of the essence of the contract for them to perform. I think the plaintiffs are merely entitled to recover such carnages as in fact they suffered by reason of the defendants’ delay…”
But as to this Mr Mustill makes two cogent observations:
(a) It does not appear to have been a term of the contract itself that the ship should be ready to load on 25th May, and
(b) the quoted observation of Mr Justice Atkin was obiter, inasmuch as the only question there arising was as to damages for one day’s delay, and whether the term was a condition or not made no difference, as the plaintiffs never sought to treat the term as a condition entitling them to cancel. This last-mentioned case may be contrasted with C. Mathisens v. Smith (1922, 13 LlL.R., 212), where the charter party contained the following clause as to the vessel’s position:
“Now leaving today Birkenhead for Flushing for orders, and expecting to load June 28th-29th”.
Mr Justice Greer said:
“There can be no question that the words ‘leaving Birkenhead for Flushing for orders’ are not mere terms or an independent term of contract, but they are a condition of the contract which gives the charterer every right to say he can cancel… They were untrue, that is to say inaccurate, at the time of the signing of the Charter party, and on that ground the charterers were entitled to cancel, as they did, after they had ascertained the facts”.
It was strenuously argued by Mr Goff, for the owners, that, in the light of Hongkong Fir Shipping Co. v. Kawasaki Risen Kaisha (1962, 2 Q.B., 26), the long-standing dichotomy between conditions and warranties should no longer persist and that, as Lord Justice Diplock put it (at page 70):
“There are, however, many contractual undertakings…which cannot be categorised as being ‘conditions’ or ‘warranties’… Of such undertakings all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a ‘condition’ or a ‘warranty’ For instance, to take Baron Bramwell’s example in Jackson v. Union Marine Insurance Co.Ltd. (L.R. 10 C.P., 125 at 142) itself, breach of an undertaking by a shipowner to sail with all possible dispatch to a named port does not necessarily relieve the charterer of further performance of his obligation under the charter party, but if the breach is so prolonged that the contemplated voyage is frustrated, it does have this effect”.
In that case the Court of Appeal held that, although the owners were in breach of the clause in the charter party relating to seaworthiness, the vessel being unseaworthy on delivery by reason of an incompetent engine room staff, seaworthiness was not a condition of the charter party a breach of which entitled the charterer at once to repudiate. Lord Justice Upjohn said, at page 63:
“It is open to the parties to a contract to make it clear either expressly or by necessary implication that a particular stipulation is to be regarded as a condition which goes to the root of the contract, so that it is clear that the parties contemplate that any breach of it entitles the other party at once to treat the contract as at an end. That matter has to be determined as a question of the proper interpretation of the contract”.
He then went on to recall Baron Bramwell’s warning in Tarrabochia v. Hickie (1 H. & N., 183) against the dangers of too readily implying such a condition, but continued:
“Where, however, upon the true construction of the contract, the parties have not made a particular stipulation a condition, it would in my judgment be unsound and misleading to conclude that, being a warranty, damages is necessarily a sufficient remedy”.
In other words, breach of a stipulation which is not a condition strictly so called may nevertheless be such as, in certain circumstances, to entitle the innocent party to treat the contract as at an end. In that case the Court of Appeal held that the initial unseaworthiness did not go so much to the root of the contract that the charterers were then and there entitled to treat the charter party as at an end, for, being due to the insufficiency and incompetence of the crew, the parties must have contemplated that in such an event the crew could be changed and augmented.
An undertaking as to seaworthiness being of obvious importance and yet, in the circumstances of the Hongkong Fir case, being found not to amount to a “condition” the breach of which entitled the charterers at once to repudiate, Mr Goff has urged how much less does clause 1 of the present charter-party import such a condition. With respect, I do not find such an approach convincing, for as Mr Justice Williams said in Behn v. Burness (1865, 3 B. & S., 751, at 759):
“For most charterers, considering winds, markets and dependent contracts, the time of a ship’s arrival to load is an essential fact, for the interest of the charterer… Then if the statement of the place of the ship is a substantial part of the contract, it seems to us that we ought to hold it to be a condition, unless we can find in the contract itself or the surrounding circumstances reason for thinking that the parties did not so intend”.
How ought this matter to be resolved? Notwithstanding the observations in the Hongkong case, if the fact is that a provision in a charter party such as that contained in clause 1 in the present case has generally been regarded as a condition, giving the charterer the option to cancel on proof that the representation was made either untruthfully or without reasonable grounds, it would be regrettable at this stage to disturb an established interpretation. The standard textbooks unequivocally state that such a clause as we are here concerned with is to be regarded as a condition: see, among others, Chitty on Contracts (23rd Edition, “General Principles” Volume, para.598) and Carver (Vol.3, para.355). Even more impressive is the fact that certainly from the 10th Edition and onwards of Scrutton on Charter parties the learned author and his successive editors have “submitted” that such a clause as we are presently concerned with is one the breach of which entitled the charterer to throw up the charter. In sale of goods cases the Courts have for many years held that an analogous provision imported a condition – see, for example, Finnish Government v. H_._Ford Ltd. (1921, 6 L1L.R., 188) and Macpherson, Train & Co. Ltd. v. Howard Ross Ltd. (1955, 1 W.L.R., 641) – and it is difficult to see on what ground a distinction should be drawn in the case of charter-parties.
On these grounds, and particularly having regard to the importance to the charterer of the ability to be able to rely upon the shipowner giving no assurance as to expected readiness save on grounds both honest and reasonable, I would be for holding that clause 1 in the present case imported a condition. That the owners were in breach of it is common ground. It is equally undisputed that, if, as I think, the circumstances entitled the charterers to repudiate on 17th July, the fact that they did so by reliance on an untenable plea of force majeure does not invalidate their act of cancellation. In the result, I would be for reversing the finding of the Arbitrators and of the learned Judge on the first question and for holding that on 17th July, 1965, the charterers were entitled to cancel the charter party, as they in fact purported to do.
If I am right in so holding, that is an end of this case. But, out of respect for the able arguments of learned Counsel, I feel I ought to express the views I have formed regarding the two other questions canvassed before us.
……
I am bound to say that this conclusion has throughout seemed to me both reasonable and ineluctable. Indeed, I confess that I would have regarded the contrary view as unarguable had we not had presented to us by Mr Goff an argument so skilful that he actually succeeded in persuading Mr Justice Mocatta that his clients should recover £4,000 damages, a conclusion at which the learned Judge nevertheless arrived with confessed reluctance. The stages in Mr Goff’s argument are these: In Frost v. Knight (1872 L.R., 7 Ex. Cas., 111), where the defendant had promised to marry the plaintiff as soon as the defendant’s father died but nevertheless married another during his father’s lifetime, it was held that the plaintiff was entitled to recover damages while the father was still alive, Chief Justice Cockburn observing, at page 114, that:
“The contract having been thus broken by the promisor, and treated as broken by the promisee, performance at the appointed time becomes excluded, and the breach by reason of the future non-performance becomes virtually involved in the action as one of the consequences of the repudiation of the contract; and the eventual non-performance may therefore, by anticipation, be treated as a cause of action, and damages be assessed and recovered in respect of it, though the time for performance may yet be remote”.
Mr Goff next relies upon the observations of Mr Justice Devlin in Universal Cargo v. Citati (1957, 8 Q.B., 401), founding himself largely on Hochster v. De la Tour (1853, 2 E. & B., 678), that a renunciation, when acted upon, becomes final and that it is essential to the concept of anticipatory breach that “the injured party is allowed to anticipate an inevitable breach… So anticipatory breach means simply that a party is in breach from the moment that his actual breach becomes inevitable. Since the reason for the rule is that a party is allowed to anticipate the inevitable breach and is not obliged to wait till it happens, it must follow that the breach which he anticipates is of just the same character as the breach which would actually have occurred if he had waited”.
Upon this basis Mr Goff skilfully constructed an elaborate submission that, since one is proceeding here on the basis that on 17th July, 1965, the charterers committed an anticipatory breach of the charter party, it was no longer open to them to assert that, on the very belated arrival of the vessel at Haiphong, they could invoke the right to cancel conferred by clause 11. In other words, one is driven to assume an actual breach of the charter party being committed by the charterers, and the submission made was that this involved assuming that the charterers, being obliged to load a cargo of apatite, wrongfully refused to load any cargo at all. Influenced by Mr Goff’s persuasive argument, Mr Justice Mocatta said, at page 19-A:
“Once there is a renunciation and an acceptance of it, there is in the eyes of the law a breach and the contract is at an end, but the assumed (and, in law, inevitable) failure to perform is one at a date in the future when performance would have been required had there been no anticipatory breach. It is in relation to that assumed future breach of contract, which by law is anticipated, that damages will have to be assessed. Here, on the facts, the assumed breach can only be a failure to load; omission to exercise an option to cancel can never be a breach of contract”,
I am afraid it has to be said, though with the greatest respect, that this approach leads to a result so manifestly unrealistic that there must surely be something wrong with it. And so there is, in my judgment. As Mr Mistill clearly brought out, the underlying fallacy is in assuming that the anticipatory breach was one which presupposes that the right to cancel will not be exercised – in other words, that you must always anticipate not only a breach, but the worst breach. But the true test in a case of anticipatory breach is: “What would the position of the parties have been if the defendant had not wrongly announced his refusal to fulfil his part of the contract when the time for performance arrived?” One must look at the contract as a whole, and if it is clear that the innocent party has lost nothing, he should recover no more than nominal damages for the loss of his right to have the whole contract completed. The assumption has to be made that, had there been no anticipatory breach, the defendant would have performed his legal obligation and no more. “A defendant is not liable in damages for not doing that which he is not bound to do” (per Lord Justice Scrutton in Abrahams v. Reiach (1922, 1 K.B. , 477, at 482), cited with approval by Lord Justice Diplock in Laverack v. Woods & Co. (1967, 1 Q.B., 278, at 293). In the light of the Arbitrators’ finding, it is beyond dispute that, on the belated arrival of the Mihalis Angelos at Haiphong, the charterers not only could have elected to cancel the charter party, but would actually have done so. The rights lost to the owners by reason of the assumed anticipatory breach were thus certain to be rendered valueless. It follows from this that, in my judgment, the Arbitrators were right in holding that, in the circumstances, the claim of the owners for damages should be dismissed.
As to the appeal as a whole, for the reasons given in relation to Issue A, I concur in holding that it should be allowed and judgment entered for the charterers.
Zuphen v. Kelly Technical Services (Ireland) Ltd.
[2000] IEHC 117 (24th May, 2000)
JUDGMENT of Mr Justice Roderick Murphy delivered the 24th day of May, 2000.
1. The Plaintiffs are South African technicians and the first and second named Defendants are each a recruitment company of which the third and fourth named Defendants are directors.
2. By Plenary Summons dated the 13th January, 2000 the several Plaintiffs claim a declaration that the purported determination of their employment under contracts of employment entered into on the 27th September, 1999 with the first and/or second named Defendant is null, void and of no effect and is valid and subsisting until the 27th September, 2000.
3. The Plaintiffs also claim salaries due from the 22nd December, 1999, damages and restraining orders.
4. By Order dated the 13th January, 2000 O’Sullivan J. made certain orders in relation to the replying Affidavit to be served on the Intended Plaintiffs; to the delivery of a Statement of Claim within seven days and the delivery of a Defence within a further seven days.
5. By Defence dated the 10th February, 2000 the Defendants, inter alia, pleaded that the performance of the agreements which the second named Defendant concluded with the Plaintiffs became impossible of performance without any fault on the part of the Defendants or any of them and that the agreements were thereby frustrated.
6. The particulars of frustration contained in the Defence was stated as follows:
“It was at all times understood between the Plaintiffs and the second named Defendant that the retention of the Plaintiffs by the second named Defendant was to be in the context of carrying out work on behalf of Eircom Plc and in late December, 1999 the said Eircom work was no longer available as Eircom Plc indicated to the second named Defendant that it would not be requiring it to carry out any further. (sic). This was not due to any default on the part of the Defendants or any of them.”
7. By reply dated 3rd March, 2000 the Plaintiffs, inter alia, denied that the performance of their agreements with the second named Defendant became impossible of performance without any fault of the part of the Defendants or any of them and denied that the agreements were thereby frustrated. The Plaintiffs denied that, in the premises, the Defendants and each of them were discharged from performance of the said agreements. By way of further special reply, the Plaintiffs plead that the Defendants were estopped from claiming that the agreements were frustrated because the Defendants gave the Plaintiffs unambiguous assurances that the agreements would be for at least one year.
8. Furthermore, the Plaintiffs deny that the contracts were frustrated without any fault on the part of the Defendants, or any of them, because the contract entered into by the second named Defendant and Eircom Plc provided that Eircom could only terminate the contract on the grounds of specified breach by the second named Defendant on grounds set out at clause 47 of that agreement. In the premises, the Plaintiffs plead that the termination of the contract between the second named Defendant and Eircom Plc was caused wholly and/or exclusively as a result of the breach of contract and/or negligence and/or fault of the second named Defendant, its servants or agents.
9. In addition the Plaintiffs deny that at all times it was understood between the Plaintiffs and the second named Defendant that the retention of the Plaintiffs by the second named Defendant was to be in the context of carrying out work on behalf of Eircom Plc and that in late December, 1999 the said Eircom work was no longer available as Eircom Plc indicated to the second named Defendant that it would not be requiring it to carry out any further work. The Plaintiffs further deny that this withdrawal was not due to any fault on their part.
10. The Plaintiffs also plead that if there were any frustration of the contract between Eircom Plc and the second named Defendant (which is denied) then the same was induced by the second named Defendant through its own fault.
11. An amended Statement of Claim was delivered on the 8th March, 2000 which gave particulars of the agreements and of damage, loss, distress and inconvenience.
12. By Notice of Preliminary Issue dated 24th March 2000 the Plaintiffs and the Defendants agreed and the Court ordered as follows:
“That this Honourable Court does direct the trial of the issue of frustration as the sole issue of liability in these proceedings (save for the contention of the Defendants that the Plaintiffs listed under Schedule 1 thereof resigned and/or terminated their contracts with the Defendants, which said resignation and/or termination gave rise to a termination of any liability to those Plaintiffs on the part of the Defendants, which issue shall be tried along with the assessment of damages in the event of the Plaintiffs in the action succeeding on the issue of frustration before this Honourable Court).”
13. A subpoena duces tecum was served on the Company Secretary of Eircom Plc on the 5th April, 2000.
14. By amended reply and Defence to counter claim delivered the 6th April, 2000 the Plaintiffs denied that they terminated or repudiated their contract of employment or agreed to release the Defendants from the contractual obligations and that the Defendants are estopped from so contending.
EVIDENCE
15. The matter came before the Court on Tuesday 11th April. It was agreed that the Defendants, in respect of the preliminary issue would first give evidence.
16. Mr Patrick O’Flaherty, the financial director of the first named Defendant, gave evidence of two distinct contracts.
17. The first was a contract of May, 1999 in respect of the Galway area which involved a dead network requiring a copper jointer’s skills which required less responsibility than working on the existing live network. The first named Defendant employed predominantly Irish copper jointers under this contract which is still ongoing.
18. The second contract of the 30th September, 1999 related to upgrading and maintaining the existing “live” network in Dublin. Eircom Plc (“Eircom”) had told Mr O’Flaherty that 250 workers would be needed and the first named Defendant stated that they could supply 80. That contract was based on the general conditions of the May, 1999 contract but with a difference of the basis of payment and an accreditation course. 70 were employed as copper jointers in Dublin; 6 went to Galway and 4 to Athlone because of the demand there. The worksheets were completed by the first named Defendant and signed by an Eircom supervisor. Mr O’Flaherty stated that the funding for the contract of the 30th September came out of capital which was a separate budget in respect of the Dublin contract with Eircom.
19. On the 23rd December, 1999 Eircom had overpaid on that budget. The first named Defendant offered to postpone receiving payment until April. However, this was refused by Eircom. Mr O’Flaherty told the Plaintiffs who then commenced these proceedings. He tried to get work for them in Eircom. There was no resumption of the work in Dublin. He said that the first named Plaintiff never had any intention of taking the Plaintiffs other than for the work with Eircom. He had assumed that the work was secure until March, 2000. However, work was no longer available. He was able to secure some employment with British Telecom in London, Northern Ireland and in Ireland.
20. Under cross-examination Mr O’Flaherty agreed that the contract with Eircom of May, 1999 gave no entitlement to any particular level of work. He did not have any dealings with the advertising in South Africa. He agreed that the recruitment of 70 in South Africa proceeded before the written memo of the 30th September, 1999 was executed with Eircom. While there was no form of commitment from Eircom he did not feel it improper to rely on Eircom and felt able to make a judgment call.
21. He agreed that the general agreement, at paragraph 2.1, provided that work should be “allocated as the need arises”. The notification of the requirement was received orally in August, 1999 according to his recollection. The figure of 80 followed on his colleague Mr Hartnett visiting South Africa in September, 1999 to recruit copper jointers. He did not agree that the terms offered to the intending workers was prior to a commitment from Eircom. That commitment was verbal that they needed 250 and that the Defendants would provide 80.
22. He agreed that the contract letters dated the 17th September, 1999 to the Plaintiffs offered secure employment conditional on their being available in Dublin on the 29th October, 1999 and having a work permit. Mr O’Flaherty said that his company had been advised that the need was there and that there was no necessity to make the contracts conditional on that work being available.
23. It was not the fault of the Defendant companies that Eircom could not provide any other work. Mr O’Flaherty agreed that the letter of 16th November, 1999 from the first named Defendant to Eircom regarding increases of £30 – £34 per hour was sent but denied that it had anything to do with the termination by Eircom. There was no written response to such a request. He agreed that there was less profit on pressurisation work. A letter dated the 5th January, 2000 from Eircom to the first named Defendant referred to a complaint in relation to the Dublin contract was received by all contractors. He attended a meeting on the 15th March, 2000 to discuss the concerns of Eircom and a discount for the amount charged on work. There was no prospect of new work. However, under “Tender 2000” he expected that Eircom would have additional work which will involve the Access Network Programme. He understood that the Defendant company would be given different work under that programme.
24. He said he was in South Africa in March, 2000.
25. The Plaintiffs were told that there would be recommencement of work not under the September agreement but under the “Access Network Programme 2000”.
26. In relation to the letter of the 23rd March, 2000 Mr Hartnett to Mr Foy of Eircom he agreed that the reference to failure of project to deliver related to Eircom’s contention that there was a failure. The letter of the 5th January, 2000 evidenced the unhappiness of Eircom prior to the ending of the contract on the 7th January, 2000. Mr O’Flaherty disputed the fact that there was a failure. There had been a problem regarding a shortage of tools and equipment. However, at a meeting on the 22nd November, 1999 assurances were given that the employees would be looked after.
27. Mr Martin Cooper, head of Regulation and Costing of Eircom and head of Outsourcing in May, 1999 referred to the contract for the Galway work in May, 1999 and to the September, 1999 contract for the Dublin region which was black spot and pressurisation work.
28. He agreed that the memo of the 30th September, 1999 relating to a meeting between the first named Defendant and Eircom put in writing some of the discussion. He would not describe it as a contract document but as a reflection of what was discussed. He agreed that the Galway project was primarily a capital budget expenditure as was the Dublin pressurisation project. However, the black spot element of the work was a current budget expenditure.
29. He also agreed that the accreditation course for Dublin was one day longer than that for Galway.
30. The work slowed down before Christmas and no further work was given to the first named Defendant after Christmas. From the 7th January, 2000 only authorised work would be paid for. There was no performance issue – the letter of the 5th January was not the reason that they did not get work as there was no work for other contractors.
31. The 2000 contract was mainly general work in respect of new contracts.
32. On cross-examination Mr Cooper agreed that the memo of the 30th September, 1999 was not a contract but gave an indication that there was work. There was no contractual commitment by Eircom. He could not say if there would be more work after Christmas.
33. Mr Brian Hartnett, Operating Director of the Defendant companies was involved in the tendering process. He was asked by Eircom how many technicians could the Defendant company provide and he agreed to provide them with 70.
34. On the 31st August, 1999 he went to South Africa and sent letter to prospective employees with draft terms and conditions. Confirmation would be received once they came to Dublin Airport and presented themselves. There were taken in batches. They had to undergo accreditation process here. They were paid £10 per hour on the course and £14 per hour when working. A unit rate rather than an hourly rate applied to payments by Eircom to the Defendant companies.
35. On the 21st December, 1999 Mr Cooper rang Mr Declan Kelly the fourth named Defendant and indicated that the network upgrade was to stop. The Plaintiffs were informed on the 5th January, 2000 informally and on the 11th January, 2000 formally.
36. On cross-examination Mr Hartnett agreed that the dates for the ads were either August or September, 1999. He believed that the contracts were to run from six months to one year but that there were indications that overtime would be available. He saw the letter of the 27th September, 1999 from Mr O’Flaherty referring to one year renewable. He was assured by Eircom that they would have work until March. Until the tendering process at present is complete the Defendant will not know how many they will need. He said he did not know whether the Defendant was currently advertising for cable jointers in the United Kingdom.
37. Mr Raymond Kelly, the third named Defendant, went to the South African agencies who indicated that they could supply 50 people. There was a verbal agreement with Eircom. The agencies advertised in South Africa as this was their responsibility.
38. Mr Kelly agreed that they believed that Eircom intended to upgrade all exchanges and that they made a commercial judgment accordingly. However, the agency did not act in the absence of a commitment. The agency wished to indicate in the advertisements that the contract was as long as possible but that he had limited contracts to one year as in the memo of the 16th September, 1999.
39. Mr Martin Cooper’s memo to Mr Kelly of the 9th March, 1999 referred to a relationship with fewer contractors. Mr Kelly believed that there was ample work from Eircom. He stressed that he tried to develop long term relationships rather than entering into litigation.
40. Four witnesses gave evidence for the Plaintiffs: Mr Schneeberger (forty first named Plaintiff); Mr Witter (fifty third named Plaintiff); Mr Bezuidenhout (nineteenth named Plaintiff) and Mr Neveling (thirteenth named Plaintiff). All four had left permanent employment. All were given assurances of work of one year and would not have considered a six month contract. They all had signed a letter dated 27th September, 1999 with the agency and left those letters at the agency taking a signed copy with them.
SUBMISSIONS ON BEHALF OF THE PLAINTIFFS
41. The Plaintiffs contend that the advertisements placed by the South African employment companies referred to a guaranteed minimum period of one year renewable in addition to other terms.
42. The conditions of contract dated the 27th September, 1999 emphasise that the offer was conditional upon the Plaintiffs being available for work in Dublin on the 29th October, 1999 and not being refused a work permit. The letter also dealt specifically with the issue of termination of contract as follows:
“This contract can be terminated by yourself by giving one month’s notice at any time. This contract can be terminated by Kelly Technical Services in the event you do not pass the Eircom accreditation within three attempts. This contract can be terminated by Kelly Technical Services with immediate effect for unsatisfactory performance of your duties, primarily if you fail to develop a good working relationship with the Eircom staff with you come into contact with or with your supervisors at Kelly Technical Services.”
43. The Plaintiff say that there was no suggestion that the contracts of employment would be terminated should the Defendants not have any further work from Eircom. The Defendants argue that the contracts with the Plaintiffs had been frustrated because “they lost the Eircom contract”. Nowhere in the contract entered into between the parties is there any reference to the contracts being dependant and/or conditional upon the Defendants continuing to conduct work on the part of Eircom.
44. The Plaintiffs made considerable sacrifices in accepting the offer. They would not have accepted an offer of employment for less than twelve months. A number of Plaintiffs brought their families with them.
45. In January, 2000 the Plaintiffs were advised by the Defendants to return to South Africa and were informed there was no further work available. It was only when the Plaintiffs issued proceedings against the Defendants on the 13th January, 2000 that the Defendants gave undertakings to the Court that they would continue to pay the Plaintiffs the agreed contractual salary and, further, that they would continue to provide or seek to provide employment for the Plaintiffs.
46. The Plaintiffs submit that the theoretical basis for the doctrine of frustration is disputed. There are contradictory Irish authorities providing alternative explanations as between the implied contract theory and/or the true construction theory ( Cummins -v- Stewart (No 2) 1913] IR 95 and Mulligan -v- Browne (High Court, Kenny J. unreported, 9th July, 1976)).
47. Notwithstanding the uncertainty as to its theoretical basis, the doctrine itself is straightforward. A contract may be discharged on the grounds of frustration when something occurs after the formation of the contract which renders it 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 doctrine is subject to the limitation that the frustrating circumstances must arise without fault of either party ( Maritime National Fish Limited -v- Ocean Trawlers [1935] AC 5 24 and Constantine Lion -v- Imperial Smelting Corporation [1941] 2 All ER 165.
48. The Plaintiffs submit that the doctrine of frustration can never be applied in order to discharge a party to a contract from performing its contractual obligations in circumstances where it may be extremely difficult or even impossible to do so. In Leeson -v- North Bristol Oil and Candle Limited [1974] 8 IR CL 309, it was held that the fact that the Defendants could not obtain paraffin from their own supplier because of a strike did not excuse their failure to supply the Plaintiff. In Paradine -v- Jane [1647] Aleyn 26, the Plaintiff had let lands to the Defendant under the terms of a lease which required the lessee to pay rent on a quarterly basis. The lessees were ejected from possession by armed force, the lands then being occupied by the military during the English Civil War. In an action for arrears of rent, the lessee pleaded that the circumstances excused non-payment of rent. However, this plea was rejected and a distinction was drawn between a general duty imposed by law upon a lessee and a duty undertaken by way of contract. In respect of duty taken on by way of contract the Court stated that:
“When the party by his own conduct creates a duty or a charge upon himself he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity because he might have provided against it by his contract.”
49. The Plaintiff submits that the Defendants could have included the term in this contract specifically dealing with the situation which would arise if the Eircom work was no longer available. They did not do so under the section dealing with termination of contract. However, if such a term had been included the Plaintiffs would not have accepted such a precarious and unguaranteed offer of employment.
50. Besides the requirement in relation to provision against a third party not providing work, an element of mutuality is necessary.
51. The advertisements and the letter of offer and letter containing the contract did not expressly or impliedly provide that the agreement would be terminated should Eircom work not be available.
52. The fact that the Defendants had been able to provide work for 39 of the Plaintiffs who remained in Ireland disproves the contention that the contracts of employment entered into could not be fulfilled should the Eircom work no longer be available.
53. The Plaintiffs submit that the Courts do not allow the doctrine of frustration to apply where increased costs or a limited amount of work make it impossible for one party to perform the contract without incurring serious financial losses and refer to Clarke: Contract Law in Ireland, 3rd Edition, 425:
“It would be undesirable for a business man to agree to perform a contract for a fixed amount and permit him to seek relief through the doctrine of frustration if, during performance, unanticipated difficulties arise.”
54. Reference was also made to Revell -v- Hussey [1813] 2 Ball and B 280 and Davis Contractors -v- Fareham UDC [1956] AC 696.
55. The Plaintiffs contend that the cessation of Eircom work was not unforeseen or unexpected and referred to paragraph 2.1 of the contract whereby work would be allocated “as the need arises” by the head of outsourcing or his duly authorised representative. Moreover, paragraph 2.2 provides a forecast and projection of work that would be required on the “best estimates of anticipated demand for the services as required and are therefore provided for information only and no commitment as to the level of business eventually awarded during the term of the contract is to be inferred, either in its entirety or the relative size or category of work”.
56. Counsel for the Plaintiffs also referred to Neville & Sons Limited -v- Guardian Builders Limited [1995] 1 ILRM 1 where the Supreme Court held that frustration of a contract takes place when a supervening event occurs without the default of either party and for which the contract makes no sufficient provision. The event must so significantly change the nature of the outstanding contractual rights and obligations from what the parties could reasonably have contemplated at the time of the contract’s execution that it would be unjust to hold them to its terms in the new circumstances.
57. The Plaintiffs submit that the failure of Eircom to continue to provide work has not significantly changed the contractual rights entered into by the parties who remain employees of the Defendants. Some are continuing to work while others are available for work. They say that the Defendants do not wish to continue paying the Plaintiffs money for work which is not as abundant as they thought would be the case. Frustration in this circumstance would provide an alternative to redundancy in which an employer would no liability or responsibility to the employee.
SUBMISSIONS ON BEHALF OF THE DEFENDANTS.
58. The Defendants submit that no contractual obligations arose on the part of the last two named Defendants. Any contract with the Plaintiffs arose from the first or second named Defendant against whom any liability which attaches in the present claim arises. I would agree with this submission.
59. The Defendants submitted that a small number of the Plaintiffs have, in fact, resigned from employment with the Defendants and have therefore terminated their contracts with the Defendants. As to the balance of the Plaintiffs the issue is whether the contract between the first and/or second named Defendants and the Plaintiffs was effectively discharged by virtue of frustration of the contract.
60. The Defendants case is that at all material times the contracting of the Plaintiffs for the carrying out of work on their behalf was in the context of doing work on behalf of Eircom Plc; and when Eircom indicated to the Defendants in late December 1999 that no further work was available for the first named Defendants to carry out, the contract was effectively terminated from that point onwards. The contracts commenced with a written contract document on the 27th September 1999 and the Plaintiffs were paid appropriate remuneration and expenses during the currency of that contract and appropriate remuneration and expenses on the termination of the contract by virtue of the withdrawal of the availability of work by Eircom on the aspect of the project on which the first named Defendants were working.
61. The Defendants submit that the relevant law as stated in Halsbury’s Laws of England (4th Edition, Vol 9 at par. 450) is as follows:-
“It frequently happens that a contract is silent as to the position of the parties in the event of performance becoming literally impossible or only possible in a very different way from that originally contemplated. In such cases the law excuses further performance under the doctrine of impossibility or frustration. “
62. Counsel for the Defendants referred to the origin of the doctrine in the old case of Taylor -v- Caldwell (1863) 3 B. & S. 826. There a contract for a musical performance was discharged by frustration of the contract when the intended music hall venue was destroyed by fire. Counsel mentioned that while there are a number of academic theories as to the basis of the doctrine, the approach of the Courts to commercial arrangements between parties are more instructive. Where events arise which effectively change the basis for the performing of a contract so that what is in place is a materially different contract from that which is originally envisaged by the parties the Courts will alleviate the harshness of the contractual obligation by treating the original contract as being frustrated if its original purpose and intention cannot be met by virtue of outside circumstances with no wrong on the part of the contracting parties. The opposite extremes of the interpretation of the doctrine are to be found in the “Coronation cases” of Krell. v. Henry (1903) 2 K. B. 740 and Heron Bay Steambot Co . v. Hutton (1903) 2 K. B, 683.
63. It is submitted by the Defendants that the cancellation of the Eircom contract effectively gave rise to a situation analogous to that in Krell where the procession which was to be viewed from particular rooms was no longer to take place rather than in Heron Bay where the hirers had at least the benefit of a trip around the port.
64. The Defendants also referred to Neville .v. Guardian Builders (1990) ILRM 601 and (1995) 1 LLRM 1 , where the Defendants purchased a plot of land for development purposes. The only access to the site was through a narrow road which was inadequate for the purpose of proceeding with the intended development. While the High Court determined that the contract had been discharged by frustration, in the Supreme Court overturned this decision on the facts of the case. Blayney J. determined that the contract, while more onerous on the parties, was not completely discharged by frustration owing to the failure to obtain land from the Local Authority to provide sufficient access for development purposes on to the site.
65. The net position as emerges from the Neville case is as follows (as appears from headnote no. 1 of the High Court Report) and echoes Lord Radcliffe in Davis Contractors -v- Farnham UDC [1956] AC 696 at 778/9:
“A contract will be deemed to be frustrated whenever the law recognises without the default of either party a contractual obligation has become incapable of being performed because the circumstances in which it is called for would render it a thing radically different from that which was undertaken by the contract. “
66. The Defendants say that in the present case Eircom were limited under the terms of their contractual arrangement with the Defendants to terminate the contract only for a stipulated breach. The contract between the Plaintiffs and the Defendants as reflected in the letter of 27th September 1999 and any of the surrounding documents did not provide for a “force majeure”: in fact the contracts did not provide as to what had to happen in the event that what apparently was the basis or cornerstone of the contract was to be removed.
67. In the initial advertising for the contract which is sought to be enforced by the Plaintiffs herein it was specifically indicated that work was to be carried out “At a large telecommunications company in Ireland”. The document of the 1 7th September 1999 to the Plaintiffs specifically indicated that the offer was for a twelve month contract “Working on … the Eircom network”. The document indicated that Telecom Eireann (as it was then known) was Ireland’s national telecommunications company. The document went on specifically to indicate that an orientation course would be required to meet the requirements of Eircom representatives as to sufficiency of competence on the part of the Plaintiffs. These matters were echoed in the letter of the 27th September 1999 which the Plaintiffs contend comprises the contract of obligation on the part of the Defendants. Again reference was made to a twelve month contract working on a particular aspect of the Eircom network (indicating that Eircom is Ireland’s national telecommunications company). The document indicated that the contract could be terminated by the Defendants only in the event that the Plaintiffs fail to meet Eircom accreditation within a fixed period of time and specifically also requires that a good working relationship will be needed with the Eircom staff. The work permit available for the Plaintiffs was only for work in Ireland. The only work in Ireland with the Defendants was to work on the Eircom contract. The contract between the Plaintiffs and the Defendants never envisaged the Plaintiffs being paid for not doing any work. Accordingly it is the contention of the Defendants that once their was no work available on the Eircom contract, they had no other work available and the Defendants were not obliged to pay the Plaintiffs for doing no work. All of the present Plaintiffs were required to attend training programmes which were relevant only to the aspect of the Eircom contract which was subsequently cancelled by Eircom. In these circumstances it is the contention of the Defendants that the contract was discharged by frustration and without any wrongdoing or fault on the part of the Defendants.
Applying the Neville criteria to the facts of the present situation Counsel for the Defendants submitted that all of the considerations determined in the Neville case to give rise to an effective application of the doctrine of discharge by frustration were met:-
(a) There was no default on either the part of the Plaintiffs or the Defendants.
(b) The contract has become incapable of being performed. Eircom have ceased requiring the Defendants to carry out the relevant work for them and therefore the Defendants have no work for the Plaintiffs with Eircom or on the relevant aspect of the Eircom network.
(c) What is now involved in continuing with the contractual obligation is to put in place a contract which is radically different from that which was intended between the parties.
68. It was never intended that the Defendants would pay the Plaintiffs for doing no work. The Defendants have no other work for the Plaintiffs in Ireland except on the identified aspect of the Eircom contract. There is no further Eircom work available with the Defendants to be carried out by the Plaintiffs. Any requirement of the Plaintiffs to do work for the Defendants other than in accordance with the Eircom contract has been in the context of seeking to mitigate the Plaintiffs loss and not otherwise. This work (mainly in the U.K.) was not what was envisaged between the Plaintiffs and the Defendants at the inception of the original contract.
69. In the circumstances the Defendants submitted that the contract was discharged by frustration.
Determination
70. The issue before the Court is whether the contracts entered into on the 17th September, 1999 between the second named Defendant (whether on its own behalf or on behalf of the first named Defendant is not material) and the several Plaintiffs was frustrated by the termination of work by Eircom in January, 2000.
71. It is common case that the Plaintiffs were employed by the Defendant companies and not by Eircom nor by the South African agencies.
72. It is significant that the letter of 27th September, 1999 was conditional only on being available for work in Dublin on the 29th October, 1999, or earlier as arranged, and not being refused a work permit by the Department. There was no condition about availability of work. Such a condition could have been inserted as would be provided in an engineering sub-contract and could have been provided for in a carefully drafted contract of employment.
73. The contract would be terminated by the employee on giving one month’s notice at any time and could be terminated by the Defendant companies where the employee had not passed the accreditation course within three attempts or had unsatisfactorily performed his duties.
74. There is no evidence of either eventuality. Indeed, it is clear that it is not a matter of termination that is before the Court by of frustration of the contract without fault.
75. I accept that the evidence of complaints by Eircom did not amount to a basis for termination of the contract between Eircom and the Defendant companies.
76. The basis of the doctrine of frustration would appear from the authorities is that there is a supervening event which must be so unexpected and beyond the contemplation of the parties, even as a possibility, that neither party can be said to have accepted the risk of the event taking place when contracting.
77. The clear evidence of Mr O’Flaherty was, while there was no form of commitment from Eircom, he did not feel it improper to rely on Eircom and felt able to make a judgment call.
78. The general agreement of the Defendant companies with Eircom as to work being “allocated as the need arises” points to the possibility of such work not arising. It was certainly not so unexpected as to be beyond the contemplation of the parties, even as a possibility.
79. Mr Raymond Kelly believed that Eircom intended to upgrade all exchanges and that, accordingly, the Defendant companies made a commercial judgement accordingly.
80. The memorandum of the 30th September, 1999 related to a meeting between the first named Defendant and Eircom. Mr Martin Cooper of Eircom did not describe it as a contract document but as a reflection of what was discussed. It seems to me that it was on the basis of this document that the Defendant companies proceeded. Indeed, Mr Cooper agreed that the memo gave an indication that there was work even if there was no contractual commitment. Significantly, however, Mr Hartnett had sent letters to prospective employees with draft terms and conditions before that date.
81. The clear evidence was that, notwithstanding the non-finalisation of the contract with Eircom, the Defendant companies sought to engage technicians on one year contracts.
82. The Defendants were aware in making a commercial judgement call that this was conditional on work being available.
83. The Court must accordingly on a general impression of what the rule in relation to frustration requires. It is for that reason that special importance is necessarily to the occurrence of an unexpected event that, as it were, changes the face of things. It seems to me that this is not the case. It is not hardship or inconvenience or a material loss itself which calls the principles of frustration into play. There must have been such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.
84. Moreover, it does not seem to me that the contract had become entirely incapable of being performed. Indeed, the Defendant companies, in order to mitigate loss or damage, have obtained work for some of the workers concerned.
85. Indeed, the very commendable attempt by the Defendant companies to procure such work for the technicians they had employed is to my mind an indication that a contractual relationship survived which would be inconsistent with the contract being frustrated.
86. Moreover, the relationship entered into with the Plaintiffs was one of master and servant, to use the old fashioned term. It seems to me to be inappropriate in that circumstance to apply a strict contract law approach to employment disputes. Attempts to so apply tend to obscure the social implications of certain kinds of conduct or events by reducing them to legalistic principles. However, it is not for this reason alone that I find that the contract was not frustrated in the circumstances.
87. Furthermore, I am satisfied from the evidence given by the four Plaintiffs that they would not have entered into the contracts had there been a condition that the contract could be terminated if work were not available. Those Plaintiffs gave evidence which showed a commitment to coming to Ireland for a period of one year with hope of continuing further in reliance on the first letter of 17th September, 1999 in relation to the renewal of the contract after a period of one year.
88. In the circumstances and for the foregoing reasons it does not seem to me that the contract was frustrated by the loss of the specific Eircom contract.
Lynch -v- Duffy & Anor
[2009] IEHC 59 (12 February 2009)
Judgment of Mr. Justice Roderick Murphy delivered the 12th day of February, 2009.
1. Background
Agreement
By memorandum of agreement made 4th April, 2007, between the plaintiff as vendor and the defendants as purchasers. It was agreed that the vendor would sell and the purchasers purchase two lots of land in the townland of Lisnasaran, Cootehill, Co. Cavan, being lands comprised in folios 5895F and 19786 of the register of Co. Cavan and of the leasehold interest in part of the property formerly known as the Cootehill Workhouse. The purchase price was €4,000,000.00. A deposit of €400,000.00 was paid on the date of the agreement. Payment was made in two instalments: €50,000.00 on 23/8/2006 and the balance of €350,000.00 early in 2007. According to special condition 5 the contract was, accordingly, binding on the vendor.
The special conditions also provided that the agreement superseded all previous agreements and that the purchaser bought with full knowledge of the property. The purchaser was obliged to purchase lot 2 regardless as to whether the vendor, who was to use his best endeavours, bought out the fee simple interest.
The special condition in regard to planning permission is central to the issue between the parties.
The contract was subject to the issue of planning permission for the construction of private residential dwelling houses of the subject property.
The purchaser was to apply for such planning permission by 26th February, 2007, (notwithstanding the agreement being made five weeks previously on 4th April, 2007). The condition, however, stated that the purchaser should apply by that earlier date “following the exchange of this contract and time shall be of the essence in that regard. The application shall be lodged on foot of plans and specifications agreed between the parties prior to the exchange hereof”.
The memorandum had, according to the evidence, been drafted in autumn 2006. Indeed the executed memorandum of agreement has 2007 handwritten over the typed 2006.
The provision in the special conditions that the memorandum of agreement supersede all prior agreements, arrangements and understandings between the parties and that it constitutes the entire agreement between the parties relating to the subject matter thereof does not allow the court to take into account the drafting date which, in any event, cannot bind the parties until the contract was signed by the vendor pursuant to special condition 5.
The resolution of the illogicality of a prior date is resolved by the deletion of the words “by the 26th February, 2007” which, accordingly, requires the purchaser to apply for planning permission following the exchange of the contract.
Special condition 10 at the third paragraph requires the purchaser to use all reasonable endeavours to ensure that the application for planning permission be successful and that planning permission be obtained as soon as possible. The issue then becomes whether the purchaser did, in fact, use all reasonable endeavours in that regard.
The 6th paragraph of the special condition 10 provided that where the planning authority were to issue a decision to refuse permission and that no appeal against the decision was made within the statutory period or An Bord Pleanála decided to refuse such permission then the contract would be at an end. A further provision required that the appeal should first be approved in writing by the vendor who could not unreasonably withhold or delay such approval. But the purchaser should not appeal any decision of the planning authority to grant permission or any conditions attaching to any such decision.
Paragraph 9 of the Special Condition 10 provided that, in the event that no permission had issued by 30th June following, then the purchaser should be liable to pay interest to the vendor on the balance of the purchase moneys at a rate of 5% per annum up to the completion date. In the event that planning permission did not issue by 31st October, 2007, then either party may at any time thereafter by service of notice in writing terminate the contract and time should be of the essence in that regard. In the event that the termination of the agreement pursuant to the special condition regarding the planning authority or An Bord Pleanála refusing permission or that planning permission did not issue by 31st October, 2007, the purchaser should be refunded his deposit without deduction and without interest, costs or compensation.
Finally, special condition 10 provided that the closing date should be the date, 21 days after the issue of the grant of permission.
The evidence in the case was that there were delays in applying for planning permission. A planning application was made, initially, in July, 2007 and recorded on 1st August, 2007, accompanied by the requisite cheque to the planning authority. This cheque was not honoured and, accordingly, there was no valid application. On 28th August, 2007, the planning authority notified the defendants that if the appropriate fee was not paid with three days, the application would be rejected. (The defendants were on holiday at this time). On 13th September, 200, the planning authority wrote to the defendants agents to this effect and the application was returned to the defendants for the non-payment of fee. A new planning application was made on 24th October, 2007, which was one week before the date provided in special condition 10, paragraph 9, which would allow either party to serve a notice in writing terminating the contract.
On 26th October, 2007, the defendants wrote to the plaintiff saying that planning permission would not issue and requested the return of the deposit. The terms of that letter were as follows:-
“please note that my client’s application for planning permission has not issued in relation to the above property and it is not anticipated the same will issue on or before 31st October. As per the terms of the contract my clients hereby notify you that they will not be proceeding with the purchase of the property and you might kindly therefore arrange for their deposit to be refunded in early course.”
Leaving aside the issue of whether this was a notice in writing terminating the contract (the word is not used) it is clear that such right could only arise after 31st October, 2007.
The defendant’s solicitors wrote, following some correspondence which was not exhibited, some three weeks later on 15th November, 2007. That letter referred to the defendants planning application being lodged in July, 2007, though not validated by the planning office until 1st August, 2007. It referred to it being “quite a complicated planning application that necessitated employing specific engineers, archaeologists and architects.” It pointed out that they had worked on putting together the planning application from the start of the current year, even before the contract was signed and having spent approximately €190,000.00 on getting the application together. The letter referred to the clients being on holidays for two weeks and that it was therefore October before the planning application was resubmitted on 24th October, 2007, including a copy draft in the sum of €6,763.00.
The letter further stated that the clients had acted in a most reasonable manner and without any undue delay. Having spent a lot of money on the planning application it would not make sense for them to deliberately delay the process especially where they were liable to pay interest of 5% from 30th June, 2007, until closing. Reference was made to the letter of 26th October, which stated:-
“my clients do not now wish to proceed to purchase the property and I therefore request you to return my clients deposit in the sum of €400,000.00 by return as per the terms of the contract.”
The letter does not formally notify the termination of the contract in those terms. In referring to the letter of 26th October, the vendor’s solicitor would seem to rely on that as notification to terminate.
A further letter from the defendant’s solicitors dated 18th December, 2007, alleged that it was the vendor who frustrated the application in the first instance in that he was seeking unrealistic sums to facilitate the original entrance and the plans then to be redrawn with a new entrance within the site. The letter first states that the defendants were fully aware of the fact that the time limits on the contract were very strict and did all they could to ensure that the papers were lodged and all matters dealt with as soon as reasonably possible and called upon the plaintiff’s solicitor to return the defendant’s deposit. Otherwise they would have to apply to the court to seek redress and interest on the moneys held since the date that they were entitled to the return of same.
2. Issues arising
The court is asked to provide an answer to the following three questions:-
(a) Are the defendants in breach of special condition number 10, paragraph 3 of the contract for sale made between the parties on 4th April, 2007?
That condition provides that the purchaser “shall use all reasonable endeavours to ensure that the application for planning permission is successful and that planning permission is obtained as soon as possible”.
(b) In the event that the answer to the previous question is in the affirmative, are the defendants thereby precluded from relying on the right of termination provided for by special condition 10, paragraph 9 of the contract for sale which provides that in the event that planning permission does not issue by 31st October, 2007, then either party may at any time thereafter by service of notice in writing terminate this contract, and time shall be of the essence in that regard.
(c) In the event that the answer to the previous question is in the affirmative, is the plaintiff entitled to rely on the provisions of general condition 41 of the contract for sale to forfeit the deposit and resell the property.
3. Evidence of plaintiff
Mr. Thomas Lynch said that in March, 2007, the defendants came to his house requesting the removal of a ditch on his property adjoining the property the subject matter of the contract. He refused to sign some piece of paper that they had. A figure of €180,000.00 had been mentioned to his brother who is not an owner. He refused at any price. He would not give them a sight line as they needed privacy. He said from that time onwards there was not cooperation. He did not know why his solicitor wrote to the defendants on 7th March, asking if they wanted a sight line.
Mr. Lynch’s evidence with regard to whether he had seen or approved the planning application was not clear. He said that no plans were brought by the defendants to him in June, 2007 but agreed that they came on a couple of occasions and that he told them to deal with his solicitor and other adviser whom he had engaged: with Mr. Crosby and Mr. Morgan. He said he had approved no plans. He admitted that there may have been 88 houses in respect of which planning permission was applied for but that Mr. Duffy did not have plans with him.
An application was made to adduce evidence from Mr. Duffy by way of direct examination notwithstanding that only a notice of cross examination was served. This was opposed by counsel on behalf of the plaintiff who said that the evidence was closed and no request had been made.
The application was not proceeded with and counsel for the plaintiff made submissions.
The case was a simple one in that the defendant undertook the obligation with regard to planning pursuant to para. 3 of special condition 10. Though the contract was not signed until 4th April, 2007, it had been returned signed by the defendants in January, 2007, at a time when the defendant did not have the money for the deposit.
The plans at the latest were ready in June, 2007, when the invoice in the sum of €190,000.00 was submitted by the defendant’s advisers in respect of work that purported to have been done.
There was no explanation of why planning was not lodged at this stage. The letters from the plaintiffs solicitor pointing out that interest would run from the end of June, 2007, were not replied to. The first application received by the planning authority on 1st August, 2007, was not proceeded with as the cheque in relation to the fees was not honoured. It was not accepted that the holiday period indicated could explain the delay until 24th October, 2007, when planning was applied for together with draft payment.
The law in relation to the matter was clear. Any right that the defendant had was subject to an express obligation to make bona fide application. In making an application all formal requirements such as the payment of fees were necessary. The planning authority on 28th August, 2007, requested payment but the application was not properly before them until 24th October.
Counsel referred to Farrell on specific performance, para. 3.26, to Costelloe v. K.N. Maharaj Krishna Properties (Ireland) Ltd (High Court) 10th July, 1975 and to Jolley v. Carroll (2000) States Gazette.
Counsel on behalf of the defendants submitted that there was no evidence of default or undue delay. He agreed with counsel on behalf of the plaintiff regarding the obligation of the buyer under special condition 10 which provided that planning be applied for before 26th February, 2007, at a time when the contract was not signed by the vendor until 4th April. Paragraph 3 of clause 10 could not stand on its own, it was linked to paragraph 2.
The defendants on 31st January had given post dated cheques when the contract was signed by the defendants as purchasers. A bank draft was sent on 4th April.
Counsel for the defendants submitted that it was not in dispute that the defendant had paid €190,000.00 in respect of the planning application. In his affidavit of 9th April, 2008, Brian Morgan suggested in evidence the invoice for that sum had been paid.
He further submitted that while the contract could not have been terminated before 31st October, 2007, that the solicitor on behalf of the defendant had sent a letter of 15th November, 2007, purporting to terminate the contract.
It was the plaintiff’s duty to prove the case on the balance of probabilities.
He submitted that the special condition required all reasonable endeavours and not best endeavours.
In reply, counsel on behalf of the plaintiff said that any delay was attributable to the defendant. There was no delay by the plaintiff. All the case law pointed to an implied obligation. There was an express obligation in the present case.
Moreover, the planning application was not doomed to failure: there was no evidence that it would not have been granted. Thus the court should not speculate on what the planning authority would or would not have done.
4. Decision of the court
Special condition 10, drafted in autumn of 2006, signed by the defendants as purchasers in January, 2007, envisaged application for planning permission being made before 26th February, 2007. The purchasers being unable to pay the deposit at the time of signing, signed post dated cheques and, eventually, gave a bank draft on 4th April, 2007, when the plaintiff, as vendor, executed this contract. Clearly, at that stage and due to the non payment of the deposit in relation to which there was a clear obligation under the special condition before the contract became effective, the purchaser was unable to apply for planning permission on or before 26th February, 2007.
The court finds that the impossibility to comply with this was known to the defendants and their advisers. Being a term which was impossible the court rules that that date is ineffective and should be deleted from the contract.
What is left is a clear obligation to use all reasonable endeavours to ensure that the application for planning permission was successful and that planning permission was obtained as soon as possible pursuant to para. 3 of special condition 10.
Notwithstanding that and, the delays attributable to the defendants, there was a delay of over five months before an effective planning application was made. Moreover this being made on 24th October, a week before the ultimate date agreed for the application at the end of that month it was clearly not practical that planning would issue.
This prompted solicitors on behalf of the defendants to write two days after the planning application was made on 26th October, 2007, demanding the return of the deposit.
It was not a formal notice to terminate because such right could not have arisen at that date and, moreover, it did not purport, in strict terms, to terminate the contract.
The subsequent letter of 15th November, 2007, was not a fresh letter attempting to terminate as it referred back to the letter of 26th and, moreover, did not strictly comply with nor use the term, notice to terminate.
The court has considered the evidence of the plaintiff in relation to the defendants requiring a site line or the removal of a ditch on lands outside the subject matter of the contract. This meeting took place some time in March after the defendants had signed the contract and, clearly, before the deposit was paid and the plaintiff had executed the contract on receipt of the deposit.
While Mr. Lynch’s evidence in some regards was not all that clear in relation to his knowledge of the planning application, it is clear that he would not accede to the request and left it to his advisers. The court finds that the defendants did not raise the issue and, moreover, accepts the evidence of Mr Duffy that the matter did not take more than a week.
No reply was received from the plaintiff’s solicitor’s letters in June, 2007, regarding the interest on the outstanding balance due after the end of that month.
The court finds that the defendants did not comply with their obligations under the special conditions and can accordingly answer the first question in the special endorsement of claim as follows:-
“(a) The defendants are in breach of special condition number 10(iii) of the contract for sale made between the parties hereto on 4th April, 2007.”
The right of termination in para. 9 of special condition 10, apart from the 5% on the balance of purchase moneys after 30th June, 2007, allowed either party to terminate the contract by “service of notice in writing” in the event that planning permission did not issue by 31st October, 2007. Time was of the essence in that regard.
Compliance with this condition must necessarily be linked to the previous conditions regarding the obligation of the purchaser to use all reasonable endeavours and is fortified by the requirement that the purchaser should apply for planning permission following the exchange of the contract in respect of which time was also of the essence. Even with the deletion of the date of 26th February, 2007, it was clear that application should have been made after a reasonable time following the exchange of the contract on 4th April, 2007, which was signed on that date but returned to the defendant’s solicitors on 16th April, 2007.
In any event, it is clear from the invoice from the defendant’s agents that considerable work had been done, to the extent of €190,000.00 in relation to the planning application by June, 2007. While there is no evidence that this sum was paid, nor is it necessary for the court to decide on that issue, it is clear that the defendant’s case is that very extensive work had been done by that date. No evidence was given as to why planning application was made later than the date on which that work had been done. The court does not have to decide on whether the application made towards the end of July and received by the planning authority on 1st August, 2007, complied with the obligation to use all reasonable endeavours to ensure that the application for planning permission was successful and that planning permission was obtained as soon as possible. There is no doubt that the application made on 24th October, being only one week prior to the deadline set out in contract, was lodged too late to comply with the obligation to use reasonable endeavours to obtain planning permission. Accordingly, the court can answer the second question as follows:-
“(b) the defendants are precluded from relying on the right of termination provided for by special condition number 10(IX) of the contract for sale.”
The general conditions of the 2001 edition of the Conditions of Sale of the Law Society of Ireland apply, save where the context otherwise requires or implies or the text thereof expresses to the contrary pursuant to the first special condition.
There is no special condition dealing with the forfeiting of the deposit in the re-sale of the property. Accordingly, general condition 41 of the contract for sale applies.
The court can, accordingly, answer the third, and ultimate, question posed in the special endorsement of claim as follows:-
“(c) the plaintiff is entitled to rely on the provisions of general condition 41 of the contract for sale to forfeit the deposit and to re-sell the property.”
The court will so order.
O’Leary -v- Volkswagen Group Ireland
[2017] IEHC 74 (14 February 2017)
U
JUDGMENT of Mr. Justice Binchy delivered on the 14th day of February, 2017
Introduction
1. This is a ruling arising out of my decision in the substantive proceedings delivered on 9th December, 2016. It will be recalled that prior to the hearing of the substantive proceedings I dealt with an application for a “split trial” moved on the part of the plaintiff, to which I acceded. As a result, having concluded as I did in the substantive proceedings that there was a breach of contract on the part of the defendant, for which the plaintiff’s remedy should be in damages (rather than the other reliefs sought by the plaintiff) the parties asked to address the Court as to the manner in which assessment of damages should be addressed, having regard to my conclusions in the substantive proceedings. The parties are not agreed as to the approach to be applied to the assessment of damages, and this disagreement in turn arises out of differing interpretations of the parties of the judgment handed down on 9th December, 2016. References in this judgment to “the contracts” and “the termination notice” shall have the same meaning as in the substantive judgment.
Submissions of the plaintiff
2. Firstly, counsel for the plaintiff, Mr. Sreenan SC, refers to the application for injunctive relief, which was brought by the plaintiff, contemporaneous with the issue of the proceedings, whereby he sought orders from this Court restraining the defendant from taking any steps to terminate the plaintiff’s Volkswagen dealer contracts, pending the determination of these proceedings.
3. That application was declined by Moriarty J. in a judgment delivered on 4th July 2013, the Court noting the undertaking of counsel on behalf of the defendant, to refrain from contacting customers of the plaintiff without the plaintiff’s prior consent, which undertaking has continued to this day. Moriarty J. declined to grant injunctive relief on the grounds that the plaintiff failed to meet the test articulated by Fennelly J. in the case of Maha Lingham v. HSE (Unreported, Supreme Court 4th October, 2005) i.e. the plaintiff failed to satisfy Moriarty J. that he had a strong case likely to succeed.
4. It is submitted on behalf of the plaintiff that had Moriarty J. had the benefit of this Court’s judgment at the time he refused the injunction application, he would have decided that application differently on the basis that he would have had the benefit of knowing that the plaintiff had succeeded in establishing that the defendant had terminated the plaintiff’s contracts in a manner that was contrary to Article 20 thereof. In that event, the plaintiff would have been able to continue trading as an authorised Volkswagen dealer from 2013, up to the present day and would not have sustained any loss of profits as a consequence of the termination of the contracts during that period.
5. Secondly, the plaintiff points to that part of my judgment in which I stated, at para. 216 the following:-
“In this case of course the issue is not about the interpretation of the notice served, but about compliance with a separate condition of the contract which must be complied with when serving the notice to terminate the contract under either article 17 or article 18. If the defendant had failed to give any reasons at all at the time of service of notice of termination then there could hardly be any doubt but that the notice of termination would be invalid. Similarly, if it were found that the defendant had terminated the contract for any of the “hard core” reasons described in Article 4 of the BER, I think it likely that that would inevitably lead to a declaration that the termination was invalid. But I have found that the contracts were not so terminated, and that they were terminated by the defendant following a bona fide review of its network requirements. The only difficulty is that in terminating the contracts the defendant has failed to give reasons that are sufficiently detailed and transparent for the purposes of Article 20 of the Contracts.”
6. It is submitted that in circumstances where I determined elsewhere in the judgment that the explanation proffered on behalf of the defendant for terminating all of the contracts was “highly implausible”, it cannot be the case that a person who gives incorrect reasons for terminating the contracts could be in a better position than a person who has given no reasons at all. Furthermore, since the Court has held that the reason for terminating all contracts was implausible, the true reason for termination of the same (including the plaintiff’s contracts) remains unknown. While I identified three possible reasons why the defendant chose to terminate all of the contracts (rather than just those of the dealers who were not to be offered new contracts), it is submitted that those reasons might have been amenable to challenge by the plaintiff had they been given. Attention is also drawn to the fact that I held the breach of contract to be more than a technical breach, while at the same time saying that it was not egregious, for the reasons stated. Accordingly, it is submitted, that since I held that the plaintiff’s remedy for breach of Article 20 of the contracts on the part of the defendant lies in damages, rather than by way of a declaration that the termination of the contracts is invalid, such damages should be assessed on the basis of profits lost, by reason of the termination of the contracts, from 30th April 2013, onwards, when termination of the contracts took effect.
7. It is further submitted on behalf of the plaintiff that I made no finding that the contract had been validly terminated; that all I held was that the plaintiff’s remedy for the defendant’s breach of contract lies in damages rather than by way of a declaration that the contracts had not been validly terminated, as sought by the plaintiff. Therefore damages should be assessed on the basis that termination of the contract was ineffective and that the plaintiff should be compensated for profits lost since the end of the termination notice period i.e. 30th April 2013.
8. The defendant also has a counterclaim in the proceedings. The relief sought in the counterclaim includes, inter alia, orders directing the plaintiff to remove from his premises any and all Volkswagen signs and to cease to make use of the Volkswagen trademark. The plaintiff argues that the Court should make no order on the counterclaim, pending an appeal, because otherwise the plaintiff’s business would be destroyed in the intervening period and would render nugatory the outcome of any appeal. The plaintiff argues that the defendant could suffer no prejudice if the question of the counterclaim is simply deferred at least until such time as this Court deals with assessment of damages. The plaintiff submits that in the intervening period the plaintiff will simply be selling vehicles produced by the defendant, albeit that he would be competing with their authorised Cork city dealer.
9. Moreover, it is argued, for the defendant to succeed with its counterclaim, it must establish that the plaintiff’s contracts have been validly terminated. This is because the entitlement to require the plaintiff to cease holding himself out as an authorised Volkswagen dealer only arises in circumstances described in Article 21 of the contracts i.e. upon termination of the contracts. The plaintiff contends that since I made no express determination that the contracts have been validly and effectively terminated the defendant is not entitled to rely on Article 21 of the contracts, or to any relief by way of counterclaim.
10. As to the legal principles to be applied in assessing damages for breach of contract, the plaintiff agrees with that part of the defendant’s submissions (referred to below) in which it is stated that:-
“an award of damages following a breach of contract is designed to put the plaintiff in the same situation as if the contract had been performed.”
However, it is submitted that in this case what that means is that if the defendant had complied with the contract, it would not have attempted to terminate the contract with a notice which did not comply with Article 20. Moreover, the Court cannot assume, for the purposes of assessing damages, that the defendant would have served a valid notice of termination. It is not for the Court to hypothesise what the defendant might have done in order to optimise its position.
Submissions of the defendant
11. The defendant submits that, since I have held that the plaintiff’s remedy in respect of the breach of Article 20 of the contracts by the plaintiff lies in damages, that such damages fall to be determined on the basis that an award of damages for breach of contract is primarily designed to put the plaintiff in the same position he or she would be in if the contract had been performed. The defendant relies upon the dictum of Parke B. in Robinson v. Harman (1848) 1 Exch 850 at p. 855:
“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
12. The defendant further relies upon the dictum of Geoghegan J. in Doran v. Delaney (No. 2) [1999] 1 ILRM 225 where he said at p. 308:
“If a party to a contract breaks that contract the other party is entitled to be compensated on the basis of what he has lost by reason of the contract not being performed… subject to the special principles of mitigation of damages and remoteness of damage.”
13. Accordingly, the defendant submits that since I have declined to grant the plaintiff an order that the contracts were invalidly terminated, it follows that they were validly and effectively terminated under Article 17, on foot of the termination notice of the defendant dated 18th April, 2011. Damages for failing to comply with the requirements of Article 20 should be assessed on the basis of the above principles. What that means is that damages should be assessed on the basis that the plaintiff is entitled to be compensated for any losses that he may have sustained by reason of not having received reasons for termination sufficient to comply with Article 20 of the contracts i.e. the plaintiff is entitled to be placed in the same position that he would have been if a compliant notice had been served under Article 20. The defendant submits that it is difficult to see how any financial losses would flow only from the failure on the part of the defendant to comply with Article 20 of the contracts. The defendant also disagrees with the proposition advanced on behalf of the plaintiff that had Moriarty J. known that this Court would find that the defendant had terminated the contracts in breach of Article 20 thereof, then he would have granted the plaintiff injunctive relief. It is submitted that had Moriarty J. had the benefit of the judgment in the substantive proceedings, no injunction could have been granted because this Court declined to grant a declaration that termination of the contracts was invalid, and that the plaintiff’s remedy for breach of Article 20 lay in damages only.
14. Furthermore, the defendant submits that had the plaintiff obtained injunctive relief in June 2013, he would have been required to give an undertaking as to damages to the defendant. Since this Court has found that it would have been wrong to declare termination of the contracts void ab initio, the defendant would be entitled to rely on that undertaking.
15. In relation to the its counterclaim, the defendant submits that the plaintiff is now in an ongoing breach of Clause 21 of the contracts, which is prejudicial to the legitimate business interests of the defendant and its sole authorised Cork city dealer which is due to open its flagship premises in Cork at the start of April of this year. Accordingly, the defendant is entitled to require the plaintiff to comply with Article 21 of the contracts forthwith.
16. Article 21 of the contracts is not set out in the judgment of 9th December, 2016. It states:
“Article 21 – Procedure at end of contract
(1) Upon and following termination of this agreement the dealer shall immediately and in any event within 14 days of termination of this agreement:
(a) cease using the Supplier’s trademarks or any marks liable to be confused with them. Signs and trademarks specific to the Supplier shall be removed, otherwise the Supplier shall be entitled to have them removed at the Dealer’s expense. The Dealer hereby grants the Supplier authority and licence to enter onto its business premises and operating facilities in order to remove them. This also applies to a third party instructed by the Supplier to remove such signs.”
17. Counsel for the defendant robustly dismisses the suggestion made on behalf of the plaintiff that, since I did not expressly grant a declaration that the termination of the contracts was valid and effective, their status remains undetermined and it does not follow that the contracts have been validly terminated. It is submitted that since I did not set aside the notice of termination and did not declare it to be ineffective or invalid, it follows inextricably that the notice of termination took effect in accordance with its terms on 30th April, 2013 and that the contract cannot survive in some sort of “grey half life”. Counsel makes the point that I concluded that compliance with Article 20 was not a condition precedent for the effective termination of the contracts and that there is no doubt at all but that the contracts were terminated as of 30th April 2013, following the expiration of the notice period. As such, it follows that from the expiration of the notice period the plaintiff has not been entitled to hold himself out as an authorised dealer of the defendant.
18. While at the time of the application for an injunction, the defendant gave an undertaking to the Court that it would not attempt to contact customers of the plaintiff pending determination of the proceedings, at that time it was envisaged that the proceedings would be heard in November 2013. For a variety of reasons that did not occur, and the plaintiff has had the benefit in the meantime of that undertaking on the part of the defendant and also of being able to hold himself out as being a dealer of the defendant. Additionally, the authorised dealer for Cork City is about to open its new premises and this is an additional and substantial reason to require the plaintiff to comply with condition 21 of the contracts.
19. In view of the disagreement between the parties as to the effect of my decision as regards the status of the notice of termination, counsel for the defendant requested me to clarify that the notice of termination of the contracts is valid and effective and is not in any way modified or qualified by anything I have said in my substantive judgment.
Ruling
20. The defendant was under an obligation to give the plaintiff detailed, objective and transparent reasons for termination of the plaintiff’s contracts. The defendant decided to terminate all dealership contracts in its network at the same time and for the same reason stating that it was “necessary” to do so in order to give effect to a reorganisation of its network. The defendant did not say why it was necessary to terminate all contracts and for reasons given in the substantive judgment, I found that the reason given to the plaintiff for the termination of the contracts – which was the same reason given to every dealer – was lacking in the detail and transparency to which he was entitled under his contracts with the defendant.
21. During the course of the hearing, Mr. Willis, former managing director of the defendant, explained that the reason the defendant considered it “necessary” to terminate all contracts at the same time was in order to give all of the dealers the opportunity to tender for dealerships at points in the new ideal network. I found this explanation to be highly implausible and not supported by the other evidence in the proceedings.
22. In the course of my judgment, I opined, obiter, as to the circumstances in which a failure to serve notices compliant with Article 20 of the contracts would be very likely, or certain, to give rise to a declaration of invalidity of the notice of termination. One of those circumstances was where no reasons at all were given when serving a termination notice. The plaintiff argues that a supplier who has given no reasons at all for terminating a contract can hardly be in a worse position than a supplier who has given reasons that are found to be highly implausible. That being the case, it is submitted that the plaintiff should be entitled to have damages assessed on the basis that I have given a declaration of invalidity of the notice of termination of the contracts, even though I have declined to do so.
23. While there is much force in this argument, it ignores the reasons why I declined to grant an order declaring the termination notice to be invalid. These were:
(i) It was not disputed that the defendant had an entitlement to terminate the contracts for any reason upon two years’ notice provided:
(a) termination was not for one of the “hardcore” reasons referred to in Article 4 of the BER, i.e. that termination was not related to pro-competitive behaviour on the part of the plaintiff, and
(b) that when terminating the contracts, the defendant provided the plaintiff with detailed, objective and transparent reasons for doing so;
(ii) I found that the termination of the contracts was not motivated by any of the “hardcore” reasons referred to in the BER, or on account of any pro-competitive behaviour on the part of the plaintiff;
(iii) Termination of the contracts was a consequence of a bona fide review of the network;
(iv) The plaintiff delayed in the issue of proceedings until the very end of the termination notice period;
(v) The defendant had proceeded to implement its ideal network plan and its duly appointed Cork city dealer was proceeding with the construction of a new state of the art dealership premises. Following considerable delay, that premises is due to open in April of this year.
24. Furthermore, regard should be had to the fact that notwithstanding that the termination notice took effect from the end of April 2013, the plaintiff has remained in a position to hold himself out as an authorised Volkswagen dealer and the defendant gave an undertaking to the Court (which continues) not to contact the plaintiff’s customers. Accordingly, the plaintiff has been able to continue trading as an authorised Volkswagen dealer, although not without difficulty and at a lower profit margin, because he has had to source vehicles through third party dealers. This became even more difficult from 2015 onwards, when the defendant enforced its entitlement to require other dealers to register vehicles that they purchased on behalf of the plaintiff before supplying them onwards to the plaintiff, which had the effect of adding additional costs to the acquisition of vehicles by the plaintiff, thereby reducing his margin further.
25. In the substantive judgment, I held that the failure to give detailed, objective and transparent reasons for termination was something more than a technical breach of the contract because of the raison d’être of that requirement, but on the other hand I also held that it was not an egregious failure because of all of the factors that I have mentioned above. Therefore, I took the view that it would be disproportionate to grant a declaration that the contracts had not been validly terminated, which would have the effect of requiring the defendant to serve a fresh notice of termination, thereby giving the plaintiff two more years as an authorised dealer, against the background outlined above. As stated in the substantive judgment, I consider that the appropriate remedy for the plaintiff against that background lies in damages and such damages can only be measured in accordance with the applicable principles.
26. There does not appear to be any dispute as to the applicable principles. What is in dispute is whether or not damages are to be assessed on the basis that the contracts were effectively terminated by the termination notice. The termination notice is either effective or it is not. I expressly declined to grant the relief sought by the plaintiff declaring the notice to be invalid. In the circumstances it did not seem to me to be necessary to give an express declaration confirming its status, but since that is now the crux of the issue I confirm that damages are to be assessed on the basis that the contracts were effectively terminated by the termination notice with effect from 30th April 2013, and in respect of such losses, if any, as have been sustained by the plaintiff as a result of the defendant’s breach of contract.
The defendant’s counterclaim
27. Since the termination notice is and has been affected since 13th April 2013, it follows that the defendant is entitled to an order requiring the plaintiff to comply with Article 21 of the contracts without further delay.
Shelbourne Hotel Holdings Ltd -v- Torriam Hotel Operating Company Ltd
[2008] IEHC 376 (18 December 2008)
JUDGMENT of Mr. Justice Kelly delivered on the 18th day of December, 2008
Background
Four years ago, in December 2004, the plaintiff purchased the well known Shelbourne Hotel situated at St. Stephen’s Green, Dublin. It purchased it from the Royal Bank of Scotland for €145m. Following the purchase, an extensive refurbishment of the hotel was effected at a cost of €120m. With 262 rooms in the hotel, the plaintiff has expended, between purchase and refurbishment, a sum of about €1m per room.
On 23rd August, 2006 a management agreement (the Agreement) was executed between the plaintiff and the defendant.
The defendant is an affiliate of the well known Marriot Hotel Group. Marriot International Holding Company B.V. is a guarantor of the defendant’s obligations to the plaintiff under the terms of the Agreement.
The Agreement has an initial term of 20 years. During that period, the defendant is constituted as manager of the hotel, has exclusive control of it and is responsible for its proper and efficient operation.
For reasons which I will return to later in this judgment, the plaintiffs have become extremely dissatisfied with the defendant’s performance on foot of the Agreement. That dissatisfaction has given rise to these proceedings.
These Proceedings
On 5th November, 2008 the plenary summons in this action was issued. On the same day, a notice of motion seeking interlocutory injunctive relief was issued. Two days later the defendant issued a motion seeking to stay these proceedings pursuant to s. 5 of the Arbitration Act 1980.
Thereafter, the plaintiff applied to have the case transferred to the Commercial List. Such an order was made on 24th November, 2008 and the hearing of both motions was directed to take place on 2nd December, 2008. I heard both applications on that and the following day.
The Agreement
The Agreement runs to in excess of 90 closely typed pages exclusive of schedules and exhibits. It is divided into twelve different sections.
The following are the relevant provisions of the Agreement for the purposes of the two applications before me.
Under Article 1.01, the defendant is obliged to manage and operate the hotel to a standard of managerial expertise and financial control consistent with the operating standards applicable to other similarly situated first class, full service hotels that are operated by the defendant or its affiliates in Ireland as well as international hotel standards. The defendant is required to act as a reasonable and prudent operator and has to do so with the goal of optimising the profitability of the hotel over what is called “a reasonable duration”. The Agreement provides that it is understood “that a reasonable duration shall encompass a horizon of at least five years”.
Under Article 1.02, the plaintiff authorised and engaged the defendant to supervise, direct and control the management and operation of the hotel in accordance with the terms and conditions of the Agreement.
Under Article 1.03, all of the hotel employees are employed by the defendant which is responsible for payment of their remuneration and deduction of all tax and other liabilities. The defendant is given absolute discretion with respect to all hotel employees including their hiring, promoting, transferring and dismissing. In the case of some employees however, there are certain rights reserved to the plaintiff. For example, whilst the defendant has the authority to hire, dismiss or transfer the hotel’s general manager and director of sales and marketing, it is obliged to keep the plaintiff informed with respect to such actions, and must give prior notification to the plaintiff of the defendant’s desire to effect a transfer of either of those persons. In certain defined circumstances the plaintiff’s consent is required before the general manager and sales director may be transferred. (See Article 1.03B)
In the case of the hiring of a general manager, the plaintiff has to be consulted and has a limited right of veto in respect of candidates for that post. (See Article 1.03B(2))
Under Article 1.04, the plaintiff is given a right of inspection of the hotel. The article provides:-
“Owner and its agents shall have access to the hotel at any and all reasonable times for the purpose of inspecting the hotel and the business carried on at the hotel or showing the hotel to prospective purchasers, tenants or secured lenders, provided that owner and its agents shall exercise such right in cooperation with manager and with the goal of minimising the adverse impact of such access on manager’s operation and management of the hotel.”
The defendant is obliged, at the plaintiff’s request, to hold meetings on a monthly basis with a view to discussing the performance of the hotel and related issues. Amongst the items which are specifically mentioned as appropriate to be dealt with at such meetings are material deviations from either the business plan for the preceding month or the most recent accounting period statements.
The Agreement also provides for the defendant to be able to share services with other hotels that it manages but subject to the owner’s approval.
Article 1.08 places certain limitations on the defendant’s authority by requiring it to obtain the plaintiff’s approval in respect of the matters which are listed in that Article.
Article IV of the Agreement deals with accounting matters.
Article 4.02A requires that books of control and account pertaining to the operations of the hotel are to be kept on “the accrual basis” and in all material respects in accordance with what is described as “Uniform System of Accounts”. That term is defined as meaning:-
“The Uniform System of Accounts for the Lodging Industry, 9th Revised Edition, 1996, as published by the Educational Institute of the American Hotel and Motel Association, as revised from time to time to the extent such revision has been or is in the process of being generally implemented within the Renaissance System.”
No evidence has been placed before me as to what that system of accounting requires.
The Article goes on to confer a right on the plaintiff at reasonable intervals during the defendant’s normal business hours to examine such records. Furthermore, it expressly provides that if the plaintiff desires to engage an auditor to audit, examine or review the annual operating statement or the final accounting statement, it is entitled to notify the defendant in writing within 60 days after receipt of such statements of its intention to so audit.
Article 4.02B insofar as it is relevant provides as follows:-
“In connection with Owner’s responsibility to maintain its own effective internal controls over financial and tax reporting and the requirements for complying with statutory audit and tax requirements applicable to owner, owner may request manager to provide reasonable access to the hotel, including to the books of control and account and other records maintained for the hotel, and reasonable assistance necessary to owner that will allow owner to conduct activities necessary to satisfy such responsibilities (to the extent applicable). Manager shall provide such assistance and access to the extent consistent with the assistance and access it generally provides to similarly situated owners of hotels managed by manager and its affiliates.”
Article 4.04 requires the defendant to deliver to the plaintiff for its review and approval a draft of a business plan on an annual basis. In certain circumstances the owner may disapprove of such business plan. The defendant is obliged to operate the hotel in accordance with the business plan so as to achieve the budgetary goals reflected in it for each fiscal year. The Agreement provides for consultation between the plaintiff and the defendant with a view to reducing the effects of any adverse deviations from such a business plan. Somewhat similar provisions apply in respect of all capital expenditures.
Article IX of the Agreement deals with defaults.
The Article defines what a default is and the rights of the parties should such occur. One of the events of default is the failure by either party to perform, keep or fulfil certain of the material covenants, undertakings, obligations or conditions of the Agreement. If an event of default occurs the non-defaulting party is given the right to pursue any one or more of a number of courses of action. They include the institution of any and all proceedings permitted by law or equity in respect of such event of default including, without limitation, actions for specific performance and/or damages, or the termination of the Agreement subject to certain terms.
There are also some unusual rights which are given to the defendant under the terms of the Agreement. For example, the plaintiff does not have an unfettered right to sell the premises but is subject to the defendant’s veto in that regard under Article 10.02.
The final element of the Agreement which is relevant is that which deals with the applicable law and arbitration.
Article 11.04 provides as follows:-
“Applicable Law
A. This agreement shall be construed under and governed by the law of Ireland without regard to the conflict of laws provisions of such jurisdiction.
B. Notwithstanding anything to the contrary herein, either party may seek injunctive or equitable relief (including, without limitation, restraining orders and preliminary injunctions) in any court of competent jurisdiction; either party shall be entitled to make an application to the court requesting that the proceedings be referred to arbitration in accordance with s. 11.05 without prejudice, however, to preliminary or interim injunctions or enjoining orders granted by such court.”
Paragraph 11.05 insofar as it is relevant provides as follows:-
“Arbitration
A. Except for any determinations to be made by an Expert pursuant to this agreement, any dispute arising out of or in connection with this agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration administered by the International Centre for Dispute Resolution (the ICDR) in accordance with the international arbitration rules of the ICDR (the ICDR Rules). The ICDR Rules are deemed to be incorporated by reference into this clause, save that any provision in this clause which is inconsistent with the ICDR Rules shall prevail over such ICDR Rules. The seat, or legal place, of arbitration shall be Dublin, Ireland. The language to be used in the arbitral proceedings shall be English…
D. Any dispute, controversy or claim to be settled by arbitration pursuant to this section 11.05 shall at the request of owner or any Marriot Company be resolved in a single arbitration before a single arbitral tribunal together with any dispute, controversy or claim arising out of or relating to any other Marriot Agreement.”
The Dispute
Lengthy affidavits have been filed by both sides in respect of the two motions before the court. At this stage it is not possible to resolve any conflicts of fact which emerge on those affidavits and indeed I am precluded from so doing. It is, however, possible to extract from the affidavits a number of matters that are not in dispute. They appear to be as follows.
The defendant is obliged under the terms of the Agreement to manage and operate the hotel to the standard prescribed. It is obliged to keep books of control and accounts pertaining to the operations of the hotel.
Because the plaintiff is liable to account for the tax liability arising from the business of the hotel, the Agreement provides for its right, as owner, to have access to the hotel and its business generally and specifically to inspect the systems of control and accounts and other records maintained. (See Article 4.02B of the Agreement)
Within a short time of the hotel re-opening for trading in March 2007, it became clear to the plaintiff that there were problems with the financial management of the hotel by the defendant. The fact that the financial director of the defendant and his assistant financial controller were not at work for a period of months from March 2008, for understandable health and personal reasons and that both subsequently left the defendant’s employment, did not help in this regard.
The plaintiff’s auditor in the course of carrying out audit work in respect of the year ended 31st December, 2007 uncovered serious problems with the financial management of the hotel and as yet has not been able to sign off on accounts for that year. Ms. Sharon Gallen, a partner in the plaintiff’s accountancy firm (Horwath Bastow Charleton) says that:-
“It became clear very early on during the audit field work that there had been a systemic breakdown in the accounting systems and controls in place in the hotel.”
In June 2008, a Marriot task force team was placed in the hotel with the task of reconciling the accounts. That team produced a series of revisions and restatements of the accounts for 2007. Prior to the issue of those revisions and restatements, the defendant had indicated a net profit figure for the hotel to the plaintiff of €1,429,000. However, a certified restatement of 15th September, 2008 recorded a net loss of €65,309. On any view that is a dramatic change.
Ms. Gallen recounts that at a meeting which she attended with Ms. Cynthia Braak, a regional vice-president of finance of Marriot Hotel International Limited, Ms. Braak admitted that the system breakdown at the hotel was the worst she had ever seen.
Ms. Gallen goes on to say that her firm will have to qualify its audit of the financial statements of the plaintiff for the year ended 31st December, 2007.
Because of the serious problems identified by Ms. Gallen’s firm, the plaintiff appointed KPMG Chartered Accountants in September 2008, with a view to conducting a review of the financial systems in place in the hotel. In particular, the plaintiff wished to ascertain whether the hotel was compliant with its revenue obligations. KPMG set out a list of the books, records and information it required in connection with its review. They are described in para. 22 of an affidavit sworn by Kieran Wallace, a partner in KPMG on 5th November, 2008. It is not necessary at this juncture to consider them in detail. The defendant denies that it is under any obligation to provide these documents. Mr. Wallace views that approach as a wrongful refusal on the part of the defendant which has totally frustrated the progress of his investigation. As a result he and his team had to withdraw from the hotel on 22nd October, 2008.
It was as a result of this standoff that these proceedings were instituted.
Marriot’s Letter of 5th November, 2008
Much reference was made during the course of the hearing to an open letter written on 5th November, 2008 by Edmund D. Fuller, the President and Managing Director of Marriot International Inc.
That letter candidly admits that Marriot is not proud of the financial errors that occurred at the hotel in 2007, but asserts that it does not understand how those errors translate into the kind of relief that the plaintiff is now seeking. It contends that what started as a good faith and expeditious effort to correct those errors and ensure that financial controls were being followed had been “virtually hijacked” into what is described as a letter writing campaign which:-
“was obviously designed to create a significant rift between hotel management and ownership with the goal of terminating our operating agreement.”
The letter goes on to assert that Marriot was candid and open regarding the errors made at the hotel and that its goal is to resolve the issues and continue to manage it.
The letter makes an offer to the plaintiff in an effort to settle the matter. Marriot offered a sum of €1,200,000 which is described as the approximate difference between the original 2007 statements and the revised statements that had been prepared. This was described as a good faith gesture to put the plaintiff in as good a position as it possibly could be. Marriot also offered to reimburse accounting and legal fees incurred by the plaintiff up to a maximum of €350,000.
The letter went on as follows:-
“To address an issue that, according to your solicitors is an ongoing problem, although we are not obligated, (sic) we will provide for your review our (sic) internal financial control documents, which by policy and practice are proprietary, provided that only such review be undertaken under reasonable confidentiality guidelines. Your solicitors also take issue with information that we believe we are constrained to provide due to Irish privacy laws; I am sure that between your solicitors and our lawyers we can come to a mutual agreement of what can and cannot be provided under Irish privacy laws; it can’t be that difficult.”
The letter makes it clear that it is an offer to resolve the situation and get on with business. In return, a release of claims on the part of the plaintiff is expected and its cooperation in completing the books for 2007 and finishing the plaintiff’s audits.
This offer was not accepted by the plaintiff.
The Referral to Arbitration
On 26th November, 2008 the defendant sent a request for arbitration to the ICDR. That request has not been put on evidence before me. I have, however, been told on affidavit that it seeks declaratory relief on the question of whether or not the plaintiff in these proceedings may terminate the Agreement and on the question of damages. I am told that it also seeks that tribunal’s assistance on the interpretation of clause 4.02 of the Agreement.
It is to be noted that this referral to arbitration came long after the commencement of these proceedings, two days after the date for the hearing of these two motions had been fixed and less than a week beforehand.
The Current Position
The defendant admits that there has been a serious breakdown in the financial control systems in the hotel. The final picture in relation to 2007 is not yet complete. That is so despite six restatements of the accounts for 2007 since August of this year.
It is also clear from the defendant’s own evidence that there has been a problem with VAT payments at the hotel. It has made a voluntary disclosure to the Revenue Commissioners and is attempting to negotiate a settlement in that regard.
The defendant also accepts that it has made underpayments to the plaintiff relating to VAT on Marriot rewards and advance booking deposits during the period 2007/2008. It has made a payment of €46,094 to the plaintiff “to hold towards any interest charges it may incur as a result of the full extent of any underpayment”.
The taskforce is still installed and is reviewing the hotel’s accounts so the position is as yet not clear.
The Agreement is still in force. The question of the entitlement to terminate it has been referred by the defendant to an ICDR Arbitration.
Pending the resolution of that issue the parties remain contractually bound to each other and must operate the Agreement which includes the necessity to hold monthly meetings to review the business plans and the entitlement on the part of the plaintiff to both inspection and access to books and records.
It is in this context that I must now turn to a consideration of the reliefs sought.
Logically, I ought to begin with a consideration of the defendant’s motion to stay the proceedings.
The Arbitration Clause
These proceedings do not seek to address either the plaintiff’s entitlement to terminate the Agreement (which it wishes to do) or any question of damages which may be recoverable by it. Both of those questions have already been referred by the defendant to an ICDR Arbitration.
These proceedings are much narrower in focus. The plenary summons seeks three injunctions. The first is one which asks the court to direct the defendant to grant access to the plaintiff to the hotel’s books and records on foot of its rights under the Agreement. A prohibitory injunction is sought restraining the defendant from obstructing such access. The third injunction sought is rather repetitive of the preceding two, seeking to enjoin the defendant from denying or obstructing access by the plaintiff to the books and records, business and staff of the hotel.
The interlocutory injunction which I am asked to grant seeks to direct the defendant to grant access to the plaintiff to the books, records, business and staff of the hotel in accordance with the plaintiff’s alleged entitlements under the terms of the Agreement.
I have already reproduced the text of the arbitration clause in the Agreement.
Article 11.05A is in fairly conventional terms providing for the reference of any dispute arising out of or in connection with the Agreement including any question regarding its existence, validity, or termination to arbitration.
Article 11.04B is a peculiar confection. Under its terms the parties agreed that, notwithstanding the arbitration clause either of them might have recourse to the courts to seek injunctive or equitable relief. Having identified that entitlement, it then goes on to provide that either party shall be entitled to apply to such court seeking a stay of the proceedings with a view to them being referred to arbitration under Article 11.05. So the Article creates an entitlement to litigate a dispute whilst at the same time builds in an ability to trigger Article 11.05. So very little seems to be achieved by Article 11.04 save this – it is quite clear that everything in it is without prejudice to preliminary or interim injunctions or enjoining orders. It follows that applications for such orders are not captured by Article 11.04 or 11.05. Therefore the present application to stay can only relate to the substantive proceedings but not to the application for interlocutory injunctive relief.
Such would be the situation even without Article 11.04 since the Agreement is clearly subject to the provisions of s. 22 of the Arbitration Act 1954.
That section insofar as it is relevant provides:-
“The Court shall have, for the purpose of and in relation to a reference, the same power of making orders in respect of – …
(h) interim injunctions or the appointment of a receiver, as it has for the purpose of and in relation to an action or matter in the Court.”
Article 11.04 does no more than reproduce the same effect as s. 22 albeit in less clear language.
Both by virtue of that section and the provisions of Article 11.04, a specific exclusion from the arbitration clause is created so as to permit either party to seek preliminary injunctive or enjoining orders. Clearly, such an application is not captured by the provisions of the arbitration clause.
I should make it clear that whilst both Article 11.04B and s. 22 of the Act speak of “interim injunctions” that term must be interpreted to include interlocutory injunctive relief. If it did not do so and was confined only to relief granted ex parte (i.e. interim relief in the strict sense) the section would be unworkable.
I am supported in this view by the observations made by O’Sullivan J. in Telenor Invest A.S. v. I.I.U Nominees Limited [1999] IEHC 188 where he said in the context of s. 22(1)(h) of the Arbitration Act 1954:-
“I consider that while it may well be appropriate to grant the first defendant a stay on part of the plaintiff’s proceedings that this in no way trammels the court’s jurisdiction to afford interim relief (which clearly includes what is usually termed interlocutory relief) to the plaintiff pending the determination of the dispute.”
If the injunctive relief sought before me is interlocutory it is expressly excluded from the purview of Article 11.04B by its very terms. Such an approach is entirely consistent with the statutory framework of s. 22 of the Arbitration Act 1954.
The application to stay has to be considered by reference to the terms of s. 5(1) of the Arbitration Act 1980. That section insofar as it is relevant provides as follows:-
“If any party to an arbitration agreement… commences any proceedings in any court against any other party to such agreement… in respect of any matter agreed to be referred to arbitration, any party to the proceedings may… apply to the court to stay the proceedings, and the court, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties…shall make an order staying the proceedings.”
As s. 5 of the 1980 Act confers no discretion on the court, once I am satisfied that its terms have been met I must stay the proceedings and refer them to arbitration. On the substantive issue raised in this action there is a valid arbitration agreement which can be performed and can address the dispute between the parties. There is no arbitration agreement which covers the interlocutory application. Accordingly, this action but not the motion will be stayed in favour of the arbitration agreed to between the parties.
I must now proceed to consider whether I ought to grant the interlocutory injunctive relief which is sought.
Principles Applicable
The single interlocutory relief which is sought by the plaintiff seeks an order directing the defendant to grant access to it, its servants or agents to the books, records, business and staff of the hotel in accordance with the plaintiff’s entitlements to such access under the terms of the Agreement. In fact the relief sought is narrower and more limited than this. Nonetheless, the injunction sought is mandatory in nature.
The parties are in disagreement as to the principles which ought to be applied by the court in considering an application for interlocutory mandatory relief.
On the one hand the plaintiff contends that the test is that prescribed by the Supreme Court in Campus Oil Limited v. Minister for Energy No. (2) [1983] I.R. 88. It is the same test as that prescribed by the House of Lords in American Cyanamid Co v. Ethicon Limited [1975] AC 396. The test requires that in order to obtain such an interlocutory injunction the plaintiff has to demonstrate a serious issue for trial, inadequacy of damages, and the balance of convenience lying in favour of the grant of the order.
The defendant contends that a different test must be met on the first of those three issues. It argues that it is not enough to show a serious issue for trial but rather, the issue must be such as to allow the court to feel a high degree of assurance that the injunction is being rightly granted or to put it another way a likelihood or strong likelihood of success at the trial.
The plaintiff, in support of its contention, cited the decision of Laffoy J. in Cronin v. Minister for Education [2004] 3 IR 205 where that judge in explicit terms rejected the argument that a plaintiff seeking mandatory relief at an interlocutory stage must demonstrate a likelihood to succeed at the trial. She said that she did not consider that that was the appropriate criterion to apply. She said:-
“It involves making a judgment at this juncture as to the strength of the respective cases of the plaintiff and the first defendant, which the court is not entitled to do, as was made clear by the Supreme Court in Westman Holdings Ltd. v. McCormack.”
Mr. McDowell, for the defendant said that this approach of Laffoy J. is wrong.
Campus Oil was itself a decision given on an application for a mandatory interlocutory injunction. It has been followed in such a context on many occasions. There is Cronin’s case, which I have just mentioned as well as decisions of Carroll J. in A & M Pharmacy Limited v. United Drug Wholesale Limited [1996] 2 ILRM 46 and the decision of Peart J. in Sheehy v. Ryan (Unreported, High Court, 29th August 2002).
There have however been other dicta suggestive of the necessity to demonstrate a strong or clear case redolent of the language used by Megarry J. (as he then was) in Shepherd Homes Limited v. Sandham [1971] Ch. 340 where he spoke of the necessity for the case to be “unusually sharp and clear” before a mandatory injunction would be granted.
Indeed, the approach of Megarry J. was subsequently approved by the Court of Appeal per Mustill L.J. (as he then was) in Locabail International Finance Limited v. Agroexport [1986] 1 All E.R. 901. There that judge noted that although the judgment of Megarry J. antedated the decision in American Cyanamid, nonetheless the statement of principle in relation to the case of a mandatory injunction was not affected by what the House of Lords said in the Cyanamid case. Mustill L.J. went on to prescribe the test applicable to applications for interlocutory mandatory injunctions by reference to a passage from Halsbury’s Laws of England which states as follows:-
“A mandatory injunction can be granted on an interlocutory application as well as at the hearing, but, in the absence of special circumstances, it will not be granted on motion. If, however, the case is clear and one which the court thinks ought to be decided at once…a mandatory injunction will be granted on an interlocutory application.”
That very passage was cited with approval by Costello J. (as he then was) in Irish Shell Limited v. Elm Motors [1984] 1 I.R. 200.
In Boyhan v. Tribunal of Enquiry into the Beef Industry [1993] 1 I.R. 210, Denham J. then a High Court judge, described a mandatory injunction as a powerful instrument and said that:-
“In seeking this exceptional form of relief, a mandatory injunction, it is up to the plaintiffs to establish a strong and clear case – so that the court can feel a degree of assurance that at a trial of the action a similar injunction would be granted.”
This approach has been adopted by the Supreme Court in Lingam v. Health Service Executive [2006] 17 E.L.R. 137 where Fennelly J. held that:-
“The implication of an application of the present sort is that in substance what the plaintiff/appellant is seeking is a mandatory interlocutory injunction and it is well established that the ordinary test of a fair case to be tried in not sufficient to meet the first leg of the test for the grant of an interlocutory injunction where the injunction sought is in effect mandatory. In such a case it is necessary for the applicant to show at least that he has a strong case that he is likely to succeed at the hearing of the action. So it is not sufficient to simply show a prima facie case, and in particular the courts have been slow to grant interlocutory injunctions to enforce contracts of employment.”
This approach seems very different to that adopted by the Supreme Court in the Campus Oil case and by Laffoy J. in this Court in Cronin’s case. It is more in harmony with the approach of the English courts beginning with the observations of Megarry J. and culminating more recently in the Court of Appeal decision in Zockoll Group Limited v. Mercury Communications [1998] FSR 354 where that court said:-
“…the overriding consideration is which course is likely to involve the least risk of injustice if it turns out to be ‘wrong’ in the sense described by Hoffman J. in Films Rover International & Ors v. Cannon Film Cells Limited [1986] 3 All E.R. 772’.
Secondly, in considering whether to grant a mandatory injunction, the court must keep in mind that an order which requires a party to take some positive step at an interlocutory stage, may well carry a greater risk of injustice if it turns out to have been wrongly made than an order which merely prohibits action, thereby preserving the status quo.
Thirdly, it is legitimate, where a mandatory injunction is sought, to consider whether the court does feel a high degree of assurance that the plaintiff will be able to establish his right at a trial. That is because the greater the degree of assurance that the plaintiff will ultimately establish his right, the less will be the risk of injustice if the injunction is granted.”
If one pauses at this juncture, one might think that at least in England the test was clear. However, the very next paragraph adds further confusion where the court went on to say:-
“But, finally, even where the court is unable to feel any high degree of assurance that the plaintiff will establish his right, there may still be circumstances in which it is appropriate to grant a mandatory injunction at an interlocutory stage. Those circumstances will exist where the risk of injustice if the injunction is refused sufficiently outweighs the risk of injustice if it is granted.”
To return to Ireland, there seems to be an inconsistency of approach on the standard that must be met in order to obtain an interlocutory mandatory injunction. On one view it is the demonstration of a fair case or serious issue for trial, on the other, a higher standard of proof must be achieved that has variously been described as a strong case likely to succeed at the hearing of the action or a strong and clear case.
Faced with these conflicting approaches and pending a final determination of the issue by the Supreme Court, I am much attracted by the approach of Hoffman J. (as he then was) in the Films Rover case [1987] 1 WLR 670 where he took the view that the fundamental principle on interlocutory applications for both prohibitory and mandatory injunctions is that the court should adopt whatever course would carry the lower risk of injustice if it turns out to have been the ‘wrong’ decision.
Whatever standard applies it is clear that the grant of mandatory interlocutory relief is exceptional. In many if not all cases, the mandatory nature of the relief will also be a factor to be taken into consideration when the balance of convenience falls to be considered.
I have already set forth the relevant provisions of the Agreement relied upon by the plaintiff to support this application. The plaintiff has a clear contractual right to certain information. Provision of such information is vital so as to enable the plaintiff to know its true position and for the agreement to work. What that information amounts to in practical terms is attested to by two chartered accountants. Mr. Wallace at para. 22 of his affidavit sets out seven species of information required. He gives it as his professional view that that is what is covered by clause 1.04 and clause 4.02 of the Agreement. That is further attested to by Ms. Gallen where she says that the information:-
“falls within the type of documentation and information which should be made available as part of books and records maintained for the hotel as per clause 1.04 and 4.02 of the management agreement.”
No expert testimony was adduced by the defendant to suggest that either of these deponents were wrong. Furthermore the defendant led no evidence as to what precisely is required under the Uniform System of Accounts for the lodging industry.
I am satisfied on the basis of the evidence before me that the plaintiff has achieved the higher of the two tests namely the demonstration of a clear case on this aspect of the matter.
Adequacy of Damages
If damages would be an adequate remedy for the plaintiff then no question of granting the injunction should arise. At present the plaintiff is deprived of information to which it is entitled.
If it was simply a case of the plaintiff being deprived of information between now and the ultimate determination of its substantive entitlements, it could well be said that damages would be an adequate remedy but that is not the case here. It is being deprived of information in circumstances where the hotel continues to be run by the defendant with the plaintiff ignorant as to what the true financial position is. How can the plaintiff make a decision in the context of its rights under the Agreement when in such a state of ignorance?
Even in such circumstances it might be said that if, ultimately, the plaintiff succeeds, damages can be awarded in respect of any further financial mismanagement. But here the position is even more serious. For the first time in its dealings with the defendant the plaintiff became aware when it had sight of the replying affidavit of Ms. Chugh sworn on the 28th November, 2008, that it may have a liability to the Revenue Commissioners in respect of VAT. The defendant undertook a review of the maximum extent of underpayments, and has on its own evidence made a payment of €46,094.00 to the plaintiff, to hold towards any interest charges which may be incurred as a result of the full extent of any underpayment. This information was a complete surprise to the plaintiff. It is entirely in the dark as to the extent of the liability, and it is the defendant that has made the calculation to attempt to prevent interest running on such liabilities. Obligations to the Revenue Commissioners are serious matters and underpayments frequently result not merely in the necessity to pay the amount outstanding together with interest, but also to the possibility of penalties and even perhaps prosecution. It also raises the question of the reputation of the plaintiff company with may reflect also on the business people behind it.
In these circumstances, I am satisfied that damages would not be an adequate remedy were the plaintiff to be further denied access to the information sought.
Balance of Convenience
I am satisfied that the balance of convenience lies in favour of the grant rather than the refusal of the injunction. There is an urgency about this matter which must be addressed. To deny the plaintiff relief would defer the issue for a further as yet undetermined period until such time as the ICDR arbitration would get under way. At that stage the arbitrators would have to reconsider all of the material which has been put before me, with a consequent waste of not merely time, but also money.
In addition there appears to be little by way of practical difficulty in giving effect to the order which is sought. Indeed in the much quoted letter of the 5th November, 2008, the defendant offered to provide for the plaintiff’s review, its internal financial control documents which it is said by policy and practice are proprietary, provided only that such review be undertaken under reasonable confidentiality guidelines. That letter offers even more than what the defendant contends to be the plaintiff’s entitlement, but yet it continues to deny the information which is sought here.
In so far as there may be a genuine concern on the part of the defendant involving confidentiality, I propose to make the order subject to a requirement that information obtained by the plaintiff as a result of this order should be used solely for the purposes of this litigation, the arbitration and the plaintiff’s dealings with the business of the hotel and its creditors, including the Revenue Commissioners. If it is sought to utilise the information for any other purpose the consent of the defendant must be obtained and in the absence of such consent, leave of this Court.
In granting the relief I am, of course, mindful of the argument which was made to the effect that if the order sought is granted there will be little left to be considered by the arbitrators on the plaintiff’s rights to access of these documents. Nonetheless, given the seriousness of the situation, the clarity of the plaintiff’s case having regard to its contractual entitlements and the serious consequences for it, should this order be refused, I take the view that relief should be granted. There will therefore be an order in the plaintiff’s favour requiring the defendant to forthwith grant access to the plaintiff its servants or agents to:-
A. The minutes of the defendant’s management meetings.
B. The defendant’s internal control system manual and details of internal audits carried out by Marriott Group Internal Audit Function and any reports issued by them.
C. Details of any actions taken by the defendant as a result of any risk identified by the Marriott Group Internal Audit Function, and the scope of the Marriott’s task force team’s recent review/investigation and any reports issued as a result of that review.
D. Details of access rights to each computer system.
E. Details of customer names.
F. Details of employees including names, addresses, salaries, bonuses, benefits, staff advances, disciplinary action and tax information.
G. Details of who made any journal postings.
I direct the provision of that documentation and information for the reasons which are set out under each specific subheading at para. 22 of the affidavit of Kieran Wallace, sworn on the 5th November, 2008.
Linnie -v- Murphy
[2008] IEHC 362 (13 November 2008)
Judgment of Miss Justice Laffoy delivered on the 13th day of November, 2008.
The source of these proceedings is a very unusual agreement in writing entered into between the defendant of the one part and the plaintiff of the other part on 2nd April, 2000. In entering into the agreement each of the parties had the advice of the firm of solicitors who acted for him in these proceedings.
At the time the defendant was the owner of a house in Ranelagh, Dublin, 6, No. 4 Walkers Cottages (the premises). Nine months previously the defendant had embarked on an ambitious project to extend and renovate the premises. On the evidence, it would appear that he had not employed a contractor but had run the project himself, engaging direct labour and tradesmen. By the end of March 2000, he had run out of money, the works were incomplete and the premises were, in fact, a mere shell. It was against that background that he sought out a building contractor to complete the works. He was introduced to the plaintiff, a building contractor, through a mutual friend. The plaintiff, rather reluctantly, according to himself, agreed to take on the job. That led to the signing of the agreement dated 2nd April, 2000.
There were two schedules attached to the agreement. It was provided that the plaintiff would complete the renovation and building work at the premises in accordance with the works set out in schedule 1, which listed 23 items. It was expressly stipulated that the plaintiff would not be responsible for the supply of fittings and completion of the works set out in schedule 2. It was also provided that any previous work carried out by the defendant or his agents would be deemed the responsibility of the defendant, the newly built extension, the supply and fitting of steel, the supply and fitting of pipes and services and damp proofing to the original house and the extension being specified.
The unusual feature of the agreement was the manner in which the contract price payable to the plaintiff was to be determined. It was to be 12% of the net sale price of the premises. The agreement provided that the premises would be put on the market for sale “immediately after the completion of the building and renovation work at a reasonable standard”. It was provided that “the sale price” should be deemed the market price received for the premises less:-
(a) The redemption value of the mortgage in favour of First Active Building Society to which the premises were subject; and
(b) The fees and outlays of the defendant’s solicitors in relation to the sale of the premises.
The agreement provided that the necessary work would be completed by 15th June, 2000 or on an agreed alternative date. I am satisfied that time was not of the essence in relation to the completion date and it was never made of the essence. It was envisaged that there would be an immediate sale following completion of the works to a reasonable standard and that the plaintiff would be paid the agreed contract price on the closing of the sale.
It is not clear on the evidence as to whether at the time of the signing of the agreement the plaintiff did any reasonable assessment of what the contract price would be. He certainly moved as early as the end of May 2000 to ascertain what the premises were likely to achieve on the market and introduced a local firm of auctioneers in Ranelagh to the premises with a view to a sale. I think it is reasonable to assume that the defendant went along with this. What is not clear is whether at the time the plaintiff made any assessment of the deductions which were to be made from the sale price, namely, the monies due to First Active Building Society and the fees in connection with the sale. On the basis of the valuation of Kelly Properties given on 29th May, 2000 and of the evidence adduced at the hearing of the action that there was IR£65,000 owing to First Active, in my view, admittedly on a speculative basis, it would be on the optimistic side to assess a contract price in the region of €50,000.
As was provided for in the agreement, the plaintiff was given possession of the premises to carry out the works. In fact, the evidence is that the plaintiff got possession about a week before the agreement was signed. I am satisfied that at that stage the premises were wholly uninhabitable.
That leads to an issue which was not pleaded, as it should have been if it was to be pursued by the defendant, and which was raised for the first time at the hearing of the action. It was submitted by counsel for the defendant that the premises constituted a “family home” within the meaning of the Family Home Protection Act 1976, as amended, and that as the agreement did not have the prior written consent of the spouse of the defendant, insofar as the contract provided for payment of the contract price out of the proceeds of sale of the premises, the contract was void. On the evidence, I am satisfied that as of March and April 2000, the premises did not constitute the family home of the defendant and his wife within the meaning of the Act of 1976 because the defendant, his wife and children were ordinarily resident elsewhere, that is to say, in an apartment at Booterstown Avenue. The defendant’s evidence was that he commenced his extension and refurbishment project in June 1999. The family moved out of the premises to rented accommodation in August 1999 and remained there at all times thereafter. I am satisfied that by the time it became apparent that the defendant had run out of money and was not in a position to complete the work himself around March 2000, both the defendant and his wife had accepted the reality of the situation that they were never going to move back into the premises. Accordingly, I consider that they could not be said to be ordinarily resident in the premises. If contrary to the conclusion I have reached, the premises did constitute the family home of the defendant’s wife as of 2nd April, 2000, the absence of her prior written consent to the agreement would have avoided the element of the agreement which provided that the premises would be sold and the contract price discharged out of the proceeds of sale. However, that would not absolve the defendant from liability to the plaintiff in contract or in quasi-contract for the performance by the plaintiff of his end of the bargain. Finally, on this point, there is a reference in the defendant’s written submissions to a motion brought on behalf of the defendant’s wife, Michelle Manley, to be joined in these proceedings as a notice party and it is stated that it was not known what transpired on foot of the application. I have checked the file in the Central Office and the position is that by notice of motion dated 13th July, 2004, Ms. Manley, who was represented by Brian Duncan, solicitor, applied to be joined as a notice party to these proceedings. By order of this Court (Johnson J.) made on 26th July, 2004, the application was refused.
The works were not completed on 15th June, 2000 and trundled on through the summer. The plaintiff ascribed the delay to “unseen” works, which I understand to mean matters which were not covered in schedule 1 which were discovered in the course of the works and had to be dealt with. It would appear that the defendant did not at any time complain about the delay in completing the works.
The works stopped around the end of September or the beginning of October, 2000. The two crucial questions of fact which arise in these proceedings are why the works stopped and what remained to be done when the works stopped and the plaintiff’s involvement with the premises ceased.
On the first question, the plaintiff’s version of events was that the defendant’s wife wanted to move into the premises with her children around September 2000. The plaintiff was shocked. He contacted the defendant, who assured him that he would deal with the situation. Ms. Manley moved into the house with her children over a weekend late in September, 2000, at a time when the house was a work in progress and “snagging” had still to be done. Subsequently the plaintiff met the defendant and Ms. Manley and it was agreed that the plaintiff would finish the work. The plaintiff went back to the premises in late September to finish “snagging”. However, there was tension between Ms. Manley and him. She did not want him in the house. The plaintiff made contact with the defendant to agree a “snagging” list. Everybody agreed, including Ms. Manley, that the plaintiff would come back to do the “snagging” work. The plaintiff tried to come back. While working on floor tiles he was locked out. Ms. Manley denied him access and said she did not want him there. He returned again to the premises but he was not let it. He tried to arrange for his brother, Joseph Linnie, a carpenter, to finish the “snagging” but Mr. Linnie was not allowed in to do the “snagging”. I infer from the evidence that at that stage the plaintiff realised that the premises were not going to be sold. Ms. Manley’s version of the circumstances in which she moved into the premises was that the landlord of the apartment at Booterstown Avenue wanted her and her family to move out. She met with the plaintiff and Mr. Joseph Linnie on the 27th September, 2000. The plaintiff agreed that the family could move back into the premises while the work was completed. The family moved back in the following weekend with the agreement of the plaintiff. On the 12th October, 2000, she arrived home to find the plaintiff leaving with the cement mixer. He said he would back on Sunday to do the floor in the hall. That was the last time she saw him. Ms. Manley stated that the plaintiff was not excluded. She also contended that Joseph Linnie was not excluded and she implied that he did not try very hard to gain admittance.
By mid-October, 2000, the plaintiff had put the matter into the hands of his solicitor. His solicitor wrote to the defendant on 19th October, 2000, alleging that the defendant was not complying with the terms of the agreement and threatening that, if the premises were not put on the market for sale immediately or, alternatively, if all monies outstanding to the plaintiff were not paid, the plaintiff would have no choice but to issue proceedings in this Court. The defendant’s response, which was dated 23rd October, 2000, but which was not received by the plaintiff’s solicitors until 5th December, 2000, alleged that the plaintiff had abandoned the work. It was contended that a considerable amount of work remained to be completed. It was stated that the defendant intended to engage a surveyor to examine the work and to advise what remedial or additional works would be required. The plaintiff’s solicitors’ response in a letter of 6th December, 2000, was that the plaintiff was willing to discuss the possibility of completing the work, but he had been refused access. The defendant responded by letter dated 19th December, 2000, stating that he had put the matter in the hands of Arthur Lyons and Associates, Quantity Surveyors.
Having regard to the totality of the evidence, I think it is probable that when Ms. Manley moved back into the premises at the end of September, 2000, she was determined that the premises would not be sold to discharge the amount due to the plaintiff for the work he carried out. I think it is probable that she made life difficult for the plaintiff and that, because of her actions, he was justified in considering that he was excluded from the premises.
I think that the key to understanding what happened in October, 2000, is that Ms. Manley did not want the premises sold, whereas the plaintiff did so that he could receive what he was due under the agreement. The defendant, unfortunately, because of alcohol addiction, was unable to deal with the situation. I have no doubt that the proper conclusion to draw is that the plaintiff was excluded from the premises and that the situation was that the premises were not going to be put on the market for sale with a view to discharging the money due to the plaintiff under the agreement.
Turning to what remained to be done when the plaintiff was excluded, I would remark first that there was a mechanism in the agreement for resolution of “any dispute relating to work being completed”. Clause 5 provided that such dispute should be decided “by an agreed Architect or Civil Engineer”. Unfortunately, the parties did not resort to that dispute resolution mechanism.
What happened was that Arthur Lyons of the firm of Arthur Lyons and Associates met with James Linnie of Lindub Construction Services Limited, Civil and Structural Engineers, at the premises on 29th January, 2001. There was no engagement between them after that. Mr. James Linnie is the plaintiff’s step-son, so that he can hardly be regarded as an independent expert. Mr. Lyons did not testify but Joseph Delaney of the firm of Arthur Lyons and Associates, whose evidence was that he viewed the premises two weeks after 21st January, 2001, did testify. His evidence was that the firm of Arthur Lyons and Associates were never actually retained by the defendant, they were never paid for their services, and all they did was draw up a discussion document of the work to be done to the premises setting out roughly in broad terms the cost of the works. It transpired that that list did not differentiate between what the plaintiff had contracted to do by reference to schedule 1 of the agreement and works that he had not contracted to do.
The evidence of Mr. James Linnie was that his understanding was that the meeting with Mr. Lyons was to prepare a list of outstanding matters “to bring the standoff to conclusion”. Both professionals were to prepare a harmonised list of works for the plaintiff to do, but that did not happen. Mr. Linnie’s evidence was that the works set out in schedule 1 were basically complete, except for a few items. He put a figure of IR£1,200 (€1,524) on the cost of completing the works.
The defendant, in his defence and counter-claim delivered on 28th June, 2002, counter claimed in the sum of €30,167 in respect of the cost of repairing damage alleged to have been caused by the plaintiff to the premises. Eventually, in a reply to a notice of particulars dated 9th July, 2004, the defendant furnished a list of works costed by Arthur Lyons and Associates as the make up of the figure of €30,167.
Mr. Delaney’s evidence was that this was the list prepared by Arthur Lyons following his visit to the premises on 21st January, 2001, and that it was furnished to the defendant shortly thereafter so that he could sort out his problems with the plaintiff. I note that it is Ms. Manley’s name which appears at the head of the list. In any event, it is patently obvious that the list includes work for which the plaintiff was not liable. Therefore it is clear on the evidence that the list was not constructed by reference to the plaintiff’s contractual obligations under the agreement. Accordingly, it is of little relevance.
In relation to the works for which the plaintiff was liable and which remained to be done when the work ceased in October, 2000, I find that most of the work was done. However, I find it impossible to quantify the cost of what required to be done to complete the works and to bring them to the reasonable standard which the plaintiff contracted for. Mr. James Linnie in his report of 25th September, 2001 did not put any price on the works he considered remain to be done and the figure of IR£1,200 arose from his cross-examination by the defendant’s counsel more than seven and a half years after he had inspected the premises. Therefore, I find it very difficult to give that figure credence.
The basis of the plaintiff’s claim at this juncture is that he is entitled to recover a reasonable sum for the works he did on a quantum meruit basis. The defendant’s contention is that, as there was a price agreed in this case, a claim on a quantum meruit basis cannot be maintained.
The Court has had the benefit of written submissions from counsel for the plaintiff and counsel for the defendant. There are undoubtedly jurisprudential points as to when entitlement to be paid on a quantum meruit basis for work done arises and what is the basis of the entitlement. However interesting, this is not the case in which to explore those points. Suffice it to say that there is ample authority for the proposition that there is an entitlement to be paid on a quantum meruit basis for work done where the contract has been terminated by breach. The following passage from Chitty on Contract, 29th ed., at para. 29-067 explains the principle:-
“According to Winfield [Province of the Law of Tort (1931), p.p. 157-160] there is only one instance of quantum meruit which is properly regarded as restitutionary. Alderson B. put it as follows: ‘Where one party has absolutely refused to perform, or has rendered himself incapable of performing, his part of the contract, he puts it in the power of the other party either to sue for breach of it, or to rescind the contract and sue on a quantum meruit for the work actually done’.
Although the matter is not free from doubt the better view is that such a quantum meruit claim is grounded on the failure of consideration”.
In this case, in my view, by excluding the plaintiff from the premises in October, 2000, and by effectively refusing to put the premises on the market for sale, the defendant was in breach of the agreement. The plaintiff was entitled to rescind the contract because of that breach and to sue for the work he actually did on a quantum meruit basis. On the peculiar facts of this case, given that the premises have never been sold, the contract price cannot be identified with any degree of certainty.
Before considering the quantum of the plaintiff’s claim, there are two matters I wish to clarify. First, the defendant adduced evidence that he had paid the sum of IR£10,000 in cash to the plaintiff in respect of the works. I accept the plaintiff’s evidence that he did not receive any payment in cash. Secondly, in my view, the plaintiff has not established evidentially that his counter-claim is maintainable. Moreover it is not maintainable because the basis on which the plaintiff is being remunerated is that he is being awarded a reasonable sum for the work he did under the agreement.
Accordingly, the remaining issue is determination of the sum to which the plaintiff is entitled on a quantum meruit basis. It was not until 12th June, 2001, that the plaintiff furnished his “detailed list of expenses incurred on contract” at the premises. That was after the plenary summons had issued (25th April, 2001) and nine months after the works ceased.
By way of general observation, I consider that the claim as itemised on the list of 12th June, 2001, is exaggerated.
I propose allowing the following items in full:-
§ Item 1: purchases IR£7,438.00
§ Items 4 and 5: payments to labourers IR£11,475.00
§ Item 6: the plaintiff’s remuneration IR£19,440.00
§ Items 7, 9 and 10: hire of equipment, etc. IR£1,690.00
§ Item 13: sub-contracting plumber IR£1,200.00
§ Item 17: sub-contracting plastering contractor IR£4,500.00
The aggregate of the foregoing amounts allowed is IR£45,743.00.
I feel constrained to comment that I was somewhat sceptical about the claim in relation to payment to the labourers. In his evidence, the plaintiff described the two men in question as labourers, distinguishing them from the plasterer and the plumber who were sub-contractors. When I queried whether forms P60 in respect of them could be furnished, I was informed that they were sub-contractors. Copies of forms RCT48 were furnished. I have allowed the sums shown on those forms and, despite my scepticism, have ignored the fact that as originally itemised payments to the labourers included wages, holiday pay, Bank holiday payments, etc.
I propose allowing a sum of IR£5000 to cover the remaining items on the list of 12th June, 2001, I would comment on those items as follows:-
§ Items 2 and 3: the claim in respect of telephone calls is grossly exorbitant.
§ Item 8: the claim for £796 (Pounds) in respect of expenses incurred “re mens lunches, due to no facilities on site” is risible.
§ Item 11: the claim for €3,400 for the cost of insurance and upkeep of van is exorbitant.
§ Item 12: a claim for loss of profit in the sum of IR£10,000 is not sustainable when coupled with a claim for the plaintiff’s remuneration at IR£19,440.
§ Item 14: a claim for IR£3,000 in respect of miscellaneous expenses, which are not itemised, seems inflated.
§ Item 15: if the plaintiff saw fit to pay his brother and a friend for “negotiating” with the defendant, I see no reason why liability for that payment should be foisted on the defendant.
§ Item 16: the claim for extras on top of the claim for purchases seems excessive.
In summary, the total amount allowed on the quantum meruit claim is IR£50,743, equivalent to €64,430.
No proper basis was advanced on which the plaintiff would be entitled to pre-judgment interest. I note that nothing happened on the proceedings for more than three years between July, 2004 and September, 2007, when notice of intention to proceed was served.
There will be an award in the sum of €64,430 against the defendant.
Power & Anor v. Allen & Anor
[2003] IEHC 612 (17 January 2003)
Judgment of Mr. Justice Murphy dated the 17th day of January, 2003.
1. FACTS
The plaintiffs are father and daughter who were to acquire; adjacent lands at Aillenacally, Roundstone, County Galway in 1991 by way of exchange of land and payment of £3,500. The lands contained seven or eight ruined cottages which had once formed a small village which had been abandoned over fifty years ago due to chronic emigration.
The defendant was at all material times a solicitor practising under the style and title of McDermot and Allen who acted for and on behalf of the plaintiffs in the purchase of the lands and in the part exchange of the first named plaintiffs lands at Toombeola, Roundstone contained in Folio 38647, County Galway for lands comprised in Folios 23796 and 2635F of the Register, County Galway owned by Thomas O’Donnell.
The memorandum of agreement was undated but provided for a closing date of the 1St September, 1991. However the sale was not closed for some years and was not registered until 2001. An attempt to sell by auction in 1995 produced no bids. A purported offer in 2000 by a Mr. Derycker was withdrawn. The asking price in 1995 was some £200,000 and in 2000 was £950,000.
There are three material special conditions contained in the contract which incorporates the general conditions of the 1988 edition of the Law Society’s General Condition of Sale as follows:
3.The vendor shall grant the purchaser a right of way for all purposes along the way BI to B2 to B3 and along the way marked blue on the map annexed hereto, with or without vehicles, carts or other means of transport, and the purchaser may surface the said right-of-way as a roadway.
4.Plots BI and B2 shall be registered in the sole name of Patrick Power.
5.Plot B3 shall be registered in the sole name of Blaithin Power.
6.Sale is subject to lands the subject matter of Folios 3635F and 23976 of the Register, County Galway being purchased by Mr. Patrick Power, being converted to absolute, and at or before the closing, the documents necessary to convert the title or alternatively copies of the folios showing an absolute title shall he furnished to Mr. Power’s Solicitors. “
Two difficulties arose. Apparently there was no map attached. Several maps were in the file one of which had a way marked blue and had the name of John F. Mannion B.E., CEng. endorsed thereon with the date the 15/4/91.
A further complication arose in relation to a right of water retained by Mr. O’Donnell, the vendor, which seemed to be subject to an agreement in 1995 some three years after the closing of the sale, on the 15th January, 1992.
A second difficulty arose in relation to the special condition requiring the lands “being converted to absolute, “. The special condition, as recited above, required, at or before the closing, the documents necessary to convert the title or alternatively copies of the folios showing an absolute title to be furnished to Mr. Power’s solicitors.
It will be convenient to refer separately to Folio 23796F (B1 and B2) and 2635F (B3). B 1 and B2 were to be transferred to and registered in the names of the first named plaintiff and B3 in the name of the second named plaintiff.
Folio 23796: the description of the property is a plot of ground being part of the townland of Aillenacally containing 5.34 hectares together with a plot of ground in Toombeola containing just under nine hectares together with one undivided tenth part of the common lands and a more extensive right to cut, gather and remove all seaweed.
Folio 58666F as of the 16th February, 1996 is in the ownership of Blaithin Power (an infant). Particulars of burdens as of the 16th February, 1996 reads as follows:
“The right of wayleave and such other easements as specified in instrument No. 96GYO1144R in favour of Thomas O’Donnell the registered owner(s) of the property comprised in Folio GY 23 796 as specified therein affecting the part of the property no. shown coloured yellow on plan AICCO of the registry map (OS50/11). “
There is no reference to any other right of way. The folio map, containing B3 does not have any right of way indicated thereon.
Folio 2635F containing four plots of grounds being part of the townland of Aillenacally containing over seven hectares together with two undivided tenth parts and one undivided twentieth parts of two plots containing over 92 hectares which comprised B 1 and B2. There is appurtenant to the property a right of seaweed with other tenants on that part of the foreshore of Aillenacally shown coloured yellow and lettered G/H on the map.
Title is given as possessory. As of the 17th October, 1984. Thomas O’Donnell was registered as full owner. A land certificate was requested on the 29t'” November, 2001 to be issued to James B. Joyce and Co. solicitors for Mr. O’Donnell.
In relation to burdens affecting Folio 2635F it is stated that:
“The property is subject to the right of the Land Commission its successors, licensees and assigns to pass and repass there over on foot or with horses or other animals with or without carts and other vehicles and for every purpose by the way coloured yellow on the plan thereof. “
It was not until the 30th November, 2001 that Land Registry notification of completion of registration by land registry of Blaithin Power of plot B3 without a right of way was received. On the same date notification of completion of registration of Paddy Power to plots 131 and B2, again without a right-of-way was received. Before this notification was received the plaintiffs had issued proceedings by way of Plenary Summons dated the 18th January, 2001.
2. PLEADINGS
2.1 The original statement of claim of the 28th February, 2001 was amended on the 1St October of that year.
The amended statement of claim made by the plaintiffs can be summarised as follows:
1. The plaintiffs instructed the defendant to act on their behalf in the purchase of various adjoining parcels of land situate in the townlands of Aillenacally and Toombeola in Connemara, relying on the defendants to use their professional expertise to transfer to them a good and saleable title to these lands.
2. Five years later they decided to sell these lands. After three years of attempting, and many potential purchasers taking an active interest and then losing interest, they became suspicious of the quality of the plaintiff’s title.
3.As a result of a new potential purchaser, saying that he was worried about the title and stating he was prepared to buy the property if there was a good title the plaintiffs, wrote to the defendants asking them to confirm that they had a good and saleable title to these lands.
4.The defendants declined to do this.
5.They then arranged to transfer the file to another solicitor by the name of McCann Fitzgerald who assured them that the plaintiffs did not have a good and saleable title.
6.As a result this, the sale did not go ahead and the potential purchaser lost interest as had his predecessor.
7.As a result they lost the sale at £850,000, and this loss has since afflicted the quality of both the plaintiff s lives.
8.As this sale was lost entirely because of the professional incompetence, negligence of the defendants the plaintiffs claimed the following sums of money to put them back into the position they would have been in had the sale been completed and to compensate them for the irreparable damage that has been done to their lives.
In addition to a claim for £850,000 and interest thereon, the plaintiffs claimed £200,000 for trauma, worry and inconvenience; a £100,000 for damages to the second named plaintiff for interference and depravation in her teenage life and loss of one year as a practising veterinary surgeon; additional cost and expense of maintaining his home in Connemara; an allowance for the legal costs of rectifying the faults in the title and additional costs required for advertising and publicity. In total the claim before this Court was in the sure of £1,418,000 as of the 1St October, 2001.
2.2 An original defence delivered on the 2nd August, 2001 was amended on the 7th February, 2002 and can be summarised as follows:
1. The amendment statement of claim does not comply with the provisions of Order 19 Rule 3. The defence is delivered without prejudice to that non-compliance.
2. The defendants deny their reliance by the plaintiffs upon a transfer of a title to the lands and await proof of the alleged instructions in relation. thereto.
3, 4 and 5. The defendants deny the alleged interest of a potential purchaser and his preparedness to buy the property if there was a good title and await proof thereof.
6. The assurance that the plaintiffs did not have a good and saleable title is denied.
7 and 9. It is further denied that any sale of the property did or could not go ahead and that any potential purchaser lost interest as alleged. The sale of the property for £850,000 and the quality of the plaintiffs’ life being affected is also denied.
8 and 10. The alleged professional incompetence and negligence of the defendants, referred to in paragraph 8 of the amended statement of claim, are denied.
11 and 12. The failure of the defendant to transfer a good and saleable title and the fact that they do not have such title is denied.
13. It is denied that the defendant was under any obligation to, or owed any duty to the plaintiffs or either of them, to transfer a good saleable title, as alleged.
14 to 16. It is denied that either of the plaintiffs have suffered the alleged or any trauma, worry, inconvenience, loss, cost or expense and, if they did, the same was not caused by any act or omission of the defendant, whether negligent or otherwise wrongful, as alleged or at all.
17. At no time was the defendant instructed by, nor did he owe any duties to the second named plaintiff who was not entitled to any relief.
18 to 20. The plaintiffs are not entitled to recover darnages referred to in paragraph 8 of the amended statement of claim. Such are too remote, not foreseeable and irrecoverable in law.
21. If any such damage occurred it was caused by and/or contributed to by the negligence and/or contributory negligence of the plaintiffs:
“(i) By acquiring the said lands when subject to rights-of-way of which the plaintiff was aware;
(ii)Not securing rights-of-way to access;
(iii)Failing to take any or any adequate steps to secure the rights of way;
(iv) Failing to furnish the defendant with any or any proper instructions;
(v)Failing to take any or any adequate cognizances of the advices of the defendant and/or of the solicitors retained by the plaintiff
(vi)Marking documents submitted to the Land Registry in such a manner as to cause same not to be registered.
22. The plaintiffs’ claim is statute barred (Section 11(2) of the Statute of Limitations 1957).
3. NOTICE FOR AND REPLIES TO PARTICULARS
The Pleadings were extended and clarified, in particular by way of reply to the Notice for Particulars by the defendants on the 6th February, 2002.
i. Failing to advise the plaintiffs properly, or at all, in relation to the purchase of the lands at B 1, B2 and B3, and the rights-of-way in relation to same.
ii. Failing to ensure that the Contract and Deeds of Transfer provided for the grant to the plaintiffs of rights-of-way in accordance with the instructions of the plaintiff, such rights-of-way to be registrable with the Land Registry, and to include the right to surface same.
iii. Failing to do all things necessary to procure the prompt registration of the plaintiff’s absolute title to the properties B 1 and B2 (in the case of the first named plaintiff) and B3 (in the case of the second named plaintiff).
iv. Failing to enforce or to ensure that the plaintiffs received the benefit of Special Condition 6 of the Contract of Sale which provided that the: sale was subject to the Title to the lands, the subject matter of Folio 2635 and 23796, of the Register County Galway being converted to absolute, and at, or before, the closing documents copies of the Folios showing an absolute Title, were to be furnished by the defendants to the plaintiffs’ solicitors.
v. Failing to acquire proof of title in relation to the lands over which the rights-of-way were to be granted, and/or to retain an engineer or architect in that behalf.
vi. Failing to do all things necessary to ensure that the plaintiffs had a marketable title in relation to the lands and the right-of-way.
vii. Failing to comply with the plaintiffs instructions in relation to the rights-of-way he had agreed with Thomas O’Donnell, snr. were to be granted.
viii. Failing to attach any, or any sufficient importance to the issue of the rights-of-way having regard to the nature and location of the properties which were being purchased, when the first named plaintiffs expressed concern in relation to the issue of rights-of-way.
ix. Failing promptly and efficiently to comply with the plaintiffs instructions in relation to the agreement come to between the first named plaintiff and Thomas O’Donnell after the contract of sale whereby the plaintiffs agreed for the lifetime of Thomas O’Donnell, snr. to admit the cattle of Thomas O’Donnell to drink on the stream on the lands being purchased by the plaintiffs.
x. Requiring the second named plaintiff immediately prior to 1995 auction to execute a document to obtain a wayleave or easement to draw water on the representation that same wayleave document would not leave defendant’s office, and would not bind the plaintiffs.
xi. Disregard the instructions of the plaintiffs to limit the right of the cattle to drink at the plaintiffs’ stream to the lifetime of Thomas O’Donnell snr.
xii. Causing or permitting a situation in which the plaintiffs did not have, and were not able to show a marketable title in relation to the lands and rights- of-way at the time of the 1995 auction, or thereafter and in relation to sale to Derryker in 2000.
xiii. Failing properly to advise the plaintiffs in relation to the failure to register their ownership of B1, B2 and B3, and of the rights-of-way in relation to same, or of the reasons therefor.
xiv. Failing to act in a proper, competent, and efficient manner to protect the interests of the plaintiffs.
xv. Representing to the plaintiffs, and assuring the plaintiffs that the plaintiffs’ ownership of the properties Bl, B2 and of the rights-of-way were registered in conformity with the plaintiffs instructions or were about to be registered, and had not theretofore been registered solely as a result of’ delays in the Land Registry.
xvi. Causing the plaintiffs to believe that there was no problem in relation to the registration of their ownership of lands B1, B2 and B3, and the rights-of- way in relation thereto.
xvii. Failing to disclose, and concealing from the plaintiffs the defendant’s own failure to comply with the instructions of the plaintiffs, and with their professional obligations to the plaintiffs.
xviii. Failing to carry out any, or any appropriate enquiries into the entitlement to use the road or laneway extending from the public road to the bridge across the commonage to the O’Donnell lands, or properly to advise the plaintiffs in relation to same.
xix. Causing or permitting the plaintiffs to proceed on the basis that their ownership of the lands, and of rights-of-way providing access to the lands was registered, and to act, and continue to act in this belief.
4. A CHRONOLOGY OF EVENTS
01.10.90 O’Donnell to Power to O’Donnell agreement for mutual rights of way – overtaken by events.
20.11.90 McDermot and Allen letters to Toombeola owners re rights-of-way.
23.11.90 Power to McDermot and Allen asking them to take over transaction from Joyce and Company Solicitors for O’Donnell.
28.04.91 Power to McDermot and Allen enclosing a signed copy of plan with right-of-way marked in blue of the dotted line.
01.09.91 Closing date of undated contract O’Donnell to Power.
15.11.91 O’Donnell to Power: transfer by way of exchange.
29.11.91 Power to McDermot and Allen re work on bridge :From public road.
09.12.91 McDermot and Allen to owners of common lands.
08.01.92 Joyce and Co. to McDermot and Allen enclosing deed of transfer and exchange signed by O’Donnell.
15.01.92 O’Donnell to B. Power; transfer deed: plot B3.
17.09.92 McDermot and Allen to Joyce and Co.: report to Law Society (1)
26.01.95 McDonnell and Allen to Martin O’Donnell: injunction proceedings.
28.02.95 P. Power v. M. O’Donnell: Civil Bill.
27.04.95 Interlocutory undertakings re above proceedings.
08.06.95 P. Power v. M. O’Donnell: settlement of proceedings.
30.06.95 Order appointing trustees re B. Power.
11.07.95 McDermot and Allen to Joyce and Co. requesting map and revised wording for insertion into transfer O’Donnell to B. Power.
25.07.95 B. Power: agreement re water rights.
26.07.95 Date of auction.
30.08.95 O’Donnell: statutory declaration re long user of roadway into lands at Aillenacally.
19.09.95 Form 17 re B. Power’s application to register title – subsequently rejected by Land Registry.
12.02.96 Form 17 B. Power – second lodgment.
01.04.98 Form 17 re P. Power’s land – first attempt to register title.
24.03.98 McDermott and Allen to Land Registry re Joyce and Co.
31.03.98 McDermott and Allen to Joyce and Co. to Law Society.
16.07.99 B. and P. Power to McDermott and Allen: send file to Flanagan, Solicitor.
21.07.99 Flanagan’s firm encloses plaintiffs authority dated 16.07.99.
.08.99 P. Power meets Derycker.
09.09.99 plaintiff authorises Land Registry to deal with Flanagan’s firm: files taken from McDermott and Allen.
22.11.99 Derycker to Power, re property and planning.
10.12.99 McCann Fitzgerald receives file for report and title.
25.01.00 Report on title by McCann Fitzgerald to Power.
31.01.00 Summary report on title to Power.
07.02.00 Derycker to Power re offer for £850,000.
28.02.00 Flannery’s Hotel meeting: Allen and Power.
.03.00 McSwiggan S. pub meeting: Allen and Power.
13.03.00 Power to Allen requesting certification of title. 03.04.00 Ditto.
18.04.00 Derycker to Power: not proceeding with purchase.
29.05.00 McCann Fitzgerald to Allen enclosing summary report.
08.01.01 High Court proceedings Power v. McDermott and Allen.
30.11.01 Land Registry notification of completion of registry: B. Power: B3 without right-of-way.
30.11.01 Land Registry notification of completion of registration: Paddy Power: plots B 1 and B2 without rights-of-way.
5.1 EVIDENCE
Both plaintiffs gave evidence as did valuers from each side. The prospective purchaser, Mr. Derycker also gave evidence in relation to his making and subsequent withdrawal of an offer for the premises in 2000.
Ms. Vivienne Bradley, partner in McCann Fitzgerald gave evidence in relation to her report and to Land Registry conveyancing. Mr. Patrick Fitzgibbon of Pierse and Fitzgibbon gave evidence on behalf of the defendant.
In general, the oral evidence proved the documents and correspondence relating to the two transactions. I do not propose, nor do I think it necessary, to refer in detail to that evidence nor, indeed, to recite the files of documents that were opened to the Court.
I will, however, summarize the matter in relation to the transaction and, in more detail, refer to the report on title and the evidence in relation to conveyancing practice given by both experts.
That evidence now touches on the issue of a liability.
It is only in the light of the findings in relation to liability that the issue of quantum arises.
5.2 CONVEYANCING EVIDENCE
5.2.1 Ms. Vivienne Bradley, Partner in McCann Fitzgerald was retained to do a report and advice on title and to advise on the status of the transaction. It was not appropriate for her to take over the conveyances as there were outstanding undertakings. She was paid fees for the work done but not for the rectification which it deemed necessary. The papers she received were not in order it was difficult to relate the lose maps to the documents. The investigation took considerable time.
By 2001 a possessory title had been granted in respect of B 1 and B2 and an absolute title in respect of B3. However there was no registration of the right of way as provided for in the contract. The reference to the right of way marked blue did not have a corresponding map attached to that contract. She tried to match the loose map which had blue markings. The contract provided for absolute title on closing or the handing over of documents to register absolute title. These documents were not present. There was no registered transfer to the plaintiffs. The vendor had only possessory title and his solicitor, Messrs. Joyce, had control of registration and had given an undertaking to do it. The deed of transfer and exchange did not have a map.
In relation to the right of way B2 to B3, this was over tlae commonage and, accordingly, required the consent of the commoners. The copy declaration dated 30″‘ August, 1995 by the vendor related to the public road into the lands and did not have a map attached.
In her evidence, Ms. Bradley said that the role of the engineer was necessary if access was not clearly marked. There were lots and lots of maps, some signed by the engineer of which some had further markings. There was no evidence that the consent of the commoners had been sought or obtained.
The closing date in the contract was the 18th September, 1991 when the vendor was still registered with possessory title.
Ms. Bradley found that there was no untoward delay by the land registry beyond the normal delay with a transfer of part folios. She believed that the matter should have been finalised in 1995.
The right to the vendor to take water was referred to in two deeds. She assumed that the second deed superseded the first and was tied up with the trust for Blaithin Power on the 26th July, 1995, the date of the abortive auction.
She prepared a short form report and title on the 31 St January, 2000 to enable title to be perfected. This followed a long report of the 25th January, 2000.
On the 29th May, 2000 she wrote to the defendant solicitors communicating her understanding that the role of McCann Fitzgerald had ended and that there was an agreement between the Powers and Allens how to resolve issues relating to title. The files were returned to Mr. Power.
On the 1St June, 2000 Allens wrote to McCann Ftizgerald saying that they would not be responsible for the cots of rectification.
There were no requisitions or replies. The undertaking given by Messrs. Joyce to register the transfers should have been pursued by writing, threatening sanctions and reporting to the Law Society. Papers lodged with the Land Registry were not dealt with until the 21s’ September, 1995 and returned and finally were dealt with in 1996. A purchaser could not have been satisfied at the date of the auction on the 26th July, 1995.
The delay until the 24’1′ March, 1998 was not a delay in the land registry but a lack of reply to requests and a reference to the land registry threatening to abandon the dealing.
She believed that the solicitors for the parties, apparently agreed to register without reference to the right of way. She would be concerned that B l- and B2 were only possessory. A lending institution would require good marketable title.
Ms. Bradley said that the report on title was not dealt with, no certificate of title was given pursuant to Paddy Power’s request and neither Paddy Power nor Blaithin Power had got good title to the lands. She would not certify title as nobody knew what equities there were. The plaintiffs were getting less than they had agreed to buy. In her opinion it was wrong to abandon the issue of rights of way which was an important issue for the purchasers. In general, where a problem of this nature arises, the purchasers solicitor should advise that the client has an option to pull out and get compensation. However when the transfer was fully registered in 2002 in respect of possessory title it was then difficult to back out.
The professional fees involved in the investigation and report, in the sum of 013,068, did not include the expenses necessary to rectify as there was still outstanding work to be done.
In cross examination Ms. Bradley said it was a report on the status of title rather than a picking of holes.
She was aware of the efforts of the defendants, McDermott and Allen, to have papers lodged with the land registry. There were four letters in 1992 and two in 1993. On the 17 th September, 1992 McDermott and Allen wrote to Joyce threatening to report them to the Law Society. Ms. Bradley believed that the reply on the 4″‘ May, 1.993 from Joyce to McDermott and Allen was less than what the contract provided. In 1.996 maps were still outstanding.
In relation to the attempt to sell the property in 1995 Ms. Bradley believed that, from what she saw on the file, it would have made it difficult to sell as she would advise a purchaser that the title was not in order. She would be paranoid about rights of way especially in country property where it is essential for the proper enjoyment of land. All of the remaining common owners needed to grant a right of way. Mr. O’Donnell, as vendor, had only six tenths of the commonage.
The plaintiffs were given a right to a grant and not just an assumption such as that in Wheeldon v. Burrows [1879] 12 Ch. D. 31 in relation to a quasi easement on common land. She would not be satisfied to rely on that assumption.
It was not a complicated transaction. What complicated the matter was the state of the documents and of the maps.
She had asked McDermott and Allen to advise her on whether steps had been taken. She did not have coloured maps nor statutory declarations. In relation to the role of the engineer, Ms. Bradley said that whether the parties themselves or their engineers agree on rights of way it is a matter for the solicitor to advise whether that right of way goes outside the premises being conveyed.
5.2.2 Mr. Peter Allen, the sole defendant, was contacted by Mr. Power in 1990 regarding the contract for the Toombeola lands which he was purchasing from a Mr. Ward. It was, he said, a straightforward transaction. Before it was completed he was told of an exchange of the lands agreed to be purchased with Tom O’Donnell in respect of Bl, B2 and B3 and the rights of way thereon. He was aware of the contract. The engineer, Mr. Mannion, he said, was engaged by Messrs. Joyce Solicitors for Mr. O’Donnell and were based on a plan agreed between Mr. O’Donnell and Mr. Power. The said agreement regarding the water for Mr. O’Donnell’s cattle was to be incorporated into the map.
Ms. Joyce, who had acted for Mr. O’Donnell agreed to lodge the dealing and gave an undertaking to that effect. As she had the map. Mr. Allen assumed that the source of delay was that the map wasn’t lodged. In 1990 the land registry was busiest in Galway where there was a delay of a number of years. The registry had written to all solicitors saying that they would only deal with straight forward transactions. Mr. Allen said lie wasn’t aware that the registration was an urgent matter at that time. He had written to Messrs. Joyce on the 31 st March, 1998 asking them to complete under the heading “very urgent”. Blaithin Power’s transfer had been lodged in the land registry in 1996. Queries were raised and on the 24th March, 1998. McDermott and Allen wrote to Messrs Joyce reminding them of their undertaking.
Mr. Allen said that he had acted for Mr. Power in circuit proceedings which Mr. Power took in relation to the damage to his repairs to the roadway. He had not advised Mr. Power to repair the road though he had written, on Mr. Power’s behalf, to other owners of his intention to repair. Mr. Allen believes that the opening up of the land may have upset some people. The consent of all commoners would be needed to resurface the road. The Circuit Court proceedings for injunctions were settled by way of undertakings between the parties not to interfere with the road.
He was not able to comment on why there were no bids at -the auction in 1995. No one had asked him to change the conditions of sale.
He had two meetings with Mr. Power after he had ceased acting for Mr. Power one was on the 28th February, 2000 where he had lunch in Flannerys Hotel. Mr. Power had told him that he had lost the sale and asked Mr. Allen to purchase the lands from him for the same figure. Mr. Allen said he didn’t consider that there was a flaw on the title. When Mr. Allen was asked by Mr. Power if he would pay fees to rectify the title he replied that he would first have to discuss the matter with McCann Fitzgerald. Mr. Allen didn’t there was a problem because of the undertakings given by Messrs. Joyce. Mr. Allen told Mr. Power to refer any prospective purchaser to a solicitor.
The second meeting was two or three weeks later in McSwiggans pub where Mr. Power told Mr. Allen that he should buy the premises. Mr. Allen said he would contact McCann Fitzgerald.
At neither meeting were voices raised. The parties parted amicably after the first and Mr. Allen said that Mr. Power could sue him if he wished after the second.
Mr. Allen said that between February and April 2000 he could not have put the title in order because he didn’t act for Mr. Power and he did not have the papers.
Mr. Allen says that Blaithin Power’s title became absolute under the twelve year rule as it was a conveyance for value: £3,500 had been attributed to the sale to Blaithin. However equality of exchange was not recorded in the deed from O’Donnell to Paddy Power. This was not a conveyance for value.
With regard to the rights of way he said that a special application could have been made to the land registry to register the right of way over the commonage. There was a right of way for the public to the pier: the land registry would look on this favourably.
If he were asked to draft a contract for sale he would have included a clause that the purchaser would accept the declaration. Rights of way in Connemara do not always appear on title. He agreed, however that a commercial use would ring bells with regard to right of way. Everyone had boats and access to the beach and the sea. The reply to the requisitions on the 20th September, 1991 regarding rights of way was affinnative.
Under cross examination Mr. Allen agreed that he had an obligation to keep the plaintiffs informed as to what was happening. He himself had never visited the lands but was aware that the rights of way were to the fore. Mr. Power had written to him on the 28th April, 1991 to “keep an eye on rights of way O’Donnell to my lands”. Mr. Allen says he did not advise Mr. Power with regard to the letter to the commoners regarding the repair of the road and bridge. He read the draft and sent it out as requested.
He said he did not want to blame a colleague with regard to the delays in lodging papers with the land registry. There had been a problem in getting the maps lodged. Mr. O’Donnell and Mr. Power had an amicable relationship. Mr. O’Donnell died in 1999.
Mr. Allen said he did not tell Mr. Power that he had the right to walk away. Joyce and Company had agreed to lodge the map and only one solicitor can deal with the land registry.
He was anxious to get the file closed and finished. There was a sense of pressure but not because he thought that Mr. Power wanted to sell it. He denied that he had told Mr. Power that there were no problems on the title other than the delay in getting it registered. He had written on the 11th July, 1995 to Joyce and Company saying that until matters were finalised he could not prepare contracts. However not one bid was made at the auction. If a solicitor were not happy with the contract he would ask for clarification and amendment if his client were interested.
He agreed that there was no dealing number nor pending registration four years after the 1991 contract which provided that the purchaser would be registered as full owner. He could not say which map was attached to the contract.
Mr. O’Donnell was to give a statutory declaration of public rights of way. There was no map attached to the statutory declaration of the 30th August, 1995. He did not accept Ms. Bradley’s categorisation of the statutory declaration as being unsatisfactory.
He agreed that it would have been better to revert to the plaintiffs in relation to the period of nine years from the time of contract. The right of way over the commonage may not have been possible but the land registry could have registered the right of way over Blaithin Power’s land. He assumed that Mr. Flanagan who had taken over the file in 1999 had the responsibility of finalising the matter with the land registry. He also assumed that on the 28 ti’ February, 2000 that that responsibility had been taken over by McCann Fitzgerald. He did, however, agree that Mr. Power was justified in being concerned at that stage. He did not accept that he had exposure to pay costs for the investigation or for the costs of rectification. He accepted that the death of Mr. O’Donnell on the 12th July, 1999 had caused some problems.
The purchase money attributed to B3 was a decision made by his firm for tax purposes.
5.2.3 Mr. Paddy Fitzgibbon, a partner in Pierse & Fitzgibbon of T istowel Co. Kerry, qualified as a solicitor in 1968 and has extensive experience in conveyanc:ing and probate. In relation to Ms. Bradley’s report he said that land registry procedures, should have been clarified but that the right of way should pose no difficulty. A copy of the Joyce undertaking and of the coloured maps performing the exchange could be obtained.
With regard to the converting of the title to absolute where the first registration was more than 30 years old, in practice, no one takes action against a possessory title which can be registered and will be registered where there is a purchase for value of more than 12 years.
He said that the problem stemmed from mapping difficulties. What went on the map changed. Mr. Mannion BE prepared the original map of the 15th April, 1991. This was changed on the 5th July, 1995 in relation to the agreement regarding water for Mr. O’Donnell’s cattle. This was a change of transaction.
In his view the lands could have been sold in 1995 notwithstanding that the Powers were not the registered owners. He would advise a purchaser to sign a contract. The undertakings were broad enough. The purchaser’s solicitor would prefer registered title. Mr. Fitzgibbon said that the average solicitor would allow his client to enter such contracts. A willing purchaser would sign on the basis of the contract with or without modification.
He would not have registered the right of way – he would have relied on the statutory declaration. He believed that there was an enormous difficulty in registering the right of way – it would have been a nightmare. In any event, the right of way, he said, was a Section 72 burden. He would not be concerned if it wasn’t registered. It was impossible to get all the commoners to grant and the land registry would raise difficulties.
With regard to the state of title in 1990-2000 neither party were registered owners. He would have questioned why the registration had taken so long. He had not the benefit of seeing Messrs. Joyces’ file. He would not advise litigation against Messrs. Joyce. He thought that 3 of the 18 letters to Joyce which threatened going to the Law Society were sufficient.
He considered alternatives. An express grant would raise difficulties with the land registry. Wheeldon v. Burrows [1879] 12 Ch. D. 31 would also create difficulty with the land registry. The establishment of a public right of way would require the Attorney General and would also create problems.
He repeated that that an application to the land registry to register on the basis of the statutory declaration would be the best solution.
All problems, he believed, were capable of resolution. He agreed with Ms. Bradley in this regard. The solicitors function is to resolve problems and help the client.
It was unusual, in his experience, for a bidder to make title a condition as Mr. Derycker did in his letter of February 2000.
Under cross examination Mr. Fitzgibbon said that his views were based on the perusal of the documents and talking with Mr. Allen. He had not seen Joyce’s file. He did not believe that Mr. Allen had done anything wrong but he would have looked for more declarations. He would have resolved the question of the amendment of the 1991 map in 1995. This caused delay.
He could not say if Mr. Allen was partly responsible as he had not see the Joyce file.
He agreed that the only movement came when the present litigation commenced. He had never experienced a ten year delay. He agreed that the delays were not caused by the land registry but by the delays in lodging papers with him.
Mr. Fitzgibbon believed that Mr. Allen should not have allowed the purchasers to close without the map: there should have been a map for each transfer. He believed the rights of way were crucial given that one of them was a public right of way.
The attempt to register those rights of way contributed to the delay he only became aware of the public right of way from the engineer: the issue of the public right of way was not put to Ms. Bradley.
He believed that Mr. Power and Mr. O’Donnell had made their bargain and then went to their solicitors. The statutory declaration offered by Mr. O’Donnell should, he thought have been drafted differently: he would look for a better declaration. What was drafted would not be acceptable to the land registry. Wheeldon v. Burrows [1879] 12 Ch. D. 31 was more academic than practical.
He would, however, have no hesitation in giving a certificate of title and no problem with the conversion of the possessory title under the 12 year or 30 year rule: he repeated he had never seen a claim in 34 years.
Mr. Fitzgibbon said that a solicitor for a purchaser would read the special conditions carefully especially condition 7 of the draft auction contract of 1995. ” … The vendor’s solicitors hereby undertake to discharge all land registry queries … (but not) queries relating to possessory title … ” It was not unusual. It was an unqualified undertaking. If queries in relation thereto could not be answered then the solicitor for the vendor would be liable. The vendor’s solicitor should not have to deal with the land registry queries with regard to possessory title. The purchaser’s solicitor would have the responsibility of registering absolute title under such a condition.
He believed the matter could be remedied as a routine part of conveyancing to get a better declaration. This would not, in his practice, involve an extra cost to the client. The Powers should get the declarations.
In relation to Ms. Bradley’s report he believed that that was new out of date as the land was registered.
Mr. Allen did not have a duty to leave file which would show everything that had been done: such a file is not a case to counsel.
6. PLAINTIFFS SUBMISSIONS
6.1 Evidence of the defendants’ Negligence and Breach of Contract.
The plaintiffs submitted that the evidence adduced established the following negligence and breach of contract on the part of the defendants:
(i) Such registration of title was effected by the defendants on behalf of the plaintiffs was only effected in November 2001
(ii) The defendants closed the 1991 contract for sale with Tom O’Donnell when they ought not to have done so and in circumstances where they failed to advise Paddy Power of the situation and to advise him of his entitlement to withdraw from the transaction. (In relation thereto the defendant says that this was not pleaded. If the defendant had not closed the sale there could be no claim for loss arising out of the alleged agreement with Mr. Derycker).
(iii) The defendants failed to ensure that the map on which was drawn the right of way from B2 to B3 was drawn in a manner which reflected the right of way agreed between Tom O’Donnell and Paddy Power.
(iv) The defendants failed to ensure that the right of way from B2 to B3 ran only across lands in respect of which Tom O’Donnell was entitled to a grant a right of way. While Mr. Mannion’s map of the 15″‘ April 1991 was manifestly incorrect, the defendants completed the sales on the basis of that uncorrected map; (there was a minor revision to the map in 1995 but this related solely to the location of the right to drink of Tom O’Donnell’s cattle).
(v) The defendants contrived a situation where as a result of the erroneously drawn right of way it was not possible to register the right of way from B2 to B3 in the Land Registry and/or they failed to register the right of way from B2 to B3 in the Land Registry.
(vi) The defendants failed to procure the registration of a grant of a. right of way from B 1 to B2 in conformity with the 1991 contract. [Mr. Peter Allen has given evidence that the Land Registry ought to register this right of way; Ms. Helena McGrath has given evidence that her letter to the Land Registry in respect of not registering rights of way was not correctly worded in that it was not intended to withdraw the application to register the right of way between B 1 and B (and perhaps also between B2 and B3 in so far as it went across the lands of O’Donnell); Mr. Fitzgibbon has asserted that it is unnecessary to register the rights of way in that there is a public right of way which can be relied upon. It is apparent from these conflicting testimonies, the plaintiffs submit, that the defendants do not know what case they are making in respect of the registration of the rights of way].
(vii) The defendants misrepresented the position in relation to the title and registration of the plaintiffs title.
(viii) The defendants failed to advise the plaintiffs properly of the nature of the difficulties which the defendants experienced and failed to advise the plaintiffs of or to obtain the plaintiffs assent to:
(a) the registration of the plaintiffs as owner of the lands without the rights of way provided for in the contract, and
(b) the registration of a possessory title only in the case of Mr. Paddy Power.
(ix) The defendants failed to register an absolute title in the case ofd Paddy Power. They have contended that the difficulty in registering Paddy Power as absolute owner arose because of the imputation of the entire cash consideration of £3,500 to Blaithin Power (a decision taken by the defendants). However the plaintiffs say that they do not in fact know whether the title can be made absolute.
(x) In relation to the defendants’ case that there was a public right of way across the common lands, they failed to obtain an adequate declaration ofd long user in relation to the right of way across common lands to the car park.
The plaintiffs relied on the following authorities: Roche v. Peilow [1986] I.L.R.M. 189 Kehoe v. CJLouth & Son [1992] I.L.R.M. 282.
7. DEFENDANTS SUBMISSIONS
7.1 The Claim:
The first plaintiff allege in evidence that as a result of the failure of the defendant to obtain good and marketable title of the lands purchased by plaintiffs, the defendant failed to sell the said lands at auction in 1995, when it was hoped to sell the said lands for approximately £200,000 or £250,000 but when, in fact, no bid was made at the auction. The plaintiffs also alleges that, for the same reasons, the plaintiffs lost the proposed sale of the said lands for £850,000 to a Mr. Derycker in or about: April 2000.
The special damages claimed in the amended statement of claim include the said sum of £850,000 and other sums, making a total of £1,418,000
7.2 Liability
That delay was very largely caused by the solicitors for Mr. O’Donnell, who had undertaken to secure the registration of the 1st plaintiff while the defendant looked after the registration of the 2nd plaintiff.
There was no particular pressure to register the plaintiffs as owners of the lands purchased by the 1″ plaintiff thereunder. Mr. Allen was of the view that the fact that there was some outstanding matters in relation to perfecting the title of the plaintiffs, at the time when the plaintiff ought to sell all of the lands, the subject of these proceedings, by auction in 1995 and would not have deterred prospective purchasers, Mr. Patrick Fitzgibbon e),.;pert Conveyancing Solicitor called on behalf of the defendant gave the same evidence.
The defendant also gave evidence that there was no pressure put to him to complete the registration of the plaintiffs until he met the 1st plaintiff for lunch on 28th February 2000 when the 1st plaintiff alleged to the 1″ plaintiff had already lost a prospective purchaser. From that time 21 st July 1999 time onwards the defendant had no authority to act for the plaintiffs and ceased to act for the plaintiffs and merely held the files for collection.
Had the defendant been informed by the plaintiffs of the prospective sale of the lands by the plaintiffs for £850,000 while the defendant was still acting for the plaintiffs and in possession of the relevant files, the evidence of the defendant shows that the defendant would have taken immediate steps to complete the outstanding matters in relation to the registration of the plaintiffs. The defendant’s evidence was to the effect that the defendant would have satisfied the solicitors for a prospective purchaser, as to the title of the plaintiffs, and having regard to undertakings, would have been inserted as special conditions in the contract for sale to the prospective purchaser. In this regard the special conditions attached to the! contract for the proposed auction in 1995 are relevant.
The only further matters, which needed attention were:
(i) that the title of Thomas O’Donnell in relation to plots 131 and B2 be converted from possessory to absolute.
(ii) that the right of way from plot B 1 to B2 be registered.
(iii) that the right of way from folio B2 to B3 be registered.
It was admitted by Vivienne Bradley, who was called on behalf of the plaintiffs, that a conversion of the title of plots B 1 and B2 from possessory to absolute may be simply a matter of requesting the Registrar of Titles to do so.
The defendant would have been in a position to insist on the Land Registry, registering on the newly created folio 59252, comprising plots B1 and B2, the entitlement of the lst plaintiff to use the right of way from the northernmost point of the right of way coloured blue on the plan prepared by Mr. Mannion B.E. and intended to be attached to the Exchange Contract, down to where the right of way enters plot B l . Insofar as a part of the that right of way is likely incorrectly marked (being on the McDonagh side of a wall dividing lands owned by a Mr. McDonagh, from those owned by Thomas O’Donnell) the said map showing the said right of way would have had to be slightly altered, but no difficulty should have arisen in this regard by the reason of the fact that the way actually used was on the O’Donnell side of that wall. Accordingly, it is submitted that the rule in Wheeldon v. Burrows (1879) 12 Ch. D. 31 applies in this case. The relevant rule was described in that case by Thesiger L.J. at p. 49;
“the first of these rules is, that on the grant by the owner of a tenement of part of that tenement as it is then used and enjoyed, there will pass to the grantee all those continuous and apparent easements (by which, of course, I mean quasi easements), or, in other words, all those easements which are necessary to the reasonable enjoyment of the property granted, and which have been and are at the time of the grant used by the owners of the entirety for the benefit of the part granted. “
That route is the only route from B2 to the Roundstone – Recess road. It follows that the right of way from the northernmost point on the said plan to plot B2, was part of a quasi easement used by Thomas O’Donnell, and under the rule in Wheeldon v. Burrows, the benefi thereof passed as an easement to the 1st plaintiff pursuant to the Exchange Contract.
7.3 Prospective purchase by Mr. Derycker
The letter from Mr. Derycker dated 22nd November, 1999, the concern of the alleged prospective purchaser at that stage was planning permission. In his letter dated 8th February 2000, an offer is made in respect of the property. It is submitted that this letter would not constitute a proper note or memorandum to satisfy the provisions of Section 2 of the Statute of Frauds in that it does not:
(a) Identify the lands in respect of which the proposed offer is made.
(c) There is no reference to the purchase of lands owned by the 2nd defendant.
Mr. Derycker would only have purchased subject to planning permission.
It is submitted on behalf of the defendant that no loss arises as a result of the said events because there was never any binding agreement for the sale of the lands. The offer of £850,000 was never accepted by the 1St plaintiff.
7.4 Civil Liability Act 1961
It is submitted that the plaintiffs are estopped, by the provisions of the Civil Liability Act from recovering from the defendant for alleged losses of damages for which they have already recovered in other proceedings in full and final settlement of the claim of the 2nd plaintiff for loss and damage suffered as a result of the negligence of the Minister for Agriculture. The damages claimed by the second plaintiff herein overlaps to a considerable extent the claim made by the 2nd plaintiff in the within proceedings.
7.5 Statute of Limitations 1957-1991
It is pleaded (Defence paragraph 22) that the claim of the 1St plaintiff is statute barred pursuant to the provisions of Section 11(2) of the Statute of Limitations 1957. Section 11 (2) (a) is in point.
The negligence if any, in this matter occurred when the transaction was completed in January 1992 at the closing of the sale regarding the O’Donnell lands.
7.6Reasonable Foreseeability and Remoteness of Damage
It was totally unforeseeable, that a prospective purchaser would make and then withdraw an offer for the lands because the 1St plaintiff could not satisfy the prospective purchaser personally that there was good title to the lands.
The first the defendant knew of the prospective purchaser was when Mr. Power the 1St plaintiff mentioned at the lunch on 28th February 2000 that the prospective purchaser was no longer interested in purchasing the lands.
It is fiirther submitted that it is not foreseeable that the plaintiffs would commission a “report on title”.
The delay in registration of the property in no manner caused a loss to the plaintiffs. Evidence has been given that any contract for the sale of these lands would have been similar in terms to the Auction Contract, 1995 and that the special conditions as inserted therein would not have been put off putting to a prospective purchaser. The special conditions in the Auction Contract are very broad and beneficial to a purchaser.
There has never been any difficulty regarding accessing the properties at B1, B2 and B3. Since 1995 it has been clear that the access via the existing right of way, is from Roundstone -Recess Road to the pier adjacent to B l. Both rights of way were explicitly granted in the 2 Deeds of Transfer (to the 1St plaintiff dated the 15″ November, 1991: to the 2 °a plaintiff dated the 15th January, 1992).
7.7 Loss
In relation to loss it was submitted that if the defendant has any responsibility for the cost of the McCann Fitzgerald report in title that responsibility is limited the IR£400 + Vat, the liability of Mr. Power. The defendant can have no greater liability to either of the plaintiffs in respect of the work done by McCann Fitzgeralds for the plaintiffs, than the plaintiffs have to McCann Fitzgerald. The defendant made clear on the 11 d’ May, 2000 and the 1St June, 2000 that he would pay McCann Fitzgerald only in respect of the cost incurred in discussing with McCann Fitzgerald the plaintiffs’ title and any problem relating thereto.
8. APPLICABLE LEGAL PRINCIPLES
Conveyancing practice in relation to registered land is, in theory, simpler than the procedure in relation to unregistered land. However it is based on the same principle of transferring a good title from vendor to purchaser. If any weak links in title are overlooked a purchaser solicitor may be negligent. See Pilkington v. Wood (1953) Ch 770.
Defects in title can be classified under three convenient but overlapping categories.
First there are those defects which affect the ownership of the vendor. While this may be discovered on investigation of title, the vendor has a duty to disclose such defects. One of the examples given in the text book is where the vendors title depends on adverse possession and the proof of extinction of the earlier title cannot be proved.
Secondly, the inability of the vendor to convey free from encumbrances such as easements renders the title defective if not fully disclosed. Such defect binds the purchaser. In such case it may be in the vendors best interest to disclose matters (see Farrand on Contract and Conveyance, (4th ed. 1983 p. 65).
Finally, where the property sold is leasehold, any onerous or unusual covenant in the lease and the services of notices must be disclosed.
Lindley L.J. in Scott and Alvarez’s Contract, Scott v. Alvarez (1895) 2 Ch. 603 at 613 referred to bad titles in the following terms:
“There are bad titles and bad titles; bad titles which are good holding titles, although they may be open to objections which are not serious, or bad titles in a conveyancer’s point of view, but good in a businessman’s point of view. “
A `holding title’ is one which looks back to the origin of ownership, namely possession. The expression envisages, in Farrand’s view, at 91, a doubtful title or one suffering from a merely technical defects, under which there has been undisturbed possession. This becomes a `good holding title’ if the possession is likely to continue to be undisturbed. Indeed possession can become not just a good holding title but a good title in its own right if sufficient evidence of the defeated ownership is forthcoming.
Indeed Jessel MR in Lysaght v. Edwards (1876) 2 Ch D 499 at 507 held that ” … however bad the title may be the purchaser has a right to accept it … ” However, until a holding title (whether or not a “good holding title “) becomes a good title it will not be enforced on a reluctant purchaser under an open contract.
Where there are special conditions, as in this case, the purchaser takes subject to those conditions.
The investigation of title made on the purchasers’ behalf by the purchasers’ solicitor gives the purchaser protection within the ambit of the contract. If a defect in the vendor’s title is missed then the purchaser is entitled to a remedy, infrequently against the vendor for breach of covenant for title but, more commonly, against his solicitor for professional negligence.
The plaintiff, in any event, is under a common law duty to take all reasonable steps to mitigate any loss. However, a solicitor who has negligently investigated title cannot compel a plaintiff client to mitigate his damages by pursuing the alternative remedy under breach of covenant for title. In Pilkington v. Wood (1953) 2 All E.R. 810 at p. 813 G, Harman J. stated:
“I am of the opinion that the so-called duty to mitigate does not go so far as to oblige the injured party, even under an indemnity, to embark on a complicated and difficult piece of litigation against a third parry. The damage to the plaintiff was done once and for all directly the avoidable conveyance to him was executed. This was the direct result of the negligent advice tendered by his solicitor, the defendant, that a good title had been shown, and, in my judgment, it is no part of the plaintiffs duty to embark on the proposed litigation to protect the defendant from the consequences of his own carelessness.
Pilkington concerned an action for damages for the negligence of the defendant while acting as solicitor for the plaintiff in connection with the purchase by the plaintiff of certain freehold premises. The defendant failed to advise the plaintiff that there was a defect in the vendor’s title in that the premises had been part of trust property wader a will of which the vendor was a trustee and the abstract of title showed that the vendor had purchased it, through intermediaries, from himself and the other trustees. Later, the plaintiff entered into a contract to sell the premises but, on finding the defect in the title, the purchaser refused to complete. The plaintiff thereupon brought an action for damages against the defendant.
The measure of the solicitor’s liability was the difference, at the time of the conveyance to him, between the value of the property with a good title and its value with the defect. Other items claimed which were not such as might reasonably be supposed to have been in the contemplation of the parties as liable to result from the solicitors negligence were too remote.
Even in the case of an open contract where parties have shaken hands on price they will still trust their solicitors to do everything necessary to protect them against traps and pitfalls that beset the completion of sales of real property: see Black v. Kavanagh (1974) 108 I.L.T.R. 91 at pp. 94/96, per Gannon J. (see Farrell, Irish Law of Specific Performance, (1St ed. 1994) page 120 paragraph 5.19.)
The general duties of a solicitor are to act on his client’s behalf and to give legal advice to such client in accordance with his contract of retainer. Where a solicitor is acting for a number of clients with a similar interest, his retainer is with each individually. As in all relationships involving a duty of care, solicitors are bound to exercise a reasonable degree of care, skill and knowledge in all legal business that they undertake. See Jackson and Powell Professional Negligence, (4th ed., 1997), Chapter 4.
In Roche v. Peilow [1986] I.L.R.M. 189 Henchy J laid down the standard to be expected of a solicitor:
“The general duty owed by a solicitor to his client is to show him the degree of care to be expected in the circumstances from a reasonably careful and skilful solicitor. Usually the solicitor will be held to have discharged that duty if he follows a practice common among the members of his profession … But there is an important exception to that rule of conduct … and a person cannot be said to be acting reasonably if he automatically and mindlessly follows the practice of others when by taking thought he would have realised that the practice in question was fraught with peril for his client and was readily avoidable or remediable. ” At pp. 196 and 197.
In Kehoe v CJ Son [1992] I.L.R.M. 282 the plaintiffs were advised by their solicitor that they were purchasing a yearly tenancy which was “as good as freehold” since they had the legal right to acquire the freehold at a reduced sum. In fact, this was not possible without having the premises revalued, an exercise which involved considerable additional expense. The failure to advise as to the implications of purchasing the freehold was held to constitute negligence on the part of the managing clerk who was dealing with the matter.
In Pilkington v. Wood [1953] Ch 770 the purchase price was treated as the market value at the date of breach resulting in a detective title. Damages were assessed as the difference between the market value with a good title and the value subject to a defect in title.
Where there is a defective purchase the valuation method may be the difference between the valuation of good and of defective title, the loss on resale or the cost of cure. In addition damages may be awarded for inconvenience. See Flentley and Leech, Solicitors Negligence (1st ed. 1999) paragraphs 8.72 to 8.81.
9. DECISION OF THE COURT
9.1 The contract between the parties was for an exchange of lands and a consideration of £3,500 payable by the plaintiffs. The closing date was the 1″ September, 1991. There were three parcels one of which was to go to the second named plaintiff in respect of which, eventually, the full consideration was attributed.
The approach to the land was through an old road over an old :prefabricated bridge and into the site which led to some eight cottages and two harbours. The distance from the main road to the pier on one of the harbours was approximately three miles. As the site, a deserted village was not lived in for upwards of 40 years, rights of way to it and through it were unclear and, to some extent, overgrown. Indeed the rights of way agreed on between the parties and mapped by Mr. Mannion, the engineer, appear to have passed over commonage of which the vendor was an owner in common. A problem arose with regard to how best to include these rights of way in the transfer to the plaintiff. The right of way seemed also to pass over third party land. The contract for sale contained a number of special conditions. Reference has already been made to condition 7 thereof.
What transpired some ten years later after proceedings issued was the registration of the plots without the rights of way and the transfer of possessory title ;rather than absolute title. The contract required documents to enable the purchaser and his daughter to register themselves as absolute owners.
9.2 In the meantime the property was put up for sale in 1995 and attracted publicity nationally and, indeed, internationally. Indeed, as publicity continued the asking price increased. Unfortunately there were no bids at the auction nor, indeed, any queries to the defendant who continued to act for the plaintiffs.
It is not possible to describe the effect of difficulties in title. Neither is it possible to say whether price was a factor. Relationships with adjoining land owners, and the then recent Circuit Court proceedings may also have been a factor. It does not seem to the court that the delay in registering title caused any loss.
No doubt had there been a sale – even at a reduced price – rnuch hardship could have been avoided in terms of the living conditions of both plaintiffs and the schooling of the second named plaintiff. It is to the credit of the plaintiff that these difficulties were overcome and that the second named plaintiffs succeeded, albeit after repeating her :Leaving Certificate, to get the points which she required for university. I have every sympathy with a parent, on his own, attempting to fund education courses abroad to enable his daughter do better ink language. There may indeed, have been no other source of funds and it may not have been thought proper or possible to raise money on the security of the lands. But it does not seem to me, whatever the delay up to 1995, that these were attributable to the defendant. Even if this were not so, it is clear that the defendants did not know that this was a loss emanating from the delay in registering the transfers according to the contract. Indeed., it seems, that the agreement with Mr. O’Donnell regarding the water which was being dealt with shortly prior to the auction itself, constituted a further negotiation and caused confusion in the maps in relation to a contract which had already been executed.
9.3 Four years later a Mr. Derycker, who gave evidence to the court, expressed an interest in acquiring the lands for a sum of £850,000 subject to good title, as he had learned, he said, that there were some problems with regard to title which led to the land not being sold in 1995 by auction.
The correspondence between Mr. Derycker and Mr. Power had been fully opened and commented on. His letter of the 7d’ February, 2000 purports to be an offer, subject to title, for that sum. This is followed, some two months later, on 18th April, 2000 by a withdrawal of the offer. This is the basis on which the plaintiffs say is the measure of their loss because of the delay in registering their title and registering it without the rights of way and without absolute title.
Mr. Derycker, in his evidence to this court, says that he was willing to pay that sum for the property. He believed that he could build a substantial residence for himself, at least, if not develop the site further. If he had an assurance with regard to title – a certificate of title, for example – he would have then instructed a solicitor and a planning consultant. However the matter had not proceeded to that stage and he had not had the benefit of either legal or planning advice. Mr. Derycker came across as a confident and competent business man. It is clear from his evidence that he would not allow himself be bound into a contrac where he could not develop the land (assuming that his solicitor was satisfied with title) as he had planned. This he had expressed in his letter of 22nd November, 1999. He would have taken such advice. The original asking price was £1,200,000. That was then reduced to £950,000. It was on this basis that he made an offer for £850,000.
Under cross examination he said that he would have had a solicitor before committing himself. He also said he would have had expected his acceptance to be subject to planning. It was the only property which he saw.
In his letter of the 7th February, 2000 he had stated: “and, of course, as you said if there is no good title we camzot buy it”. It never occurred to him to get an Irish solicitor to look at the documents. It was not up to him to sort out the paper mess. lie had confidence in Mr. Power sorting it out. He said he would not be bound if there was no proper deed.
He said that Mr. Power did not tell him about the title problem (Ms. Bradley had reported back to him on 30th January, 2000 regarding problems of title). He said that he wrote the letter of the 18th April, 2000 to terminate the offer.
If the valuation were half of what he had offered to pay he would have felt foolish. He had made the bid on the basis of information available. To him it was a commitment and never his intention to change the price.
Mr. Derycker expressed himself as a decisive person who was committed with regard to the price he offered. That, however, was based on planning for what he wanted and, of course, title.
It does not seem to me that from a legal point of view that had title alone when resolved – and Mr. Fitzgibbon has told the court that it could be done as a routine part of conveyancing for which he would make no extra charge, it seems to this court that there was not an enforceable contract inherent in Mr. Derycker’s letter of the 7th February, 2000.
From Mr. Power’s point of view, given the history of delay, it must be assumed that he was concerned about Mr. Derycker’s requiring an assurance regarding title. One would have expected him to alert Mr. Flanagan, or indeed Ms. Bradley to the necessity of making good title if Mr. Power did not want, at that stage, to involve Mr. Allen anymore.
9.4 Whatever complication arose because of the exchange and the undertaking given by the solicitor for the vendor (who was also, of course, a purchaser) this did not justify the delays in and extent of the property registered. There was a contract in respect of rights of way. There was also an agreement with regard to the registration of absolute title. Neither of these particulars were known to Mr. Derycker who had not investigated nor, indeed, been told of difficulties in title.
It seems to this court that the delays cannot be justified: a contract with a closing date in January 1991 should have been registered, even allowing for the delays in registering a transfer by way of exchange, within a reasonable period from that date. It also seems clear that the statutory declaration and the maps should have been dealt with more expeditiously.
9.5 There is some dispute between the conveyancing experts with regard to how the matters could be resolved. Ms. Bradley believes that the grant of the right of way should be obtained and registered. Mr. Fitzgibbon, on the other hand, believes that a statutory declaration, in a more comprehensive form, should suffice. Both positions were justifiable. According to the contract there was to have been a grant. If the lands were to be developed commercially then one would prefer a grant. However land such as the subject matter of a contract abutting on commonage and having a pier to which there was some rough access for the public is not urban commercial land. The practical solution in the circumstances to avoid difficulties may be to proceed by way of statutory declaration. Whether that can be registered or not is another matter.
It does seem to me that the solicitor for the purchasers – the defendants in this case – should have advised the plaintiffs of the options as difficulties arose. It could very well have been a matter of walking away from a contract – as Mr. Fitzgi bbon suggested – or making the best of what was available. It is clear that Mr. Power was concerned about adjoining owners when he bought Toombeola and was aware of resentment and obstruction which led to the Circuit Court proceedings.
The evidence of the defendant and of Ms. Helena McGrath was that the right of way granted could be registered but for a misunderstanding with the land registry.
Mr. Fitzgibbon’s evidence was that this was not necessary.
However, it appeared clear fiom the evidence that part of the right of way is over the commons and another part is over lands owned by a Mr. McDonagh.
Difficulties arose in relation to the public right of way which could have been resolved before the death of the vendor, Mr. O’Donnell on 12th July, 1999, by way of statutory declaration.
Though the delay was largely caused by the solicitors for the vendor, notwithstanding, the eighteen letters (including threats to report to the Law Society) the responsibility must be with the purchasers solicitor to register the transfers expeditiously even where there was no particular pressure to do so.
While it is unlikely that outstanding matters would have deterred prospective purchasers at the date of the auction on 26th July 1995 the same might not be said in 2000 when Mr. O’Donnell had died.
9.6 Mr. Power, having met Mr. Allen on 28th February 2000 after Mr. Power had received the report on title, on 31St January, 2000 then asked Mr. Allen on 13th March 2000 and 3`d April, 2000 to certify the title.
Mr. Derycker purported to make an offer on 7th February 20010 and indicated that he was not proceeding on 18`h April 2000. On 29th May the short report on title was sent to Mr. Allen.
I accept the defendants evidence that had he been informed of that prospective sale he would have taken immediate steps to complete the outstanding matters and proceed by way of special conditions as were included in the draft contract of July, 1995.
I accept the defendants submissions that the letter of 8th February, 2000 could not be enforced against. It is clear from his letter of 22nd November, 1999 arid from his evidence to the court that he was concerned about planning permission.
9.7 I cannot accept the defendants argument in relation to the Statute of Frauds pleaded at paragraph 22 of the Defence.
Assurances had been given that registration would be completed and, indeed, were partly completed on 30th November, 2001 after pleadings issued on 8th January, 2001. The issue regarding time is not that of the date of the contract but of discoverability. In DW Moore & Co Ltd v. Ferrier and Others (1988) 1 All E.R. 400, time ran from the date of a negligently drafted contract. That is not the case pleaded here. Damage became manifest at the time of the receipt by the plaintiff of the report on title in January 2000. (See Hegarty v. O’Loughran [1990] IR 148 and O’Donnell v. Kilsaran Concrete Limited and Another [2002] 1 ILRM 551.
The plaintiffs were then aware of the deficiencies in their title.
9.8 The defendants were under an obligation to, and owed a care towards, the first named plaintiff under the contract of retainer to transfer a good saleable title as provided by the contract for sale.
That obligation extended to the second named plaintiff, who was a minor, for whom the defendant subsequently agreed to act.
The defendant was in breach of such duty of care in relation to
– undue delay in procuring the registration of the several premises
– failing to procure the registration of the rights of way and. of absolute title as provided for in the contract and
– failing to advise the plaintiffs of the progress and difficulties with regard to maps rights of way and statutory declarations.
9.10 A defence of contributory negligence had been raised. Even if it were established that Mr. Power had himself negotiated with Mr. O’Donnell after the contract was executed and marked maps which had been prepared by the engineer, the defendant ought to have advised of such variation being outside the contract of the title, difficulties that this would create and of the necessity of having the engineer produce a map.
9.11 The plaintiffs are in possession. Blaithin Power is a purchaser for value and it may be possible for Patrick Power to register the rights of way and absolute title on the basis of statutory declarations without the necessity of a grant from third parties.
Whatever investment was made by Mr. Power in repairing the bridge and the road: as seen from the more recent photographs taken by several witnesses with regard to the rights of way it is clear that the expected increase in value has been considerable. The value of the lands exchanged and the consideration in respect of Blaithin Power’s portion is but a tiny fraction of the asking price four years later in 1995 and even smaller in relation to the offer of £850,000 by Mr. Derycker in 2000. Evidence on valuation, having regard to the possible planning permission available, does not justify those valuations. However it is clear that the lands are, and remain, valuable and that the plaintiffs are in possession of the lands.
9.12 The court is not satisfied that the offer by Mr. Derycker is evidence of value of the property with title registered in conformity with the contract. There has been no satisfactory evidence of the value of the property as currently registered. Taking its present user there may be no significant difference.
The court does not accept, on the evidence, that there was an enforceable contract between Mr. Power and Mr. Derycker. Even if there had been steps taken to cure the defects enumerated by Ms. Bradley, Mr. Derycker still required some assurance regarding the building of a large dwelling. In any event Mr. Power did not appear to have accepted Mr. Derycker’s purported offer.
9.13 If is difficult to ascertain from the evidence what difference in value there is between the present registered title and that contracted for.
It would seem that the measure of damages is the cost of curing that difference. The underlying value of the land, on the evidence, has increased significantly even if there is some evidence of values decreasing marginally in the past year.
The plaintiffs are entitled to the costs of curing these defects which have not been quantified.
They are also entitled to the cost of investigation and report on title in the sum of £400 actually discharged by Mr. Power.
Damages particularised in paragraph 8 of the amended statement of claim were not notified to the defendants before proceedings issued and are, in any event too remote. There is insufficient evidence that they resulted from the breach.
The claims which overlap with claims in other litigation where there has been a full and final settlement cannot be entertained by the court.
ADM Londis Plc -v- Ranzett Ltd & ors (No. 2)
[2014] IEHC 659 (15 July 2014)
JUDGMENT of Mr. Justice Gerard Hogan delivered the 15th day of July 2014
1. Where a franchisor unlawfully terminates a contractual relationship with a franchisee, what is the measure of damages which flows from this breach? This is, in essence, the question which I am now required to determine in the wake of my earlier judgment in these proceedings delivered on 15th February 2013: see ADM Londis plc v. Ranzett Ltd. [2013] IEHC 63. This judgment may be regarded as supplementary to that earlier judgment and should be read in conjunction with it.
2. The present dispute concerns the termination of a franchise by the well known retail company, ADM Londis plc (“Londis”) of a Londis franchise at a retail outlet at the Black Bull premises, Dublin Road, Drogheda, Co. Louth in December 2008. The franchisees were Ray Dolan and Annaliese McConnell, the second and third defendants. This couple married in June 2007. The first named defendant, Ranzett Ltd., was the corporate vehicle by which the retailing business was operated by them.
3. I do not propose to rehearse again at any length the complex set of circumstances which led to the termination of the franchise agreement, since these details are set out at considerable length in the first judgment. It suffices to say for present purposes that Mr. Dolan was an accomplished retailer who had been operating under the Londis franchise for some years. However, by November and December 2008, Mr. Dolan and his company, Ranzett Ltd., found themselves in a precarious position. Arrears on the trading account with Londis had grown to some €430,000 and the bank was refusing to honour direct debits.
4. At that hearing, evidence was given by Ms. O’Dea, the plaintiff’s financial officer, to the effect that the total sum which ADM Londis was owed was €561,283.91 in respect of unpaid invoices (of course, this figure also includes the sum of €400,000 in respect of which I had already given judgment). The defendants did not seriously dispute this figure and I gave judgment against the second and third defendants qua guarantors (the first defendant having been dissolved) for the further sum of €161,283.91. I further ruled that ADM Londis was also entitled to Courts Act interest from the date on which payment was originally demanded, namely, 2nd June, 2009.
5. In my judgment, however, I also ruled that the plaintiff was in breach of contract with regarding to the giving of notice, the abrupt termination of the agreement and the closure of the trading account and the de-branding of the Black Bull premises on 4th December 2008: see paragraphs 131 et seq. of the first judgment. It was these breaches of contract which had brought about the total cessation of the defendant’s business and the effective destruction of whatever value still remained in the business and (more especially, perhaps) its assets, especially by reason of the abrupt and immediate termination of the trading relationship between the parties. It was the very abrupt termination of the trading relationship which I found to be at the heart of the unlawful termination of the contract.
6. At this juncture I should pause to observe that while counsel for the plaintiff, Mr. Buttanshaw, urged that in assessing damages I should have regard to the fact that, insofar as there were losses, they were the loss of Ranzett Ltd. and not those of either Mr. Dolan and Ms. McConnell, it is not, I think, necessary for me to undertake any disquisition on the implications of Saloman v. Saloman & Co. for this purpose. It is sufficient to say that under the contractual relationship between the parties, Mr. Dolan and Ms. McConnell have primary obligations vis-à-vis the plaintiff in respect of these contractual obligations as principal obligors. In these circumstances, I propose to treat the fate of the three defendants as entirely intertwined for the purposes of this damages claim.
7. There are, accordingly, really three separate heads of losses which fall for consideration. First, there are the losses which resulted directly from the termination of the franchise and the inability of Ranzett Ltd. to trade during that critical period. Second, there are the losses which flowed from the subsequent forfeiture of the lease at the Black Bull premises. Third, there are the losses which arose following the separation out of the Londis goods from the non-Londis goods for the purposes of the performance of the retention of title exercise. I propose to consider each of these categories in turn, although they are to some degree interlinked. Before doing so, however, it may be convenient to make some general observations regarding the effect of these breaches of contract.
8. As I pointed out in my first judgment, there is no doubt but that Ranzett itself was heavily under-capitalised and it faced a difficult trading future. Yet the effect of these breaches was to bring about the forfeiture of the lease at the Black Bull premises, with disastrous consequences for the defendants. The other significant losses which these breaches brought about was that they deprived the defendants of the opportunity of securing an opportunity to trade during a critical period and to keep the retail premises open, in particular by securing an alternative source of supply.
9. Another way of looking at this issue is to consider what the position would have been had the contract not been unlawfully terminated by ADM Londis in the manner which I have described. I think that it is clear from the evidence that, had this happened, the defendants would have secured an alternative supplier and could probably have continued to trade. The plaintiff would have pursued them for the debts which the company run up. I think that it is unlikely that Mr. Dolan would have been able to meet these debts or secure alternative re-financing. All of this means that debt recovery by ADM Londis as against Ranzett would probably have resulted in the latter company going into liquidation at some stage within the following two years.
10. Critically, however, it was the failure of the plaintiff to allow the defendants the breathing space to enable them to secure an alternative supplier in the manner which I have found the contractual relationship between the parties required which ultimately brought about a financial catastrophe. It was the very abrupt nature of the termination which led directly to what I described in the first judgment as a cascade of claims against the defendants. If, for example, the defendants had been given more time, then I believe that they would have found it be possible to sell or assign the leasehold in the Black Bull premises in an orderly fashion. While it is true that neither 2009 nor 2010 were auspicious years for the retail business, it could not be said that even in those years the lease had a nil value.
11. Here it must be recalled that the landlord of the premises managed to find a new tenant even after the forfeiture of the original lease with Ranzett Ltd. While the terms of that agreement are not known to the court – or, for that matter, to the parties – it shows that the lease had some residual value which, but for the breaches of contract, would have accrued to the defendants.
12. It is likewise clear that with even a little breathing space the defendants would have been able to sell or dispose of the specialist refrigeration, air-conditioning units and other equipment associated with the fit-out of the premises. This equipment had been leased by the defendants from Friends First. While it is true that this equipment would probably have depreciated significantly in value by reason of the fact that it would by this stage have been second-hand, the property might nonetheless have been sold or disposed of had but this opportunity been presented to the defendants. The evidence instead was that once the business ceased to trade, the defendants could not afford the leasing costs of the equipment. At that point the leasing company, Friends First, repossessed the equipment and according to Mr. Dolan sold it on a fire sale basis to a third party. Friends First have subsequently obtained judgment against Mr. Dolan for the balance of the sums due under the lease, namely, €155,000.
The valuation of the company
13. The defendants have claimed the sum of €900,000 in respect of the value of the company. Mr. Dolan explained in evidence that, traditionally, the sale of retail premises was based on a figure between 10 and 20 times the weekly turnover in the case of leasehold premises and a figure of 25 to 35 times turnover in the case of freehold property. There is no doubt but that even in December 2008 he was turning over a figure of €45,000 to €50,000 a week. There is also evidence that a sale of the company for €1.4m. was seriously contemplated by third party purchasers in September 2007. Unfortunately, however, that sale fell through in August 2008 because the purchasers could not obtain the appropriate finance, even though these purchasers purchased another company (Mattóg Ltd.) from him who was similarly involved in the retail business for €3.4m.: see paragraphs 18 and 19 of the first judgment.
14. Mr. Dolan also gave evidence that he was drawing an income from the company by way of salary in the sum of €900 per week, i.e., approximately €45,000 a year.
The forfeiture of the lease
15. Mr. Dolan gave evidence that he had paid €650,000 in respect of the lease of the premises and had obtained a bank loan from National Irish Bank for this purpose. There were no arrears of rent when the forfeiture notice was served, but the lease was subsequently forfeited when the defendants could not trade out of the premises following the termination of the contract. The plaintiff was fully aware of these arrangements prior to the termination of the contract.
Conclusions regarding the loss of the value of the company and the forfeiture of the lease
16. In the absence of any expert evidence, the valuation of the company in December 2008 is especially difficult. To this may be added the fact that this was just several months after the announcement of the bank guarantee in September 2008, so that the trading environment was particularly difficult. Property values were falling rapidly and retail sales were plummeting as consumers were faced with bleak and unforgiving economic news.
17. To my mind, by that stage the company had very little intrinsic value over and above the value of the lease, the fact that it occupied a good trading position just outside of Drogheda and its capacity to deliver an income from the retail business. Certainly, without these assets the company had a nil value. In addition, I think that had the defendants been given an opportunity to sell the company in 2009 or 2010 they would have struggled to do so. In these circumstances, I do not believe that the defendants can advance a claim in respect of the value of the company along with a claim for damages associated with the forfeiture of the lease. While I naturally have had regard to the proposed price of €1.4m. for Ranzett which was contemplated in September 2007, the economic conditions had changed radically for the worse in the intervening fifteen month period. Ranzett itself was also by this stage in a far more precarious position than had been the case at the time of the proposed sale.
18. In these circumstances, I propose to value these claims by reference to the lowest multiplier of 10 times weekly turnover, reflecting the bleak economic environment which then prevailed and the uncertainties which would then have attended the sale of the business. I also think that the weekly turnover of the business would have declined in 2009 to €42,000 in line with declining consumer spending.
19. On that basis, therefore, I propose to award the defendants the sum of €420,000 in respect of the damages arising from the effective destruction of the business and the forfeiture of the lease.
The re-possession of stock
20. It is clear from the terms of my first judgment (see paragraphs 74-85) that Londis were really only interested in retrieving only high value boxed stock. As I pointed out in the first judgment (at paragraphs 71 and 72) , the effect of the letter from Londis’s solicitors of 4th December 2008 was that Mr. Dolan could not safely deal with the stock until Londis had exercised its reservation of title rights, there was a further delay until December 23rd, 2008. It was only then that Londis confirmed that it did not propose to exercise its retention of title rights any further. This left some €65,000 of stock which, by this stage, Mr. Dolan was not able to sell by reason of the closure of the store in the meantime.
21. In my view, the defendants can, in principle, properly make a claim in respect of these particular losses which flow directly from the termination of the contract and more specifically from the failure of the plaintiff to exercise its contractual powers of retention of title in a manner which was also consistent its fiduciary obligations under the trading terms agreement, so that these contractual entitlements were exercised in a manner which also took account of the defendants’ interests: see paragraph 132 of the judgment.
22. In calculating these damages, however, I must also have regard to the fact that Mr. Dolan was objectively at fault in not immediately permitting Londis to repossess the stock on the morning of December 4th, 2008, as they were contractually entitled to do: see paragraph 134 of the judgment. In this regard, it is clear from the Supreme Court’s decision in McCord v. Electricity Supply Board [1980] I.L.R.M. 153 that, having regard to the provisions of s. 34(1) of the Civil Liability Act 1961, damages for breach of contract may be reduced – or even entirely negatived – where the plaintiff has been guilty of fault or contributory negligence.
23. As Kenny J. stated in this context in Carroll v. Clare County Council [1975] I.R. 221, 227:
“I think that ‘fault’ in s. 34 of the Act of 1961 means a departure from a norm by a person who, as a result of such departure, has been found to have been negligent and that degrees of ‘fault’ expresses the extent of his departure from the standard of behaviour to be expected from a reasonable man or woman in the circumstances. The extent of that departure is not be measured by moral consideration, for to so would introduce a subjective element while the true view is that the test is objective only. It is the blameworthiness, by reference to what a reasonable man or woman would have done in the circumstances, of the contribution of the plaintiff and the defendant [to the happening of the accident] which is to be the basis of the apportionment.”
24. In my view, Mr. Dolan was objectively at fault in not permitting the Londis team to repossess the stock. This was a factor which led to a series of misunderstandings on all sides and a cascade of events which culminated in the closure of the store, with disastrous consequences for the defendants: see paragraphs 135-136 of the first judgment. It is appropriate, therefore, reflecting that degree of that fault, to reduce the damages in respect of the stock repossession only by approximately one third from €65,000 to €44,000.
The re-possession and sale of the specialist equipment
25. For the reasons I have already given in respect of the forfeiture of the lease, the re-possession of the specialist equipment by the leasing company was a natural and foreseeable consequence of the abrupt closure of the store in the manner which I have found to be unlawful and a breach of contract. The evidence of Mr. Dolan aside, I have no evidence on which I could have valued that equipment. The real loss here again stems from the fact that the defendants were deprived of the opportunity of selling this equipment at some stage in 2009 or 2010 in an orderly fashion and thus securing what Mr. Dolan contended was a more realistic price for that equipment than that obtained by the leasing company. In the absence of any specialist evidence on the point I cannot say what this additional value might have been or, indeed, if any higher price was obtainable.
26. I will, however, give the parties an opportunity to lead evidence on this point should they wish to do so, prior to the finalisation of any order.
Conclusions
27. In summary, therefore, I will award the defendants the sums of €420,000 in respect of the value of the company and the forfeiture of the lease, along with the sum of €44,000 in respect of the value of the goods which were not re-possessed following the retention of title exercise. This combined sum of €464,000 will be set off against the award of €561,283.91 which I have already awarded to the plaintiff.
28. In addition, I will give the parties an opportunity to adduce evidence regard the value of the re-possessed leasing equipment if it were to have been disposed of in an open market in 2009 or 2010. Insofar as this figure is higher than the sum actually obtained by the leasing company for the sale of such equipment in early 2009, then the defendants will be entitled to that figure by way of damages as well and that figure will also be set off as against the current balance of the award in favour of the plaintiff.