Privity
Cases
Tweddle v Atkinson
[1861] EWHC QB J57
The declaration stated that the plaintiff was the son of John Tweddle, deceased, and before the making of the agreement hereafter mentioned, married the daughter of William Guy, deceased; and before the said marriage of the plaintiff the said William Guy, in consideration of the then intended marriage, promised the plaintiff to give to his said daughter a marriage portion, but the said promise was verbal, and at the time of the making of the said agreement had not been performed; and before the said marriage the said John Tweddle, in consideration of the said intended marriage, also verbally promised to give the plaintiff a marriage portion, which promise at the time of the making of the said agreement had not been performed. It then alleged that after the marriage and in the lifetime of the said William Guy, and of the said John Tweddle, they, the said William Guy and John Tweddle, entering into the agreement hereafter mentioned as a mode of giving effect to their said verbal promises; and the said William Guy also entering into the said agreement in order to provide for his said daughter a marriage portion, and to procure a further provision to be made by the said John Tweddle, by means of the said agreement, for his said daughter, and acting for the benefit of his said daughter; and the said John Tweddle also entering into the said agreement in order to provide for the plaintiff a marriage portion, and to procure a further provision to be made by the said William Guy, by means of the said agreement, for the plaintiff, and acting for the benefit of the plaintiff; they the said William Guy and John Tweddle made and entered into an agreement in writing in the words following, that is to say:
“High Coniscliffe, July 1, 1855. “Memorandum of an agreement made this day between William Guy, of etc., of the one part, and John Tweddle, of etc., of the other part. Whereas it is mutually agreed that the said William Guy shall and will pay the sum of 200l. to William Tweddle, his son-in-law; and the said John Tweddle, father to the aforesaid William Tweddle, shall and will pay the sum of 100l. to the said William Tweddle, each and severally the said sums on or before the 21st day of August, 1855. And it is hereby further agreed by the aforesaid William Guy and the said John Tweddle that the said William Tweddle has full power to sue the said parties in any Court of law or equity for the aforesaid sums hereby promised and specified.”
“And the plaintiff says that afterwards and before this suit, he and his said wife, who is still living, ratified and assented to the said agreement, and that he is the William Tweddle therein mentioned. And the plaintiff says that the said 21st day of August, A.D. 1855, elapsed, and all things have been done and happened necessary to entitle the plaintiff to have the said sum of 200l. paid by the said William Guy or his executor; yet neither the said William Guy nor his executor has paid the same, and the same is in arrear and unpaid, contrary to the said agreement.”
Demurrer and joinder therein. Edward James, for the defendant: The plaintiff is a stranger to the agreement and to the consideration as stated in the declaration, and therefore cannot sue upon the contract. It is now settled that an action for breach of contract must be brought by the person from whom the consideration moved; Price v. Easton (4 B. & Ad. 433). (He was then stopped.)
Mellish, for the plaintiff: Admitting the general rule as stated by the other side, there is an exception in the case of contracts made by parents for the purpose of providing for their children. In Dutton and Wife v. Poole[1], affirmed in the Exchequer Chamber, a tenant in fee simple being about to cut down timber to raise a portion for his daughter, the defendant his heir-at-law, in consideration of his forbearing to fell it, promised the father to pay a sum of money to the [396] daughter, and an action of assumpsit by the daughter and her husband was held to be well brought. The natural relationship between the father and the son constituted the father an agent for the son, in whose behalf and for whose benefit the contract was made, and therefore the latter may maintain an action upon it. The object of the contract, which was that the children should be provided for, will be accomplished if this action is maintainable: whereas if the right of action remains in the father it will be defeated, because the damages recovered in that action will be his assets. In Bourne v. Mason (1 Ventr. 6), two cases are cited which support this action. In Sprat v. Agar, in the King’s Bench in 1658, one promised the father that, in consideration that he would give his daughter in marriage with his son, he would settle so much land; after the marriage the son brought an action, and it was held maintainable. The other was the case of a promise to a physician that if he did such a cure he would give such a sum of money to himself and another to his daughter, and it was resolved the daughter might bring assumpsit, “Which cases,” says the report, “the Court agreed;” and the reason assigned as to the latter is, ” the nearness of the relation gives the daughter the benefit of the consideration performed by her father.” There is no modern case in which this question has been raised upon a contract between two fathers for the benefit of their children. According to the old cases he could not. When a father makes a contract for the benefit of his child, the law vests the contract in the child. In Thomas v. – (Sty. 461) the defendant promised to a father that in consideration that he would surrender a copyhold to the defendant, the defendant would give unto his two daughters 20l. a-piece; and after verdict in an action upon the case brought by one of the daughters for breach of that promise, on motion for arresting the judgment on the ground that the two ought to have joined, it was held that the parties had distinct interests, and so each might bring an action.
Edward James was not called upon to reply.
Wightman J: Some of the old decisions appear to support the proposition that a stranger to the consideration of a contract may maintain an action upon it, if he stands in such a near relationship to the party from whom the consideration proceeds, that he may be considered a party to the consideration. The strongest of those cases is that cited in Bourne v. Mason (1 Ventr. 6), in which it was held that the daughter of a physician might maintain assumpsit upon a promise to her father to give her a sum of money if he performed a certain cure. But there is no modern case in which the proposition has been supported. On the contrary, it is now established that no stranger to the consideration can take advantage of a contract, although made for his benefit.
Crompton J: It is admitted that the plaintiff cannot succeed unless this case is an exception to the modern and well established doctrine of the action of assumpsit. At the time when the cases which have been cited were decided the action of assumpsit was treated as an action of trespass upon the case, and therefore in the nature of a tort; and the law was not settled, as it now is, that natural love and affection is not a sufficient consideration for a promise upon which an action may be maintained; nor was it settled that the promisee cannot bring an action unless the consideration for the promise moved from him. The modern cases have, in effect, overruled the old decisions; they shew that the consideration must move from the party entitled to sue upon the contract. It would be a monstrous proposition to say that a person was a party to the contract for the purpose of suing upon it for his own advantage, and not a party to it for the purpose of being sued. It is said that the father in the present case was agent for the son in making the contract, but that argument ought also to make the son liable upon it. I am prepared to overrule the old decisions, and to hold that, by reason of the principles which now govern the action of assumpsit, the present action is not maintainable.
Blackburn J: The earlier part of the declaration shews a contract which might be sued on, except for the enactment in sect. 4 of the Statute of Frauds, 29 Car. 2, c. 3. The declaration then sets out a new contract, and the only point is whether, that contract being for the benefit of the children, they can sue upon it. Mr. Mellish admits that in general no action can be maintained upon a promise, unless the consideration moves from the party to whom it is made. But he says that there is an exception; namely, that when the consideration moves from a father, and the contract is for the benefit of his son, the natural love and affection between the father and son gives the son the right to sue as if the consideration had proceeded from himself. And Dutton and Wife v. Poole[2] was cited for this. We cannot overrule a decision of the Exchequer Chamber; but there is a distinct ground on which that case cannot be supported. The cases upon stat. 27 El. c. 4, which have decided that, by sect, 2, voluntary gifts by settlement after marriage are void against subsequent purchasers for value, and are not saved by sect. 4, shew that natural love and affection are not a sufficient consideration whereon an action of assumpsit may be founded.
Judgment for the defendant.
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd
[1915] UKHL 1
VISCOUNT HALDANE L.C.
My Lords, in my opinion this appeal ought to fail.
Prior to January 2, 1912, Messrs. Dew had entered into a contract with the appellants to purchase a quantity of tyres and other goods from them at the prices in their list, in consideration of receiving certain discounts. As part of their contract Messrs. Dew undertook, among other things, not to sell to certain classes of customer at prices below the current list prices of the appellants. They were, however, to be at liberty to sell to a class of customer that included the respondents at a discount which was substantially less than the discount they were themselves to receive from the appellants, but in the case of any such sale they undertook, as the appellants’ agents in this behalf, to obtain from the customer a written undertaking that he similarly would observe the terms so undertaken to be observed by themselves. This contract was embodied in a letter dated October 12, 1911.
On January 2 the respondents contracted with Messrs. Dew, in terms of a letter of that date addressed to them, that, in consideration of the latter allowing them discounts on goods of the appellants’ manufacture which the respondents might purchase from Messrs. Dew, less, in point of fact, than the discount received by the latter from the appellants, the respondents, among other things, would not sell the appellants’ goods to private customers at prices below those in the appellants’ current list, and that they would pay to the appellants a penalty for every article sold in breach of this stipulation.
The learned judge who tried the case has held that the respondents sold goods of the appellants’ manufacture supplied through Messrs. Dew at less than the stipulated prices, and the question is whether, assuming his finding to be correct, the appellants, who were not in terms parties to the contract contained in the letter of January 2, can sue them.
My Lords, in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property, as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam. A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have been given by him to the promisor or to some other person at the promisor’s request. These two principles are not recognized in the same fashion by the jurisprudence of certain Continental countries or of Scotland, but here they are well established. A third proposition is that a principal not named in the contract may sue upon it if the promisee really contracted as his agent. But again, in order to entitle him so to sue, he must have given consideration either personally or through the promisee, acting as his agent in giving it.
My Lords, in the case before us, I am of opinion that the consideration, the allowance of what was in reality part of the discount to which Messrs. Dew, the promisees, were entitled as between themselves and the appellants, was to be given by Messrs. Dew on their own account, and was not in substance, any more than in form, an allowance made by the appellants. The case for the appellants is that they permitted and enabled Messrs. Dew, with the knowledge and by the desire of the respondents, to sell to the latter on the terms of the contract of January 2, 1912. But it appears to me that even if this is so the answer is conclusive. Messrs. Dew sold to the respondents goods which they had a title to obtain from the appellants independently of this contract. The consideration by way of discount under the contract of January 2 was to come wholly out of Messrs. Dew’s pocket, and neither directly nor indirectly out of that of the appellants. If the appellants enabled them to sell to the respondents on the terms they did, this was not done as any part of the terms of the contract sued on.
No doubt it was provided as part of these terms that the appellants should acquire certain rights, but these rights appear on the face of the contract as jura quaesita tertio, which the appellants could not enforce. Moreover, even if this difficulty can be got over by regarding the appellants as the principals of Messrs. Dew in stipulating for the rights in question, the only consideration disclosed by the contract is one given by Messrs. Dew, not as their agents, but as principals acting on their own account.
The conclusion to which I have come on the point as to consideration renders it unnecessary to decide the further question as to whether the appellants can claim that a bargain was made in this contract by Messrs. Dew as their agents; a bargain which, apart from the point as to consideration, they could therefore enforce. If it were necessary to express an opinion on this further question, a difficulty as to the position of Messrs. Dew would have to be considered. Two contracts — one by a man on his own account as principal, and another by the same man as agent — may be validly comprised in the same piece of paper. But they must be two contracts, and not one as here. I do not think that a man can treat one and the same contract as made by him in two capacities. He cannot be regarded as contracting for himself and for another uno flatu.
My Lords, the form of the contract which we have to interpret leaves the appellants in this dilemma, that, if they say that Messrs. Dew contracted on their behalf, they gave no consideration, and if they say they gave consideration in the shape of a permission to the respondents to buy, they must set up further stipulations, which are neither to be found in the contract sued upon nor are germane to it, but are really inconsistent with its structure. That contract has been reduced to writing, and it is in the writing that we must look for the whole of the terms made between the parties. These terms cannot, in my opinion consistently with the settled principles of English law, be construed as giving to the appellants any enforceable rights as against the respondents.
I think that the judgment of the Court of Appeal was right, and I move that the appeal be dismissed with costs.
Scruttons Ltd v Midland Silicones
[1961] UKHL 4 [1962] AC 446
Lord Reid
In considering the various arguments for the Appellants I think it is
necessary to have in mind certain established principles of the English Law
of Contract. Although I may regret it I find it impossible to deny the
existence of the general rule that a stranger to a contract cannot in a question
with either of the contracting parties take advantage of provisions of the
contract even where it is clear from the contract that some provision in it
was intended to benefit him. That rule appears to have been crystallised
a century ago in Tweddle v. Atkinson (1861) 1 B. & S. 393, and finally estab-
lished in this House in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co.
Ltd. [1915] AC 847. There are it is true certain well-established exceptions
to that rule—though I am not sure that they are really exceptions and do not
arise from other principles. But none of these in any way touches the present
case.
The actual words used by Lord Haldane in the Dunlop case were made
the basis of an argument that, although a stranger to a contract may not
be able to sue for any benefit under it, he can rely on the contract as a
defence if one of the parties to it sues him in breach of his contractual
obligation—that he can use the contract as a shield though not as a sword.
I can find no justification for that. If the other contracting party can prevent
the breach of contract well and good, but if he cannot I do not see how
the stranger can. As was said in Tweddle v. Atkinson the stranger cannot
” take advantage ” from the contract.
It may be that in a roundabout way the stranger could be protected. If
A, wishing to protect X, gives to X an enforceable indemnity, and contracts
with B that B will not sue X, informing B of the indemnity, and then B does
sue X in breach of his contract with A, it may be that A can recover from B
as damages the sum which he has to pay X under the indemnity, X
having had to pay it to B. But there is nothing remotely resembling that
in the present case.
The Appellants in this case seek to get round this rule in three different
ways. In the first place they say that the decision in Elder, Dempster & Co.
Ltd. v. Paterson, Zochonis & Co. [1924] A.C. 522 establishes an exception to
the rule sufficiently wide to cover the present case. I shall later return to con-
sider this case. Secondly, they say that through the agency of the carrier they
(were brought into contractual relation with the shipper and that they can
now found on that against the consignees the Respondents. And thirdly, they
say that there should be inferred from the facts an implied contract, indepen-
dent of the Bill of Lading, between them and the Respondents. It was not
argued that they had not committed a tort in damaging the Respondents’
goods.
I can see a possibility of success of the agency argument if (first) the
Bill of Lading makes it clear that the stevedore is intended to be protected
by the provisions in it which limit liability, (secondly) the Bill of Lading
makes it clear that the carrier, in addition to contracting for these provisions
on his own behalf, is also contracting as agent for the stevedore that these
provisions should apply to the stevedore, (thirdly) the carrier has authority
from the stevedore to do that, or perhaps later ratification by the stevedore
would suffice, and (fourthly) that any difficulties about consideration
moving from the stevedore were overcome. And then to affect the consignee
it would be necessary to shew that the provisions of the Bills of Lading Act,
1855, apply.
But again there is nothing of that kind in the present case. I agree with
your Lordships that “carrier” in the Bill of Lading does not include
stevedore, and if that is so I can find nothing in the Bill of Lading which
states or even implies that the parties to it intended the limitation of liability
to extend to stevedores. Even if it could be said that reasonable men in the
.shoes of these parties would have agreed that the stevedore should have
this benefit that would not be enough to make this an implied term of the
contract. And even if one could spell out of the Bill of Lading an intention
to benefit the stevedore there is certainly nothing to indicate that the carrier
was contracting as agent for the stevedore in addition to contracting on his
own behalf. So it appears to me that the agency argument must fail.
And the implied contract argument seems to me to be equally unsound.
From the stevedores’ angle, they are employed by the carrier to deal with
the goods in the ship. They can assume that the carrier is acting properly
in employing them and they need not know who the goods belong to
There was in their contract with the carrier a provision that they should be
protected, but that could not by itself bind the consignee. They might
assume that the carrier would obtain protection for them against the consignee
and feel aggrieved when they found that the carrier did not or could not
do that. But a provision in the contract between them and the carrier is
irrelevant in a question between them and the consignee. Then from the
consignees’ angle they would know that stevedores would be employed to
handle their goods but if they read the Bill of Lading they would find
nothing to shew that the shippers had agreed to limit the liability of the
stevedores. There is nothing to shew that they ever thought about this
or that if they had they would have agreed or ought as reasonable men to
have agreed to this benefit to the stevedores. I can find no basis in this
for implying a contract between them and the stevedores. It cannot be said
that such a contract was in any way necessary for business efficiency.
So this case depends on the proper interpretation of the Elder Dempster
case. What was there decided is clear enough. The ship was under time
charter, the Bill of Lading made by the shippers and the charterers provided
for exemption from liability in the event which happened and this exemption
was held to ensure to the benefit of the shipowners who were not parties to
the Bill of Lading but whose servant the master caused damage to the
shippers’ goods by his negligence. The decision is binding on us but I agree
that the decision by itself will not avail the present Appellants because the
facts of this case are very different from those in the Elder Dempster case.
For the appellants to succeed it would be necessary to find from the speeches
in this House a ratio decidendi which would cover this case and then to follow
that ratio decidendi.
Before dealing further with that case I think it necessary to make some
general observations about the binding character of rationes decidendi of
this House. Unlike most supreme tribunals this House holds itself bound
by its own previous decisions. That was the decision of this House in
The London Street Tramways Co. v. L.C.C. [1898] AC 375. It was founded
on immemorial practice, and the justification given by Lord Halsbury, L.C.,
with whom the other noble Lords concurred, was ” the disastrous incon-
” venience of having each question subject to being reargued and the dealings
” of mankind rendered doubtful by reason of different decisions, so that
” in truth and in fact there would be no real final Court of Appeal.” I
have on more than one occasion stated my view that this rule is too rigid
and that it does not in fact create certainty. In illustration of that I need
go no further than the series of decisions in this House on workmen’s com-
pensation. But I am bound by the rule until it is altered.
But I can find no invariable practice with regard to rationes decidendi.
In the first place it must be noted that only three years later Lord Halsbury
said in Quinn v. Leathem [1901] AC 495 at p. 506: ” There are two obser-
” vaitions of a general character which I wish to make, and one is to repeat
” what I have very often said before, that every judgment must be read as
” applicable to the particular facts proved, or assumed to be proved, since
” the generality of the expressions which may be found there are not intended
” to be expositions of the whole law, but governed and qualified by the
” particular facts of the case in which such expressions are to be found.
” The other is that a case is only an authority for what it actually decides.
” I entirely deny that it can be quoted for a proposition that may seem to
” follow logically from it.” And, if one has to assume that every case has a
ratio decidendi to be extracted from the speeches in this House by the ordinary
methods of construction of written documents, I think that quite a number of
cases will be found of which the rationes decidendi have not in fact been
followed. I give only a few examples which I happen to have noted from
time to time. They may not be very modern, but, if there was no unbroken
practice, modern pronouncements (in themselves at best only rationes deci-
dendi) cannot have created a rule preventing your Lordships from exercising
the full traditional jurisdiction of this House. A fairly recent example is
Goodman v. Mayor of Saltash 7, App. Cas. 633, and with that I couple a note
by Mr. Macqueen at 1 Macq. 792 where, having dealt with the question of
previous decisions being binding, he says: ” Notwithstanding all this it must
be owned that one or two well-known decisions of the House have been
tabooed by the profession ; not, however, by holding them to be wrong, but by
making out invariably that they have no application to other cases. I think,
however, it will be found that the House itself has never revoked what it has
once deliberately laid down on an appeal or Writ of Error.” And very soon
after that was said Lord Chelmsford, L.C. said in Magistrates of Dundee v.
Morris, 3 Macq. 134 at p. 155: “Your Lordships will probably think that
” Ewen v. Provost of Montrose (4 Wilson & Shaw 346) can only be urged as
” an authority where the circumstances of the case to which it is sought to be
” applied are precisely similar to the circumstances of that case.”
I would certainly not lightly disregard or depart from any ratio decidendi
of this House. But there are at least three classes of case where I think
we are entitled to question or limit it: first, where it is obscure, secondly,
where the decision itself is out of line with other authorities or established
principles, and thirdly, where it is much wider than was necessary for the
decision so that it becomes a question of how far it is proper to distinguish
the earlier decision. The first two of these grounds appear to me to apply to
the present case.
It can hardly be denied that the ratio decidendi of the Elder Dempster
decision is very obscure. A number of eminent judges have tried to
discover it, hardly any two have reached the same result, and none of the
explanations hitherto given seems to me very convincing. If I had to try,
the result might depend on whether or not I was striving to obtain a narrow
ratio. So I turned to the decision itself. Two quite separate points were
involved in the case. The first was whether the damage to the cargo was
caused by bad stowage or by the ship being unseaworthy. This was very
fully considered and the decision was bad stowage. On the conditions in
the Bill of Lading this clearly freed the charterer of liability. The other
question was whether those conditions were also available as a defence to
the ship-owner. From the report of the case it would seem that this was not very
fully argued, and none of the three noble Lords who spoke devoted more than
a page of print to it. They cannot have thought that any important question
of law or any novel principle was involved. Lord Finlay said that a decision
against the ship-owner would be absurd and the other noble Lords probably
thought the same. They must all have thought that they were merely
applying an established principle to the facts of the particular case.
But when I look for such a principle I cannot find it, and the extensive
and able arguments of counsel in this case have failed to discover it. The
House sustained the dissenting judgment of Scrutton, L. J. in the Court of
Appeal [1923] 1 K.B. 420. The majority there did not have to consider this
question but Scrutton, L. J. did and he also devoted less than a page to its
consideration. His reasoning, though brief, is quite clear, but he gives no
reason or authority for the proposition on which he bases his judgment and
it is not derived from the argument as reported. He said: “The real
” answer to the claim is, in my view, that the shipowner is not in possession
” as a bailee, but as the agent of a person, the charterer, with whom the owner
” of the goods has made a contract defining his liability, and that the owner
” as servant or agent of the charterer can claim the same protection as the
” charterer. Were it otherwise there would be an easy way round the Bill
” of Lading in the case of every chartered ship: the owner of the goods would
• simply sue the owner of the ship and ignore the Bill of Lading exceptions,
” though he had contracted with the charterer for carriage on those terms and
” the owner had only received the goods as agent for the charterer.” It is true
that an unreasonable proposition is seldom good law, and, perhaps for that
reason, it would seem that that great lawyer did not pause to consider how
great an exception he was making to the rule that a stranger to a contract
cannot take advantage from it. For he was saying in terms that servants
and ” agents ” can take advantage of contracts made by their master or
” principal “. I would not dissent from a proposition that something of that
kind ought to be the law if that was plainly the intention of the contract, and
it may well be that this matter is worthy of consideration by those whose
function it is to consider amending the law. But it seems to me much too
late to do that judicially.
That this House made an exception to the general principle seems to me
clear: the question we have now to consider is how wide an inroad did they
make. It is very far from clear that any of those who spoke in this House
intended to go all the way with Scrutton, L. J.: if they had intended to do so
it would have been easy to say so. And it is not clear just how far Scrutton,
L. J. himself intended to go. The use of the term ” agent” is one difficulty:
he cannot have been using that word accurately in its legal sense. The
charterer or anyone else under obligation to do certain things employs
servants or independent contractors and instructs them to do those things.
But they do not act as agents; they have nothing to do with the party to
whom their master or employer is under contractual obligation; their duty
is to carry out the instructions of their master or employer under the contracts
which they have made with him. But in the course of carrying out that
duty they may by their own negligence do damage to the property of a third
party, the person who has made a contract with their master or employer.
On what ground are they to be better off than if they had damaged the
property of some other person? On that analysis it becomes still more
difficult to find a legal justification for what Scrutton, L. J. said. And was
there any implicit limitation to the rule which he enunciated? There seems
to be no logical reason why it should be confined to carriage of goods by
sea or indeed to carriage of any kind. If it is a good rule for bills of lading
it would seem to be an equally good rule for all cases where the master or
employer has some protection under a contrac and employs someone else
to do the things which have to be done under that contract I must say
I have considerable doubt whether Scrutton, L. J. can really have intended
his rule to be so far-reaching.
In such circumstances I do not think that it is my duty to pursue the
unrewarding task of seeking to extract a ratio decidendi from what was
said in this House in Elder Dempster. Nor is it my duty to seek to rationalise
the decision by determining in any other way just how far the scope of the
decision should extend. I must treat the decision as an anomalous and
unexplained exception to the general principle that a stranger cannot rely
for his protection on provisions in a contract to which he is not a party.
The decision of this House is authoritative in cases of which the circumstances
are not reasonably distinguishable from those which gave rise to the
decision. The circumstances in the present case are clearly distinguishable
in several respects. Therefore I must decide this case on the established
principles of the law of England apart from that decision, and on that basis
I have no doubt that this appeal must be dismissed.
Beswick v Beswick
[1967] UKHL 2 [1967] 2 All ER 1197, [1968] AC 58, [1967] 3 WLR 932
Lord Reid
For clarity I think it best to begin by considering a simple case where,
in consideration of a sale by A to B, B agrees to pay the price of £1,000
to a third party X. Then the first question appears to me to be whether
the parties intended that X should receive the money simply as A’s
nominee so that he would hold the money for behoof of A and be account-
able to him for it, or whether the parties intended that X should receive
the money for his own behoof and be entitled to keep it. That appears
to me to be a question of construction of the agreement read in light of
all the circumstances which were known to the parties. There have been
several decisions involving this question. I am not sure that any conflicts
with the view which I have expressed: but if any does, e.g. Engelbach
[1924] 2 Ch. 348, I would not agree with it. I think that re Schebsman
[1944] Ch. 83 was rightly decided and that the reasoning of Uthwatt J. ([1943]
Ch. 366) and the Court of Appeal supports what I have just said. In the
present case I think it clear that the parties to the agreement intended that
the Respondent should receive the weekly sums of £5 in her own behoof
and should not be accountable to her deceased husband’s estate for them.
Indeed the contrary was not argued.
Reverting to my simple example the next question appears to me to be,
where the intention was that X should keep the £1,000 as his own, what
is the nature of B’s obligation and who is entitled to enforce it. It was
not argued that the law of England regards B’s obligation as a nullity, and
I have not observed in any of the authorities any suggestion that it would
be a nullity. There may have been a time when the existence of a right
depended on whether there was any means of enforcing it, but today the
law would be sadly deficient if one found that, although there is a right, the
law provides no means for enforcing it. So this obligation of B must be
enforceable either by X or by A. I shall leave aside for the moment the
question whether section 56(1) of the Law of Property Act 1925 has any
application to such a case, and consider the position at Common Law.
Lord Denning’s view, expressed in this case not for the first time, is
that X could enforce this obligation. But the view more commonly held
in recent times has been that such a contract confers no right on X and
that X could not sue for the £1,000. Leading counsel for the Respondent
based his case on other grounds, and as I agree that the Respondent
succeeds on other grounds, this would not be an appropriate case in which
to solve this question. It is true that a strong Law Revision Committee
recommended so long ago as 1937 (Cmd. 5449) that ” where a contract by
” its express terms purports to confer a benefit directly on a third party it
” shall be enforceable by the third party in his own name . . . (page 31).
And if one had to contemplate a farther long period of Parliamentary
procrastination, this House might find it necessary to deal with this matter.
But if legislation is probably at an early date I would not deal with it in
a case where that is not essential. So for the purposes of this case I shall
proceed on the footing that the commonly accepted view is right.
What then is A’s position? I assume that A has not made himself a
trustee for X, because it was not argued in this appeal that any trust
had been created. So if X has no right A can at any time grant a discharge
to B or make some new contract with B. If there were a trust the position
would be different. X would have an equitable right and A would be
entitled and indeed bound to recover the money and account for it to X.
And A would have no right to grant a discharge to B. If there is no trust
and A wishes to enforce the obligation how does he set about it? He
cannot sue B for the £1,000 because under the contract the money is not
payable to him, and, if the contract were performed according to its terms,
he would never have any right to get the money. So he must seek to make
B pay X.
The argument for the Appellant is that A’s only remedy is to sue B
for damages for B’s breach of contract in failing to pay the £1,000 to X.
Then the Appellant says that A can only recover nominal damages of 40s.
because the fact that X has not received the money will generally cause
no loss to A: he admits that there may be cases where A would suffer
damage if X did not receive the money but says that the present is not
such a case.
Applying what I have said to the circumstances of the present case, the
Respondent in her personal capacity has no right to sue, but she has a
right as administratrix of her husband’s estate to require the Appellant to
perform his obligation under the agreement. He has refused to do so and
he maintains that the Respondent’s only right is to sue him for damages
for breach of his contract. If that were so, I shall assume that he is right
in maintaining that the administratrix could then only recover nominal
damages because his breach of contract has caused no loss to the estate of
her deceased husband.
If that were the only remedy available the result would be grossly unjust.
It would mean that the Appellant keeps the business which he bought and
for which he has only paid a small part of the price which he agreed to pay.
He would avoid paying the rest of the price, the annuity to the Respondent,
by paying a mere 40s. damages.
The Respondent’s first answer is that the common law has been radically
altered by section 56(1) of the Law of Property Act 1925, and that that
section entitles her to sue in her personal capacity and recover the benefit
provided for her in the agreement although she was not a party to it.
Extensive alterations of the law were made at that time but it is necessary
to examine with some care the way in which this was done. That Act
was a Consolidation Act and it is the invariable practice of Parliament
to require from those who have prepared a consolidation Bill an assurance
that it will make no substantial change in the law and to have that checked
by a committee. On this assurance the Bill is then passed into law, no
amendment being permissible. So, in order to pave the way for the 1925
Consolidation Act, earlier Acts were passed in 1922 and 1924 in which
were enacted all the substantial amendments which now appear in the
1925 Act and these amendments were then incorporated in the Bill which
became the 1925 Act. Those earlier Acts contain nothing corresponding
to section 56 and it is therefore quite certain that those responsible for the
preparation of this legislation must have believed and intended that sec-
tion 56 would make no substantial change in the earlier law. and equally
certain that Parliament passed section 56 in reliance on an assurance that it
did make no substantial change.
In construing any Act of Parliament we are seeking the intention of
Parliament and it is quite true that we must deduce that intention from the
words of the Act. If the words of the Act are only capable of one meaning
we must give them that meaning no matter how they got there. But if they
are capable of having more than one meaning we are, in my view, well
entitled to see how they got there. For purely practical reasons we do not
permit debates in either House to be cited: it would add greatly to the
time and expense involved in preparing cases involving the construction of
a statute if Counsel were expected to read all the debates in Hansard, and
it would often be impracticable for counsel to get access to at least the
older reports of debates in Select Committees of the House of Commons;
moreover, in a very large proportion of cases such a search, even if
practicable, would throw no light on the question before the Court. But
I can see no objection to investigating in the present case the antecedents
of section 56.
Section 56 was obviously intended to replace section 5 of the Real
Property Act 1845 (8 and 9 Vict. C. 106). That section provided:
” That under an Indenture executed after the first day of October
” 1845 an immediate estate or interest in any tenements or heredita-
” ments and the benefit of a condition or covenant respecting any
” tenements or hereditaments may be taken although the taker thereof
” be not named a party to the said indenture …”
Section 56(1) now provides:
” a person may take an immediate or other interest in land or other
” property, or the benefit of any condition, right of entry, covenant
” or agreement over or respecting land or other property, although
” he may not be named as a party to the conveyance or other
” instrument: …”
If the matter stopped there it would not be difficult to hold that section 56
does not substantially extend or alter the provisions of section 5 of the
1845 Act. But more difficulty is introduced by the definition section of the
1925 Act (section 205) which provides:
” (1) In this Act unless the context otherwise requires the following
” expressions have the meanings hereby assigned to them respectively,
that is to say . . . (xx) ‘ Property’ includes any thing in action and any
” interest in real or personal property “.
Before farther considering the meaning of section 56(1) I must set out
briefly the views which have been expressed about it in earlier cases.
White v. Bijou Mansions [1937] Ch. 610 dealt with a covenant relating to
land. The interpretation of section 56 was not the main issue. Simonds J.
rejected an argument that section 56 enabled anyone to take advantage
of a covenant if he could shew that if the covenant were enforced it
would redound to his advantage. He said—
” Just as under section 5 of the Act of 1845 only that person could
” call it in aid who, although not a party, was yet a grantee or
” covenantee, so under section 56 of this Act only that person can
” call it in aid who although not named as a party to the conveyance
” or other instrument is yet a person to whom that conveyance or other
” instrument purports to grant something or with which some agreement
” or covenant is purported to be made.”
He was not concerned to consider whether or in what way the section could
be applied to personal property. In the Court of Appeal ([1938] Ch. 351)
Sir W. Greene M.R. said, in rejecting the same argument as Simonds J. had
rejected:
” before he can enforce it he must be a person who falls within the
” scope and benefit of the covenant according to the true construction
” of the document in question.”
Again he was not considering an ordinary contract and I do not think that
he can be held to have meant that every person who falls within the ” scope
” and benefit ” of any contract is entitled to sue though not a party to the
contract.
In re Miller [1947] Ch. 615 two partners covenanted with a retiring
partner that on his death they would pay certain annuities to his daughters.
The Revenue’s claim for estate duty was rejected. The decision was clearly
right. The daughters, not being parties to the agreement, had no right to
sue for their annuities. Whether they received them or not depended on
whether the other partners were willing to pay or if they did not pay whether
the deceased partner’s executor was willing to enforce the contract. After
citing the earlier cases Wynn-Parry J. said:
” I think it emerges from these cases that the section has not the
” effect of creating rights but only of assisting the protection of rights
” shewn to exist.”
I am bound to say I do not quite understand that. I had thought from
what Lord Simonds said in White’s case that section 5 of the 1845 Act did
enable certain persons to take benefits which they could not have taken
without it. If so it must have given them rights which they did not have
without it. And if that is so section 56 must now have the same effect.
In Smith and Snipes Hall Farm Ltd. v. River Douglas Catchment Board
[1949] 2 K.B. 500 Lord Denning, after stating his view that a third person
can sue on a contract to which he is not a party, referred on page 517 to
section 56 as a clear statutory recognition of this principle, with the con-
sequence that Miller’s case (cit. sup.) was wrongly decided. I cannot agree
with that. And in Drive Yourself Hire Co. v. Strutt [1954] 1 Q.B. 250
Lord Denning again expressed similar views about section 56.
I can now return to consider the meaning and scope of section 56. It
refers to any ” agreement over or respecting land or other property “. If
” land or other property ” means the same thing as ” tenements or heredita-
” ments ” in the 1845 Act then this section simply continues the law as it was
before the 1925 Act was passed, for I do not think that the other differences
in phraseology can be regarded as making any substantial change. So any
obscurities in section 56 are obscurities which originated in 1845. But
if its scope is wider than two points must be considered. The section refers
to agreements ” over or respecting land or other property “. The land is
something which existed before and independently of the agreement and
the same must apply to the other property. So an agreement between A
and B that A will use certain personal property for the benefit of X would
be within the scope of the section, but an agreement that if A performs
certain services for B, B will pay a sum to X would not be within the scope
of the section. Such a capricious distinction would alone throw doubt on
this interpretation.
Perhaps more important is the fact that the section does not say that a
person may take the benefit of an agreement although he was not a party
to it: it says that he may do so although he was not named as a party
in the instrument which embodied the agreement. It is true that section 56
says although he may not be named ; but section 5 of the 1845 Act says
although he be not named a party. Such a change of phraseology in a
Consolidation Act cannot involve a change of meaning. I do not profess
to have a full understanding of the old English law regarding deeds. But
it appears from what Lord Simonds said in White’s case and from what
Vaisey J. said in Chelsea Building Society v. Armstrong [1951] Ch. 853
that being in fact a party to an agreement might not be enough; the
person claiming a benefit had to be named a party in the indenture.
I have read the explanation of the old law given by my noble and learned
friend Lord Upjohn. I would not venture to criticise it. but I do not think
it necessary for me to consider it if it leads to the conclusion that section 56
taken by itself would not assist the present Respondent.
But it may be that additional difficulties would arise from the application
to section 56 of the definition of property in the definition section. If so
it becomes necessary to consider whether that definition can be applied to
section 56. By express provision in the definition section a definition
contained in it is not to be applied to the word defined if in the particular
case the context otherwise requires. If application of that definition would
result in giving to section 56 a meaning going beyond that of the old section
then in my opinion the context does require that the definition of ” property “
shall not be applied to that word in section 56. The context in which this
section occurs is a Consolidation Act. If the definition is not applied the
section is a proper one to appear in such an Act because it can properly
be regarded as not substantially altering the pre-existing law. But if the
definition is applied the result is to make section 56 go far beyond the pre-
existing law. Holding that the section has such an effect would involve
holding that the invariable practice of Parliament has been departed from
per incuriam so that something has got into this Consolidation Act which
neither the draftsman nor Parliament can have intended to be there. I am
reinforced in this view by two facts. The language of section 56 is not
at all what one would have expected if the intention had been to bring
in all that the application of the definition would bring in. And secondly
section 56 is one of 25 sections which appear in the Act under the cross
heading ” Conveyances and other Instruments”. The other twenty-four
sections come appropriately under that heading and so does section 56 if
it has a limited meaning: but, if its scope is extended by the definition of
property, it would be quite inappropriately placed in this part of the Act.
For these reasons I am of opinion that section 56 has no application to the
present case.
The Respondent’s second argument is that she is entitled in her capacity
of administratrix of her deceased husband’s estate to enforce the provision
of the agreement for the benefit of herself in her personal capacity, and
that a proper way of enforcing that provision is to order specific performance.
That would produce a just result, and, unless there is some technical
objection, I am of opinion that specific performance ought to be ordered.
For the reasons given by your Lordships I would reject the arguments
submitted for the Appellant that specific performance is not a possible
remedy in this case. I am therefore of opinion that the Court of Appeal
reached a correct decision and that this appeal should be dismissed.
Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468
Lord Denning MR
“they were greatly disappointed. Their room had not got a connecting door with the room for the children at all. The room for the children was mildewed – black with mildew, at the bottom. There was fungus growing on the walls The toilet was stained. The shower was dirty. There was no bath. They could not let the children sleep in it. So for the first three days they had all the family in one room. The two children were put into one of the single beds and the two adults in the other single bed. After the first three days they were moved into what was said to be one of the best suites in the hotel.[2] Even then, they had to put the children in to sleep in the sitting room and the parents in the bedroom. There was dirty linen upon the bed. There was no private bath but only a shower; no mini-golf course; no swimming pool, no beauty saloon, no hairdressers’ saloon. Worst of all was the cooking. There was no choice of dishes. On some occasions, however, curry was served as an alternative to the main dish. They found the food very distasteful. It appeared to be cooked in coconut oil. There was a pervasive taste because of its manner of cooking. They were so uncomfortable at Brown’s Hotel, that after a fortnight they moved to the Pegasus Reef Hotel
…..
It would be a fiction to say that the contract was made by all the family… and that he was only an agent for them. Take this very case. It would be absurd to say that the twins of three years old were parties to the contract or that the father was making the contract on their behalf as if they were principals.’ Or trust, and the truth was that he was making a contract for their benefit.
He quoted Lush LJ in Lloyd’s v Harper (1880) 16 ChD 290, 321 and said that although there were suggestions that he meant you can sue for a disappointed benefit to a third party if you are a trustee, he ‘did not think so… I think they should be accepted as correct, at any rate so long as the law forbids the third persons themselves from suing for damages. It is the only way in which a just result can be achieved.’ [Otherwise] ‘is no one to recover from them except the one who made the contract for their benefit? He should be able to recover the expense to which he has been put, and pay it over to them. Once recovered it will money had and received to their use.”
The New Zealand Shipping Company Limited v A. M. Satterthwaite & Company Limited (New Zealand)
[1974] UKPC [1974] 1 Lloyd’s Rep 534, [1974] UKPC 4, [1974] 1 All ER 1015, [1975] AC 154, [1974] 2 WLR 865
Lord Wilberforce
The question in the appeal is whether the Stevedore can take the benefit of the time limitation provision. The starting point, in discussion of this question, is provided by the House of Lords decision in Midland Silicones Ltd. v. Scruttons Ltd. [1962] A.C.446. There is no need to question or even to qualify that case in so far as it affirms the general proposition that a contract between two parties cannot be sued on by a third person even though the contract is expressed to be for his benefit. Nor is it necessary to disagree with anything which was said to the same effect in the Australian case of Wilson v. Darling Island Stevedoring & Lighterage Company (1956-7) 95 C.L.R. 43. Each of these cases was dealing with a simple case of a contract the benefit of which was sought to be taken by a third person not a party to it, and the emphatic pronouncements in the speeches and judgments were directed to this situation. But Midland Silicones left open the case where one of the parties contracts as agent for the third person: in particular Lord Reid’s speech spelt out, in four propositions, the prerequisites for the validity of such an agency contract. There is of course nothing unique to this case in the conception of agency contracts: well known and common instances exist in the field of hire purchase, of bankers’ commercial credits and other transactions. Lord Reid said this:
” I can see a possibility of success of the agency argument if (first) the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability, (secondly) the bill of lading makes it clear that the carrier, in addition to contracting for these provisions on his own behalf, is also contracting as agent for the stevedore that these provisions should apply to the stevedore, (thirdly) the carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice, and (fourthly) that any difficulties about consideration moving from the stevedore were overcome. And then to affect the consignee it would be necessary to show that the provisions of the Bills of Lading Act, 1855, apply.” (l.c. p.474)
The question in this appeal is whether the contract satisfies these propositions.
Clause 1 of the Bill of Lading, whatever the defects in its drafting, is clear in its relevant terms. The carrier, on his own account, stipulates for certain exemptions and immunities: among these is that conferred by Article III (6) of the Hague Rules which discharges the carrier from all liability for loss or damage unless suit is brought within one year after delivery.
In addition to these stipulations on his own account, the carrier as agent for (inter alios) independent contractors stipulates for the same exemptions.
Much was made of the fact that the carrier also contracts as agent for numerous other persons; the relevance of this argument is not apparent. It cannot be disputed that among such independent contractors, for whom, as agent, the carrier contracted, is the appellant company which habitually acts as stevedore in New Zealand by arrangement with the carrier and which is, moreover, the parent company of the carrier. The carrier was, indisputably, authorised by the appellant to contract as its agent for the purposes of Clause 1. All of this is quite straightforward and was accepted by all of the learned judges in New Zealand. The only question was, and is, the fourth question presented by Lord Reid, namely that of consideration.
It was on this point that the Court of Appeal differed from Seattle J., holding that it had not been shown that any consideration for the shipper’s promise as to exemption moved from the promisee, i.e. the appellant company.
If the choice, and the antithesis, is between a gratuitous promise, and a promise for consideration, as it must be in the absence of a tertium quid, there can be little doubt which, in commercial reality, this is. The whole contract is of a commercial character, involving service on one side, rates of payment on the other, and qualifying stipulations as to both. The relations of all parties to each other are commercial relations entered into for business reasons of ultimate profit. To describe one set of promises, in this context, as gratuitous, or nudum pactum, seems paradoxical and is prima facie implausible. It is only the precise analysis of this complex of relations into the classical offer and acceptance, with identifiable consideration, that seems to present difficulty, but this same difficulty exists in many situations of daily life e.g. sales at auction; supermarket purchases; boarding an omnibus; purchasing a train ticket; tenders for the supply of goods; offers of rewards; acceptance by post; warranties of authority by agents; manufacturers’ guarantees; gratuitous bailments; bankers’ commercial credits. These are all examples which show that English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.
In their Lordships’ opinion the present contract presents much less difficulty than many of those above referred to. It is one of carriage from Liverpool to Wellington. The carrier assumes an obligation to transport the goods and to discharge at the port of arrival. The goods are to be carried and discharged, so the transaction is inherently contractual. It is contemplated that a part of this contract, viz. discharge, may be performed by independent contractors—viz- the appellant. By clause 1 of the Bill of Lading the shipper agrees to exempt from liability the carrier, his servants and independent contractors in respect of the performance of this contract of carriage. Thus, if the carriage, including the discharge, is wholly carried out by the carrier, he is exempt. If part is carried out by him, and part by his servants, he and they are exempt. If part is carried out by him and part by an independent contractor, he and the independent contractor are exempt. The exemption is designed to cover the whole carriage from loading to discharge, by whomsoever it is performed: the performance attracts the exemption or immunity in favour of whoever the performer turns out to be. There is possibly more than one way of analysing this business transaction into the necessary components; that which their Lordships would accept is to say that the Bill of Lading brought into existence a bargain initially unilateral but capable of becoming mutual, between the shippers and the appellants, made through the carrier as agent. This became a full contract when the appellant performed services by discharging the goods. The performance of these services for the benefit of the shipper was the consideration for the agreement by the shipper that the appellant should have the benefit of the exemptions and limitations contained in the Bill of Lading. The conception of a “unilateral” contract of this kind was recognised in Great Northern Railway Co. v. Witham L.R. 9 C.F.16 and is well established. This way of regarding the matter is very close to if not identical to that accepted by Seattle J. in the Supreme Court: be analysed the transaction as one of an offer open to acceptance by action such as was found in Carlill v. Carbolic Smoke Ball Company [1893] I Q.B.256. But whether one describes the shipper’s promise to exempt as an offer to be accepted by performance or as a promise in exchange for an act seems in the present context to be a matter of semantics. The words of Bowen L. J. in Carlill v. Carbolic Smoke Ball Co., ” Why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? ” (I.e. p.268) seem to bridge both conceptions: he certainly seems to draw no distinction between an offer which matures into a contract when accepted and a promise which matures into a contract after performance, and, though in some special contexts (such as in connection with the right to withdraw) some further refinement may be needed, either analysis may be equally valid. On the main point in the appeal, their Lordships are in substantial agreement with Beattie J.
The following other points require mention:
1. In their Lordships’ opinion, consideration may quite well be provided by the appellant, as suggested, even though (or if) it was already under an obligation to discharge to the carrier. (There is no direct evidence of the existence or nature of this obligation, but their Lordships are prepared to assume it.) An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains the benefit of a direct obligation which he can enforce. This proposition is illustrated and supported by Scotson v. Pegg (1861) 6 H. & N. 295 which their Lordships consider to be good law.
2. The consignee is entitled to the benefit of, and is bound by, the stipulations in the Bill of Lading by his acceptance of it and request for delivery of the goods thereunder. This is shown by Brandt v. Liverpool [1924] 1 K.B. 575 and a line of earlier cases. The Bills of Lading Act 1855, section 1 (in New Zealand the Mercantile Law Act 1908, section 13) gives partial statutory recognition to this rule, but, where the statute does not apply, as it may well not do in this case, the previously established law remains effective.
3. The appellant submitted, in the alternative, an argument that, quite apart from contract, exemptions from, or limitation of, liability in tort may be conferred by mere consent on the part of the party who may be injured. As their Lordships consider that the appellant ought to succeed in contract, they prefer to express no opinion upon this argument: to evaluate it requires elaborate discussion.
4. A clause very similar to the present was given effect by a United States District Court in Carle and Montanari Inc. v. American Export Isbrandtsen Lines Inc. and Another [1968] I L1.R.260. The carrier in that case contracted, in an exemption clause, as agent for, inter altos, all stevedores and other independent contractors, and although it is no doubt true that the law in the United States is more liberal than ours as regards third party contracts, their Lordships see no reason why the law of the Commonwealth should be more restrictive and technical as regards agency contracts. Commercial considerations should have the same force on both sides of the Pacific.
In the opinion of their Lordships, to give the appellant the benefit of the exemptions and limitations contained in the Bill of Lading is to give effect to the clear intentions of a commercial document, and cars be given within existing principles. They see no reason to strain the law or the facts in order to defeat these intentions. It should not be overlooked that the effect of denying validity to the clause would be to encourage actions against servants, agents and independent contractors in order to get round exemptions (which are almost invariable and of tea compulsory) accepted by shippers against carriers, the existence, and presumed efficacy, of which is reflected in the rates of freight. They see no attraction in this consequence.
Their Lordships will humbly advise Her Majesty that the appeal be allowed and the judgment of Beattie J. restored. The respondent must pay the costs of the appeal and in the Court of Appeal.
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd
[1993] UKHL 4 [1994] 1 AC 85, [1993] UKHL 4, [1994] AC 85, [1993] 3 All ER 417
Lord Browne-Wilkinson
Notwithstanding the apparent logic of Mr Fernyhough’s submission,
I have considerable doubts whether it is correct. A contract for the supply of
goods or of work, labour and materials (a supply contract) is not the same as
a contract for the carriage of goods. A breach of a supply contract involves
a failure to provide the very goods or services which the defendant had
contracted to supply and for which the plaintiff has paid or agreed to pay. If
the breach is discovered before payment of the contract price, the price is
abated by the cost of making good the defects: see as to sale of goods Mondel
v. Steel (1841) 8 M. & W.858 and Sale of Goods Act 1979, section 53(1);
as to building contracts Modern Engineering (Bristol) Ltd. v. Gilbert-Ash
(Northern) Ltd. [1974] A.C. 689. Mr Fernyhough accepted that this right to
abatement of the price does not depend on ownership by the plaintiff of the
goods and it would be odd if the plaintiff’s rights arising from breach varied
according to whether the breach was discovered before or after the payment
of the price. No such similar principle of abatement applies to freight
charges: the freight charges have to be paid in full leaving the consignor to
bring a separate action for damages for breach of the contract of carriage:
Colonial Bank v. European Grain and Shipping Ltd. (The Dominique) [1989]
A.C. 1056, 1067-1068.
In contracts for the sale of goods, the purchaser is entitled to damages
for delivery of defective goods assessed by reference to the difference between
the contract price and the market price of the defective goods, irrespective of
whether he has managed to sell on the goods to a third party without loss:
Slater v. Hoyle & Smith Limited [1920] 2 K.B. 11; see also as to non-delivery
Williams Brothers v. Ed. T. Agius Limited [1914] A.C. 510. In those cases
the judgments contained no consideration of the person in whom the property
in the goods was vested although it appears that some of the sub-contracts had
been made prior to the breach of contract.
If the law were to be established that damages for breach of a supply
contract were not quantifiable by reference to the beneficial ownership of
goods or enjoyment of the services contracted for but by reference to the
difference in value between that which was contracted for and that which is
in fact supplied, it might also provide a satisfactory answer to the problems
raised where a man contracts and pays for a supply to others, e.g., a man
contracts with a restaurant for a meal for himself and his guests or with a
travel company for a holiday for his family. It is apparently established that,
if a defective meal or holiday is supplied, the contracting party can recover
damages not only for his own bad meal or unhappy holiday but also for that
of his guests or family; see Jackson v. Horizon Holidays Ltd. [1975] 1
W.L.R. 1468 as explained in Woodar In vestment Development Ltd. v. Wimpey
Construction U.K. Ltd. [1980] 1 WLR 277, 283-284. 293-294. 297 and
300-301.
There is therefore much to be said for drawing a distinction between
cases where the ownership of goods or property is relevant to prove that the
plaintiff has suffered loss through the breach of a contract other than a
contract to supply those goods or property and the measure of damages in a
supply contract where the contractual obligation itself requires the provision
of those goods or services. I am reluctant to express a concluded view on
this point since it may have profound effects on commercial contracts which
effects were not fully explored in argument. In my view the point merits
exposure to academic consideration before it is decided by this House. Nor
do I find it necessary to decide the point since, on any view, the facts of this
case bring it within the class of exceptions to the general rule to which Lord
Diplock referred in The Albazero.
In The Albazero Lord Diplock said (at p. 846B):
“Nevertheless, although it is exceptional at common law that a plaintiff
in an action for breach of contract, although he himself has not
suffered any loss, should be entitled to recover damages on behalf of
some third person who is not a party to the action for a loss which that
third person has sustained, the notion that there may be circumstances
in which he is entitled to do so was not entirely unfamiliar to the
common law and particularly to that part of it which, under the
influence of Lord Mansfield and his successors. Lord Ellenborough
and Lord Tenterden, had been appropriated from the law merchant.
“I have already mentioned the right of the bailee, which has been
recognised from the earliest period of our law, to sue in detinue or
trespass for loss or damage to his bailor’s goods although he cannot be
compelled by his bailor to do so and he is not himself liable to the
bailor for the loss or damage: The Winkfield [1902] P.42.
Nevertheless, he becomes accountable to his bailor for the proceeds of
the judgment in an action by his bailor for money had and received.
So too the doctrine of subrogation in the case of insurers, which was
adopted from the law merchant by the common law in the eighteenth
century, involved the concept of the nominal party to an action at
common law suing for a loss which he had not himself sustained and
being accountable to his insurer for the proceeds to the extent that he
had been indemnified against the loss by the insurer. In this instance
of a plaintiff being able to recover as damages for breach of contract
for the benefit of a third person a loss which that person has sustained
and he had not, the insurer is entitled to compel an assured to whom
he has paid a total or partial indemnity to bring the action. A third
example, once again in the field of mercantile law, is the right of an
assured to recover in an action on a policy of insurance upon goods the
full amount of loss or damage to them, on behalf of anyone who may
be entitled to an interest in the goods at the time when the loss or
damage occurs, provided that it appears from the terms of the policy
that he intended to cover their interest.”
In addition, the decision in The Albazero itself established a further exception.
This House was concerned with the status of a long-established principle based
on the decision in Dunlop v. Lambert (1839) 6 Cl. & F. 600 that a consignor
of goods who had parted with the property in the goods before the date of
breach could even so recover substantial damages for the failure to deliver the
goods. Lord Diplock (at p.847E) identified the rationale of that rule as being:
“The only way in which I find it possible to rationalise the rule in
Dunlop v. Lambert so that it may fit into the pattern of the English law
is to treat it as an application of the principle, accepted also in relation
to policies of insurance upon goods, that in a commercial contract
concerning goods where it is in the contemplation of the parties that
the proprietary interests in the goods may be transferred from one
owner to another after the contract has been entered into and before
the breach which causes loss or damage to the goods, an original party
to the contract, if such be the intention of them both, is to be treated
in law as having entered into the contract for the benefit of all persons
who have or may acquire an interest in the goods before they are lost
or damaged, and is entitled to recover by way of damages for breach
of contract the actual loss sustained by those for whose benefit the
contract is entered into.”
In The Albazero it was held that the principle in Dunlop v. Lambert no
longer applied to goods consigned under a bill of lading because both the
property in the goods and the cause of action for breach of the contract of
carriage passes to the consignee or indorsee by reason of the consignment or
indorsement: therefore, since the consignee or indorsee will in any event be
entitled to enforce the contract direct there is no ground on which one can
impute to the parties an intention that the consignor is entering into the
contract for the benefit of others who will acquire the property in the goods
but no right of action for breach of contract.
However, this House was careful to limit its decision to cases of
carriage by sea under a bill of lading, leaving in force the principle in Dunlop
v. Lambert in relation to other contracts for the carriage of goods where such
automatic assignment of the rights of action for breach does not take place.
Lord Diplock. after the passage referring to the exceptions which I have
already quoted, said (at p. 846G):
“My Lords, in the light of these other exceptions, particularly in the
field of mercantile law, to the general rule of English law that apart
from nominal damages the plaintiff can only recover in an action for
breach of contract the actual loss he has himself sustained. I do not
think that the fact that the rule which it is generally accepted was laid
down by this House in Dunlop v. Lambert. 6 Cl. & F. 600 would add
one more exception would justify your Lordships in declaring the rule
to be no longer law. Nor do I think that the almost complete absence
of reliance on the rule by litigants in actions between 1839 and 1962
provides a sufficient reason for abolishing it entirely. The
development of the law of negligence since 1839 does not provide a
complete substituted remedy for some types of loss caused by breach
of a contract of carriage. Late delivery is the most obvious example
of these. The Bills of Lading Act 1855 and the subsequent
development of the doctrine laid down in Brandt v. Liverpool, Brazil
and River Plate Steam Navigation Co. Ltd. [1924] 1 K.B. 575, have
reduced the scope and utility of the rule in Dunlop v. Lambert . . .
where goods are carried under a bill of lading. But the rule extends
to all forms of carriage including carriage by sea itself where no bill
of lading has been issued, and there may still be occasional cases in
which the rule would provide a remedy where no other would be
available to a person sustaining loss which under a rational legal
system ought to be compensated by the person who has caused it.
For my part, I am not persuaded that your Lordships ought to go out
of your way to jettison the rule.”
In my judgment the present case falls within the rationale of the
exceptions to the general rule that a plaintiff can only recover damages for his
own loss. The contract was for a large development of property which, to
the knowledge of both Corporation and McAlpine, was going to be occupied,
and possibly purchased, by third parties and not by Corporation itself.
Therefore it could be foreseen that damage caused by a breach would cause
loss to a later owner and not merely to the original contracting party,
Corporation. As in contracts for the carriage of goods by land, there would
be no automatic vesting in the occupier or owners of the property for the time
being who sustained the loss of any right of suit against McAlpine. On the
contrary, McAlpine had specifically contracted that the rights of action under
the building contract could not without McAlpine’s consent be transferred to
third parties who became owners or occupiers and might suffer loss. In such
a case, it seems to me proper, as in the case of the carriage of goods by land,
to treat the parties as having entered into the contract on the footing that
Corporation would be entitled to enforce contractual rights for the benefit of
those who suffered from defective performance but who. under the terms of
the contract, could not acquire any right to hold McAlpine liable for breach.
It is truly a case in which the rule provides “a remedy where no other would
be available to a person sustaining loss which under a rational legal system
ought to be compensated by the person who has caused it.”
Mr Fernyhough submitted that it would be wrong to distort the law in
order to meet what he described as being an exceptional case. He said that
this was a one-off or exceptional case since the development was sold before
any breach of contract had occurred and there was an express contractual
prohibition on assignment. He submitted that to give Corporation a right to
substantial damages in this case would produce chaos when applied to other
cases where the contractors have entered into direct warranties with the
ultimate purchasers of the individual parts of a development. I am not
impressed by these submissions. I am far from satisfied that this is a one-off
or exceptional case. We are concerned with standard forms of building
contracts which prohibit the assignment of the benefit of building contracts to
the ultimate purchasers. In the prolonged period of recession in the property
market which this country has experienced many developments have had to be
sold off before completion, thereby producing the risk that the ownership of
the property may have become divided from the right to sue on the building
contract at a date before any breach occurs. As to the warranties given by
contractors to subsequent purchasers, they will not, in my judgment, give rise
to difficulty. If, pursuant to the terms of the original building contract, the
contractors have undertaken liability to the ultimate purchasers to remedy
defects appearing after they acquired the property, it is manifest the case will
not fall within the rationale of Dunlop v. Lambert, 6 Cl. & F. 600. If the
ultimate purchaser is given a direct cause of action against the contractor (as
is the consignee or indorsee under a bill of lading) the case falls outside the
rationale of the rule. The original building owner will not be entitled to
recover damages for loss suffered by others who can themselves sue for such
loss. I would therefore hold that Corporation is entitled to substantial
damages for any breach by McAlpine of the building contract.
7. The answer to the preliminary issues
The Linden Gardens Case
The preliminary issues directed were as follows:
“(1). Are the plaintiffs entitled by virtue of the deed of assignment
pleaded at paragraph 1F. of the amended statement of claim to recover
damages against the defendants in respect of the various causes of action and
heads of loss pleaded
where the loss was incurred by Stock Conversion prior to
the said Deed of Assignment.
where the loss was incurred by the plaintiffs subsequent
thereto?
“(2). Were Stock Conversion precluded from lawfully assigning
rights of action to the plaintiffs against second defendants by clause
17(1) of contract dated 19 July 1979 made between Stock Conversion
and the second defendants? . . . “
Logically these questions should be posed in the opposite order. If, as I
would hold, the benefit to the rights of action were not effectively assigned to
– 24 –
Stock Conversion at all. there can be no question of the defendants being
liable to Stock Conversion for any loss whenever the breach occurred. I
would therefore answer question 2 “yes” and question 1 “does not arise”.
I would accordingly allow this appeal with costs both here and below.
Woodar Investment Development Ltd v Wimpey Construction UK Ltd
[1980] UKHL 11 [1980] 1 All ER 571, [1980] 1 WLR 277, [1980] WLR 277
Lord Wilberforce
The second issue in this appeal is one of damages. Both courts below have
allowed Woodar to recover substantial damages in respect of Condition I
under which £150,000 was payable by Wimpey to Transworld Trade Ltd.
on completion. On the view which I take of the repudiation issue, this question
does not require decision, but in view of the unsatisfactory state in which the
law would be if the Court of Appeal’s decision were to stand I must add three
observations:
1. The majority of the Court of Appeal followed, in the case of Goff L.J.
with expressed reluctance, its previous decision in Jackson v. Horizon Holidays
Ltd. [1975] 1 WLR 1468. I am not prepared to dissent from the actual decision
in that case. It may be supported either as a broad decision on the measure of
damages (per James L.J.) or possibly as an example of a type of contract-
examples of which are persons contracting for family holidays, ordering meals
in restaurants for a party, hiring a taxi for a group—calling for special treat-
ment. As I suggested in New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite
& Co. Ltd. [1975] AC 154, 167, there are many situations of daily life which
do not fit neatly into conceptual analysis, but which require some flexibility
in the law of contract. Jackson’s case may well be one.
I cannot however agree with the basis on which the learned Master of the
Rolls put his decision in that case. The extract on which he relied from the
judgment of Lush L.J. in Lloyd’s v. Harper (1880) 16 Ch. D. 290, 321 was part
of a passage in which the Lord Justice was stating as an “established rule
“of law” than an agent (sc. an insurance broker) may sue on a contract made
by him on behalf of the principle (sc. the assured) of the contract gives him
such a right, and is no authority for the proposition required in Jackson’s
case, still less for the proposition, required here, that if Woodar made a
contract for a sum of money to be paid to Transworld Woodar can, without
showing it has itself suffered loss or that Woodar was agent or trustee for
Transworld, sue for damages for non-payment of that sum. That would
certainly not be an established rule of law, nor was it quoted as such authority
by Lord Pearce in Beswick v. Beswick [1968] AC 58.
Assuming that Jackson’s case was correctly decided (as above), it does
not carry the present case, where the factual situation is quite different. I
respectfully think therefore that the Court of Appeal need not, and should
not have followed it.
Whether in a situation such as the present—viz. where it is not shown
that Woodar was agent or trustee for Transworld, or that Woodar itself
sustained any loss, Woodar can recover any damages at all, or any but nominal
damages, against Wimpey, and on what principle, is, in my opinion, a question
of great doubt and difficulty—no doubt open in this House—but one on which
I prefer to reserve my opinion.
I would allow the appeal.
Lord Scarman
It being the view of the majority of the House that there was no repudiation,
the appeal must be allowed, with the result that there is no need to consider
the other issues raised. But, because of its importance, I propose to say a few
words on the question of damages.
The plaintiff company agreed to sell the land to the defendants for £850,000.
They also required the defendants to pay £150,000 to a third party. The
covenant for this payment was in the following terms:—
“I. Upon completion of the purchase of the whole or any part of the
“land the purchaser shall pay to Transworld Trade Limited of 25 Jermyn
“Street, London. S.W.1, a sum of £150,000.”
No relationship of trust or agency was proved to exist between the plaintiff
company and Transworld Trade Ltd. No doubt, it suited Mr. Cornwell to
split up the moneys payable under the contract between the two companies:
but it is not known, let alone established by evidence (though an intelligent
guess is possible) why he did so, or why the plaintiffs desired this money to
be paid to Transworld Trade. It is simply a case of B agreeing with A to pay
a sum of money to C.
B, in breach of his contract with A, has failed to pay C. C, it is said, has no
remedy, because the English law of contract recognises no “jus quaesitum
“tertio”: Tweddle v. Atkinson (1861) 1 B. and S. 393. No doubt, it was for this
reason that Transworld Trade is not a party to the suit. A, it is acknowledged,
could in certain circumstances obtain specific performance of the promise to
pay C: Beswick v. Beswick [1968] AC 58. But, since the contract in the present
case is admitted (for reasons which do not fall to be considered by the House)
to be no longer in existence, specific performance is not available. A’s remedy
lies only in an award of damages to himself. It is submitted that, in the absence
of any evidence that A has suffered loss by reason of B’s failure to pay C,
A is only entitled to nominal damages.
I wish to add nothing to what your Lordships have already said about the
authorities which the Court of Appeal cited as leading to the conclusion that
the plaintiff company is entitled to substantial damages for the defendants’
failure to pay Transworld Trade. I agree that they do not support the conclusion.
But I regret that this House has not yet found the opportunity to reconsider the
two rules which effectually prevent A or C recovering that which B, for value,
has agreed to provide.
First, the “jus quaesitum tertio”. I respectfully agree with Lord Reid that the
denial by English law of a “jus quaesitum tertio” calls for reconsideration.
In Beswick v. Beswick, supra, at page 72 Lord Reid, after referring to the Law
Revision Committee’s recommendation (1937 Cmd. 5449 page 31) that the third
party should be able to enforce a contractual promise taken by another for his
benefit, observed:—
“And, if one had to contemplate a further long period of Parliamentary
“procrastination, this House might find it necessary to deal with this
“matter.”
The Committee reported in 1937: Beswick v. Beswick was decided in 1967. It is
now 1979: but nothing has been done. If the opportunity arises, I hope the
House will reconsider Tweddle v. Atkinson and the other cases which stand
guard over this unjust rule.
Likewise, I believe it open to the House to declare that, in the absence of
evidence to show that he has suffered no loss, A, who has contracted for a
payment to be made to C, may rely on the fact that he required the payment to
be made as prima facie evidence that the promise for which he contracted was a
benefit to him and that the measure of his loss in the event of non-payment is the
benefit which he intended for C but which has not been received. Whatever the
reason, he must have desired the payment to be made to C and he must have
been relying on B to make it. If B fails to make the payment, A must find the
money from other funds if he is to confer the benefit which he sought by his
contract to confer upon C. Without expressing a final opinion on a question
which is clearly difficult, I think the point is one which does require consideration
by your Lordships’ House.
Certainly the crude proposition for which the defendants contend, namely
that the state of English law is such that neither C for whom the benefit was
intended nor A who contracted for it can recover it, if the contract is terminated
by B’s refusal to perform, calls for review: and now, not forty years on.
Technotrade Ltd v Larkstore Ltd
[2006] EWCA Civ 1079 [2006] 1 WLR 2926, [2006] WLR 2926
Assignment point: general principles
The perceived problem of the effect of the assignment on the assignee’s right to recover substantial damages is temporal in origin. It arises from the particular order in which the following events occurred: the breach of contract by Technotrade, the transfer of ownership of the Site by Starglade to Larkstore, the damage caused by the landslip after the transfer, and the assignment of the cause of action by Starglade to Larkstore, which occurred years after the transfer of the Site.
There are 3 relevant points of time.
1) The time of the breach of contract by Technotrade. The contractual cause of action against Technotrade arose when Starglade was the owner of the Site. Starglade was only entitled to recover nominal damages at that time. No substantial damage could be established until the occurrence of the landslip in October 2001
2) The time of the landslip. Larkstore was the owner of the Site at the time when the landslip occurred and substantial damage was suffered. Starglade was still entitled to the chose in action, but it was not entitled to recover substantial damages, as it had ceased to own the Site. Larkstore owned the Site and suffered substantial damage, but was not entitled to recover damages form Technotrade for breach of contract, because it had no contract with Technotrade and, at that time, had no assignment from Starglade of the benefit of its contract, rights of action and remedies for breach of contract.
3) The time of the assignment. Starglade could not, it was submitted, assign to Larkstore more than it had. It did not have a claim for substantial damages against Technotrade in contract, as it had ceased to own the Site before the assignment and before the landslip.
The answer to the perceived problem of a limit on the damages which Larkstore, as assignee, is entitled to recover from Technotrade is to be found, in my judgment, in an analysis of the cause of action itself. In this case the cause of action was the right to sue Technotrade for breach of contract in respect of the preparation of the soil inspection report on the Site. The cause of action was complete in December 1998 when Technotrade produced the soil report for Starglade.
It is accepted that the report and the rights of action and remedies in respect of it were assignable and were not personal to Starglade. It is also accepted that, although the damages which Starglade could have recovered at the date when the cause of action was complete would have been no more than nominal damages, Starglade, if it had remained the owner of the Site, would have been entitled to claim and, if able to prove, recover substantial damages for the landslip which occurred in October 2001.
The remedy in damages for breach of contract is not limited to the loss that could have been proved at the date when the breach occurred and the cause of action first arose. Subject to factual and legal issues of causation, remoteness, quantum and limitation of actions, there is a remedy in damages against the contract breaker for loss which occurs after the cause of action has accrued. A cause of action may arise years before any substantial damage occurs, as, for example, in the case of negligent advice on title. There is no legal principle which protects the contract-breaker by excluding his liability for substantial damage that occurs after the initial breach of contract.
What difference, if any, can an assignment of the cause of action make to the remedies available to the assignee against the contract-breaker? A statutory assignment in writing under section 136 of the Law of Property Act 1925, of which express notice has been given, as was done in this case, is effectual in law to pass and transfer from the date of notice the legal right to the thing in action and “all legal and other remedies for the same.” The statutory assignment is expressly made “subject to equities having priority over the right of the assignee.”
Mr Friedman QC (who did not appear in the court below) submitted on behalf of Technotrade that the assignment makes a crucial difference. His broad submission was that the only losses that Larkstore is entitled to claim by virtue of the assignment of the cause of action are the losses that Starglade could itself have recovered from Technotrade at the time of the assignment. As the assignment of the cause of action took place after Starglade had parted with the Site to Larkstore and the substantial damage occurred before the assignment of the cause of action to Larkstore, Starglade and therefore Larkstore had no right to claim and recover substantial damages for loss resulting from the landslip.
In its defence to the Part 20 Particulars of Claim Technotrade pleaded that Starglade’s rights of action are of no assistance to Larkstore, as Starglade has suffered no losses (paragraph 31). It is pleaded in paragraph 30 –
” (i) The well established principle that an assignee of a chose in action (here Larkstore) cannot recover more than the assignor (here Starglade) has lost, is applicable on the particular facts of this claim, which it is averred does not fit within any of the exceptions to the said principle. Starglade has suffered no loss and Larkstore is not entitled to put itself in any better position than the principal to the contract which it has purported to assign.”
The scope of the principle pleaded is discussed generally in Chitty on Contracts (29th Edition-2004) Ch 19-
“19-073 Assignee cannot recover more than assignor. A further aspect of the idea that an assignee takes an assignment “subject to equities” is the principle that an assignee cannot recover more from the debtor than the assignor could have done had there been no assignment. For example, in Dawson v. Great Northern & City Railway Co the assignment of a statutory claim for compensation for damage to land did not entitle the assignee to recover extra loss suffered by reason of a trade carried on by him, but not the assignor, that the assignor would not have suffered.
19-074 The application of this principle has given rise to particular difficulty in relation to building contracts or tort claims for damage to buildings. Say, for example, a building is sold at full value along with an assignment to the purchaser of claims in contract or tort in relation to the building. The building turns out to need repairs as a result of a breach of the builder’s contract with the assignor (whether that breach is prior, or subsequent, to the sale to the assignee) or of a tort (damaging the building prior to the sale). The assignee pays for the repairs. It might be argued that the assignor in that situation has suffered no loss so that, applying the governing principle that the assignee cannot recover more than the assignor, the assignee has no substantial claim. If correct, ” …the claim to damages would disappear …into some legal black hole, so that the wrong-doer escaped scot-free.” Acceptance of the argument would also nullify the purpose of the governing principle which is to avoid prejudice to the debtor and not to allow the debtor to escape liability.
19-075 Perhaps not surprisingly, therefore, that argument was rejected by the House of Lords in a Scottish delict case. And the problem has been circumvented in England by the courts’ recognition that, where a third party is, or will become, owner of a defective or damaged property, there is an exception to the general rule that a contracting party can recover damages for its own loss and not for the loss of a third party. Where the exception applies, the contracting party (the assignor) is entitled to substantial damages for the loss suffered by the third party (the assignee): by the same token, an award of substantial damages to the assignee does not infringe the principle that the assignee cannot recover more than the assignor.”
…….
The authorities
Mr Friedman’s submissions on the assignment point are not supported by the authorities cited by him to show that the judge had misunderstood or misapplied the correct legal principles. Although the cases were discussed at length in the skeleton arguments and at the hearing, I propose to deal with them quite briskly.
Dawson v. Great Northern and City Railways Company [1905] 1 KB 260 at 272-274 per Stirling LJ was cited for the proposition that the assignee was not entitled to recover any greater amount of compensation than the assignor could have recovered. The width of the general proposition has to be read in context. In that case compensation under the Lands Clauses Consolidation Act 1845 was not payable to the assignee for “damage to her trade stock” (as distinct from structural damage to premises requiring re-instatement works which did not increase the burden on the defendants), because that was compensation for an item that could not have been recovered by the assignor from the defendants. The assignor did not trade in the stock in question and could not have made a claim for compensation for that item.
GUS Property Management Limited v. Littlewoods Mail Order Stores Limited [1982] SLT 583 was also cited for Lord Keith’s statement at p 537-538 that
” …. the basic question at issue is whether in this action the Pursuers are really seeking to pursue against the Defenders a claim or claims which the [assignor] could have pursued at the date of the [assignment] ….. the only relevant loss which by virtue of the [assignment] the Pursuers could claim title to recover is loss suffered by the [assignor] for which the [assignor] could at the date of the [assignment] have sought reparation.”
The speech of Lord Keith was considered in Linden Gardens. We heard very detailed submissions on the speech of Lord Browne-Wilkinson in the House of Lords (with which the other members of the Appellate Committee concurred) and on the judgments in the Court of Appeal.
The judge was criticised by Mr Friedman for relying on the following passage in the judgment of Staughton LJ in 57 BLR 57 at p80-81-
“That brings me to the last point to be considered in connection with assignment of choses in action. Where the assignment is of a cause of action for damages, the assignee must of course have a sufficient proprietary right, or a genuine commercial interest, if the assignment is not to be invalid. It is no longer in issue in these appeals that the assignees had such a right in each case; we heard no argument to the contrary from the contractors. But it is said that in such a case he assignee can recover no more as damages than the assignor could have recovered.
That proposition seems to me well founded. It stems from the principle already discussed, that the debtor is not to be put in any worse position by reason of the assignment. And it is established by Dawson v. Great Northern & City Railway Co [1905] 1 KB 260; see also GUS Property Management Ltd v. Littlewoods Mail Order Stores Ltd [1982] SLT 533 by Lord Keith of Kinkel at page 538, cited later in this judgment [pp 89-90]. But in a case such as the present one must elucidate the proposition slightly: the assignee can recover no more damages than the assignor could have recovered if there had been no assignment, and if the building had not been transferred to the assignee.”
As I read the judgments of the other members of the court (Kerr LJ at pp 97- 98 and Nourse LJ at p66), it is reasonably clear that they agreed with what Staughton LJ said on this point in the passage cited and on pp 91-92.
Although the House of Lords overturned the decision of the Court of Appeal on the issue of the effect of the prohibition against assignment, I do not read the speech of Lord Browne-Wilkinson, which did not directly address the issue, as questioning the ruling of the Court of Appeal on the question whether an assignee could recover no more damages than the assignor could have recovered. It was unnecessary for the House to consider the assignee’s remedies for breach of contract in view of its decision that the prohibition against assignment rendered the assignments ineffective.
The judgment of Staughton LJ was rightly relied on by the judge. I am respectfully of the view that the ruling of Staughton LJ on this point is correct as a matter of legal principle and good sense, and ought to be followed by this court in this case. It completely disposes of the argument raised in the defence of Technotrade that Larkstore is not entitled to claim substantial damages from Technotrade, because its assignor, Starglade, had suffered no loss, having parted with the Site before the landslip occurred and before the assignment of its cause of action to Larkstore.
I must, however, make it clear that the only point raised in this case at this preliminary stage is whether Larkstore had, by virtue of the assignment, a right to sue Technotrade for substantial damages for breach of contract in respect of loss claimed to have been suffered by it in consequence of the landslip at the Site. There is no question before this court, nor was there below, as to the proper measure or quantum of damages, which Larkstore is entitled to recover against Technotrade. We have heard no argument on it and I express no views on that aspect of the case.
Rolls-Royce Power Engineering Plc & Anor v Ricardo Consulting Engineers Ltd.
[2003] EWHC 2871
In the existing state of the law it seems to me that a fundamental condition to be met if the rule in Dunlop v. Lambert is to be applied in any case is that it should at the time the relevant contract was made have been in the actual contemplation of the parties that an identified third party or a third party who was a member of an identified class would or might suffer damage in the event of a breach of the contract. In no case to which my attention was drawn was that condition not satisfied. Moreover, if the general rule, as everyone seems to accept, is that a party to a contract may not recover in respect of a breach of it substantial damages if he himself has not suffered such loss, any exception is an exception to that rule, not a wholesale replacement of it, and there must be special circumstances which take a particular case out of the ambit of the general rule. If the special circumstances which take a case out of the general are knowledge that an identified third party or a third party who is a member of an identified class will or might suffer damage if there is a breach of contract, that is something which ought to be capable of being readily demonstrated, it involves no obvious injustice, as the possibility of loss will have been known at the time the contract was made, and seems to do justice because it gives effect to the contemplation of the contracting parties and provides a means of compensating the third party for whose benefit, at least in part, the relevant contractual obligation was undertaken. If knowledge at the date of the contract of the interest of the third party as such or as a member of an identified class were unnecessary, the result would be that a claim for substantial damages could be advanced on behalf of anyone whomsoever who contended that they had suffered loss as a result of a breach of contract, however remote their apparent connection to the performance of the contract. Such a possibility would destroy the general rule.
In the present case, on my findings of fact, RRPE was not a party identified either by name or by membership of an identified class as one who would or might suffer loss as a result of a breach of the Definitive Design Contract on the part of Ricardo. The fact that it was known to be the parent company of Allen is, in my judgment, insufficient, for in that capacity it would sustain no loss in the event of a breach of the contract in respect of which Allen could recover substantial damages, and Allen would have been able to do that in the event of a claim for damages arising at any stage, had not the Allen Diesels Business been transferred to RRPE and RRPE thereafter undertaken manufacture and sale of the Engines itself.
In the result the answer to sub-issue 7 (c) is negative.
Alfred McAlpine Construction Limited v. Panatown Limited
[2000] UKHL 43; [2000] 4 All ER 97; [2000] 3 WLR 946 [2001] 1 AC 518
Lord Clyde
It is particularly this passage in Lord Diplock’s speech which has given rise to a question discussed in the present appeal whether The Albazero exception is a rule of law or is based upon the intention of the parties. The issue was identified by my noble and learned friend Lord Goff of Chievely in his speech in White v. Jones [1995] 2 AC 207, 267. The problem arises from two phrases in the speech of Lord Diplock the mutual relationship between which may not be immediately obvious. The two phrases, in the reverse order than that in which they appear, are “is to be treated in law as having entered into the contract” and “if such be the intention of the parties.” In my view it is preferable to regard it as a solution imposed by the law and not as arising from the supposed intention of the parties, who may in reality not have applied their minds to the point. On the other hand if they deliberately provided for a remedy for a third party it can readily be concluded that they have intended to exclude the operation of the solution which would otherwise have been imposed by law. The terms and provisions of the contract will then require to be studied to see if the parties have excluded the operation of the exception.
That appears to have been the conclusion adopted in St. Martins Property Corporation Ltd. v. Sir Robert McAlpine [1994] 1 AC 85, where my noble and learned friend Lord Browne-Wilkinson observed at p. 115:
“In such a case, it seems to me proper, as in the case of the carriage of goods by land, to treat the parties as having entered into the contract on the footing that Corporation would be entitled to enforce contractual rights for the benefit of those who suffered from defective performance but who, under the terms of the contract, could not acquire any right to hold McAlpine liable for breach.”
In that case the point was made that the contractor and the employer were both aware that the property was going to be occupied and possibly purchased by third parties so that it could be foreseen that a breach of the contract might cause loss to others than the employer. But such foresight may be an unnecessary factor in the applicability of the exception. So also an intention of the parties to benefit a third person may be unnecessary. Foreseeablility may be relevant to the question of damages under the rule in Hadley v. Baxendale (1854) 9 Exch 341, but in the context of liability it is a concept which is more at home in the law of tort than in the law of contract. If the exception is founded primarily upon a principle of law, and not upon the particular knowledge of the parties to the contract, then it is not easy to see why the necessity for the contemplation of the parties that there will be potential losses by third parties is essential. It appears that in the St. Martins case [1994] 1 AC 85 the damages claimed were in respect of the cost of remedial work which had been carried out. I see no reason why consequential losses should not also be recoverable under this exception where such loss occurs and the third party should have a right to recover for himself all the damages won by the original party on his behalf.
The Albazero exception will plainly not apply where the parties contemplate that the carrier will enter into separate contracts of carriage with the later owners of the goods, identical to the contract with the consignor. Even more clearly, as Lord Diplock explained at p. 848, will the exception be excluded if other contracts of carriage are made in terms different from those in the original contract. In The Albazero the separate contracts which were mentioned were contracts of carriage. That is understandable in the context of carriage by sea involving a charterparty and bills of lading, but the counterpart in a building contract to a right of suit under a bill of lading should be the provision of a direct entitlement in a third party to sue the contractor in the event of a failure in the contractor’s performance. In the context of a building contract one does not require to look for a second building contract to exclude the exception. It would be sufficient to find the provision of a right to sue. Thus as my noble and learned friend Lord Browne-Wilkinson observed in the St. Martins case [1994] 1 AC 85, 115:
“If, pursuant to the terms of the original building contract, the contractors have undertaken liability to the ultimate purchasers to remedy defects appearing after they acquired the property, it is manifest the case will not fall within the rationale of Dunlop v Lambert 6 Cl. & F. 600. If the ultimate purchaser is given a direct cause of action against the contractor (as is the consignee or endorsee under a bill of lading) the case falls outside the rationale of the rule.”
In the St. Martins case the employer started off as the owner of the property and subsequently conveyed it to another company. In the present case the employer never was the owner. But that has not featured as a critical consideration in the present appeal and I do not see that that factor affects the application of the exception. In the St. Martins case there was a contractual bar on the assignment of rights of action without the consent of the contractor. In the present case the extra qualification was added that the consent should not be unreasonably withheld. But again I do not see that difference as of significance. It does not follow that the presence of a provision enabling assignment without the consent of the contractor excludes the exception. As was held in Darlington Borough Council v. Wiltshier Northern Ltd. [1995] 1 WLR 68 where there is a right to have an assignment of any cause of action accruing to the employer against the contractor, the exception may still apply so as to enable the assignee to recover substantial damages. It may be that the exception could be excluded through some contractual arrangement between the employer and the third party who sustained the actual loss, but the law would probably be slow to find such an intention established where it would leave the black hole. At least an express provision for assignment of the employer’s rights will not suffice.
I have no difficulty in holding in the present case that the exception cannot apply. As part of the contractual arrangements entered into between Panatown and McAlpine there was a clear contemplation that separate contracts would be entered into by McAlpine, the contracts of the deed of duty of care and the collateral warranties. The duty of care deed and the collateral warranties were of course not in themselves building contracts. But they did form an integral part of the package of arrangements which the employer and the contractor agreed upon and in that respect should be viewed as reflecting the intentions of all the parties engaged in the arrangements that the third party should have a direct cause of action to the exclusion of any substantial claim by the employer, and accordingly that the exception should not apply. There was some dispute upon the difference in substance between the remedies available under the contract and those available under the duty of care deed. Even if it is accepted that in the circumstances of the present case where the eventual issue may relate particularly to matters of reasonable skill and care, the remedies do not absolutely coincide, the express provision of the direct remedy for the third party is fatal to the application of The Albazero exception. On a more general approach the difference between a strict contractual basis of claim and a basis of reasonable care makes the express remedy more clearly a substitution for the operation of the exception. Panatown cannot then in the light of these deeds be treated as having contracted with McAlpine for the benefit of the owner or later owners of the land and the exception is plainly excluded.
I turn accordingly to what was referred to in the argument as the broader ground. But the label requires more careful definition. The approach under The Albazero exception has been one of recognising an entitlement to sue by the innocent party to a contract which has been breached, where the innocent party is treated as suing on behalf of or for the benefit of some other person or persons, not parties to the contract, who have sustained loss as a result of the breach. In such a case the innocent party to the contract is bound to account to the person suffering the loss for the damages which the former has recovered for the benefit of the latter. But the so-called broader ground involves a significantly different approach. What it proposes is that the innocent party to the contract should recover damages for himself as a compensation for what is seen to be his own loss. In this context no question of accounting to anyone else arises. This approach however seems to me to have been developed into two formulations.
The first formulation, and the seeds of the second, are found in the speech of Lord Griffiths in St. Martins Property Corporation Ltd. v. Sir Robert McAlpine Ltd. [1994] 1 AC 85, 96. At the outset his Lordship expressed the opinion that Corporation, faced with a breach by McAlpine of their contractual duty to perform the contract with sound materials and with all reasonable skill and care, would be entitled to recover from McAlpine the cost of remedying the defect in the work as the normal measure of damages. He then dealt with two possible objections. First, it should not matter that the work was not being done on property owned by Corporation. Where a husband instructs repairs to the roof of the matrimonial home it cannot be said that he has not suffered damage because he did not own the property. He suffers the damage measured by the cost of a proper completion of the repair:
“In cases such as the present the person who places the contract has suffered financial loss because he has to spend money to give him the benefit of the bargain which the defendant had promised but failed to deliver.”
The second objection, that Corporation had in fact been reimbursed for the cost of the repairs was answered by the consideration that the person who actually pays for the repairs is of no concern to the party who broke the contract. But Lord Griffiths added at p. 97:
“The court will of course wish to be satisfied that the repairs have been or are likely to be carried out but if they are carried out the cost of doing them must fall upon the defendant who broke his contract.”
In the first formulation this approach can be seen as identifying a loss upon the innocent party who requires to instruct the remedial work. That loss is, or may be measured by, the cost of the repair. The essential for this formulation appears to be that the repair work is to be, or at least is likely to be, carried out. This consideration does not appear to be simply relevant to the reasonableness of allowing the damages to be measured by the cost of repair. It is an essential condition for the application of the approach, so as to establish a loss on the part of the plaintiff. Thus far the approach appears to be consistent with principle, and in particular with the principle of privity. It can cover the case where A contracts with B to pay a sum of money to C and B fails to do so. The loss to A is in the necessity to find other funds to pay to C and provided that he is going to pay C, or indeed has done so, he should be able to recover the sum by way of damages for breach of contract from B. If it was evident that A had no intention to pay C, having perhaps changed his mind, then he would not be able to recover the amount from B because he would have sustained no loss, and his damages would at best be nominal.
But there can also be found in Lord Griffiths’ speech the idea that the loss is not just constituted by the failure in performance but indeed consists in that failure. This is the “second formulation.” In relation to the suggestion that the husband who instructs repair work to the roof of his wife’s house and has to pay for another builder to make good the faulty repair work has sustained no damage Lord Griffiths observed at p. 97:
“Such a result would in my view be absurd and the answer is that the husband has suffered loss because he did not receive the bargain for which he had contracted with the first builder and the measure of damages is the cost of securing the performance of that bargain by completing the roof repairs properly by the second builder.”
That is to say that the fact that the innocent party did not receive the bargain for which he contracted is itself a loss. As Steyn L.J. put it in Darlington Borough Council v. Wiltshier Northern Ltd. [1995] 1 WLR 68, 80, “he suffers a loss of bargain or of expectation interest.” In this more radical formulation it does not matter whether the repairs are or are not carried out, and indeed in the Darlington case that qualification is seen as unnecessary. In that respect the disposal of the damages is treated as res inter alios acta. Nevertheless on this approach the intention to repair may cast light on the reasonableness of the measure of damages adopted. In order to follow through this aspect of the second formulation in Lord Griffiths’ speech it would be necessary to understand his references to the carrying out of the repairs to be relevant only to that consideration.
I find some difficulty in adopting the second formulation as a sound way forward. First, if the loss is the disappointment at there not being provided what was contracted for, it seems to me difficult to measure that loss by consideration of the cost of repair. A more apt assessment of the compensation for the loss of what was expected should rather be the difference in value between what was contracted for and what was supplied. Secondly, the loss constituted by the supposed disappointment may well not include all the loss which the breach of contract has caused. It may not be able to embrace consequential losses, or losses falling within the second head of Hadley v. Baxendale (1854) 9 Exch 341 . The inability of the wife to let one of the rooms in the house caused by the inadequacy of the repair, does not seem readily to be something for which the husband could claim as his loss. Thirdly, there is no obligation on the successful plaintiff to account to anyone who may have sustained actual loss as a result of the faulty performance. Some further mechanism would then be required for the court to achieve the proper disposal of the monies awarded to avoid a double jeopardy. Alternatively, in order to achieve an effective solution, it would seem to be necessary to add an obligation to account on the part of the person recovering the damages. But once that step is taken the approach begins to approximate to The Albacruz exception. Fourthly, the “loss” constituted by a breach of contract has usually been recognised as calling for an award of nominal damages, not substantial damages.
The loss of an expectation which is here referred to seems to me to be coming very close to a way of describing a breach of contract. A breach of contract may cause a loss, but is not in itself a loss in any meaningful sense. When one refers to a loss in the context of a breach of contract, one is in my view referring to the incidence of some personal or patrimonial damage. A loss of expectation might be a loss in the proper sense if damages were awarded for the distress or inconvenience caused by the disappointment. Professor Coote (“Contract Damages, Ruxley, and the Performance Interest” (1997) C.L.J. 537) draws a distinction between benefits in law, that is bargained-for contractual rights, and benefits in fact, that is the enjoyment of the fruits of performance. Certainly the former may constitute an asset with a commercial value. But while frustration may destroy the rights altogether so that the contract is no longer enforceable, a failure in the obligation to perform does not destroy the asset. On the contrary it remains as the necessary legal basis for a remedy. A failure in performance of a contractual obligation does not entail a loss of the bargained-for contractual rights. Those rights remain so as to enable performance of the contract to be enforced, as by an order for specific performance. If one party to a contract repudiates it and that repudiation is accepted, then, to quote Lord Porter in Heyman v. Darwins Ltd. [1942] A.C. 356, 399,
“By that acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded.”
The primary obligations under the contract may come to an end, but secondary obligations then arise, among them being the obligation to compensate the innocent party. The original rights may not then be enforced. But a consequential right arises in the innocent party to obtain a remedy from the party who repudiated the contract for his failure in performance.
Both of these two formulations seek to remedy the problem of the legal black hole. At the heart of the problem is the doctrine of privity of contract which excludes the ready development of a solution along the lines of a jus quaesitum tertio. It might well be thought that such a solution would be more direct and simple. In the context of the domestic and familial situations, such as the husband instructing the repairs to the roof of his wife’s house, or the holiday which results in disappointment to all the members of the family, the jus quaesitum tertio may provide a satisfactory means of redress, enabling compensation to be paid to the people who have suffered the loss. Such an approach is available in Germany see W. Lorrenz “Contract Beneficiaries in German Law” in The Gradual Convergence: Foreign Ideas, Foreign Influences, and English Law on the Eve of the 21st Century ed. Markesinis (1994), pp. 65, 78, 79. It may also be available in Scotland (Carmichael v. Carmichael’s Executrix 1920 SC (HL) 195). But we were not asked to adopt it in the present case and so radical a step cannot easily be achieved without legislative action. Since Parliament has recently made some inroad into the principle of privity but has stopped short of admitting a solution to a situation such as the present, it would plainly be inappropriate to enlarge the statutory provision by judicial innovation. The alternative has to be the adoption of what Lord Diplock in Swain v. The Law Society [1983] 1 A.C. 598, 611 described as a juristic subterfuge “to mitigate the effect of the lacuna resulting from the non-recognition of a jus quaesitum tertio.” The solution, achieved by the operation of law, may carry with it some element of artificiality and may not be supportable on any clear or single principle. If the entitlement to sue is not to be permitted to the party who has suffered the loss, the law has to treat the person who is entitles to sue as doing so on behalf of the third party. As Lord Wilberforce observed in Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [1980] 1 WLR 277, 283, “there are many situations of daily life which do not fit neatly into conceptual analysis, but which require some flexibility in the law of contract.”
It seems to me that a more realistic and practical solution is to permit the contracting party to recover damages for the loss which he and a third party has suffered, being duly accountable to them in respect of their actual loss, than to construct a theoretical loss in law on the part of the contracting party, for which he may be under no duty to account to anyone since it is to be seen as his own loss. The solution is required where the law will not tolerate a loss caused by a breach of contract to go uncompensated through an absence of privity between the party suffering the loss and the party causing it. In such a case, to avoid the legal black hole, the law will deem the innocent party to be claiming on behalf of himself and any others who have suffered loss. It does not matter that he is not the owner of the property affected, nor that he has not himself suffered any economic loss. He sues for all the loss which has been sustained and is accountable to the others to the extent of their particular losses. While it may be that there is no necessary right in the third party to compel the innocent employer to sue the contractor, in the many cases of the domestic or familial situation that consideration should not be a realistic problem. In the commercial field, in relation to the interests of such persons as remoter future proprietors who are not related to the original employer, it may be that a solution by way of collateral warranty would still be required. If there is an anxiety lest the exception would permit an employer to receive excessive damages, that should be set at rest by the recognition of the basic requirement for reasonableness which underlies the quantification of an award of damages.
The problem which has arisen in the present case is one which is most likely to arise in the context of the domestic affairs of a family group or the commercial affairs of a group of companies. How the members of such a group choose to arrange their own affairs among themselves should not be a matter of necessary concern to a third party who has undertaken to one of their number to perform services in which they all have some interest. It should not be a ground of escaping liability that the party who instructed the work should not be the one who sustained the loss or all of the loss which in whole or part has fallen on another member or members of the group. But the resolution of the problem in any particular case has to be reached in light of its own circumstances. In the present case the decision that Panatown should be the employer under the building contract although another company in the group owned the land was made in order to minimise charges of VAT. No doubt thought was given as to the mechanics to be adopted for the building project in order to achieve the course most advantageous to the group. Where for its own purposes a group of companies decides which of its members is to be the contracting party in a project which is of concern and interest to the whole group I should be reluctant to refuse an entitlement to sue on the contract on the ground simply that the member who entered the contract was not the party who suffered the loss on a breach of the contract. But whether such an entitlement is to be admitted must depend upon the arrangements which the group and its members have decided to make both among themselves and with the other party to the contract. In the present case there was a plain and deliberate course adopted whereby the company with the potential risk of loss was given a distinct entitlement directly to sue the contractor and the professional advisers. In the light of such a clear and deliberate course I do not consider that an exception can be admitted to the general rule that substantial damages can only be claimed by a party who has suffered substantial loss.
I agree that the appeal should be allowed.
Lord Goff (dissenting)
I add that, if Lord Griffiths’ approach was to be rejected, it would follow that, for example, the employer under a building contract for work on another’s property would have no remedy in damages if the builder was to repudiate the contract or to fail altogether to perform the contractual work. In other words, the builder could repudiate with impunity. It is no answer, or an insufficient answer, to this point that money paid in advance by the employer may be recoverable on the ground of failure of consideration, any more than it is an answer to other cases that there may be an abatement of the price.
In the light of this preamble I wish to state that I find persuasive the reasoning and conclusion expressed by Lord Griffiths in his opinion in the St. Martin’s case [1994] 1 AC 85, that the employer under a building contract may in principle recover substantial damages from the building contractor, because he has not received the performance which he was entitled to receive from the contractor under the contract, notwithstanding that the property in the building site was vested in a third party. The example given by Lord Griffiths of a husband contracting for repairs to the matrimonial home which is owned by his wife is most telling. It is not difficult to imagine other examples, not only within the family, but also, for example, where work is done for charitable purposes – as where a wealthy man who lives in a village decides to carry out at his own expense major repairs to, or renovation or even reconstruction of, the village hall, and himself enters into a contract with a local builder to carry out the work to the existing building which belongs to another, for example to trustees, or to the parish council. Nobody in such circumstances would imagine that there could be any legal obstacle in the way of the charitable donor enforcing the contract against the builder by recovering damages from him if he failed to perform his obligations under the building contract, for example because his work failed to comply with the contract specification.
At this stage I find it necessary to return to the opinion of Lord Griffiths in the St. Martin’s case. In the passage from his opinion, [1994] 1 AC 85, 96-97, which I have already quoted, he gave the example of a husband placing a contract with a builder for the replacement of the roof of the matrimonial home which belonged to his wife. The work proved to be defective. Lord Griffiths expressed the opinion that, in such a case, it would be absurd to say that the husband has suffered no damage because he does not own the property. I wish now to draw attention to the fact that, in his statement of the facts of his example, Lord Griffiths included the fact that the husband had to call in and pay another builder to complete the work. It might perhaps be thought that Lord Griffiths regarded that fact as critical to the husband’s cause of action against the builder, on the basis that the husband only has such a cause of action in respect of defective work on another person’s property if he himself has actually sustained financial loss, in this example by having paid the second builder. In my opinion, however, such a conclusion is not justified on a fair reading of Lord Griffiths’ opinion. This is because he stated the answer to be that “the husband has suffered loss because he did not receive the bargain for which he had contracted with the first builder and the measure of damages is the cost of securing the performance of that bargain by completing the roof repairs properly by the second builder.” It is plain, therefore, that the payment to the second builder was not regarded by Lord Griffiths as essential to the husband’s cause of action.
The point can perhaps be made more clearly by taking a different example, of the wealthy philanthropist who contracts for work to be done to the village hall. The work is defective; and the trustees who own the hall suggest that he should recover damages from the builder and hand the damages over to them, and they will then instruct another builder, well known to them, who, they are confident, will do the work well. The philanthropist agrees, and starts an action against the first builder. Is it really to be suggested that his action will fail, because he does not own the hall, and because he has not incurred the expense of himself employing another builder to do the remedial work? Echoing the words of Lord Griffiths, I regard such a conclusion as absurd. The philanthropist’s cause of action does not depend on his having actually incurred financial expense; as Lord Griffiths said of the husband in his example, he “has suffered loss because he did not receive the bargain for which he had contracted with the first builder.”
There has been a substantial amount of academic discussion about the difference of opinion in the Appellate Committee in the St. Martin’s case and in particular about the merits of Lord Griffiths’ opinion in that case. The Appellate Committee in the present case was supplied with copies of a number of relevant articles, which I have studied with interest and respect. I have not detected any substantial criticism of Lord Griffiths’ broader ground, whereas there has been some criticism of the narrower ground adopted by the majority of the Appellate Committee in the St. Martin’s case [1985] 1 A.C. 85 – see in particular the articles by Professor Treitel in (1998) 114 L.Q.R. 527, and by Mr. Duncan Wallace Q.C. (the editor of Hudson on Building Contracts) in (1994) 110 L.Q.R. 42 and (1999) 115 L.Q.R. 394 (in which the writer supports Lord Griffiths’ broader ground). I have found nothing in the academic material with which we were supplied which should deter those who are attracted to the broader ground from giving effect to it in an appropriate case. In this connection, I wish to draw attention in particular to articles by Professor Brian Coote in (1997) 56 Camb. L.J. 557 and in (1998) 13 J.C.L. 91; to the articles by Mr. Duncan Wallace Q.C. to which I have already referred; and to a Paper presented by Janet O’Sullivan (the Director of Studies in Law at Selwyn College, Cambridge) at a conference held in Cambridge in 1999 on Comparative Unjustified Enrichment (the Papers for which will , I understand, shortly be published) in which she considered the whole question of damages awarded to protect contractual expectations with special reference to “restitutionary damages,” and in particular to the judgment of the Court of Appeal in Attorney-General v. Blake [1998] Ch 439. In so doing, she reviewed a number of cases in which damages were, or might usefully have been, awarded to protect contractual expectations, and in particular regarded Lord Griffiths’ opinion in St. Martin’s, together with the recent decision of your Lordships’ House in Ruxley Electronics and Construction Ltd. v. Forsyth [1996] AC 344, as providing examples of steps recently taken to recognise and attack a deficiency in the remedial regime for breach of contract, arising from the “perceived failure of the English law of contract to recognise that the plaintiff’s interest lies in the performance of the contract.” Her review provides the context within which Lord Griffiths’ opinion can usefully be set, and in this way provides further justification for Lord Griffiths’ broader ground.
Turning to the authorities, I think it right to start with the decision of your Lordships’ House in East Ham Corporation v. Bernard Sunley & Sons Ltd. [1966] A.C. 406, which is regarded as the leading authority for the proposition that, in cases in which the plaintiff is seeking damages for the defective performance of a building contract (which is a contract for labour and materials), the normal measure of his damages is the cost of carrying out remedial work. On the issue of damages in that case, there appears to have been no difference of opinion among the members of the Appellate Committee. Lord Upjohn accepted at p. 445 that the normal measure of damages is the cost of reinstatement, as both Lord Guest and Lord Pearson appear to have done at pp. 440 and 451 respectively. Lord Cohen was however careful to qualify this proposition by reference to a principle of reasonableness which he drew from Hudson on Building and Engineering Contracts, 8th ed. (1859). The statement of the law (which he drew from that book) was as follows at p. 434:
“There is no doubt that wherever it is reasonable for the employer to insist upon reinstatement the courts will treat the cost of reinstatement as the measure of damage.”
I turn next to the authoritative judgment of Oliver J. in Radford v. De Froberville [1977] 1 W.L.R. 1262, for which I wish to express my respectful admiration. The case was concerned with a contract for the sale of a plot of land adjoining a house belonging to the plaintiff (the vendor) but occupied by his tenants, under which the defendant (the purchaser) undertook to build a house on the plot and also to erect a wall to a certain specification on the plot so as to separate it from the plaintiff’s land. The plaintiff obtained judgment against the defendant for damages for breach of contract by reason of her failure to erect the dividing wall, but an issue arose as to the measure of the damages. The defendant having failed to build the dividing wall on the land purchased from the plaintiff, the plaintiff proposed to build a dividing wall on his own land, and claimed the cost of doing so from the defendant; whereas the defendant maintained that the appropriate measure of damages was the consequent diminution in the value of the plaintiff’s property, which was nil. Oliver J. rejected the defendant’s contention. He held that the plaintiff had a genuine and serious intention of building the wall on his own land, and that this was a reasonable course of action for him to take. With regard to an argument by the defendant that, since the plaintiff did not himself occupy the property, he could not be said to have himself suffered damage by reason of the defendant’s failure to build the wall, because he was not there to enjoy it, and that his only loss, therefore, was the diminution of the value of his reversion, Oliver J. gave the following answer at [1977] 1 W.L.R. 1262, 1285:
“Whilst I see the force of this, I do not think that it really meets the point that, whatever his status, the plaintiff has a contractual right to have the work done and does in fact want to do it . . . . As it seems to me, the fact that his motive may be to confer what he conceives to be a benefit on persons who have no contractual rights to demand it cannot alter the genuineness of his intentions.” Oliver J. here referred to Jackson v. Horizon Holidays Ltd. [1975] 1 WLR 1468.
The reference in this passage to the persons who would benefit by the building of the wall was a reference to the plaintiff’s tenants.
Oliver J.’s reliance on the simple fact that the plaintiff had a contractual right to have the wall built constitutes a plain assertion of the plaintiff’s right to recover damages on the basis of damage to his performance interest, and is surely inconsistent with the submission of McAlpine, in the present case, that the mere fact that the buildings were to be constructed on the land of UIPL, rather than on the land of Panatown, debars Panatown from recovering substantial damages for the defective performance of McAlpine in the construction of the buildings. Indeed the decision of Oliver J. that the plaintiff in the case before him was entitled to substantial damages is of itself inconsistent with McAlpine’s submission, since the damages were awarded in respect of a failure by the defendant to build on land which was not the property of the plaintiff.
In the course of his judgment Oliver J., relying on a passage from the judgment of Megarry V.-C. in Tito v. Waddell (No. 2) [1977] Ch. 106, 331-334, concluded, at p. 1283, that there were three questions which he had to answer:
“First, am I satisfied on the evidence that the plaintiff has a genuine and serious intention of doing the work? Secondly, is the carrying out of the work on his own land a reasonable thing for the plaintiff to do? Thirdly, does it make any difference that the plaintiff is not personally in occupation of the land but desires to do the work for the benefit of his tenants?”
The first two questions he answered in the affirmative; the third he answered in the negative. I think it right however to record that the issue of reasonableness which arose in the second question was not the same issue as that raised in Lord Cohen’s statement of principle in East Ham Corporation v. Bernard Sunley & Sons; [1996] A.C. 406 it arose because Oliver J. had to consider whether, although the defendant’s breach of contract related to a failure to build the wall on her land which she had purchased from the plaintiff, the plaintiff was entitled to claim the cost of building a similar wall on his own land. It followed that the second question was, as Oliver J. said (see [1977] 1 W.L.R. 1284E-F) “really one of mitigation,” and that it was in that context that he had to consider whether the proposed action of the plaintiff was a reasonable step for him to take.
In Ruxley Electronics and Construction Ltd. v. Forsyth [1996] AC 344, the defendants contracted to construct a swimming pool on the plaintiff’s land. The contract specification required that the deep end of the pool should be 7 feet 6 inches deep. The pool was constructed, but the deep end was only 6 feet deep. The plaintiff claimed damages in the sum required to reconstruct the pool to the specified depth, viz. £21,560. The trial judge rejected that claim, but awarded the plaintiff damages in the sum of £2,500 for loss of amenity. The Court of Appeal allowed the plaintiff’s appeal from that decision, and awarded him the full sum claimed by him. The House of Lords allowed the defendants’ appeal from the decision of the Court of Appeal, on the ground that the expenditure required to reconstruct the pool to the specified depth was out of all proportion to the benefit to be obtained, and restored the judgment of the trial judge. The plaintiff invoked the decision of Oliver J. in Radford v. De Froberville as showing that he was entitled to damages for failure to comply with the contract to provide a swimming pool to his specification, notwithstanding that the extra depth was of no objective value; but on the facts of the case your Lordships’ House held that the award of damages which the plaintiff sought was unreasonable and so could not be upheld. In support of this conclusion, the House was able to invoke not only English authority, notably the speech of Lord Cohen in East Ham Corporation v. Bernard Sunley & Sons, but also authoritative statements of principle from the High Court of Australia (viz. Bellgrove v. Eldridge (1954) 90 C.L.R. 613, 617-618) and the United States (viz. Jacob & Youngs v. Kent 129 N.E. 889, 891-2, per Cardozo J.). It is however plain from the opinions of the Appellate Committee that they regarded Oliver J.’s judgment in Radford v. De Froberville [1977] 1 W.L.R. 1262 as an authoritative and useful statement of legal principle: see, e.g., [1996] 1 A.C. at p. 360, per Lord Mustill. And, as Oliver J. said in Radford v. De Froberville [1977] 1 W.L.R. 1262, 1270:
“If [the plaintiff] contracts for the supply of that which he thinks serves his interests – be they commercial, aesthetic or merely eccentric – then if that which is contracted for is not supplied by the other contracting party I do not see why, in principle, he should not be compensated by being provided with the cost of supplying it through someone else or in a different way, subject to the proviso, of course, that he is seeking compensation for a genuine loss and not merely using a technical breach to secure an uncovenanted profit.”
I respectfully agree with this proposition, the last few words of which can be regarded as concerned with the issue of reasonableness which arose in the Ruxley Electronics case [1996] AC 344. It cannot be said that, in the present case, the breach of contract alleged by Panatown is “technical”, or that Panatown is seeking an “uncovenanted” profit. Moreover Oliver J.’s proposition, and indeed his decision, are, as I have already indicated, inconsistent with the argument now advanced on behalf of McAlpine that the employer under a building contract is unable to recover substantial damages for breach of the contract if the work in question is to be performed on land or buildings which are not his property. Oliver J.’s proposition is, in my opinion, equally applicable where the work contracted for is to be performed on another person’s property for family reasons, or (as in the present case) for the benefit of a group of companies of which the plaintiff is a member, or for purely charitable reasons, or for any other reason for which the plaintiff thinks it appropriate to enter into such a contract –as for example in the case of a contract by the defendant to build a wall on her own land, as in Radford v. De Froberville [1977] 1 W.L.R. 1262 itself.
It follows, in my opinion, that the principal argument advanced on behalf of McAlpine is inconsistent with authority and established principle. This conclusion may involve a fuller recognition of the importance of the protection of a contracting party’s interest in the performance of his contract than has occurred in the past. But not only is it justified by authority, but the principle on which it is based is supported by a number of distinguished writers, notably Professor Brian Coote and Mr. Duncan Wallace Q.C.
However, as I have already recorded, it was the submission of McAlpine that your Lordships should regard any such development in the law as a matter for legislation, presumably after a reference to the Law Commission. This submission was made on the basis that the Lord Chancellor had introduced into Parliament a Bill – the Contract (Rights of Third Parties) Bill, based on a Report by the Law Commission, designed to bring about a radical reform of the privity rule, and that the prospect of this imminent legislation rendered illegitimate any further judicial activism in the field which was the subject of the present appeal. That Bill is now on the statute book: see the Contracts (Rights of Third Parties) Act 1999.
I am unable to accept this submission. As I have previously explained, this case is not concerned with privity of contract. There is no question of a third party here seeking to enforce a jus quaesitus tertio – i.e., of UIPL enforcing a right arising under the contract between McAlpine and Panatown. On the contrary, the reason why Panatown contracted as employer under the building contract with McAlpine was so that UIPL, although the owner of the site, should not do so. Even if the new Act had been in force at the material time, it would not have given UIPL any right to enforce the building contract, or any provision of it, against McAlpine.Section 1 of the Act, which is concerned with the right of a third party to enforce a contractual term, provides as follows:
(1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2)
Subsection (1) (b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
It is plain that the building contract in the present case did not expressly provide that UIPL might in its own right enforce a term of the contract; and, in so far as the contract, or any term of it, purported to confer a benefit on UIPL, it is plain that the parties did not intend any such term to be enforceable by UIPL, the rights of the latter against McAlpine being limited to those which arose under a separate contract, the DCD.
In truth, no question of a jus quaesitum tertio arises in this case at all. Lord Griffiths’ broader ground is not concerned with privity of contract as such. It is concerned with the damages recoverable by one party to a contract (the employer) against another (the contractor) for breach of a contract for labour and materials, viz. a building contract. It does not seek to establish an exception to the old privity rule, though it may provide a principled basis for the recovery of damages (by a contracting party, not by a third party) in some cases, such as Jackson v. Horizon Holidays Limited [1975] 1 WLR 1468, in which the privity rule has been seen as a barrier to recovery (not by a contracting party but by a third party).
Furthermore, as Professor Hugh Beale stated some years ago (see (1995) 9 J.C.L. 103 at p. 108).
“Even if the basic doctrine of privity were to be reformed along the lines suggested by the Law Commission, I think it is vital that the promisee should have adequate remedies to take care of those cases in which the third party does not acquire rights.”
I would however go further. I do not regard Lord Griffiths’ broader ground as a departure from existing authority, but as a reaffirmation of existing legal principle. Indeed, I know of no authority which stands in its way. On the contrary, there have been statements in the cases which provide support for his view. Thus in Darlington Borough Council v. Wiltshier Northern Ltd. [1995] 1 WLR 68, 80, Steyn L.J. (as he then was) described Lord Griffiths’ broader ground as based on classic contractual theory, a statement with which I respectfully agree. Moreover, Lord Griffiths’ reasoning was foreshadowed in the opinions of members of the Appellate Committee in Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [1980] 1. W.L.R. 277; see especially the opinion of Lord Keith of Kinkel (at pp. 297-8), and in addition the more tentative statements of Lord Salmon (at p. 291) and Lord Scarman (at pp. 300-1). Furthermore, as I have just indicated, full recognition of the importance of the performance interest will open the way to principled solution of other well-known problems in the law of contract, notably those relating to package holidays which are booked by one person for the benefit not only of himself but of others, normally members of his family (as to which see Jackson v. Horizon Holidays Ltd. [1975] 1 WLR 1468), and other cases of a similar kind referred to by Lord Wilberforce in his opinion in the Woodar Investment case at p. 283 – cases of an everyday kind which are calling out for a sensible solution on a principled basis. Even if it is not thought, as I think, that the solution which I prefer is in accordance with existing principle, nevertheless it is surely within the scope of the type of development of the common law which, especially in the law of obligations, is habitually undertaken by appellate judges as part of their ordinary judicial function. That such developments in the law may be better left to the judges, rather than be the subject of legislation, is now recognised by the Law Commission itself, because legislation within a developing part of the common law can lead to ossification and a rigid segregation of legal principle which disfigures the law and impedes future development of legal principle on a coherent basis. It comes as no surprise therefore that, in its Report on “Privity of Contract: Contracts for the Benefit of Third Parties, (1996) (Law Com. No. 242) para. 5.15, the Law Commission declined to make specific recommendations in relation to the promisee’s remedies in a contract for the benefit of a third party (here referring to The Albazero [1977] A.C. 774 and Linden Gardens Trust Ltd. v. Lenesta Sludge Disposals Ltd. (the St. Martin’s case) [1994] 1 AC 85 as cases in which “the courts have gone a considerable way towards developing rules which in many appropriate cases do allow the promisee to recover damages on behalf of the third party”), and stated that the Commission “certainly . . . would not wish to forestall further judicial development of this area of the law of damages.” This certainly does not sound like a warning to judicial trespassers to keep out of forbidden territory; see also para. 11. 22, concerned with the problem of double liability – which I shall have to consider at a later stage.
The present case provides, in my opinion, a classic example of a case which falls properly within the judicial province. I, for my part, have therefore no doubt that it is desirable, indeed essential, that the problem in the present case should be the subject of judicial solution by providing proper recognition of the plaintiff’s interest in the performance of the contractual obligations which are owed to him. I cannot see why the proposed statutory reform of the old doctrine of privity of contract should inhibit the ordinary judicial function, and so prevent your Lordships’ House from doing justice between the parties in the present case. As I have said, the principal function of this submission of McAlpine appears to have been to restrict the argument of Panatown to the narrower ground in Dunlop v. Lambert 6 Cl. & F. 600 and by so doing to enable McAlpine to argue that, on that basis, the cause of action by Panatown under the building contract was excluded by the separate contractual right afforded to the building owner, UIPL, under the DCD. That is a matter which I will have to address when I come to consider the second issue in the case.
Kane -v- Massey Ferguson (Ireland) Ltd & Ors
[2007] IEHC 457
JUDGMENT delivered by Ms. Justice Irvine on the 20th day of December 2007
The plaintiff in these proceedings is an experienced farmer and part time mechanic who resides at Gaulmoylestown, Mullingar. The first named defendant is a limited liability company involved in the manufacture of Massey Ferguson agricultural vehicles. The second named defendant is a limited liability company and is a dealer in agricultural equipment and is also an authorised agent on behalf of Massey Ferguson Limited. The third named defendant is a finance house that purchased the tractor the subject matter of this claim from the second named defendant and thereafter supplied the said vehicle to the plaintiff on foot of a lease agreement signed by the plaintiff on 18th January, 1998.
In December 1997 the plaintiff decided to acquire a new tractor from the second named defendant Company. According to the second named defendant, the plaintiff was anxious to take out on trial a demonstration model 6170 Massey Ferguson tractor which they had on their premises in December 1997. According to the defendants, Mr. Kane took this tractor out for a number of days to try it out and having expressed himself satisfied with its performance indicated his willingness to purchase the same subject to a number of modifications being carried out to meet his requirements. In particular the plaintiff wanted a larger set of wheels put on the tractor and further wanted agreement that the vehicle would not be registered until 1998. Consequently, the defendants carried out a service check on the vehicle and delivered it to the plaintiff in the middle of January 1998. The lease agreement signed by Mr. Kane is dated 18th January, 1998 and the invoice of the second named defendant dated 31st January, 1998.
The essence of the agreement entered into between the plaintiff and the second named defendant appears to have been that in consideration of the second named defendant accepting a trade in of the plaintiff’s used Massey Ferguson tractor which it valued at £14,640 that the plaintiff would enter into a leasing agreement with the third named defendant in relation to the demonstration model 6170 Massey Ferguson tractor aforementioned subject to the terms and conditions set out in that leasing agreement dated 18th January, 1998. Hence, there was a collateral agreement between the plaintiff and the second named defendant whereby the second named defendant agreed to sell the demonstration model tractor to the third named defendant in consideration of the plaintiff entering into a leasing agreement with the third named defendant and also delivering up to the said second named defendant his own tractor which they had valued at £14,640. The balance of the purchase money was financed through the said lease agreement.
By plenary summons dated 12th July, 2001 the plaintiff instituted proceedings seeking (inter alia) damages for breach of contract, negligence, misrepresentation and rescission of the agreement just referred to on the basis that the tractor which was supplied to him was not fit for the purpose for which he had purchased the same. The plaintiff in his statement of claim pleaded that the tractor had multitudinous defects which required intervention on the part of the second named defendant and that in particular the loss of power of the vehicle whilst pulling a load or travelling uphill was such as to render the vehicle unsuitable for his needs. At that time the particulars of special damages referred to in the statement of claim identified a potential claim for loss of use of the vehicle in region of £10,000.
The first and second named defendants delivered a defence to the within proceedings on 28th February, 2002 wherein they denied any breach of contract, negligence, misrepresentation or breach of warranty and further contended that if the plaintiff had suffered any loss the same was due to his own default. The first and second named defendants particularly relied upon an assertion that any fault found with the tractor was a result of the failure on the part of the plaintiff to maintain and service the tractor or alternatively was due to either the plaintiff’s failure to change the oil filter or the use by him of contaminated fuel.
The third named defendant in its amended defence pleaded a full defence to the plaintiff’s claim and has also submitted that the plaintiff did not deal as a “consumer” within the meaning of the Sale of Goods Act, 1980 so as to entitle him to maintain any valid cause of action against such defendant. The said defendant also denied that the plaintiff was entitled to the benefit of the terms of the Consumer Credit Act, 1995 which once again does not benefit any person unless they fall within the definition of a “consumer” within the meaning of s. 2 thereof.
In addition to the usual notices for particulars and replies thereto, interrogatories and a notice to admit facts were delivered. In the notice to admit facts the plaintiff admitted he was a farmer and part time mechanic and that he purchased his tractor in the course of his business as a farmer and so as to enable him to carry out his business as a farmer.
Prior to the institution of the within proceedings by the plaintiff, correspondence setting out the respective positions of the plaintiff and first and second named defendants was exchanged. Much of the dealings as between the parties are referred to in a detailed letter sent by the second named defendant to the plaintiff’s solicitors on 29th June, 2000. This letter was in response to a series of letters from the plaintiff’s solicitors where he firstly, by letter dated 3rd April, 2000 sought the replacement of what he described as a defective engine or alternatively a new replacement tractor. In a subsequent letter dated 23rd June, 2000 a replacement tractor with an undertaking to compensate the plaintiff for all losses incurred was sought.
The second named defendant’s response to these demands as per their letter of 29th June, 2000 contained an assertion that the plaintiff’s full two year warranty had been voided due to his failure to have his tractor serviced with an approved Massey Ferguson dealer at the frequency of one service for every 250 hours of use.
The court has carefully perused the contractual documents in this case. Indeed, the only written contract is the lease agreement entered into as between the plaintiff and the third named defendant. The agreement as between the plaintiff and the second named defendant is a collateral contract and is one which is not in writing. The only two documents evidencing the terms of that collateral agreement are the Invoice bearing No. 190005 addressed to the plaintiff and the Installation and Registration Certificate dated 20th January, 1998. This latter document contains an acknowledgement by the plaintiff that he had been instructed in the operation and routine servicing of the vehicle with the only mention of a warranty being that confined to the possibility of an additional third year warranty on terms set out in the warranty manual.
In the aforegoing circumstances the court discounts any assertion made by the first and/or second named defendants that the plaintiff contractually bound himself to have his tractor serviced by an approved Massey Ferguson dealer at the intervals contended for by these defendants.
Notwithstanding the position adopted in the correspondence to the effect that the plaintiffs warranty was invalidated by his own behaviour, the second named defendant nonetheless carried out a number of repairs to the vehicle, including:
(a) Recalibration of the injectors in 1999 having, according to the second named defendant’s letter of 29th June, 2000 “diagnosed a problem with the injectors” which they associated with client’s reported lack of power.
(b) Replacement of an apparently “juddery clutch” in November 1999 and recalibration of the tractor pump which, according to the second named defendant’s letter of 29th June, 2000 was “in fact producing more than it should have been.”
(c) In February, 2000 the second named defendant changed the fuel injectors even though it was their perception at the time that the problem with the injectors was as a result of lack of maintenance and the use of contaminated fuel.
(d) In March, 2000 a new injector pump to the value of £1,500 was fitted at no charge to the plaintiff and the tractor returned to the plaintiff with the second named defendant believing that the tractor was in good working order and fully conforming to its expected horsepower.
At all stages in the course of the evidence the plaintiff maintained that he complained about the level of power available from this particular tractor from March 1998 onwards and he disputed the contention of the second named defendant that his problems in relation to the power output from this vehicle did not start until February 1999.
There is really only one issue in this particular case and that is whether or not the vehicle supplied to the plaintiff was as suggested by his counsel in his opening of his clients case, a “Monday tractor” which simply failed to perform in accordance with its specifications or alternatively whether the vehicle, in accordance with the evidence the first and second named defendants at all times operated to the manufactures specifications but did lose power a year after it was purchased due to either a lack of servicing and/or the use by Mr. Kane of contaminated fuel and/or a failure to change the oil filter.
Unfortunately, in this particular case, there is very little objective evidence which can be relied upon by the court to gainsay whether this tractor was of merchantable quality as is contended for by the defendants.
In terms of the power available from the Massey Ferguson tractor the subject matter of these proceedings the court has had the benefit of the evidence of Mr. Kane and other witnesses regarding the power produced by this vehicle under a variety of circumstances. Mr. Kane is a farmer of many years experience and I am quite satisfied that having owned a significant amount of heavy machinery over the years including a number of tractors that he would be well aware of whether or not his tractor was performing to the manufacturers specifications. Mr Kane was adamant in his evidence that when driving this tractor uphill or attaching a load that the vehicle lost power to the point that it became unfit for the purposes for which he purchased it. He states that he would expect to do 750 hours work per year with his tractor but advised the court that having purchased the vehicle on 31st January, 1998 he had only recorded 947 hours work as of May 2000.
In addition to the evidence of Mr. Kane regarding the performance of the tractor I have also heard evidence from Mr. Paul Harrington of John Kane Limited, Automotive Engineers and Assessors. He road tested this vehicle in May 2000 and found that the tractor lost considerable power particularly once the tractor was faced with any incline. He reported the tractor losing 1,200 revs from its expected 2,300 rpm on such an incline. The court further heard evidence regarding the performance of the tractor from a Mr. Owens who has a substantial concrete and farm machinery business. Mr. Owens described his business as having approximately 100 vehicles at any one time and how one of his 90hp tractors would have left the plaintiff’s 100hp engine “for dead”.
In addition to the aforementioned evidence the court also received evidence via Mr. Harrington regarding a Dyna test carried out on the tractor at the garage of D & E McHughes on 29th May, 2000 and also a similar test carried out at the request of the defendants in March 2001. Mr. Harrington has asked me to accept the findings of the Dyna test prepared on the plaintiff’s behalf which showed a significant reduction in the torque reserve of the engine. On the other hand I am advised by the defendant’s experts, including Mr. Williams, who was the inventor of the Dyna test, to conclude that the plaintiffs test results cannot be relied upon. Mr. Williams in his evidence took me through the test carried out on behalf of the first and second named defendants on 1st March 2001. He advised me that the test conditions are as specified in the document produced to the court save that one input figure i.e. that of the rated speed of the vehicle which was entered by the operator, should have read 1,100rpm rather than 1,055rpm. Re-running the calculations with this amended input he stated would produce a torque reserve result of approximately 26% which would be well within the manufacturers specifications and he advised me that this figure should replace the 10.9% figure in the printed report.
Mr. Williams also advised the court that looking at the Dyna test results carried out at the D & E McHughes Garage on behalf of the plaintiff that the documentation establishes that the engine was never run at maximum power during the test and this is why the torque backup ratio was reported as being as low as 6.8%.
The court is effectively asked to elect between the Dyna test results of 1st March, 2001 when amended in the manner suggested by Mr Williams and the evidence given to the court by three individuals , experienced in agricultural machinery, that this particular vehicle did not perform as it ought to have performed. The defendant’s test results are less than satisfactory having regard to the evidence of Mr. Williams that one incorrect input figure has led to a false recorded torque reserve of 10.9% rather than 26% which he states would have been produced had the correct “rated speed” been entered by the operator. Further, Mr. Flynn who carried out this test on behalf of the defendants had no specific recollection of the same and consequently the admissibility of these results, even if they were accurate, should not strictly speaking be permitted. It is also somewhat disarming that the first and second named defendants, in the face of this test results, which certainly suggested that the vehicle was operating far below an acceptable level, advised the plaintiff in a letter of 29th June, 2000 at para. 6 that the tractor came “well within the manufacturer specifications for power”. The test result, on the face of the print out, certainly did not suggest that this was so.
Mr. Flynn, on behalf of the first and second named defendants gave detailed evidence to the court as to his dealings with the plaintiff regarding this tractor from the date of its purchase. Mr. Flynn was adamant that he received no complaint regarding this tractor until February 1999 notwithstanding the fact that he saw the plaintiff on many occasions regarding other agricultural machinery matters. Mr. Flynn indicated that he had sold very many tractors belonging to this particular series and that none of the other tractors had the same problems with power as that experienced by Mr. Kane which his tractor. From this fact the court was asked to determine that it was Mr. Kane’s failure to use clean fuel and adequately maintain this tractor that lead to its lack of power. On the other hand Mr. Flynn maintained that at all times when the vehicle was checked it was not lacking in power and consistently performed to the manufacturer’s specifications.
Mr. Flynn’s evidence regarding the performance of the tractor when tested by his garage seemed to be at variance with the correspondence wherein the plaintiff solicitors were advised as to the extent of the repairs carried out on the vehicle, the amount of labour involved in such work and the cost of the parts replaced.
Mr. Flynn gave evidence that he did absolutely everything possible to appease Mr. Kane including giving him a replacement tractor whilst he was investigating the alleged lack of power in the tractor concerned and that all repairs and replacement parts were carried out for free. Mr. Flynn also indicated to the court that he exerted great pressure on Messrs Massey Ferguson to offer the plaintiff a new engine and he said that he had great difficulty convincing Massey Ferguson to offer a new engine given that he could not provide them with any evidence that the original engine was defective. However, eventually Mr. Flynn found himself in a position of being able to offer the plaintiff a new engine or alternatively a trade in against a newer demonstration model Massey Ferguson tractor which had more power than the one he had purchased, had air conditioning and bigger wheels subject to an additional payment of £6,000 plus VAT.
At the end of the day the court has to conclude:-
(a) Whether or not the tractor sold to the plaintiff in January 1998 did under perform so as to fail to perform to the specifications expected of that model of tractor.
(b) If it did so under perform at any period following its purchase whether or not the same was defective from the start or whether the lack of power was as a result of a failure to service the vehicle on the part of the plaintiff, his use of contaminated diesel and/or a failure to change the oil filters.
Insofar as the first issue is concerned the court prefers the evidence of the plaintiff, Mr. Owens and Mr. Harrington to the effect that the vehicle did not perform as expected for the specifications of this particular model. The court finds the defendant’s assertions that this particular vehicle at all times performed in accordance with the manufacturers representation to be in too much conflict with the extent of the repairs, labour and investigations carried out by them upon this tractor in the two years subsequent to its sale.
In relation to the second issue the court finds the defendants assertion regarding the failure on the part of the plaintiff to service the tractor, his alleged use ofcontaminated fuel and/or his alleged failure to change his oil filter to be wholly unsatisfactory and prefers the plaintiff’s evidence and that of Mr. Harrington in relation to the same.
On the assumption that the tractor was serviced, albeit not by a Massey Ferguson dealer, the only other explanation for the tractor’s failure to perform is that Mr. Kane brought about his own misfortune by using contaminated fuel in this tractor and/or failed to change the oil filters. The court does not believe that this assertion, as a matter of probability can be accepted. Firstly, the defendants had every opportunity to obtain for the court evidence that the fuel being used by Mr. Kane in this vehicle was contaminated. The letter from the second named defendant dated 29th June, 2000 refers twice to suspicions that contaminated fuel was being used. Yet no satisfactory evidence of this fact was produced to the court. No sample was taken from the fuel tanks on the Plaintiffs premises. Neither was an adequate sample taken for the purpose of testing on any of the many occasions when the tractor was in the second named Defendant’s garage for investigation or repair.
The main evidence adduced in support of the defendant’s assertion that the plaintiff used contaminated fuel was a photograph of a tank which is rusty and was taken at the plaintiffs premises many years after the events in issue in these proceedings. Notwithstanding the fact that the second named defendant was suspicious that the plaintiff’s tank had developed an internal rust problem which was causing problems for Mr. Kane’s tractor they, the second named defendants, continued to supply and deliver diesel to these tanks without any complaint or written warning knowing full well that this supply was being used for the tractor which was giving trouble. Further, the plaintiff apparently rented a tractor from Mr. Owens which he used for in excess of 300 hours and this vehicle should, if Mr. Flynn’s assertion was correct, have similarly failed to perform by reason of the use of contaminated fuel. Indeed, any vehicle being used by Mr. Kane should have encountered difficulties if the diesel supply was contaminated by rust as is alleged by the second named defendant.
The court must also wonder why the vehicle traded in by Mr. Kane against the purchase of the tractor, the subject matter of these proceedings was not similarly damaged by contaminated fuel. Further, if it was the second named defendant’s bona fide belief that all of the plaintiff’s problems with this tractor were as a result of contaminated fuel, furnishing Mr. Kane with a new engine or indeed a new tractor was not going to resolve Mr. Kane’s difficulties and hence one wonders why such offers would have been made by the defendants.
In addition to aforegoing the court noted the evidence of Mr. Harrington who stated that as far as he was concerned the fuel was not contaminated and that he did not find any fault with the oil filters on the tractor and that he had checked the same at the time of his inspection.
It seems inconceivable to this court that having been made aware of the suggestion in Mr. Flynn’s letter that contaminated fuel might have been the cause of the lack of power to the machine that Mr. Kane would have ignored this assertion and deliberately put contaminated diesel into his vehicles. Mr. Kane had invested significant funds in the purchase of this new Massey Ferguson tractor and it seems wholly unlikely to the court that he would have continued to use contaminated fuel if this fact was brought to his attention.
In all of the aforegoing circumstances the court accepts that there was an ongoing problem with the plaintiff’s tractor from early 1998 which required him to bring the tractor back to the second named defendant for regular repair. The court accepts that this lack of power was not brought about by a lack of servicing and the court accepts the plaintiff’s evidence and that of Mr. Owens that he serviced this tractor albeit perhaps not rigidly following upon each 250 hours of use. The court is further satisfied that the plaintiff did not use contaminated diesel in this tractors engine.
The court therefore concludes that the second named defendant supplied to the plaintiff a vehicle which was not fit for the purpose for which he leased the same from the third named defendant. The court concludes that the tractor was not of merchantable quality by reason of some defect in its manufacture and does not ascribe the loss of power in this vehicle to any inappropriate intervention on the part of the second named defendant whom the court commends for its efforts to appease Mr. Kane, having regard to the circumstances in which he found himself. However, this does not impact upon the liability of the second named defendant on foot of the implied warranties that it gave the plaintiff at the time he entered into his leasing agreement with the third named defendant. Consequently, the court must find liability jointly and severally as against the first and second named defendants.
Insofar as the third named defendant is concerned, the court does not propose to restate the law in relation to the Sale of Goods Act, 1980 and the Consumer Credit Act, 1995 in relation to “consumers” who are defined in both Acts so as to exclude certain categories of persons including those who enter into contractual relationships in the course of their business from certain statutory rights. The position in relation to the law in this issue is, in the opinion of this court, correctly stated by O’Neill J. in Patrick G. Flynn v. Dermot Kelly Limited and New Holland Finance (Ireland) Limited [2007] IEHC 103. This court concludes that the agreement between the plaintiff and the third named defendant for the leasing of this Massey Ferguson tractor was not a “consumer hire agreement” within the meaning of the Consumer Credit Act, 1995 as the plaintiff was hiring the goods for business use. This fact is further confirmed by the plaintiff in the terms and conditions which are attached to the lease agreement dated 18th January, 1998. For these reasons the Court holds that the Plaintiff has no claim against the Third named defendant.
Damages
In the course of the trial, evidence was led to the effect that the plaintiff had failed to make a number of payments on foot of the lease agreement entered into with the third named defendant. This being so, the court the Court needs to be appraised of the rights, if any, being asserted by the Third named Defendant regarding ownership of the tractor and /or the extent of any liability they contend remains outstanding by the Plaintiff as a condition precedent to his entitlement to ownership thereof. The Court is therefore not in a position at present to deal with the issue of damages and will need to hear all parties regarding these matters. For the purposes of dealing with the issue of damages, the court will also require evidence as to:-
1. The location of the tractor, the subject matter of the agreement and its current value.
2. The present day cost of the most similar model of Massey Ferguson tractor to that the subject matter of this claim.
Consequently, the court will deal with the issue of quantum at a time to be agreed between the parties who should, if at all possible, to avoid further unnecessary costs endeavour to reach agreement on the above matters with fairly immediate effect.
The Court will deal with the Costs of all parties after the issue of Damages has been disposed of.
Murphy -v- Allianz Plc
[2014] IEHC 692 (05 December 2014)
JUDGMENT of Mr. Justice Gilligan delivered on the 5th day of December, 2014
1. This is an application brought by the defendant, pursuant to Order 19, Rule 28 of the Rules of the Superior Courts 1986, to strike out proceedings commenced by the plaintiff on the basis that they disclose no reasonable cause of action and are bound to fail.
Background
2. The reliefs sought by the plaintiff in these proceedings refer to earlier proceedings of 2004 entitled Michael Murphy v Bri-Mo Limited and Patrick McShane. In the 2004 proceedings, the second named defendant, Patrick McShane, was a labour-only sub-contractor on a site on which Bri-Mo Limited, the first named defendant, acted as the main contractor. The plaintiff was a bricklayer employed by, and working under, the direction and supervision of Mr. McShane. On or around the 9th of January, 2004, some blocks fell from a wall on the foot of the plaintiff, causing him damage.
3. The incident of 9th January, 2004, was reported to Allianz over a year after its occurrence, on foot of which Allianz engaged with Bri-Mo’s brokers, Jardine Lloyd Thompson. By letter dated 27th May, 2005, to Bri-Mo’s brokers, Allianz noted that, as this was the first notification, it could not confirm indemnity, and it made certain inquiries in relation to the accident. By further letter dated 10th June, 2005, to Bri-Mo’s brokers, Allianz sought outstanding wage declarations under Policy Condition No. 8 and reserved its rights under the policy pending resolution of this and any other issues. During this time, Allianz also received certain correspondence from the solicitor for the plaintiff, providing information in respect of the claim and noting that the solicitors firm Fitzsimons Redmond had entered an appearance on behalf of Bri-Mo. Allianz’s request for outstanding wage declarations was repeated in a letter dated 21st March 2006 to Bri-Mo’s brokers, wherein Allianz advised that it might repudiate the claim if the broker was not resolved within 14 days. However, neither Bri-Mo nor its brokers supplied the outstanding wage declarations. By letter dated 17th May 2006, Allianz wrote to Bri-Mo’s brokers, noting that the declarations had not been furnished and confirming that it was withdrawing indemnity under the policy and that the policyholder must make its own arrangements to defend the claim of Michael Murphy. Allianz confirmed that it was closing its file in relation to the matter. Bri-Mo Limited never sought to challenge, at that time or since, Allianz’s refusal of an indemnity and repudiation of liability in respect of the plaintiff’s claim.
4. On or around 19th September, 2010, Bri-Mo was struck off the Register of Companies. By order dated the 14th of November, 2011, this Court (Ryan J.) granted the plaintiff judgment in default of defence against Bri-Mo with the amount of damages to be assessed before a judge without a jury.
Submissions
5. I think it is appropriate at this juncture to deal with submissions in a thematic way in order to properly reflect on the issues raised.
Section 62 of the Civil Liabilities Act, 1961
6. The plenary summons of the plaintiff, dated 15th May, 2012, seeks five substantive reliefs: the first two substantive reliefs seek respectively a declaration and an order pursuant to s. 62 of the Civil Liability Act 1961 that such damages and costs as may be awarded to the plaintiff in the 2004 set of proceedings against Bri-Mo Ltd. and Patrick McShane constitute monies payable to the plaintiff in a discharge of a valid claim which the defendant is obliged, under the terms of an insurance policy between it and Bri-Mo Ltd., to pay the plaintiff; the third, fourth and fifth substantive reliefs seek damages for breach of statutory duty, breach of contract and negligence and negligent misstatement and/or misrepresentation and breach of duty, respectively.
7. Counsel for the defendant submits that, insofar as s. 62 of the Civil Liability Act 1961 is concerned, the plaintiff’s claim discloses no reasonable cause of action and/or is bound to fail for two reasons:
(A) Firstly, s. 62, on its terms, applies only where a person who has effected a policy of insurance in respect of liability for a wrong “if an individual becomes bankrupt or dies or, if a corporate body is wound up, or if a partnership or other unincorporated association is dissolved.” In this case counsel submits, Bri-Mo, a corporate body, had affected a policy of insurance with Allianz. However, while Bri-Mo was struck off the Register of Companies in 2010 for failure to file annual returns, it was not wound up, either voluntarily or by order of this Court. Thus, the defendant submits that s. 62 of the civil liability act 1961 has no application to these proceedings because Bri-Mo Ltd. is not now and never was in liquidation. It is clear from oral submissions as made to the Court that the plaintiff has no fixed intention to wind up Bri-Mo Ltd. The defendant argues that the plaintiff has taken no steps to place the company in liquidation either since the institution of these proceedings on 15th May 2012 or since the restoration of the company to the register on 25th November, 2013. The defendant argues that the liquidation of Bri-Mo Ltd is not a mere technical requirement that might be overlooked at the discretion of the parties or the Court. It is a fundamental precondition to the insurer’s liability under s. 62 of the Civil Liability Act 1962. On this basis alone, the defendant submits that the proceedings ought to be struck out. For this reason, counsel for the defendant contends that s. 62 of the Act of 1961 does not apply in this case.
(B) Further, s. 62 goes on to provide that “monies payable to the insured under the policy shall be applicable only to discharging in full all valid claims against the insured in respect of which those monies are payable…” Mr. McShane did not hold employer’s liability insurance. However, Bri-Mo maintained employer’s liability insurance with Allianz under a Combined Construction Policy. Policy Condition No. 8, entitled ‘Premium Adjustment,’ requires the insured party to supply certification of wages, salaries, and other earnings or of turnover for the period of insurance within 90 days of the expiry of the said period and provides inter alia that, if this is not supplied, Allianz will not provide any indemnity for bodily injury which might otherwise be the subject of an indemnity. As set out by Policy Condition No. 1, the observance and fulfilment of the terms and conditions of the policy are conditions precedent to any liability on the part of Allianz to make any payment under the policy. As such, counsel for the defendant submits that due to the failure of Bri-Mo to observe the condition precedent under Policy Condition No. 8 relating to the supply of wage certification, Allianz was entitled to, and did in fact, refuse an indemnity and repudiated liability in respect of the plaintiff’s claim against Bri-Mo under the relevant policy of insurance. Bri-Mo never, at the time of repudiation or since, has challenged the said refusal of indemnity and repudiation of liability. Counsel argues that the plaintiff cannot now go behind that decision. The only party entitled to challenge that decision would have been Bri-Mo itself and even that party could not do so at this juncture, over seven years after it was made.
8. The defendant also submits that there is no contract or contractual nexus between the parties which could found a claim for damages for breach of contract. Further, it is submitted that the defendant owes no duty of care to the plaintiff. Counsel relies on the case of Hu v Duleek Formwork Ltd. (In Liquidation) and Aviva [2013] IEHC 50 in this regard. Having considered certain classes of relationship where a duty of care had been found to exist on the basis of sufficient proximity, such as the duty of a solicitor to a beneficiary under a will, Peart J. stated at paragraph 20:
“But I know of no case where the Courts have found a duty of care to exist between an insurance company and a potential claimaint against the insured party, and have been referred to none. It would not be right in the present case in such circumstances to extend the law that far, so as to find that the plaintiff might reasonably argue his claim against Aviva under the law of negligence.”
9. Counsel for the plaintiff submits that the defendant’s notice of motion should be struck out and the plaintiff be allowed to proceed with his action. Following the authority of McCarron v Modern Timber Homes Ltd (In Liquidation) & Ors [2012] IEHC 530 counsel states that it is clear from the judgment of Kearns P. that the plaintiff has adopted the entirely correct procedure in first seeking judgment as against his employer Bri-Mo Ltd. before seeking redress against Allianz as Bri-Mo’s insurer. In McCarron, Kearns P. held that it was inappropriate to join an insurer in proceedings until the primary claim as against the employer had been determined. Thus the plaintiff’s case against Allianz could only proceed upon determination of the primary claim against Bri-Mo Ltd. That claim has been duly determined in the plaintiff’s favour with only the matter of the assessment of damages being outstanding. Counsel argues that Allianz, being aware of the original proceedings against Bri-Mo Ltd. could have applied to be joined as a party to those proceedings but it chose not to) The claim against Allianz should now proceed in order to establish their liability to pay those damages.
10. Moreover, counsel for the plaintiff argues that given the serious nature of the application of Allianz for Mr. Murphy, effectively terminating the possibility of his recovering compensation for his injuries by way of these proceedings, Mr. Murphy is entitled to have the evidence adduced by Allianz tested in the normal way. Mr. Murphy should be entitled to cross-examine a witness from Allianz as to whether the policy being relied on by Allianz to see whether or not the policy was entered into and whether the terms and conditions were furnished to Bri-Mo Ltd or its broker. In addition, in the course of these proceedings, Mr. Murphy will seek third party discovery from Bri-Mo Ltd and its broker (if any) and any other relevant parties which evidence may strengthen the plaintiff’s case. Counsel argues that it would be premature and an unwarranted intrusion on the plaintiff’s right to litigate to dismiss this claim at this time.
Repudiation of indemnity
11. Fundamentally, the plaintiff challenges the repudiation of the insurance claim by Allianz on three main grounds:
(1) That the correspondence exhibited by the defendant constitutes hearsay;
(2) That there is no evidence of JLT’s role or of communication with BRI-MO directly;
(3) And that the repudiation was not a valid one because the condition invoked did not entitle Allianz to repudiate
12. Counsel for the plaintiff submits that no evidence has been exhibited to show that Bri-Mo Ltd. were ever informed of or knew about any repudiation of indemnity. No evidence has been exhibited to show that Jardine Lloyd Thompson (“JLT”), acting as broker for BRI-MO Limited, were ever informed of or knew about any repudiation. No evidence has been exhibited to show that Allianz were entitled to ignore Bri-Mo Ltd in dealing with the matter the way they did. No evidence has been exhibited to show that there were valid grounds for any repudiation in the first place.
13. The plaintiff further submits that the difficulty that the plaintiff has is that Allianz is seeking to avoid its direct liability to Bri-Mo Ltd and its contingent and indirect liability to Mr. Murphy by relying on a clause to repudiate its policy with Bri-Mo Ltd. In fact, the plaintiff argues, the legal position is that the clause being relied on by Allianz does not entitle to it and would not entitle it to repudiate its policy to Bri-Mo Ltd or its ultimate contingent liability to Mr. Murphy.
14. In response, the defendant argues that there can be no real dispute about the repudiation of the claim in this case and that the evidence before the Court confirms that the claim was validly repudiated. The defendant points to the correspondence between JLT and Allianz – which has been exhibited behind the affidavits of Ms Helen Rackard (solicitor for the defendant) and, most recently, behind the affidavit of Paul Griffin (claim’s handler in defendant company) – which the defendant claims puts the position beyond doubt. Counsel submits that the correspondence confirms that BRI-MO Ltd at all times acted through its broker JLT; that the claim was first notified on 20th May, 2005, over 16 months after the accident occurred, and over a year after the plaintiff had initiated his proceedings; that Allianz at all times reserved its position in respect of policy indemnity; that Allianz sought, on a number of occasions over the course of almost a year, outstanding declarations in respect of wages which were required under the policy but that these were never furnished; that eventually, after affording the insured every opportunity to comply with this requirement, Allianz repudiated the claim on this basis; and that there was no response, still less a challenge, to the repudiation from either BRI-MO or its broker, JLT.
15. In response to the statements of Mr. Adrian Ledwith’s (solicitor for the plaintiff) affidavit, supporting the contention that the policy was not validly repudiated by Allianz, the defendant submits that these statements simply speculate or suggest uncertainty about the modalities of repudiation. There is no denial of the repudiation or the basis of repudiation as such by Mr Ledwith. There is no suggestion that the repudiation was ever challenged by or on behalf of Bri-Mo.
16. The defendant submits that the plaintiff simply has no standing or authority to make these arguments challenging the repudiation of the claim because there is no privity of contract between Allianz and the plaintiff. If the repudiation were to be challenged, it is submitted by the defendant, it is the insured (Bri-Mo Ltd.) which would have the necessary standing and authority to challenge it. However, even an insured would have to do so in a timely fashion. It is submitted by counsel for the defendant that such a claim at this remove would not only be impermissible under the policy (policy condition no. 11 provides that “claims not referred to arbitration within 12 calendar months from the date of disclaimer of liability shall be deemed to have been abandoned”) but it would also clearly be statute-barred (Section 11(1) (a), Statute of Limitations Act 1957.) It is further submitted by counsel that there is no basis in law for permitting a third party to challenge a repudiation of a claim for indemnity some eight years after the repudiation took place.
17. The plaintiff takes issue with the role of Jardine Lloyd Thompson and the failure to communicate the repudiation to Bri-Mo Ltd directly. As requested by the Court, the defendant submitted that it has placed all communications in relation to this claim between Allianz and the solicitor for the plaintiff before the Court in chronological order in the affidavit of Mr. Paul Griffin. The defendant further contends that it is abundantly clear from the evidence before the court that JLT at all times acted as broker and agent for Bri-Mo Ltd.
18. In relation to the policy condition at paragraph 1, the plaintiff contends that an obligation to return an “auditor’s certificate” in respect of “wages, salaries and other earnings and/or turnover” within “90 days of the expiry of each period of insurance” is an event which simply cannot occur before the policy itself comes into effect. It is therefore argued that it is not a condition precedent to the validity of the policy. Counsel argued that this term of the policy could not be and could not have been a condition precedent either to the policy coming into effect or the obligation to pay out on foot of the policy. It is clear, the plaintiff suggests, on its true construction, that this is a “condition subsequent” or a “collateral stipulation.”
19. The plaintiff seeks to rely on the judgment of the English Court of Appeal in Re Bradley v Essex and Suffolk Accident Indemnity Society [1912] 1 KB 4 & 5. In this case, there was a clause making “observance and fulfilment” of the policy conditions a condition precedent to any liability. The plaintiff in this case was a farmer. His proposal form indicated that there were one or two employees. Condition 5 of the policy required the insured to keep a wages book and required him to furnish a correct account to the insurance company. The wages book was not kept. Cozens-Hardy M. R. held:
“I think the fifth condition is one and entire, and it is to my mind unreasonable to hold that one sentence in its middle is a precedent while the rest of the condition cannot be so considered. A policy of this nature, in case of ambiguity or doubt, ought to be construed against the office and in favour of the policy-holder, and it seems to me unreasonable to hold that the office can escape from all liability by reason only of the omission to duly record in a proper wages book the name of every employee and the amount of his wages. This is only required for the purpose of the statement which, by the proposal, the insured agreed to render at the end of each period of insurance. In my opinion, it ought not to be regarded as in any sense a condition precedent, and it follows that, in my opinion, the appeal fails and must be dismissed with costs.”
20. The plaintiff submits that this authority lends substantial support to the plaintiff’s claim. It is submitted that, on any analysis, it renders the plaintiff’s claim that the policy has not be repudiated as, at an absolute minimum, a viable claim. The plaintiff contends that there is no evidence before the court that the policy was ever sent to Bri-Mo Ltd and there is no evidence that BRI-MO Ltd was ever notified that anything was outstanding. The letters to Jardine Lloyd Thomas referred to “declarations” on 10th June 2005 and “outstanding wage declarations,” on 23rd March, 2006. At no time is there reference to the actual condition being relied on or to the allegedly outstanding “auditor’s certificate.” The plaintiff submits that the letter reporting to repudiate the policy, dated 17th May, 2006, referred to outstanding “audited wage declarations” rather than an outstanding “auditors’ certificate.” The plaintiff submits that the repudiation, even on its own terms, was defective.
21. The plaintiff further relies on the judgment of the English Court of Appeal in George Hunt Cranes Limited v Scottish Boiler and Insurance Company Limited [2002] 1 All ER (Comm) 366. This judgment has been noted in Buckley on Insurance Law (3rd Editions at paragraphs 538-539.) There, the author noted that “a blanket classification of a series of terms as ‘conditions precedent’ was to be viewed with suspicion and each terms had to be considered separately.” The plaintiff submits that the term of the policy is not a condition precedent but was either a mere warranty or a collateral stipulation.
22. Alternatively, the plaintiff submits that the identified condition relied upon by Allianz was, if not a mere condition or collateral stipulation, a condition subsequent. The plaintiff contends that it is clear that the policy was effective as of the date of Mr. Murphy’s accident on 9th January, 2004. When the claim was notified to Bri-Mo Ltd on 11th March, 2004, the plaintiff argues that the policy was effective and subsisting. The plaintiff states that the complaint about an outstanding “auditors’ certificate” could not have arisen until 90 days after, until March 2005 i.e. 90 days after the conclusion of the relevant insurance period. The plaintiff submits that it would be illogical that Allianz have an ongoing liability to Bri-Mo Ltd from January 2004 to March 2005 and then it disappeared. That would be to operate as a retrospective invalidity. There is no provision for that in the contract.
23. The judgment of Kearns J. in McCarron v Modern Timber Homes Limited (Kearns J, 3rd December 2012) was delivered after the plaintiff issued his proceedings. The plaintiff argues that it would appear from this decision that the Court held that the Statute of Limitations does not run against a plaintiff seeking to rely on s. 62 of the Civil Liability Act 1961 until the insured company has been put into liquidation and damages have been assessed. In these circumstances, the plaintiff argues that the issuing of proceedings by Mr. Murphy was necessary and prudent. These proceedings ought to be seen as a “protective writ” in that regard, the plaintiff argues, and it should be noted that the proceedings were issued two days before the expiry of six years from the date of the purported repudiation of the policy.
24. In relation to the plaintiff’s reliance on Bradley v Essex & Or [1012] 1 KB 4 & 5 in submitting that Allianz was not entitled to repudiate because the condition relied upon was not, or ought not to have been, a condition precedent, counsel for the defendant submits that this authority is of no assistance to the plaintiff. Firstly, it is argued that Bradley is entirely distinguishable from the present case because the challenge to the refusal of an indemnity was taken by the insured himself against the insurer and in a timely fashion. In this instant case, the defendant submits that there is simply no privity of contract between the plaintiff and Allianz, and the challenge is being made some eight years after the repudiation. Secondly, the defendant submits, the condition precedent in Bradley is in any event distinguishable from the condition at issue in these proceedings, Policy Condition No. 8. This condition explicitly provides, at (b) (ii), that “should the insured fail to supply such auditors’ certificate in accordance with this Condition then the company will not provide any indemnity for any bodily injury nuisance or loss of or damage to material property which might otherwise be the subject of indemnity under this policy in the period of insurance for which the auditors’ certificates remain outstanding.” The defendant submits that the consequences of non-compliance with Policy Condition No. 8 in this case could not have been set out in clearer terms in the provision.
25. In the plaintiff’s supplemental submissions, it is stated that, in having purported to repudiate its policy with Bri-Mo Ltd, Allianz “has behaved in an opportunistic manner.” In the affidavits filed on its behalf, it is suggested that Allianz gave the plaintiff an undertaking which it failed to honour and that, had the plaintiff been advised of the repudiation, “the plaintiff’s case would have been dealt with in an entirely different manner” (Second affidavit of Adrian Ledwith sworn on 15th May 2014.) However, counsel for the defendant argues that none of this is borne out by the facts before the Court. The plaintiff initiated the proceedings on 29th April 2004. By the time the claim was notified to Allianz in its capacity as Bri-Mo’s insurer, Bri-Mo had already instructed solicitors, Fitzsimons Redmond, to act on its behalf in respect of the proceedings. The statement of claim was delivered to the first named defendant in late 2007 and to the second named defendant in early 2008. Solicitors entered an appearance on behalf of Mr McShane on 25th June, 2008. In January 2010, Fitzsimons Redmond informed the plaintiff’s solicitor that Allianz was not providing an indemnity. In July 2010, Fitzsimons Redmond informed the plaintiff’s solicitor of their intention to come off record. Between May 2005 and July 2010, Bri-Mo had solicitors on record for it in the proceedings with whom the plaintiff’s solicitor dealt directly. On or around 19th September 2010, Bri-Mo was struck off the Register of Companies. It was not until 14th November 2011 that the plaintiff obtained judgment in default of defence against Bri-Mo Limited, well over 7 years after initiating the proceedings. The plaintiff does not appear to have pursued Mr McShane, who was his direct employer, and has offered no explanation for not doing so. It was only some months after he obtained judgment in default of defence against Bri-Mo, in March 2012, that the plaintiff’s solicitor sought to re-engage with Allianz, which, counsel alleges, he had known for some time, had long since repudiated the claim. While it is for the plaintiff to explain why the proceedings were advanced in this manner, and why the plaintiff’s solicitor never engaged with Allianz from 18th January 2006 until March 2012, it is implausible for the plaintiff or his solicitor to suggest, in the context of this motion, that the responsibility for the manner in which the proceedings have been conducted like with Allianz. The plaintiff’s claim, insofar as it subsists, is against Bri-Mo Limited and Mr McShane, not Allianz, the defendant submits.
26. In respect of the claim, as appears from the correspondence between Allianz and JLT, notwithstanding the late notification of the claim on behalf of Bri-Mo, Allianz investigated the claim and engaged with both Bri-Mo and the plaintiff’s solicitor in this regard. However, despite being afforded every opportunity to submit the required documentation over the course of almost 12 months, Bri-Mo failed to furnish the necessary auditor’s declarations in respect of wages required under policy condition no. 8. For this reason, Allianz eventually repudiated liability in respect of the claim on 17th May 2006.
27. In respect of these proceedings, when Mr Ledwith re-engaged in correspondence with Allianz in March and April 2012, Allianz confirmed the refusal of indemnity to him under cover of letter dated 25th April 2012. Although the plaintiff’s solicitor knew of the repudiation since at least 2012, the plaintiff’s solicitor nonetheless threatened proceedings against Allianz, which then issued on 15th May 2012. Despite issuing the proceedings, and Allianz’s entry of an appearance on 30th May 2012, no statement of claim has ever been delivered and no steps whatsoever were taken in relation to the proceedings. Having received no response to correspondence from solicitors for the defendant to the plaintiff’s solicitor asking that proceedings be discontinued, the defendant thereafter issued this motion to strike out the proceedings.
28. Counsel for the defendant argues that at the time these proceedings were instituted, on 15th May, 2012, the plaintiff’s solicitor was, or ought to have been, aware that Bri-Mo was not and never had been in liquidation. The plaintiff’s solicitor was also aware, from at least January 2010, that Bri-Mo’s claim for an indemnity had been repudiated by Allianz. In the circumstances, it is argued by the defendant, the plaintiff’s solicitor was, or ought to have been, aware that the plaintiff had no valid cause of action against Allianz. Notwithstanding this knowledge on the plaintiff’s solicitor’s part, proceedings were threatened and then issued on behalf of the plaintiff against Allianz. Having taken no steps in the proceedings since they issued on 15th May 2012, and having failed to comply with its obligation to deliver a statement of claim, the plaintiff now seeks to resist this motion to strike out on the basis that the plaintiff might now proceed to have damaged assessed against Bri-Mo and have Bri-Mo placed in liquidation. The defendant concludes by saying that in the interests of the efficient use of court time, the proceedings should have been discontinued following the letter from the solicitors for the defendant dated 27th January 2014.
Hearsay Evidence
29. Counsel for the plaintiff argues that that affidavit of Ms. Rackard is almost entirely comprised of hearsay evidence. Ms. Rackard’s averments represent out of court statements from employees of Allianz or they are relying on documents which would have to be proved by an employee of Allianz. In that regard, the plaintiff notes the recent judgment of O’Malley J. in Ulster Bank Ireland Limited v Darmody [2014] IEHC 140 where she upheld the well-established proposition that an employee of a related company could not give evidence as to the books and records of that company in proceedings. O’Malley J. placed reliance upon The Criminal Assets Bureau v Hunt [2003] 2 IR 168.
30. In response, counsel for the defendant argues that it is specifically provided in article 40, rule 4 of the Rules of the Superior Courts, and well-established in the practice of the Courts, that hearsay may be included in affidavits in interlocutory applications. In this case, Ms. Helen Rackard has exhibited the correspondence and other documents, including the policy, from her client’s file. This documentation speaks for itself and it is hearsay only on the most technical sense. Insofar as the plaintiff relies on the decision of O’Malley J. in the High Court in Ulster Bank v Dermody [2014] IEHC 140, it is submitted by the defendant that this decision concerned the very different issue of the admissibility of banking records and, in any event, arose in the context of an application for summary judgment, as opposed to an interlocutory application in plenary proceedings.
Application to “Stay” Proceedings
31. Counsel for the plaintiff, in its oral and supplemental submissions, argues that conflicts in evidence between parties are to be resolved in favour of the party against whom a dismissal is sought (CNN v Butterley [1997] 1 ILRM 28 and Mehta v Marches The High Court 5 March 1996.) Applying this legal tenet to the application of Allianz, counsel argues that it is clear that there is a factual contest as to whether Allianz in fact sought any information from Bri-Mo Ltd and there is a further contest as to whether Allianz or Jardine Lloyd Thompson communicated Allianz’s information requirements to Bri-Mo Ltd or warned Bri-Mo Ltd of the potential repudiation. These matters are clearly and directly in dispute. The Courts have established that a claim should not be dismissed where a stay of proceedings might afford a fair resolution for the parties.
32. It is submitted by the defendant that this is not an appropriate case in which to grant a stay of proceedings for the following reasons:
(1) As things currently stand, the plaintiff has no cause of action against Allianz;
(2) While the plaintiff now seeks a stay on the basis that it would proceed to seek an assessment of damages and to place Bri-Mo in liquidation, the plaintiff has not offered any undertaking to the Court in this regard;
(3) Even if such an undertaking were offered at this late stage, it is appropriate to have regard to the fact that the plaintiff has taken no steps on either front since he obtained judgment in default of defence on 14th November, 2011, almost two and a half years ago, and since he initiated these proceedings on 15th May, 2012, over two years ago;
(4) The plaintiff has also failed to comply with the Rules of the Superior Courts by failing to deliver a statement of claim. Indeed it is suggested that, having initiated the proceedings, a statement of claim could not be drafted and delivered “pending advices from Allianz as to why they were repudiating liability and their failure to provide this information”;
(5) Even if the plaintiff sought an assessment of damages and placed Bri-Mo in liquidation at this stage, he would still face the fundamental difficulty that he has no valid claim in respect of which moneys are payable within the meaning of s. 62 of the Civil Liability Act 1961 because the claim under Bri-Mo’s policy has been validly repudiated over eight years ago;
33. For all these reasons, and in light of the broader circumstances in which the proceedings have been instituted, it is submitted by the defendant that this is an appropriate case for the exercise of the Court’s sparingly used jurisdiction to strike out proceedings. In circumstances such as the instant case, it is clear from the two recent authorities of this Court, Richard McCarron v Modern Timber Homes Ltd (In Liquidation) & Ors [2012] IEHC 530 and Hu v. Duleek Formwork Ltd. (In Liquidation) and Aviva [2013] IEHC 50, that the appropriate course of action where there is no valid cause of action is to strike out the proceedings entirely.
Conclusion
34. The jurisdiction to strike out proceedings can arise in two ways, which are clearly set out in the seminal judgment of Costello J. in Barry v. Buckley [1981] 1 I.R. 306. First, Order 19, rule 28 of the Rules of the Superior Courts permits the Court to strike out any pleading “on the ground that it discloses no reasonable cause of action…” or, in the case of the action being shown by the pleadings to be frivolous or vexatious, permits the Court to stay or dismiss the action. Secondly, apart from Order 19, rule 28, “the Court has an inherent jurisdiction to stay proceedings”, a jurisdiction which “exists to ensure that an abuse of the process of the Court does not take place”. 3 Costello J. continued:
“This jurisdiction should be exercised sparingly and only in clear cases; but it is one which enables the Court to avoid injustice, particularly in cases whose outcome depends on the interpretation of a contract or agreed correspondence. If, having considered the documents, the Court is satisfied that the plaintiffs case must fail, then it would be a proper exercise of its discretion to strike out proceedings whose continued existence cannot be justified and is manifestly causing irrevocable damage to a defendant.”
35. In Sun Fat Chan v Osseous Ltd [1992] 1 IR 425, the Supreme Court (McCarthy J.), after referring to Barry v. Buckley, commented:
“… By way of qualification of the jurisdiction to dismiss an action at the statement of claim stage, I incline to the view that if the statement of claim admits of an amendment which might, so to speak, save it and the action founded on it, then the action should not be dismissed.
Generally, the High Court should be slow to entertain an application of this kind and grant the relief sought.
Experience has shown that the trial of an action will identify a variety of circumstances perhaps not entirely contemplated at earlier stages in the proceedings; often times it may appear that the facts are clear and established but the trial itself will disclose a different picture. With that qualification, however, I recognise the enforcement of a jurisdiction of this kind as a healthy development in our jurisprudence and one not to be disowned for its novelty though there may be a certain sense of disquiet at its rigour. The procedure is peculiarly appropriate to actions for the enforcement of contracts, since it is likely that the subject matter of the contract would, but for the existence of the action, be the focus of another contract.”
36. These principles have been consistently upheld in the Superior Courts of Ireland and most recently in the Supreme Court judgment of Clarke J. in Lopes v. Minister for Justice, Equality and Law Reform [2014] IESC 21 at paras. 2.3 – 2.9, which judgment succinctly deals with the distinction between the inherent jurisdiction and the jurisdiction under the Rules of the Superior Courts, and the entitlement of this Court acting under its inherent jurisdiction to look beyond the pleadings to the facts of the case which have been placed before the court. This Court accepts that the jurisdiction involved is one to be used sparingly.
37. The central issue in my view in this matter is the application of s. 62 of the Civil Liability Act 1961, which states:-
“Where a person (hereinafter referred to as the insured) who has effected a policy of insurance in respect of liability for a wrong, if an individual, becomes a bankrupt or dies or, if a corporate body, is wound up or, if a partnership or other unincorporated association, is dissolved, moneys payable to the insured under the policy shall be applicable only to discharging in full all valid claims against the insured in respect of which those moneys are payable, and no part of those moneys shall be assets of the insured or applicable to the payment of the debts (other than those claims) of the insured in the bankruptcy or in the administration of the estate of the insured or in the winding-up or dissolution, and no such claim shall be provable in the bankruptcy, administration, winding-up or dissolution.”
38. It is in my view quite clear that in order for the plaintiff to be in a position to succeed under s. 62 of the Civil Liability Act 1961, the insured company must, in this instance, be wound up and secondly, monies payable to the insured under the policy shall be applicable only to discharge in full all valid claims against the insured in respect of which monies are payable.
39. The factual situation which is not contested is that the insured, in this instance Bri-Mo Ltd, is not now and never has been in liquidation and despite the submissions as made by counsel on behalf of the plaintiff in an effort to circumvent the factual situation that prevails, in my view it is a basic principle for the plaintiff to set up its case that Bri-Mo Ltd would have to be wound up. Accordingly, the facts of this case do not bring the plaintiff within the provisions of s. 62 of the Civil Liability Act 1961, and on this principal basis alone it is the view of this Court that the plaintiff’s case cannot succeed and is, in effect, doomed to failure.
40. In respect of the subsidiary argument that even if Bri-Mo Ltd was in liquidation, again to set up the plaintiff’s case he would have to satisfy the court that he was entitled to monies payable to the insured under the policy and I am satisfied, having regard to the particular circumstances of this case, that the claim that was brought in respect of the plaintiff’s injury was validly repudiated by the defendants over seven years previously and that the solicitors for the plaintiff were aware of this fact from at least January, 2010. furthermore, the repudiation was never challenged by the insured.
41. Further, in this regard, in McCarron v. Modern Timber Homes Limited & Ors , Kearns P. stated that it has long been established that an insured person’s rights of indemnity under a policy of insurance against the liability to third parties does not arise under the existence and amount of his liability to the third party is first established either by action, arbitration or agreement, and that a valid claim can not be so characterised until liability has been established against the employer and the quantum of the claim assessed.
42. In Hu v. Duleek Formwork Limited (in liquidation) & Aviva [2013] IEHC 50, this Court (Peart J.) considered in some detail the provisions of s. 62 of the Civil Liability Act 1961, and stated:-
“I am satisfied in this case that the plaintiff has no privity of contract with Aviva. That is very clear. He cannot seek to enforce the contract of insurance as between the first named defendant and Aviva, especially in circumstances where he does not dispute that the excess payment was a condition precedent to liability under the policy, and does not dispute that the excess payment was requested to be paid and was not paid. Monies are therefore not payable to the insured under the policy. If there was some arguable doubt still existing as to whether or not Aviva was entitled to repudiate liability, then the judgment of the Supreme Court in Dunne v. P.J. White & Co. Ltd [supra] could be of assistance, given the remarks of Finlay C.J, albeit obiter in his judgment, that the onus fell upon the insurer to prove what it was alleging, namely that it was entitled to repudiate liability. But that issue is not live in the present case on the evidence which has been adduced. In my view, s. 62 of the Act of 1961 does not provide the plaintiff with a remedy in this case against Aviva.”
43. Accordingly, I am satisfied that even if Bri-Mo Ltd was in liquidation, the plaintiff’s claim would still be unsustainable because it does not constitute a valid claim against the insured in respect of which monies are payable under the policy of insurance, particularly by reason of the fact that the quantum of the insured liability has not been assessed.
44. There is no privity of contract between the defendant and the plaintiff in these proceedings, and the defendant owes no duty at law under contract, statute or in tort to the plaintiff such as might give rise to a claim against it in damages.
45. Issue was taken with the content of the affidavit of Ms. Rackard, solicitor for the defendants, on the basis that the averments as therein contained were based on and contained matters of hearsay evidence. Counsel for the plaintiff took the view that the documents should be proved and made reference to the recent judgment of O’Malley J. in Ulster Bank Ireland Limited v. Darmody [2014] IEHC 140. The issue, however, in the matter before O’Malley J. centred on the well established proposition that an employee of a related company cannot give evidence as to the books and records of that company in proceedings, and further reliance was placed on The Criminal Assets Bureau v. Hunt (the Supreme Court, 18th March, 2003).
46. I take the view relying on the specific provisions in Article 40, r. 4 of the Rules of the Superior Courts that it is the well established practice of the Superior Courts that hearsay evidence may be included in affidavits in interlocutory applications, and in this particular instance all that Ms. Rackard has done is exhibited correspondence and other documents, including the relevant policy of insurance from her client’s file which documentation, in my view, effectively speaks for itself and can only be described as hearsay in the most technical sense. In an application such as is presently before the court, in accordance with the Rules of the Superior Courts and well established practice, I take the view that this Court is entitled to have regard to the content of Ms. Rackard’s affidavit, albeit based on hearsay evidence and to attach such weight to the evidence as the court in the exercise of its discretion deems appropriate. The situation that arises in this case, having regard to the particular material referred to, would clearly not warrant the costs involved in having several different parties swear affidavits in respect of documents such as the defendant’s policy of insurance which, in any event, is not disputed. Accordingly, I do not consider that there is any merit in the objection as raised on the plaintiff’s behalf in this regard.
47. As regards the proposal on the plaintiff’s behalf that the proceedings be stayed I prefer the arguments as advanced on the defendant’s behalf and do not consider that there is any merit in granting a stay, particularly having regard to the conclusion I reach herein, in relation to s. 62 of the Civil Liability Act 1961 and the passage of time since the cause of action herein arose.
48. In my view the particular circumstances of this application warrant the exercise of the sparingly used jurisdiction of the court to strike out proceedings. Section 62 of the Civil Liability Act 1961, has no application in the particular circumstances that arise, and for the reasons as set out herein in my view the plaintiff’s claim as against the defendant is doomed to failure and accordingly, pursuant to O. 19, r. 28 of the Rules of the Superior Courts the plaintiff’s claim will be struck out on the ground that the proceedings disclose no reasonable cause of action and further, there will be an order pursuant to the inherent jurisdiction of the court striking out the proceedings on the ground that they are bound to fail.
Ulster Bank Commercial Services Ltd v. Trade Credit Brokers Ltd. & Ors
[2003] IEHC 42 (4 July 2003)
There are two interlinked motions before the Court;
1. By notice dated the 14th May, 2002 the second named defendant (NCM) seeks orders pursuant to O. 19, r. 28 of the Rules of the Superior Courts, 1986 or pursuant to the inherent jurisdiction of the Court dismissing (a) the plaintiff s claim against NCM and (b) the first named defendant’s claim for contribution and indemnity against NCM on the grounds that both claims disclose no reasonable cause of action against NCM and are bound to fail.
In the alternative NCM seeks an order directing the trial of certain issues of law as issues preliminary to the trial of the substantive proceedings herein.
2. By notice dated the 26th day of February, 2003 the plaintiff seeks an order pursuant to O. 28 r. 1 of the Rules of the Superior Courts, 1986 giving the plaintiff liberty to amend its pleadings so as to include a claim against NCM for monies or damages allegedly due and owing to the plaintiff by NCM on foot either of an agreement entered into between NCM and the third defendant (Nakosta) as the
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authorised agent of the plaintiff or alternatively on foot of a constructive trust in favour and for the benefit of the plaintiff.
FACTS
By an agreement in writing dated the 29th day of February, 1996, the plaintiff entered into a factoring agreement with Nakosta whereby the latter agreed to sell and the plaintiff agreed to purchase certain debts (called “receivables”) on particular terms and subject to particular conditions including a condition which required Nakosta to take out a credit insurance policy which would enable Nakosta to recover 85% of any loss which it might sustain arising out of the insolvency of any of the debtors who were the subject of the factoring agreement. It provided further that such insurance policy was to be “endorsed to” the plaintiff.
Pursuant to its obligations under the factoring agreement Nakosta entered into a contract of insurance (No. IST/832901) whereby NCM agreed to provide Nakosta with insurance cover in the terms of its “Commercial Risks Policy” for the period from the 1st March, 1996 to the 28th February, 1997. The first defendant (TCB) was the insurance broker appointed by Nakosta to procure the insurance policy on its behalf.
The following terms of the policy are relevant and have been relied upon by NCM in support of its contentions:
1. Article 4.E which provided that “[W]e have shall have no liability where you sustain a loss but have not complied with the terms and conditions of the credit limit or where you have not established a credit limit before the insolvency occurs.”
2. Article 5.A which provided that “[Y]ou must declare to us the value of all goods delivered or services invoiced under the contracts to which the policy
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applies using the form we will provide. Where appropriate a nil declaration must be submitted. Declarations must be returned to us by the time we specify.”
3. Article 10 which provided that “[Y]ou cannot assign or transfer this policy or any of its benefits without our prior written consent. You may however require claims payments to be made to a named loss payee, using the form we will provide, your obligations under the policy remaining unaffected.”
4. Article 13 which provided that “[P]ayments of all premiums in full at the time we require, and the due performance and observance of every stipulation or the proposal, shall be conditions precedent to any liability on our part. In the event of any breach of any condition precedent we also have the right to retain any premium paid and to give written notice terminating the policy.”
5. Article 18 which provided that “[A]ny misrepresentation, whether fraudulent or otherwise or fraudulent conduct on your part (or on the part of any other person who has a legal or beneficial interest in the policy or its proceeds (in relation to this policy including the proposal) to any claim under it or to any contract to which the policy applies, will render the policy void but we may retain any premium paid and you will be liable to refund to us any payment we may have made under the policy.”
6. Article 21 which provided that “[T]his policy shall be governed by and construed in accordance with English law and be subject to the jurisdiction of the English courts.”
It is agreed and acknowledged by all of the parties to these proceedings that the relationship between NCM and Nakosta is and remains for the purposes of these proceedings regulated by English law and that the transactions between them
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will, pursuant to the terms of the policy be governed by the principles and tenets of English Law.
On the 16th of April 1996 the plaintiff was appointed by Nakosta as a “loss payee” under the policy of insurance This authorised and requested NCM to pay any moneys which were payable to Nakosta under the policy to the plaintiff. The nomination of the plaintiff as a loss payee was effected by means of Nakosta completing and executing a form entitled “Nomination of Loss Company Payee” which provided inter alia that Nakosta authorised and requested NCM to pay to the plaintiff “the whole of the moneys payable to us under any capital or relevant Section of the above Numbered Policy”
At Note l the nomination provided that
“these instructions….
(a) do not constitute an assignment, nor are they intended to confer on the payee any of the benefits of an assignee. “
The plaintiff’s substantive claim in these proceedings arises out of moneys allegedly owed to Nakosta by three trade debtors whom Nakosta did not pursue and will not pursue for those debts because Nakosta and the three debtors concerned have all become part of a large company group ( LSPC) which has taken a policy decision that intra-group debts will not be pursued and have apparently been written off.
The plaintiff, which has made the payments to Nakosta pursuant to the terms of the factoring agreement seeks to recover damages from TCB for loss and damage allegedly sustained by the plaintiff arising out of alleged misrepresentation, negligence, breach of duty and breach of contract on the part of TCB its servants and agents in and about the procurement and management by TCB of appropriate credit insurance for the plaintiff.
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agents, in and about the procurement and management by TCB of appropriate credit insurance for the plaintiff.
Alternatively the plaintiff seeks to recover the said monies from NCM by way of damages for loss and damage sustained by the plaintiff arising out of negligence, breach of duty and breach of contract on the part of NCM.
The substantive proceedings were commenced by way of plenary summons on the 6th March, 1998 and a statement of claim was delivered on the 22nd May, 1998.
TCB delivered a defence on 15th June, 1998 and NCM delivered its Defence on the 10th June, 1999 whereupon a reply was delivered on behalf of the plaintiff on the 20th September, 1999 and a notice of trial was issued and served on the 19th
February, 2002.
NCM seeks orders dismissing the proceedings brought against it by both the plaintiff and by TCB on the grounds that neither disclose any reasonable cause of action against NCM and that both are bound to fail.
The plaintiff seeks to amend its proceedings so as to widen the extent of its claim against NCM which resists the application to amend, claiming, inter alia, that, even if amended in the manner sought, the plaintiff’s proceedings will still disclose no reasonable cause of action and will be bound to fail (together with the consequential claim for indemnity and contribution by TCB).
The inherent jurisdiction of this Court to strike out or dismiss proceedings which disclose no reasonable cause of action and are bound to fail is well established and has been repeatedly recognised – see Barry v. Buckley [1981] I.R. 306 and Sun Fat Chan v. Osseous Limited [1992] I.R. 425.
In the latter case McCarthy J. was careful to explain at 428 that:
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“By way of qualification of the jurisdiction to dismiss an action at the statement of claim stage, I incline to the view that if the statement of claim admits of an amendment which might, so to speak, save it and the action founded on it, then the action should not be dismissed.”
Although in the instant case the pleadings have been closed I am satisfied that I should deal with NCM’s motions to dismiss on the basis of the new amended claim now sought to be advanced by the plaintiff – that is to say on the assumption that the plaintiff will be successful in its application to amend.
In dealing with this application I am conscious (and have repeatedly been reminded by counsel for all parties) of the well established principles which apply to applications of this kind.
In dealing with this application it is not the function of this Court to determine whether or not the plaintiff will be successful in sustaining its claim. Before granting the relief sought this Court must be entirely satisfied on undisputed facts that if the proceedings are allowed to proceed to a conclusion it will be impossible for the plaintiff to succeed and inevitable that its claim will fail.
Dealing with applications of this kind Hardiman J. in Supermacs Ireland Limited v. Katesan (Naas) Limited [2000] 4 I.R. 273 adopted with approval the following test identified by Murphy J. in Lac Minerals v. Chevron Mineral Corporation of lreland [1995] 1 I.L.R.M. 161:
“The judge acceding to an application to dismiss must be confident that no matter what may arise on discovery or at the trial of the action the course of the action will be resolved in a manner fatal to the plaintiff s contention.”
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The burden of proving that the claim advanced by the plaintiff in these proceedings must inevitably fail is extremely onerous and must be discharged on facts which are undisputed. In this case the burden rests squarely upon NCM in respect of the claims against it by both the plaintiff and TCB.
The plaintiff’s (amended) claim against NCM.
The claim made initially by the plaintiff against NCM was confined to allegations of negligence and breach of contract.
It was pleaded that NCM owed a duty of care to the plaintiff and was in breach of that duty and in breach of contract in:
(a) unlawfully purporting to repudiate an insurance policy in which the plaintiff claimed to have a material interest,
(b) failing to make payments to the plaintiff on foot of the policy,
(c) failing to advise the plaintiff as to the manner in which the policy was being implemented between NCM and Nakosta and failing to advise the plaintiff of the acquisition of Nakosta by LSPC,
(d) failing to advise the plaintiff as to the ongoing financial standing of Nakosta and the alleged breaches by Nakosta of the terms of the policy.
The plaintiff’s claim, as amended, is widened to contend that Nakosta either (a) entered into the contract of insurance as trustee for and for the benefit of the plaintiff or alternatively (b) became a trustee to hold the benefits and rights due on foot of the policy for the benefit of the plaintiff.
Furthermore the plaintiff’s amended claim contends that Nakosta entered into the contract of insurance with NCM on behalf of the plaintiff as the duly authorised agent of the plaintiff who was and is and remains entitled to all of the benefits of the policy.
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The defence advanced by NCM to the plaintiff’s (amended) claim.
It is acknowledged by all of the parties to these proceedings that the principles of English law apply to the relationship between Nakosta and NCM on foot of the contract of insurance and to any of the benefits which flow from that contract.
NCM, having adduced evidence on the part of a member of the English Bar, contends that when the plaintiff’s claim is considered in the light of applicable principles of English law (and indeed applicable principles of the law of this jurisdiction) then the plaintiff’s claim, on its own undisputed facts, must fail and should accordingly be dismissed. It relies upon four separate grounds that is to say:
1. It claims that the plaintiff has no title to sue NCM because, as a nominated “loss payee” it enjoys no privity of contract with NCM and therefore does not enjoy the right to enforce any contractual right on foot of the contract of insurance.
2. It claims that the plaintiff has no title to sue because on the undisputed facts adduced in evidence no principle of English law (or principle of the law within this jurisdiction) could countenance the existence of a trust (either of a constructive nature or otherwise) of the kind contended for by the plaintiff or of any agency between Nakosta and the plaintiff which could conceivably give rise to a contractual relationship between the plaintiff and NCM.
3. It claims that the plaintiff has no title to sue NCM because the law of England (and indeed of this jurisdiction) recognises no duty of care of the kind which, on the undisputed facts adduced in evidence, is contended for on behalf of the plaintiff.
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4. It claims that notwithstanding 1, 2 and 3 above the plaintiff could not have acquired rights greater than those vested in Nakosta itself and, since Nakosta was in breach of several provisions of the contract of insurance including provisions which were deemed to be conditions precedent to any liability on the part of NCM to make payments on foot of the policy Nakosta had forfeited all rights to recover any sums due on foot of the contract which was lawfully terminated by NCM on the 14th February, 1997.
Grounds No. 1 and 2 above can conveniently be taken together.
Grounds 1 and 2
Evidence of English Law has been adduced on behalf of NCM by John Russell Esq. Barrister at Law who is a member of the Bar of England and Wales.
Mr. Russell cited the following passage from the judgment of Donaldson J. in The “The Angel Bell ” [1979] 2 Lloyd’s Rep. 491 (at p. 497):
“…a loss payable clause gives no rights to the loss payee unless it also constitutes or evidences an assignment of the assured’s rights under the policy or evidences the fact that the designated person is an original assured. But it may not be without its value, for it authorises and requires underwriters to pay losses to the loss payee on behalf of the assured and, in the circumstances of a transaction such as this, this authority is probably irrevocable….”
Noting the refusal of NCM to allow for an assignment of the assured’s right under the policy he went on to refer to further recognition of the principle that a loss payee does not in general have a cause of action against an insurer by the House of Lords in Ackman Scher v the Policy Holders Protection Board [1994] 1 Lloyd’s Rep. 121 at p. 132.
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He concluded by stating:
“My opinion is that the English courts would hold that the contractual claim fails on this ground”.
The plaintiff acknowledges that, prima facie, it is not a party to the contract between Nakosta and NCM but it claims that it enjoys and can enforce contractual rights against NCM either (a) as the undisclosed principal on whose behalf Nakosta, acting as its agent, entered into the contract with NCM or, (b) on foot of a constructive trust created by Nakosta for the benefit of the plaintiff.
(a) Agency
The Plaintiff seeks leave to amend its pleadings to include a claim that it is to be inferred from the documents which evidenced the contract between
Nakosta and NCM and from the undisputed facts which gave rise to the contract that Nakosta entered into the contract of insurance as the “duly authorised” agent of the plaintiff. It is claimed that the effect of that agency was the creation of a contract of insurance between the plaintiff and NCM.
NCM claims that this claim, on its own undisputed facts must, when considered in the light of applicable principles of English law, fail and that accordingly the amendment should not be permitted.
The effect of the plaintiffs contention as to agency would be to make the Plaintiff liable on foot of the terms of the policy for the payment of premia and for the due performance and observance of the conditions of the policy without any notice to NCM. Similarly it would confer upon the plaintiff the right to any benefits payable on foot of the policy notwithstanding the plaintiff’s status as a “nominated loss payee” pursuant to the terms of the policy.
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Of greater importance however is the fact that the contract of insurance between Nakosta and NCM expressly provided that the nomination of a “loss payee” under the terms of the policy did not constitute an assignment of the policy and did not confer upon the “loss payee” any of the benefits of an assignee.
Furthermore the nomination of the plaintiff as a “loss payee” under the policy was effected by way of a written document which expressly provided that:
“These instructions … do not constitute an assignment nor are they intended to confer on the payee any of the benefits of an assignee.”
No evidence has been adduced or will be adduced on behalf of the plaintiff of any transaction or communication between the plaintiff and Nakosta or between the plaintiff and NCM or between Nakosta and NCM which would in any way advance the plaintiff’s contention that an agency was created between the plaintiff and Nakosta of the kind contended for which would be enforced by the application of any principles or tenets of English law.
In the circumstances I am satisfied that on the undisputed facts of this case the plaintiff’s claim that Nakosta entered into a contractual relationship with NCM as the agent of the plaintiff is a claim which is unstateable and is bound to fail. In the circumstances the application to amend the proceedings to provide for a claim of agency is declined.
(b) Trust
The plaintiff seeks leave to amend its pleadings to include a claim that Nakosta entered into the contract of insurance with NCM “…as trustee for the benefit and/or on behalf of the plaintiff, or constituted itself, at the time of entering the said policy or subsequently, or was in the circumstances constituted, trustee to hold all
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benefits and rights under the said policy for the benefit and/or on behalf of the plaintiff.”
The statement of claim was delivered on the 22nd May, 1998 and the application for leave to amend in this manner is grounded upon the affidavit of Robert Browne sworn on the 26th February, 2003.
The entire of the evidence adduced in support of the application to amend is confined to the following averment:
“The plaintiff sought appropriate English advice in order properly to respond to NCM’s strike out motion and was advised by English Counsel that there exist circumstances where a nominated loss payee may sue on foot of the policy, namely where the principal assured has constituted himself trustee of the rights of suit under the policy or alternatively where he entered into the policy both on his own behalf and that of the loss payee ….
The plaintiff believes that one or other of those circumstances applies to it …”
The application to amend on these grounds therefore is rooted in an averment by the solicitor on behalf of the plaintiff indicating that he has been advised by English Counsel of the existence of “circumstances” where “the principle assured has constituted himself trustee of the rights of suit under the policy” and that these “circumstances” can give rise to an apparent right on the part of a nominated loss payee to sue “on foot of the policy.”
No “circumstances ” has been described or outlined either in evidence or argument which would assist this Court in identifying the nature of the trust which is contended for. No authority of any kind within any jurisdiction has been cited in support of the contention.
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It is acknowledged by all the parties to these proceedings that the “principal assured” on foot of the contract of insurance is Nakosta. It is further acknowledged that Nakosta did not at any time execute any document or make any representation which would have had the effect of expressly constituting Nakosta as trustee of the rights of suit under the contract of insurance in favour of any other party.
The plaintiff appears to argue that any benefits due on foot of the contract of insurance have become the subject of a trust in favour of the plaintiff and that the “principal assured” (Nakosta) holds the trust property (the benefits) as trustee for the benefit of the plaintiff.
Since it is acknowledged by the parties that there is in existence no express trust of the kind just outlined it follows that the plaintiff is advancing a claim for the existence of a constructive trust in those terms.
The undisputed facts adduced in evidence disclose that Nakosta entered into a contract of insurance with NCM which expressly provided that:
“You cannot assign or transfer this policy or any of its benefits without our prior written consent. You may however require claims payments to be made to a named loss payee, using the form you will provide, your obligations under the policy remaining unaffected.” (See art.10 of the contract of insurance).
The form which was executed in compliance with the above provided, inter alia, that:
“These instructions … do not constitute an assignment, nor are they intended to confer on the payee any of the benefits of an assignee.”
It is has not been indicated either by way of evidence or in argument how, in such circumstances the “principal assured” (Nakosta) has, or could have;
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“… constituted (itself) … trustee of the rights of suit under the policy …”
No decision of the courts of England or Wales (or elsewhere) was cited in support of the plaintiff s contention. Mr. Murray, counsel for NCM referred me to the case of McManus v. Cable Management (Ireland) Limited, a decision of the High Court within this jurisdiction (Unreported, High Court, Morris J., 8th July, 1994) where an analogous contention was rejected by Morris J. without hesitation and the action dismissed on the basis that on the admitted facts of that case the claim advanced could not succeed.
The absence of precedent or other form of legal authority is not of course a bar to the plaintiff’s contention. However no evidence or argument has been advanced on behalf of the plaintiff which would support the existence of a constructive trust or of a right vested in the plaintiff (such as a right of subrogation) which would enable the plaintiff to enforce any of the terms of the contract of insurance on its own behalf or otherwise or to seek any redress whatsoever on foot of a contract of insurance to which it was not a party.
It is true that a constructive trust can attach to property which is held by a person who occupies a fiduciary position towards some other person and the trust can come into existence by virtue of the fiduciary nature of the relationship between the parties.
However in this case Nakosta does not hold any property which is relevant to these proceedings other than disputed rights or benefits on foot of a contract of insurance. What the plaintiff seeks is to stand in the shoes of Nakosta and to seek to enforce whatever rights Nakosta may have arising out of the contract of insurance between Nakosta and NCM.
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It is difficult to see how such a right of subrogation could be deemed to exist, in light of the documentary and other evidence adduced in this case. Accordingly (and quite properly), such a right of subrogation has not been claimed on behalf of the plaintiff.
In the circumstances outlined above and in the absence of evidence or argument as to the nature of any trust which could have been created by virtue of the transactions between the parties in this case and in particular having regard to the precise terms of the written contracts between the parties I am satisfied that on the undisputed facts the plaintiff claimed that it has constituted itself a trustee of the rights of suit under the policy is unstateable and is bound to fail and accordingly the plaintiff’s application to amend the proceedings to provide for such a claim is declined.
GROUND THREE
Negligence
The plaintiff’s claim in negligence is made at para. 10 of the statement of claim and in summary alleges the following breaches of a “duty of care” owed by NCM to the plaintiff
(a) purporting to repudiate the contract of insurance,
(b) failing to pay to the plaintiff sums allegedly due under the policy,
(c) failing to advise the Plaintiff as to the manner in which the policy was being implemented between NCM and Nakosta,
(d) failing to advise the plaintiff as to the acquisition by LSPC of 70% of Nakosta,
(e) failing to advise the plaintiff as to the ongoing financial standing of Nakosta and of alleged breaches by Nakosta of the terms of the policy.
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The plaintiff claims that NCM owed a duty of care to the plaintiff which arose out of alleged proximity between NCM, Nakosta and the plaintiff having regard to the transactions between those three parties.
Insofar as the allegations of negligence at (a) and (b) above are concerned it cannot be rationally contended that either by (a) repudiating the contract of insurance or by (b) refusing to pay sums claimed by the plaintiff NCM were negligent or in breach of any duty of care owed by NCM to the plaintiff.
Both of those two actions taken by NCM were deliberate in character and each comprised a bona fide assertion of a legal right. The portrayal of such assertions as particulars of negligence is unsustainable.
Insofar as the allegation of negligence at (d) above is concerned it is worth recording that on the agreed facts the information as to the acquisition of 70% of Nakosta by LSPC was in fact provided concurrently to the plaintiff and to NCM so that the allegation at (d) above cannot be sustained. I am accordingly satisfied that the breaches identified at (a) (b) and (d) are unsustainable on the agreed evidence.
The allegations of negligence made at (c), (d) and (e) above are premised upon the contention that the proximity of the relationship between NCM and the plaintiff was such as to impose upon NCM a duty to provide the Plaintiff with regular and often confidential information concerning and affecting Nakosta. The nature and extent of this alleged duty has not been defined nor has its genesis being explored or identified.
For the purposes of these proceedings the only connection which existed between NCM and the plaintiff resulted from the nomination by Nakosta of the plaintiff as a “loss payee ” on foot of the contract of insurance between Nakosta and NCM. The contract which gave rise to whatever relationship can be said to exist between NCM
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and the plaintiff contained no express terms which would give rise to the obligation claimed by the plaintiff. Rather the contrary was the case since NCM went to considerable lengths to confer no benefits upon the plaintiff arising out of the relationship.
In Banque Keyser Ullmann SA Skandia (U.K.) Insurance Co. Ltd. [1990] 1 Q.B. 665 the Court of Appeal in England considered the nature of the duty of care owed by a bank to certain insurance companies in respect of credit insurance policies.
The Court held, inter alia, (a) that a person can be liable in negligence for pure economic loss caused to another by omission to disclose information known to that person provided that the person concerned had voluntarily assumed responsibility to make such disclosure to another person who had relied upon that assumption, even where the omission had occurred in the course of pre-contractual negotiations; (b) that in some rare cases the special circumstances and the relationship between the parties might be such that the law would deem such an assumption to be have been made even though it had not been proved as a matter of fact, but no such deemed assumption would arise from an established business relationship in respect of pre- contractual negotiations, even where the contract was one which was based on the utmost good faith.
Of particular relevance to the instant case were the following observations of Slade L.J. at p. 799
“By the same token we would hold that no legal obligation on the part of Mr. Dungate to inform the banks of Mr. Lee’s dishonesty arose, either in contract or in tort, merely because there was an “established business relationship” between the parties, and because the insurers continued to transact further business with the bank. That factor does
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not turn a pure omission into a misrepresentation, in tort any more than in contract. It would not justify the courts treating Mr. Dungate as having assumed a duty or responsibility to speak, in tort, which was not imposed on him by the law of contract. In this context the following observations of Lord Scarman in Tai Hing Cotton Mill Ltd v. Liu Chong Hing Bank Ltd. [1986] AC 80, 107, are apposite:
‘Their Lordships do not believe that there is anything to the advantage of the law’s development in searching for a liability in tort where the parties are in a contractual relationship. This is particularly so in a commercial relationship. Though it is possible as a matter of legal semantics to conduct an analysis of the rights and duties inherent in some contractual relationships including that of bank and customer either as a matter of contract law … or as a matter of tort law … their Lordships believe it to be correct in principle and necessary of the avoidance of confusion in the law to adhere to the contractual analysis: on principle because it is a relationship in which the parties have, subject to a few exceptions, the right to determine their obligations to each other, and for the avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort …’
The judge was, if we may say so, somewhat dismissive of this passage in Lord Scarman’s opinion. He said that the views expressed were tentative in character, and not intended to be of general application. We do not share that view. Lord Scarman’s opinion contains a valuable warning as to the consequences of an ever
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expanding field of tort. It should be no part of the general function of the law of tort to fill in contractual gaps.”
In the instant case it is not suggested that at any stage NCM undertook to provide any information to the plaintiff either on a regular basis or in any other manner and it is not suggested that NCM, either expressly or impliedly represented to the plaintiff that it would offer any advices to the plaintiff at any time as to the manner in which the contract of insurance was being implemented between NCM and Nakosta or in relation to the financial standing of Nakosta from time to time. Furthermore it is not and has never been suggested in these proceedings that the plaintiff ever relied upon express or implied representations by NCM as to the furnishing of information or advice relative to Nakosta.
Insofar as (c) and (e) above are concerned I am satisfied that no duty of care of the kind which, on the undisputed facts adduced in evidence is contended for on behalf of the plaintiff is recognised by English law and that, in fact the existence of such a duty has been expressly denied by the courts within that jurisdiction.
The existence of a duty of this kind has been discussed in this jurisdiction. In Sweeney v. Duggan [1997] 2 I.R. 531 at 539-540, the Supreme Court (Murphy J.), considering whether a term could be implied independently of the intentions of the parties observed:
“Whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable category of contract it must be not merely reasonable but also necessary. Clearly it cannot be implied it is being inconsistent with the express wording of the
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contract and furthermore it may be difficult to infer a term where it cannot be formulated with reasonable precision.”
In Pat O’Donnell & Co. Ltd. v. Truck and Machinery Sales Ltd. [1998] 4 I.R. 191 the Supreme Court (O’Flaherty J.) clarified the position further by indicating at pp. 199-200:
“However, it should be emphasised that the “general duty of care in tort cannot be manipulated so as to override the contractual allocation of responsibility between the parties. Thus if, for instance, a contract provides, whether expressly or by necessary implication, that the defendant is not liable for a particular risk, then the law of tort should not be allowed to contradict that.”
It is acknowledged by the parties that the contract of insurance between Nakosta and NCM is and remains subject to and regulated by the principles of English law. Applying the applicable principles of English law as adduced in evidence and argued by Counsel I am satisfied that the plaintiff as a nominated “loss payee” enjoys no privity of contract with NCM arising out of the contract of insurance between the plaintiff and Nakosta and does not enjoy the right to enforce any contractual right on foot of that contract.
I am further satisfied that no principle of English law (or the law of this jurisdiction) could countenance the existence of either a trust or an agency of the type contended for on behalf of the plaintiff. Furthermore neither English law nor the law within this jurisdiction recognises the existence of a duty of care of the kind contended for on behalf of the plaintiff.
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It follows from the foregoing that the plaintiff has no title to sue NCM and that accordingly its claim against NCM discloses no reasonable cause of action and is bound to fail.
Consideration of Ground 4 (above) is accordingly, unnecessary.
It follows further that the first named defendant’s claim for contribution and indemnity against NCM also discloses no reasonable cause of action and is bound to fail.
Both claims are accordingly dismissed.
Bowen Construction Ltd -v- Kelcar Developments Ltd
[2009] IEHC 467
JUDGMENT of Mr. Justice Ryan delivered on the 16th day of October, 2009
Blarney Golf Resort, Co Cork consists of a golf course, a clubhouse, a hotel and 56 cottages. The course is owned by Kelcar Lands Ltd. and the clubhouse and hotel by a group of private investors. Eighteen of the cottages have been sold while the remaining 38 continue to be held by Frank and Derek McCarthy, the shareholders in Kelcar Developments Ltd., party to these proceedings. The resort is operated by BGR Limited, a wholly owned subsidiary of Kelcar.
The construction work for the development was carried out pursuant to a building contract between Kelcar Developments Ltd. [Kelcar] as employer and Bowen Construction Ltd. [Bowen] as contractor. Kelcar transferred the ownership of the buildings to others, including associated persons and companies, on foot of development agreements. Under one of the terms of the building contract, Bowen agreed to execute collateral warranties to give the transferees of the buildings similar rights to sue for defects as were contained in that agreement. The development agreements also contained warranties by Kelcar as to the quality of the buildings.
Pursuant to the undertaking in the building contract Bowen executed collateral warranties under seal in favour of the private investors, who own the clubhouse and the hotel, which conferred on them the right to pursue the contractor for defects. However, in the case of the cottage owners, although Kelcar and Bowen agreed that such warranties would be given, they have not, in fact, been executed. Bowen submitted that it is willing do to so but has not been called upon to execute any such warranty. Kelcar does not contest this proposition.
The arbitrator in a dispute under the building contract for the development has sought directions from the court in respect of issues that have arisen in the course of the hearing. Under s. 35 of the Arbitration Act 1954, he has stated questions of law in the form of a special case for the decision of the court. The legal issue raised is whether the employer who is party to the building contract can counterclaim and set off in the arbitration the costs of remedying defects, and anticipated consequential losses arising therefrom, in circumstances where those losses have been or will be sustained by other persons or companies who were not parties to the building contracts. The question has not been the subject of a written decision by a court in this jurisdiction but the English Courts have done so and the House of Lords considered the question as recently as 2001. In this reference, Bowen Construction Limited [Bowen] is the contractor and Kelcar Developments Limited [Kelcar] the employer in the building contract.
Kelcar does not have any legal interest in the buildings that have the alleged defects; neither does it operate the resort. The buildings are owned by different but (for the most part) associated persons or companies and the resort is operated by a wholly owned subsidiary company, BGR Ltd. When these issues came to light during the proceedings, the arbitrator gave leave for Kelcar to amend its points of defence and counterclaim, but he rejected an application to join BGR as a party in the arbitration. The amended pleading set up the cost of remedying the defects in the buildings, plus projected consequential losses ascribed to BGR, by way of counterclaim and set off, in reduction of the claim for extra payment under the contract. An amended answer by Bowen denied the legal validity of these claims on the grounds that Kelcar was not entitled to make them because it had not and would not sustain any losses itself and that the parties that had done so or would do so were not parties to the building contract.
It is claimed that there were serious defects in the buildings, particularly in the construction of the roofs, giving rise to a substantial claim for compensation in respect of repair costs and consequential loss. The claim for loss includes that of BGR which, it is said, will have to close the resort for the duration of the repair work and will suffer disruption of business. Bowen does not admit that any of these losses has arisen or will arise. It is however accepted that, for the purpose of answering the questions posed by the arbitrator, it is to be assumed that there were defective roofs and that they will give rise to the alleged losses, or some of them.
The contractor relies on the doctrine of privity of contract. Only a party to a contract can sue for breach. And a claimant can only recover losses that he has sustained or will sustain. Kelcar counters this argument on two grounds, which, to say the least, are not wholly consistent. In written submissions, it contends that the facts of the case come within an exception to the privity rule that has been recognised in a series of English cases, which reflect the development of the Common Law and ought to be followed. In oral argument on the reference, Counsel for Kelcar adopted these written submissions but also made the case that the provisions of the building contract itself enabled the third party losses claims to be maintained. If this latter submission is correct, it means that it is unnecessary to rely on the privity exception and it would also seem that the amendments sought by Kelcar in the arbitration would not have been needed, because the claims could simply have been advanced under the building contract. I consider the second of these arguments before turning to the privity issue.
This contention is that clauses 21(A) and 21(B) apply to losses sustained by third parties and authorise the employer to make a claim in respect of such losses under the terms of the contract. Section 21(B) deals with insurance against damage to persons and property and it is contended that this has relevance because it requires a building contractor to arrange for insurance against the liability that is described in s. 21(A) but it does not appear to have any other significance. Clause 21(A) at para. (i) imposes liability on the contractor and an obligation to indemnify the employer in respect of any loss, damage or injury to personal property that “arises out of or in the course of or by reason of the execution of the works” if that is due to negligence or fault on the part of the contractor or a sub-contractor or their servants or agents. Paragraph (iii) excludes the building works themselves from the above liability up to the date of practical completion or earlier if the contractor’s function is terminated. It is suggested that these provisions introduce a liability for loss or damage suffered by third parties after the date of practical completion or determination of the contractor’s employment.
I cannot accept this interpretation. These contractual provisions in my view are intended to apply to entirely different situations from the one proposed. They deal inter alia with personal injury and damage to personal property that arise out of or in the course of the works, due to the negligence of the contractor or a sub-contractor or a servant or agent of either. For obvious reasons, the contract imposes or recognises that liability on the part of the contractor and provides for an indemnity for the employer and this liability comes to an end when the building work is practically completed. A reading of s. 21(B) which relates to insurance, confirms this meaning. It is simply a misreading to think that Clause 21(A) extends the contractor’s liability to parties claiming losses by reason of defective execution of the building work, when para (iii) expressly excludes the works themselves. The time period specified is a limitation of liability not a commencement date.
Turning to the other argument made by Kelcar in its written submissions, this is that the case comes within the exceptions to the privity rule that have been recognised by the English Courts in order to avoid injustice. Kelcar says that Bowen’s argument would result in a situation where the building contractor would be “entitled to escape all liability for its wrongdoing”, i.e. on the agreed assumption for the purpose of this case that there are defects resulting from breach of contractual obligations.
The rule that a claimant cannot recover more than the amount required to compensate him for his own and not another’s loss can result in injustice, as the 30th edition of ‘Chitty on Contracts’ remarks:-
“because it can give rise to what has been called a ‘legal black hole’, that is, to a situation in which the promisor has committed a plain breach which has caused loss to the third party whom the contracting parties intended to benefit, but none to the promisee, and in which no other remedy (than damages for the third party’s loss) is available against the promisor”. (Para. 18-051)
The loss suffered by the aggrieved person who is not a party to the contract can fall into this legal black hole where the person does not have a remedy. In order to avoid this unjust situation, there are exceptions to the general rule.
The area of exception that is relevant to this case begins with Linden Gardens Trust v. Lenesta Sludge Disposals Limited [1994] 1 AC 85. The employer in that case under a building contract succeeded against the contractor, notwithstanding the fact that the site of the building work had been transferred to a third party. The contractor’s argument that no loss had been suffered by the employer as he was no longer owner of the land when the alleged breaches occurred, and was therefore entitled to no more than nominal damages, was rejected in the House of Lords on two distinct grounds.
The so-called broader ground, which was proposed by Lord Griffiths, was that the employer was entitled to have the contract he had entered into performed by the other party so as to give the employer “the benefit of the bargain which the defendant had promised but failed to deliver”. He said that the court would have to be satisfied that the repairs had been or were likely to be carried out, but subject to that, the disappointed party was entitled to have the contractual obligation fulfilled in accordance with what had been agreed.
The other members of the House of Lords in the Linden Gardens case based their decision on what is known as the narrower ground. They applied the exception that was recognised in the Albazero case [Albacruz (Cargo Owners) v Albazero (Owners) (The Albazero) [1977] A.C. 774], the rationale being that the contractor could foresee that parts of the new development were going to be occupied and possibly purchased by third parties, so that it could be foreseen that damage caused by a breach would cause loss to a later owner. The contractor could also foresee that a later owner would not have acquired rights under the building contract against the contractor since that contract expressly prohibited assignment by the employer without the contractor’s written consent, which had not been sought. At para. 18-053, Chitty summarises the Linden Gardens case as follows:-
“The effect of the Linden Gardens case was thus to extend the scope of the Albazero exception from contracts for the carriage of goods by sea to contracts generally, but it was consistent with two factors which had restricted the scope of that exception: namely, that (a) the loss or damage was caused to property which had been transferred by one of the contracting parties to the third party; and (b) the third party had not acquired any rights under the building contract and it was foreseeable (by reason of the prohibition against assignment) that he would not do so.”
In Darlington BC v. Wiltshire Northern Limited [1995] 1 WLR 68, the Court of Appeal effected an extension of the Linden Gardens decision to a situation in which there was no transfer of the property to the third party and this extension was subsequently approved by the House of Lords. This removed limb (a) of the restriction in the Linden Gardens decision but it left limb (b) in place.
The latest case is a decision of the House of Lords, Alfred McAlpine Construction Limited v. Panatown Limited [2001] AC 518. The building contract was made, not between the building contractor and the company that owned the site but, for tax avoidance reasons, between the contractor and another company that was associated with the owner of the site and which was the employer under the building contract. A separate contract was made between the owner of the site and the contractor which imposed obligations on the contractor that were broadly similar but not precisely the same as those in the building contract and one of the differences was that it did not include an arbitration clause. In a subsequent arbitration, the employer claimed damages from the contractor who resisted the claim on the basis that the employer could recover no more than nominal damages since it was not the owner of the property. The House of Lords, by a majority, upheld the contractor’s argument and so rejected the employer’s claim for substantial damages in respect of the owner’s loss.
The House considered whether the Linden Gardens grounds, either the broader or the narrow ground, supported the employer’s claim. Chitty comments that the Linden Gardens exception did not apply:-
“because the duty of care deed gave the owner an independent contractual right against the contractor.”
The Linden Gardens exception was not needed because there was no risk of a legal black hole when the third party had its own contractual rights against the party in breach.
The majority in the House of Lords in the Panatown case also held that the rights enjoyed by the sustainer of the loss, pursuant to its separate contract, also precluded the employer from recovering damages under the broader ground advanced by Lord Griffiths in the Linden Gardens case. Chitty supports this aspect of the judgment, for two further reasons:-
“First, the creation of extension of exceptions to the general rule that a party can recover damages only in respect of its own loss is, and should be, driven and limited by necessity: that is, by the need to guard against the risk of ‘legal black holes’ of the kind described above; and in the Panatown case, there was no such risk. Secondly, the decision gives effect to the ‘contractual scheme’ created by the parties; and this point, so far from being undermined by the fact that the contractor’s obligations to the owner under the duty of care deed were not precisely conterminous with his obligations to the employer under the building contract, is reinforced by this fact.” (Para. 18-056)
It follows from all this that there is no support in English authority for abandoning the general rule of privity of contract so as to enable a party to an arbitration to claim losses sustained, or allegedly sustained, by other parties in circumstances where those other parties enjoy their own legal rights to claim in respect of losses that they may have sustained.
Kelcar’s Written Submission seeks to distinguish this case from McAlpine v. Panatown [2001] 1 AC 518 by relying on the separate development agreements that Kelcar made with the original owners of the 56 golf lodges (who still own 38 of them) and the owners of the clubhouse and hotel. The similarity with that case, however, is that the latter group can recover damages for defective construction from the builder under the warranty agreement. As to the lodge owners, the builder is bound by agreement to provide a similar warranty but that has not been executed to date.
Kelcar then relies on what is called the “broader ground” of liability in the building cases. This was the basis of the reasoning of Lord Griffiths in his speech in Lindon Gardens Trust v. Lenesta Sludge Disposals Limited [1994] 1 AC 85. It is that the employer in a building contract has a right to have the contract performed according to its terms and is therefore entitled to sue for substantial and not merely nominal damages in the event of breach, despite not being the owner of the building at the time of the claim, provided it is clear that he actually intends to carry out the repairs. Lindon Gardens Trust was a case where the claim was allowed as “a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it.” – speech of Lord Browne-Wilkinson at pp. 114 to 115.
In respect of the anticipated loss by BGR, Kelcar argues that there could be a legal black hole whereby BGR would suffer loss attributable to the breach of the building contract, but nevertheless be deprived of any remedy. The remedy proposed is for Kelcar to be entitled to make the claim. Kelcar submits in the alternative that it is entitled to abatement of the amount found due to Bowen in the cost of repairs to the buildings.
Bowen submits that the doctrine of privity of contract is well established in Irish law and casts doubt on whether the English authorities cited above ought to be followed, in so far as they afford any basis for Kelcar’s argument. I do not think that Burke (A Minor) v Dublin Corporation [1991] 1 IR 341, which is relied on, has any application to the issue here. I am satisfied that the consensus of the English cases represents the development and application of existing principles of the Common Law to new situations, for the purpose of avoiding injustice, and that it ought to be followed.
Subject to the above reservation, the contractor relies on the McAlpine v Panatown [2001] 1 AC 518, citing the speech of Lord Browne-Wilkinson at p. 531 of the report at 531H et seq:-
“If the contractual arrangements between the parties in fact provide the third party with a direct remedy against the wrongdoer the whole rationale of the rule disappears.”
It seems to me that the cases cited, insofar as they are relevant to the issues in the case, yield to the following propositions:-
• Privity of contract together with the general prohibition on claiming for loss or damage sustained by third parties are subject to exceptions in order to avoid injustice.
• In building contract cases, the exception applies to cases where there would be a “legal black hole”, meaning that the person who sustains the loss would be without any remedy in law, the person entitled to sue would not be able to prove substantial loss and the party in breach of contract would go scot-free.
• Where the party suffering the loss has a right of action against the person in breach of contract, the exception does not apply – Alfred McAlpine Construction Limited v. Panatown Limited [2001] 1 AC 518.
• On the “broader ground” that Lord Griffiths applied in Lindon Gardens Trust, the contracting party has a right to sue for failure to provide what was contracted for, if it is shown that he intends to do the remedial work but that basis of claim has not been adopted in other cases. If it were to be adopted in a case where it was not necessary in order to avoid injustice because there was no other remedy available, it would give rise to a problem as to the status of any damages that might be awarded to the employer in respect of repairs or consequential losses sustained by other parties.
In this case, the owners of the clubhouse and hotel have their own remedy against the building contractor. The lodge owners are entitled to a similar remedy but it has not been provided to date. Counsel for the builder has acknowledged its willingness to do so for the lodge owners. It follows in my mind that there is no legal black hole in this case. If the builder reneged on the undertaking to furnish the lodge owners with the agreed protection, there would be a black hole and Kelcar could sue for specific performance of the agreement to provide the warranty, which would I think be the most appropriate relief and, in the alternative for the cost of repairing the lodges.
The issue to be decided in the reference is whether the facts bring the case within the exceptions to the rule of privity of contract. Can Kelcar as the employer party to the building contract claim in the arbitration for the alleged defects in the work and for anticipated consequential losses by other associated persons or companies? In my view the case does not constitute a recognised exception or an exception that ought to be recognised. No legal black hole exists. In the absence of any refusal by the builder to furnish the collateral warranties to the cottage owners, I cannot see how the employer is entitled to pursue the claims of third parties.
It seems to me that there are substantial practical objections to permitting the employer to put forward in the arbitration the claims of the third parties. If Kelcar claims in respect of the defects and projected losses, does that operate as a bar to any claims by the private investors who own the hotel and clubhouse, the people who own the 18 cottages that have been sold, the owners of the remaining 38 cottages and BGR Ltd., the operator of the whole resort? None of those is a party in the building arbitration between Kelcar and Bowen, so how can their claims be heard and determined? There would be nothing to prevent any of them from bringing a claim against Bowen in respect of alleged defective workmanship and/or consequential loss. It would be no answer for Bowen to say that it had already paid out the money on foot of a proceeding to which the claimants were not parties. Neither is it reasonable to suggest as Counsel did that, since the parties and companies are interconnected, their separate identities can be ignored, since that represents the “reality of the situation”.
A party is best left to make its own case for loss or damage and can be disadvantaged by having another make that case on its behalf. The whole point in this case of seeking to set up these claims for repairs and anticipated consequential loss is to wipe out Kelcar’s liability to Bowen under the arbitration pro tanto. In my view, that is the potential black hole because any compensation that was due to other parties could disappear into the reduction of Kelcar’s contractual liability.
My conclusion is that this is not a case that is within the exceptions to the privity rule. This is consistent with the consensus of the authorities that were cited and it accords with logic. To hold otherwise would be to introduce a new ground of exception and would itself produce legal difficulties and potential injustice, including the risk of double liability on the part of the contractor.
As to the particular issue of BGR’s anticipated consequential loss, it seems to me that, if it is claimable under the building contract, it is similarly claimable under the rights that have been conferred on the clubhouse and hotel owners and on the rights to which the lodge owners are entitled. BGR’s position therefore is unaffected.
I answer the questions posed in the case stated as follows:-
3.2.1 In the light of the fact that Kelcar is not the owner of any of the buildings in respect of which remedial work will be required, can Kelcar claim in its own right the costs of those remedial works?
Answer: No.
3.2.2 Not applicable because of answer to 3.2.1
3.2.3.1 Not applicable because of answer to 3.2.3.2
3.2.3.2 If BGR is, as a matter of law, entitled to recover damages from Bowen, can those damages be claimed by Kelcar in these proceedings?
Answer: No.
3.2.4. Not applicable because of answer to 3.2.3.2
Ochre Ridge Ltd -v- Cork Bonded Warehouses Ltd & Anor
[2006] IEHC 107 (28 January 2006)
JUDGMENT OF MR. JUSTICE T.C. SMYTH DELIVERED THE 28TH DAY OF FEBRUARY 2006.
In these proceedings the Plaintiff claims against the
1st Defendant specific performance of a contract for
sale dated 8th October 1999 (and a range of
declaratory reliefs claimed to arise out of the
contract). There is also claimed – and the claims
were pursued at the hearing – for damages for
(a) breach of contract and (b) conspiracy.
The property in suit is an old bonded warehouse
situated at the top end of an island of land in
Cork City, which is divided by the river.
The premises is effectively owned by the
2nd Defendant, which has a lease thereof of
999 years, and carved out of that interest is a
99 year lease made between the 2nd Defendant and the
1st Defendant.
The contract is conditional (inter alia) upon:-
a) The Plaintiff concluding negotiations to its
satisfaction with the 2nd Defendant regarding the
development of the premises;
b) The consent by the 2nd Defendant to assignment and
change of use; and
c) The obtaining by the Plaintiff of an opinion from
Senior Counsel to the effect that the 2nd Defendant
is not a “State Authority”.
This latter provision (Special Condition 13) relating
to the status of the 2nd Defendant, being not a State
Authority, was established and accordingly this
condition is of no relevance to the proceedings.
The Completion date of the Contract was 10th April
2000 in respect of which time was of the essence
(Special Condition 9(b), which further provides
that:-
“It is agreed that if, for whatever
reason, the purchaser fails to complete
on the Completion Date, this contract
shall automatically be at an end and
the Purchaser’s deposit, less the
Non-Refundable Element (herein defined)
shall be returned to the Vendor’s
Solicitor in exchange for all copy
title documents furnished in connection
with this agreement.”
The Plaintiffs’ case is that the consent of the
2nd Defendant both as to assignment and change of use
was wrongfully withheld and furthermore that the
Defendants conspired together to ensure that the
contract fell or would be frustrated.
The Plaintiff is a private limited company and was
the ‘vehicle’ used, by one Mr. Tim Tallent, with a
view to carrying out an intended scheme of
development. Mr. Tallent was not a property
developer. His business was in ‘packaging’, a family
business of which he had become, over time, the
Managing Director. His family roots were in the Cork
area, but he has spent the greater part of his
business life in England. In his career in the
packaging business he had been in some property
transactions, buying or selling, leasing or letting
premises for the packaging business. Without
detracting from such experience, it could be fairly
described as modest dealings in property.
Prior to the Plaintiff and the 1st Defendant entering
into the contract of 8th October 1999 the
2nd Defendant had served on the 1st Defendant a
Schedule of Dilapidations in relation to the premises
which had been seen by the Plaintiff. This fact was
expressly referred to in Special Condition (5) which
then noted:-
“The Vendor has not carried out any of
the works referred to therein, nor does
it intend to do so prior to completion.
The Purchaser shall take the premises
subject to the said Schedule of
Dilapidations and subject to the
obligations to comply with same.
Following execution of this Agreement,
the Vendor shall write to the Landlord,
informing it of the existence of the
Agreement and requesting the Landlord
to hold the Schedule of Dilapidations
in abeyance, pending the outcome of
negotiations in relation to the
premises to be conducted between the
Purchaser and the Landlord.
If the Landlord refuses to agree to
this course of action, the Vendor shall
negotiate with the Landlord in good
faith to agree a Schedule of
Dilapidations. The Vendor shall
consult with the Purchaser before
agreeing such schedule with the
Landlord. The Vendor shall endeavour
to postpone commencement of the works
to be carried out under the Schedule to
date after the Completion Date.”
The evidence established to my satisfaction that the
Plaintiff, prior to entering into the contract with
the 1st Defendant, had in March 1999 suggested to the
2nd Defendant that it issue a Schedule of
Dilapidations on the 1st Defendant. Furthermore, the
Plaintiff wished to be informed by the 2nd Defendant
as to, if and when such Schedule would issue before
fixing on a purchase price and terms of contract with
the 1st Defendant. A Schedule of Dilapidations
(which was quite extensive) was served on the
1st Defendant in June 1999. Subsequent to the
execution of the Contract, the 1st Defendant by
letter dated 14th October 1999 sought consent to the
assignment of the lease and change of use of the
premises. This was not a defeatist application,
truthful information was given by the 1st to the 2nd
Defendant and the case is clearly distinguishable
from Costello -v- Krishna Props (Ir) Ltd. & McVeagh
(unreported 10/7/1975 Finlay, P.) The letter
recorded the understanding (confirmed by the evidence
of the 1st Defendant) that Mr. Tallent would contact
the 2nd Defendant to discuss the matter of the
dilapidations with them. The letter concluded:-
“In relation to the Schedule of
Dilapidations, I understand that
Mr. Tallent intends to redevelop the
property and that these redevelopment
works, would, on the whole, render
unnecessary the works required under
the Schedule of Dilapidations.
Accordingly, I would be grateful if you
would confirm that the schedule may be
left in abeyance pending the outcome of
discussions between Port of Cork
Company and Mr. Tallent. “
The letter seeking the consents drew a refusal from
the 2nd Defendant and in the clearest terms signalled
that such would not be forthcoming “until such time
as effective arrangements have been put in place to
comply with the Schedule of Dilapidations.” I am
satisfied that both Mr. Tallent and the 1st Defendant
realised that there was little point in going to the
trouble and expense of carrying out the repairs in
the Schedule of Dilapidations if the property was to
be re-developed. The contract had expressly given
the power Mr. Tallent to negotiate with the
2nd Defendant on this issue. While the 1st Defendant
did from time to time carry out works of repair to
maintain the integrity of the building during the
building of the Cork Main Drain and some such could
coincide with items of dilapidations, they did so on
the advice of their own engineer – not in purported
compliance with the entire Schedule of Dilapidations,
or the Schedule of Dilapidations at all.
Indeed, Mr. Tallent immediately on learning of the
position of the 2nd Defendant contacted Mr. O’Mahony
of the 1st Defendant and agreed on presenting a
united front to the 2nd Defendant. Furthermore,
Mr. Tallent was organising full surveys –
structural, dimensional and historical, which would
be required in any event to submit to the Planning
Authority. Mr. Tallent’s telefax of 9th November
1999 copied to Mr. O’Mahony concluded:-
“Therefore, whilst Cork Bonded
Warehouse and Ochre Ridge accept that
the Schedule is in place there seems
little point in complying with it until
both the reassignment and change of use
are granted and the overall scheme is
put before the planners as a concise
conservation package.”
Later that month, on 23rd November 1999, Mr. Tallent
wrote to Mr. Pat Keenan, the Secretary Or Chief
Executive Officer of the 2nd Defendant, with
reference to the surveys stating:-
“On receipt of these reports Scott
Tallon Walker will be in a position to
advise the way forward in both
architectural and heritage terms, at
which stage I will copy you with our
proposals. At that time, I shall
contact you again so that we can
arrange to meet and discuss further the
redevelopment of the site, and
demonstrate how our proposals meet or
exceed the schedule currently in
place…”
Mr. Tallent carried forward his intended enterprise
and informed Mr. O’Mahony of his intention to meet
with Mr. Keenan after consulting surveyors and
architects. Furthermore, Mr. Tallent informed
Mr. Keenan that as soon as he consulted his
advisors:-
“I will contact you to arrange a
meeting to address both the
Dilapidations Schedule and Port of
Cork’s consent to the change of use.
I have advised Mr. Liam O’Mahony at
that Cork Bonded Warehouse Limited
should apply to Port of Cork for
consent to assign their interest in the
lease so that it can be dealt with by
your Board. “
Why this latter matter was raised in this way in the
light of Mr. Tallent clearly knowing on 9th November
1999 that consent had been refused was not made
clear. In the events, Mr. Keenan by letter dated
11th January 2000 made it quite clear to Mr. Tallent
that such an application had been made, was refused
and “this was a very definite decision, unanimously
taken, and it is most unlikely that it will be
overturned.”
While the contract made it clear that the 1st
Defendant did not intend to carry out any of the
works in the Schedule of Dilapidations and that it
would endeavour to postpone any such works being
carried out before April 2000, (the completion date)
– the problem with the consents had not been resolved
by February 2000. Mr. Tallent knew that while there
was little point in carrying out the works in the
Schedule of Dilapidations, however if the
2nd Defendant would grant consent to the assignment
and change of use – his company (the Plaintiff) would
as part of its re-development of the property – agree
to carry out all of the relevant works included in
the Schedule of Dilapidations and reinstate the roof
without seeking any part of the contribution of the
2nd Defendant towards the reinstatement cost of the
roof (which was a joint obligation between landlord
and tenant under the lease). This proposal was put
and supported by the 1st Defendant. The response of
the 2nd Defendant was unequivocal in a letter of
24th March 2000 from Mr. Keenan to Mr. O’Mahony:-
“….I can confirm that there is no
change in the position of the Port of
Cork company in relation to any
proposed assignment of the lease of the
property now occupied by Cork Bonded
Warehouses Limited. The Port of Cork
Company will not agree to any
assignment which involves the change of
use for the premises.”
The day before (i.e. 23rd February 2000) Mr. Keenan
had written to Mr. O’Mahony in (inter alia) the
following terms:
“Lest there be any misunderstanding
about the contents of my letter of the
19th October, my Board decided that
complying with the Schedule of
Dilapidations was a matter of necessity
and we have spoken about this since.
I would not wish you to have the idea
that it was ‘essentially a precondition
to the Board giving its consent’ to
your request to assign the lease
because this is not necessarily so.”
I am satisfied and find as a fact that events at that
time and since left Mr. O’Mahony with the opinion
that it would make no difference to the 2nd Defendant
who an intended assignee might be – a refusal to
consent was probable and that the 2nd Defendant
(as Landlord) would ‘sit out the remainder of the
term of the lease.’
In the course of cross-examination of Mr. O’Mahony,
it was put to him that he ought to have challenged
the refusal to consent in litigation. Altogether
from there being no contractual obligation to do so,
not only had the 1st Defendant put Mr. Tallent’s
proposal forward, it had also sought and obtained
Counsel’s opinion. It was not at all clear that a
legal challenge would succeed and furthermore the
1st Defendant, very understandably, did not wish to
weaken any bargaining position it might have in the
future by attracting an unfavourable Court Order.
Furthermore, General Condition 10(d) of the contract
dealing with consent to assignment of a lease
provides (inter alia) that-
“… the Vendor shall not be required
to institute legal proceedings to
enforce the issue of any such consent
or otherwise as to the withholding of
the same. If such consent shall have
been refused or shall not have been
procured and with written evidence of
the same furnished to the purchaser on
or before the closing date, or if any
such consent is issued subject to a
condition, which the purchaser shall on
reasonable grounds refuse to accept,
either party may rescind the sale by
seven days’ prior notice to the other.”
At all material times, what was envisaged under the
Contract was a consent to assignment and change of
use. It was only when the response of the
2nd Defendant was unfavourable that Mr. Tallent
considered that perhaps he could accept consent to
assignment or change of use. But he made it clear in
his fax of 24th January 2000 to Mr. O’Mahony that
they should be not treated as separate issues. That
the consents would not be decoupled is clear from the
letter of 24th March 2000 from the 2nd Defendant
(earlier referred to).
It is clear from both oral and written evidence that
the 2nd Defendant had a sense of the time frame of
the contract between the Plaintiff and the
1st Defendant. I am satisfied and find as a fact
that Mr. O’Mahony did not discuss with Mr. Keenan the
contract with the Plaintiff during its currency and
that the 1st and 2nd Defendant did not conspire to
deprive the Plaintiff of the benefits of the intended
fruits of the contract of 8th October 1999.
Of all material matters in the evidence where there
is a conflict between that of Mr. Tallent and
Mr. O’Mahony, I prefer the evidence of Mr. O’Mahony
as being more reliable, notwithstanding that on
occasion he could not recollect some details of
meetings or events. I found him a reliable and
forthcoming witness.
I am further satisfied and find as a matter of fact
and as a matter of law that the sale was not
completed by the 10th April 2000 but that this was
not because of any failure by the 1st Defendant to
comply with its contractual obligations.
Notwithstanding it being suggested that the
1st Defendant did not pursue the 2nd Defendant on
receipt of the refusal to the consents. Mr. Tallent
made it perfectly clear and it is clearly agreed
between himself and Mr. O’Mahony that Mr. Tallent,
who was the person (or whose company) was going to
carry out scheme of redevelopment with the Port of
Cork Company, was going to make the running and bring
about whatever arrangement would best suit himself.
I reject as unfounded and unwarranted by the evidence
that there was any lack of good faith on the part of
the 1st Defendant in seeking to give effect to the
terms of the contract or that the 1st or 2nd
Defendants conducted themselves in a manner motivated
by the fact that there was an element of
non-refundability of the deposit or that it might be
more convenient and beneficial for them later to
contract with the 2nd Defendant. Furthermore, in each
of the separate cases the relationship was
contractual not fiduciary, therefore no obligation of
good faith arises.
I am satisfied that the contract entered into between
the Plaintiff and the 1st Defendant is a conditional
contract and was understood by both parties. An
understanding and applicability of the law in this
regard is as set out in Aberfoyle Plantations Limited
-v- Cheng [1960] AC 115 at p.124/5 viz (i) where a
conditional contract of sale fixes a date for the
completion of the sale then the condition must be
fulfilled by that date; and more particularly (iii)
where a conditional contract of sale fixed (whether
specifically or by reference to the date fixed for
completion) the date by which the condition is to be
fulfilled, then the date so fixed must be strictly
adhered to, and the time allowed is not to be
extended by reference to equitable principles. The
contract read as a whole and in particular Special
Condition 9(a) – approval of a scheme, Special
Condition (14) – the obtaining of consents and
General Condition 10(d) indicated its conditional
character and the parties proceeded and regarded
compliance with these provisions as necessary
ingredients to give force to the contract. Further,
there was a mutuality of benefit in the contractual
conditions (Maloney -v- Elf Investments Limited
[1997] ILRM 253) Special Condition 9(b) is quite
specific.
“It is agreed that if, for whatever
reason, the purchaser fails to complete
on the completion date, this contract
shall automatically be at an end….”
That is what the parties agreed – they agreed not to
be bound after 10 a.m. on 10th April 2000: No
interest existed under the Contract thereafter.
I am satisfied and find as a matter of fact and of
law that the 1st Defendant was not in breach of
Contract. Insofar as it is pertinent I am not
satisfied that there was any sound credible
convincing evidence upon which damages could be
awarded. Even if consents were unreasonably
withheld, it is the tenant who may claim damages (if
proven) Meagher -v- Luke J. Healy Pharmacy Ltd.
[2005] 1 EHC 120, Murphy, J. citing Kelly -v- Cussen
(88 I.L.T.R 97) For completeness, I was unconvinced
to a probability on adequate and imprecise evidence
that the Plaintiff was in funds at the appropriate
time such as to be able, ready and willing to
complete the sale.
A great deal of the trouble that arose in this case
had its origin in the instigation of the Plaintiff to
have the 2nd Defendant prepare and serve the Schedule
of Dilapidations to assist in its negotiating a price
with the 1st Defendant. The Plaintiff did not
disclose this fact prior to the contract to the
1st Defendant. In opening the case, considerable
emphasis was laid on the candour and up front
approach of Mr. Tallent. The words of Goulding J. in
O’May -v- City of London Real Property Co. Ltd.
(1979) 245 E.G. 1065 at 1069 have a particular
resonance. “After all, the purpose of legal contracts
is to reduce the mutual dependence of parties on one
another’s morality.”
I refuse the Plaintiff any relief against the
1st Defendant.
The relationship between the Plaintiff and the
1st Defendant is based on the contract of 8th October
1999 that of the Defendants inter se by the terms of
the lease of 22nd March 1918. There is no legal
relationship between the Plaintiff and the
2nd Defendant. Undoubtedly the Plaintiffs sought to
negotiate a business arrangement with the 2nd
Defendant, but those negotiations bore no fruit and
no concluded agreement ever arose. Notwithstanding
the initial overture made by the Plaintiff to offer
15% of the benefit of the scheme of redevelopment
being rejected by the 2nd Defendant, the Plaintiff
thereafter entered into the contract of 8th October
1999 with the 1st Defendant. This was a commercial
decision made by Mr. Tallent. I am satisfied and
find as a fact that no support was given to
Mr. Tallent by the 2nd Defendant to enter into the
contract of 8th October 1999. Mr. Tallent may have
assumed that because he was minded to enter into a
form of agreement to redevelop the site/premises at
some time in the future with the 2nd Defendant that
the 2nd Defendant would grant the consents required
under the lease. In my judgement, there was no
warrant or legal basis upon which he could rely or
make such assumption. In my judgement, there can
have been no legitimate expectation that his intended
or hoped for agreement with the 2nd Defendant would
be realised in October 1999 because his offer had
been rejected. Nothing in the evidence provided a
base either for such belief. The first task of the
Court is always to construe the particular words of
the particular contract against the factual
background known to the parties at or before the date
it is entered into (Charter Reinsurance Co. Ltd. -v-
Fagan (CA)[1997] AC 313 per Nourse J. At 394)
The Plaintiff in its legal submission contended that
both Rice and Kenny V Dublin Corporation [1947] IR
425 and W&L Crowe Ltd. & Anor -v- Dublin Port and
Docks Board [1962] IR 294 were authority for the
proposition that a Plaintiff as a proposed assignee
is entitled to bring an action (based on a breach of
an implied term in a contract between the proposed
assignor and the proposed assignee) against the
proposed assignor’s landlord under S.67 of the
Landlord and Tenant(Amendment) Act 1980 for the
withholding of consent to assignment or change of
use. The cases do not support such contention.
Furthermore, the instant case is site and
circumstances specific, unlike Rice’s case – where
the decision of refusal was a blanket policy
decision.
The privity of contract in this case between the
Plaintiff and the 1st Defendant is wholly separate
and distinct and apart from the privity created by
the lease between the 1st and 2nd Defendant (Ashworth
Frazer Ltd. -v- Gloucester City Council [2001] 1 WLR
2180 at p.2183 per Lord Bingham of Cornhill). I am
satisfied and find as a fact and as a matter of law
that even if the 2nd Defendant did act unreasonably –
and I make no such finding: good estate management to
retain a port related use as a Bonded Warehouse may
be a consideration within the terms of the lease.
Indeed in the course of his judgement in Crowe’s
case, Haugh J. stated:
“In Lloyd & Anor -v- Earl of Pembroke &
Anor 89 I.L.T.R 40 at p.44, Mr. Justice
Dixon has said:- “In considering for
themselves” [the landlords] “whether
they would or would not give consent,
they are entitled to take everything
affecting the position into account,
including considerations of their own
estate management and including
questions of their own interests.”
In Rice -v- Dublin Corporation [1947]
IR 425 at p.436 Maguire C.J.,says:-
“….I am of opinion that while it is
the duty of the Court to consider each
case upon its merits, there is no
reason why a landlord may not properly
base a refusal of consent upon grounds
of general policy in relation to the
management of his estate.”
The instant case is distinguishable from Crowe’s case
in (inter alia) in that case both plaintiffs were
applicants for the consent sought – that is not the
position in the instant case. Even if the
reasonableness or otherwise of the consents withheld
required determination, ‘the onus is on the tenant to
establish that the landlord is unreasonably
withholding its consent.’ [OHS Ltd. -v- Green
Property Company Limited [1986] IR 39 – in my
judgement, the evidence does not prove that the
refusal of consents by the 2nd Defendant was
unreasonable. The Plaintiff in this case seeks
declaratory relief – such is a matter of discretion,
in this case even if there was a supporting
evidential basis for doing so, I would refuse to
exercise my discretion in favour of the Plaintiff for
a variety of reasons arising from some unsatisfactory
features of the evidence and more particularly
because the Plaintiff by instigating the preparation
and service of the Schedule of Dilapidations without
disclosure to the 1st Defendant and by this
generation putting the 1st Defendant at a
disadvantage before the contract and inhibiting the
1st Defendant in dealing with the property afterwards
and agreeing that the agreement would automatically
be at an end” as of 10th April 2000, by registering a
lis pendens. The latter in my judgement was wholly
unwarranted. I am satisfied and find as a fact on
the evidence and as a matter of law that there was no
case in estoppel resting against either Defendant.
I dismiss the Plaintiffs’ case.
END OF JUDGMENT
Contracts (Rights of Third Parties) Act 1999 (UK Act reforming the law)
An Act to make provision for the enforcement of contractual terms by third parties.
[11th November 1999]
Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—
Annotations: Help about Annotation
Extent Information
E1
Act extends to Northern Ireland but the operation of s. 9 is limited by application as mentioned in s. 9(1)
Commencement Information
I1
Act in force at Royal Assent (11.11.1999): for application see s. 10(2)(3)
Right of third party to enforce contractual term.
(1)Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if—
(a)the contract expressly provides that he may, or
(b)subject to subsection (2), the term purports to confer a benefit on him.
(2)Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
(3)The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.
(4)This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract.
(5)For the purpose of exercising his right to enforce a term of the contract, there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract (and the rules relating to damages, injunctions, specific performance and other relief shall apply accordingly).
(6)Where a term of a contract excludes or limits liability in relation to any matter references in this Act to the third party enforcing the term shall be construed as references to his availing himself of the exclusion or limitation.
(7)In this Act, in relation to a term of a contract which is enforceable by a third party—
“the promisor” means the party to the contract against whom the term is enforceable by the third party, and
“the promisee” means the party to the contract by whom the term is enforceable against the promisor.
Variation and rescission of contract.
(1)Subject to the provisions of this section, where a third party has a right under section 1 to enforce a term of the contract, the parties to the contract may not, by agreement, rescind the contract, or vary it in such a way as to extinguish or alter his entitlement under that right, without his consent if—
(a)the third party has communicated his assent to the term to the promisor,
(b)the promisor is aware that the third party has relied on the term, or
(c)the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it.
(2)The assent referred to in subsection (1)(a)—
(a)may be by words or conduct, and
(b)if sent to the promisor by post or other means, shall not be regarded as communicated to the promisor until received by him.
(3)Subsection (1) is subject to any express term of the contract under which—
(a)the parties to the contract may by agreement rescind or vary the contract without the consent of the third party, or
(b)the consent of the third party is required in circumstances specified in the contract instead of those set out in subsection (1)(a) to (c).
(4)Where the consent of a third party is required under subsection (1) or (3), the court or arbitral tribunal may, on the application of the parties to the contract, dispense with his consent if satisfied—
(a)that his consent cannot be obtained because his whereabouts cannot reasonably be ascertained, or
(b)that he is mentally incapable of giving his consent.
(5)The court or arbitral tribunal may, on the application of the parties to a contract, dispense with any consent that may be required under subsection (1)(c) if satisfied that it cannot reasonably be ascertained whether or not the third party has in fact relied on the term.
(6)If the court or arbitral tribunal dispenses with a third party’s consent, it may impose such conditions as it thinks fit, including a condition requiring the payment of compensation to the third party.
(7)The jurisdiction conferred on the court by subsections (4) to (6) is exercisable[F1in England and Wales by both the High Court and the county court and in Northern Ireland ] by both the High Court and a county court.
Annotations: Help about Annotation
Amendments (Textual)
F1
Words in s. 2(7) inserted (22.4.2014) by Crime and Courts Act 2013 (c. 22), s. 61(3), Sch. 9 para. 71; S.I. 2014/954, art. 2(c) (with art. 3) (with transitional provisions and savings in S.I. 2014/956, arts. 3-11)
Defences etc. available to promisor.
(1)Subsections (2) to (5) apply where, in reliance on section 1, proceedings for the enforcement of a term of a contract are brought by a third party.
(2)The promisor shall have available to him by way of defence or set-off any matter that—
(a)arises from or in connection with the contract and is relevant to the term, and
(b)would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee.
(3)The promisor shall also have available to him by way of defence or set-off any matter if—
(a)an express term of the contract provides for it to be available to him in proceedings brought by the third party, and
(b)it would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee.
(4)The promisor shall also have available to him—
(a)by way of defence or set-off any matter, and
(b)by way of counterclaim any matter not arising from the contract,that would have been available to him by way of defence or set-off or, as the case may be, by way of counterclaim against the third party if the third party had been a party to the contract.
(5)Subsections (2) and (4) are subject to any express term of the contract as to the matters that are not to be available to the promisor by way of defence, set-off or counterclaim.
(6)Where in any proceedings brought against him a third party seeks in reliance on section 1 to enforce a term of a contract (including, in particular, a term purporting to exclude or limit liability), he may not do so if he could not have done so (whether by reason of any particular circumstances relating to him or otherwise) had he been a party to the contract.
Enforcement of contract by promisee.
Section 1 does not affect any right of the promisee to enforce any term of the contract.
Protection of promisor from double liability.
Where under section 1 a term of a contract is enforceable by a third party, and the promisee has recovered from the promisor a sum in respect of—
(a)the third party’s loss in respect of the term, or
(b)the expense to the promisee of making good to the third party the default of the promisor,then, in any proceedings brought in reliance on that section by the third party, the court or arbitral tribunal shall reduce any award to the third party to such extent as it thinks appropriate to take account of the sum recovered by the promisee.
Exceptions.
(1)Section 1 confers no rights on a third party in the case of a contract on a bill of exchange, promissory note or other negotiable instrument.
(2)Section 1 confers no rights on a third party in the case of any contract binding on a company and its members under [F2section 33 of the Companies Act 2006 (effect of company’s constitution)].
[F3(2A)Section 1 confers no rights on a third party in the case of any incorporation document of a limited liability partnership [F4or any agreement (express or implied) between the members of a limited liability partnership, or between a limited liability partnership and its members, that determines the mutual rights and duties of the members and their rights and duties in relation to the limited liability partnership.]]
[F5(2A)Section 1 confers no rights on a third party in the case of any incorporation document of a limited liability partnership [F4or any agreement (express or implied) between the members of a limited liability partnership, or between a limited liability partnership and its members, that determines the mutual rights and duties of the members and their rights and duties in relation to the limited liability partnership.]]
(3)Section 1 confers no right on a third party to enforce—
(a)any term of a contract of employment against an employee,
(b)any term of a worker’s contract against a worker (including a home worker), or
(c)any term of a relevant contract against an agency worker.
(4)In subsection (3)—
(a)“contract of employment”, “employee”, “worker’s contract”, and “worker” have the meaning given by section 54 of the M1National Minimum Wage Act 1998,
(b)“home worker” has the meaning given by section 35(2) of that Act,
(c)“agency worker” has the same meaning as in section 34(1) of that Act, and
(d)“relevant contract” means a contract entered into, in a case where section 34 of that Act applies, by the agency worker as respects work falling within subsection (1)(a) of that section.
(5)Section 1 confers no rights on a third party in the case of—
(a)a contract for the carriage of goods by sea, or
(b)a contract for the carriage of goods by rail or road, or for the carriage of cargo by air, which is subject to the rules of the appropriate international transport convention,except that a third party may in reliance on that section avail himself of an exclusion or limitation of liability in such a contract.
(6)In subsection (5) “contract for the carriage of goods by sea” means a contract of carriage—
(a)contained in or evidenced by a bill of lading, sea waybill or a corresponding electronic transaction, or
(b)under or for the purposes of which there is given an undertaking which is contained in a ship’s delivery order or a corresponding electronic transaction.
(7)For the purposes of subsection (6)—
(a)“bill of lading”, “sea waybill” and “ship’s delivery order” have the same meaning as in the M2Carriage of Goods by Sea Act 1992, and
(b)a corresponding electronic transaction is a transaction within section 1(5) of that Act which corresponds to the issue, indorsement, delivery or transfer of a bill of lading, sea waybill or ship’s delivery order.
(8)In subsection (5) “the appropriate international transport convention” means—
(a)in relation to a contract for the carriage of goods by rail, the Convention which has the force of law in the United Kingdom under section 1 of the M3International Transport Conventions Act 1983,
(b)in relation to a contract for the carriage of goods by road, the Convention which has the force of law in the United Kingdom under section 1 of the M4Carriage of Goods by Road Act 1965, and
(c)in relation to a contract for the carriage of cargo by air—
(i)the Convention which has the force of law in the United Kingdom under section 1 of the M5Carriage by Air Act 1961, or
(ii)the Convention which has the force of law under section 1 of the M6Carriage by Air (Supplementary Provisions) Act 1962, or
(iii)either of the amended Conventions set out in Part B of Schedule 2 or 3 to the M7Carriage by Air Acts (Application of Provisions) Order 1967.
Annotations: Help about Annotation
Extent Information
E2
In its application to Northern Ireland, this section has effect subject to the modifications set out in s. 9(2)(3)
Amendments (Textual)
F2
Words in s. 6(2) substituted (1.10.2009) by The Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009 (S.I. 2009/1941), arts. 1(2), 2(1), Sch. 1 para. 179(2)(a) (with art. 10)
F3
S. 6(2A) inserted (N.I.) (13.9.2004) by Limited Liability Partnerships Regulations (Northern Ireland) 2004 (S.R. 2004/307), regs. 1, 9, Sch. 4 para. 16
F4
Words in s. 6(2A) substituted (1.10.2009) by The Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009 (S.I. 2009/1941), arts. 1(2), 2(1), Sch. 1 para. 179(2)(b) (with art. 10)
F5
S. 6(2A) inserted (E.W.) (6.4.2001) by S.I. 2001/1090, reg. 9, Sch. 5 para. 20
Marginal Citations
M1
1998 c. 39.
M2
1992 c. 50.
M3
1983 c. 14.
M4
1965 c. 37.
M5
1961 c. 27.
M6
1962 c. 43.
M7
S.I. 1967/480.
Supplementary provisions relating to third party.
(1)Section 1 does not affect any right or remedy of a third party that exists or is available apart from this Act.
(2)Section 2(2) of the M8Unfair Contract Terms Act 1977 (restriction on exclusion etc. of liability for negligence) shall not apply where the negligence consists of the breach of an obligation arising from a term of a contract and the person seeking to enforce it is a third party acting in reliance on section 1.
(3)In sections 5 and 8 of the M9Limitation Act 1980 the references to an action founded on a simple contract and an action upon a specialty shall respectively include references to an action brought in reliance on section 1 relating to a simple contract and an action brought in reliance on that section relating to a specialty.
(4)A third party shall not, by virtue of section 1(5) or 3(4) or (6), be treated as a party to the contract for the purposes of any other Act (or any instrument made under any other Act).
Annotations: Help about Annotation
Extent Information
E3
In its application to Northern Ireland, this section has effect subject to the modifications set out in s. 9(2)(3)
Marginal Citations
M8
1977 c. 50.
M9
1980 c. 58.
Arbitration provisions.
(1)Where—
(a)a right under section 1 to enforce a term (“the substantive term”) is subject to a term providing for the submission of disputes to arbitration (“the arbitration agreement”), and
(b)the arbitration agreement is an agreement in writing for the purposes of Part I of the M10Arbitration Act 1996,the third party shall be treated for the purposes of that Act as a party to the arbitration agreement as regards disputes between himself and the promisor relating to the enforcement of the substantive term by the third party.
(2)Where—
(a)a third party has a right under section 1 to enforce a term providing for one or more descriptions of dispute between the third party and the promisor to be submitted to arbitration (“the arbitration agreement”),
(b)the arbitration agreement is an agreement in writing for the purposes of Part I of the Arbitration Act 1996, and
(c)the third party does not fall to be treated under subsection (1) as a party to the arbitration agreement,the third party shall, if he exercises the right, be treated for the purposes of that Act as a party to the arbitration agreement in relation to the matter with respect to which the right is exercised, and be treated as having been so immediately before the exercise of the right.
Annotations: Help about Annotation
Marginal Citations
M10
1996 c.23.
9 Northern Ireland.
(1)In its application to Northern Ireland, this Act has effect with the modifications specified in subsections (2) and (3).
(2)F6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)In section 7, for subsection (3) there is substituted—
“(3)In Articles 4(a) and 15 of the M11Limitation (Northern Ireland) Order 1989, the references to an action founded on a simple contract and an action upon an instrument under seal shall respectively include references to an action brought in reliance on section 1 relating to a simple contract and an action brought in reliance on that section relating to a contract under seal.”.
(4)In the M12Law Reform (Husband and Wife) (Northern Ireland) Act 1964, the following provisions are hereby repealed—
(a)section 5, and
(b)in section 6, in subsection (1)(a), the words “in the case of section 4” and “and in the case of section 5 the contracting party” and, in subsection (3), the words “or section 5”.
Annotations: Help about Annotation
Extent Information
E4
S. 9 extends to Northern Ireland but the operation of s.9 is limited by application as mentioned in s. 9(1)
Amendments (Textual)
F6
S. 6(2) omitted (1.10.2009) by virtue of The Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009 (S.I. 2009/1941), arts. 1(2), 2(1), Sch. 1 para. 179(3) (with art. 10)
Marginal Citations
M11
S.I. 1989/1339 (N.I. 11).
M12
1964 c. 23 (N.I.).
10 Short title, commencement and extent.
(1)This Act may be cited as the Contracts (Rights of Third Parties) Act 1999.
(2)This Act comes into force on the day on which it is passed but, subject to subsection (3), does not apply in relation to a contract entered into before the end of the period of six months beginning with that day.
(3)The restriction in subsection (2) does not apply in relation to a contract which—
(a)is entered into on or after the day on which this Act is passed, and
(b)expressly provides for the application of this Act.
(4)This Act extends as follows—
(a)section 9 extends to Northern Ireland only;
(b)the remaining provisions extend to England and Wales and Northern Ireland only.