Total Failure of Performance
Cases
Hunt v. Silk
(1804) 5 East 449
Lord Ellenborough CJ: Without questioning the authority of ….Giles v Edwards whichI admit to have been properly decided, there is this difference between that and the present; that thereby the terms of the agreement the money was to be paid antecedent to the cording and delivery of the wood, and here it was not to be paid till the repairs were done and the lease exe cuted. The plaintiff there had no opportunity by the terms of the contract of making his stand
to see whether the agreement were performed by the other party before he paid his money, which the plaintiff in this case had; but instead of making his stand, as he might have done, on thedefendant’s non-performance of what he had undertaken to do, he waved his right, and vol untarily paid themoney; giving the defendant credit for his future performance of the contract; and afterwards continued in possession notwithstanding the defendant’s default. Now wherea contract is to be rescinded at all, it must be rescinded in toto, and the parties put in statu quo. But here was an intermediate occupation, a part execution of the agreement, which was inca pable of beingrescinded. If the plaintiff might occupy the premises two days beyond the time when the repairs were to have been done and the lease executed, and yet rescind the contract, why might he not rescind it after a twelvemonth on the same account. This objection cannot be gotten rid of: the parties cannot be put in statu quo. ·
Lawrence J: In the case referred to, where the contract was rescinded, both parties were put in the same situation they were in before. For the defendant must at any rate have corded his wood before it was sold. But that cannot be done here where the plaintiff has had an interme diate occupation of the premises under the agreement. If indeed the 101. had been paid specif ically for the repairs, and they had not been done within the time specified, on which the plaintiff had thrown up the premises, there might have been some ground for the plaintiff’s argument that the consideration had wholly failed: but the money was paid generally on the agreement, and the plaintiff continued in possession after the ten days, which can only be referred to the agreement.
Le BlancJ: The plaintiff voluntarily consented to go on upon the contract after the defendant had made the default of which he now wishes to avail himself in destruction of thecontract. But the parties cannot be put in the same situation they were in, because the plaintiff has had an occupation of the premises under the agreement.
Rowland v. Divall
[1923] 2 KB 500
Bankes LJ.:.. The facts are shortly these. The plaintiff bought a motor car at Brighton from the defendant in May, 1922. He took possession ofit at once, drove it to his place of business atBlandford, where he exhibited it for sale in his shop, and ultimately sold it toa purchaser. It was not discovered that the car was a stolen car until September, when possession was taken of it by the police. The plaintiff and his purchaser between them had possession of it for about fourmonths. The plaintiff now brings his action to recover back the price that he paid to the defendant upon the ground of total failure of.consideration. As I have said, it cannot now be disputed that there was an implied condition on the part of the defendant that he hada right to sell the car, and unless something happened to change that condition intoa warranty the plain tiff is entitled to rescind the contract and recover back the money. The Sale of Goods Act itself indicates in s. 53 the circumstances in which a condition may be changed intoa warranty: ‘Where the buyer elects, or is compelled, to treat any breach of a condition on the part of the seller asa breach of warranty’ the buyer is not entitled to reject the goods, but his remedy is in damages. Mr. Doughty contends that this is a case in which the buyer is compelled to treat the condition asa warranty within the meaning of that section, because, having had the use of the car for four months, he cannot put the seller in statu quo and therefore cannot now rescind, and he has referred to several authorities in suppon of that contention. But when those authorities are looked atI think it will be found that in all of them the buyer got some part of what he con tracted fo.r… In Hunt v. Silk1 Lord Ellenborough went upon the ground that the plaintiff had received part of what he bargained for. He said: ‘Where a contract is to be rescinded at all, it must be rescinded in toto, and the parties put in statu quo. But here was an intermediate occu pationa, part execution of the agreement, which was incapable of being rescinded.’ … But in the present case it cannot possibly be said that the plaintiff received any portion of what he had
agreed to buy. It is true that a motor car was delivered to him, but the person who sold it to him had no right to sell it, and therefore he did not get what he paid for-narndya, car to which he would have title; and under those circumstances the user of the car by the purchaser seems to me quiteimmaterial for the purpose of considering whether the condition had been con verted intoa warranty. In my opinion the plaintiff was entitled to recover the whole of the pur chase money, and was not limited to his remedy in damages as the judge belowheld.
Scrutton LJ: … Mr. Doughty argues that there can never be a rescission where a restitutio in integrum is impossible, and that here the plaintiff cannot rescind because he cannot return the car. To that the buyer’s answer is that the reason of his inability to return it-namely, the fact that the defendant had no title to it-is thevery thing of which he is complaining, and that it does not lie in the defendant’s mouth to set up as a defence to the action his own breach of the implied condition that he had a right to sell. In my opinion that answer is well founded, and it
would, I think, be absurd to apply the rule as to restirutio in integrum to such a state of facts. No doubt the general rule is that a buyer cannot rescind a contract of sale and get back the pur
chase money unless he can restore the subject matter. There are a large number of cases on the subject, some of which are not very easy to recoocile with others. Some of them make it highly probable that a certain degree of deterioration of the goods is not sufficient to take away the right to recover the purchase money. However I do not think it necessary to refer to them. It certainly seems to me that, in a case of rescission for the breach of the condition that the seller had a right to sell the goods, it cannot be that the buyer is deprived of his right to get back the purchase money because he cannot restore the goods which, from the nature of the transaction, are not the goods of the seller at all, and which the seller therefore has no right to under any circumstances. For these reasons I think that the plaintiff is entitled to recover the whole of the purchase money as for a total failure of consideration, and that the appeal must be allowed.
Yeoman Credit Ltd v. Apps
[1962) 2 Q!J 508, Court of Appeal
Holroyd Pearce LJ; … I cannot, however, with all respect, agree with the judge that there wasa total failure of consideration. The defendant was plainly entitled to reject the car, to accept, the plaintiff’s repudiation of the contract by their delivery of sucha car, and to rescind the contract. Had he done so, there would have been a total failure of consideration, and he would ha,·e recovered the sums paid. But, as the judge found, he made no serious effort to return the car. He kept it for five or six months, and approbated the contract by paying three instalments. He intended (to quote his evidence) ‘to keep the car, and hoped Goodbody [the dealer] would pay half the cost.’ He tried to find out from the plaintiffs what he could do to make Goodbody carry out the work. In those circumstances he was at that stage continuing with the agreement while protesting against the state of the car which was due toa breach of condi tion by the plaintiffs. This is nota case like Rowland v. Divlil/1 where title was lacking, and the defendant never had lawful possession. Here the defendant had the possession of the car and its use, such as it was. In evidence he said: ‘That month I got copy of agreement.I had had the
car by that time. I had been able to drive it-very poor.’ Admittedly the use was oflittle (if any) value, but in my view that use, coupled with possession, and his continuance of the hiring agreement with the intention of keeping the car and getting Goodbody to pay half the repain, debars the defendant from saying that there was a total failure of consideration….
Davies LJ: … The second point on which I would say just one word relates to the que1don whether or not there was a total failure of consideration. I was, I confess, for some time attractod by the argument of Mr. Stephen Chapman that if there had been any consideration movin1 to the hirer (if ‘moving’ is an apt word in connection with this motor-car at all), it was de minimis. But I think it is impossible to say that. The defendant actually had the vehicle in his possession for some months-the vehicle which albeit on little or no inspection, he had agreed to take- and he was hoping, of course, that Goodbody (the dealer) would remedy the refects. The vehicle was not worthless; it fetched £210 in the trade eventually. It would go, though very badly indeed. The defendant retained it, as I have said, and paid the three instalments that he did pay. He had work done upon the car by Mr. Watson in order to take it to Goodbody’s premises. And it was not, as my Lord has said, until at any rate August that eventually his
patience became exhausted, and he told the plaintiffs: ‘I am not paying any more. You had bet ter take it back.’ …
Hannan L.J. concurred.
Baltic Shipping Company v. Dillon (The Mikhail Lennontov)
(1993) 176 CLR 344, High Court of Australia .
Mason CJ:
The Claim for Restitution of the Fare
Basis on which the claim is advanced
By cl. 12 of her further amended writ of summons in personam, the respondent claimed: ‘return of the full fare in the sum ofS2,205.00 as for a total failure of consideration.’ By cl. 7 ofthe defence, the appellant simply denied that there had been a total failure of consideration. At trial, the respondent’s claim was refined so as to extend only to the balance of the fare not already refunded by the appellant, that balance being Sl,417.50. Carruthers J held that the contract of passage was an entire one’ and said:2
‘In reality, the plaintiff got no benefit from this contract. It is true that she did have eight days cruising on the vessel and visited the Bay oflslands, Auckland, Tauranga, Wellington and Picton, but those benefits were entirely negated by the catastrophe which occurred upon departure from Picton. Thus, I would allow the amount claimed under this head.’
In the Court of Appeal, the appellant challenged the finding that there was a total failure of con sideration. The challenge was rejected. Kirby P,3 with whom ‘Gleeson CJ agreed on this point,4 noted that the appellant had urged that there was no total failure of consideration as ‘(t]he respondent had had the benefit of eight of fourteen days of an idyllic cruise.’ He concluded that the contract of carriage was an entire one. His Honour said:
‘On this point it is my view that Carruthers J reached the right conclusion. The respon dent did not contract with the appellant for an eight-day cruise, still less for an eight-day cruise interrupted by the disaster which befell the “Mikhail Lermontov”. What she con tracted for was a relaxing holiday experience. It is this that she failed to secure.’The con tract of carriage was properly categorized as an entire contract. I agree with the judge that there is a good analogy to Sir George Jessel MR’s statement in Re Hall fS Barker:5 ” Ifa shoemaker agrees to make a pair of shoes, he cannot offer you one shoe, and ask you to pay one half of the price.” ‘
He then observed that, in order to avoid over-compensation, a claim for restitution of money paid on a total failure of consideration will succeed only if accompanied by counter-restitution of benefits bargained for and received by the claimant.
In the Court of Appeal, the appellant also relied upon cl. 9 of the printed ticket terms and conditions. That clause incorporated a right to proportional return of the consideration in cer tain circumstances. Kirby P held that the clause, while it could exclude the right to restitution in certain circumstances, was inapplicable for two reasons: first, the clause was not incorporated into the contract of carriage; secondly, by reason of the admission of negligence by the appel lant, the reason for the impossibility of continuation of the voyage was not ‘beyond the control’ of the appellant and, therefore, a precondition of its operation was not satisfied. Gleeson CJ agreed generally that the ticket terms and conditions were not incorporated. However, he said that sufficient notice may have been given of some terms and conditions printed on the ticket so as to incorporate them. He did not consider cl. 9 separately.
Accordingly, the Court of Appeal, by majority, held that the respondent was entitled to restitution of the balance of the fare.
In this Court, the appellant contends that the majority in the Court of Appeal erred in holding that the respondent was entitled to restitution of the whole of the fare. In support of this contention, the appellant submits that there was not a total failure of consideration arising from the fact that the contract of carriage was entlre. The appellant also submits that a plaintiff can not pursue both a claim for restitution of the consideration paid under a contract and a claim for damages for breach of that contract. It seems that this argument was not presented to, or considered by, the courts below. The merits of this argument, which will be considered below, do not necessarily depend on the availability of damages for disappointment and distress. That is but one head of damages whose recoverability is in question. However, if restitution is avail able and such damages are recoverable, questions of double compensation arise.
Is the fare recoverable on the ground.l of total failure of consideration or othtrwise?
An entire contract or, perhaps more accurately, an entire obligation is one in which the con sideration for the payment of money or for the rendering of some other counter-performance is entire and indivisible. In Stetle v. Tardiani,6 Dixon J cited the general proposition stated in E. V. Williams’ Notes to Saunders’ Rtports:
‘Where the consideration for the payment of money is entire and indivisible, as where the benefit expected by the defendant under the agreement is to result from the enjoyment of any part of the consideration has failed; for, being entire, by failing partially, it fails alto gether.’
The concept of an entire contract is material when a court is called upon to decide whether complete performance by one party is a condition precedent to the other’s liability to pay the stipulated price or to render an agreed counter-performance.8 If this were a case in which the appellant sought to enforce a promise to pay the cruise fare at the conclusion of the voyage the concept would have a part to play; then, if the appellant’s obligations were entire, on the facts
as I have stated them, the appellant’s incomplete performance of its obligations would not entitle it to recover. :
When, however, an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance hy the contract-breaker of its obligations under the contract and the contract-breaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration.9 If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration.
In the context of the recovery of money paid on the footing that there has been a total failure of consideration, it is the performance of the defendant’s promise, not the promise itself,
which is the relevant consideration.10 In that context, the receipt and retention hy the plaintiff of any part of the bargained-for benefit will preclude recovery, unless the contract otherwise provides or the circumstances give rise to a fresh contract. So, in Whincup v. Hughes,11 the plaintiff apprenticed his son to a watchmaker for six years for a premium which was paid. The watchmaker died after one year. No part of the premium could be recovered. That was because there was not a total failure of consideration.12 A qualification to this general rule, more appar ent than real, has been introduced in the case of contracts where a seller is bound to vest title to chattels or goods in a buyer and the buyer seeks to recover the price paid when it turns out that title has not been passed. Even if the buyer has had the use and enjoyment of chattels or goods purportedly supplied under the contract for a limited time, the use and enjoyment of the chattels or goods has been held not to amount to the receipt of part of the contractual consid eration. Where the buyer is entitled under the contract to good title and lawful possession but receives only unlawful possession, he or she does not receive any part of what he or she bar gained for. And thus, it is held, there is a total failure of consideration.13 As this Court stated in David Securities Pty. Ltd v. Commonwealth Bank of Australia:14 ‘the notion of total failure of consideration now looks to the benefit bargained for by the plaintiff rather than any benefit
which might have been received in fact.’
An alternative basis for the recovery of money paid in advance pursuant toa contract in expectation of the receipt of the consideration to be provided by the defendant may arise when the defendant’s right to retain he payment is conditional upon performance of his or her oblig ations under the contract. This basis of recovery has a superficial, but nota close, resemblance to the concept of an entire contract. In this class of case the plaintiff may be entitled to recover every part of the consideration jointly, so that the money payable is neither appontioned by the contract, nor capable of being apportioned by a jury, no action is maintainable, if
so long as the payment remains conditional.
So, in Dies v. British (S Internatio11al Mining (S Finance Corporation, the plaintiff bought arms for the price of £135,000, paying £100,000 in advance. Though unwilling or unable to take delivery, the plaintiff succeeded in recovering the payment, notwithstanding that StableJ held that there was nota total failure of consideration. There can, of course, be no such failure when the plaintiff’s unwillingness or refusal to perform the contract on his or her part is the cause of the defendant’s non-performance. The decision is explicable either on the ground that the seller accepted the plaintiff’s repudiation and thus itself effected the discharge of the contract16 or on the ground that the payment was a mere part payme1n7t, the right to which depended upon performance of the contract and was thus conditional. Of the two explanations, the second is to be preferred because it is in closer accord with the judgment of Stable J.
His Lordship said:'[W]here the language used in a contract is neutral, the general rule is that the law confers on the purcha&er the right to recover his money, and that to enable the seller to keep it he must be able to point to some language in the contract from which the inference to be drawn is that the parties intended and agreed that he should.’This statement in turn accords with the distinction drawn by Lord Denman CJ (to which Stable J referred) in Palmer v.Temple19 between a deposit which was to be forfeited if the plaintiff should not perform the contract and a mere part payment the right to which depended upon performance of the contract. The statement also accords with the point made by DixonJ in McDonald v. Dennys Lascelles Ltd, where he said:20
‘Whena contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor’s promise to give hima conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract.’
The question whether an advance payment, not being a deposit or earnest of performance, is absolute or conditional is one of construction. In determining that question it is material to
ascertain whether the payee is required by the contract to perform work and incur expense before completing this performance of his or her obligations under the contnct. If the payee is so required then, unless the contract manifests a contrary intention, it would be unreasonable to hold that the payee’s right to retain the payment is conditional upon performance of the contractual obligations.21
I have come to the conclusion in the present case that the respondent is not entitled to recover the cruise fare on either of the grounds just discussed. The consequence of the respondent’s enjoyment of the benefits provided under the contract during the first eight full days of the cruise is that the failure of consideration was partial, not total. I do not understand how, ,·iewed from the perspective of failure of consideration, the enjoyment of those benefits was ‘entirely negated by the catastrophe which occurred upon departure from Picton’,22 to repeat the words of the primary judge.
Nor is there any acceptable foundation for holding that the advance payment of the cruise fare created in the appellant no more than a right to reiain the payment conditional upon its complete performance of its entire obligations under the contract. As the contract called for performance by the appellant of its contractual obligations from the very commencement of the voyage and continuously thereafter, the advance payment should be regarded as the provision of consideration for each and every substantial benefit expected under the contract. It would not be reasonable to treat the appellant’s right to retain the fare as conditional upon complete performance when the appellant is under a liability to provide substantial benefits to the respon dent during the course of the voyage. After all, the return of the respondent to Sydney at the end of the voyage, though an important element in the performance of the appellant’s obliga
tions, was but one of many elements. In order to illustrate the magnitude of the step which the respondent asks the Court to take, it is sufficient to pose two questions, putting to one side cl. 9 of the printed ticket terms and conditions. Would,the respondent be entitled to a return of the fare if, owing to failure of the ship’s engines, the ‘ship was unable to proceed on the last leg of the cruise to Sydney and it became necessary to airlift the respondent to Sydney? Would the fare be recoverable if, owing to a hurricane, the ship was compelled to omit a visit to one of the scheduled ports of call? The answer in each case”rrlust be a (esounding negative.
The respondent sought to derive support from authorities relating to the contracts for the carriage of goods by sea which hold that freight is due on the arrival of the goods at the agreed destination. More to the point is the principle th;it an advance by the shipper on account of the freight to be earned is, in tHe absence of any stipulation to the contrary, ‘an irrevocable pay ment at the risk of the shipper of the goods’.z3 The result of this rule is that an advance on account of freight may be retained, notwithstanding that, because of a failure to complete the voyage and to deliver the goods, the freight remains unearned24 and that a payment due as an advance on account of freight is recoverable (if not duly paid) even after frustration of the voy age.25 This rule, although it has been said to be a stipulation introduced into such contracts by custom and not the result of applying some abstract principle,26 would certainly exclude a resti tutionary claim on facts analogous to those in the present case.
The combination of a claim for restitution and a claim for damages
In view of my conclusion that the respondent cannot succeed in her restitutionary claim for recoupment of the fare, there is no necessity for me to consider whether the two claims can be maintained. However, as the question has been argued, I should record my view of the ques tion. There is authority to suggest that the claims are alternative and not cumulative.27 But Lord Denning MR was clearly of the view that the claims may be concurrent. In Heywood v. Wellers (A Firm),28 he said:
‘[The plaintiff] could recover the £175 as money paid on a consideration which had wholly failed. She was, therefore, entitled to recover it as of right. And she is entitled to recover as well damages for negligence. Take this instance. If you engage a driver to take you to the station to catch a train for a day trip to the sea, you pay him £2–and then the car breaks down owing to his negligence. So that you miss your holiday. In that case you can recover not only your £2 back but also damages for the disappointment, upset and , mental distress which you suffered.’
Lord Denning was speaking of negligence in the sense of breach of a contractual obligation of due care. He noted a qualification to the entitlement to maintain the two claims:’Some reduction should be made for the fact that if the [defendants] had done their duty
… itwould have cost her something.’
That reduction was accordingly made to the damages for breach of contract.
Similarly, in Mi!lar’s Machinery Co. Ltd v. David Way fS Son,30 the Court of Appeal dis missed an appeal from a decision of Branson J in which such a dual award was made. The case
concerned a contract for supply of machinery. It was held that there had been a total failure of consideration and that the purchasers were entitled to recover the amount paid on account. In addition, the purchasers were held to be entitled to damages, the proper measure of which was:31 ‘the sum which the [purchasers] had to spend to put themselves in the position [in] which they would have been if the [suppliers] had carried out their contract.’ That amount was the difference between the contract price and the amount which they had to pay to another supplier for a similar machine.
And Treitel says in relation to claims for loss of bargain, reliance loss and restitution:32’There is sometimes said to be an inconsistency between combining the various types of claim …
The true principle is not that there is any logical objection to combining the various types of claim, but that the plaintiff cannot combine them so as to recover more than once for the same loss Thpeoint has been well put by Corbin: “fall damages and complete ,restitution will not both be gi-ven for the same breach of contract”33.’
The action to recover money paid on a total failure of consideration is on a common money count for money had and received to the use of the plaintiff.34 The action evolved from the writ of indebitatus assumpsit.35 It is available only if the contract has been discharged, either for breach or following frustration,36 and if there has been a total, and not merely partial, failure of consideration.37 It is now clear that, in these cases, the discharge operates only prospectively, that is, it is not equivalent to rescission ab initio. Nor is rescission ab initio a precondition for recovery.38 Unconditionally accrued rights, including accrued rights to sue for damages for prior breach of the contract,39 are not affected by the discharge. Prepayments can, ingeneral,be recovered, but the position of deposits or earnests is not entirely clear, the better view being that they are not recoverable if paid to provide a sanction against withdrawal.”°
Jn 1846, when Polloc.k CB held in Walstab v. Spottiswootk that it was not possible to combine a claim for damages with one for restitution, the restitutionary action was brought on the writ of indebitatusassumpsit.41 Subsequently, Lord Wright said in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd:42
‘The writ of indebitatus assumpsit involved at least two averments, the debt or obligation and theassumpsit. The former was the basis of the claim and was the real cause of action. The latter was merely fictitious and could not be traversed, but was necessary to enable the convenient and liberal form of action to be used in such cases.’
The actionwas, as Lord Mansfield said in Moses v. Macflrlan,43 ‘quasi excontractu’ and founded on an obligation imposed by law and accommodated within the system of formal plead ing by means of the fictitious assumpsit or promise. lt was necessary to plead the fictitious assumpsit until theenactment of s. 3 of the Common Law Pr01:edure Act 1852 (Eng.). And even then its influencecontinued. The abolition of the forms of action inspired an analysis of the sourcesof obligation in the common law in terms of a rigid dichotomy between contract and tort. In that context, there was little room for,restirutionary obligation imposed by law except asa ‘quasi-contractual’ appendix to the Jaw ofi contract. As a result, until recently, restitution ary claims were disallowed when a promise could not be implied in fact.44 However, since Pavey (5 MatthewsPty. ltd v.Paul,45 such an approach no longer represents the law in Australia.
But, in the circumstances prevailing in 1846, it is not difficult to sec thata plaintiff would necessarily be put to an election between the real and fictitious promises. In cases of tort itis
equally plain that there had to be a choice between an action on a fictitious assumpsit (waiving the tort) and seeking damages for the tort. ·
The decision in Walstab v. Spottiswoode may also be seen as a consequence of two historical threads. The first is the competition in the latter part of the sixteenthcentury between the judges ofthe King’s Bench and those of the Common Pleas as to the relationship between debt andassumpsit. The critical decision in the resolution of the conflict was Slade Cast.46 While theprecise contemporary import of the decision is a matter of controversy,47 it was takenin the seventeenth century as deciding that indebitatus assumpsit lay as well as debt to recover sums due undera contract in the absence of an express subsequent promise to pay.48 The assumpsit orpromise was founded ‘not upon any fiction of law, but upon an interpretation of facts by the
court which led it to the genuine conclusion that the parties had actually agreed [to male the payment]’.49
The second is the decision at around the same time that indebitatus assumpsit lay in cir cumstances where the assumpsit was necessarily imputed rather than genuinely implied from the facts.50 Arris v. Stululy51 is an example. In that case, the defendant, who had been granted by letters patent the office of comptroller of the customs at the port of Exeter, continued to pre tend title to that office after its termination and grant to the plaintiff. The Court held that indebitatus assumpsit lay to recover the profits received by the defendant after the grant of the
office to the plaintiff. In Holmes v. Ha/1,52 Holt CJ refused to nonsuit the plaintiff who sued on
an indebitatus assumpsit to recover moneys he paid as executor to the defendant who held cer tain writings of the testator. The defendant failed to perform his promise to deliver up the writ
ings.Butit was recognized early on that cases like Holmes v. Hall were equally cases of breach of contract in which a special assumpsit lay, and the question was raised whether the plaintiff should be required to bring his or her action in that form. In Moses v. Macferlan, Lord Mansfield said54 that the plaintiff would be permitted to proceed on an indebitatus assumpsit, although an action for damages in covenant or on a special assumpsit was available. He contin ued:
‘If the plaintiff elects to proceed in this favourable way [on the indebitatus assumpsit], it is a bar to his bringing another action upon the agreement; though he might recover more upon the agreement, than he can by this form of action.’
He referred to Dutch v. Warren where the general principles were re-stated as follows:55
‘[T]he defendant by a refusal to execute, or by a complete and selfevident inability to per form, or by a fraudulent execution he has given the plaintiff an option to disaffirm the con tract, and recover the consideration he was paid for it in the same manner as if it had never existed But then the contract must be totally rescinded, and appear unexecuted in
every part at the time of bringing the action; since otherwise, the contract is affirmed by the plaintiff’s having received part of that equivalent for which he has paid his consider ation, and it is then reduced to a mere question of damages proportionate to the extent to which it remains unperformed.’
See also Grev,1/e v. Da Cosla.56
This insistence on rescission or the non-existence of an ‘open’ contract makes it easier to understand how the decision in Chandler v. Wehster51 was reached. We now know the effect of discharge to be different and, as Fibrosa indicates, nothing more than that usual effect is nec essary to ground the action to recover money paid on a total failure of consideration.
Conclusion: the respondmt cannot recover the fare and damages for breach of contract
The old forms of action cannot provide the answer today. But, in my view, Walstab v. Spottiswoode and the earlier cases support the ,·iew expressed by Corbin and Treitel that full damages and complete restitution will not be given for the same breach of contract. There are several reasons. First, restitution of the contractual consideration removes, at least notionally, the basis on which the plaintiff is entitled to call on the defendant to perform his or her con tractual obligations. More particularly, the continued retention by the defendant is regarded, in the language of Lord Mansfield, as ‘against conscience’ or, in the modem terminology, as an unjust enrichment of the defendant because the condition upon which it was paid, namely,performance by the defendant may noc have occurred.58 But, equally, thac performance, for deficiencies in which damages are sought, was conditional on payment by the plaintiff. Recovery of the money paid destroys performance of that condition. Secondly, the plaintiff will abnost always be protected by an award of damages for breach of contract, which in appropri ace cases will include an amount for substitute performance or an amount representing the plaintiff’s reliance loss. It should be noted that nothing said here is inconsistent with McRae v. Commonwealth Disposa/J Commission. 59
I would therefore conclude that, even if the respondent had an entitlement to recover the cruise fare, Carruthers J and the majority of the Court of Appeal erred in allowing restitution
of the balance of the fare along with damages for breach of contract. The consequences of this conclusion will be oonsidered below in light of the conclusion to be reached with regard to the award of damages for disappointment and distress….
Deane J: … There can be circumstances in which there is, for relevant purposes, a complete failure of consideration under a contract of transportation notwithstanding’ that the carrier has provided sustenance, entertainment and carriage of the passenger during part of the stipulated journey. For example, the consideration for which the fare is paid under a contract for the transportation of a passenger by air from Sydney to London would, at least prima facie, wholly fail if, after dinner and the inflight film, the airi:n:ft were forced to turn back due to negligent maintenance on the part of the carrier and if the passenger were disembarked at the starting point in Sydney and informed that no alternative transportation would be provided. Thus, in
Heywood v. Wellers, Lord Denning MR regarded it as self-evident that, in some circumstances
where part of a journey had been completed, money paid to the carrier or ‘driver’ was recover able ‘as of right’ for the reason that it was ‘money paid on a consideration which had wholly failed’.60
However, the promised consideration in the present case was not, as a matter of substance, the transportation of Mrs Dillon from Sydney to Sydney. As has been said, it was the provi sion of all that was involved in the promised pleasure cruise as a holiday experience. Even on the assumption that that promised consideration was entire and indivisible, it did not wholly fail. Baltic provided and Mrs Dillon accepted and enjoyed eight complete days of the cruise. It is true that Mrs Dillon would have been entitled to decline to board the ship or to accept only part of the promised consideration if it could have, and had, been known in advance that all the
Baltic would in fact provide was eight days of cruising culminating in the sinking of the ship off New Zealand as a result of Baltic’s breach of its contractual duty to take reasonable care. If, in that necessarily hypothetical situation, Mrs Dillon had wisely decided to stay at home, the consideration for the fare would have failed completely and, subject to any applicable provisions of the contract between herself and Baltic,61 she would have been entitled to succeed in an action in unjust enrichment for the recovery of the whole fare. In circumstances where Mrs Dillon accepted and enjoyed the major portion of the pleasure cruise, however, there was no complete failure of the consideration for which she paid the fare. The catastrophe of the ship wreck and its consequences undoubtedly outweighed the benefits of the first eight complete days. It did not, however, alter the fact that those benefits, which were of real value, had been provided, accepted and enjoyed.
There is a further reason, which would appear not to have been raised in argument in the courts below, why Mrs Dillon’s action for restitution of the fare paid to Baltic must fail. It is that she has sought and obtained an order against Baltic for compensatory damages for Baltic’s failure to perform its contractual promises to her. In particular, she has received a refund of a proportionate pact of the fare and has obtained and will retain (see below) the benefit of an award of damages for the disappointment and distress which she sustained by reason of Baltic’s failure to provide her with the full pleasure cruise which it promised to provide. In these cir cumstances, Mrs Dillon has indirectly enforced, and indirectly obtained the benefit of, Baltic’s
contraetual promises.s Ordinarily, as has been seen, ‘when one is considering the law of failure of consideration and
of th.e .. right to recover money on that ground, it is … not the promise which is referred to as the consideration, but the performance of the promise’.62 That statement has nothing to say, however, to the situation which exists when the promisee has sought and obtained an award of full compensatory damages for the failure to perform the promise. In that situation, the dam ages are awarded and received as full compensation for non-performance or breach of the promise and represent the indirect fruits of the promise. That being so, it would be quite wrong to say either that the only quid pro quo which has been obtained for the payment by the promisee is the bare promise or that the promise and the recovery of compensatory damages for its breach can realistically be seen as representing no consideration at all. In sucha case, the promise has been indirectly enforced and the award of compensation has, asa matter of sub
stance, been received in substitution for the promised consideration. In those circumstances, the promisee, having received full compensation for non-performance of the promise, is not entitled toa refund of the price upon payment of which the performance of the promise was conditioned.63 Were it otherwise, the promisee ‘would have the equivalent’ of performance of the contractual promise ‘without having borne the expense’ which he or she had agreed to pay for it.
Pan Ocean Shipping Ltd v. Creditcorp Ltd
(The Trident Beauty)
[1994] I WLR 161, House of Lords
Pan Ocean chartered the vessel, the Trident Beauty, from the Trident Shipping Company Ltd. By the terms of the time charter, the hire was payable fifteen days inadvance. In order to finance its business, Trident had arranged credit facilities with Creditcorp Ltd which, in turn, entered into the facility agreement on behalf ofa group ofinvestors. Trident ‘irrevocably and exclusively’ assigned to the investors, ‘free of all encumbrances and third party interests’ its right, title, and interest in and to the receivables, including the sums which were payable for the charter of the vessel. Creditcorp notified Pan Ocean of the assignment and Pan Ocean paid the monthly hire direct to Creditcorp. On 31 May 1991 Pan Ocean paid the sum of$93,600 to Creditcorp in respect of the hire of the vessel from 31 May to 15 June. In fact the vessel was off hire from 27 May because it had to undergo repairs and, when the repairs were completed, the vessel was still unavailable to Pan Ocean because Trident was unable to pay for the repairs. In these circumstances Pan Ocean concluded that Trident had repudiated the time charter and on 10 July they accepted the breach and brought the contract to an end. Trident was not, by this stage, worth suing and so Pan Ocean sought to recover the hire paid on 31 May to Creditcorp on the ground that it had been paid for a consideration which had wholly failed. The House of Lords, dismissing Pan Ocean’s appeal, held that it was not entitled to recover the hire so paid: its rem edy was against Trident, not Creditcorp.
Lord Goff of Chieveley: … Pan Ocean is not seeking to recover the hire instalment from Trident, because it does not consider Trident worth suing. Instead, it seeks to recover the money from Creditcorp on the ground of total failure of consideration, since the vessel was off hire for the whole of the period in respect of which the relevant hire instalment was paid. In an umeserved judgment the judge held that Pan Ocean was entitled to succeed in its claim. His decision was however unanimously reversed by the Court of Appeal.
To consider the question whether Pan Ocean is entitled to recover the money from Creditcorp on this ground, it is necessary first to turn to the time charter which governed the relationship between Trident and Pan Ocean. Under the charter the hire was, as normal, payable in advance-here 15 days in advance. Provision was made, also as normal, for the ves sel to be off-hire in certain specified circumstances. This is to be found in the usual off-hire clause, clause 15 in the printed form. In addition, other circumstances were specified in some of the additional typed clauses, under which the vessel would or might be off hire (see clauses 37, 56, 61, 74 and 79). In another typed clause (clause 59), there was provision for the hire to be reduced pro rata in certain circumstances. I should also record that, again as normal, the charter contained an arbitration clause (clause 17 of the printed form), providing for any dis pute to be referred to arbitration in the manner there prescribed.
Now, given the circumstances that the charter hire was payable in advance and that the ves sel might be off hire under one or other of the relevant clauses during a period in respect of”‘ which hire had been paid, it was inevitable that, from time to time, there might have to be an adjustment of the hire so paid. Such adjustments are a normal feature of the administration of time charters. The usual practice is, I understand, for an adjustment to be made when the next instalment of hire falls due, by making a deduction from such instalment in respect of hire pre viously paid in advance which has not been earned; in the present charter, provision is to be found to that effect in clause 29(f), one of the additional typed clauses. If the relevant period is the last hire period under the charter, such a deduction may not be possible. Any overpayment will then have to be repaid by the shipowner, and no doubt this will normally be taken care of in the final account drawn up at the end of the charter period.
Sometimes, the event which gives rise to the charterer being deprived of the services of the
vessel, in whole or in part, which in its turn renders the vessel off hire under one of the applic able clauses, may constitute a breach of contract by the shipowner. Ifso, the charterer will have a claim for damages for breach of contract, which may embrace the amount of hire paid in advance in respect of the period during which the vessel was off hire. But this need not be 10; and in any event the charter will usually make express provision for the repayment of hire which has been overpaid. In the present charter, such a provision is to be found in cla111e18 of the printed form, which provides that ‘any overpaid hire’ is ‘to be returned at ona:.’ The provision gives rise to a contractual debt payable in the relevant circumstances by the shipowner to the charterer. But even in the absence of any such express contractual provision, advance hire which proves to have been paid in respect of a period during which the vessel was rendered off hire under a term of the contract must ordinarily be repaid, and if necessary a term will be implied into the contract to that effect. That such an implied obligation may arise is implicit in such early cases as Tonnelie, v. Smith (1897) 2 Com. Cas. 258, and C. A. Sre’/IJart (5 Co. v. Pks. Van Ommeren (London) Lid [1918] 2 KB 560. This will of course be dealt with in the ordinary
case as a matter of administration of the time charter; if any dispute should persist, it will fall to be resolved by arbitration.
All this is important for present purposes, because it means that, as between shipowner and charterer, there is a contractual regime which legislates for the recovery of overpaid hire. It fol lows that, as a general rule, the law of restitution has no part to play in the matter; the exist ence of the agreed regime renders the imposition by the Jaw of a remedy in restitution both unnecessary and inappropriate. Of course, if the contract is proved never to have been binding, or if the contract ceases to bind, different considerations may arise, as in the case of frustration (as to which see French Marine v. Compagnie Napolitaine d’Eclairage et de Chauffage par le Caz [1921]2 AC 494, and now the Law Reform (Frustrated Contracts) Act 1943). With such cases
as these, we are not here concerned. Here, Jt is true, the contract was prematurely determined
by the acceptance by Pan Ocean of Trident’s repudiation of the contract. But, before the date of determination of the contract, Trident’s obligation under clause 18 to repay the hire instal ment in question had already accrued due’; and accordingly that is the rele,·ant obligation, as between Pan Ocean and Trident, for the purposes of the present case.
It follows that, in the present circumstances and indeed in most other similar circumstances, there is no basis for the chanerer recovering overpaid hire from the shipowner in restitution on the ground of total failure of consideratioii, It is true that sometimes we find in the cases refer ence to there having been in such circumstances a failure of consideration (see, e.g., C. A. Srewart f5 Co. v. Phs. Van Omme,en (London) Lid [1918] 2 KB 560, 563, per Scrunon LJ). But it should not be inferred that such statements refer to a quasi-contractual, as opposed to a con tractual, remedy. Consistently with this view, the remedy is not limited to the recovery of money paid for a consideration which has wholly failed. A contractual remedy is not, of course, so circumscribed and so, in C. A. Stewart (5 Co, v. Phs. Van Ommeren (London) Ltd itself, overpaid hire was recoverable where it was recognised that there had been a partial failure of consideration-see 562, per R.A. Wright KC arguendo.
It is against this background that we have to consider Pan Ocean’s claim now made against Creditcorp for repayment of the hire instalment paid to it as assignee of the charter hire. First, although the benefit of the contract debt had been assigned to Creditcorp, with the effect that payment to Creditcorp by Pan Ocean constituted a good discharge of the debt, nevertheless the burden of the contract remained upon Trident. From this it follows that Trident remained con tractually bound to repay to Pan Ocean any overpaid hire, notwithstanding that such hire had been paid not to Trident but to Creditcorp as assignee. Mr Hirst, for Pan Ocean, accepted in argument that this was so; but he nevertheless maintained that Pan Ocean had alternative courses of action open to it-<:ither to proceed against Trident in contract, or to proceed against Creditcorp in restitution. His argument proceeded on the basis that, in ordinary circumstances, a charterer has alternative remedies against the shipowner for the recovery of overpaid hire,
either in contract or in restitution; and that here, since the hire had been paid to Creditcorp as
assignee, Pan Ocean’s remedy in restitution lay against Creditcorp in place of Trident. However, for the reasons I have already given, I am unable to accept this argument. This is because, in my opinion, Pan Ocean never had any remedy against Trident in restitution on the ground of failure of consideration in the present case, its only remedy against Trident lying under the contract.
In these circumstances, Pan Ocean was thrown back on the arguments canvassed below which, although accepted by the judge, were rejected by the Court of Appeal. Of these, the principal argument was to the effect that, since a payment in advance of time charter hire has been described as a ‘provisional’ or ‘conditional’ payment, therefore the hire payment must be regarded as having that character in the hands of an assignee, as it does in the bands of the shipowner, with the consequence that the assignee is liable to repay the hire to the charterer to
the extent that it proves to have not been earned. I myself agree with the Court of Appeal that this argument is not well founded, because it rests on a misconception as to what is meant by the terms ‘provisional’ or ‘conditional’ in this context. As I understand the position, ina case such as the present they mean no more than that the payment is not final since under the con tract there is an obligation, express or implied, to repay to the charterer any part of the hire pay ment which has not been earned. If this is not clear (as I believe it to be) from the judgments of Bankes and Scrutton LJJ in C.;t Stewari (5 Co. v. Phs. Van Ommeren (London) Ltd [1918]
2 KB 560, 563–4, it was made clear by Lord Sumner in French Marine v. Compagnie Napolitaine d’Eclairage et de Chauffage par le Caz [1921] 2 AC 494, 517. In truth, all that happened in the present case was that the benefit of receiving the hire payment was assigned to Creditcorp and, in accordance with the terms of the charter, Trident remained liable to repay to Pan Ocean any part of the hire so paid to Creditcorp which was not earned. Under the charter there were two separate contractual obligations-an obligation on Pan Ocean to pay instalments of hire in advance, and an obligation on Trident to repay any part of any such instalment which was not earned. The assignment to Creditcorp of Trident’s right to receive advance hire payments left undisturbed Trident’s obligation to repay any hire which was unearned; andI cannot see that in these circumstances the assignment to Creditcorp can have carried with it any obligation upon Creditcorp, additional to the contractual obligation imposed upon Trident, to repay unearned hire on the ground of failure of consideration. As Neill LJ saidin theCourt of Appeal [1993) I Lloyd’s Rep. 443, 449:
‘No doubt it would be possible to construct a tripartite agreement whereby the assignee of a debt froma creditor would acknowledge that the sum assigned might be repayable in whole or in part to the debtor in specified circumstances. In the present case, however, by the terms of the assignment Creditcorp were assured that the receivables were not subject to any set off or any counterclaim. The debts assigned were not of trust moneys or sub ject to any form of quasi-trust. The fact that the payment may have been’provisional’ as between Pan Ocean and Trident did not mean, as I see it, that the moneys retained some special characteristic when they reached the hands of a third party.’
I am of course well aware that writers on the law of restitution have been exploring the pos sibility that, in exceptional circumstances, a plaintiff may have a claim in restitution when he has conferred a benefit on the defendant in the course of performing an obligation toa third party (see,e.g., Goff and Jones on the Law of Restitution, 4th edn. (1993), 55 ff, and (fora par ticular example) Bu”ows on the Law of Restitution (1993), 271-2). But, quite apart from the fact that the existence of a remedy in restitution in such circumstances must still be regarded asa matter of debate, it is always recognised that serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applio ablecontract. Moreover, it would in any event be unjust to do so in a case such as the present
where the defendant, Creditcorp, is not the mere recipient of a windfall but is an assignee who has purchased from Trident the right to receive the contractual debt which the plaintiff, Pan Ocean, is now seeking to recover from Creditcorp in restitution despite the facts that the relevant contract imposes on the assignor (Trident) an obligation of repayment in the circum stances in question, and that there is nothing in the assignment which even contemplates, 1till less imposes, any additional obligation on the assignee (Creditcorp) to repay. This is the point which, as I understand it, concerned Neill LJ in the Court of Appeal, when he Aid that ‘Creditcorp were in a position analogous to that of a bona fide purchaser for value:’ IOI (1993)
1 Lloyd’s Rep. 443, 449.
Lord Woolf: …
The time charter makes it clear that as between Pan Ocean and Trident, Pan Ocean was required to make payments 15 days in advance. If, after the hire has been paid in advance, there occurred an event which caused the vessel to be off-hire during the period for which the hire had been paid, then part or all of the hire paid in advance would not have been earned. In that situation an adjustment of account between the parties would have to be made. The necessary adjustment could be achieved by deducting an appropriate amount from the next payment of advance hire or, if there would be no further payment due, by Trident making a repayment to Pan Ocean. The fact that such an adjustment or repayment would have to be made would not alter the fact that under the time charter Trident had been contractually entitled to receive pay ment in advance, in full, of the instalment which was to be paid prior to the occurrence of the event. Although after the happening of that event Pan Ocean would have a right of set-off as against a future instalment of hire or a right of repayment, the right to receive the payment of the hire instalment was separate and distinct from the right to receive credit for hire which had been paid but not earned and those_rights would give rise to independent causes of action.
This being the position between the immediate parties to the time charter, as Trident had only assigned its rights under the time charter to Creditcorp, you would expect (a) that Creditcorp would be entitled to receive the thi1d instalment of hire or at least part of that sum; and (b) that Pan Ocean’s right to repayment ould be confined to enforcing their contractual rights against Trident since the burden of the contract had not been assigned to Creditcorp. (As Neill LJ points out, the vessel had been off-hire since 27 May so that at the time of payment of the third instalment Pan.Ocean may have been entitled to withhold a proportion of the instal ment.)
Mr Hirst on behalf of Pan Ocean vigorously disputes that this should be the result. He con cedes that Pan Ocean would not be entitled tQ enforce its contractual rights to receive a repay ment against Creditcorp since the assignment by Trident of its right to receive payment of the hire instalments to Creditcorp would not involve a transfer to Creditcorp of Trident’s contrac tual obligations under the time charter. However, Mr Hirst submits that where a person receives, as of right, a payment in advance, it is liable to he repaid if the payment is not earned, since it is a condition of retaining the payment that the consideration for which it is paid is pro vided. He contends that if th re had been no assignment, Pan Ocean would have had both a contractual right of repayment and a right of restitution as against Trident. That while after the notice of the assignment and payment to Creditcorp, Pan Ocean’s contractual rights would still only be against Trident, there would also be a personal right of restitution which would then be against Creditcorp. The personal right would arise, so it is argued, because Creditcorp, once it had given notice of assignment, was entitled to receive the advance payment as of right from Pan Oceao and the payment being an advance payment was one which was conditional or pro visional on the payment being earned. If at the end of the period for which the payment was made all or part of the hire had not been earned Pan Ocean would be entitled to the return of that part of the payment which had not been earned in the same way as it could admittedly be deducted from a future instalment of hire not yet paid.
ln support of his contentions, Mr Hirst was not able to rely upon any authorities which
involved an assignment but he submitted that he could derive support from Tonne/ier v. Smirk (1897) 2 Com. Cas. 258, C. A. Stewart (5 Co. v. Phs. Van Ommeren (London) Lid [1918) 2 KB 560 and Fibrosa Spolka’Akcyjna v. Fairbairn Lawson Combe Barbour Ltd [1943] AC 32. The two earlier cases both involved charterparties where the charterer was required to pay for the hire in advance. In the Tonnelier case it was held by a majority that the charterer was liable to pay the monthly hire to the owners at the beginning of each month, even if it was obvious that the vessel would be redelivered to the owners before the month had expired. However, although the payments were to be made in advance, in the words of the judgment of the majority (Lord Esher MR and Rigby LJ at 265), they were ‘to be provisional only and not final’ and the char terer was entitled to have repaid all moneys paid in advance and not earned. In Stewart’s case
[1918]2 KB 560 the Court of Appeal applied the decision in the TQnnelier case and Bankes LJ stated, at 562, that under the charterparty the payment was to he:
‘made ofa fixed sum ona fixed date in each month in advance for the opportunity of using the ship for every day in that month, but upon the terms that in certain events, which are named, if the charterers are deprived of that opportunity for any of those days, the owners are liable to repay the amount attributable to those days.’
In Stewart’s case it was an express term of the charterparty that hire paid in advance and not earned should be returned to the charterers. Mr Hirst therefore relies on the statement of Scrutton LJ (at 564) that if the ship during a month, in respect of which hire had been paid, came off hire; ‘there isa failure of consideration for the payment’ for the days upon which the ship is off-hire and the sum paid for those days can be recovered by action.
The Fibrosa case [1943] AC 32 is relied on for what was said by their Lordships as to the position with regard to payments in advance which, becausea contract was frustrated bya superveningevent, were not earned. The House held that a party who has paid money undera contract inadvance, which is frustrated, is entitled to recover the money on the ground that the consideration for which the sum had been paid wholly failed. In that situation as Viscount Simon LC said, at 46:
‘[the claim] is not based on any provision contained in the contract, but arises because, in the circumstances that have happened, the law gives a remedy in quasi-contract to the party who has not got that for which he bargained. It is a claim to recover money to which the defendant has no further right because in the circumstances that have happened the money must be regarded as received to the plaintiff’suse.’
While it is understandable that Mr Hirst should submit that support for his submissions is pro vided by thesecases, thestatements on which he relies were made ina different contextand’it isdisputed by Mr Glennie, on behalf of Creditcorp, that they can be applied to the advance payment here so that unearned hire can be recovered not from the other party to the contract but from the other party’s assignee to whom the payment wasmade.
To this issue the cases really provide no direct assistance. The claims in quasi-contract with which they deal arise asa result of the failure of the other party to the contract to provide the consideration for which the payment was made. It is one thing to require the other party to the contract to repay if he does not provide the consideration which under the contract he was under obligation to supply, it is another to make the assignee, who was never intended to be under any obligation to supply the consideration liable to make the repayment. It is conceded that there is no right to trace moneys which are paid to an assignee and there is never any ques tion of their being any restriction on the assignee preventing him dealing with the money as his own. ….
Hirst also referred to general statements of principle which were made by Sir Robert Mcgarry V-C in Tito v. Waddell (N Q 2), [ 1977] Ch. I06. In that case, under the heading ‘Benefit and burden’ the Vice-Chancellor considered conditional benefits and independentobligations. Ina passage of his judgment on which Mr Hirst relies, the Vice-Chancellor drewa distinction
between what ‘for brevity may be called conditional benefits, on the one hand, and on the other hand independent obligations.’ The Vice-Chancellor stated, at 290:
‘An instrument may be framed so that it confers only a conditional or qualified right, the condition or qualification being that certain restrictions shall be observed or certain bur dens assumed, such as an obligation to make certain payments. Such restrictions or qual ifications are anintrinsic part of the right: you take the right as it stands, and you cannot pick out the good and reject the bad. In such cases it is not only the original grantee who is bound by the burden: his successors in title are unable to take the right without also assuming the burden. The benefit and the burden have been annexed to each other ab ini tio, and so the benefit is only a conditional benefit. In the other class of case the right and the burden, although arising under the same instrument, are independent of each other.’
This statement of principle by the Vice-Chancellor only helps Mr Hirst if Creditcorp’s right to receive payment in advance was a conditional right or what the Vice-Chancellor describes as a ‘conditional benefit.’ In fact the right was not conditional. There was nothing qualified about the right, notwithstanding the fact that if a payment in advance was made but not earned an independent right to be repaid the unearned advance instalment would accrue to Pan Ocean.
Mr Hirst drew our attention to an interesting article reviewing the decision in this case in the Court of Appeal by Mr Tettenborn in 1993 Cambridge Law:Journal 220. The article endorses the approach of Judge Diamond QC. Mr Tettenborn, in the article, asks what he describes as the fundamental question, at 222:
‘Having paid Creditcorp for something they did not get, why should Pan Ocean not have got their money back? There is every reason in justice why they should: the Court of Appeal, it it suggested, has given no reason why they should not.’
With respect to Mr Tettenborn, he has not given sufficient credit to the reasoning of the judgments, in particular of Neill LJ, in the Court of Appeal. Pan Ocean are in exactly the same position as against Trident as they would have been if there had been no assignment to Creditcorp of the right to receive payment. Th·e assignment occurred quite independently of Pan Ocean’s contract with Trident. If Pan Ocean were entitled to recover from Creditcorp, the consequence would be that they would have two different parties instead of a single party from whom they could recover; on Mr Hirst’s arguplent, against Trident under the contract and against Creditcorp for money had and received,. It is equally possible to frame a different fun damental question. Why should Pan Ocean have two alternative parties to whom to look for a repayment merely because Trident as part of their own financial arrangements, have assigned their right to receive payment to a third party, Creditcorp?
I should also refer to the fact that Mr Hirst criticises the reliance which Beldam LJ made in his judgment in the Court of Appeal on Aiken v. Short (1856) I H & N 210 and Barclays Banks Ltdv. W.:J. Simms Son iS Cooke (S()Uthern) Ltd [1980] QB 677, which were apparently not con sidered in the course of argument. Those cases were dealing with payments made by mistake and I would not, myself, rely on them in order to come to the conclusion that this appeal has to be dismissed.
Finally, I should indicate that I make no comment about Creditcorp’s second line of defence. Their Lordships did not feel it necessary to hear argument in support of this second line of defence. This defence is that Creditcorp could not be called upon to make repayment since Creditcorp, after receiving the third instalment, had altered its position without notice of the claim of Pan Ocean by paying out the money received in the ordinary course of its business.
For the reasons I have given I would dismiss this appeal with costs.
Dies v. British and International Mining and Finance Co.
[1939]1 KB 724,
King’s Bench Division
The plaintiff contracted to purchase ammunition from the defendant and madea pre-payment of £100,000. In breach of contract the plaintiff refused to take deliv ery. The defendants terminated the contract on the ground of the plaintiff’s breach and the plaintiff sued to recover the £100,000 pre-payment. It was held
that the plaintiff was entitled to recover the money so paid.
Stable J: The plaintiffs’ contention can, I think, be fairly summarized as follows: Where there isa contract for the sale of goods, and a part payment for the goods is made, but no goods are deliv ered or tendered by reason of the default of the buyer, the seller’s only remedy is to recover damages for the default, while the buyer, notwithstanding that it is by reason of his default that the contract has not been performed, is entitled to recover the purchase price that he baa paid, subject possibly to the right of the seller to set off against that claim the damages to which he can establish his title.
In support of this contention a number of authorities were cited to me. The form of declaration or count which it was said embraced a claim of this nature was the old common count for money had and received ….
In my judgment, the question whether the right exists cannot be determined by inquiring whether the action for money had and received is the appropriate form of plea. If the right exists, the form of plea is appropriate enough. If the right does not exist, it cannot be enforced, no matter how attractively it be disguised by the pleader.
The question is not now one of the appropriate form in which to clothe the right, but whether or not the right exists, although the absence of any clothing that fits may be an indication of the non-existence of the right. In support of his submission that the right exists Mr. Pritt cited three cases.
In the present case, neither by the use of the word ‘deposit’ or otherwise, is there anything to indicate that the payment of 100,000/. was intended or was believed by either party to be in the nature of a guarantee or earnest for the due performance of the contract. It was a part pay ment of the price of the goods sold and was so described.
On behalf of the defendant corporation it was contended that on the true construction of the contract the part payment was agreed to be regarded as an earnest for the performance of the contract, inasmuch as, since the clause which I have already read provided for the return ofa part of the payment to the plaintiffs in one e,tC(Jt only, it must have been the intention of the parties that in every other event the money wJs to be retained by the defendant corporation.
I do not so construe the contract. The clau e, in my judgment, deals with one situation, and one situation only-namely, the frustration of the performance of the contract. It was .. designed to confer on the defendant corporation certain rights additional to the rights which the law alone in the absence of agreement would have given in the event of the performance of the contract being frustrated. Beyond that field its implications ought not to be extended, and the doctrine ‘expressum facit cessare taciturn’ has no application. The argument under this head is double-edged, since it might be argued on behalf of the plaintiffs that, as the contract expressly conferred on the corporation the right in one event to retain 13,500/., it cannot have been intended that in another event they were to have the right of retaining 100,000/.
It was said further that the rule which under certain circumstances enables a purchaser in default to recover a payment or part payment of the purchase price is a rule applicable to the sale of land only and must not be extended to the sale of goods, but no authority for this latter proposition was cited to me, and I was referred to certain passages in the Seventh Edition of Benjamin on Sale, at 989, 994 and 995, which state the rule as being of general application.
At 989 the principle is summarized in these words: ‘In ordinary circumstances, unless the contract otherwise provides, the seller, on rescission following the buyer’s default, becomes liable to repay the part of the price paid.’
If this passage accurately states the law as, in my judgment, it does where the language used ina contract is neutral, the general rule is that the law confers on the purchaser the right to recover his money, and that to enable the seller to keep it he must be able to point to some lan
guage in the contract from which the inference to be drawn is that the parties intended and agreed that he should.
The argument on behalf of the defendant corporation was supported by the submission that the action for money had and received would not lie, since on the present facts the only possi ble basis was a total failure of consideration, which basis was ruled out by the fact that it was the purchaser who had made default.
In support of this proposition was cited the case of Stray v. Russell,1 a case decided in the Court ofQyeen’s Bench and affirmed on error in the Exchequer Chamber. When the facts of that case are examined it is clear that the plaintiff had contracted to buy shares for which he had paid, and the shares which he had contracted to buy had been tendered to him. He refused to take them, and then sued for the return of his money on the basis of a total failure of consideration. Thedecision of the Court rested on this, that there had been neither total nor partial fail ure of consideration inasmuch as the defendants had always been able, ready and willing to do everything which they had contracted to do. The contract in that case never was rescinded in any sense of the word, and it is in relation to these facts that the passages in the judgments which were cited to me have to be considered.
I was, however, quite satisfied that in the present case the foundation of the right, if right there be, is not a total failure of consideration. There was no failure of consideration, total or partial. It was not the consideration that failed but the party to the contract.
This objection, in my judgment, really goes to a question of form and not of substance, for if under the present circumstances there is a right in the buyer to recover a payment he has made in part, it is wholly immaterial in point of form whether the basis of right depends ona total failure of consideration, or something else. In my judgment, the·real foundation of the right which I hold exists in the present case is not a total failure of consideration but the right of the purchaser, derived from the terms of the contract and the principle of law applicable, to recover back his money.
I am fortified in the view I have formed by the consideration that, in cases where the parties have agreed that a certain sum shall in the event of a breach represent the liquidated damages to be paid, the Court can, if satisfied that the agreed amount is not damages but a penalty, relieve one or other of the parties against his inequitable and improvident bargain. In my judg ment there would be a manifest defect in the law if, where a buyer had paid for his goods but was unable to accept delivery, the vendor could retain the goods and the money quite irrespec tive of whether the money so retained bore any relation to the amount of the damage, if any, sustained as a result of the breach. The seller is already amply protected, since he can recover such damage as he has sustained and can, it seems, set off his claim for damages against the claim for the return of the purchase price.
Rover International Ltd. v. Cannon Fihn Sales Ltd.
[1989] I WLR 912,
Court of Appeal
Kerr LJ: … The relevant principles were stated by Dixon Jin the High Court of Australia in McDonald v. Dennys Lascelles Ltd (1933) 48 CLR 457, 47€r8. Part of this judgment was cited by Lord Edmund-Davies in Hyundai Heavy Industries Co. Ltd v. Papadopoulos [1980) l WLR 1129, ll 41, but for present purposes it is helpful to quote a fullerextract:
‘Whena party toa simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer bindi,ng upon him, the con tract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execu tion of the contract and causes of action which have accrued from its breach alike continue unaffecte.d… But when a contract, which is not void or voidable at law, or Liableto be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to itsroot, the contract is determined so far as it is executory only and the party in default is liable for damages for its breac.h… ltdoes not, howe-ver, necessarily follow from these principlesthat when, untkr an executorycontr11ct for the sale of property, the price or part of it is paid or payable in advance, the seller may both retain what he h11s received, or recover o-verdue instalments, and at the same lime treat himself as relieved from the oblig11tion of transfe”ing the property to thebuyer. When a contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor’s promise to give him a conveyance, the vendor is entitled to enforcepayment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract. ‘The very idea of payment falls to the ground when both have treated the bargain as at an end; and from that moment the vendor holds the money advanced to the use of the purchaser’ (Palmer v. Temple (1839) 9 Ad.& E 520, 521)…. [t is now beyond question that instalments already paid may be recovered bya defaulting pur chaser when the vendor elects to discharge the contract (Mayson v. Clouet [1924) AC 980) … ‘
Subject to MrPardoe’s reliance on the Hyundai decision, to which I turn ina moment, it is clear from the passages which I have emphasised that if Proper had paid the disputed instal ment of $900,000, and if the contract had thereafter been rescinded by Cannon for whatever reason, Proper would have been entitled to recover this sum; and if the reason for the rescis sion of the contract had been a breach on the part of Proper, then Cannon would still not have been entitled to retain this sum but would have been limited to a claim in damages. The fact that the present contract is not one of sale cannot affect the position in principle.
In the present case Proper do not claim repayment, but Cannon claim that the liability to pay survives therescission of the contract. Clearly that cannot make any difference to the outcome the contrary, it must be a fortiori from the point of view of Proper, who are merely resist ing Cannon’s claim. Dixon J in McDonald v. Dennys Lascelles Ltd, 48 CLR 457, dealt with this situation a little later on when he said, at 479:
‘It appears to me inevitably to follow from the principles upon which instalments paid are recoverable that an unpaid overdue instalment ceases to be payable by the purchasers when the contract is discharged.’
The situation envisaged by Dixon] in the main passage, at 476–8, which I have quoted, arose in Dits v. British and International Mining and Finance Corporation Ltd [1939] I KB 724. [He considered the case and continued] That decision was distinguished by a majority of the House of Lords in Hyundai Heavy Industries Co. ltdv. Papadopoulos [1980] I WLR 1129. The case arose from a shipbuilding contract which provided that the builders should ‘build, launch, equip and complete’ the vessel and that its construction should proceed continuously from keel laying to delivery. The price was payable by instalments and it was a term that the builders’ yard should have the right to cancel the contract in the event of the buyers’ failure to pay an instalment. That is what happened. The builders thereupon brought an action against the guarantor, on the same lines as Cannon’s claim against Monitor in the [associated appeal in the] present case, and the House of Lords held unanimously that the defondant was liable under the terms of the guar antee irrespective of the liability of the buyers. But three of their Lordships also dealt with the question whether the buyers’ liability to pay the instalment in question survived the consequent cancellation of the contract by the builders. They·held that it did, in effect because this was not a contract which merely provided for the sale and delivery of the ship, but because it was in the nature of a building contract under which the yard was obliged to continue with the construc tion of the vessel throughout. By continuing to work upon the ship during the period since the payment of the previous instalment, the buildets had accordingly provided consideration for the instalment in question, with the result that it remained due despite the builders’ cancella tion of the contract.
The issue in the present case, as I see it, is accordingly whether it falls on the side of cases such as Dies v. British and International Mining and Finance Corporation Ltd [1939) l KB 724, or whether the terms of the contract and the facts lead to the conclusion that it is to be assim ilated to the situation in Hyundai Heavy Industries Co. ltd v. Papadopoulos [1980] 1 WLR 1129. Had Thorn EMI/Cannon provided any consideration under the contract for which the instal ment of$900,000 was payable or was this instalment payable merely as an advance for the oblig ations which Thorn EMIiCannon had agreed to perform thereafter? When referring to the provision of consideration in this context, in the same way as in the context of a failure of con sideration discussed earlier in the Rover appeal, one is not referring to the original promise to perform the contract. The question is whether there was any consideration in the nature of part performance for which the instalment was payable, as in Hyundai Heavy Industries Co. Ltd v. Papadopoulos [1980) 1 WLR 1129, or whether the instalment was payable in advance of any per formance which was required from Thorn EMI/Cannon.
In my view the present case falls clearly into the latter category and is indistinguishable in principle from the situations examined by Dixon Jin McDonald v. Dtnnys Lascelles Ltd, 48 CLR 457, and the decision in Dies v. British and International Mining and Finance Corporation Ltd. It is true that Dies appears to have been a contract for the sale of unascertained goods whereas the present contract deals with specific films in relation to which Thorn EMI/Cannon had to pos sess or to acquire the necessary rights. It is also true that they were precluded from transferring these rights to anyone other than Proper. But that is not a situation whereby Thom EMI/Cannon provided anything in the nature of part performance under the contract. It merely meant that they had to arrange matters so as to enable them to perform their contrac tual obligations at the time when these would become due. Thus, it is clear from Palmer v. Temple, 9 Ad. & E 508, and the judgment of Dixon Jin McDonald v. Dennys lascelles.ltd, 48 CLR 457, that the principle that advance payments made on account of the price are recoverable applies even where the contract relates to a specific piece of land which the vendor mlllt either acquire or retain in order to perform the contract. The fact that he is bound to the con tract in that way does not alter the character of the payment being in the nature of an advance for a consideration to be provided in the future.
In the present case it is entirely clear, in my view, that this instalment was payable in advance of any consideration for the payment which fell to be provided from the side of Thom EMI/Cannon. Indeed, when Proper declined to pay it, it was rightly pointed out on behalf of Cannon that nothing in the way of performance was as yet due from theirside. This instalment would accordin ly have been recoverable by Proper if it had beenpaid, and it is therefore irrecoverable by Cannon for the same reason. The only claim open to them would have beena claim for damagesif they had shown that they had suffered any as the result of the termination of the contract. It follows that Cannon’s counterclaim should in my view have beendismissed,
and that Proper’s appeal should also be allowed.
Dillon LJ: There is no doubt that the $900,000 was not payable by way of deposit or earnest. It was merely payable as the final instalment of the price for the licence under the Proper agreement. Consequently, if the Proper agreement had beena contract for the sale of land which went off through Proper’s default before the land had been conveyed to Proper, there is no doubt that the $900,000 instalment, if paid, could have been recovered by Proper from Cannon subject to set-off only of Cannon’s actual damage from Proper’sdefault: Mayson v. C/ouel [1924) AC 980 and Palmer v. Temple, 9 Ad. & E 508. So equally if it had beena con tract for the sale of goods, property in which had not passed to Proper: Dies v.British and International Mining and Finance Corporation ltd [1939] l KB 724. That would not have been the case if the $900,000 represented, in part, consideration to Proper for things that Proper had done under the Proper agreement before 30 September or 3 October 1986; see HyundaiHtavy IndustriesCo. Ltdv. Papadopoulos [1980] 1 WLR I 129. The crux therefore, asI see it, on the cases is whether at 30 September or 3 October 1986 (and on the facts it matters not which) the Proper agreement was wholly executory on the part of Cannon, or, to put it another way, whether by that date Proper had received any of the consideration movi g from Cannon under the Proper agreement.
It was urged for Cannon that the agreement was not wholly executory on the part of Proper, and conversely Proper had received benefit, in that (i) because of the agreement Cannon had refrained between the date of the Proper agreement and 3 October 1986 from granting licence rights toanythird party to show any of the nine films on Iralian television; and (ii) after the Proper agreement wasmade, Cannon had paid a substantial sum toa third party which might otherwise have entitled the third party to restrain Cannon, when the timecame, from per forming its part under the Proper agreement. It is also said that the television rights in respect ofa fihn area wasting asset as the film gets older, and therefore the analogy ofa sale of land or
non-perishable goods is not apposite.
I am unable to accept any of these arguments.The argument that, before 3 October, Cannon had not granted the television rights to any oneelse would apply equally if there was a contract for the sale of land and pending repudia tion by the first purchaser the vendor had refrained from selling the same land toa &eCOnd purchaser. It comes to no more than that until Proper repudiated the Proper agreement Cannon itself had not broken that agreement. It has never been suggested that it is an an1wcr toa daim bya ‘guilty’ purchaser, who has broken his contract, to recover instalments ofpurchaae money (as opposed toa deposit) that the vendor was ‘innocent’ and had not broken the contract.
As for the payment made by Cannon to buy back rights granted toa third party, that too could happen under a contract for the sale of land, if the vendor made payments 10 get in an outstanding interest or otherwise put his title in order. The payment could enure to the ben fit of the vendor, and would be no concern of the purchaser provided the title was in order by the time for completion. Indeed, that is precisely the attitude Cannon took up in the present case when, at an earlier stage before 30 September 1986, Proper complained that, because of the rights granted to the third party, Cannon was not in a position to grant Proper the Italian television rights to the most important film among the nine, ‘Passage to India;’ Cannon urged emphatically and correctly that the complaint was premature as Cannon had until the time came for delivery or the film to take whatever steps might be necessary to ensure that it was able to deliver.
Finally, whatever validity the point that the goods were perishable or a depreciating asset might have in other cases, it has none, in my judgment, on the facts of the present case. At 3 October 1986 the date for delivery of each film still lay far ahead. There is no evidence that.the value or the television rights had been depreciating with the passage of time since the Proper agreement had been made; on the contrary the whole emphasis was that the television rights should not be exercised too soon before the theatre (or cinema) rights had been fully exploited throughout Italy. Indeed the delivery date for each film is defined in the Proper agreement as ‘nor earlier thiin two years from the date of first theatrical release in the Territory.’ (My empha sis.)
For these reasons, I would, with every respect to the judge who thought otherwise, allow the appeal of Proper, set aside the judgment entered against Proper, and order instead that there be judgment for Proper against Cannon for dama:ses to be assessed.
Sumpter v. Hedges
[1898] Court of Appeal
A. L. Smith LJ:In this case the plaintiff, a builder, entered into a contraet to build two houses and stables on the defendant’s land for a lump sum. When the buildings were still in an unfin ished state the plaintiff informed the defendant that he had no money, and was not going on with the work anymore. Thelearned judge has found as a fact that he abandoned the contract.
Under such circumstances, what is a building owner to do? He cannot keep the buildings on his land in an unfinished state for ever. The law is that, where there is a contract to do work for a lump sum, until the work is completed the price of it cannot be recovered. Therefore the plaintiff could not recover on the original contract. It is suggested however that the plaintiff was entitled to recover for the work he did on a quantum meruit. But, in order that that may be so, there must be evidence of a fresh contract to pay for the work already done. With regard to that, the case of Munro v. Butt’ appears to be exactly in point. That case decides that, unless the building owner does something from which a new contract can be inferred to pay for the work already done, the plaintiff in such a case as this cannot recover on a quantum meruit. In the case of Lysaght v. Pearson,2 to which we have been referred, the case of Munro v. Butt does not appear to have been referred to. There the plaintiff had contracted to erect on the defendant’s land two corrugated iron roofs. When he had completed one of them, he does not seem to have said that he abandoned the contract, but merely that he would not go on unless the defendant paid him for what he had already done. The defendant thereupon proceeded to erect for him self the second roof. The Court of Appeal held that there was in that case something from which a new contract might be inferred to pay for the work done by the plaintiff. That is not this case….
Chitty LJ: I am of the same opinion. The pl ntiffhad contracted to erect certain buildings for a lump sum. When the work was only partly done, the plaintiff said that he could not go on with it, and the judge has found that he abandoned the contract. The position therefore was chat the defendant found his land with unfinished buildings upon it, and he thereupon com pleted the work. That is no evidence from which the inference can be drawn that he entered into a fresh contract to pay for the work done by the plaintiff. If we held that the plaintiff could recover, we should in my opinion be overruling Culler v. Powell,3 and a long series of cases in which it has been decided that there must in such a case be some evidence of a new contract to enable the plaintiff to recover on a quantum meruit. There was nothing new in the decision in Pattin.on v. Luckley,4but Bramwell B there pointed out with his usual clearness that in the case of a building erected upon land the mere fact that the defendant remains in possession of his land is no evidence upon which an inference of a new contract can be founded. He says: ‘In the case of goods sold and delivered, it is easy to shew a contract from the retention of the goods; but that is not so where work is done on real property.’ I think the learned judge was quite right in holding that in this case there was no evidence from which a fresh contract to pay for the work done could be inferred.
Collins LJ: I agree. I think the case is really concluded by the finding of the learned judge to the effect that the plaintiff had abandoned the contract. If the plaintiff had merely broken his contract in some way so as not to give the defendant the right to treat him as having abandoned the contract, and the defendant had then proceeded to finish the work himself, the plaintiff might perhaps have been entitled to sue on a quantum meruit on the ground chat the defendant had taken the benefit of the.work done. But that is not the present case. There are cases in which, though the plaintiff has abandoned the performance of a contract, it is possible for him to raise the inference of a new contract to pay for the work done on a quantum meruit from the defendant’s having taken the benefit of that work, but, in order chat that may be done, the cir cumstances must be such as to give an option to the defendant to take or not to take the bene fit of the work done. It is only where the circumstances are such as to give that option that there is any evidence on which to ground the inference of a new contract. Where, as in the case of worlc done on land, the circumstances are such as to give the defendant no option whether he will take the benefit of the work or not, then one must look to other facts than the mere taking the benefit of the work in order to ground the inference of a new contract. In this case I see no other facts on whichsuch an inference can be founded. The mere fact thata defendant is in possession of what he cannot help keeping, or even has done work uponit, affords no ground for such aninference. He is not bound to keep unfinished a building which in an incomplete state would bea nuisance on his land. I am therefore of opinion that the plaintiff was not enti
tled to recover for the work which he had done.
Hain Steamship Co. Ltd. v. Tate and Lyle Ltd.
[1936] 2 AllER 597,
Lord Wright: … Let me put a quite possible case: A steamer carryinga cargo of frozen meat from Australia to England deviates by calling ata port outside the usual or permitted route: it is only the matter of a few hours extrasteaming: no trouble ensues except the trifling delay. The cargo is duly delivered in England at the agreedport. Thegoods owner has had for all practical purposes the benefit of all that his contract required; he has had the advantages, of the use ofa valuable ship, her crew, fuel, refrigeration and appliances, canal dues, porct harges, steve doring. The shipowner may be technically a wrongdoer in the sense that he has once deviated, but otherwise over a long period he has been performing the exact ing andcostly duties of a carrier at sea. I cannot help thinking that epithets like ‘unlawful’ and’unauthorised’ are not apt to describe such services; it may be that by the maritime law the relationship of carrier and goods owner still continues despite the deviation, though subject to the modifications consequent on the devi ation. J\or canI help feeling that the court would not be slow to infer an obligation when the goods are received at destination to pay, not indeed the contract freight,
but a reasonable remuneration ….
LordMaugham: Finally, on the general question whether a consignee is liable to pay freight aftera deviation which has been treated as putting an end to the contract of affreightment I would only observe that that question does not now arise for decision; but I am strongly inclined to doubt the correctness of the view sug gested in the Court of Appeal. As I have already indicated, I do not agree with the proposition that the shipowner (apart from any step taken by the consignee) ought to be regarded as a volunteer or a wrongdoer, and I am of opinion that a claim on the footing of quantum meruit must depend on all the circumstances of the case, including the question whether the goods have been delivered at the agreed port and without injury or substantial delay. Bearing
Miles v. Wakefield M.D.C.
[1987] AC 539.
Lord Bridge: … Industrial action can take many different forms and there are a variety of options open to an employer confronted by such action. In particular I should, for my part, have preferred to express no opinion on questions arising in the case of an employee who deliberately ‘goes slow’ or otherwise does his work in a less than satisfactory way, when the employer nevertheless acquiesces in his con tinuing to work the full number of hours required under his contract. There may be no single, simple principle which can be applied in such cases irrespective of dif ferences in circumstances. But I find it difficult to understand the basis on which, in such a case, the employee in place of remuneration at the contractual rate would become entitled to a quantum meruit. This would presuppose that the original con tract of employment had in some way been superseded by a new agreement by whjch the employee undertook to work as requested by the employer for remuner ation in a reasonable sum. This seems to me to be contrary to the realities of the situation.
LordBrightman: If an employee offers partial performance, as he does in some types of industrial conflict falling short of a strike, the employer hasa choice. He may decline to accept the partial performance that is offered, in which case the employee is entitled to no remuneration for his unwanted services, even if they are performed. That is the instant case. Or the employer may accept the partial per formance. lfhe accepts the partial performance as if it were performance which sat isfied the terms of the contract, the employer must pay the full wage for the period of the partial performance because he will have precluded or estopped himself from asserting that the performance was not that which the contracrt equired. But what is the position if the employee offers partial performance and the employer, usu ally onf ecessity, accepts such partial performance, the deficient work being under stood by the employer and intended by the employee to fall short of the contractual requirements and being accepted by che employer as such? There are, as it seems to me, two possible answers. One possible answer is that the employer must pay the full wage butmay recover by action or counterclaim or set off damages for breach of contract. The other possible answer is that the employee is only entitled to so much remuneration as represents the value of the work he has done,i.e. quantum meruit. My noble and learned friend Lord Templeman prefers the latter solution, and so do I. My reason is this. One has to start with the assumption that the employee sues for his pay; the employer is only bound to pay the employee that which the employee can recover by action. The employee cannot recover his con tractual wages because he cannot prove that he has performed or ever intended to perform his contractual obligations. If wages and work are interdependent, it is dif ficult to suppose that an employee who has voluntarily declined to perform his con tractual work can claim his contractual wages. The employee offers partial
performance with the object of inflicting the maximum damage on the employer at the minimum inconvenience to himself. If, in breach of his contract, anemployee works with the object of harming his employer, he can hardly claim that he is work ing under his oontract and is therefore entitled to his contractual wages. But never theless in the case supposed the employee has provided some services, albeit less than the contract required, and the employer has received those (non-contractual) services; therefore the employer must clearly pay something-not the contractual wages because the contractual work has deliberately not been performed. What can he recover? Surely the value of the services which he gave and which the employer
received, i.e. quantum meruit.
Lord Templeman: …
I agree with my noble and learned friend Lord Bridge of Harwich that industrial action can take many forms and that the legal consequences of industrial action will depend on the rights and obligations of the worker, the effect of the industrial action on the employer and the response of the employer. For my part,howe,·er,I take the provisional view that on principle a worker who, in conjunction with his fellow workers, declines to work efficiently with the object of harming hisemployer is no more entitled to his wages under the contract than if he declines to work at all. Theworker whose industrial action takes the formof’goingslow’ inflicts intended damage which may be incalculable and non-apportionable but the employer, in order to avoid greater damage, is obliged to accept the reduced work the worker is willing to perform. lo those circumstances, the worker cannot claim that he is entitled to his wages under the contract because he is deliberately work ing ina manner designed to harm the employer. But the worker will be entitled to be paid ona quantum meruit basis for the amount and value of the reduced work been paid, and provided that the other party has obtained a benefit from the par tial or defective performance of the contract, the money so paid does not have to be returned.3 For example, in S1’mpterv. Hedges4 Mr Sumpter had in fact received part payment before he left the site: Mr Hedges did not counterclaim for the repay ment of what he had paid but if he had done so his claim would have failed. He might have counterclaimed for damages for breach of contract but if Mr Hedges had been able to complete the work without incurring further expense damages would probably have been assessed at a purely nominal figure….
[T]he point we are making now is that the present law on entire contracts can pro duce anomalous results: the party in breach who has already received payment is in a markedly bener position, in fact and in law, than the party who has not. It may be argued, in support of a change in the present law, that the rights and remedies of the party in breach ought to be broadly the same in either case.
BP Exploration Co. (Libya) Ltd v. Hunt (No. 2)
[1979] 1 WLR 783
Robert Goff J:
II. The principles governing claims under the Act of 1943
The Law Reform (Frustrated Contracts) Act 1943 is described as an Act to amend the law relating to the frustration of contracts. In fact, it is concerned not with frustration itself, but with the consequences of frustration; and it creates statutory remedies, enabling the L’Ourt to award restitution in respect of benefits conferred under contracts thereafter frustrated.
Section 1(1) of the Act sets out the circumstances in which the Act applies, namely, that a
contract governed by English law has become impossible of performance or been otherwise frustrated, and the parties thereto have for that reason been discharged from the further per formance of the contract. However, section 2(5) excludes from the operation of the Act certain contracts, which are immaterial for the purposes of the present case; and section 2(4) jll’Ovides that, where part of a contract can properly be severed from the remainder, the severed part hav ing before the time of discharge been either wholly performed or so performed except for pay ment of ascertained or ascertainable sums, the court shall treat the severed part as a &epance contract which has not been frustrated, the Act being applicable only to the remainder.
The most important subsections are subsections (2) and (3) of section I, which set out the statutory remedies, the former being concerned with cases where the benefit conferred under the contract consists of money, and the latter with cases where the benefit does not consist of money. These subsections are of such importance that I shall set them out in full: …
Oftheremaining provisions of the Act, section 2(1) and (2) arc of no materiality to the pres ent case, nor is section 1(6). Section 1(4) provides that, in estimating expenses incurred, sums may be included for overhead expenses, and for work or services performed personally. Section 2(3) is, however, of considerable importance. I shall quote the subsection in full: …
There remains section 1(5), which is possibly related to section 2(3). This subsection provides that the court is not to take into account any sums which have by reason of the circumstances giving rise to the frustration of the contract become payable under any contract of insurance, unless there was an obligation to insure imposed by an express term of the frustrated contract or by or under any enactment.
Such, in summary, is the Act. The historical background of the Act is well known. At one time, money paid under a contract thereafter frustrated was held to be irrecoverable. This was known as the rule in Chandler v. Webster [1904] I KB 493. The results of this rule were so obvi ously harsh that, following severe criticism, the rule was referred to the Law Revision Committee which, in its seventh interim repor( (Rule in Chandler v. Webster) (1939) (Cmd. 6009), recommended that (with exceptions relating to freight pro rata itineris and advance freight) money paid in pursuance of a contract thereafter frustrated (or, where a severable part of such a contract had been performed, money paid in pursuance of the remainder) should be recoverable, subject to a deduction of such sum as represented a fair allowance for expenditure incurred by the payee in the performance of or for the purpose of performing the contract. However in 1942, before this recommendation had been implemented, Chandler v. Webster was overruled by the House of Lords in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour ltd [1943] AC 32. The effect of that decision was that money paid under a contract thereafter frustrated was recoverable, but only if the consideration for the payment had wholly failed. It was, however, considered by certain members of the House of Lords that, even with the rule in Chandler v. Webster (1904] I KB493 out of the way, the common law remedy was imperfect; attention was drawn in particular to the fact that there could be no recovery if the considera tion had only partially failed, and that no allowanoe could be made for expenses incurred by the payee: see 49-50, per Viscount Simon; 54-5, per Lord Atkin; and 71-2 per Lord Wright. Furthermore, the Pibrosa case was, like the report of the Law Revision Committee, concerned only with the recovery of money. Neither touched upon the more difficult question of restitu tion where the benefit conferred under a contract was a benefit other than a payment of money: in such cases, the old strict common law doctrine of entire contracts provided a formidable obstacle to restitution. At all events, no doubt stimulated by the observations made in the Fihrosa case, in the following year the legislature enacted the Act of 1943.
It was suggested in argument that I might have regard to the report of the Law Revision Committee in construing the Act of 1943. I do not, however, consider that the report is of any assistance to me. Its terms of reference were limited to consideration of the rule in Chandler v. Webster [1904] I KB 493; that case was overruled by the House of Lords in the period between the date of the report and the passing of the Act, and the scope of the Act is considerably wider than that of the report.
I turn, therefore, to the construction of the Act itself. Much argument was directed towards the problem of construction, and in particular to the effect to be given to section 1(2) and (3) and section 2(3) of the Act. I shall now set out my conclusions on the effect to be given to these subsections.
…It was submitted by Mr Rokison, on behalf of BP, that the principle common to both subsections was one of restitution for net benefits received, the net benefit being the benefit less an appropriate deduction for expenses incurred by the defendant. This is broadly correct so far as section 1(2) is concerned; but under section 1(3) the net benefit of the defendant simply provides an upper limit to the award-it does not measure the amount
of the award to be made to the plaintiff. This is because in section 1(3) a distinction is drawn between the plaintiff’s performance under the contract, and the benefit which the defendant has obtained by reason of that performance-a distinction about which I shall have more to say later in this judgment; and the net benefit obtained by the defendant from the plaintiff’s performance may be more than a just sum payable in respect of such performance, in which event a sum equal to the defendant’s net benefit would not be an appropriate sum to award to the plaintiff. I there fore consider it better to state the principle underlying the Act as being the principle of unjust enrichment, which underlies the right of recovery in very many cases in English law, and indeed is the basic principle of the English law of restitution, of which the Act forms part.
(b) Although section 1(2) and (3) is concerned with restitution in respect of different types of benefit, it is right to construe the two subsections as flowing from the same basic principle and therefore, so far as their different subject matters permit, to achieve consistency between them. Even so, it is always necessary to bear in mind the difference between awards of restitu tion in respect of money payments and awards where the benefit conferred by the plaintiff does not consist of a payment of money. Money has the peculiar character of a universal medium of exchange. By its receipt, the recipient is inevitably benefited; and (subject to problems arising from such matters as inflation, change of position and the time value of money) the loss suf fered by the plaintiff is generally equal to the defendant’s gain, so that no difficulty arises con cerning the amount to be repaid. The same cannot be said of other benefits, such as goods or services. By their nature, services cannot be restored; nor in many cases can goods be restored, for example where they have been consumed or transferred to another. Furthermore the iden tity and value of the resulting benefit to the recipient may be debatable. From the very nature of things, therefore, the problem of restitution in respect of such benefits is more complex than in cases where the benefit takes the form of a money payment; and the solution of the problem has been made no easier by the forrn in which the legislature has chosen to draft section 1(3) of the Act.
(c) The Act is not designed to do certain things: (i) It is not designed to apportion the loss
between the parties. There is no general power under either section 1(2) or section 1(3) to make any allowance for expenses incurred by the plaintiff (except, under the proviso to section 1(2), to enable him to enforce pro tanto payment of a sum payable but unpaid before frustration); and expenses incurred by the defendant are only relevant in so far as they go to reduce the net benefit obtained by him and thereby limit any award to the plaintiff. (ii) It is not concerned to put the parties in the position in which they would have been if the contract had been per formed. (iii) It is not concerned to restore the parties to the position they were in before the
contract was made. A remedy designed to prevent unjust enrichment may not achieve that result; for expenditure may be incurred by either party under the contract which confers no benefit on the other, and in respect of which no remedy is available under the Act.
(d) An award under the Act may have the effect of rescuing the plaintiff from an unprofitable bargain. This may certainly be true under section 1(2), if the plaintiff has paid the price in advance for an expected return which, if furnished, would have proved unprofitable; if the con tract is frustrated before any part of that expected return is received, and before any expendi ture is incurred by the defendant, the plaintiff is entitled to the return of the price he has paid, irrespective of the consideration he would have recovered had the contract been performed. Consistently with section 1(2), there is nothing in section 1(3) which necessarily limits an award to the contract consideration. But the contract consideration may nevertheless be highly relev ant to the assessment of the just sum to be awarded under section 1(3); this is a matter to which I will revert later in this judgment.
(2) Claims under section I (2)
Where an award is made under section 1(2), it is, generally speaking, simply an award for the repayment of money which has been paid to the defendant in pursuance of the contract, sub ject to an allowance in respect of expenses incurred by the defendant. It is not necessary that the consideration for the payment should have wholly failed: claims under section 1(2) are not limited to cases of total failure of consideration, and cases of partial failure of consideration can be catered for by a cross-claim by the defendant under section 1(2) or section 1(3) or both. There is no discretion in the court in respect of a claim under section 1(2), except in respect of the allowance for expenses; subject to such an allowance (and, of course, a cross-claim) the plaintiff is entitled to repayment of the money he has paid. The allowance for expenses is prob ably best rationalised as a statutory recognition of the defence of change of position. True, the expenses need not have been incurred by reason of the plaintiff’s payment; but they must have been incurred in, or for the purpose of, the performance of the contract under which the plain tiff’s payment has been made, and for that reason it is just that they should be brought into account. No provision is made in the subsection for any increase in the sum recoverable by the plaintiff, or in the amount of expenses to be allowed to the defendant, to allow for the time value of money. The money may have been paid, or the expenses incurred, many years before the date of frustration; but the cause of action accrues on that date, and the sum recoverable under the Act as at that date can be no greater than the’sum actually paid, though the defendant may have had the use of the money over many years, _and indeed may have profited from its use. Of course, the question whether the court may award interest from the date of the accrual of the cause of action is an entirely different matter, to· which I shall refer later in this judgment.
(3) Claims underr seaion 1(3)
(a) General. In contrast, where an award is made under section 1(3), the process is more com plicated. First, it has to be shown that the defendant has, by reason of something done by the plaintiff in, or for the purpose of, the performance of the contract, obtained a valuable benefit (other than a payment of money) before the time of discharge. That benefit has to be identified, and valued, and such value forms the upper limit of the award. Secondly, the court may award to the plaintiff such sum, not greater than the value of such benefit, as it considers just ha. ng regard to all the circumstances of the case, including in•particular the matters specified in sec tion 1(3)(a) and (b). In the case of an award under section 1(3) there are, therefore, two distinct stages-the identification and valuation of the benefit, and the award of the just sum. The amount to be awarded is the just sum, unless the defendant’s benefit is less, in which event the award will be limited to the amount of that benefit. The distinction between the identification and valuation of the defendant’s benefit, and the assessment of the just sum, is the most con troversial part of the Act. It represents the solution adopted by the legislature of the problem of restitution in cases where the benefit does not consist of a payment of money; but the solu tion so adopted has been criticised by some commentators as productive of injustice, and it cer tainly gives rise to considerable problems, to which I shall refer in due course.
(b) Identification of the tkfandant’s benefit. In the course of the argument before me, there was much dispute whether, in the case of services, the benefit should be identified as the services themselves, or as the end product of the services. One example canvassed (because it bore some relationship to the facts of the present case) was the example of prospecting for minerals. If minerals are discovered, should the benefit be regarded (as Mr Alexander contended) simply as the services of prospecting, or (as Mr Rokison contended) as the minerals themselves being the end product of the successful exercise? Now, I am satisfied that it was the intention of the legis lature, to be derived from section 1(3) as a matter of construction, that the benefit should in an appropriate case be identified as the end product of the services. This appears, in my judgment, not only from the fact that section 1(3) distinguishes between the plaintiff’s performance and the defendant’s benefit, but also from section 1(3)(b) which clearly relates to the product of the plaintiff’s performance. Let me take the example of a building contract. Suppose that a contract for work on a building is frustrated by a fire which destroys the building and which. there fore, also destroys a substantial amount of work already done by the plaintiff. Although it might be thought just to award the plaintiff a sum assessed on a quantum meruit basis, probably a rateable part of the contract price, in respect of the work he has done, the effect of section 1(3Xb) will be to reduce the award to nil, because of the effect, in relation to the defendant’s benefit, of the circumstances giving rise to the frustration of the contract. It is quite plain that, in section 1(3)(b), the word ‘benefit’ is intended to refer, in the example I have given, to the actual improvement to the building, because that is what will be affected by the frustrating event; the subsection therefore contemplates that, in such a case, the benefit is the end product of the plaintiff’s services, not the services themselves. This will not be so in every case, since in some cases the services will have no end product; for example, where the services consist of doing such work as sun·eying, or transporting goods. In each case, it is necessar)’ to ask the question: what benefit has the defendant obtained by reason of the plaintiff’s contractual per formance? But it must not be forgotten that in section 1(3) the relevance of the value of the benefit is to fix a ceiling to the award. If, for example, in a building contract, the building is only panially completed, the value of the partially completed building (i.e. the product of the ser vices) will fix a ceiling for the award; the stage of the work may be such that the uncompleted building may be worth less than the value of the work and materials that have gone into it, par ticularly as completion by another builder may cost more than completion by the original builder would have cost. In other cases, however, the actual benefit to the defendant may be considerably more than the appropriate or just sum to be awarded to the plaintiff, in which event the value of the benefit will not in fact determine the quantum of the award. I should add, however, that, in a case of prospecting, it would usually be wrong to identify the discovered mineral as the benefit. In such a case there is always (whether the prospecting is successful or not) the benefit of the prospecting itself, i.e. of knowing whether or not the land contains any deposit of the relevant minerals; if the prospecting is successful, the benefit may include also the enhanced value of the land by reason of the discovery; if the prospector’s contractual task goes beyond discovery and includes development and production, the benefit will include the further enhancement of the land by reason of the insrallation of the facilities, and also the bene fit of in part transforming a valuable mineral deposit into a marketable commodity.
I add by way of footnote that all these difficulties would have been avoided if the legislature had thought it right to treat the services themselves as the benefit. In the opinion of many com mentators, it would be more just to do so; the services in question have been requested by the defendant, who normally takes the risk that they may prove worthless, from whatever cause. In the example I have given of the building destroyed by fire, there is much to be said for the view that the builder should be paid for the work he has done, unless he has (for example by agree ing to insure the works) taken upon himself the risk of destruction by fire. But my task is to construe the Act as it stands. On the true construction of the Act, it is in my judgment clear that the defendant’s benefit must, in an appropriate case, be identified as the end product of the plaintiff’s services, despite the difficulties which this construction creates, difficulties which an: met again when one comes to value the benefit.
(c) Apportioning the benefit. In all cases, the relevant benefit must have been obtained by the defendant by reason of something done by the plaintiff. Accordingly, where it is appropriate to identify the benefit with an end product and it appears that the defendant has obtained the benefit by reason of work done both by the plaintiff and by himself, the court will have to do its best to apportion that benefit, and to decide what proportion is attributable to the work done by the plaintiff. That proportion will then constitute the relevant benefit for the purposes of section 1(3) of the Act.
(d) Valuing the benefit. Since the benefit may be identified with the product of the plaintiff’s performance, great problems arise in the valuation of the benefit. First, how does one solve the problem which arises from the fact that a small service may confer an enormous benefit, and conversely, a very substantial service may confer only a very small benefit? The answer presumably is that at the stage of valuation of the benefit (as opposed to assessment of the just IUIII) the task of the court is simply to assess the value of the benefit to the defendant. For exam ple, if a prospector after some very simple prospecting discovers a large and unexpected deposit of a valuable mineral, the benefit to the defendant (namely, the enhancement in the value of the land) may be enormous; it must be valued as such, always bearing in mind that the assessment of a just sum may very well lead to a much smaller amount being awarded to the plaintiff. But conversely, the plaintiff may have undertaken building work for a substantial sum which is, objectively speaking, of little or no value–for example, he may commence the redecoration, to the defendant’s execrable taste, of rooms which are in good decorative order. If the contract is frustrated before the work is complete, and the work is unaffected by the frustrating event, it can be argued that the defendant has obtained no benefit, because the defendant’s property has been reduced in value by the plaintiff’s work; but the partial work must be treated as a benefit to the defendant, since he requested it, and valued it as such. Secondly, at what point in time is the benefit to be valued? If there is a lapse of time between the date of the receipt of the bene fit, and the date of frustration, there may in the meanwhile be a substantial variation in the value of the benefit. If the benefit had simply been identified as the services rendered, this problem would not arise; the court would simply award a reasonable remuneration for the services ren dered at the time when they were rendered, tho defendant taking the risk of any subsequent depreciation and the benefit of any subsequent appreciation in value. But that is not what the Act provides: section 1(3)(b) makes it plain th_atthe plaintiff is to take the risk of depreciation
or destruction by the frustrating event. If the effect of the frustrating event upon the value of the benefit is to be measured, it must surely be measured upon the benefit as at the date of frus tration. For example, let it be supposed that a builder does work which doubles in value by the date of frustration, and is then so severely damaged by fire that the contract is frustrated; the valuation of the residue must surely be made OIJ the basis of the value as at the date of frustra
tion. However, does this mean that, for the purposes of section 1(3), the benefit is always to be valued as at the date of frustration? For example, if goods are transferred and retained by the defendant till frustration when they have appreciated or depreciated in value, are they to be val ued as at the date of frustration? The answer must, I think, generally speaking, be in the affir mative, for the sake of consistency. But this raises an acute problem in relation to the time value of money. Suppose that goods are supplied and sold, long before the date of frustration; does the principle that a benefit is to be valued as at the date of frustration require that allowance must be made for the use in the meanwhile of the money obtained by the disposal of the goods, in order to obtain a true valuation of the benefit as at the date of frustration? This was one of the most hotly debated matters before me, for the very good reason that in the present case it affects the valuation of the parties’ respective benefits by many millions of dollars. It is very tempting to conclude that an allowance should be made for the time value of money, because it appears co lead to a more realistic valuation of the benefit as at the date of frustration; and, as will appear hereafter, an appropriate method for making such an allowance is available in the form of the net discounted cash flow system of accounting. But I have come to the conclusion that, as a matter of construction, this course is not open to me. First, the subsection limits the award to the value of the benefit obtained by the defendant; and it docs not follow that, because the defendant has had the money over a period of time, he has in fact derived any benefit from it. Secondly, if an allowance was to be made for the time value of the money obtained by the defendant, a comparable allowance should be made in respect of expenses incurred by the defendant, i.e. in respect of the period between the date of incurring the expenditure and the date of frustration, and section 1(3)(a) only contemplates that the court, in making an allowance for expenses, shall have regard to the ‘amount of [the] expenses.’ Thirdly, as I have already indicated, no allowance for the time value of money can be made under section 1(2); and it would be inconsistent to make such an allowance under section 1(3) but not under section 1(2). Other problems can arise from the valuation of the defendant’s benefit as the end product; I shall come to these later in the consideration of the facts of the present case. But there is a further problem which I should refer to, before leaving this topic. Section 1(3)(.i) requires the court to have regard to the amount of any expenditure incurred before the time of discharge by the benefited party in, or for the purpose of, the performance of the contract. The question arises-should this matter be taken into account at the stage of valuation of the benefit, or of assessment of the just sum? Take a simple example. Suppose that the defendant’s benefit is val ued at £150, and that a just sum is assessed at £100, but that there remain to be taken into account defendant’s expenses of £75: is the award to be £7 5 or £25? The clue to this problem lies, in my judgment, in the fact that the allowance for expenses is a statutory recognition of the defence of change of position. Only to the extent that the position of the defendant has so changed that it would be unjust to award restitution, should the court make an allowance for expenses. Suppose that the plaintiff does work for the defendant which produces no valuable end product, or a benefit no greater in value than the just sum to be awarded in respect of the work; there is then no reason why the whole of the relevant expenses should not be set off against the just sum. But suppose that the defendant has reaped a large benefit from the plain tiff’s work, far greater in value than the just sum to be awarded for the work. In such circum
stances it would be quite wrong to set off the whole of the defendant’s expenses against the just sum. The question whether the defendant has suffered a change of position has to be judged in the light of all the circumstances of the case. Accordingly, on the Act as it stands, under sec
tion 1(3) the proper course is to deduct the expenses from the value of the benefit with the effect that only in so far as they reduce the value of the benefit below the amount of the just sum which would otherwise be awarded will they have any practical bearing on the award.
Finally, I should record that the court is required to have regard to the effect, in relation to the defendant’s benefit, of the circumstances giving rise to the frustration of the contract. I have already given an example of how this may be relevant, in the case of building contracts; and I have recorded the fact that this provision has been the subject of criticism. There may, how ever, be circumstances where it would not be just to have regard to this factor-for example if, under a building contract, it was express!y agreed that the work in progress should be insured by the building-owner against risks which include the event which had the effect of frustrating the contract and damaging or destroying the work.
(e) Assessment of the just sum. The principle underlying the Act is prevention of the unjust enrichment of the defendant at the plaintiff’s expense. Where, as in cases under section I (2), the benefit conferred on the defendant consists of payment of a sum of money, the plaintiff’s expense and the defendant’s enrichment are generally equal; and, subject to other relevant fac tors, the award of restitution will consist simply of an order for repayment of a like sum of money. But where the benefit does not consist of money, then the defendant’s enrichment will rarely be equal to the plaintiff’s expense. In such cases, where (as in the case of a benefit con ferred under a contract thereafter frustrated) the benefit has been requested by the defendant, the basic measure of recovery in restitution is the reasonable value of the plaintiff’s perfor mance—in a case of services, quantum meruit or reasonable remuneration, and in a case of goods, a quantum valebat or reasonable price. Such cases are to be contrasted with cases where such a benefit has not been requested by the defendant. In the latter class of case, recovery is rare in restitution; but if the sole basis of recovery was that the defendant had been incontro vertibly benefited, it might be legitimate to limit recovery to the defendant’s actual benefit-a limit which has (perhaps inappropriately) been imported by the legislature into section 1(3) of the Act. However, under section 1(3) as it stands, if the defendant’s actual benefit is less than the just or reasonable sum which would otherwise be awarded to the plaintiff, the award must be reduced to a sum equal to the amount of the defendant’s benefit.
A crucial question, upon which the Act is surprisingly silent, is this: what bearing do the terms of the contract, under which the plaintiff has acted, have upon the assessment of the just sum? First, the terms upon which the work was done may serve to indicate the full scope of the work done, and so be relevant to the sum awarded in respect of such work. For example, if I do work under a contract under which I am to receive a substantial prize if successful, and nothing if I fail, and the contract is frustrated before the work is complete but not before a sub stantial benefit has been obtained by the defendant, the element of risk taken by the plaintiff may be held to have the effect of enhancing the amount of any sum to be awarded. Secondly, the contract consideration is always relevant as providing some evidence of what will be a rea sonable sum to be awarded in respect of the plaintiff’s work. Thus if a prospector, employed for a fee, discovers a gold mine before the contract under which he is employed is frustrated (for example, by illegality or by his illness or disablement) at a time when hjs work was incom plete, the coun may think it just to make an award in the nature of a reasonable fee for what he has done (though of course the benefit obtained by the defendant will be far greater), and a rate able part of the contract fee may provide useful evidence of the level of sum to be awarded. If, however, the <.–ontract had provided that he was to receive a stake in the concession, then the just sum might be enhanced on the basis that, in all the circumstances, a reasonable sum should take account of such a factor: cf. Way v. latilla [1937] 3 All ER 759. Thirdly, however, the con tract consideration, or a rateable part of it, may provide a limit to the sum to be awarded. To take a fairly extreme example, a poor householder or a small businessman may obtain a contract for building work to be done to his premises at considerably less than the market price, on the basis that he cannot afford to pay more. In such a case, the court may consider it just to limit the award to a rateable pan of the contract pri<;I!, on the ground that it was the understanding of the parties that in no circumstances (including the circumstances of the contract being frus trated) should the plaintjff recover more than the contract price or a rateable part of it. Such a limit may properly be said to arise by virtue of the operation of section 2(3) of the Act. But it must not be forgotten that, unlike money, services can never be restored, nor usually can goods, since they are likely to have been either consumed or wsposed of, or to have deprec.iated in value; and since, ex hypothesi, the defendant will only have been prepared to contract for the goods or services on the basis that he paid no,more than the contract consideration, it may be unjust to compel him, by an award under the Act, to pay more than that consideration, or a rateable part of it, in respect of the services or goods he has received. It is unnecessary for me to decide whether this will always be so; but it is likely that in most cases this will impose an important limit upon the sum to be awarded-indeed it may well be the most relevant limit to an award under section 1(3) of the Act. The legal basis of the limit may be section 2(3) of the Act; but even if that subsection is inapplicable, it is open to the coun, in an appropriate case, to give effect to such a limit in assessing the just sum to be awarded under section 1(3), because in many cases it would be unjust to impose upon the defendant an obligation to make restiru tion under the subsection at higher than the contract rate.
(4) The effect of section 2(3) of the Act
The court has always to bear in mind the provisions of section 2(3) of the Act. It was sub mitted by Mr Rokison that effect should only be given to this subsection where the relevant contractual provision was clearly intended to have effect in th,;: event of the frustrating circum stances. I can see no good reason for so qualifying the express words of the subsection. In my judgment the effect of the subsecion depends, as it expressly provides, simply upon applying the ordinary principles of construction. If the contract contains any provision which, upon the true construction of the contract, is intended to have effect in the circumstances specified in the subsection, then the court can only give effect to section I of the Act to such extent as is con sistent with such provision.
Examples of such provisions may be terms which have the effect of precluding recovery of any award under the Act, or of limfring the amount of any such award, for example, by limit ing the award to the contractual consideration or a rateable part thereof. Similarly, the parties may contract upon the terms that the plaintiff shall not be paid until the occurrence of an event, and by reason of the frustration of the contract that event does not or cannot occur; then, if upon a true construction of the contract the coun concludes that the pl:yntiff has taken the risk of non-payment in the event of such frustration the court should make no award by virtue of section 2(3) of the Act. Such may be the conclusion if the contract contains an expre&li term imposing upon the plaintiff an obligation to insure against the consequences of the frustrating event. Another example considered in argument was a loan of money advanced to a busines& man on the terms that it was to be repaid out of the profits of his business. Such a term should not automatically preclude an award in the event of frustration, for example, if the businessman is incapacitated the day after the loan is made; but if the business consists, for example, of a ship, which strikes a reef and sinks, then it may be that the court, having regard to the terms of the contract and the risk taken thereunder by the lender, would make no award. But in such cases the court should only refuse to make an award if it is satisfied that the plaintiff has, by the
contract, taken the risk of the consequences of the frustrating event. The principle is the same
as in those cases where the contract consideration controls the amount or basis of the award under the Act-the ooun should not act inconsistently with the contractual intention of the parties applicable in the events which have occurred. But, such cases apart, the court is free to make an award which differs from the anticipated contractual performance of the defendant. I have already referred to the fact that, under section 1(2) at least, the effect of an award under the Act may be to rescue the plaintiff from a bad bargain. Again, the contract may provide that the plaintiff is to receive goods or services; the court may nevertheless make an award in money. The contract may provide for the plaintiff to receive money at a certain place or in a certain currency; frustration may render that impossible (for example, in a case of supervening illegal ity), and the court may make an award for payment which takes effect at a different place or in a different currency. Most striking of all, in most frustrated contracts under which the claim is made in respect of a benefit other than money, the time for payment will not yet have come- the contract, or a severable part of it, will be ‘entire’ in the old strict sense of that term; I do not, however, consider that such a provision should automatically preclude an award under sec tion 1(3). If it were intended to do so, there would be few awards under section 1(3), and the matter would surely be the subject of an express provision if it was the intention that so fun damental a qualification was to be imposed upon the power of the court under this subsection. Certainly, no such qualification is imposed in section 1(2), and no such result can be achieved in relation to an award under that subsection since, generally speaking, the plaintiff is entitled to the return of his money. In my judgment, only if upon a true consideration of the contract the plaintiff has contracted on the terms that he is to receive no payment in the event which has occurred, will the fact that the contract is ‘entire’ have the effect of precluding an award under the Act.
(5) Cross-claims
There may, in any particular case, be not merely a claim by the plaintiff against the defen dant under the Act, but also a cross-claim by the defendant against the plaintiff. This may occur if each pany has obtained a benefit by reason of the performance of the other, whether the benefit does or does not consist of a payment of money. The cross-daim may or may not be under the same subsection as the claim; indeed, claims, or cross-claims, or both, may be made under both subsections. Of course, where each pany has conferred a benefit on the other, the effect may be that the lesser claim is extinguished by the greater, in the sense that in the final result the party who has conferred the greater benefit may recover the balance; in particular, in a case under section 1(3), the assessment of the just sum to be awarded to either party should take into account the receipt of any part of the contractual consideration from the other. Even so the court must take care, in making its award, that neither party gains an
unjust benefit by taking advantage of the same item twice over. Section 1(3)(a) of the Act
recognises the existence of the problem of ‘double-counting’ by providing that the defendant to a claim under section I(3) may bring into account, as expenses incurred by him, any 111111 paid or payable by him in pursuance of the contract and retained or recoverable by the payee under section 1(2).
(6) Th relevance to a claim under the Act of a prior brea,h by the plaintiff
If the plaintiff in an action in which he claims an award of restitution under the Act has com mined a breach of the relevant contract prior to frustration, the only relevance of such breach is that, since the defendant will have an accrued right to damages, the defendant’s claim to dam ages may be the subject of a set-off or counterclaim in the action. I cannot see that the breach of contract can have any other relevance. It certainly cannot otherwise affect a claim for repay ment of money under section 1(2), since the court has (subject to an allowance for expenses, or the effect of section 2(3), or a cross-claim or set-off) no option but to order repayment in an appropriate case. Nor, in my judgment, can any such breach of contract have any other rele vance to the award of a just sum under section 1(3); the basis of such an award is that the defen dant has been unjustly enriched at the plaintiff’s expense, and the mere fact that the plaintiff has committed a prior breach of contract does not affect the question whether the defendant has been unjustly enriched, which depends upon the quite separate question whether he has received a benefit in respect of which he ought, in justice, to make restitution. The appropriate way of enforcing a claim for damages for breach of contract is by an action for damages, or
(where appropriate) by a counterclaim or set–0ff; such proceedings are, of course, subject to the ordinary rules relating to limitation of actions. If a defendant allows such a claim to become time-barred, I cannot see why he should be ble to revive his claim by the back-door by invit ing a court to take it into account when assdsing a just sum to be awarded to the other party
under section 1(3) of the Act. A fortiori, I cannot see any possible justification for the award of a just sum under section 1(3) being reduced on the ground that the plaintiff, acting reasonably, might have acted in a manner more favourable to the defendant; quite apart from the fact that such action might have enhanced the benefit received by the defendant (and so have raised the limit to an award to the plaintiff), I cannot see how any such matter can have the slightest bear ing on the question whether the defendant, has, in the events which occurred, been unjustly enriched at the plaintiff’s expense….
Both parties appealed to the Court of Appeal ([1981] 1 WLR 232) on various points and the defendants further appealed fo the House of Lords ([1983] 2 AC 352). The grounds of appeal generally concerned issues which were either points of detail relating to the application of the law to the complex facts of the case or concerned points of law which are not of direct significance to us in the present context. But the following passage from the judgment of Lawton LJ in the Court of Appeal is worth setting out in full for the purpose of comparing it with the approach adopted by Robert Goff J at first instance. Lawton LJ stated:
The Act of 1943 was passed shortly after the decision of the House of Lords in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd [1943) AC 32, which overruled Chandler v. Webster [1904) I KB 493. The earlier case had been regarded as authority for the proposition that, on the occurrence of an event which frustrates the performance of a contract, the loss lies where it falls and that money paid by one party to the contract to the other party is to be retained by the party in whose hands it is. The object of the Act was to make the operation of the law more fair when a contract governed by English law … has become impossible of per formance and the parties to it have for that reason been discharged from further performance. This was to be done by adjusting the rights and liabilities of the parties in the ways set out: sec section 1(1).
Section 1(2) dealt with payments of money. They were to be recoverable as money received for the use of the payer; but an adjustment could be made for expenses incurred by the recipient before the time of discharge in, or for the purpose of, the performance of the contract. The amount of the adjustment was to be such as the court considered just, having regard to all the circumstances of the case. In section 1(3) the Act provided for the case where one party had obtained a valuable benefit (other than a payment of money) before the time of discharg.e…
Before the court can make an award under this subsection it must be satisfied that one party to a contract has obtained a valuable benefit by reason of something done by the other. In this case the plaintiffs did a great deal for the defendant and he obtained, before the frustrating events happened, a most valuable benefit from what they had done for him, which was so great that it was incapable of any exact valuation. This part of the problem presented no difficulties for the judge. What was difficult was the assessment of the sum which the court considered just, having regard to all the circumstances of the case. Save for what is mentioned in paragraphs (a) and (b), the subsection gives no help as to how, or upon what principles, the court is to make its assessment or as to what factors it is to take into account. The responsibility lies with the judge: he has to fix a sum which he, not an appellate court, considers just. This word connotes the mental processes going to forming an opinion. What is just is what the trial judge thinks is just. That being so, an appellate court is not entitled to interfere with his decision unless it is so plainly wrong that it cannot be just. The concept of what is just is not an absolute one. Opinions among right thinking people may, and probably will, differ as to what is just ina par ticular case. No one person enjoys the faculty of infallibility as to what is just. It is with these considerations in mind that we approach this case.
The judge assessed the just sum on what can be described as a reimbursement basis, that is to say, by ensuring as far as was practicable that the plaintiffs got back what they had paid out on the defendant’s behalf before the frustrating events happened….
MRrokison, on behalf of the plaintiffs, accepted that there could be more than one way of
assessing a just sum. He pointed out that there was nothing in the Act to indicate that its pur pose was to enable the judge to apportion losses or profits, or to put the parties in the positions which they would have been in if the contract had been fully performed or if it had never been made. This we accept. He submitted that the concept behind the Act was to prevent unjust enrichment. This is what the judge had thought. We get no help from the use of words which are not in the statute Inoujrudgment, this court would not be justified in setting aside the
judge’s way of assessment merely because we thought that there were better ways. Mr Rokison tried to show that the judge’s way was wrong and palpably wrong Inour judgment, it cannot be said that the judge went wrong, and certainly not palpably wrong, in assessinga just sum by reference to the concept of reimbursing the plaintiffs.
Barnes (as former Court Appointed Receiver) v The Eastenders Group & Anor (Rev 1)
[2014] UKSC 26
LORD TOULSON (with whom Lady Hale, Lord Kerr, Lord Wilson and Lord Hughes agree)
Introduction
The contest in this case is about who should bear the costs and expenses of a receiver appointed under an order which ought not to have been made. The appellant, who is a former partner in a well known firm of accountants, was appointed to act as management receiver of the assets of a group of companies referred to as Eastenders (“the companies”) on the application of the Crown Prosecution Service (“CPS”). The order was made under section 48 of the Proceeds of Crime Act 2002 (“POCA”) but was quashed on appeal. The receiver’s costs and expenses are put at £772,547. Who should bear those costs? There are three possible answers: the companies, the receiver or the CPS. The question has been considered by four judges who have arrived at three different answers.
The receiver applied to the Crown Court, after the order had been quashed, for permission to draw his remuneration and expenses from the assets of the companies. The application was refused by Underhill J (now Underhill LJ) in a judgment given on 4 April 2012. He held that to grant the application would infringe the companies’ rights under article 1 of the First Protocol to the European Convention on Human Rights (“A1P1”).
…….
If the latter is the preferable analysis, does the receiver have a remedy against the CPS under the law of restitution or unjust enrichment?
The current preference among scholars of the subject is to call it unjust enrichment rather than restitution. An example is the renaming of Goff and Jones’ seminal textbook. The first seven editions were entitled The Law of Restitution but the title of the eight edition (2011) has been changed to The Law of Unjust Enrichment. What matters is the content, and the words “unjust” and “enrichment” are both in some respects terms of art.
Enrichment requires the obtaining of a benefit, which may include the provision of services, as correctly stated by Professor Andrew Burrows in his Restatement of the English Law of Unjust Enrichment, 2012, at p 7. The CPS plainly perceived that there would be benefit to the public in the companies’ assets being removed from their control and placed in the hands of an independent receiver while its criminal investigation was proceeding.
As to the “unjust” element in an unjust enrichment claim, I agree with the following overview in the current edition of Goff and Jones at para 1-08:
“the ‘unjust’ element in ‘unjust enrichment’ is simply a ‘generalisation of all the factors which the law recognises as calling for restitution’ [a citation from the judgment of Campbell J in Wasada Pty Ltd v State Rail Authority of New South Wales (No 2) [2003] NSWSC 987 at [16], quoting Mason & Carter, Restitution Law in Australia (1995), 59-60]. In other words, unjust enrichment is not an abstract moral principle to which the courts must refer when deciding cases; it is an organising concept that groups decided authorities on the basis that they share a set of common features, namely that in all of them the defendant has been enriched by the receipt of a benefit that is gained at the claimant’s expense in circumstances that the law deems to be unjust. The reasons why the courts have held a defendant’s enrichment to be unjust vary from one set of cases to another, and in this respect the law of unjust enrichment more closely resembles the law of torts (recognising a variety of reasons why a defendant must compensate a claimant for harm) than it does the law of contract (embodying the single principle that expectations engendered by binding promises must be fulfilled).”
An important part of this branch of law is concerned with cases where money is paid or benefits are conferred for a consideration which has failed. Burrows’ Restatement at p 86, accommodates this within the concept of “unjust” enrichment by stating that a defendant’s enrichment is “unjust” if the claimant has enriched the defendant on the basis of a consideration that fails.
Confusion is sometimes caused by the fact that the term “consideration”, when used in the phrase “failure of consideration” as a reason for a restitutionary claim, does not mean the same thing as it does when considering whether there is sufficient consideration to support the formation of a valid contract. Viscount Simon LC explained this in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, 48:
“In English law, an enforceable contract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an act . . . but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise.”
To avoid this confusion, Goff and Jones suggest, at paras 12-10 to 12-15, that the expression “failure of basis” is preferable to “failure of consideration” because it accurately identifies the essence of the claim being pursued. Whichever terminology is used, the legal content is the same. The attraction of “failure of basis” is that it is more apt, but “failure of consideration” is more familiar.
Failure of basis, or failure of consideration as it has been generally called, does not necessarily require failure of a promised counter-performance; it may consist of the failure of a state of affairs on which the agreement was premised.
A succinct summary of the meaning of failure of consideration was given by Professor Birks in his An Introduction to the Law of Restitution (1989), p 223 (cited with approval by the Court of Appeal in Sharma v Simposh Ltd [2011] EWCA Civ 1383, [2013] Ch 23, para 24):
“Failure of the consideration for a payment . . . means that the state of affairs contemplated as the basis or reason for the payment has failed to materialise or, if it did exist, has failed to sustain itself.”
In the present case the receiver has lost his lien. Professor Birks’ reference to failure of the consideration for “a payment” would apply equally to failure of the consideration for the provision of services. The present case involves both; the receiver made payments for the protection of the receivership property (in particular by the employment of security guards) and also provided professional services for which he seeks remuneration.
The point that a failure of consideration may consist of the failure of a non-promissory event or state of affairs is reiterated in Burrows’ Restatement at pp 86-87. He states that consideration which fails may have been “an event or a state of affairs that was not promised”, and he cites the decision of the High Court of Australia in Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 as an example of a failure of a non-promissory condition as to the future. Rothmans were licensed to act as wholesalers of tobacco products under a New South Wales statute. They sold products to retailers for a price including licence fees, which were in reality a form of indirect taxation, payable by Rothmans to the New South Wales government. The Act imposing that liability on Rothmans was held by the High Court to be unconstitutional. The retailers then sued Rothmans to recover the amounts which they had paid in respect of the tax which had until then been unlawfully imposed on Rothmans.
The retailers argued unsuccessfully that there was an implied agreement under which they could claim repayment of any unpaid tax. This argument was described in the leading judgment of Gleeson CJ, Gaudron and Hayne JJ, as “artificial and unconvincing” (para 20). However, the retailers succeeded in restitution.
Gleeson CJ, Gaudron and Hayne JJ, stated at para 16 that “Failure of consideration is not limited to non-performance of a contractual obligation, although it may include that”. They also rejected Rothmans’ argument that the restitution claims failed because there had not been a total failure of consideration, by interpreting the consideration for the total payments made by the retailers as containing severable parts.
Gummow J (concurring), in a passage at para 72 with which I agree, advocated
“caution in judicial acceptance of any all-embracing theory of restitutionary rights and remedies founded upon a notion of ‘unjust enrichment’. To the lawyer whose mind has been moulded by civilian influences, the theory may come first, and the source of the theory may be the writing of jurists not the decisions of judges. However, that is not the way in which a system based on case law develops; over time, general principle is derived from judicial decisions upon particular instances, not the other way around.”
After reviewing the authorities Gummow J held, at paras 101 to 102, that failure of consideration in this area of law may include the collapse of a bargain, which need not be contractual in nature. He held at para 104 that there had been no failure in the performance by Rothmans of any promise made by them, but that there had been a “failure of consideration” in the “failure to sustain itself of the state of affairs contemplated as a basis for the payments the appellants seek to recover”.
Similarly, in the present case the receiver agreed to accept the burden of management of the companies on the basis that he would be entitled to take his remuneration and expenses from the companies’ assets, and that state of affairs which was fundamental to the agreement has failed to sustain itself. It might nevertheless be argued that there has not been a total failure of consideration, because the restraint and receivership order included assets of the defendants other than the assets of the companies. There is a lively academic debate whether it is an accurate statement of law today that failure of consideration cannot found a claim in restitution or unjust enrichment unless the failure is total, but that point has not been fully argued and it is unnecessary to decide it in this case. Modern authorities show that the courts are prepared, where it reflects commercial reality, to treat consideration as severable. Rothmans itself is an example. Another example cited by Burrows is the decision of the Court of Appeal in D O Ferguson & Associates v M Sohl (1992) 62 BLR 1995. That case involved a building contract which was repudiated by the builders at a time when the works had been partly completed. The contract price was approximately £32,000. At the time when the builders abandoned the site they had been paid over £26,000 and the value of work done by them was about £22,000. It was held that the owner was entitled to claim in restitution for the sum of £4,673, representing the amount by which the sums paid to the builders exceeded the value of the work done. The builders objected that there had not been a total failure of consideration under the contract, since most of the building work had been done, but the court held that there had been a total failure of consideration for the amount by which the builders had been overpaid.
In the present case there was a total failure of consideration in relation to the receiver’s rights over the companies’ assets, which was fundamental to the basis on which the receiver was requested by the CPS and agreed to act. I use the expression “fundamental to the basis” because it should not be thought that mere failure of an expectation which motivated a party to enter into a contract may give rise to a restitutionary claim. Most contracts are entered into with intentions or expectations which may not be fulfilled, and the allocation of the risk of their non-fulfilment is a function of the contract. But in the present case the expectation that the receiver would have a legal right to recover his remuneration and expenses was not just a motivating factor. Nobody envisaged that the receiver should provide his services in managing the companies as a volunteer; those services were to be in return for his right to recover his remuneration and expenses from the assets of the companies, such as they might be. The agreement between the CPS and the receiver so provided, and that provision was incorporated into the order of the court.
I would hold that the CPS fulfilled its contractual obligations to the receiver by ensuring that the order appointing him conformed with the terms of the underlying agreement between them, but that the receiver is entitled to recover his proper remuneration and expenses from the CPS because the work done and expenses incurred by the receiver were at the request of the CPS and there has been a failure of the basis on which the receiver was asked and agreed to do so.
Disposal
I would uphold the Court of Appeal’s decision dismissing the CPS’s appeal from the refusal by Underhill J to make an order permitting the taking of the companies’ assets to meet his remuneration and expenses, essentially for the reasons given by Underhill J. I would allow the receiver’s appeal against the Court of Appeal’s decision in relation to the CPS and reinstate the order of Underhill J referred to at para 4 above (but for different reasoning).
Lessons for the future
In the judgment of the Court of Appeal referred to at para 24 above, Hooper LJ deplored the fact that the original application was made at short notice to a judge who was in the middle of conducting a heavy trial and with only a limited time available for considering it. It should be axiomatic that, as he said, an application of this complexity should be listed before a judge with sufficient time to read and absorb the papers and with sufficient time to conduct a proper hearing. The problem was compounded in this case by the lack of proper opportunity which the judge had to consider the evidence lodged by the companies before he made the critical decision to implement the receiver’s powers.
When the CPS is proposing to seek a restraint order, and particularly a restraint order coupled with a receivership order, it should give as much advance notice to the listing office as it reasonably can, together with a properly considered estimate of the time likely to be required for pre-reading and for the hearing of the application. If other trials are not to be interrupted, the listing office will need proper time to make the necessary arrangements under the supervision of the resident judge, who may well need to consult the presiding judge and should certainly do so in complex cases, which may merit being heard by a High Court judge.
The fact that such applications are made ex parte, and the potential seriousness of the consequences for defendants (at this stage presumed to be innocent) and for potential third parties, mean that there is a special burden both on the prosecution and on the court. Hughes LJ spelt this out plainly and emphatically in In re Stanford International Bank Ltd [2010] EWCA Civ 137, [2011] 1 Ch 33, para 191, in a passage (cited in An Informer v A Chief Constable [2012] EWCA Civ 197, [2013] QB 579, para 71) which I would again repeat and endorse:
“it is essential that the duty of candour laid upon any applicant for an order without notice is fully understood and complied with. It is not limited to an obligation not to misrepresent. It consists in a duty to consider what any other interested party would, if present, wish to adduce by way of fact, or to say in answer to the application, and to place that material before the judge. That duty applies to an applicant for a restraint order under POCA in exactly the same way as to any other applicant for an order without notice. Even in relatively small value cases, the potential of a restraint order to disrupt other commercial or personal dealings is considerable. The prosecutor may believe that the defendant is a criminal, and he may turn out to be right, but that has yet to be proved. An application for a restraint order is emphatically not a routine matter of form, with the expectation that it will routinely be granted. The fact that the initial application is likely to be forced into a busy list, with very limited time for the judge to deal with it, is a yet further reason for the obligation of disclosure to be taken very seriously. In effect the prosecutor seeking an ex parte order must put on his defence hat and ask himself what, if he were representing the defendant or a third party with a relevant interest, he would be saying to the judge, and, having answered that question, that is what he must tell the judge.”
I would qualify that only by saying that it is not acceptable that such an application should be forced into a busy list, with very limited time for the judge to deal with it, except in the comparatively rare case of a true emergency application where there is literally no opportunity for the prosecution to give the court sufficient notice for any other arrangement to be made. In that case, the judge will need to consider what is the minimum required in order to preserve the situation until such time as the court has had an adequate opportunity to consider the evidence.
A material failure to observe the duty of candour as explained above may well be regarded as serious default within the meaning of section 72 of the Act because of its potential to cause serious harm.
Before making an application order for a restraint order, with or without a receivership order, the prosecutor must consider carefully the statutory conditions for making such order. There must be reasonable cause to believe that the prospective defendant has benefited from criminal conduct (section 40(2)(b)) and there must be a good arguable case that the assets which it is sought to restrain must be realisable property held by him. Both conditions require careful thought about who is alleged to have been party to the criminal conduct under investigation. Careful thought must also be given to the potential adverse effect on others who are not alleged to be party to the criminal conduct and possible means of avoiding or limiting it.
A judge to whom such an application is made must look at it carefully and with a critical eye. The power to impose restraint and receivership orders is an important weapon in the battle against crime but if used when the evidence on objective analysis is tenuous or speculative, it is capable of causing harm rather than preventing it. Where third parties are likely to be affected, even if the statutory conditions for making the order are satisfied, the court must still consider carefully the potential adverse consequences to them before deciding whether on balance the order should be made and, if so, on what conditions. A judge who is in doubt may always ask for further information and require it to be properly vouched.
It is important to remember that under section 49(9) a receivership order may be made subject to such conditions and exceptions as the court specifies. The conditions attached to receivership orders appear to have become largely standard, but the making of a receivership order should never be a rubber stamping exercise. The court has a responsibility to consider what conditions it should contain. In In re Piggott [2010] EWCA Civ 285, para 54, Rix LJ referred to a suggestion made by Wilson LJ in the course of argument that in an appropriate case a management receivership order might be made subject to a special term that, if it should be shown in due course that the property subject to the order was not “realisable property” of the defendant but wholly in the legal and beneficial ownership of a third party, then the costs of the management receivership should be borne, not by the property, but, in the absence of any other source, by the prosecutor. I attach as an appendix to this judgment a possible form of “Piggott condition”, for which I am grateful to Lord Wilson. In my view there may indeed be cases in which such a condition would be appropriate, particularly cases in which the court can see the possibility that payment of the receiver’s expenses and remuneration out of the relevant assets might infringe a person’s A1P1 rights.
APPENDIX
THE PIGOTT CONDITION
Order made under s 49(2)(d) of POCA and Crim.PR 60.6(5)
(1) Subject to the condition set out in (2) below, the receiver shall, in relation to any property to which the above receivership order is expressed to apply, have powers to realise so much of it as is necessary to meet his or her remuneration and expenses and to recover them out of the proceeds of its realisation.
Order made under s 49(9) of POCA
(2) The condition referred to in (1) above is that, in the event that it is hereafter determined, whether on appeal or by way of application for variation or discharge of this order, that any property to which the above receivership order is expressed to apply is not arguably held by the defendant and so should not have been made subject to the above receivership order, the powers in (1) above shall not extend to such property and, to the extent that in consequence the said powers do not enable the receiver to recover his remuneration and expenses in full or in part, the applicant for this order do pay him in respect of them.
LORD HUGHES
I agree that the receiver’s appeal against the decision of the Court of Appeal should be dismissed, and that he should not, in this case, be entitled to recover his expenses from the third party assets belonging to the companies. I also agree that the receiver’s appeal should succeed against the CPS. I gratefully adopt the reasons given in Lord Toulson’s comprehensive judgment and add only a very few words on the topic of the application of A1P1 to the particular case of receivership orders made under section 48 of POCA as ancillary to a restraint order under section 41.
As Lord Toulson explains, an order for the receiver to recover his expenses in the usual way from the assets which he is directed to administer cannot be disproportionate for the reasons held by the majority of the Court of Appeal. The mere fact that an order is set aside on appeal does not mean that it violates the principle of legality; if it did, there would be a breach of one or other of the qualified articles of the ECHR wherever they were engaged and there was a successful appeal.
Nor, generally, will there be any question of a restraint or receivership order being disproportionate when made against the assets of a defendant (in which term POCA includes for this purpose an alleged offender under a criminal investigation: see section 40(9)), providing that there is reasonable cause to believe that he has benefited from criminal conduct.
When it comes to assets which turn out to belong to a third party, the question whether an order for the receiver to recover his expenses from them is or is not disproportionate will depend on the circumstances. A restraint order under section 41, and thus a receivership order under section 48, must be made against “realisable property”. Such property is defined in section 83; it consists of free property held by the defendant, or by the recipient of a tainted gift. At the interim stage of an application for either form of order, the true ownership of assets may not be known, especially (but not only) where a defendant has taken steps to obscure the true position. So the test is that a good arguable case exists for believing that the defendant has an interest in them: Crown Prosecution Service v Compton [2002] EWCA Civ 1720.
On the findings of the Court of Appeal in February 2011, which were not in question before this court, the present is a strong case of disproportion. There was simply never any proper basis advanced for the contention that the assets of these trading companies were the property of the controlling directors, who were the alleged offenders. The inclusion of the company assets in the restraint and receivership orders was based on nothing more than a bald request to “lift the corporate veil”. But no proper basis for doing so was advanced. It was not being contended that the companies were suspected of being parties to the crimes under investigation, in which event they would themselves have been alleged offenders and their assets might have been apt for restraint if there were grounds for believing that they had benefited from criminal conduct. The companies were, on the prosecution’s own case, businesses with substantial legitimate trading, so there could be no suggestion that they were sham entities concealing true ownership of their apparent assets by the suspected directors. It does not seem to have been suggested that the companies were used to evade the legal responsibility of the directors for any crimes suspected. Nor, on the findings of the Court of Appeal, was there any arguable case that they were being used by the directors to channel the benefits of crime to themselves.
Other cases of assets which turn out to belong to third parties must be decided on their own facts. If the original order was made when there was indeed a good arguable case for believing that the defendant under investigation had an interest in them, then the fact that it later turns out that he had none will not normally mean that the usual route for a receiver to recover his expenses is disproportionate to the legitimate aim of confiscation legislation to preserve assets which may be needed to satisfy a confiscation order if conviction ensues. If an order was thus made, it does not seem likely that its subsequent setting aside on grounds such as that ownership turns out to be other than it appeared, or that the expense of receivership is not, on closer inspection, justified, would lead to a finding of disproportion. Underhill J’s remarks about the closeness of the connection between the defendant and the third party are, on proper analysis, not independent tests of when an order can be made, but reflect a factor which may well be highly relevant to whether there is a good arguable case for believing that the assets are ones in which the defendant has an interest.
I respectfully endorse Lord Toulson’s remarks at para 122. Restraint (and occasionally receivership) orders may be very valuable in promoting the aims of POCA, which may otherwise all too easily be evaded by alleged offenders once they know that they are under investigation. But such orders are also capable of causing considerable loss to the holders of assets. Applicant prosecutors, and judges asked to make such orders, need to think constructively and critically about what is being alleged and who is said to be a party to it, and also about the balance between the benefits and the costs of the orders sought.
Singh & Anor v Sanghera & Ors
[2013] EWHC 956 (Ch) (22 April 2013)
U
JUDGE PURLE QC:
I have to decide a number of issues relating to what was formerly a Nisa supermarket at 263-267 High Street, Smethwick (“the supermarket”).
The supermarket is on the ground floor only. There are rooms over. The freehold of the premises (supermarket and rooms) is owned by the First Defendant, Baljit Singh Sanghera (“Baljit”). At the material times, the supermarket (not the rooms over) was leased by Baljit to the Fifth Defendant, Anjali Enterprises Limited (“Anjali”).
Anjali is owned by the Fourth Defendant, Amarjit Singh Sanghera (“Amarjit”) who is its sole director. Amarjit is Baljit’s brother. They have a sister, Rani Kaur (“Rani”). Their parents, Gurdial Singh (“Gurdial”) and Gurmit Kaur (“Gurmit”) are the Second and Third Defendants. Gurdial ran the supermarket and formerly owned it until he was “persuaded” by Baljit to transfer it to him in July 1999. Gurdial still continued to run the business after that date, and the transfer was not registered until February 2008, when the lease to Anjali was granted. Baljit, when giving his oral evidence, made a gesture indicating quotation marks around the word “persuaded”, suggesting that this was a euphemism. I infer that he put pressure on his father, as the elder son, to effect this transfer when he did.
Anjali, at any rate ostensibly, owned the business from 1st January 2005, and eventually took a lease from Baljit dated 29th February 2008. It is in issue to what extent there was a true or complete change of ownership in 2005, and whether the lease was genuine, or a sham. I have no doubt that there was a genuine change of ownership, and that the lease is a genuine document. There is a letter dated 1st January 2005 (drafted by Rani, a young woman of intelligence and ability) by which Anjali and Amarjit guaranteed trade and terminal accounts taken over by Anjali (which remained in Gurdial’s name as Amarjit had a bad credit record). This, as Rani explained, was to protect her father following the supermarket business being taken over by Anjali. A local shopkeeper (Mr Clarke) also confirmed Gurdial’s retirement at this time, as do the trading accounts of Anjali, and the cancellation by Gurdial of his VAT registration. Others (including casual staff, other shopkeepers and at least one customer) saw Gurdial in the shop from time to time after his retirement, and his accountant (Mr Vaghela) met him there from time to time. The casual staff still saw him as the boss, but this was more referable to cultural values, and respect for community elders, than a reflection of business or property ownership. The degree of Gurdial’s input after his retirement also seems to me to have been overstated. He has suffered from vascular dementia and diabetes for some years and, whilst he may have felt at home in the shop when he was there, he was not running it. As a witness before me, he was unimpressive, and unforthcoming, but this may be due, at least in part, to his failing cognitive awareness attributable to his vascular dementia. Gurmit for her part was (perhaps understandably) defensive but clear enough on the important issues. I did feel she might be holding back on certain issues and have approached her evidence with caution also. One of the issues is whether she ever discussed with Kashmir and Nirmala the possibility of their having a flat above the supermarket. I find this was discussed as a possibility, and that she showed them around, but nothing was ever agreed. I reject the further suggestion that it was ever agreed, by Gurmit or anyone else, or suggested, that Kashmir and Nirmala could stay in the supermarket with their family, turning it into a second home. I also reject the suggestion made by Kashmir and Nirmala that any of the Defendants actually lived in an upstairs flat.
I have seen a copy of the Lease, which is dated 28th February 2008. It was for 5 years at a rent of £30,000 per annum, guaranteed by Amarjit. By a letter dated 7th March 2008, (“the deferral letter”) Baljit deferred payment of the rent until demanded. The rents were subsequently demanded in mid-December 2010, as a prelude to forfeiture. The relevant rent arrears have more recently resulted in a judgment against Amarjit, obtained by Baljit. Despite this, they both appeared at the trial before me by the same Counsel. At the time of the hearings before me, no steps had been taken to enforce the judgment, and Amarjit feigned ignorance of the position, which did nothing for his credit. Amarjit has, I should mention, been embroiled in ancillary relief proceedings, and it may be that the judgment was thought to be helpful to defeat the claims of his wife. She previously successfully applied for annulment of a bankruptcy order made on Amarjit’s own petition. That is not a matter for me, but for the family court dealing with the claim. Whatever view might be taken of these manoeuvrings, if that is what they were, the lease did not become a sham because of them. The lease was granted by the registered freeholder (Baljit) to a tenant (Anjali) who was in fact carrying on business at the premises, and the deferral letter would not have been necessary if the lease was simply a pretence. I have seen and heard Baljit and Amarjit in the witness box. Their evidence was far from perfect. For example, each gave evidence contradicting his own pleaded case about the existence and efficacy of a CCTV system at the supermarket. Nevertheless, on the genuineness of the lease, Baljit’s evidence rang true. He was concerned, when he learned, before the Claimants came on the scene, that Amarjit was thinking of selling the business, to collect what was due to him, and made plain that he would expect all arrears to be paid up before he either agreed to an assignment of the lease (his consent was required) or (an option that he acknowledged) granted a new lease. He did not, however, wish to scupper any deal his brother might be able to set up and did not wish to be unduly obstructive. Had, therefore, the deal looked likely to founder on whether the passing rent would be (say) £20,000 or £30,000 per annum, he would in my judgment have much preferred to have £20,000 actually paid than £30,000 not being paid. Likewise, had there been a small shortfall on the arrears, he might have consented, leaving a small shortfall outstanding. As it happens, this was never a scenario he ever faced, as none of the arrears was paid off.
The running of the supermarket business was assumed (a deliberately neutral word given the issues I have to decide) by the Claimants, Kashmir Singh (“Kashmir”) and Nirmala Devi (“Nirmala”) in September 2010. They carried on the business until evicted from the supermarket by Baljit’s bailiffs in January 2011.
Kashmir and Nirmala are husband and wife. They have 4 young children. Kashmir was for many years an employed butcher. Nirmala looked after the home and children. They had savings of about £40,000. With that, and other help from family and friends, they claim to have bought the supermarket business, including a lease.
It is undisputed that at least £60,000 passed hands, so as purportedly to purchase something. It is in issue precisely what the £60,000 was paid for, and to whom. Both sides say that the £60,000 was paid largely in cash, though Kashmir and Nirmala say (now) that £2,000 was paid by two blank cheques of £1,000 each, drawn on the account of a friend of Kashmir (Santok Singh) both of which were completed later in favour of M. Gill, who has a connection with Rani. Rani sought to persuade me that the cash cheques ended up with M. Gill because of some gold transactions involving Nirmala, but I felt unable to accept this evidence. Santok Singh confirmed that the purpose of his giving the blank cheques was to help the supermarket purchase, though it is possible they were applied unbeknown to him for some other purpose. There was however evidence of other payments derived from property owned by the Defendants’ family which were paid to M. Gill. This was confirmed to Mr Uddin (who appeared for Kashmir and Nirmala) over the telephone by Harnesh Mahli of the managing agents collecting rents for the family. He retracted this statement during his oral evidence, claiming to have been pressured by Mr Uddin into saying what he said over the telephone, saying instead that M. Gill was paid as a cleaner. I found this evidence wholly improbable. Nor did it square with the evidence of the telephone conversation given by Sonia Bahia, Mr Uddin’s assistant. Despite some confusion over whether there were two or three cheques, her evidence of the conversation, supported by an attendance note, was overall clear and convincing. I accordingly find that the two cheques for £1,000 each were part of the £60,000, and ended up with M. Gill for reasons which have not been revealed. Quite what the relevance of the point is, credibility issues apart, is unclear. However, the Claimants say that the business was a family business and that the parents as elders, especially Gurdial as father, pulled the strings. They buttress this by evidence of when Gurdial and Gurmit were at the supermarket both following his (as they portray it) supposed retirement, and after 22nd September 2010, when they took over. None of this evidence was very helpful to me. I need to know who agreed what, and when, and, in considering that question, the legal structures must at least give a clue. Returning to the M. Gill point, the fact that £2,000, along with some rental income, may for some reason or other have gone to her and not to any of the supposed contracting parties, or the person or persons who owned the property from which rent was derived, does not really take matters any further. One possibility hinted at in evidence was that M. Gill was really a pseudonym for someone else in the family, and had no separate existence. I reject that, accepting instead Rani’s evidence about her general acquaintance with M. Gill.
For completeness, in case the point has more relevance than I have given it credit for, I find that Gurdial and Gurmit were not in regular attendance at the supermarket after Kashmir and Nirmala took it over, though Gurdial was occasionally there, as was Gurmit, though less so. I regret that they both distanced themselves (unnecessarily) from the casual workers who assisted, both before and after the takeover. However, to elevate (as Kashmir and Nirmala did) Gurdial’s role to that of someone who trained them in the running of the business is exaggerated and wrong. The casual workers’ evidence was also exaggerated, presumably out of a false sense of loyalty to Kashmir and Nirmala, as was the evidence of Parkash Gill, who had a historic dispute with Gurdial and Gurmit and claimed (wrongly) that Gurdial worked at the supermarket until it closed. Other evidence (Mr Mendez and Mrs Strange’s witness statement, which she did not adhere to fully in the witness box) was simply mistaken on the point. Moreover, Gurdial’s occasional presence did not indicate a role as head of the family which turned the deal into one to which he or Gurmit were parties. For completeness also, they were not, as Kashmir and Nirmala said, living in the flat above, nor was anyone else. The flat had no residential planning permission and was barely habitable, despite a glowing description in agents’ particulars approved by Baljit in 2007.
Kashmir and Nirmala say that they agreed to buy the business from Gurdial and Gurmit, and that the £60,000 was a premium for the business, to include a lease. In their reply to Amarjit and Anjali’s defence, they say that there was to be a new 5-year lease at a rent of £380 per week. Their dealings, initially, were with Gurdial and Gurmit, who were temporarily running the supermarket during Amarjit’s absence on holiday in August 2010, and to whom they paid £5,000 on 18th August 2010. That was the date, their pleaded case and evidence suggests, by which agreement with Gurdial and Gurmit was reached, though many of the discussions, according to them, were through intermediaries, Jasvir and Surjit Singh. The former of those 2 individuals did not give evidence before me, as he could not be found, despite the issue of a witness summons. I draw no adverse inferences against any of the parties from his absence. The second individual did give evidence. He appeared to regard his own witness statement with alien suspicion, and his oral evidence was delivered with a high degree of excitement. I felt he was trying too hard to assist the Claimants (to whom he is now related by marriage) come what may. He was a very poor witness indeed. I could not in the circumstances safely rely on his evidence.
Kashmir and Nirmala also say that a further £20,000 was paid on 23rd August 2010, £12,000 on 24th August 2010, and £23,000 on 16th September 2010. All these payments were made, they say, to Gurdial and Gurmit. I reject the latter point. It is unlikely that Gurdial or Gurmit were present on 24th August and 16th September when the money was paid, a point confirmed (as regards 16th September 2010) by Mr Vaghela, the accountant, who told me (and I accept) that he, but not Gurdial or Gurmit, was present on that date. In addition, Kashmir and Nirmala say that an additional £10,000 was paid by them on 21st September 2010, £5,000 as rent to a Mr Khan of Pinks surveyors (on behalf of Gurdial and Gurmit) and £5,000 towards the stock that had just been counted, and was to be bought from Gurdial. They say the value of the stock had been estimated at £15-17,000, and they were awaiting a final figure. Over time, according to them, the figure went up in stages to, eventually, approximately £52,000.
It is puzzling how it is that Kashmir and Nirmala can have thought they were buying anything from Gurdial and Gurmit when the business was owned by Anjali (who had a lease) and the freehold by Baljit. Their answer is they were not told this. Yet when the proceedings started, they made their claim against Baljit alone, claiming that they had been told by Gurdial and Gurmit that he owned the property. They now claim they did not know this until they were evicted. The change of position is blamed on the former solicitors, and their failure to translate the claim form and original witness statement. I find this an implausible explanation, which causes me to approach the whole of their evidence with caution. In addition, each of them came across as reluctant or unable to give straight answers in the witness box.
Gurdial and Gurmit both say that they explained to Kashmir and Nirmala that the business was Anjali’s which was their son’s (Amarjit’s) and the property was owned by their other son, Baljit. The two sons were both then (August 2010) on holiday and they would have to speak to them. It is accepted by Kashmir and Nirmana that consultation with the sons was mentioned. In my judgment, it is much more probable than not that Gurdial and Gurmit would have mentioned the ownership, and why they needed to talk to their sons. In the meantime the £5,000 was paid, according to Gurdial and Gurmit, as a goodwill gesture so that Kashmir and Nirmala would have the first right to negotiate with Amarjit on his return. This would be refundable if the deal did not proceed. That, it seems to me, is a much more likely scenario than the scenario advanced by Kashmir and Nirmala, namely of Gurdial and Gurmit negotiating on their own behalf, or as agents for undisclosed principals. This was not a family where all deferred to the parents. There was, naturally, due respect passing from the younger generation, but Amarjit and Baljit, it became clear from hearing their evidence, were both fully Westernised and would regard anything in their own names as theirs and make their own decisions, as happened, I am sure, in this case.
Amarjit returned to England on 23rd August 2010. I am satisfied that no deal was done before then, except as regards the payment of a returnable deposit. That was done after Gurdial spoke to Amarjit in America over the phone, and then spoke in turn to Gurdial over the phone. Amarjit in his witness statement gives a detailed explanation of 4 meetings, with various comings and goings, starting in the afternoon of August 23rd. This cannot be accurate, as he did not arrive back until the early evening. There is however no doubt that Kashmir and Nirmala attended on that day in the evening, along with, for at least part of the time, Jasvir and Surjit Singh. The only reason for the visit, in my judgment, was because of Amarjit’s return. Kashmir and Nirmala were keen to move forward, but nothing could be finalised while Amarjit was still on holiday, because Anjali owned the business. I am satisfied that they knew this and that, upon his return, Gurdial and Gurmit played no significant part in the discussions.
Amarjit’s case is that he eventually agreed for Anjali a price of £60,000 for the goodwill. £25,000 was paid that day, including the £5,000 previously paid which was first repaid. The rest was paid as indicated above. There is an issue as to whether Gurdial went through the rigmarole of repaying money to Kashmir which then went round effectively in a circle to Amarjit (for Anjali). I somehow doubt it, but do not think it matters as I am clear that Kashmir and Nirmala knew they were dealing with Amarjit and that he was in turn acting for Anjali, because he said so. All their subsequent dealings were with Amarjit too, who introduced them early on (initially on 16th September 2010) to his accountant, who gave credible evidence before me about the dates of his meetings, backing those dates up with diary entries. I am less than convinced of the accuracy of the detail of his recall of those meetings as they are not supported by contemporaneous notes. I think he may have been reminded of the detail by his client, so his memory can only have been as good as his client’s reminder.
Amarjit says that the lease was a separate matter. However, it is clear from his witness statement that an assignment (according to him) of the existing lease was to proceed in tandem with completion of the purchase, but this would require Baljit’s consent. So it would, but an assignment required Anjali’s agreement also, and this was in my judgment part of what was agreed as the composite deal, albeit subject to Baljit’s consent. In addition, the possibility of a new lease was also raised, a point which Baljit confirmed he had explained to Amarjit. Amarjit says he told Kashmir and Nirmala about the arrears, but I find that he did not do so at this stage. It would not be a sensible way of negotiating. Amarjit knew that with the sale of stock, fixtures and fittings, the proceeds ought to be enough to cover the arrears. There may have been some discussion about a rent of £380 per week but nothing could be finalised on that score without Baljit’s say so.
At the same time, Amarjit agreed to sell Anjali’s stock at a valuation. A stock take would be arranged immediately before the takeover. I do not accept that a figure of £15-£17,000 was mentioned, then or at any time. Finally, a figure of £25,000 was according to Amarjit agreed for fixtures and fittings. I am prepared to accept that this was agreed (though denied by Kashmir and Nirmala) as it is referred to in a document dated 20th October 2010 signed by Kashmir to which I refer later.
The goodwill in the supermarket business had no value without the right to be there, so that a secure lease was vital. It is obvious that Kashmir and Nirmala were foolish to proceed without legal advice, but they did so.
In my judgment, the deal which was done on 23rd August was for the sale of the business, including a lease. That might be a new lease, but things were then too uncertain for that to crystallise as a binding obligation, and neither Amarjit nor anyone else had authority to bind Baljit. Accordingly, the deal as done must, as Amarjit says it was in his witness statement, have been for the assignment of the existing lease. If subsequently the relevant parties agreed a new lease, that would be fine, and the agreement would then be varied. Without such further agreement, the sale of the business (which Kashmir and Nirmala proceeded to pay for) carried with it an agreement to assign the existing lease, subject to Baljit’s consent, which everyone was confident would be forthcoming.
Thus seen, the agreement was plainly an agreement to which section 2 of the Law Reform (Miscellaneous Provisions) Act 1989 applied and was void. No part of it can be sued upon: Keay v Morris Homes (West Midlands) Limited [2012] EWCA Civ 900, even the parts that do not relate to land.
Mr Uddin seeks to get round this in a number of ways. He says that there was a constructive trust, giving rise to a lease of the kind his clients say they were expecting – i.e., 5 years at £380 per week (or £20,000 per annum, as it was sometimes put, though £380 per week actually falls short of that figure). I shall assume without deciding that this could happen under a constructive trust. For that to happen, Baljit’s conscience needed to be affected as this required a new lease, and he never agreed to that. Nor did anyone else on his behalf, I find. There would not even be a constructive trust of the existing lease, as there could be no effective dealing with the existing lease without Baljit’s consent as landlord, and, as I have said, Baljit’s conscience was not affected, and he had not consented.
Another way Mr Uddin seeks to get round the problem is by saying that a periodical tenancy (or possibly a tenancy at will) came into being arising from the payment of rent. This depends on whether the £10,000 was paid (5 as rent; the other 5 towards the stock) on 21st September 2010, as Kashmir and Nirmala contend. Although this is the case of both of them, only Kashmir (of the 2 of them) was at that meeting. Kashmir says that Gurdial was there also, but I find he was not. The main purpose of the meeting was a stock take, and that was too arduous a task for Gurdial even to contemplate. It was not his stock, either, but Anjali’s. Kashmir also says that Mr Khan of Pinks demanded rent and that was why he paid £5,000 to him. I reject this evidence. Mr Khan was advising Baljit. They were there together to collect the arrears and then to deal with the principle of an assignment or new lease, as appropriate. I do not believe that Mr Khan would have been so foolhardy as to accept, still less demand, rent when his client held the trump card of having the ability to block the transaction unless the arrears were paid. That would make no sense, as the creation of a periodical tenancy would undermine Baljit’s position, and might even operate as a surrender of Anjali’s lease if Amarjit went along with the idea. Whilst Baljit did not wish to scupper the deal, he was not willing to relent completely on the essentials of his basic demand for arrears. I therefore find that this £5,000 was not paid to Mr Khan. Nor was £5,000 paid towards the stock. As to the £60,000, £58,000 of this was paid in cash to Amarjit direct for Anjali, apart from the first £5,000 which was paid to Gurdial in Amarjit’s absence and then paid to Amarjit on his return. The two blank cheques were handed to Amarjit.
I have seen the records of the stock take. The valuation, which was satisfactorily explained by Amarjit in his oral evidence, comes to £52,163.77. A number of people claim to remember this figure on the Defendants’ side. A feature of their witness statements is that language substantially identical to that used in other witness statements is sometimes used by witnesses claiming to have written their own witness statements in their own words. I very much doubt the genuineness of all those recollections. Ultimately, this does not matter. The records confirm the figure. In addition, the figure was reconfirmed by Kashmir’s signature on a document dated 20th October 2010, which acknowledged that a total of £77,163.77 was to be paid in full by Kashmir to Anjali on or before 21st December 2010. The explanation for that date, according to Amarjit, was that Kashmir did not have sufficient money to complete and, at Jasvir Singh’s urging, and against the promise of a personal guarantee from Jasvir Singh, a further 3 months time to pay was given on 21st September 2010. I accept that explanation. The note of 20th October 2010 is a document Amarjit asked Kashmir to sign because he was worried about the way Kashmir was managing his obligations to others. I accept that explanation also. I also find that the signature is genuine and that no trickery was used to obtain it. As already mentioned, the same document acknowledged the £25,000 outstanding for fixtures and fittings – hence the higher total figure of £77,163.77.
By December 2010, nothing more had been paid for the business and Amarjit was seriously worried about whether he would be paid what was outstanding at all. Towards Christmas, he told Baljit what the position was. The principal concern then seems to have related to the stock, which was being or had been used in the business without being paid for, as well as the shortfall in the commission payments. The position was that Kashmir and Nirmala were running the supermarket, without payment of rent, rates or electricity bills, all of which were still being paid by Anjali. In addition, they were effectively living there during the week when the children were at school, because of the late opening hours. Yet they had no lease, and no right to remain there. They had gone into possession with the permission of Amarjit (for Anjali) so their licence to remain could not survive a forfeiture of the Anjali lease. The lease to Anjali was not for residential purposes and they had no separate licence from Baljit who said he did not know they had taken up possession until his brother told him what had happened around Christmas 2010. I accept this evidence. Baljit was working in Manchester at the time (though living at the same house as his parents, Amarjit and Rani) and did not, I find, have occasion to visit the supermarket during this period until Christmas, despite the evidence of some who claim to have seen him there during this period, which I think must be wrong.
On 6th January 2011, a notice was served on Anjali by Roy Summerfield of Midlaw Legal Services at the supermarket premises (as provided by the lease) requiring payment of all arrears by 20th January and threatening forfeiture in the event of non-payment. At the same time, a notice was served on Kashmir and Nirmala (though left with someone else at the supermarket) calling upon them to complete an assignment of the lease and to pay for the stock. The thinking was that the stock monies would go a long way to paying off the arrears. The fixtures and fittings payment was not mentioned but, as I have said, Kashmir had previously acknowledged this as due. The notice went on to threaten forfeiture of the lease and concluded by giving notice to vacate the premises on or before Thursday 20th January at 4 pm if the stock payment was not made and the lease assignment completed.
Kashmir says that at this time he paid a further £5,000 rent, which Baljit denies. I reject Kashmir’s evidence, just as I reject it in relation to the alleged payment of rent on 21st September 2010. Baljit was taking steps to evict them, should that prove necessary. It is improbable that he would have taken a quarter’s rent thus undermining the whole process. Amarjit did collect some cash at this time from Kashmir towards the commission account liabilities mentioned below, but that was a separate matter.
Kashmir and Nirmala say they did not see the notice to vacate served at the supermarket. I do not accept that evidence. Shortly afterwards, Kashmir made an appointment to see Mr Khan of Pinks to discuss the matter. That must have been triggered by the notice. The meeting (also attended by Baljit but not Amarjit) was an angry one and ended inconclusively. There is a short contemporaneous attendance note setting out the essentials of the meeting
The arrears under the Anjali lease were not paid by 20th January 2011 or subsequently.
On 21st January 2011, bailiffs attended the supermarket and evicted Kahmir, Nirmala and their children. This was clearly a distressing event for them and the bailiff in charge (Mr Groves) judged by his oral evidence, seems to have confused the procedure to be adopted with a landlord’s distraint as he was exercising dominion over all possessions except personal possessions. All he should have done was effect possession of the premises. He did that as well, producing a series of notices that looked like (but were not) court orders. I was (to put it mildly) unimpressed by the procedure adopted as it emerged in evidence. Legally, however, Kashmir and Nirmala had no rights. They had a void contract which they had not fully performed, which related to a lease (the Anjali lease) which had arrears (for which they were not responsible but which nonetheless existed). That lease was not for residential purposes, not even in part, and their licence (which was from Anjali) was not for residential purposes either and could not survive forfeiture. They were not therefore covered by the Protection from Eviction Act 1977 as having a statutory right not to be evicted without a court order: compare Patel v Pirabakaran [2006] 1 WLR 3112.
It follows that there was nothing unlawful about the eviction as such, distressing though it undoubtedly was for those on the receiving end.
After the eviction, Kashmir and Nirmala, following a court order, were allowed back in to collect certain of their possessions. The following claims have been made by them for wrongful interference with goods:-
(i) a damaged TV. I find that this was damaged in transit after it was collected and is not the responsibility of any of the defendants;
(ii) a damaged mattress, caused by a foot indentation. The fact of foot indentation is made good but there is no evidence of what the mattress was worth. It seems to have been in a somewhat fragile state if it could not withstand someone walking on it. I am not prepared to find that the damage was deliberately inflicted or that the mattress had any intrinsic value. There are plenty of mattresses around fit only for the dump, and this was probably one of them. There is nothing to recover under this head.
(iii) Cash of (as pleaded) £12,350 is said to have been wrongfully removed. This claim is not proved. I was troubled by the contradictory evidence of whether there were CCTV cameras, and their utility, but this does not enable me to conclude that a sum of this significance, or any other sum, was stolen. The till was locked by Mr Groves and subsequently unlocked by Kashmir when he returned under a court order. As, moreover, Kashmir and Nirmala (contrary to their own evidence) did in fact on my findings receive the notice to vacate, the visit from the bailiffs cannot have been totally unexpected. I would therefore have expected them to have removed anything of real value in advance of the eviction, as Nirmala said they would have done had they known it was coming (which I have found they did). As regards the day’s takings, there was some coinage in the till when they returned under the court order, but Kashmir was not interested in this. There was also evidence that a flour bin was removed during the eviction by Kashmir and Nirmala in which cash was kept. I find that any substantial cash amounts were removed by Kashmir and Nirmala on or before the day. Nirmala was behind the till when the bailiffs arrived and could have removed any notes from there, or any other receptacle or cupboard in that vicinity, very quickly. At all events, there is simply no reliable evidence of how much cash was there. The estimate has varied widely at different stages.
(iv) The pleaded case raised claims for the removal of Valuables (as defined) the stock and the video tapes from the security system. “Valuables” are said to include scratch cards, international telephone cards and agency takings. These were not noticeably pursued at the hearings before me, though Mr Uddin has subsequently referred to aspects of this claim in supplemental submissions. There is no doubt, however, that stock was retained by Baljit, and it seems likely that scratch cards and telephone cards were also left behind. I have rejected any claim relating to takings. However, the retention of stock and other non-personal items such as scratch and telephone cards was a result of the effective (and wrongful) distraint by the bailiffs. It seems to me therefore that Baljit is liable in principle for wrongful interference with the stock, scratch cards and telephone cards, and I will therefore order an inquiry as to damages in this limited respect. This is necessary also because of the account and inquiry I am ordering later against Kashmir and Nirmala, as they are liable in principle for agency receipts, to the extent they remain unaccounted for, and the like, which will include liabilities in respect of (for example) unpaid stock which was distrained upon and thereafter kept by Baljit. The claim for security tapes is rejected, as unsupported by evidence.
Kashmir and Nirmala claim a number of heads of relief. In so far as they claim damages for breach of contract or wrongful eviction, their claims cannot succeed for the reasons I have given. Their “contract” was void and they were not wrongly evicted. It follows that their claims against Baljit, Gurmit and Gurdial are all dismissed, apart from (in Baljit’s case) the limited damages inquiry already indicated.. Further, as I have found that Amarjit at all times acted openly for Anjali, all claims against Amarjit must be dismissed also, as must his (as opposed to Anjali’s) counterclaim.
Kashmir and Nirmala are however entitled to recovery of the £60,000 paid by them to Anjali. They are not in my judgment entitled to recovery from anyone else as the payments were all received on behalf of Anjali. They are entitled to recover the £60,000 because there has been a total failure of consideration. The business they purchased, and its goodwill, meant nothing without the lease, and, as the agreement to acquire the business including the lease was void, they acquired nothing. The claim is thus restitutionary, to avoid unjust enrichment. Mr Mitchell for Anjali did not resist this conclusion in principle (depending upon my findings on the contract issue) because Anjali also has an unjust enrichment claim. He referred me in this connection to Westdeutche Landesbank Girozentrale v Islington LBC [1996] AC 669 and the commentary at paragraph 13-2- of Goff & Jones: The Law of Unjust Enrichment (8th ed.). I agree with Mr Mitchell that the result of a finding that the “contract” under which the parties were acting was void is that any party must restore benefits the retention of which would unjustly enrich that party.
There is one further claim made by Kashmir and Nirmala, namely for money expended on a boiler. I find, however, that this sum was paid by Baljit, who produced the relevant invoice and says (which I accept) that he paid it.
I turn to consider Anjali’s counterclaim. It is made by Amarjit as well but is in truth Anjali’s, as Mr Mitchell accepted.
The supermarket had a number of accounts, including commission accounts, which Anjali remained responsible for, either directly or indirectly via the guarantee given to Gurdial in 2005. Following the takeover, cash receipts were passed on to Amarjit by Kashmir to cover the liabilities arising from those activities. Thus, Kashmir and Nirmala were able to keep the commission accounts going. I have seen a detailed breakdown of the transactions. Kashmir stopped covering the liabilities after a while and Amarjit caused Anjali to meet them.
Kashmir and Nirmala agreed to indemnify Anjali against the liabilities arising from their trading activities as part of the deal by which they agreed to buy the business, though any commission income should in turn be credited back to them, as has occurred in the schedules prepared by Amarjit. This applied not only to the commission accounts, but also the existing Nisa account which was used for the supermarket, but remained the responsibility of Anjali. The expectation was that new accounts would in due course be opened for Kashmir and Nirmala, but this never came about.
Mr Mitchell accepts that section 2 potentially (depending on my findings) applies to the indemnity arrangements, as they were part of the original deal. He therefore claims a restitutionary remedy. He is clearly right about that in principle. However, the point is hardly pleaded with clarity, the original defence and counterclaim only claiming “damages” though referring earlier to unjust enrichment “for the reasons set out in this defence” (paragraph 49), which reasons I cannot find so far as concerns any unjust enrichment claim. The unjust enrichment allegation as pleaded is also limited to receipt of the commission agency payments. The schedule of loss, and supporting “M” bundle, in which the details of the claim were to be found, were served late in the day. The “M” bundle includes some documents which are barely legible, is not easy to follow, not following the form of a conventional pleading, and appears to go beyond the pleaded defence and counterclaim. It seemed to me that much of its significance passed Mr Uddin by, and, whilst this is regrettable, it is also understandable. Whilst Mr Mitchell understood it and could explain it, he had the benefit of access to his client, which Mr Uddin did not. The matter was addressed, but only in general terms, in Mr Mitchell’s written opening.
Whilst therefore Kashmir and Nirmala are in principle liable for any benefits they have derived from the “void” contract, it seems to me that a reliable figure can only be determined by an account and inquiry.
Mr Uddin, following the trial, served supplemental written submissions raising new points, which Mr Mitchell understandably objected to. However, it seems to me that the source of the problem was, at least in part, unclear and diffuse pleading on Anjali’s part. None of the parties should be disadvantaged by this given the availability of an account and inquiry. Mr Mitchell also suggested in paragraph 32 of his closing submissions for Baljit that an account would need to be taken, a point he repeated in paragraph 18 of his closing submissions for Amarjit and Anjali. I will reserve the further account and inquiry to myself and will strictly limit the evidence (not going over matters already adequately canvassed). I conclude by saying that as things stand it is clear that a substantial sum will be due on the account and inquiry to Anjali, which is likely to exceed the £60,000 due to Kashmir and Nirmala. I am not therefore ordering immediate payment of the £60,000, as the balance on the final account is likely to require payment in the other direction.
For the avoidance of doubt, the benefits for which Kashmir and Nirmala are accountable do not include the £25,000 for fixtures and fittings, as they have derived no long term benefit from the fixtures and fittings. The original stock (£52,163.77) is included, however, as are outstanding Nisa accounts (which appear to amount to £26,985.22) but excluding a penalty charge. Any loss of stock following eviction is recoupable from Baljit for wrongful interference with goods, but does not affect Anjali’s entitlement. The account should also include machine monies, which presently appear to amount to £80,881.27, and judgments and utility supplies which appear to amount to £16,792.08. These figures are summarised in paragraphs 11, 12, 14 and 15 of Mr Mitchell’s closing submissions for Amarjit and Anjali. There is also a claim in principle for rent or its equivalent, which is good in principle, but that should be at the rate of £380 per week, as that is what Kashmir and Nirmala acknowledged to be a proper rent. I do not think it is right to treat Anjali’s own rental liability, at a greater rate, as having been incurred during the 4 months period of Kashmir’s and Nirmala’s occupation. That rental liability was incurred, albeit prospectively, in February 2008, and there is no evidence demonstrating that this was an appropriate rent in 2010.
I invite the parties to agree an order giving effect to this judgment, and to agree proportionate directions for the account and inquiries. As much of the evidence has already been heard, I see no warrant for the account and inquiries being drawn out. I would even express the earnest hope that the parties might now, even at this late stage, settle their differences. Further litigation, at disproportionate expense, cannot be in anyone’s interest.
Stocznia Gdanska SA v Latvian Shipping Company & Ors
Lord Justice Rix:
……..
It follows that clause 5.05 applies, and the question is: what is its effect? On behalf of Latreefers, Mr Glennie submits that it is a self-contained code and supersedes any common law remedies. Mr Cordara submits to the contrary. The parties are at issue on this point because the yard claims to have suffered consequential costs arising from the delay and ultimate failure of the first two contracts which would not be fully compensated on a straight comparison between the proceeds of sale plus the initial instalment less the costs and expenses provided for under the third paragraph of the clause.
Both parties have sought to extract assistance from the previous dicta of this court and of the House of Lords in this case. The court of appeal [1996] 2 Lloyd’s Rep 132 said that “The common law rights of the yard are displaced by the regime of cl. 5.05” (per Staughton LJ at 138). The actual decision in the House of Lords, reversing the court of appeal, was that clause 5.05 did not exclude recovery in debt of instalments already due. Lord Goff referred (at 585C) in this context to the
“familiar principle of construction that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law: see, e.g., Modern Engineering (Bristol) Ltd. v. Gilbert-Ash (Northern) Ltd. [1974] A.C. 689, 717, per Lord Diplock.”
Mr Cordara relied on that to indicate that the remedy of damages for repudiatory breach was left open by clause 5.05. However, both parties have sought to derive assistance from another passage in Lord Goff’s speech (at 591D/H) as follows:
“Furthermore, since the yard was entitled to, and did, rescind the contracts for these two vessels under clause 5.05 the Court of Appeal was right to order (as they did) damages in respect of these two contracts to be assessed under that article, and indeed (your Lordships were informed) the yard asked for such an order to be made. However, Longmore J., in striking out the yard’s particulars of damage in respect of these contracts, proceeded on the basis of certain observations made by Staughton L.J. [1996] 2 Lloyd’s Rep. 132, 138, when he said:
“…I think that on a true interpretation of [clause 5.05] a sale is mandatory; and it certainly is when mitigation requires there to be a sale. The owners then obtain an indefeasible right to such share of the proceeds as the clause confers upon them. The common law rights of the yard are displaced by the regime in clause 5.05.”
“It was on the basis of Staughton L.J.’s statement that the regime in clause 5.05 displaced the common law rights of the yard that Longmore J. struck out the yard’s particulars of damage. I have to say however that, in my opinion, this statement of Staughton L.J. is too sweeping. In the first place, as I have already indicated, clause 5.05 did not have the effect of divesting the yard of its right to recover instalments of the price which had already accrued due. But in addition it was, in my opinion, open to the yard to argue that, on a true construction of clause 5.05, the yard’s right to recover damages (recognised in clause 5.05(2)) may in certain circumstances refer to damages on the measure recoverable at common law. Such an argument could, for example, be advanced on the basis that (a) the yard’s “full right and power” to sell the vessel under clause 5.05(2) was (contrary to the opinion expressed by Staughton L.J.) no more than a power of sale and as such not mandatory; and (b) on the facts of the case the appropriation of the two keels from vessels 1 and 2 to the two vessels subsequently constructed by the yard for Lorient Maritime did not constitute a sale of vessels 1 and 2, uncompleted, to Lorient Maritime within the meaning of clause 5.05(3)(ii). On this basis, the yard can argue that clause 5.05(3) and (4) have no application, and that it can simply fall back on clause 5.05(2) to claim damages measured on a common law basis.”
That passage has led Mr Glennie to submit that, where as here the vessels have been sold, common law rights are displaced by the clause’s regime; and Mr Cordara to submit that if, as Lord Goff contemplated, common law remedies were left open where the vessels were not sold, that may also be the case even where the vessels are sold. That Lord Goff did not intend, however, to determine any arguments not directly before the House, is indicated by a further passage from his speech at 594E/F where he said:
“Obviously, there are substantial arguments which the buyers would wish to advance against such a claim [for damages for anticipatory repudiation] which may be fatal to it, in particular that clause 5.05, if applicable, provides an exhaustive code which excludes any claim for anticipatory breach…”
Lord Lloyd at 598A said that the only respect in which he disagreed with the court of appeal was that clause 5.05 did not interfere with a vested right in debt. Otherwise he thought that damages ought to be assessed in accordance with that clause (at 602D). However, Lord Hoffmann, Lord Hope of Craighead and Lord Hutton agreed with Lord Goff rather than Lord Lloyd (at 603).
At the end of the day, I think it is dangerous to seek to derive too much from these dicta on an issue which was not before the courts in that previous round of litigation between these parties. It is plain that if the vessel is sold, there is at any rate some change in the ordinary remedies of the common law, for Latreefers may, where a good price is obtained for the completed vessel, keep any net surplus for itself (see paragraph 3). That is perhaps not unreasonable in circumstances where, if there is a rescission after 50% of the price has been paid or become due, the vessel may have been largely built at Latreefers’ expense.
The question, however, is whether there are any further departures from the common law. Paragraph 2 speaks of “the recovery of the Seller’s loss and damage” and of the Seller being “always obliged to mitigate all losses and damages due to any such Purchaser’s default”. That language hardly suggests a code in which repudiation damages are not available. Paragraph 4 speaks of a “deficiency” which is for the buyer to pay in the case of a sale. Mr Glennie submits that such deficiency must be a straightforward result of the calculation to be made under the third paragraph of the clause, and is inconsistent with common law damages being available. However, I do not agree that the calculation under the third paragraph is necessarily simple. Thus, where the vessel is completed and sold, but the sale price is affected by some changes to specification, which is very likely, “the deficiency” cannot be fairly calculated without taking into account such changes. An improved specification will, other things being equal, lead to a higher sales price, and a cheaper specification will lead to a lower sales price pro tanto. The “deficiency” cannot be arrived at without taking such factors into account. Otherwise, the buyer would benefit from a higher price for a better specification, even though that higher price has been bought by the greater costs to the yard of the better specification; and vice versa. This suggests that underlying the whole clause, rather than excluded from it, there is the structure of a common law regime for the calculation of damages. Moreover, where the vessel is not completed but nevertheless sold, as is contemplated under the second indent of paragraph 3, the deficiency has to take into account the yard’s “cost incurred”, which itself may not be easy to arrive at, even under the guidance of the language “which the seller would have been entitled to receive if the vessel had been completed and delivered”, without the assistance of the underlying concept of a common law regime.
Mr Glennie accepts that the third and fourth paragraphs of the clause only apply where the vessel is sold, and that, contrary to the view expressed by the court of appeal but doubted by Lord Goff (see at 586D and 591G), sale is not mandatory. It follows, therefore, that clause 5.05 has to be able to work also in the situation where there is no sale. In such a situation Lord Goff appreciated the possible force of the argument that the yard “can simply fall back on clause 5.05(2) to claim damages measured on the common law basis” (at 591H). If that is so, and Mr Glennie accepted that it was, it follows that the clause contemplates the common law regime, but goes on to make special provision for the case where the vessel is sold. I recognise that that special provision is different from the common law regime to the extent at any rate of Latreefers’ right to the benefit of any net surplus deriving from the proceeds of sale. However, in my judgment, the calculation of that net surplus still requires the underpinning of the common law regime. In sum, in this context as well as in the context of accrued but unpaid instalments the rationale of Lord Diplock’s dictum from Modern Engineering v. Gilbert Ash prevails.
For these reasons, and in accordance with the judge below, I would hold that clause 5.05 is not a self-contained code, but is itself built on the underpinnings of the common law remedies for breach of contract.
Was there a repudiation of the first contract?
The third issue raised by reference to clause 5.05, although in some ways logically the first, stems from Latreefers’ submission that a failure to meet the payment of an instalment entitling the yard to rescind the contract, although a breach, is not a repudiatory breach such as to give rise to damages for repudiation in any event. Therefore there only remain the specific provisions of clause 5 to regulate the consequences of rescission. Mr Glennie submits that in this respect there is a difference between the first and second contracts. He accepts that by the time of the rescission of the second contract on 12 April 1994, Latreefers was in anticipatory breach of that contract (as well as being in actual non-repudiatory breach of it) and that the yard was therefore entitled to claim damages for repudiation of that contract, if he is wrong about clause 5.05 excluding such common law remedies. However, he submits that in the case of the first contract, which ended with the yard’s rescission notice of 3 March 1994, there was no repudiation at all.
In this respect Mr Glennie’s submission was illogical, as between vessels 1 and 2, for he was prepared to accept in the course of argument that, for the purposes of anticipatory breach in relation to performance of the first contract as a whole, 3 March 1994 was late enough to bring contract 1 into the same relation with events in general as the case of contract 2 – and of contracts 3-6 as well subject in those cases to the argument that their repudiation had been overtaken by affirmation. He nevertheless maintained this narrow point of distinction between vessels 1 and 2: that the breach constituted by non-payment of the keel laying instalment in the case of contract 1 first occurred on 10 December 1993 (five banking days after the notice of 3 December), whereas the same breach in the case of vessel 2 only occurred on 16 March (five banking days after the notice of 9 March). Thus he submitted that the breach of non-payment in the context of events in early December was not a repudiation, even if a similar breach in the context of events in mid March was.
I confess I do not understand that distinction. If by 3 March 1994, as Mr Glennie was prepared to accept, an actual (he submits non-repudiatory) breach by way of non-payment of an instalment due in December 1993 had been joined by an anticipatory repudiatory breach of the contract as a whole, then the rescission of 3 March 1994 could stand as much for an acceptance of the anticipatory repudiation as for the contractual remedy of rescission for non-payment. Perhaps inherent in his submission was a conflict with the proposition just stated. If so, the matter was not elucidated in argument. I would in any event reject another thought perhaps inherent in his submission, viz that a non-repudiatory failure to pay cannot itself become repudiatory in time and in the context of an evinced intention not to perform a contract.
I would therefore reject Mr Glennie’s distinction between contracts 1 and 2 and hold that both were repudiated by Latreefers by the time of their respective rescissions. However, it seems to me that Mr Glennie’s submission is flawed for another reason and in its very origin, because in my judgment non-payment of the keel laying instalment leading to a notice of rescission under clause 5.05 constitutes breach of a condition of the contract, thus amounting in itself to an actual repudiatory breach.
Mr Glennie pointed out that time for payment under a commercial contract is not normally of the essence, ie that time for payment is not normally a condition of such a contract: see for instance section 10 of the Sale of Goods Act 1979. That is true as far as it goes: see Bunge Corporation v. Tradax Export SA [1981] 1 WLR 711. Mr Glennie placed particular reliance on certain dicta in Empresa Cubana de Fletes v. Lagonisi Shipping Company Ltd (The Georgios C) [1971] 1 Lloyd’s Rep 7 (Donaldson J and CA). There a time charter withdrawal clause provided the shipowner with a right of withdrawal “in default of payment”. The charterer paid on a Monday hire that had become due on the previous Saturday, when payment had not been possible. The hire when it arrived at the shipowner’s bank was first accepted, in breach of the shipowner’s instructions to its bank, and then rejected. It was held that there was no right to withdraw once the charterer had paid or tendered hire, since “in default of payment” meant “and for so long as default continues”. The decision does not assist Latreefers, for it never paid or tendered the instalment due under the first contract. Nevertheless Mr Glennie relied on the following dicta. At first instance Donaldson J said (at 11):
“It is important to remember that in relation to the payment of hire under a time charter-party, time is of the essence of the contract only in the sense that there is a breach of contract if payment is a moment late. It is not of the essence of the contract in the sense that late payment goes to the root of the contract and is a repudiating breach giving rise to a common-law right in the owners to treat the contract as at an end. The right to withdraw the vessel and thus bring the charter-party to an end is contractual and the situations in which this right is exercisable depend upon the true construction of the contract.”
And in this court Lord Denning MR (at 13/14) said this:
“The effect of a stipulation as to time always depends on the true construction of the contract. A default in payment does not automatically give the other a right to determine it. Usually it does not do so. It only does so if there is an express provision giving the right to determine, or if the non-payment is such as to amount to a repudiation of the contract. That is shown by Martindale v. Smith, (1841) 1 Q.B. 389; and by the well-known judgment of Lord Blackburn in Mersey Steel and Iron Company (Ltd.) v. Naylor, Benzon & Co., (1884) 9 App. Cas. 434, at p.444. In the present case the non-payment was clearly not such as to amount to a repudiation. It was obviously a mistake. The charterers thought, as the bank were closed on Saturday and Sunday, Monday would do. They were wrong in so thinking. But they were not repudiating the contract.”
Mr Glennie submitted that Latreefers’ non-payment of the instalment on vessel 1 in December 1993 was not, on the evidence and on the judge’s findings, either intended or seen as a repudiation of the first contract, but rather as an attempt to “soften up” the yard for serious negotiations. I would be prepared to assume that that was so, as of the first time of non-payment. However, the position did not stop there, and of course deteriorated down to the time of rescission.
Moreover, the Georgios C is in my judgment of little assistance. It may be the case that in a withdrawal clause construed to mean “and for so long as default continues” the clause itself does not amount to a condition and thus the breach of non-payment does not ipso facto amount to a repudiation. Since the clause only permitted withdrawal if the default was still continuing at the time of withdrawal, any remarks on the subject were in any event necessarily obiter. Our clause, however, is different from that in The Georgios C, not because it did not permit late payment as a remedy preventing rescission, for it allowed a period of grace of 21 days (clause 5.05 first paragraph), but because it stated that those 21 days were the limit of such period of grace. There was in fact no right of rescission immediately Latreefers failed to pay by the due date, but only upon default 21 days after the due date of payment. In a contract where a vessel is to be built with funds provided by the purchaser in stages, an instalment notice is to be given requiring payment within 5 banking days, and a further 21 days of grace are then allowed, I do not see why provision for what is then called default entitling rescission should not be regarded as setting a condition of the contract.
In any event, the jurisprudence regarding time charter withdrawal clauses does not end with The Georgios C, which was itself overruled in Mardorf Peach & Co Ltd v. Attica Sea Carriers Corporation of Liberia (The Laconia) [1977] AC 850. In Antaios Compania Naviera SA v. Salen Rederierna AB (The Antaios) [1985] AC 191 the withdrawal clause under consideration operated “failing the punctual and regular payment of the hire or on any breach of this charter party”. The House of Lords held that “any breach” meant any repudiatory breach – “that is to say: a fundamental breach of an innominate term or a breach expressly stated to be a condition, such as would entitle the shipowners to elect to treat the contract as wrongly repudiated by the charterers” (per Lord Diplock at 200F). Although the point has not been decided and is perhaps controversial, there must be a good argument that it follows that the express right to withdraw in the case of unpunctual payment under such a clause is a condition of the contract, breach of which is in itself repudiatory.
In any event, it seems to me that the provisions of clause 5.05 make payment of an instalment by the time of expiry of the 21 days of grace a condition of the contract or a breach otherwise consensually regarded as a repudiatory breach. Mr Glennie submitted that there is only one breach, on the fifth day after the notice for payment, and that such a breach is not at its time a repudiatory breach (or breach of a condition) and can never become so. In my judgment, however, while I accept there is a breach on the fifth day, which I would also accept is at that time non-repudiatory, for the contract expressly allows a further 21 days before the yard can rescind, there is either a further breach, called under the clause a “default”, when payment remains unpaid after another 21 days or else the parties have expressly agreed to regard such continued non-payment as turning the original breach into a repudiatory one. Colman J expressed a similar view of the effect of clause 5.05 at an earlier stage of these proceedings, in his judgment reported at [1997] 2 Lloyd’s Rep 228, when he said (at 234/5):
“Upon receipt of those certificates the buyers could be in no doubt that, if the certificates were valid, they were under an obligation to pay the second instalment and, if they failed to do so, they would be in actual breach of a condition of the contract. I use that term because art. 5.05 provides the yard with an express right to rescind for non-payment.”
In any event, as stated above, I consider that Mr Glennie’s acknowledgement that Latreefers was in repudiation of the last five contracts by 3 March 1994 as applicable also to the first contract which was rescinded on that day.
Therefore the yard is entitled to claim damages in repudiation under the first and second contracts, subject to the specific provisions of clause 5.05 in so far as they relate to the proceeds of the sale of vessels 1 and 2 to L’Orient Maritime.
Was there an affirmation of contracts 3-6?
Mr Glennie submits that the keel laying notices, invalid as they were, against the background of the claims in the first action, amounted to an affirmation of the last four contracts. The factual basis of this submission, and the judge’s rejection of it, have already been set out at paras 35/39 above. The judge considered that the yard was “not making an unconditional affirmation”. Mr Glennie submits that the judge was in error, pointing to classic doctrine that repudiatory conduct gives the innocent party a right of election, to accept or to affirm the contract, and that there is no middle path: see Bentsen v. Taylor [1893] 2 QB 274 at 279, Fercometal SARL v. Mediterranean Shipping Co SA [1989] 1 AC 788 at 799/801, The Kanchenjunga [1990] 1 Lloyd’s Rep 391 at 398. He submitted that Colman J had analysed the matter correctly at [1997] 2 Lloyd’s Rep 228 at 234, where he said:
“When the buyers’ anticipatory repudiatory breaches occurred in September-December, 1993 it was at once open to the yard to treat each of the contracts as terminated and to sue for damages for breach. In no case did the yard take this course. Instead, it proceeded to operate the contractual machinery necessary for putting the buyers under an accrued liability to pay the keel-laying instalment of 20 per cent. It thus served keel-laying notices for all six contracts, beginning with hull 1 on Dec. 3, 1993 and ending with hull 6 on June 17, 1994. Such a course, I have no doubt, was entirely inconsistent with an intention to treat the contracts as at an end by reason of the prior anticipatory breach. Service of those notices was an unequivocal assertion of the continuing operation of the contract.”
Mr Cordara, on the other hand, submits that when the judge said that there was no “unconditional affirmation”, he meant that in the sense of no unequivocal affirmation. The judge was right to regard the acts relied on as affirmation as merely equivocal. They were an attempt to get Latreefers to perform their contracts, but in no way an unequivocal representation that if that attempt failed the yard would not continue to rely on the previous (and continuing) repudiation. The rescission notices sent in due course should be regarded with them as a unit, which overall conveyed an intention to terminate and not the reverse. In any event the keel laying notices were in fact invalid and were always in dispute. Thus Latreefers’ London solicitors replied to the keel laying notices dated 14 and 15 April 1994 in respect of vessels 3 and 4 to say that it was understood that no new keels had been laid and to suggest therefore that the notices were “a sham”. When on 4 May 1994 the yard wrote to Latco, its letter stated that if payment was not received “we reserve the right to rescind these contracts”. And as for Colman J’s analysis, he had given his judgment at a time when the House of Lords had not yet ruled on the invalidity of the keel laying notices, and his judgment was set aside “in toto” (per Lord Goff at [1998] 1 WLR 574 at 594).
This area of dispute has been argued in this way because it is the prelude to the next issue for discussion below, relating to whether the yard was entitled to accept Latreefers’ conduct of continuing non-payment as a repudiation of the contracts, even if there had been previous acts of affirmation by the yard. Thus Latreefers is anxious to present the keel laying notices not only as acts of affirmation for the past, but also for the future; whereas the yard is keen for the notices to be seen in their overall context as a means by which the yard put a recalcitrant contractor to proof in anticipation of continuing obduracy.
In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do. If he does nothing for too long, there may come a time when the law will treat him as having affirmed. If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract partner persists in his repudiation, then he has not yet elected. As long as the contract remains alive, the innocent party runs the risk that a merely anticipatory repudiatory breach, a thing “writ in water” until acceptance, can be overtaken by another event which prejudices the innocent party’s rights under the contract – such as frustration or even his own breach. He also runs the risk, if that is the right word, that the party in repudiation will resume performance of the contract and thus end any continuing right in the innocent party to elect to accept the former repudiation as terminating the contract.
It is clear therefore that during the period when the yard was serving its notices up to the time of purporting to exercise its contractual rights of rescission the respective contracts remained alive. The question is whether the keel laying notices were an unequivocal affirmation of them. If they had been served under cover of a letter which had expressly warned Latreefers that it was being given a last chance to perform, and that failing due payment the yard would exercise its rights of rescission, I do not think that the use of a contractual mechanism for terminating the contracts is inconsistent with reliance on repudiatory conduct for effecting a common law acceptance of an anticipatory breach. Where contractual and common law rights overlap, it would be too harsh a doctrine to regard the use of a contractual mechanism of termination as unequivocally ousting the common law mechanism, at any rate against the background of an express reservation of rights.
In the present case, however, there was no express reservation of rights. On the contrary, the keel laying notices were served against the background of the claims for performance in the first action. That is what gives force to Latreefers’ argument. On the other hand, the notices were also served against the background of Latreefers’ prior recalcitrance. Mr Cordara submitted that in these circumstances, where payment of the instalments was needed to finance future construction, the service of the notices amounted at most to a statement by the yard that it would perform if Latreefers performed, and was otherwise a clear warning to Latreefers that, if it did not pay within 21 days of the time for payment, the yard would bring the contracts to an end. That is in effect what the yard said in its letter of 19 April 1994 handed to the Latvian ambassador at its meeting with him that day, viz –
“If necessary, we will, albeit reluctantly, rescind all six contracts following default…”
Such a statement meant that the yard was committed to allowing Latreefers the full time allowed under the contractual machinery, but otherwise was tantamount or analogous to the classic means by which time is remade of the essence of a contract (see Charles Rickards Ld. v. Oppenhaim [1950] 1 KB 616).
The judge found that at the relevant time, not only was the yard not making an “unconditional affirmation” but neither “was their position so understood by Latreefers”. The judge explained (at para 162): “the Yard’s position was clear; they still had some hope that Latreefers might still perform and served the keel laying notices for that purpose, but if Latreefers did not perform, the yard would bring the contracts to an end.” The judge said that he came to this conclusion “on the evidence that I have heard” (ibid). I have hesitated on this question; but in the end I do not think that I am justified in rejecting the views of the judge. If Latreefers did not understand the invocation of the contractual machinery as an unequivocal affirmation of the contract, I do not see why this court should insist that that was how the yard’s actions should be regarded. Moreover, Latreefers was quite alive to the issue that the yard’s purported appropriation of the keels of vessels 1 and 2 to the later contracts was uncontractual (see Latreefers’ solicitors’ letter of 20 April), and it was Latreefers’ point of view which prevailed. Where, therefore, Latreefers always disputed the validity of the notices in question, it seems particularly harsh, in the light of the judge’s evaluation of the evidence, to stigmatise the yard’s conduct as unequivocal affirmation.
Mr Glennie submits that the yard’s invocation of the contractual machinery should be regarded as a binding election to affirm because, if it had been validly invoked, it would have earned the yard the right to claim in debt, and not merely as part of a general claim in damages, the amount of the keel laying instalment. He therefore asks the court to regard the serving of the keel laying notices followed by purported common law termination of the contracts as an example of approbation and reprobation. That approbation is, he says, an affirmation. I do not agree. The fact that further contractual payments become due during the time when an innocent party is making up his mind whether or not to accept repudiatory non-performance as bringing a contract to an end does not mean that it is not open to the innocent party to exercise his common law rights. The question still remains whether any allegedly affirmatory acts were unequivocally so.
On balance, therefore, I conclude that the judge was right to say that there was no affirmation of the contracts on the part of the yard. I go on to consider the position on the hypothesis that the judge and I are wrong in that conclusion.
Acceptance of anticipatory breach as a repudiation following an affirmation
Was the yard entitled to say that Latreefers was still in repudiation of contracts 3-6 following the (assumed) affirmation of those contracts at the time of serving the keel laying notices? That is the question which arises on the hypothesis of affirmation.
Mr Glennie makes two submissions in this context. First, he says that nothing that happened after the affirmation amounted to a further repudiation of the contracts. Nothing can be inferred from mere silence, especially where the notices were invalid and therefore did not call for a response. Secondly, he says that an affirmation of one kind of conduct in the past is also an affirmation for the future of conduct of the same kind. There must be a qualitative difference in the conduct after affirmation to entitle the affirming party to claim a valid right to terminate. Therefore, the doctrine of Safehaven v. Springbok (see at para 40 above) needs on any view to be qualified to this extent. Again, he relies on the analysis of Colman J at [1997] 2 Lloyd’s Rep 228 at 235:
“The one course that the yard could not take following its service of the keel-laying notices was to revert to the right which it did have in the face of the prior anticipatory breach to bring the contract to an end. The reason for this is very clear. The facility which the law provides to the innocent party in the face of an anticipatory repudiatory breach is to elect to terminate the contract or to keep it alive for the benefit of both parties: see Fercometal S.A.R.L. v. Mediterranean Shipping Co. S.A., [1988] 2 Lloyd’s Rep. 199 at pp. 203-204; [1989] A.C. 788 at pp. 799-802 per Lord Ackner. If, with full knowledge of the facts, the innocent party affirms the contract by words, conduct or in some cases inactivity, he cannot subsequently treat the contract as terminated on the grounds of the same anticipatory breach in relation to which he has made his election to affirm. The irrevocability of an election to affirm once made has long been recognized: see, for example, Benson v. Taylor & Sons Co., [1893] 2 QB 274, and had been repeatedly stated: see, for example, The Kanchenjunga, [1990] 1 Lloyd’s Rep. 391, per Lord Goff of Chieveley at pp. 398-399. In the area of anticipatory breach the guilty party needs to know with certainty whether the contract which he has repudiated has been terminated or kept alive, for, if it is still alive, he will yet have the opportunity of performance. For this reason the innocent party who has affirmed the contract cannot revert to his right to treat the contract as terminated on the grounds of the same pre-existing anticipatory breach. As it is often said, he cannot reprobate having already approbated.”
The facts found by the judge and his answer to these questions are set out in paras 37/42 above. Mr Cordara submits that the judge was right for the reasons he gave. There was a continuing repudiation and the judge was entitled to evaluate the nature of Latreefers’ post-affirmation conduct against the background of its pre-affirmation conduct. In such circumstances, Latreefers’ silence was not mere silence but what has sometimes been called a pregnant silence, a silence that speaks of maintained recalcitrance. Moreover the silence continued in circumstances where there was a duty to speak, a duty on Latreefers to make clear that it was no longer continuing with its previous repudiatory attitude to the effect that it was unwilling to proceed unless the contracts were renegotiated on a take it or leave it basis.
In my judgment the judge was right to adopt and apply Mr Sumption’s ratio in Safehaven v. Springbok and right to conclude on the facts that there was a continuing repudiation after affirmation. I would also accept Mr Cordara’s submissions about Latreefers’ silence to the extent that they may go beyond the judge’s analysis. The silence was not mere silence, it was overlaid with all that had gone before. It was a speaking silence. The difficulty with silence is that it is normally equivocal. Where, however, it is part of a course of consistent conduct it may be a silence which not only speaks but does so unequivocally. Where silence speaks, there may be a duty on the silent party in turn to speak to rectify the significance of his silence. The circumstances of this case demonstrate the importance of these principles. This was not a case where a party seeks to derive assent out of mere silence. These parties were in contractual relations, and the question was whether the yard should continue to perform in circumstances where Latreefers had made it clear that it did not want performance on the terms of the existing contracts. The yard needed to know where it stood. Whether the notices were valid or not, if Latreefers wished the yard to proceed with building the vessels in circumstances where it had previously made clear that it did not, then it had an obligation to clarify its new intentions. If its position, paradoxical as it might be, was that, if only the yard would get itself where it could serve valid keel laying notices, Latreefers would pay, even though it had refused to pay in response to the valid keel laying notices on vessels 1 and 2, then it should have made that position clear. In the commercial context no other response makes any sense at all, and the law should not adopt a position where it cannot respond adequately to such a situation. I am satisfied that legal principle is well able to derive the right answer from the facts of this case, and that the answer is that given by the judge.
That means that it is unnecessary to rule on a further submission based on an article written by Professor Sir Guenter Treitel QC (Affirmation after repudiatory breach (1998) 114 LQR 22) in response to the facts of this very case, to the effect that affirmation should not necessarily be regarded as irrevocable. In the House of Lords at [1998] 1 WLR 574 at 594 Lord Goff thought it right that Colman J’s judgment should be set aside “in toto” so that full consideration could be given at trial to the yard’s argument on continuing repudiation. Lord Goff continued (at 594D):
“That this argument is of a substantial nature is fortified by Sir Gunther Treitel’s Note on the present case in (1998) 114 L.Q.R. 22; I wish to add that the point in question did not arise for consideration in Motor Oil Hellas (Corinth) Refineries S.A. v. Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep. 391, a case relied upon by Colman J. In his judgment.”
Lord Goff had in mind a sentence in his own speech in The Kanchenjunga at 398 that “Once an election is made, however, it is final”. Professor Treitel argues powerfully that such an election, if indeed the concept of election is the correct concept at all in this context, should not be final or binding, in the sense of irrevocable, in the face of a continuing anticipatory repudiation.
It seems to me that an affirmation of a repudiatory actual breach may differ from an affirmation of a merely anticipatory repudiatory breach in that the former breach is complete at the time it occurs whereas the latter breach looks to the future. An affirmation of an actual breach may therefore be said to leave nothing outstanding for the future, in that the worst has already occurred, whereas an affirmation of an anticipatory breach still leaves the future open. Prima facie an election or waiver looks to the past, even if it is possible, in a very clear case, to waive one’s rights for the future too. Two views might therefore be taken as to the effect of an affirmation of an anticipatory breach. One is that it is a waiver for the future as well: that was what Colman J decided and Mr Glennie submitted. The other is that the affirmation prima facie relates only to the past, leaving open the question of a continuing or renewed anticipatory breach. It seems to me that the latter view is to be preferred, and is inherent in the decision in Safehaven v. Spingbok and in the decision already taken in relation to this case. That would still leave open of course the question of how one tells whether an anticipatory breach is a continuing one, and the correct way of viewing silence. Professor Treitel highlights the undesirability of subverting considerations of substance or policy to the accidents of negotiation (at 26). I wonder whether each case does not in truth have to be decided on its own facts. However, substance and principle suggest that silence should not in this context be too readily regarded as equivocal; and that against the background of an earlier anticipatory repudiation it should not take much further to prove continuing repudiatory conduct.
It also occurs to me that even in the case of an actual repudiatory breach, where the breach is of a continuing nature, such as a failure to pay or to deliver, an affirmation at one stage is not necessarily an irrevocable affirmation for all time in the future. If it were otherwise, the law could not have developed the doctrine of Rickards v. Oppenhaim.
I express these thoughts in response to the interesting arguments deployed in this case, but it is not necessary to decide the issue and I refrain from doing so.
Conclusion on Latreefers’ appeal in contract
It follows that in my judgment Latreefers’ appeal against its liability in contract fails on all points.
Latco’s liability in tort: direct inducement
I turn therefore to the question of Latco’s liability in tort. It is logical to begin, however, with the yard’s respondent’s notice, for it is concerned with the issue of direct inducement of breach of contract. The judge found that there was no direct inducement, because he concluded that, had that happened, Latreefers’ board would have passed a formal resolution not to perform its contracts with the yard (see paras 44/50 above).
Mr Cordara submitted that the judge ought to have inferred that Latco instructed the directors of Latreefers not to pay the keel laying instalments, in essence because (1) Latco made all the commercial decisions and (2) the absence of evidence or disclosure regarding the relations of Latco and Latreefers shows that they had something to hide. However the judge was not prepared to make that inference. The judge was not prepared to conclude that Latreefers was a sham company. It had separate legal personality and its own board of directors, and the judge regarded that board, filled by experienced and independent Isle of Man solicitors, as a responsible one (at paras 235/6 of his judgment). Therefore, if it had been instructed to break its contracts with the yard, the board would have passed a resolution to that effect. As for the alternative submission that Latreefers had been requested, rather than instructed, to do so, the judge inferred, for the same reason, that the directors would have made their own independent decision, and would only have carried out the requests of Latreefers’ beneficial owner “provided it was proper to do so” (ibid).
There are aspects of this decision by the judge which I find puzzling. The judge appears to have made a distinction between Latreefers being requested to break its contract, which the judge found did not occur, and it being requested “to do nothing” on the basis that it would not be receiving funds with which to pay, which did occur. That is a narrow line, but would make sense if Latreefers could not pay without being provided with funds. As to that, the judge said (at para 237): “Once they were told that funds were not going to be provided for that instalment [viz the keel laying instalment for vessel 1], they had no alternative but to do nothing.” He had previously found (at para 222): “Once the decision had been made by Latco not to provide the funds, they had no alternative and there was nothing for them to do in response to the notice.” That is consistent with my understanding that Latreefers had no funds of its own, and certainly could not have performed the contracts without being financed by or with the assistance of Latco. On the other hand, the judge also dealt with a submission from Latco that since “Latreefers simply had no money to pay”, it was impossible in any event to infer anything against Latco, since Latreefers’ failure to respond to the yard’s demands was amply explained by its inability to do so. The same submission, that Latreefers simply had no money to pay, was repeated by Latco as a defence on causation of loss, on the basis that since Latreefers had no money anyway, the yard had suffered no loss. As to that submission, however, the judge concluded (see at paras 238 and 314/319) that, due to the deficiencies of both parties’ pleadings, the only point which he was prepared to adjudicate was Latco’s submission that Latreefers did not have the funds to pay the keel laying instalment on vessel 1 as of 10 December 1993. (It may be recalled that up to 2 December Latreefers held deposits to its credit of over $13.2 million: see para 22 above.) That narrow point, however, as I understand it, was decided in Latco’s favour at para 237. At paras 314/319, however, the judge appears to conclude differently. He said (at para 317): “I consider that there is no evidence to show that [Latreefers] could not have funded the payment of the keel laying instalment due on 10 December 1993 had the directors decided that they wanted to pay.” In the circumstances, the judge held that it was not necessary for him to decide the wider issue concerning causation of loss “which has such far reaching implications” and that therefore he should not do so (at para 319).
I do not think these difficulties were resolved on this appeal. It may be that the judge regarded the matter as turning on the burden of proof and the width of argument open on the pleadings. I am not confident, however, that this is the correct analysis.
At the end of the day, however, I do not think these difficulties assist the yard to show that there was a direct inducement. The judge found that there was no instruction by Latco to Latreefers to break its contract. There was at most a request to do nothing in circumstances where the decision was for an independent board and where, whatever might have been Latreefers’ immediate financial situation, it appears to have been common ground that it could not undertake the contracts without loan finance procured with the assistance of Latco. Mr Cordara submits that for the purposes of direct inducement a request is as good as an instruction: see the judgment of Jenkins LJ in D C Thomson & Co Ltd v. Deakin [1952] Ch 646 at 694, cited by Neill LJ in Middlebrook Mushrooms Ltd v. TGWU [1993] ICR 612 at 618F where reference is made to:
“Direct persuasion or procurement or inducement applied by the third party to the contract breaker…”
Mr Cordara relies on the expression “Direct persuasion”.
Nevertheless, the yard’s primary case had been that there had been an instruction (at para 188). There appears to have been no submission that a mere request amounted to the requisite persuasion or inducement. No authority other than the general statement cited above has been relied upon by Mr Cordara. The discussion at Clerk & Lindsell on Torts, 18th ed, 2000, at paras 24-44/48 indicates the delicacy of the issues which can arise as to whether some action does or does not amount to the required status of persuasion or inducement. I do not think that this court should differ from the view of the trial judge on such a question.
Mr Cordara nevertheless submitted that the judge should have found that Latco did indeed instruct the board of Latreefers to break its contracts with the yard, emphasising the facts within the judgment regarding Latco’s campaign to force a renegotiation on the yard. Where it was, as found, a necessary part of that campaign that at any rate the instalment on the first of the vessels should not be paid when due (see para 46 above), it should have been inferred that Latreefers was a necessary part of that strategy and under the instructions of its ultimate parent. That is a powerful argument. However, the judge was fully alive to this aspect of the history, and was unwilling to make the inference requested. Whatever the position in relation to the prompt payment of the instalment on vessel 1, it seems to me that the judge’s preferred solution gains increasing strength with regard to the ultimate question of the repudiation of the first and successive contracts. Again, I do not think that it would be right for this court to differ on such a matter from the view of the trial judge.
I therefore turn to the question of indirect inducement, where the judge was in the yard’s favour.
Indirect inducement by unlawful means
he judge’s findings and conclusions on indirect inducement have been summarised in paras 51/55 above.
A convenient statement of the law in relation to indirect inducement is contained in the judgment of Lord Evershed MR in Thomson v. Deakin:
“…it seems to me that the intervener, assuming in all cases that he knows of the contract and acts with the aim and object of procuring its breach to the damage of B, one of the contracting parties, will be liable not only (1) if he directly intervenes in persuading A to break it, but also (2) if he intervenes by the commission of some act wrongful in itself so as to prevent A from in fact performing his contract; and also (3) if he persuades a third party, for example a servant of A, to do an act in itself wrongful or not legitimate (as committing a breach of contract of service with A) so as to render, as was intended, impossible A’s performance of his contract with B.”
On behalf of Latco Mr Glennie had four principal submissions. The first was that there had been no unlawful means. Latco had not been “the Client” under the contract with Capco, so that Latco had not been in breach of contract with Capco by failing to finance Latreefers’ contracts with the yard. Without such breach of contract with Capco, the judge’s only finding of unlawful means disappeared. I have already rejected that submission in para 52 above: Latco was Capco’s client.
Mr Glennie’s second submission was that Latco’s failure to fund Latreefers was not an “inducement” of Latreefers’ breach of its contracts with the yard. In as much as this submission was separate from the submission considered below relating to Latco’s intention, it appears to be no more than that Latco’s failure to fund was not a direct inducement of Latreefers’ breach. However, that will typically be so in cases of indirect inducement. Where, however, a defendant wrongly, that is to say, by unlawful means, withholds that which is necessary to another party to fulfil his contract with a claimant, and does so with the requisite knowledge of that contract and with the requisite intention, I do not see why the ingredients of the tort have not been fulfilled. In the present case, there is no dispute that Latco had the requisite knowledge of Latreefers’ contracts with the yard. As for the requisite intention, that is the subject matter of Mr Glennie’s third, and most substantial, submission.
That third submission was of a general and far-reaching nature. Mr Glennie pointed out that where the unlawful means relied on as an ingredient of the tort is a breach of contract, there is a danger of making illegitimate inroads on the principle of privity of contract: which suggests an error of legal analysis. Moreover, particularly in a case like the present, the avoidance of the unlawful means in question can lead to the inefficient use of resources, viz in building ships unwanted by the market, instead of the defaulting party being simply left to the consequences of his breach of contract: which suggests an error of legal policy. In this connection Mr Glennie cited Barretts & Baird (Wholesale) Ltd v. Institution of Professional Civil Servants [1987] IRLR 3 at paras 52/54 and Professor Perlman’s Interference with Contract and Other Economic Expectancies: A Clash of Tort and Contract Doctrine (1982) 49 Univ Chicago Law Review 61.
Mr Glennie’s prescription for these difficulties is a firm insistence on the requirement of an intention to procure the breach of contract in question by means of the unlawful means involved. Incidental unlawful means, in the absence of an “actuating intent” to injure, should involve no liability.
There is no doubt that intention is an essential ingredient of the tort of inducing breach of contract (see Thomson v. Deakin cited above, and a more general discussion at Clerk & Lindsell at para 24-18). Mr Glennie seeks to use that ingredient as a limiting factor to exclude Latco’s liability on the facts of this case. He cites Allen v. Flood [1898] AC 1 at 96 per Lord Watson to the effect that an inducer –
“may be held liable if he can be shewn to have procured his object by the use of illegal means directed against that third party”
and submits that in this case Latco’s acts were not “directed against” the yard. He poses a question as to the requisite intent. He accepts that, unlike the case of conspiracy in the absence of unlawful means, there is no need of a predominant intention to injure (cf Lonhro Ltd v. Shell Petroleum Co Ltd (No 2) [1982] AC 173 as interpreted in Metall und Rohstoff AG v. Donaldson Lufkin & Jenrette Inc [1990 1 QB 391), but submits that the requisite intent must be the actuating intent of the unlawful means employed. In this connection he refers to the following authorities.
In Lonhro Plc v. Fayed [1990] 2 QB 479 at 489 Dillon LJ said:
“It also has to be proved by a plaintiff who seeks to rely on this tort, as Mr Beveridge conceded for Lonhro, that the unlawful act was in some sense directed against the plaintiff or intended to harm the plaintiff. The origin of those phrases is the oft quoted passage in the speech of Lord Watson in Allen v. Flood [1898] AC 1, 96, which was applied by the majority of this court (Buckley and Kennedy L.JJ.) in National Phonograph Co. Ltd. v. Edison-Bell Consolidated Phonograph Co. Ltd. [1908] 1 Ch 335. In that case the fraud was clearly directed against the plaintiff.”
Ralph Gibson LJ agreed with the reasons given by Dillon LJ, even if Woolf LJ expressed a broader philosophy more concerned with the choice of a deliberate course of conduct and its probable consequences than with the defendant’s intentions (at 494). That case, however, was only at the stage of an interlocutory attempt to strike out the claim, an attempt which failed, so that it throws no light on the application of the principle.
Millar v. Bassey [1994] EMLR 44 was another case which survived an attempt at a summary strike out. The plaintiffs were a record producer and musicians who had made an agreement with a record production company to make an album to be sung by Shirley Bassey, and she had made a like agreement with the production company. The plaintiffs complained that Miss Bassey had then refused to perform her agreement with the production company which had therefore breached its agreements with the plaintiffs. The majority of Ralph Gibson and Beldam LJJ thought that there had to be a trial. Peter Gibson LJ, however, thought that the law and the pleaded facts of the case were clear enough for the claim to be stopped at that point. In terms of principle, however, Ralph Gibson and Peter Gibson LJJ may be said to have been in or close to agreement. Thus Peter Gibson LJ contrasted deliberate interference with a claimant’s contract “with a view to bringing about its breach”, being “aimed at” or “directed against” the claimant, and “interference which is merely the incidental consequence” of the claimant’s conduct (at 62). He continued (at 63/64):
“Thus in Van Camp Chocolates Ltd v Aulsebrooks Ltd [1984] 1 NZLR 354 at page 360 Cooke J, giving the judgment of the New Zealand Court of Appeal, said:
“The essence of the tort is deliberate interference with the plaintiff’s interests by unlawful means. If the reasons which actuate the defendant to use unlawful means are wholly independent of a wish to interfere with the plaintiff’s business, such interference being no more than an incidental consequence foreseen by and gratifying to the defendant, we think that to impose liability would be to stretch the tort too far.”…
“There are strong policy reasons why the law should restrict the ambit of the tort in this way. The tort gives the plaintiff a right of action in respect of a failure to comply with the terms of a contract against a person who is not a party to the contract. This is inconsistent with contractual principles, in particular in breaching the privity rule (see Cane: Tort Law and Economic Interests (1991) pages 122-5). As Hobhouse J said in Rickless v United Artists Corp. [1986] FSR 502 at page 524 of the tort of wrongful interference with contractual relations:
“Unless the tort is to become virtually equivalent to the enforcement of contracts against third parties, it must remain an essential element of the tort that the interference occurs with the requisite actual interest [sc. To cause a breach of the plaintiff’s contract].”
Further, without the limiting of the scope of the tort by the requirement of actual intention, freedom of action would be unduly restricted by liability for incidental consequences (see Fleming: The Law of Torts 7th edn (1987) 656). Interference with contracts may flow from competition and is the normal and expected consequence of industrial action. It would not be right for the law to discourage competition by encouraging actions by unsuccessful competitors or to allow tort actions by those who suffer only incidentally from another person’s activities.
In my judgment therefore it is a requirement of the tort that it should be established that the defendant by his conduct intended to break or otherwise interfere with and, with that intention, did break or otherwise interfere with a contract to which the plaintiff was a party.”
Ralph Gibson LJ (at 72) agreed that the law ought to be settled in accordance with the ruling of Cooke J in Van Camp Chocolates and that the policy reasons referred to by Peter Gibson LJ were “compelling”, but thought that the facts were not clear enough for summary conclusion.
In my judgment, however, the principled limitation on the scope of the tort relied on by Mr Glennie does not, on the facts found by the judge, take Latco to safety. This is not a case where Latco has merely acted deliberately and with knowledge of Latreefers’ contracts with the yard but without any intention in relation to the probable consequences of its actions and without it being possible to say that its actions were directed at the yard. On the contrary, the judge found (see paras 54/55 above) that Latco’s breach of clause 5.9 of its contract with Capco was “intended by Latco to prevent [Latreefers] performing the contracts with the yard”, that that was “the primary objective of the decision not to fund”, and that Latco “must by its actions have intended to injure the Yard” even if that, as distinct from the pursuit of its own interests, was not its predominant intent. The judge also found that its actions were “directed at Latreefers” with that intent. One expression of the test of intentional conduct required by the tort is that the conduct be directed at the claimant. Although the judge has said in terms that the conduct was “directed at Latreefers”, it is impossible to read his findings as a whole as amounting to other than a conclusion that Latco’s conduct was also directed at the yard. Indeed, he makes it clear that Latco had in mind Latreefers’ contracts with the yard and that Latco intended to injure the yard. As the judge found (at para 215 of his judgment):
“The probability is that it was Mr Henriksen who then advised that the keel laying instalment on the first vessel should not be paid and Mr Avotins assented to that course. They both knew that this would be a breach of that contract and it was intended by them to force the Yard either to capitulate or cancel the contracts…I am satisfied that the final decision that Latreefers should not pay was made, so far as Latco was concerned, by Mr Avotins, though he would have followed Mr Henriksen’s advice.”
The judge continued (at para 223 of his judgment):
“However when the Yard did not change their stance on negotiations, I am satisfied that Latco then decided that Latreefers would not carry out any further act of performance of any of the contracts, unless and until the Yard agreed to negotiate on their terms and therefore decided to make no funds available to Latreefers to pay the further instalments.”
It seems to me to follow from these findings and from the judge’s further findings on repudiation which have been reviewed earlier in this judgment that Latco intended its conduct to result in Latreefers’ repudiation of the six contracts. It was more than just that Latco did not want Latreefers to pay the keel laying instalment on the first contract in order to put pressure on the yard in the negotiations, barren as they were, which had taken place in the last quarter of 1993. Latco did not want Latreefers to fulfil the contracts at all (save in the circumstances that the yard had capitulated to Mr Henriksen’s demands). In these circumstances it became irrelevant to Latco’s purposes that no valid keel laying instalments were ever served in respect of vessels 3 to 6. In terms of intention, however the need for it has been expressed, the requirement, as it seems to me, was fulfilled.
In this connection I have asked myself whether the unlawful means in question, the failure to fund under clause 5.9 of the Capco terms, was a merely incidental or collateral failure, and not such as to visit liability upon Latco. The issue might be put in terms of the importance and relevance of the causative nexus between the unlawful means in question and the intention to procure the breach of the contracts with the yard. Mr Cordara himself recognised that, given the absence of any guarantee from Latco, it would have been legitimate for the directors of Latreefers and of Latco, had the Capco connection not have been interposed, to have left the financing of the contracts to an informal arrangement or understanding; that Latco’s views about such an understanding might have changed as the market changed and Latco’s personal interests changed; and that in the absence of any intention to injure the yard, Latco would have been able to withdraw its support for Latreefers without being liable for any unlawful act or any tort of procuring a breach of contract. Indeed, I understood Mr Cordara to accept that Latco would not be liable in tort, even where it had contractually obliged itself to finance Latreefers and then resiled from that commitment, if it did so merely out of consideration of its own business interests and in the absence of any intention to injure the yard. In such circumstances, it might perhaps have been argued that the Capco terms, including their clause 5.9, were simply overlooked, so that the breach of that clause was a matter of mere oversight or negligence, to be regarded as purely incidental or collateral, even if Latco’s acts did go beyond mere self interest and amounted to conduct directed at and intended to injure the yard.
However, I would not on reflection so regard the matter. The financing of Latreefers was of the greatest importance to the transaction, and was investigated by Mr Henriksen (albeit superficially) as part of his necessary preparations for Latco’s attempt at renegotiation. Moreover the judge finds that the London solicitors who arranged for the formation of Latreefers for Latco “were well aware of [Capco’s] terms and conditions” (at para 218); that the management of Latreefers was intended to be properly conducted by the (Capco) directors of Latreefers, and that those directors, as independent contractors outside the hierarchy of a normal company group, made express stipulation with Latco, the beneficial owner, for funding and for the proper conduct of the company’s business; and that, when the notice of the keel laying instalments were served on them, the directors were aware of the obligations of Latco under the Capco terms (at para 219). In these circumstances I regard it as impossible to think of the proper financing of Latreefers under the Capco terms as an incidental matter, or insufficiently connected with Latco’s intentions towards Latreefers and its contracts with the yard. Moreover, when it came to Latco’s strategy for dealing with those contracts, it did not merely decide to withdraw its financial support for Latreefers: it deliberately used the withdrawal of its financial support as the means to bring about the destruction of those contracts (see para 57 above).
Finally, there is Mr Glennie’s important fourth submission. That is of a fall-back nature, to the effect that, whatever may be the position with respect to vessels 1 and 2 where valid keel laying notices had been served, no illegal means had been used by Latco in respect of vessels 3-6. Since in their case there had been no valid keel laying and no valid keel laying notice, no further instalment had been due to the yard prior to the termination of the contracts in respect of those vessels. It followed that in their case Latco could not have been in breach of its contract with Capco.
It is true that Latco was only in actual breach of its contract with Capco in relation to vessels and contracts 1 and 2. However, the consequences of Latco’s conduct did not stop there. In the first place, Latco’s conduct demonstrated that it would have continued to disregard its obligations under clause 5.9 as and when they would have arisen in respect of the other vessels as well. That raises the question whether an anticipatory breach of that kind can amount to unlawful means for the purposes of the tort of inducing breach of contract. I am inclined to say that I do not see why it may not, since, subject to the necessary findings of fact relating to the future rather than the past, the unlawfulness of the conduct and the practical pressure are the same. But I do not rely on that answer, for I do not think it was a clearly articulated part of Mr Cordara’s submissions. Secondly, however, there is the matter of the causative effect of the unlawful means used in respect of vessels 1 and 2 upon the remaining contracts. This was the focus of Mr Cordara’s answer to Mr Glennie’s fourth point. In my judgment it is a valid answer. The indirect procurement of Latreefers’ breach of its contracts in respect of vessels 1 and 2 were part and parcel of the means used to destroy all six contracts. One can see that in the judge’s findings that all six contracts had been repudiated by Latreefers even before the second contract came to an end with the yard’s notice of rescission in relation to that contract on 12 April 1994. The non-payment of those instalments, and particularly that of the first one, was intended to demonstrate to the yard that it had either to renegotiate on the terms proposed or else see the contracts unperformed. In the event, the intention was that the contracts would remain unperformed.
I therefore agree with the judge that Latco is responsible in tort for the indirect inducement by unlawful means of Latreefers’ breaches of its contracts with the yard. In the circumstances, it is unnecessary to go into any detail about the yard’s cross-appeals. Like the judge, I do not think that a claim by reference to a tort of unlawful interference with the yard’s contractual relations with Latreefers adds anything. As for the claim in conspiracy, I agree with the judge that it fails on the facts. I agree with the judge that there was no further breach of other terms of the Capco contract. The only unlawful means employed was the breach of Capco clause 5.9, and in that respect Latco acted alone and not in conspiracy with any others. In any respects in which it may have been a party to a common design with, for instance, Mr Henriksen, no unlawful means were used and there was no predominant intention to injure the yard.
Finally, there was some discussion in the course of the submissions of both Mr Glennie and Mr Cordara as to the policy considerations of the tort of inducing breach of contract. It seems to me to be difficult to state such considerations as relevant to this case other than in the most general way. I hesitate to express any views, but am nevertheless concerned to see this case in some wider setting. The tort is an economic tort designed to place limits on the self-interested rough and tumble of the business world. Its philosophical basis appears to be that contracts should be kept rather than broken. Where, as here, A (Latco) procures B’s (Latreefers’) breach of his contract with C (the yard), adopting it as his own because he is interested to do so, seeking a benefit for himself or a fortiori a detriment for C, and does so deliberately, knowingly and intending the breach to take place, then A puts himself in the way of incurring a liability, even though not himself a party to the contract, unless (i) he does not directly procure the breach, and (ii) he uses no (relevant) unlawful means, or (iii) he can claim some justification. The significance of (i) is that where A directly procures a breach of contract he makes himself as it were directly privy to the breach. The significance of (ii) is that in the absence of making himself privy to the breach, he cannot be faulted as long as he acts as he is entitled to act, but if (deliberately, knowingly and intending the breach to take place) he commits an unlawful act, by which I have in mind an unlawful act of sufficient causative relevance, then he renders himself liable. It may be that unlawful means ought to be necessary even where there is direct procurement (see the wide-ranging work by Hazel Carty, An Analysis of the Economic Torts, 2001, at 82). The significance of (iii), an area which has not been clearly worked out in the cases, appears to be that there may be moral or perhaps economic factors which may mitigate even to the point of justifying conduct otherwise incurring a prima facie liability. In the present case there was no claim to justification.
These considerations are designed to keep a wide ranging tort within bounds. It is therefore important that they are not applied mechanically and that regard is had to the balancing demands of moral constraint and economic freedom. For these purposes the concepts of knowledge and intention, direct participation, the causative relevance of unlawful means, and the possibilities of justification, are presumably sufficiently flexible to enable the principles of the tort to produce the right result. Where in specific areas policy makes its own specific demands, statute law is present to lend a hand.
In the present case, it was conceded by the yard that Latco would have committed no tort if it had merely decided without more that its own interests did not recommend the commitment of its resources to Latreefers’ contracts; or if Latco had taken a formal decision as Latreefers’ shareholders that Latreefers should not perform its contracts. Similarly, I do not suppose that Latco would necessarily have been involved in any tortious conduct if Latreefers had formally decided that it simply could not, in the absence of financial support from Latco, avoid insolvency in the face of its contractual commitments. Nor do I think that clause 5.9 of the Capco terms would necessarily as a matter of construction cover every situation: for instance whether it would continue to bind in a situation where Latreefers formally decided not to continue with obligations it could not meet or entered formal insolvency must remain an open question, not debated on this appeal: see para 53 above.
However, none of these situations prevailed on the facts of this case. Instead, Latco decided to become closely involved in the renegotiation of Latreefers’contracts with the yard. Its participation was not so immediate as to enable the judge to infer a direct procurement of Latreefers’ breach of contract, but it could not have been far from that. Instead, with knowledge of course of the contracts in question, and conscious of the dependence of Latreefers on its financial support and, as may be inferred, of its own obligations under the Capco terms, it deliberately chose to remove that financial support, in breach of its own contract with Capco, with the intention of either breaking the yard’s will in renegotiations or of breaking the contracts in question.
In conclusion, I see nothing ill-fitting in the judge’s decision with the philosophy of the tort or with its limitations or the need for balance in its application. In my judgment Latco’s appeal in tort, as well as Latreefers’ appeal in contract, should be dismissed.
Having said that, I am not concerned in this appeal with any question of the quantum of the yard’s loss based upon its claim in tort against Latco. It may be that quantum will depend inter alia on the issue which the judge declined to adjudicate, namely whether Latreefers could have financed the contracts itself. That, however, is for another day.
Lord Justice Tuckey:
I agree.
Lord Justice Aldous:
I also agree.
Order: Appeal and cross-appeal dismissed; the appellants should pay the respondents’ costs of the appeal; the respondents should pay the appellants’ costs of the cross-appeal; application for permission to appeal to the House of Lords to be considered by the court in writing; order not to be drawn up until a decision has been made upon that application; appellants to supply their written submissions on their application for permission to appeal by 4.00pm on 28th June; the respondents’ reply to be supplied by 4.00pm on 3rd July; any further submissions by the appellants to be supplied by 4.00pm on 5th July.
(Order does not form part of the approved judgment)
White v. Spendlove.
[1942] IR 224
Supreme Court
SULLIVAN C.J. :
26 Feb. 1942
This is an appeal by the plaintiff from so much of an order, dated the 14th February, 1941, made by Gavan Duffy J. on the hearing of the action as dismissed with costs her claim to recover from the defendant the sum of £702 as moneys had and received by the defendant to the use of the plaintiff, being moneys paid on a consideration which failed. The sum claimed was the amount of a deposit and certain instalments of purchase-money paid in respect of a proposed purchase by the plaintiff from the defendant of certain premises in Sandymount.
Prior to the institution of this action the parties had been in litigation in respect of the same subject-matter. In July, 1936, Thomas Spendlove, the present defendant, brought an action against Ellen White, the present plaintiff, claiming specific performance of an agreement in writing, dated 9th February, 1935, whereby she had agreed to purchase from him for the sum of £1,050 the house and premises in question, then known as No. 25 Marine Drive, Sandymount, the sale to be effected by a sub-lease for a term of 150 years at a yearly rent of £10 10s. 0d., the term to commence on the 1st July, 1935. He pleaded that Ellen White had entered into possession of the premises and had made payments on account of the purchase-money amounting in all to £702, but that she had refused to execute the sub-lease and to pay the balance. In her defence in that action Ellen White denied that she had signed the agreement of 9th February, 1935, and pleaded that the payments made by her, amounting as she alleged to £702, had been made pursuant to an agreement in writing, dated the 12th February, 1935, by which she agreed to purchase the house in question for the sum of £1,050, to pay a deposit of £400 and the balance of the purchase-money on completion. She pleaded that this agreement was made by her subject to certain conditions, which were orally agreed upon as conditions precedent, one being that the sale to her should be effected by a sub-lease for the term of 150 years from the 1st July, 1935, at the yearly rent of £10 10s. 0d., and another condition being that Spendlove should erect a shop upon the plot for the sum of £200, to be paid on completion, the consent of the head landlord to the erection of the shop to be procured by Spendlove and to be endorsed upon the sub-lease. She alleged that he had refused to erect the shop, and that on his refusal to do so she had withheld payment of the balance of the £1,050 payable in respect of the granting of the sub-lease and the building of the house. She further pleaded that at the time of the making of the agreement, and until the 1st January, 1936, when he got a lease from the head landlord, he had no legal title to the plot in question. She counterclaimed:1, an order directing Spendlove to carry out that portion of the agreement to grant to her the said sub-lease with the consent of the head landlord endorsed thereon permitting her to build the shop, upon the payment by her of the balance of the £1,050, 2, alternatively, rescission of the said agreement and repayment to her of the sum of £702. In his reply and defence to counterclaim Spendlove denied inter aliathat he had ever agreed to build a shop, or to procure the consent of the head landlord to the erection of a shop upon the plot in question.
That action was heard by Gavan Duffy J. on 30th and 31st March, 1938, and on the latter date he gave judgment dismissing both the claim and the counterclaim. The order made by him is in the following terms:”It is ordered and adjudged that the plaintiff’s claim in this action do stand dismissed out of this Court: and it is ordered and adjudged that the defendant’s counterclaim in this action, same not having been proceeded with, do stand dismissed out of this Court; and it is ordered and adjudged that each party do abide their respective costs incurred in this action.” This Court has not seen any note of the judgment delivered by the learned Judge, or any note of the evidence given at the hearing, but in his judgment in the present action the learned Judge says:”The entry in the Registrar’s book concerning the dismissal of the action seems to me to lead clearly and directly to the inference, obvious from its language, that the action for specific performance was dismissed because the agreement sued upon was not in law an agreement since an essential term was left out.” From the evidence given on the hearing of the present action it would seem that the “essential term” to which the learned Judge refers is the date at which the term to be granted by the sub-lease should commence, as, on the 9th February, 1935, when Ellen White was alleged to have signed the agreement bearing that date, the date from which the term of sub-lease should run was not stated in that agreement and, presumably, had not then been agreed upon, as the place in which that date should appear was left blank. It will be noted, however, 1, that each party had pleaded that the term of the sub-lease was to commence on the 1st July, 1935, and 2, that Ellen White had not pleaded the Statute of Frauds; but as it appears from the Registrar’s note that the action was dismissed without hearing any witnesses for the defence, then, if the learned Judge is correct in saying that it was dismissed because an essential term was omitted from the agreement, that fact must have been admitted by Spendlove’s own witnesses.
In the month of May, 1939, Ellen White instituted the present action, claiming the return of the £702 that she had paid to Spendlove.
In the summary summons, as originally framed, she pleaded that the sum claimed had been paid by her in the course of negotiations for the purchase of the plot of ground with the house and premises thereon in the expectation that an agreement would be arrived at for the grant of a sub-lease thereof, but that in fact said agreement was never made and the consideration for the payment had therefore failed. This was a complete departure from the defence and counterclaim pleaded by her in the former action, and in his defence and counterclaim the defendant also departed from the claim he had pleaded in that action. He now pleaded that at the time when the agreement of 9th February, 1935of which he had in the former action claimed specific performancewas made, the parties hadnot agreed as to the date from which the term of the sub-lease should run, and accordingly that date was omitted from the written agreement then signed, but that in the month of January, 1936, the parties had agreed that the term should commence on the 29th September, 1935, and that this agreement was reduced to writing on the 24th February, 1936. He pleaded that the £702 had been paid in pursuance of the said agreementwhich I take to mean the agreement of the 9th February, 1935, as supplemented by the agreement of the 24th February, 1936that he had always been ready and willing to perform that agreement, but that the defendant had refused to execute the sub-lease, and he counterclaimed specific performance of the agreement pleaded by him. In her reply and defence to counterclaim the plaintiff pleaded that the defendant was estopped by his pleading in the former action and by the judgment and order dismissing his claim from alleging that there was a concluded agreement for the sale of the premises in question, or that it had been agreed that the term of the sub-lease should begin on the 29th September, 1935, and from claiming specific performance of such agreement.
So the pleadings stood when the hearing of the action commenced on the 21st January, 1941, but when counsel for the plaintiff had stated her case he applied for, and obtained from the learned Judge, liberty to amend the special indorsement of her claim as the plaintiff might be advised, and the hearing was adjourned to enable such amendment to be made. The amendment subsequently made was to strike out the entire of the original indorsement and to substitute for it an indorsement in which the £702 was again claimed as money paid on a consideration which had failed, but the consideration alleged was essentially different from that originally pleaded. In this indorsement it was pleaded 1, that the money sued for had been paid pursuant to an oral agreement by which the defendant agreed to build for the plaintiff a house for the sum of £1,050 and a shop for the sum of £200 and to give her a lease of the premises for a term of 150 years from a date not then agreed on at the yearly rent of £10 10s. 0d.; 2, that on the 12th February, 1935, the plaintiff had signed a document which stated that she agreed to purchase the house for £1,050 but did not mention the shop, but that she had signed that document relying on the representations made by the defendant’s wife that it was only a preliminary document, and that a proper agreement for a lease would be drawn up in which the shop would be mentioned; 3, that the defendant refused to erect the shop and in consequence of that refusal the contemplated agreement for the granting of a lease was not entered into. The defendant amended his defence by the addition thereto 1, of pleas denying that he had agreed to build a shop, or that he or his wife had drawn up the document of the 12th February, 1935, or had represented that it was only a preliminary document, or that such a document was signed by the plaintiff, and 2, of a plea that the plaintiff was estopped by her pleadings in the former action and by the order made at the hearing from alleging that the sum of £702 was paid on a consideration that had failed, and from claiming to recover that sum in this action. The plaintiff amended her defence to the counterclaim by including in it a plea that the defendant was unable on his part to perform the agreement for a lease which he sought specifically to enforce inasmuch as he had let the house and premises comprised in the agreement to Marie Hamilton Hallett for a term of three years from the 15th May, 1939.
Whatever uncertainty may have existed in the mind of the plaintiff, or in the minds of her advisers, as to the case that should be made in her pleadings, there is no uncertainty as to the case made by her at the hearing. It was that she had agreed to take from the defendant a sub-lease of the plot and house at the price of £1,050 upon the defendant’s undertaking to build a shop on the plot for £200, which he agreed to do; that the defendant built the house and allowed her to enter into possession of it on signing a caretaker’s agreement, but that he had refused to build the shop, that she had paid sums amounting in all to £702 in respect of the deposit and instalments of purchase-money, but in consequence of the defendant’s refusal to build the shop she had withheld payment of the balance and had given up possession of the house. That is, I think an accurate representation of the effect of her evidence, in the course of which she repeated more than once that her sole claim in the action was based on the fact that the defendant had contracted to build a shop for her and had not done so. The defendant’s evidence was that the plaintiff had never asked him to build a shop, and that the agreement between them was embodied in the written agreement of the 24th February, 1936, pleaded in his defence, which he produced, and which purported to be signed by himself and by the plaintiff. The plaintiff denied that she had signed that agreement. She said that, as pleaded by her in the amended indorsement of her claim, she had signed on the 12th February a document drawn up by the defendant’s wife by which she agreed to purchase the house for £1,050, but she said that she signed that document on the faith of representations, made to her by the defendant’s wife, that it was merely a preliminary to a proper agreement which would subsequently be drawn up and which would provide for the erection of the shop. Her evidence to that effect was corroborated to some extent by the evidence of her brother, but it was contradicted by the evidence of the defendant’s wife, who swore that no such document had been prepared by her or signed by the plaintiff.
On the main issue in this casethe terms of the contract made by the partiesthe learned Judge had to face a direct conflict of testimony, and it would appear from his judgment that he did not regard the evidence on either side as very satisfactory. But on the essential points he accepted the evidence of the defendant and rejected that of the plaintiff. He held that the signature to the agreement of the 9th February, 1935, was the signature of the plaintiff. He refused to accept the plaintiff and her brother as witnesses on whose testimony he could rely, and he held that the alleged agreement of the 12th February, 1935 which she was unable to producehad never existed. In his judgment he states the conclusion at which he had arrived:”In the result I find that there is in the plaintiff’s case no such clear, cogent and consistent evidence of the conversations which must be the foundation of her case, no such coherent and convincing account of the transaction as to warrant a judgment in her favour. I am not satisfied that the defendant entered into any contract to build the shop for £200, nor indeed to build it at all, nor that the payments on account were made conditionally as alleged by the plaintiff.” He held that the plaintiff was not estopped by the order in the former action dismissing her counterclaim when it was not proceeded with upon the claim against her being dismissed, but he dismissed the plaintiff’s claim on the ground that there had been no total failure of consideration for the moneys paid by her to the defendant. He dismissed the defendant’s counterclaim on the ground that it was res judicata by reason of the dismissal of his former action against the plaintiff. From that judgment, in so far as it dismissed the plaintiff’s claim, the plaintiff has brought this appeal: the defendant has not appealed against the dismissal of his counterclaim.
In support of the appeal it was contended:1, that the learned Judge was wrong in law in holding that there was not a total failure of consideration for the payments made by the plaintiff to the defendant, 2, that the finding that the defendant did not agree to build a shop was against the weight of evidence, 3, that the learned Judge found that the agreement of the 12th February, 1935, was signed as a preliminary agreement in contemplation of the preparation of a subsequent agreement which would provide for the erection of the house and a shop, and should therefore have held that the money paid under that agreement was recoverable by the plaintiff.
The contention that the learned Judge’s finding that the defendant did not contract to build a shop was against the weight of the evidence is, in my opinion, quite unsustainable. Apart altogether from the fact that this finding was based expressly upon the learned Judge’s estimate of the credibility of witnesses, it is supported by the written agreement of the 9th February which is signed by both parties. The next contention was based on the view that the learned Judge had found that the agreement of the 12th February was a preliminary and conditional agreement which did not bind the plaintiff, and there would be much force in the contention if the learned Judge had so found. But the passage in his judgment, which is said to indicate that he had so found, does not, in my opinion, bear the meaning attached to it: if it did, it would be quite inconsistent with the opinion expressed by him in the passage that I have quoted, upon which his decision was based.
It is clear from the transcript of the evidence that the grounds upon which the plaintiff relied to establish that the consideration for the payments made by her to the defendant had failed were:1, that such payments were made pursuant to an agreement which provided for the erection of a shop in addition to a house, which agreement the defendant refused to perform, and 2, that the agreement was a conditional agreement which did not, in the events that happened, bind the plaintiff. It is equally clear from the judgment that the plaintiff failed to establish either of these grounds to the satisfaction of the learned Judge.
But in this Court counsel for the plaintiff sought to establish that the consideration had failed upon the further ground that the payments in question were made under an agreement which was not valid in law, as an essential term was omitted, and they contended that the judgment and order in the former action estopped the defendant from alleging that the agreement was valid.
The question raised by this argument is, to my mind, one of considerable difficulty. The agreement which the present defendant sought to enforce in the former action was the agreement of the 9th February, 1935. His claim for specific performance of that agreement was dismissed by the learned Judge, but the grounds upon which it was dismissed are not stated in the order made by him, and no note of his judgment is available. There is nothing on the record to show the ground on which that claim was dismissed, but I accept without question the learned Judge’s view that it was dismissed “because the agreement sued on was not in law an agreement since an essential term was left out.” But in the present action the defendant is relying on the agreement of the 9th February, 1935, as supplemented by a further agreement of the 24th February, 1936, as together constituting a valid agreement. This supplemental agreement is alleged to be contained in, or recognised by, a letter of the 24th February, 1936, from the solicitor then acting for the plaintiff to the solicitors for the defendant. The entire correspondence, of which that letter forms part, was not only in the possession of the defendant’s solicitors at the time when the former action was tried, but was in evidence at the trial. But there is nothing to indicate that the question whether these two agreements together constituted a valid agreement in law was litigated and determined in that action; and for that reason I am not satisfied that the defendant is estopped from raising that question in the present action.
It is therefore necessary to determine whether the agreement of the 9th February, 1935, and the letter of the 24th February, 1936, can be read as together constituting one entire agreement. I do not think that they can. Neither of these documents contains any reference to the other, and in a case such as the presentwhere the contract is one to which the Statute of Frauds applies parol evidence is inadmissible to connect them. The letter in question must, I think, be read in connection with, and as forming part of, the entire correspondence, and not as supplementing the agreement that had been made more than a year before the letter was written. It may be that a contract is contained in the correspondence, but that is not the contract that is pleaded.
I am therefore of opinion that the defendant has failed to establish that the money paid to him by the plaintiff was paid in pursuance of a valid contract, and it would follow that, prima facie, that money would be recoverable by the plaintiff.
But her claim to recover it is met by a plea of estoppel based on the dismissal of her counterclaim in the former action. In my opinion that plea is well founded. Her claim in this action and her counterclaim in the former action are, to my mind, based on substantially the same cause of action. It was contended on her behalf that the order dismissing her counterclaim would not support the plea of estoppel inasmuch as it stated that the counter-claim was dismissed because it had not been proceeded with; and we were asked to construe that order as one non-suiting the defendant, or, as one allowing the defendant to withdraw her counterclaim as provided by Or. XXVI, r. 1, of the Rules of the Supreme Court (Ir.), 1905. The former construction would not be a legitimate one in view of the decision of the House of Lords in Fox v. The Star Newspaper Co. (1); and the latter would be quite inconsistent with the terms of the order.
I am, therefore, of opinion that the plaintiff’s claim in this action must fail, and that this appeal must be dismissed.
MURNAGHAN J. :
This appeal and the lengthy and expensive action out of which it arises is not the only litigation between the same parties concerning the one and the same transaction.
In an earlier action, commenced on the 1st July, 1936, Thomas Spendlove, a builder, sought specific performance of an agreement, dated the 9th February, 1935, for the sale to Ellen White by way of sub-lease of a house in Marine Drive, Sandymount. This agreement for sale by way of sub-lease was negotiated by the parties themselves with the idea of saving solicitor’s costs, and this small economy has been the immediate cause of lengthy and expensive litigation.
Paragraph 2 of Spendlove’s statement of claim alleged as a term of the agreement that the sub-lease should commence from 1st July, 1935. A defence on behalf of Mrs. White was filed on 23rd June, 1937, but was amended at the hearing of the case. As amended this defence by Mrs. White set up a different agreement in writing which Mrs. White reproduced from memory, containing only a few words, the description of the house, the purchase price of £1,050 and the agreement to pay £400 as deposit, but this agreement was stated in Mrs. White’s defence to be subject to verbal conditions set out in detail:(a) that there should be a sub-lease from 1st July, 1935, on terms practically the same as those alleged by Thomas Spendlove; (b) alleged an undertaking by Spendlove to erect a shop for Mrs. White beside the dwellinghouse at an inclusive cost of £200; (c) and (d) dealt with the obtaining of a consent from the head landlord and a consent from the Dublin Corporation to the shop being built; and (e) dealt with the time for entry into possession. This defence traversed the plaintiff’s alleged agreement, but the substantial defence relied upon was a failure by Spendlove to carry out the defendant’s version of the agreement, and a further plea that up to 1st January, 1936, i.e., six months after the date which both parties agreed was to be the commencement of the lease, Spendlove had no legal title to the land.
By counterclaim, Ellen White claimed specific performance of the agreement alleged by her; a somewhat hardy claim in the face of her own allegation that Spendlove had no legal title on the 1st July, 1935, and, alternatively, she claimed recission of the said agreement and repayment of the said sum of £702. This sum was made up of £400 paid by Mrs. White as deposit, and £302 part of the purchase money paid by Mrs. White, who, by arrangement was let into the house when erected under a caretaker’s agreement.
On the issues thus raised the Court made an order, dated 31st March, 1938, by which the plaintiff’s action was dismissed, and “it was ordered and adjudged that the defendant’s counterclaim in this action, same not having been proceeded with, do stand dismissed out of this Court.” Each party was ordered to abide their respective costs in the action.
It is not easy to ascertain what happened at the hearing of the action nor upon what precise grounds the order was made. The defendant, Mrs. White, did not give evidence, but it appears that in the written agreement produced by Spendlove it had to be admitted that when it was signed the date for the commencement of the term was left blank, so that this agreement, if accepted as genuine, was deficient in a material term. Certainly the case of Kerns v. Manning (1) decided in this Court was referred to, and apparently in relation to the absence of a material term. It does not seem to have occurred to any one to consider whether Mrs. White’s statement in her defence that the term was to commence on 1st July, 1935, the same date as that alleged by the plaintiff, supplied the deficiency in the plaintiff’s agreement. On the pleadings, as it seems to me, the real defence was that alleged in paragraph 5, viz., that Spendlove had no title to grant a lease commencing on 1st July, 1935, as he himself only obtained a lease from the head landlord on 1st January, 1936. Counsel for Mrs. White suggested that the counterclaim was not proceeded with in the hope that some settlement agreeable to both parties would be arrived at.
Before the summons in the first action had been issued the sub-lease had been drafted with 29th September, 1935, inserted as the date for commencement of the lease. This draft lease was sent to Mrs. White personally on 24th February, 1936, and was returned approved on behalf of Mrs. White by Mr. Charles Magwood, her solicitor at that time. There was discussion in correspondence about the erection of a shop, and it was suggested that Mr. Spendlove, as landlord, should endorse upon the sub-lease a consent to the erection of a shop. When Mr. Spendlove finally agreed to this course Mrs. White changed her solicitor and went to Messrs. Little, O hUadhaigh and Proud. The new solicitors sought to bring the transaction to a close by an arrangement that plans should be lodged with the Pembroke Estate, and that, when the plans had been approved of, the sub-lease should be entered into, leaving Mrs. White to erect the shop at her own expense. This was estimated. to cost £400, whereas Mrs. White maintained that Mr. Spendlove had agreed to erect the shop for £200.
Nothing, however, came of these protracted negotiations, and, as I have said, the summons was issued on 1st July, 1936. On 20th July, 1936, Mr. O h-Uadhaigh, in company with Mrs. White, inspected the original agreement relied upon by Spendlove, in the presence of Mr. Daniel O’Connor, solicitor. According to Mrs. Spendlove prior to meeting Mrs. White a typed form of agreement with blanks had been obtained from Mr. Magwood, solicitor, and Mrs. Spendlove utilised this form, filling in all the blanks except the date of commencement of the term. When, on 20th July, 1936, this agreement was produced for inspection a document typed and purporting to emanate from Mr. Magwood and in fact stamped a few days after its date Mrs. White denied her signature as appearing on the document. Mrs. White then went to Messrs. Charles J. Reddy & Son, solicitors, and raised her defence to the action in the terms I have already mentioned. Having regard to all the previous attempts to arrive at some agreement, all of which had failed, I find it hard to see why Mrs. White did not proceed with her counterclaim when it came on for hearing on 30th March, 1938, if there was any real prospect of success.
After the termination of the first action Mr. Spendlove obtained an ejectment order in the Dublin District Court on 20th July, 1938, and possession of the premises was given up by Mrs. White. Mrs. White then issued the summons in the present action, claiming the repayment of the sum of £702, which had been paid by her as a deposit and on account of purchase money. The special indorsement of claim was by leave of the Court entirely recast, obviously after very careful consideration. This amendment was made in consequence of an application made to the Judge at the trial. As I understand this amended statement of claim, it sought to set up the agreement which Mrs. White alleged in the first action as a concluded agreement subject to certain conditions, not as being a concluded agreement but as merely inchoate, and intended later to be embodied in a formal agreement, and it sought to set up also, perhaps as an alternative ground of claim, that the agreement entered into, if treated as a concluded agreement, contained as an essential term that Spendlove should build a shop at the price of £200. Mrs. White never appreciated the legal subleties surrounding the case, and from beginning to end laid her entire stress upon the one matterthe agreement to build the shop.
Mr. Justice Gavan Duffy, who had heard the first action, allowed the parties to go into evidence in great detail. The case was at hearing before him for four days and extended to 1,377 questions and answers. The learned Judge declined to accept Mrs. White’s evidence as supporting a judgment in her favour. The evidence of Mr. and Mrs. Spendlove was not without defects and inconsistencies, but Mrs. White’s case necessitated a repudiation of her signature to the typed agreement. The learned Judge did not believe that the alleged short agreement in writing deposed to by Mrs. White ever existed at all, nor did he find any ground for holding that the agreement produced by Spendlove was merely inchoate. As to the erection of the shop the learned Judge said in his judgment:”I am not satisfied that the defendant entered into any contract to build the shop for £200, nor, indeed, to build it at all, nor that the payments on account were made conditionally as alleged by the plaintiff.” All these conclusions were findings of fact specially within the province of the trial Judge and ought not in my opinion to be disturbed. So far, indeed, as can be gathered from a reading of the transcript of the evidence these findings were the only sound findings which the evidence as a whole pointed to.
Another point was made in support of the plaintiff’s present case at the hearing of the appeal, viz., that, as the contract for the lease omitted an essential termviz., the date of the commencement of the lease, there was, indeed, no contract at all. If this contention could be substantiated in fact and were open to the plaintiff it would be a serious objection. Mr. Justice Gavan Duffy allowed the plaintiff’s case to proceed as he held that she was not estopped by the dismissal of her counterclaim in the previous action. We are told that the point now under consideration was mentioned before him, but the learned Judge does not deal with it in his judgment. He did allow Mrs. White to proceed with the second action although the counterclaim had not been proceeded with, but the learned Judge must have thought that there was no foundation for this argument. If Mrs. White had proceeded with the counterclaim in the first action what would have been the position? Mrs. White had expressly pleaded that there was a verbal agreement that the lease should commence on 1st July, 1935. Mr. Spendlove had also stated in his claim that the lease should commence on this date. It would not have been possible for Mrs. White to make the point that the date of the commencement of the term had not been agreed upon. Although the contrary view was at first put forward, counsel for Mrs. White at last conceded that in an action for the recovery of money paid the matter of importance was whether there was in fact an oral agreement and not whether there existed evidence in writing within the Statute of Frauds. If the counterclaim had been proceeded with it would have been on the basis as pleaded by Mrs. White that the date for commencement of the term had been agreed between both parties as from 1st July, 1935. If it were open to Mrs. White to proceed with the present action Mrs. White would be bound by her admission that the date had been agreed upon. This was her own pleading of fact in an action between the same parties in respect of the same subject-matter.
I have dealt with the case on these various heads because the points have been argued so fully and I have formed conclusions upon each. But counsel for the defendant raise in this Court, and apparently raised in the Court below, the legal point that, as Mrs. White sued for this same sum of £702 by counterclaim in the first action and allowed the counterclaim to be dismissed, she cannot again sue for the same sum. In support of this legal argument the case of Fox v. The Star Newspaper Company, Ltd. (1)has been cited, and in my opinion it fully supports the contention made. The Earl of Halsbury said at p. 20:”The substance is that when it once comes to Court and when the plaintiff offers no support to his action there must be a verdict for the defendant.” In our long established practice, in my opinion, the dismissal of Mrs. White’s counterclaim is a judgment against her on the matters arising upon the facts pleaded. Since the Judicature Act pleadings are statements of facts and not technical causes of action, the facts now pleaded are the same facts as those relied upon in the former counterclaim. At the hearing before Gavan Duffy J. he urged the parties to come to some arrangement, and this Court took the exceptional course of again urging the parties to compose their differences. Mrs. White’s counsel strenuously urged that Mrs. White has neither house nor money, while, on the contrary, Mr. Spendlove says he built a house for Mrs. White which she refuses to pay for. This Court can only decide the case upon grounds valid at law, and in my opinion this appeal must be dismissed.
MEREDITH J. :
I have often wondered why so many persons who insure themselves habitually against losses of various kinds cannot be prevailed upon to insure themselves against very heavy loss by paying a small sum required to secure the reasonable settlement of an action. Why will they not listen to legal advisers that are obviously thinking more of their client’s interest than of their own? The present case suggests the answer. With such persons the question is not one of ordinary prudence. Where they insure their house against fire they are not compromising any right not to have their house burnt. But the settlement of their case means to them compromising a right of which they are convinced, and the surrender of such a right and pecuniary loss, entailing, perhaps, ruin to themselves and their families, cannot be weighed in the balance; they are incommensurables. You cannot argue with these people about prospects of loss: they do not look at things in that way. They are determined to get the decision of a Court of law, and they are entitled to get it. But it is truly sad to see such courage of conviction coupled with a complete incapacity to take a detached view of their case and an utter blindness to insuperable difficulties. If, however, even with this unpropitious combination against their prospects of success, they do succeed in winning on some unforeseen point upon which the case has been found ultimately to turn, while they may be congratulated on their good fortune, on the mere question of prudence they may have been as foolish as a man who never insured his house, which, as things turned out, was never burnt down. But if they lose they are only to be pitied.
In the present case the whole real dispute from beginning to end has been whether the defendant, a building contractor, had agreed to build a small shop on a certain plot of ground, which was to be leased to the plaintiff, for the sum of £200. Apparently, when the dispute arose, the defendant wanted about £400, and he would, probably, have agreed to settle by agreeing to build the shop for £300a difference of £100, while the costs of the action will certainly run into four figures. In these circumstances, at an early stage of the hearing, the Court for once, on its own initiative, invited the parties to explore the possibilities of a settlement. The suggestion proved fruitless; and so the case proceeded, and the result is at the mercy of the administration of strict law.
The hearing has been, in my opinion unavoidably, protracted. A considerable time was taken up reading evidence, which, at first, seemed quite useless, as the only point of substance appeared to be one of pure law, and the greater part of the evidence was only relevant on the question of whether the agreement of the defendant to take a lease of the plot of ground with a dwelling-house to be erected thereon was conditional on the defendant agreeing to build a shop for the sum mentioned, and the only evidence that categorically supported that contention was the evidence of the plaintiff herself, whom the learned trial Judge held not to be a reliable witness. How, then, could she discharge the onus that lay upon her? But the only categorical denial of the plaintiff’s assertion was that of the defendant, whom the learned trial Judge also held to be an unreliable witness. But, notwithstanding the direct conflict of the only direct evidence on the crucial question and the fact that the evidence on either side was that of unreliable witnesses, the learned trial Judge did not merely find that the plaintiff, under the circumstances mentioned, had failed to discharge the onus of proof. He held most positively against the plaintiff’s assertion and in favour of that of the defendant, and he must have so decided on all the circumstances and the natural probabilities of the case, and until this Court heard the evidence it could not say that it might not arrive at an opposite conclusion. Hence, as there is an appeal on the weight of evidence, I agree with Mr. Ryan’s contention, that it was necessary for this Court to go into the evidence. Besides, some of the evidence that was uncontroverted, dealt with issues of factnotably the total failure of considerationwhich had to be considered, and which was in fact the subject of some argument at the hearing, as defendant’s counsel strenuously argued that there was not a total failure of consideration.
It will be convenient to deal first with a defence that, if it were sound, would dispose of the entire action. It is the defence of res judicata. It is necessary to examine the pleadings somewhat carefully in order to see if the precise cause of action pleaded in these proceedings was litigated in a previous action brought by the present defendant against the plaintiff for specific performance of an alleged agreement, dated 9th February, 1935, “for the sale by the plaintiff to the defendant by way of sub-lease of certain premises formerly known as No. 25, but now known as No. 33 Marine Drive, Sandymount, in the County of Dublin.”
The defendant, the present plaintiff, in her defence denied the said alleged agreement and she made a counterclaim in which she pleaded an agreement of the 12th day of February, 1935, alleged to be in the following terms:”I agree to purchase house at 25 Marine Drive from Thomas Spendlove at £1,050, to pay a deposit of £400 and balance on completion,” which agreement the defendant said was subject to certain conditions, the principal of which was that about building the small shop for £200, and she alleged making payments totalling the sum of £702 “on foot of the said agreement.” The defendant asked for specific performance of this agreement with its conditions, and, in the alternative, she asked for rescission and repayment of the said sum of £702. The plaintiff failed in his action for specific performance and the defendant did not go on with her counterclaim. The order made by Gavan Duffy J. in respect of the counterclaim was in these terms:”And it is ordered and adjudged that the defendant’s counterclaim in this action, same not having been proceeded with, do stand dismissed out of this Court.”Mr. Ryan strenuously contended that this order was in effect a dismiss without prejudice. Having regard to Or. XXVI, r. 1, and the decisions as to the effect of that rule, this was a hopeless contention, as it was not competent for the learned Judge to make an order having that effect, and, consequently, the order must be taken as a judgment against the defendant on the counterclaim and a question of res judicata naturally arises in this action.
The special indorsement of claim in the present action is worded as follows:”The plaintiff claims the sum of £702 as moneys had and received by the defendant to the use of the plaintiff. Alternatively, the plaintiff claims the said sum of £702 as moneys paid to the defendant by the plaintiff on a consideration which failed.” This is followed by full particulars. The defendant in his defence claimed,inter alia, to set off the sum of £360 for use and occupation by the plaintiff of the said premises and, in the alternative, claimed to set off the sum of £360 for mesne rates; the object of this defence was to show that there was not a total failure of consideration. In the previous action no such issue arose and, consequently, no such defence was pleaded. But in this action it is essentially relevant, and it was strenuously argued on behalf of the defendant that the plaintiff’s occupation of the premises for about three years was a complete answer to the plaintiff’s claim that there was a total failure of consideration. The prominence given as well in this as in the former action to the question of whether or not the defendant promised to build the small shop, which is the point on which the plaintiff herself pinned her faith, and which was a most contentious question to which the bulk of the evidence in both actions was directed, has tended entirely to obscure the fact that the point of fundamental importance in this action is the differentiating fact that this poor woman, the plaintiff in the action, has paid the defendant £702 and got absolutely nothing for it. This is peculiarly a matter to be tried on the simple issue of fact raised in the simple special indorsement of claim in this action. All that the plaintiff in her counterclaim in the previous action pleaded was that she had paid £702 on foot of the agreement which she asked to be rescinded. The present defendant would not have completely met that claim by proving that he should be allowed for the £360 which he now claims should be set-off. He would, if he made out his case, have been entitled to a set-off, and he would have had to return the balance. But here anything that shows that there was not a total failure of consideration entirely defeats the claim. What differentiates the present cause of action from any cause of action pleaded in the former action is not some different ground upon which the same cause of action may be supported. It is a different cause of action, as evidenced by the different complex of facts relevant.
As the causes of action in both actions were not the same it is unnecessary for me to read the lengthy paragraph 8 or paragraph 9 in which the question of res judicata is raised. The short statement of the principle, on which my opinion is based, is most concisely stated by Lord Cranworth in Moss v. Anglo-Egyptian Navigation Co. (1). There can be no estoppel by res judicata, unless”everything that was in controversy in the second suit as the foundation for the relief sought was also in controversy in the first.” The word “everything” is important. It is not sufficient that the fact of payment of the £702 and the fact that the £702 was not repaid were facts common to both actions. The real gist of the present action is that the plaintiff has got nothing at all for her £702, and that fact, with its special consequences, was not litigated in the previous action, as the pleadings clearly show. Indeed, the claim in the previous action, which claim was in respect of money paid on foot of an agreement and the claim in this action, whether based on the failure of the defendant to get specific performance or on the failure of the plaintiff to get rescission, and the claim in the present action which depends upon the fact that there was no agreement at all, are claims supported by inconsistent allegations of fact. I may add that I think the law actually goes further than is required in the present case. A mere claim for rent based on the simple reservation of rent in a lease does not bar a subsequent action for the rent under the personal covenant, even where the defendant in both cases is the original lessee. The personal covenant is a differentiating fact: not a mere different legal ground on which the same cause of action may be supported. I do not think it is even clear that an action for rent under a lease, if it fails, bars subsequent action for mesne rates. No doubt, if the plaintiff had recovered the £702 in the previous action that would prevent her from recovering it again in this action; but that is because it would be a double recovery, and, besides, the actual facts would not support the claim in a second action.
It is trite law, which nobody disputes, that since the Judicature Act pleadings are statements of fact and not mere statements of technical causes of action, and if the facts pleaded in this action were the same facts as those relied upon in the former action then the claim in this action would unquestionably be res judicata. There is no difference of opinion whatever on that simple point. But the facts are not necessarily the same just because both in the previous counterclaim and now there is the common allegation that the sum of £702 was paid and is now recoverable. In the previous counterclaim an agreement was alleged and the £702 was claimed wholly and solely on foot of the agreement, and when the learned trial Judge held that there was no agreement the counterclaim was dropped and the whole position had to be reconsidered in its completely altered bearings. There is absolutely nothing to suggest that the learned Judge dismissed the counterclaim because there was a total failure of consideration. That question did not, and could not, arise until there was found to be no agreement. Properly, in my opinion, on questions of estoppel on the ground of res judicata it is not competent for the Court to look beyond the record, but counsel in this case discussed what was said by the Judge, and even gave their impressions as to what was in his mind and what he intended when he made the short order dismissing both action and counterclaim. But even these excursions led to no suggestion that the counterclaim was dismissed because there was a total failure of consideration. I am, therefore, of opinion that the causes of action are quite different because the counter-claim was based on the allegation of an agreement and the present action is based on the non-existence of any agreement and the allegation of a failure of consideration. On this question of allegations of causes of action and allegations of fact I may observe in passing that some allegations are amphibious, that is, they come under the new system as well as under the old. This is because they have a different significance under the two systems. Under the old the allegation was treated as a technical statement of a cause of action; under the present the same allegation is treated as a statement of fact. Hence it is that the allegation in the present action appears in the forms in all the modern works on pleading. The proof of total failure of consideration is then evidence of the use alleged as a fact. In holding that the present action is not barred as res judicata I also rely, without reference to difference in causes of action, on the simple point that an essential fact proved in the present action, namely, the total failure of consideration, was not determined nor determinable on the previous counterclaim. No one has suggested that the use and occupation of the house and the effect of the caretaker’s agreement was considered in connection with the previous counterclaim, and I regard that as decisive on the question of whether a total failure of consideration was an issue determinable on the trial of the previous counterclaim.
I should mention that the case of the defendant based on the alleged agreement, dated the 9th February, 1935, but actually signed on the 12th February, failed because the agreement was incomplete owing to the absence of an essential, namely, the date from which the lease was to commence. As, consequently, there was no valid agreement, the question of the alleged agreement being conditional on an agreement to build the shop for £200 drops out of the case, and it is unnecessary to deal with the plaintiff’s contention on that point. Also it is clear that the plaintiff’s use and occupation of the house under the caretaker’s agreement, which conferred no rights, was not consideration for the payment of the £702.
I think it is only fair to both plaintiff and defendant to point out that the statement of Gavan Duffy J. that both were unreliable witnesses does not imply that they were liars and perjured themselves. No doubt it is somewhat staggering to lawyers to hear a woman who candidly admits that a signature that most certainly was her own must be a forgery. But Mrs. White did not employ her own solicitor but relied on the defendant’s solicitor. She was clear in her own mind as to what was agreed upon, and it would appear that she simply signed the agreement of the 9th February when it was handed to her. There is nothing in the evidence to suggest that it had been explained to her, or read to her, or that she even read it over herself, and, even if she did, I greatly doubt that she would have appreciated the effect of the omission of any reference to the building of the shop. It is often said that some witnesses would swear that black is white and white black;no doubt; but one must not overlook the undeniable fact that some of them really believe it. Where Milton says:”Dark with excess of bright thy skirts appear,” many witnesses would swear and believe that they were dark.
I think it unfortunate that the main point upon which this Court is divided in opinion is one which counsel for the appellant refused to take. Consequently it was left severely alone by counsel for the respondent, and so was not argued at the hearing.
I am of opinion for the reasons I have stated, at too great length, I am afraid, that the appeal should be allowed, and that the plaintiff is entitled to judgment for the £702 claimed.
GEOGHEGAN J. :
On or about the 9th February, 1935, the plaintiff (White) began negotiations with the defendant to acquire by way of sub-lease a plot of ground known as No. 25 Marine Drive with buildings then intended to be erected thereon. It was subsequently decided by the High Court that the parties had not concluded a contract, but as both parties for a time seem to have thought there was a contract for sale and purchase I shall, for short, refer to Spendlove as “the vendor” and to White as “the purchaser.”
About 1932 the vendor began to build houses on a parcel of land at Marine Drive, and by 1935 had completed seven or eight private dwelling-houses. This parcel belonged to the Earl of Pembroke, and it was not until the 1st of January, 1936, that the vendor obtained a lease of it from Lord Pembroke.
Apparently there was some arrangement authorising the vendor to build on the land before he obtained title from Lord Pembroke, but as to the nature of that arrangement nothing appears from the documents in either of the actions between the vendor and the purchaser which have since been tried.
When the vendor and the purchaser first met the vendor had already sold the private houses then built for £1,050 each subject to rents. The purchaser was shown over one of these houses. The purchaser expressed a wish to obtain the building site at the corner of Marine Drive and Seafort Avenue and to have erected on it a private house similar to those already built and a small shop building adjoining at the junction of the two roads.
The purchaser seems to have convinced herself that the vendor and she agreed for the sale by sub-lease of the site with a private house and shop alongside, to be erected by the vendor for £1,250 (subject to certain immaterial adjustments) the price being arrived at by treating £1,050 as in respect of the private house and £200 in respect of the shop. In the course of the long and involved litigation that has since taken place, the purchaser has steadfastly adhered to this account of the arrangement come to, but the learned trial Judge has found that she failed to establish this agreement, and, in effect, it has been found as a fact that the agreement alleged by her was never entered into.
The trial Judge has also found (notwithstanding the denials of the purchaser) that the purchaser signed a memorandum purporting to be an agreement, dated the 9th February, 1935, for the sale by way of sub-lease of”the plot of ground with the house thereon known, or intended to be known, as No. 25 Marine Drive, Sandymount, in the City of Dublin, for a sum of £1,050.” On its face this document contains all material matters to make a binding contract, but, in fact, at the date the vendor’s action was started, the date for the commencement of the term was blank. The date for the commencement of the term was afterwards inserted without the concurrence of the purchaser; I shall refer again to this. The document contained no stipulation or provision relating to a shop. The purchaser thereby agreed “to pay a deposit of £400 upon the signing of this contract and to pay the balance of the said purchase-money on or before the 1st day of July, 1935.”
The purchaser made the following payments to the vendor:
1935
February 9th
£2 0 0
February 12th
£400 0 0
July 29th
£100 0 0
September 9th
£200 0 0
———–
£702 0 0
The dwelling-house was erected prior to the 18th July, 1935, as on that date the vendor put the purchaser into possession of it “solely as . . . caretaker.” There is a caretaker’s agreement in writing, dated 18th July, 1935. The purchaser remained in occupation of the house as caretaker until the 26th July, 1938. During her occupation she installed a central heating system at a cost of over £80. The purchaser has not at any time been in possession or occupation otherwise than as caretaker.
On some date after 9th February, 1935, and before 22nd February, 1936, the vendor sought and obtained the requisite permission of Lord Pembroke to build a shop.
Having regard to the findings of the trial Judge, this permission must have been obtained with a view to the erection of the shop at the expense of the purchaser.
As the purchaser refused to complete unless the vendor built a shop for £200, and as the vendor denied liability to build it, an action was brought on the 1st July, 1936, by the vendor against the purchaser for the specific performance of the alleged agreement, dated 9th February, 1935.
In her statement of defence the purchaser denied the making of the agreement averred by the vendor, and alleged another and different agreement to the effect that the purchase of the house was subject to certain verbal conditions which were conditions precedent to the agreement, the main condition alleged being that the vendor should build a shop at an inclusive cost of £200. The purchaser”repeated her defence by way of counterclaim” and asked for(1) an order directing the vendor to carry out that portion of the agreement to grant to her the said sub-lease with the consent of the head landlord endorsed thereon permitting her to build the said shop; (2) alternatively, rescission of the said agreement and repayment to her of the sum of £702.
This action was tried on the 30th and 31st March, 1938, by Mr. Justice Gavan Duffy, the Judge who afterwards, on the 14th February, 1941, decided the action brought by the purchaser which is the subject of this appeal.
The judgment, dated 31st March, 1938, in the vendor’s action orders that the plaintiff’s claim be dismissed, and that the defendant’s counterclaim, “same not having been proceeded with, do stand dismissed out of this Court.”
There is not available any record of the opinion of the Judge when giving judgment save an entry in the Court Registrar’s book which has been produced. It is to the following effect: “Counsel for the purchaser cites Kerns v.Manning (1) which establishes that lease not showing date of commencement is void. Order XIX, r. 15, is cited by the Judge. Counsel for the vendor replies to the point raised by the citation of Kerns v. Manning (1), and, without hearing witnesses for defence,
Court:’Dismiss action, and, counterclaim not having been proceeded with, dismiss counterclaim’.”
Why this point was made at the trial though not raised in the defence, is not stated.
In his judgment in the present action Mr. Justice Gavan Duffy refers to this entry and regards it as accurately recounting what occurred. Accordingly, I treat the vendor’s action as having been dismissed on the authority of the decision of this Court in Kerns v. Manning (1) because there was no concluded agreement covering all the material matters necessary to make a binding contract.
From this judgment no appeal was taken.
The documents produced in the present action do not include a shorthand writer’s or other note of the evidence in the vendor’s action; in the present action a shorthand note was taken. From the evidence of Mr. Daniel O’Connor one of the solicitors for the vendor it appears (Question 1563) that when the alleged agreement first came into his hands the words “29 Septr.” were not in it; that they were filled in after the commencement of the vendor’s action (Question 1564). When the purchaser was first informed that the document, dated 9th February, 1935, had been altered by this insertion does not appear. I have not observed any suggestion that she was told of it before the trial of the vendor’s action.
The schedule to the order, dated 31st March, 1938, contains the name of Mr. O’Connor as a witness; it may be that he was examined on similar lines at both trials and that at the first trial he proved the addition of the important words.
On the 12th May, 1939, the purchaser brought the present action. The indorsement of claim on the summons is as follows:
“The plaintiff claims the sum of £702 as moneys had and received by the defendant to the use of the plaintiff.
Alternatively, the plaintiff claims the said sum of £702 as moneys paid to the defendant by the plaintiff on a consideration which failed.”
There are appended “Particulars” in the course of which it is stated that the date for the term of the sub-lease was never agreed upon. This is the point on which the vendor’s action was dismissed. The “Particulars” further set out at length the purchaser’s allegation that there was a condition that the vendor should build the shop for £200.
There is a further claim endorsed for £181 19s. 10d. interest on the sum of £702. To avoid any further reference to this claim for interest I need only say that in my opinion no legal ground for this claim in respect of interest has been submitted; it is not sustainable.
The vendor delivered a statement of defence. I shall refer only to so much as is material having regard to the view I take of the rights of the parties.
Paragraphs 6, 7, 8 and 9 are as follows:
“6. In pursuance of the said agreement set out in par. 2 hereof the plaintiff entered into possession of the said house and premises on or about the 18th day of July, 1935, and paid the sum of £702 to the defendant on foot of the said fine. The amount of the said fine was subsequently by agreement between the plaintiff and the defendant adjusted and reduced to the sum of £1,030. The plaintiff continued in occupation of the said premises up to the 26th July, 1938, but refused and neglected to pay the balance of the said sum of £1,030 to the defendant and has refused and neglected to complete the said agreement or execute the said sub-lease. The defendant has always been ready and willing to carry out the said agreement and to grant the said sub-lease to the plaintiff.
7. The defendant denies that the plaintiff is entitled to recover the said sum of £702 or any portion thereof. In the alternative, if the plaintiff is entitled to recover the said sum of £702 or any portion thereof the defendant claims to set off the sum of £360 for use and occupation by the plaintiff of the said premises from the 18th day of July, 1935, to the 26th day of July, 1938. In the further alternative, the defendant claims to set off the sum of £360 for mesne rates.
8. The defendant says that the plaintiff ought not to be admitted to say that the consideration for the payment by her to the defendant of the said sum of £702 failed, or that there was not a completed agreement between the plaintiff and the defendant for the sale by the defendant to the plaintiff by way of sub-lease of the house and premises known as 25 Marine Drive, Sandymount, Dublin, because on the 31st day of March, 1938, before the commencement of this action an action was instituted in the High Court of Justice by the defendant in these proceedings against the plaintiff in these proceedings and entitled Eire,High Court of Justice, 1936, No. 358 P. between Thomas Spendlove, plaintiff, and Ellen White, defendant. The plaintiff as defendant in the said proceedings pleaded in her defence and counterclaimed inter alia that the said sum of £702 had been paid by her on foot of a complete and valid agreement between her and the present defendant for the sale by way of sub-lease of the said house and premises to her and in her said defence and counterclaim she further claimed rescission of the said agreement and repayment to her of the said sum of £702 so paid by her on foot of the said agreement. The present defendant joined issue with the plaintiff on her said defence and counterclaims and the said action on the said issues so joined was duly tried before the Honourable Mr. Justice Gavan Duffy on the 31st of March, 1938, and the counterclaim of the defendant in the said action was dismissed. For greater particularity the defendant refers to the said proceedings to the said action and the said order therein made.
9. The said premises and the said sum of £702 the subject-matter of the said action and of the said order of the 31st March, 1938, are the same premises and the same sum as are the subject-matter of these proceedings.”
Quotation rather than paraphrase of this part of the defence is necessary having regard to the argument for the vendor in this Court.
It is argued that by reason of the dismissal of the counterclaim in the vendor’s action the purchaser is estopped from succeeding in the present action for moneys had by the vendor to her use. In my opinion the purchaser’s claim in this action is on a different cause of action from that in the counterclaim in the former proceedings. I fail to discern that substantial identity sought for when estoppel is relied upon, or, indeed, anything approaching identity.
The requisites necessary to establish the plea of estoppel by record have been considered in many authorities. Those authorities are rather fully discussed in the notes to the Duchess of Kingston’s Case (1), and are conveniently summarised in Everest and Strode’s “Law of Estoppel”at page 75. They include every opportunity to both parties to make out their respective cases and a distinct issue knit between the parties. It has been argued that the dismissal of the counterclaim in the first action involved the decision of the matters in this action. In my opinion that counterclaim would have required amendment to enable the cause of action I am now considering to be litigatedamendment which would have been sought only after the purchaser had discovered that the document sued on was not as it appeared on its face but had a material term added after signing. If the amendment were made it would not end the matter, as presumably the vendor should have an opportunity of making the case now made in the paragraphs of his defence to the present action which I have quoteda line of defence which succeeded before Mr. Justice Gavan Duffy but which is not raised in his pleadings in the first action. It seems to me having regard to the entry in the Registrar’s book, that in the first action the learned trial Judge did not apply his mind, and was not asked to apply his mind, to the merits of the dispute in the present action. I think the real matters in dispute in the present action are those pleaded in paragraphs 6 and 7 of his defencematters which were not raised, debated, or decided in the first action.
The vendor’s counsel have relied on Fox v. The Star Newspaper Co. (1). As I understand that case it established that under the present Rules of Court the old procedure of a judgment of non-suit can no longer be availed of. If procedure by non-suit were available and the purchaser had adopted it in the first action she could litigate again the identical cause of action in her counterclaim in that action. My view is that in the present action she sues on a different cause of action. Of course if it is assumed that her cause of action in both proceedings is the same, the question drops.
It has also been suggested that even in a vendor’s action for specific performance the Court has jurisdiction to order return of part payments of purchase-money if the action fails. I have not been referred to any case where this was done in the absence of an appropriate counterclaim by the purchaser indicating precisely the case he was making for repayment. It is well established that even though a vendor has failed in his claim for specific performance the purchaser may not be entitled to enforce the return of his part payments. In the present case he conceived he had an answer on the ground that there was not total failure of consideration. In my opinion even if the Court had a discretionary jurisdiction to order return of the moneys because the specific performance proceedings failed it was not a case for the exercise of that discretion, having regard to the state of the pleadings and the course of the trial. In my opinion the vendor’s plea of estoppel by record affords no answer to the purchaser’s claim in this action.
The vendor in paragraphs 6 and 7 of his defence pleads that the purchaser had the use and occupation of the house from 18th July, 1935, to 25th July, 1938, and claims a set-off in respect thereof. The purchaser was never in occupation otherwise than as caretaker, and this claim by the vendor appears to me unsustainable.
For this reason I have reached the conclusion that there was not any consideration for the moneys paid by the purchaser, and that, as the plea of estoppel is not good, the vendor holds the sum of £702 to the use of the purchaser, the plaintiff in this action, who should have judgment therefor.
O’BYRNE J. :
This is an action brought to recover the sum of £702 claimed as moneys had and received by the defendant to the use of the plaintiff and, alternatively, as moneys paid by the plaintiff to the defendant on a consideration which has failed. The plaintiff further claims interest on the said sum of £702.
In the particulars contained in the special indorsement in the originating summons it is alleged that in the month of February, 1935, plaintiff entered into negotiations with defendant for the sale by defendant to the plaintiff of a plot of ground with a dwelling-house and a lock-up shop to be built thereon by the defendant; that it was verbally agreed that the price of the dwelling-house should be £1,050 and of the shop £200, and that the plot of ground, with the dwelling-house and shop when erected, should be demised by the defendant to the plaintiff for a term of 150 years subject to the rent of £10 10s. 0d. per annum. It is further alleged that a preliminary agreement was entered into between the parties and that the said sum of £702 was paid by the plaintiff to defendant in pursuance, or on foot of the said negotiations and agreement. The plaintiff further alleges that the preliminary agreement was entered into and the said moneys paid over on the condition (amongst others) that the defendant would erect the said shop for the plaintiff; that the defendant failed to carry out the said agreement to erect a shop and that thereupon the negotiations came to an end.
The defendant filed a defence, to which it is not necessary to refer in detail. He alleges that the said sum of £702 was paid by way of deposit and in part payment of the purchase-money on foot of an agreement in writing,made between the plaintiff and defendant, bearing date the 9th day of February, 1935, and he denies that this agreement was subject to the condition mentioned. He further pleads that the plaintiff is estopped from alleging that the consideration for the said sum of £702 failed, or that there was not a completed agreement between the plaintiff and defendant by judgment of Mr. Justice Gavan Duffy, dated the 31st day of March, 1938, in an action wherein the defendant in this action was plaintiff and the plaintiff in this action was defendant.
The question of estoppel was raised before the learned trial Judge at the commencement of the action and he held that the plaintiff was not estopped. He then heard the action and, on the evidence, found:(1), that the preliminary agreement as alleged by the plaintiff was not entered into; (2), that the agreement in writing alleged by the defendant was entered into and signed by both partiesthough plaintiff denied her signature thereto; and (3), that there was no agreement by the defendant to build a shop on the said plot of ground. He thereupon held that there was not a complete failure of consideration and he dismissed the action.
In support of this appeal Mr. Ryan contends that the findings of the learned trial Judge are against the evidence and the weight of evidence and he submits that the trial Judge should have found that there was, in fact, no agreement in the legal sense between the parties. These contentions and submissions were contested by counsel for the defendant, and the latter also submitted that the learned trial Judge was wrong in law in holding that the plaintiff was not estopped by the judgment in the previous action. I shall deal first with the question of estoppel.
On the 1st day of July, 1936, the defendant in this action, Thomas Spendlove, brought an action in the High Court against Ellen White, the plaintiff in this action, claiming specific performance of the said agreement, bearing date the 9th day of February, 1935. The defendant filed a defence and counterclaim. She denied the making of the said alleged agreement and, amongst other things, she claimed repayment of the said sum of £702. It is admitted by counsel for the appellant that the said sum of £702, claimed in the said counterclaim, is the same sum as is claimed in this action.
The claim and counterclaim in that action were disposed of by judgment of Mr. Justice Gavan Duffy, dated the 31st day of March, 1938, whereby it was ordered and adjudged:(1), that the plaintiff’s claim in the action should stand dismissed out of Court, and (2), that the defendant’s counterclaim in the action, same not having been proceeded with, should stand dismissed out of Court. It is not necessary for me to consider why either the claim or the counterclaim was dismissed. It is sufficient, for the purpose of my decision, that the counterclaim was, in fact, dismissed.
In view of the admitted fact that the claim in this present action and the counterclaim in the action of 1936 are one and the same, it is difficult to see on what ground the alleged estoppel can be contested. Mr. Ryan, however, contends that the question of estoppel is not open on this appeal and that the respondent should not be allowed to rely on it in the absence of some notice on his part that he intended to do so. I must say I have great difficulty in following this argument. It is, at all times, open to a respondent to rely upon any principle of law in favour of the order appealed against. Moreover, in the present case the estoppel was pleaded by the respondent and was the subject of an express ruling by the trial Judge. Our Rules of Court do not call for, or contemplate, the service of any notice by the respondent in such a case. In the circumstances, I am clearly of opinion that the point is open on this appeal.
Mr. Ryan next relies upon the special form of the dismissal of the counterclaim and the use therein of the words “same not having been proceeded with.” He says that the effect is the same as if the counterclaim had been discontinued under Or. XXVI, r. 1, of the Rules of 1905. It is, however, only necessary to refer to the terms of that rule in order to see that, at the stage which the action had reached, the counterclaim could not have been discontinued without leave of the Court or Judge and on such terms as to costs or otherwise as the Court or Judge should consider just. No application for leave to discontinue the counterclaim was made under the said rule, no order was made under the rule, and, accordingly, in my opinion, no reliance can be placed thereon.
He next relies upon the form of the order made by the House of Lords in Moore v. Evans (1). In that case the plaintiffs sued the defendant, one of the underwriters at Lloyds, on foot of a policy of insurance for loss and damage alleged to have been sustained in connection with jewellery sent by the plaintiffs to customers in Germany and Belgium in the months of June and July, 1914. Rowlett J. found in favour of the plaintiffs; but his judgment was set aside by the Court of Appeal and the action dismissed. On appeal to the House of Lords, the appeal was dismissed; but it was ordered by the House of Lords that the judgment entered for the defendant in the action “shall not prejudice any future action by the appellants or be pleaded in bar thereto.” There is nothing in the report of the case to show how or under what authority this special order was made; save that Lord Atkinson, who delivered the principal judgment, says, at the end thereof, “I think that the appellants should even now be given the option of having an order made under Order XXVI, r. 1, that the action be discontinued.” If the action was discontinued, with leave of the Court, under the said rule there would not appear to be any necessity for a special order, as the discontinuance of an action is no bar to a subsequent action in respect of the same subject-matter. In any event that case has no bearing upon this appeal. No such special order was made by Mr. Justice Gavan Duffy in 1938, and the judgment then entered by him is not before us and we have no power to amend or vary same in any respect.
The words “Same not having been proceeded with”seem to me merely to indicate the reason why the counterclaim was dismissed. When the action was dismissed the defendant, for some reason which we do not know, but about which we may conjecture, did not proceed with her counterclaim and called no evidence in support thereof. In the circumstances, I am of opinion, not only that the learned trial Judge was entitled to dismiss the counterclaim, but that this was the only course which he could properly take. In Fox v. The Star Newspaper Co., Ltd. (1)the plaintiff brought an action for damages for libel. The trial took place before Lord Russell of Killowen L.C.J. and a special jury. Plaintiff offered no evidence and claimed to be non-suited. The Lord Chief Justice directed the jury to find for the defendants and judgment was entered accordingly. An application to set aside the verdict and judgment was dismissed by the Court of Appeal, and thereupon the plaintiff appealed to the House of Lords. The House of Lords dismissed his appeal. In giving judgment the Earl of Halsbury L.C. says:
“The sole question on this appeal is whether the old system by which a plaintiff at his own election could lose his writ, as it was said, and at his election bring another action for the same cause is still a system which exists in our law. I am very clearly of opinion that it does not.
Our whole system has been changed, and I think the reason why the word ‘nonsuit’ itself is not now to be found in the rules is that it was determined that the power of a plaintiff at the common law to claim a nonsuit, or the plaintiff in equity to dismiss his bill at his own option, should no longer be permitted, and it is probable that the word ‘discontinuance’ was supposed to apply to both forms of procedure both at common law and in equity. Accordingly by Or. XXVI, r. 1, the only mode by which a plaintiff can submit to defeat is under that Order, unless he allows the proceedings to go on until the verdict is recorded against him.”
For these reasons I am of opinion that the subject-matter of the present action is res judicata and that the plaintiff is estopped from having the matter again litigated.
Having arrived at this conclusion it is unnecessary for me to consider the various other points argued before us or to express any opinion upon them.
I am therefore of opinion that this appeal should be dismissed with costs.