Restraint of Trade II
Cases
Esso Petroleum Co. (Ireland) Ltd. v. Fogarty.
Kenny J. [1965] IR 531
The plaintiffs, who are distributors of petrol and oil, have brought this action against the defendant for an injunction to restrain him from taking deliveries of Golden motor fuel into his garage at Herbert Park, Ballsbridge, Dublin. The defendant is the owner of a motor garage and service station in which he has two tanks and pumps and where he sold Esso petrol only from the 21st April, 1964, until the 28th October, 1965.
On the 21st April, 1964, the defendant entered into a written contract with the plaintiffs by which he agreed “to purchase his total requirements of motor fuels at the service station at [Herbert Park] exclusively” from the plaintiffs for the period of five years from the date of the agreement and he also agreed that he would not sell or offer to sell the garage at Herbert Park or the business carried on there during this period without first giving the plaintiffs the opportunity to introduce a purchaser; the agreement provided that the defendant would use his “best endeavours to ensure that any purchaser, assignee or transferee of the service station or the business will enter into an agreement with you [meaning the plaintiffs] similar hereto.” The defendant was paid £500 for his signature to this agreement.
The plaintiffs seem to have anticipated that the defendant was about to take other motor fuels because on Tuesday, the 26th October, 1965, a representative of the plaintiffs called on the defendant and was informed by the defendant that he intended to observe the agreement which he had made with the plaintiffs. On the 28th October the plaintiffs found out that notices advertising Golden motor fuel had been placed upon the pump which had been used for the sale of Esso Extra motor fuel and on the same day the defendant stated to a representative of the plaintiffs that he had purchased a load of this fuel which had been delivered on the 27th October.
On the 28th October I granted an injunction restraining the defendant from taking or receiving into his garage at Herbert Park deliveries of Golden motor fuel or any motor fuels other than Esso motor fuel purchased and supplied by the plaintiffs; this injunction was to be effective until the 3rd November and on that date the defendant applied for an adjournment of the motion for an interlocutory injunction until the 8th November. On the 8th November the defendant applied for a further adjournment of the motion for an interlocutory injunction until to-day. These dates are important because on the 8th November, 1965, the defendant entered into a written agreement with William Allen to grant to him a sub-lease of part of the premises at Herbert Park which contained the two petrol pumps and tanks for a period of three years at a weekly rent of £35. The agreement for the sub-lease contained a provision that it was to contain a covenant by Mr. Allen that he would not engage in any business on the premises to be sub-leased to him except the sale of petrol, motor fuel and oil. Although the agreement for the sub-lease is dated the 8th November, the map showing the premises to be sub-leased was signed by the defendant on the 10th November.
I have already granted at least four interlocutory injunctions restraining breaches of agreements such as that in this case and my colleague, Mr. Justice Budd, has granted at least one injunction in such a case. He has held (and I respectfully agree with his view) that the plaintiff Company in the case before him would suffer irreparable loss if an interlocutory injunction were not granted.
The principles to be applied by this Court in granting or refusing an interlocutory injunction have been settled by the Supreme Court in Educational Company of Ireland Ltd. v.Fitzpatrick and Others (1). In the course of his judgment in that case Mr. Justice Lavery quoted with approval a passage from Kerr on Injunctions which seems to me to be relevant to this case:”The effect and object of the interlocutory injunction is merely to keep matters in statu quo until the hearing or further order. In interfering by interlocutory injunction, the Court does not in general profess to anticipate the determination of the right, but merely gives it as its opinion that there is a substantial question to be tried, and that till the question is ripe for trial, a case has been made out for the preservation of the property in the meantime in statu quo.”
In this case the status quo is that the defendant is to take all his supplies of motor fuel from the plaintiffs. Counsel for the plaintiffs has undertaken that they are prepared to supply the defendant with all the motor fuels which he requires and it seems to me that I will be preserving the present position by granting an interlocutory injunction. The plaintiffs are relying on the agreement of the 21st April, 1964, and they have a fair question to raise as to the validity of the agreement or, to put it in the way which I prefer, they have a reasonable prospect of success in their action. The issue as to the validity of these “exclusivity”agreements has been discussed in three recent cases in England, Petrofina (Great Britain) Ltd. v. Martin & Another (1), Esso Petroleum Company Limited v. Harpers Garage (Stourport) Ltd. (2) and Regent Oil Limited v. Aldon Motors Ltd. (3).In the Petrofina Case (1), Mr. Justice Buckley held that such an agreement was invalid, while in the Esso Petroleum Company Case (2) Mr. Justice Mocatta declined to follow the decision of Mr. Justice Buckley and held that a restrictive agreement was valid. If two judges of the High Court in England differ on a point, no one can say that a party who relies on the judgment of one of them has not a reasonable prospect of success.
I am also of opinion that irreparable damage will be done to the plaintiffs if the defendant is allowed to sell other motor fuels. The plaintiffs have an agreement by which the defendant has agreed to sell their motor fuel and if they lose this outlet, it seems certain that their sale of motor fuel will be reduced and that a rival company will have secured that its products will be sold by an established dealer.
I think that it is relevant in considering whether an interlocutory injunction should be granted or not to have regard to the conduct of the defendant. The interim injunction was granted on the 28th October, 1965, and the agreement for the sub-lease was entered into on the 8th November after this motion had been adjourned on at least two occasions on the defendant’s application; the agreement of the 8th November seems to me to have been an attempt by the defendant to evade the injunction which had been granted against him.
There has been some discussion (without reference to any authorities) as to whether the defendant and Mr. William Allen will commit a breach of the interlocutory injunction if the sub-lease is granted and if Mr. Allen sells motor fuel which is not being supplied by the plaintiffs. As the matter has been discussed and as there seems to be considerable confusion about the position, I think I should express my views on it now as this may be of assistance to the parties. The matter was decided by the House of Lords in Marengov. Daily Sketch and Sunday Graphic (1) and I respectfully agree with the speech of Lord Uthwatt. The matter discussed in that speech was whether the form in which injunctions had been granted by the Courts for at least one hundred years was correct. It had been the practice when granting an injunction against an individual to grant it against “the defendant his servants and agents.” In the course of his speech Lord Uthwatt, at p. 407, said:”The reference to servants, workmen and agents in the common form has not the result that those persons are enjoined, for, as Lord Eldon L.C. pointed out (7 Ves. 256) in Iverson v. Harris, it was not competent to the Court ‘to hold a man bound by an injunction, who is not a party to the cause for the purpose of the cause.’ The reference to servants, workmen, and agents in the common form is nothing other than of warning against wrongdoing to those persons who may by reason of their situation be thought easily to fall into the error of implicating themselves in a breach of the injunction by the defendant. There its operation, in my opinion, ends. If they knowingly assist the defendant in a breach by him of the injunction, they may be committed for contempt of Court, not because they have broken the injunctionthey have not done sobut because they have so conducted themselves as to obstruct the course of justice in assisting a breach and tried to set process of the Court at naught. In that respect they stand in no different position from a complete stranger who knowingly sets out to assist the defendant in committing a breach . . . In my view, the common form is open to objection, for as a matter of language it suggests that a direct order has been made against servants, workmen and agents. That, as I have said, is not the intention of the order. The substance of the matter is that the defendant is to be enjoined whatever method he may use in committing the prohibited acts.”
I have no doubt that the defendant and Mr. Allen will have committed a contempt of this Court if Mr. Allen sells petrol in the defendant’s garage.
I will accordingly grant an interlocutory injunction until the trial of this action restraining the defendant from taking or receiving into his motor garage deliveries of Golden motor fuels or any motor fuels other than Esso motor fuel purchased from and supplied by the plaintiffs. I will, however, require that the undertaking as to damages be given by a representative of the plaintiffs and also by an official of the plaintiffs in his personal capacity
Supreme Court
O’DALAIGH C.J. :
21 Dec.
The principles of law to be applied by this Court on the hearing of an appeal to set aside an order granting an interlocutory injunction are well summarised in the judgment of Mr. Justice Lavery in the Educational Company of Ireland Ltd. v. Fitzpatrick & Others (1). I refer to two passages: firstly, Mr. Justice Lavery there quoted with approval the following passages from the 6th edition of Kerr on Injunctions, at pp. 15/16:”The office of the Court to interfere being founded on the existence of the legal right, a man who seeks the aid of the Court must be able to show a fair prima faciecase in support of the title which he asserts. He is not required to make out a clear legal title, but he must satisfy the Court that he has a fair question to raise as to the existence of the legal right which he sets up, and that there are substantial grounds for doubting the existence of the alleged legal right, the exercise of which he seeks to prevent. The Court must, before disturbing any man’s legal right, or stripping him of any of the rights with which the law has clothed him, be satisfied that the probability is in favour of his case ultimately failing in the final issue of the suit. The mere existence of a doubt as to the plaintiff’s right to the property, interference with which he seeks to restrain, does not of itself constitute a sufficient ground for refusing an injunction, though it is always a circumstance which calls for the attention of the Court.”
Secondly, as to the considerations which guide the Court, Mr. Justice Lavery quoted with approval the following passage from the article on injunctions in the Hailsham edition of the Laws of England, written by Mr. Justice Eve, at pp. 33 and 34:”. . . in the absence of very special circumstances [the Court] will impose only such restraint as will suffice to stop the mischief and keep things as they are until the hearing.
Where any doubt exists as to the plaintiff’s right, or if his right is not disputed, but its violation is denied, the Court, in determining whether an interlocutory injunction should be granted, takes into consideration the balance of convenience to the parties and the nature of the injury which the defendant, on the one hand, would suffer if the injunction was granted and he should ultimately turn out to be right and that which the plaintiff, on the other hand, might sustain if the injunction was refused and he should ultimately turn out to be right. The burden of proof that the inconvenience which the plaintiff will suffer by the refusal of the injunction is greater than that which the defendant will suffer, if it is granted, lies on the plaintiff.”
Mr. Justice Kenny considers only the terms of the solus agreement. He does not examine the terms of the sub-demise by the defendant to one, Allen, except to advert to the circumstance that it was made after the making of the interim injunction and during the period when the defendant had been granted an adjournment of the plaintiffs’ motion for an interlocutory injunction.
Inter alia, the defendant says that he is under the terms of the solus agreement entitled to sub-demise the part of his premises used for the sale of petrol and that his agreement with Allen is valid.
The plaintiffs in the circumstances existing on the granting of the interlocutory injunction were required to show that in the language of Kerr there are substantial grounds for doubting the existence of the alleged legal right, the exercise of which they seek to prevent. This in my judgment means in effect that the defendant had no power to make the sub-demise to Allen. This is the right which the defendant says the law has clothed him with. The Court before stripping him of this right must be satisfied that the probability is in favour of the defendant’s case ultimately failing in the final issue of this suit.
I am not so satisfied.
If I examine the matter from the reverse sidefrom the point of view of the right asserted by the plaintiffsagain I consider there is a doubt existing as to that right. In such case one is to take into account the balance of convenience to the parties and the nature of the injury which the defendant on the one hand would suffer if the injunction was granted in this instance maintainedand he should ultimately turn out to be right and that which the plaintiffs on the other hand might sustain if the injunction was refusedin this instance dissolvedand they should turn out to be right.
The burden of proof here lies on the plaintiffs.
It seems to me that the defendant’s garage business might well wither away if this injunction is maintained, whereas I cannot see that the plaintiffs will suffer any marked inconvenience or hardship if this laneway garage does not continue to sell their petrol.
I would, for the reasons stated, allow this appeal and discharge the interlocutory injunction.
LAVERY J. :
I agree.
WALSH J. :
This is an appeal by the defendant against an order of Mr. Justice Kenny of the 15th November, 1965, granting an interlocutory injunction to restrain the appellant from receiving into his motor garage and service station known as Herbert Garage or O’Brien’s Garage, situate at Herbert Park, Ballsbridge, in the City of Dublin, deliveries of Golden motor fuel or any motor fuel other than Esso motor fuels purchased from and supplied by the plaintiffs. Proceedings were commenced by a plenary summons, dated the 28th October, 1965, by which the plaintiffs claimed the injunction alleging that there was a breach of an agreement of the type known as a “solus agreement” between the parties, made on the 21st April, 1964. So far no statement of claim has been delivered. On the 28th October, 1965, an interim injunction was granted by the learned Judge, effective until the 3rd November, on which date it was continued until the 8th November and continued again until the 15th November. On the 8th November the appellant entered into an agreement for a sub-lease of portion of his said premises to William Allen. The sub-lease was in respect of that portion of his premises containing the petrol pumps and tanks and was financially advantageous to the appellant. The solus agreement of the 21st April, 1964, contains an undertaking on the part of the appellant not to sell or offer to sell the service station during the period of five years from the date of the agreement without first giving the plaintiffs an opportunity of introducing a purchaser. It also provides that in the event of the appellant ceasing to carry on the business of retailer of motor fuels he would repay a sum of £500 which had been advanced to him by the plaintiffs at the making of the agreement or part of it, depending upon the time of the cessation of the said business.
It is clear from the judgment of the learned Judge that he was not favourably impressed by the making of this agreement for the sub-lease and while Mr. Allen’s name is not referred to in the order the learned trial Judge in his judgment expressly states that if Mr. Allen sets up a petrol business in the sub-demised premises for the purpose of selling any motor fuel other than that of the plaintiffs he will have committed contempt of Court.
The principles upon which interlocutory injunctions are granted are well established and a Court will grant one when a case has been made out for the preservation of the propertyin statu quo pending the trial of the action if it is of opinion that there is a substantial question to be tried.
It is clear that at this stage the real point in this case is not whether the appellant himself may or may not sell any motor fuel other than the plaintiffs’ It appears to be abundantly clear that, so far as he is personally concerned, he is not going to do so in the immediate future although initially and prior to the making of the agreement for the sub-demise he had committed a breach of his agreement. The question now is whether the agreement for the sub-lease is itself a breach of the solus agreement and whether it is a genuine agreement or whether Mr. Allen is in reality only the agent of the appellant.
The solus agreement makes no reference to the possibility of a sub-demise and prima facie a sub-demise does not appear to be a breach of the agreement not to sell or offer to sell the service station.
This is a matter which does not appear to have weighed sufficiently with the learned Judge who, for the purpose of the interlocutory proceedings, appears to have acted on the assumption that a sale of motor fuel by Mr. Allen would be a sale by the appellant. The learned trial Judge was also of opinion that irreparable damage would be done to the plaintiffs if the order was not made. From the financial point of view, it is admitted that the damage, if any, which would be done to the plaintiffs would be negligible. No evidence was given of any other damage and there is no averment of belief of any other such damage.
It appears to me that, having regard to the real nature of the present contest, the plaintiffs have not shown that there is a substantial question to be tried; that is, they have not shown to any substantial degree that the sub-demise would be a breach of the solus agreement. The effect of the interlocutory injunction in these circumstances would not be to preserve the status quo, because the appellant has in reality gone out of the sale of motor fuels, unless it can be established that Mr. Allen is his agent. The only effect of such an order would be to neutralise the appellant and Mr. Allen, rather than to preserve the status quo.
In the circumstances I am of opinion that the order should be discharged. Having regard to the real nature of the case there is no point in making an order which would restrain the appellant but would not affect Mr. Allen. In my view the appeal should be allowed.
Tipperary Co-Operative Creamery Co. v Hanly
Supreme Court of Judicature.
Court of Appeal.
24 June 1912
[1912] 46 I.L.T.R 249
Barry L.C., Holmes, Cherry L.JJ.
Barry, L.C., said it was a notable fact that the rules in question did not possess in any express form a rule providing for conditions under which a member once installed in the society could withdraw his membership of it. No doubt he might cease to be a member on transferring his shares in the society, but to do so the consent of the plaintiffs’ committee was necessary. The omission of any express rule regulating withdrawals was a point apparently of most importance before the King’s Bench Division. While he thought an express rule would be natural and proper, he did not propose to express a definite opinion upon the necessity of the matter, having regard to the view he took on the first question—namely, that regarding the real meaning, effect and validity of Rule 5a. The plaintiffs insisted under that rule that any milk-supplying member of the society was bound to deliver to the society’s creamery, on every working day, all the milk produced from his cows, save alone such milk as might be required for use in his household. For default in so doing a milk-supplying member became liable to a penalty; and the question was whether it was open to the society to enforce that rule. He thought it should generally be accepted that the rule applied to any member of the society who sold the milk of his cows in the ordinary way known to all their experience. Counsel for the defendants maintained that there was no limitation whatever as to the locality of the lands in which the cows might be found. The words themselves primâ facie took effect over the whole country. No member could leave the society except by transferring his shares with the assent of the committee. In that state of affairs the Court had been asked to hold that the rule, as it at present stood, was an unreasonable restraint of trade and void. It was not possible for them to impose bounds upon the scope of that rule. Where the clause in a contract imposing the restraint was not severable from the rest the whole agreement was invalidated: Pickering v. Ilfracombe Railway Co., L. R. 3 C. P. at 250; Baker v. Hedgecock, L. R. 39 Ch. D. 520; Underwood & Son v. Barker, [1899] 1 Ch. D. at 304. There could be, as it appeared to him, no question as to the restraint of trade involved. The public inconvenience was plain. They were dealing with one of their fundamental and natural foods, and the admitted consequence of a large success on the part of the society would be to expose the public generally to obvious difficulty in obtaining a necessary and usual food for all people, and particularly for the young. To suggest that the alternative for them, in many districts, would be that the people should send a messenger a considerable number of miles to the creamery to buy the required milk was at once to demonstrate the great public importance involved in the plaintiffs’ operations. The rule had a scope and operation altogether beyond what was reasonable for the protection of the society, and nothing that came to light could be regarded as any reasonable consideration to the supplying member no matter what the condition of his life might be. The principle as to restraint of trade was very well stated in Russell v. Amalgamated Society of Carpenters and Joiners, [1910] 1 K. B. at 520-521. The present rule could not be vindicated on any of the settled tests. Mr. Brown referred to s. 22 of the Industrial and Provident Societies Act, 1893, stating that the rules of a registered society should bind the society and the members to the same extent as if each member had subscribed his own name and affixed his seal thereto, and there were contained in such rules a covenant on the part of the member to conform thereto, subject to the provisions of the Act. That provision, however, did not give the rules an absolute effect, not more than if the member had made the rules his express act, under *251 his own hand and seal. In the circumstances the rules should “not be repugnant to the general laws of the realm,” just as they should be subject to the provisions of the Act.” The appeal would be dismissed with the usual result of costs.
Holmes, L.J., said a company or society registered under the Act was obliged to provide by rules for certain matters set forth in Schedule II. of the Statute, and the plaintiffs’ rules were seventy in number. He had only read such of them as the Court had been told were relevant to the question for decision, and he regretted to be unable to congratulate the draftsman on his capacity for lucid exposition. He was not sure that the best and simplest way of dealing with that appeal was to hold that the plaintiff company was not entitled to recover on the ground that the rules relating to the question at issue were so obscure as to be unintelligible. He should, however, endeavour to ascertain their meaning; and as the result would be to dismiss the plaintiffs’ civil bill the defendant would not suffer by his making the attempt. It would be observed that the term “milk-supplying member” occurred for the first time in Rule 5a; and it was said that inasmuch as the defendant never either before or after he became a member supplied milk to this creamery he did not come within the provision, whatever be its meaning. He thought for some time that it might relate to a class of members referred to at the end of Rule 5 in he words: “Every person other than a member who has supplied milk to the creamery for one year shall apply for such shares as are required to be held by members, and the committee shall thereupon allot the shares as applied for.” It occurred to him that if the first “shall” in that clause were read “may” it would have the effect of conferring a privilege on the person described therein, and that if this were so it would not be unreasonable if he took advantage of such privilege to subject him to the obligation under which the “milk-supplying member” was placed in the following rule. He still thought that this was most likely what was intended; but he feared that such a construction could only be arrived at by doing too much violence to the language actually used. He had, therefore, considered what the result would be if he were to hold that the meaning was that given to it by the Lord Chief Baron—a member who sells milk to any one—in other words, a dairy farmer. The Second Schedule to the Act set forth amongst matters to be provided for by the rules: “a determination whether and how members may withdraw from the society”; but nothing on this subject was to be found in the plaintiffs’ rules. It had been argued that this want vitiated all the rules; but although the omission was a violation of a requirement of the Act, he could not hold that rules otherwise legal were by reason thereof made void. He agreed with the Lord Chief Baron that the absence of a rule on this subject amounted to a determination that members could not withdraw from the society except by a transfer of their shares, which by Rule 27 could only be made with the consent of the committee. The result, therefore, of a member not being able to withdraw from the society except by transferring his shares with the consent of the committee, taken in connection with Rule 5a, might and probably would be that a milk-supplying member, in the sense in which he was now construing these words, would during his life be obliged, subject to heavy penalties, to sell all the milk produced from his cows (except such as might be required for use in his household) to the creamery at such price as the committee would prescribe. He would not be at liberty to give portion away in charity or to sell at a reduced price to labourers on his farm—although when he became a member he was to be resident in one of the prescribed townlands; there was no provision terminating his membership if he went to reside elsewhere, or confining the obligation to sell his milk to that supplied by cows kept thereon. If he took a dairy farm in Co. Kilkenny in addition to or in substitution for his Tipperary farm he should, if he was to avoid the penalty, deliver at great trouble and expense the milk of the cows on such farm to the Tipperary Co-Operative Creamery. Let him test that result by the legal principle that forbade contracts in unreasonable restraint of trade. From every point of view it was, in his opinion, highly unreasonable. A member whose sole occupation was that of a dairy farmer, and who was unsuited for any other pursuit, was doomed to have but one customer to whom he should sell all his milk at a price over which he had no real control. There was no time limit of that obligation, nor any means by which he could free himself from it by independent action. But the position of members who had milk to sell was only somewhat more unfortunate than that of members of the public in their neighbourhood who desired to buy. It was stated that there were over three hundred members in the creamery, and the committee which managed its business might and probably would arrange to export to England, or to send to a distant city all its butter. How *252 were the surrounding inhabitants who were not cowkeepers, but who required cream and butter for their families, to be supplied? There might be among the members, friends who would be willing to sell to them, and to whom they would be ready to pay a good price; but that could not be done. Surely that was a restraint of trade injurious to the public, and, therefore, illegal. Furthermore, the provision to which the defendant objected was not necessary for the reasonable protection of the society. He could understand that to bring a creamery into working order required a substantial expenditure of money that should be forthcoming from some quarter, and that there would be no objection to a rule that members, in addition to paying the price of their shares, should continue to sell to the society the milk of such cattle as were fed within a specified distance for a limited period. A regulation of that kind would be reasonable, and the same result might be obtained in other ways. An intelligent draftsman would have little difficulty in preparing rules adequate to protect the society without placing unreasonable restrictions and obligations upon the members. But such rules should differ essentially from those which he had been dealing with in the present case. The Court had been asked by counsel for the society how did the contract here differ from a similar contract by a person whose business was to produce a particular article or class of goods entered into with a wholesale distributor. He answered that there was no substantial difference, and that neither contract could be enforced. Let him suppose that in the days of hand looms a weaver, who had no other means of livelihood, had contracted with a merchant in Leeds that he would sell to him the output of his loom during his whole life at a price to be fixed by the merchant, would any lawyer argue that such a contract was legal? It was because the contract arising from Rule 5a was of the same character that he held it void, and that the dismiss of the civil bill with costs given by the County Court Judge should be restored.
Cherry, L.J., concurred.
Skerry, Wynne, and Skerry’s College (Ireland), Ltd. v Moles
High Court of Justice.
Chancery Division.
20 December 1907
[1908] 42 I.L.T.R 46
Barton, J.
On Oct. 12, 1904, the defendant signed an agreement with G. E. Skerry and A. E. Wynne, who were the proprietors of Civil Service Academies at Dublin, Belfast, and Cork, by which he was employed by them as teacher of shorthand, typewriting, and general business training at Skerry’s Civil Service Academy, 143 Royal Avenue, Belfast. It is upon the second clause of this agreement that this case turns. It was as follows:—[His Lordship then read the clause]. The agreement provided for the engagement being terminable upon three months’ notice by either party. On Feb. 22, 1906, the plaintiffs, Skerry and Wynne, gave the defendant three months’ notice to terminate the engagement. Upon April 21, 1906, the defendant left their employment and set up a school for shorthand, typewriting, and general business training in Belfast. On June 11, 1906, Skerry and Wynne assigned their business and goodwill, with the benefit of and right to sue upon all their pending contracts in connection with the business, to the plaintiff company, Skerry’s College (Ireland), Limited, which had been incorporated for that purpose on April 12, 1906. The present action is brought by Skerry and Wynne, and by the company, to restrain the breach by the defendant of the restrictive clause in the agreement of Oct. 12, 1904. The defendant, in answer, has set up four defences. Firstly he alleges that when he signed the agreement it was represented to him by an agent of the plaintiffs, Skerry and Wynne, that the restrictive clause was a mere matter of form, which would not be enforced against him. But upon the facts I hardly think that this defence is seriously pressed. Secondly, comes the main defence, so far as the merits of the case are concerned— namely, the plea of a substituted agreement. [His Lordship then referred to the evidence, and went on to say]. Accordingly I infer from the evidence that there was no agreement substituted for that of Oct. 12, 1904, and that the latter agreement remained binding upon the defendant until the termination of his employment. In the next place I approach the question whether this restrictive clause was void for unreasonableness, or in other words, whether the restraint was in excess of what was necessary for the covenantee’s protection. The contract of employment was limited to Skerry’s Academy in Belfast, but the restrictive clause extended also to Dublin and Cork. I have no difficulty in saying that the clause was unreasonable qua Dublin and Cork, but reasonable qua Belfast, and that it is a case in which the reasonable part is severable from the unreasonable part. It was suggested that because a course of instruction in these special subjects would only occupy from twelve to eighteen months three years would be an unreasonable limit of time. But the withdrawal of pupils is not the only mischief against which such a clause is directed. In the Lowestoft College Case (Smith v. Hawthorne), vide sup., ten years was the period. There remains the question whether the benefit of this covenant was assignable or not. After giving careful consideration to Mr. Moles’ very able argument on this branch of the case, and to the authorities which he cited, I have come to the conclusion that the benefit of this restrictive covenant was assignable, and was validly assigned. It seems to have been well settled for the last quarter of a century that the benefit of a restrictive covenant of this kind may pass to the assigns of the goodwill of a business even where assigns are not mentioned in the covenant, and even where “goodwill” is not *47 mentioned in the assignment: Jacoby v. Whitmore, vide sup; Showell v. Winkup, [1889] 60 L. T. N. S. 389; Batho v. Tunks, [1892] W. N. 101; Smith v. Hawthorne, vide sup.; Townsend v. Jarman, [1900] 2 Ch. 698; Welstead v. Hadley, [1904] 21 T. L. R. 165. The defendant endeavoured to distinguish the covenant in this present case by ascribing to it a personal character which would render it non-assignable. He contended that in this agreement the names of the covenantees are used for the purpose of identifying limits of time and space in such a way as to lead to the inference that the agreement was intended only for the protection of Skerry and Wynne personally, and not for the protection of the goodwill of the business. But I cannot accede to this argument. The defendant relied on Davies v. Davies, vide sup. [His Lordship then referred to the following passage of Bowen, L.J.’s judgment, p. 394:—“It is a covenant that seems to me to be personal to Edward Davies … then it cannot be assigned,” and went on to say.] That passage concisely sums up the law as to the assignability of the benefits of covenants of this kind. In the present case we have a covenant not to carry on a business in a particular town. Such a covenant is excluded from the operation of authorities such as Davies v. Davies, vide sup. In my opinion the benefit of this restrictive agreement, in so far as it was a reasonable one, passed to the company with the goodwill of Skerry and Wynne’s business. There may be some doubt whether the agreement “not to teach within seven miles from the academy or place of business of the said G. E. Skerry and A. E. Wynne in any of the said cities” can be enforced by injunction as they have ceased as individuals to have any academy or place of business in any of these cities. But I think that the injunction can and ought to be granted so far as the City of Belfast is concerned.
Coleborne v Kearns
Supreme Court of Judicature.
Court of Appeal.
8 May 1912
[1912] 46 I.L.T.R 305
Barry L.C., Holmes, Cherry L.JJ.
Barry, L.C.
An important question under *305 the Statute of Frauds has been raised, but I do not think it is necessary for this Court to decide that point. In a case like this, where we have a perfectly intelligible and unmistakeable agreement, I think it would be undesirable that the Court should be too astute in dealing with points under the Statute of Frauds. We are prepared to deal with the case on the true construction of the agreement. I do not think that in the ordinary acceptation of the term “leave” connotes dismissal from employment. I think the word connotes the voluntary act of leaving. If a servant said he had left his employment it would never occur to anybody that he had been dismissed. I sympathise with the view of the employer very much, but while we must take that into account, we must also take into account the view of the other contracting party; and here we are dealing with an agreement which imposes a great restraint upon his liberty, and we are all of opinion that it cannot be enforced against him unless it can be shown most clearly that he understood the character of the memorandum when he signed it. We have pointed out in the course of the argument that the result of the construction contended for by the respondent would be that the four men who signed the agreement would be subject to dismissal the next week or month by the plaintiff without any redress whatever, and for a cause of which they may be perfectly innocent. Thereupon they would be obliged to quit their homes and abstain for seven years from entering into a similar business within fifteen miles of Dunlavin. If the agreement meant that, we should give effect to it apart from the Statute of Frauds. I feel certain, however, that none of these four men understood that he was submitting himself to such an obligation. I think they must have understood “leave” to mean leaving voluntarily. The subsequent word “ceasing” does not carry the respondent one step further. The important part is the earlier part, “should we or any of us leave,” and the reference later to “the time of ceasing” meant “ceasing” to be in the employment by reason of having left the service. It is only common justice to employees that if such agreements are to be enforceable they ought to specify with a definiteness beyond all doubt all the conditions imposed upon the men undertaking these obligations. I do not think that the event which has happened throws any obligation upon the defendant, because he did not leave, but was dismissed, and dismissed because he closed the premises five minutes before eight o’clock on a particular evening. I think, therefore, that the order of the Master of the Rolls should be reversed, and that the whole action should be dismissed with costs.
Holmes, L.J.
I offer no opinion on the points raised as to non-compliance with the Statute of Frauds. There are two points against the respondent: one is, that there was no consideration; at the time the agreement was signed the defendant had been in the employment of the plaintiff for a considerable period, and I do not see anything in the agreement about further consideration. Therefore the consideration was past. The second point is that the word “leave” as used in the agreement, taken in the ordinary and natural sense applied to it, means a voluntary leaving. Here it was not a voluntary leaving, because the man was discharged, by the employer, and under those circumstances there was no breach of the agreement.
Cherry, L.J., concurred.
Marlan Homes Ltd -v- Walsh & Anor
[2009] IEHC 576
JUDGMENT of Mr. Justice Frank Clarke delivered on the 21st of December, 2009
1. Introduction
1.1 These proceedings involve a dispute between the parties concerning an agreement which, in substance, contemplated the ultimate sale of lands at Kilmore Road, in Dublin City. The plaintiff (“Marlan”) originally sought, in these proceedings, an order for specific performance of an agreement of the 23rd November, 2006, made between Marlan and the defendants (“Mr. Walsh and Mr. Wedick”) in respect of those lands at Kilmore Road or other relief arising out of what is said to be a breach by Mr. Walsh and Mr. Wedick of that agreement. Marlan is an Irish registered limited liability company involved in construction with two directors being Mark and Alan Quinn, who are brothers. Mr. Walsh and Mr. Wedick are the registered owners of part of the lands the subject of the disputed agreement. The other part of the lands is owned by Dublin City Council (“DCC”) but is the subject of an agreement in relation to a long lease entered into between DCC and Mr. Walsh and Mr. Wedick.
1.2 These proceedings have already been the subject of a decision of this Court in relation to aspects of the interpretation of the relevant agreement between the parties, see Marlan Ltd v. Walsh & Anor [2009] IEHC 135 (“the first judgment”). While the two key agreements governing the relations between the parties and, indeed, DCC are explored in some detail in the first judgment it is appropriate to revisit those agreements briefly. However, before so doing it is appropriate to turn to the issues which now arise.
2. Issues to be Decided
2.1 In a statement of issues, dated 12th May, 2009, the five agreed issues for determination are set out as follows:-
a) Is Marlan entitled to specific performance of the November Agreement?
b) Is Marlan entitled to damages or restitution for non-performance of the November Agreement?
c) Did Marlan interpose itself into the negotiations with DCC to such an extent as to prejudice the obtaining of consent?
d) Is Marlan disentitled to specific performance, damages or restitution by virtue of the direct contracts with DCC, as asserted by the defendants?
e) Is Marlan guilty of contributory negligence by virtue of the direct contacts with DCC asserted by the defendants?
2.2 As can be seen, the first two issues concern the appropriate remedy to which Marlan might be entitled in the event that there has been a failure on the part of Mr. Walsh and Mr. Wedick to comply with their contractual obligations. However, the other three issues are concerned with the extent to which there has been a breach by Mr. Walsh and Mr. Wedick of those obligations. It is logical that those later issues should be considered first, for if there is no breach on the part of Mr. Walsh and Mr. Wedick of their legal obligations, then the question of remedy does not arise.
2.3 It is also necessary to note that, as the case developed at the hearing before me, it became clear that there were, in substance, two real sets of issues between the parties concerning the question as to whether there had been any breach by Mr. Walsh and Mr. Wedick of their obligations. The first set of questions concerned the precise obligations which Mr. Walsh and Mr. Wedick were under in relation to assistance in the provision of security in favour of a lender to Marlan over the DCC lands. That issue was a mixed question of the proper construction of the agreement between the parties but also was, at least on one view, potentially influenced by the facts concerning when and how request was made of Mr. Walsh and Mr. Wedick to provide such assistance in relation to security. The second set of issues which arose under that heading are those which are identified at subparas. (c) to (e) above. In substance, the suggestion made on behalf of Mr. Walsh and Mr. Wedick under those headings is that any failure to procure the provision of adequate security was caused or contributed to by actions taken on behalf of Marlan. It will be necessary to explore the facts which underlie both of those issues in due course. It should also be noted that the case as made by Marlan at the hearing before me concentrated on a claim for rescission on the basis that Mr. Walsh and Mr. Wedick could not, it was said, now comply with their obligations under the relevant agreement. In the event that Marlan succeeded, but that I was satisfied that damages rather than rescission was appropriate, it was agreed that any assessment of such damages be deferred. I first turn to the relevant agreements.
3. The Agreements
The November Agreement
3.1 On 23rd November, 2006, Marlan entered into a contract with Mr. Walsh and Mr. Wedick (the “November Agreement”) whereby Mr. Walsh and Mr. Wedick agreed, amongst other things, to provide access for the purposes of carrying out development work on three parcels of land, which are comprised in Dublin folios 929, 35060F and 4021.
3.2 The November Agreement also provided that construction in accordance with a planning permission, which had already been obtained and which is specified in the agreement, was to be carried out by Marlan. The agreement further provided that Mr. Walsh and Mr. Wedick would ultimately convey title to the lands either to Marlan or to such purchasers of the residential units intended to be constructed on the lands as might be nominated by Marlan. As pointed out in the first judgment, the advantage of structuring arrangements between parties in such a fashion is that there is a saving of stamp duty. In relation to the November Agreement, it would appear that Marlan was saving in excess of €400,000 in stamp duty. At all material times Mr. Walsh and Mr. Wedick were the registered owners of the land contained in folios 929 and 35060F (the “defendants’ lands”). No issue arises over those lands. The third folio, 40261, was owned by DCC (“the DCC lands”). The November Agreement granted Marlan an exclusive building license to enter on the defendants’ lands and the DCC lands (together the “subject lands”) for the purposes of carrying out the relevant development. The total consideration for the November Agreement was a sum of €4,925,000, which Marlan fully discharged. In practical commercial terms, even though not in legal form, the subject lands were sold to Marlan. It should also be noted that funding for the payment by Marlan was assisted by a loan in the amount of €3,859,000 from Mr. Sean Quinn, the father of the directors of Marlan.
3.3 The November Agreement provided that the subject lands were to be developed in accordance with a planning permission for the development of the lands issued on 14th September, 2005, on foot of an application for such permission submitted by Mr. Walsh and Mr. Wedick. The application for planning permission involved a proposed development comprising of 48 units and a car park, including an allocation of social and affordable housing.
3.4 At the time of the November Agreement, Mr. Walsh and Mr. Wedick had no actual interest in or binding agreement in respect of the DCC lands. However, Mr. Walsh and Mr. Wedick were at an advanced stage of finalising an agreement in respect of the DCC lands with DCC. The form of that agreement had been finalised. The November Agreement makes reference to the agreement between Mr. Walsh and Mr. Wedick, on the one hand, and DCC, on the other hand, even though, as events turned out, the November Agreement was executed at a time when the agreement between Mr. Walsh and Mr. Wedick, on the one hand, and DCC, on the other hand, was not yet in place. That later agreement was executed in December, 2006.
The December Agreement
3.5 The agreement between Mr. Walsh and Mr. Wedick and DCC was executed on 20th December, 2006 (“the December Agreement”) and provided that Mr. Walsh and Mr. Wedick were to develop on the subject lands in accordance with the planning permission granted on 14th September, 2005. The December Agreement entitled Mr. Walsh and Mr. Wedick to receive a lease for 999 years, subject to the payment of an annual rent of €50 per annum, once the relevant development had been completed to “wall-plate level” and finished to a standard reasonably acceptable to DCC and after the payment of the balance due on foot of the December Agreement.
3.6 The December Agreement further provided that same would not be transferable save in the case of a financial institution which had entered into a mortgage with Mr. Walsh and Mr. Wedick, as proposed lessees, for the purpose of financing the development. The December Agreement required the completion by Mr. Walsh and Mr. Wedick of the development within a stated period, that is, within eight weeks of issue of a full grant of planning permission Mr. Walsh and Mr. Wedick would have the right to enter on the site and remain there for a period of 18 months for the purposes of constructing the development.
3.7 It is next necessary to turn to the question of interpretation already determined in the first judgment.
4. Interpretation of the Agreements
4.1 During the hearing of the preliminary issues which gave rise to the first judgment, this Court was, in summary, asked to determine the following questions:-
a) Whether Mr. Walsh and Mr. Wedick are required to compel DCC to consent to a mortgage in respect of the DCC lands?
b) Whether Mr. Walsh and Mr. Wedick were required to execute a further limited recourse mortgage in respect of the defendants’ lands?
4.2 In the first judgment I held that Mr. Walsh and Mr. Wedick were required to procure the consent of DCC to a mortgage in respect of the interest of Mr. Walsh and Mr. Wedick in the DCC lands and that they were required to execute a further limited recourse mortgage notwithstanding the fact that Mr. Walsh and Mr. Wedick had already executed one such a mortgage in favour of AIB plc (“AIB”) in respect of the defendants’ lands. In reaching this conclusion I had particular regard to clause 6(c) of the November Agreement and Clause 14 of the December Agreement.
4.3 Clause 6(c ) of the November Agreement provided as follows:-
“The licensor shall at the request of the licensee execute a Mortgage/Charge limited in recourse to the subject lands in a form which is acceptable to the licensor in favour of any bank or lending institution providing loan facilities to the licensee to enable the licensee to fund the works on the subject lands or any part thereof and the payment of the sums covenant to be paid by the licensee to the several parties under this agreement.”
4.4 Clause 6(c ) must be read in light of clause 14 of the December Agreement which stated as follows:-
“The Agreement is an Agreement for Lease and shall not operate as a Lease and shall not be transferable save in the case of a Financial Institution which has entered into a Mortgage with the Proposed Lessee, details of which Mortgage will be provided to the Council in writing and must have been entered into specifically for the purposes of financing the Proposed Lessee to enable it to undertake the Approved Development on the Site the subject matter of this Agreement.”
4.5 In the first judgment, and for the reasons stated in it, I held that clause 6(c), read in light of clause 14, obliged Mr. Walsh and Mr. Wedick to enable their interest in DCC’s lands (being their entitlement to enter on the lands for building purposes and to receive a lease subject to the terms of that agreement) to be the subject of security in favour of Marlan’s lenders. As such clause 6(c) can only relate to a mortgage/charge over the interest that Mr. Walsh and Mr. Wedick enjoyed in DCC’s lands at the time of entering into the November Agreement (or, more accurately, were contemplated as being about to have once what became the December Agreement was executed). However, no such non recourse mortgage/charge in favour of a financial institution designed to allow Marlan to obtain the necessary finance in order to advance the development has, in fact, been entered into.
4.6 As set out above the November Agreement refers to three different properties, Mr. Walsh and Mr. Wedick being the owners of two properties and the third property being owned by DCC. In effect Marlan was granted a license to complete the development. In order to finance that development Marlan would require to borrow money and to that end would need to provide security. I have previously held, at para. 7.4 of the first judgment, that:-
“the defendants are obliged to make available mortgage facilities in the ordinary sense over the lands in respect of which they are the registered freehold owners (presumably a registered charge if necessary), but are also obliged to enable their interest in the Dublin City Council lands (being their entitlement to receive a lease subject to the terms of that agreement) to be the subject of security in favour of Marlan’s lenders.”
4.7 In the light of that interpretation it is necessary to turn to the facts.
5. The Facts
5.1 There can be little doubt but that progress in getting started with the development contemplated by both the November Agreement and the December Agreement was slow. It will be recalled that both the November Agreement and the December Agreement provided for a completion of the construction contemplated by the planning permission within a relatively short period of time. It should be noted, in that context, that there are some slight differences between the time for completion contemplated by, respectively, the November Agreement and the December Agreement. It will be necessary to return to that question in due course. However, the first matter that seems to have given rise to delay was the obtaining of a Fire Safety Certificate which was necessary in order that work should commence.
5.2 An application for a fire safety certificate had been lodged by John Hodgins, architect on 27th October, 2006. The fire department were dissatisfied with the plan drawings attached to the application and requested that the drawing be amended to meet their requirements. On 1st March 2007, Marlan’s amended application for a fire safety certificate was refused. Marlan suggested, correctly so far as it goes, that it was not possible to start development without the relevant Fire Safety Certificate. As a result of the initial refusal of the relevant certificate some minor alternation of the layout of the development was required. According to Marlan, difficulties in obtaining funding meant that a further application for the fire safety certificate was not lodged until August 2007. The Fire Officer’s approval was eventually received on 6th November 2007, which was in excess of eleven months from the execution of the November Agreement.
5.3 On 31st July, 2007, Marlan’s architect submitted a revised planning application to DCC in respect of the subject lands. That revised planning permission proposed changes to the external finishes to the apartment blocks. While Marlan had entered into some correspondence with DCC’s planning department concerning a more wide ranging revised application, same was never pursued.
5.4 In the meantime efforts to obtain finance for the development continued. Marlan applied to AIB for a facility in order to fund the payment of VAT on the November Agreement. To that end, in January, 2007, Mr. Walsh and Mr. Wedick, at the request of Marlan’s solicitors, executed a limited recourse mortgage in respect of the defendants’ lands in favour of AIB. However, as pointed out, the relevant facility was simply one sufficient to ensure the payment of VAT on the November Agreement. Difficulties emerged when Marlan sought further finance from AIB for the purposes of funding the development itself. Negotiations between the parties and AIB continued until July 2007. It proved impossible to agree terms sufficient to satisfy AIB as to the security being offered (AIB wanted an indemnity from Mr. Walsh and Mr. Wedick which they were unwilling give) and in the end, Marlan decided to look elsewhere.
5.5 In that context Marlan approached Bank of Scotland (Ireland) Limited (“BOSI”) in relation to funding. The requirements of BOSI included a non recourse guarantee from Mr. Walsh and Mr. Wedick and an indemnity in relation to the security for the proposed BOSI loan. The requirement of an indemnity again proved to be unacceptable to Mr. Walsh and Mr. Wedick. However, it was possible to negotiate a fresh loan approval from BOSI which issued on 22nd November, 2007, for the sum of €1,400,000. This loan was offered on the basis of Mr. Walsh and Mr. Wedick granting a third party non recourse mortgage as security. In a letter of 30th November, 2007, solicitors for Mr. Walsh and Mr. Wedick raised the question as to whether the relevant mortgage was to be granted over the defendants’ lands alone, or also over what was described as the lease of the DCC’s lands provided for in the December Agreement. On 11th December, 2007, an issue arose as to the interest that Mr. Walsh and Mr. Wedick had in DCC’s lands.
5.6 Marlan’s solicitors wrote to the solicitors for Mr. Walsh and Mr. Wedick on 7th December, 2007, notifying them of BOSI’s requirement for DCC to consent to the mortgage over DCC’s lands. This was the first time that Mr. Walsh and Mr. Wedick were called on by Marlan to obtain the consent of DCC. The form of consent to be signed was furnished to the solicitor for Mr. Walsh and Mr. Wedick on 20th December, 2007. On 11th December, 2007, the solicitors for Mr. Walsh and Mr. Wedick wrote to Marlan’s solicitors notifying them that their clients were only in a position to offer their interests under the December Agreement, being an agreement for a lease, and not their interest under a lease as it has not yet been granted. On 17th December 2007, Solicitors for BOSI notified the solicitors for Marlan that they would require the assignment of the December Agreement to Marlan and the consent of DCC to same. The solicitors for Mr. Walsh and Mr. Wedick were notified of this requirement on 18th December, 2007, by Marlan’s solicitors. On 2nd January, 2008, solicitors for Mr. Walsh and Mr. Wedick wrote to DCC’s solicitors seeking the required consent.
5.7 A letter from DCC’s solicitors dated 7th January, 2008, in response to the request for consent, indicated that they required a copy of the relevant Fire Safety Certificate and a commencement notice before obtaining DCC’s instructions in relation to the granting of the consent. A commencement notice had, in fact, been issued by Marlan in late 2007.
5.8 Along with the difficulties of obtaining consent from DCC was the increasingly precarious position of the status of the December Agreement because of the time limits of that agreement itself, which required, at condition 6 thereof, that the construction program be commenced within three months of the date of entry on the subject lands and that same had to complete within 18 months of the date of entry on the subject lands. Under condition 2 of the December Agreement, Mr. Walsh and Mr. Wedick had the right to enter onto the subject lands within 8 weeks of the issue of the full grant of planning permission. Planning permission had, of course, already issued on 14th September, 2005. The November Agreement describes the licence period as being the period of 18 months commencing on the date thereof, i.e. 23rd November 2006. This period then expired on 22nd May 2008. The November Agreement further provided at condition 7 (c) (ii) that Marlan, as the licensee, would adhere to the obligations of Mr. Walsh and Mr. Wedick, as set out in the December Agreement, including the constructions time frame as set out at condition 6 of the December Agreement. A letter was sent from the solicitors for Mr. Walsh and Mr. Wedick to Marlan’s solicitors on 6th February, 2008, which stated that Marlan was in danger of breaching the terms of the November Agreement by virtue of not having commenced the development at that point in time.
5.9 A letter of 13th February, 2008, from Marlan’s solicitors to solicitors for Mr. Walsh and Mr.Wedick sets out that Marlan delivered a commencement notice to DCC on 12th February, 2008. The inter party correspondence from this time period displays a level of desperation and frustration on the part of Marlan in obtaining the consent of DCC in order to facilitate funding for their development of the subject lands. On 9th July, 2008, Marlan’s solicitors again wrote to the solicitors for Mr. Walsh and Mr. Wedick stating that BOSI refused to sanction drawdown of the loan without the consent of DCC to the assignment of the December Agreement.
5.10 On 16th July, 2008, the solicitors for Mr. Walsh and Mr. Wedick wrote to DCC’s solicitors questioning the delay with the issuing of the consent.
5.11 It is clear that no such consent was, ultimately, forthcoming from DCC. It follows that the conditions which BOSI imposed in order that construction finance be provided were never complied with. It will be necessary to turn, in due course, to what flows from that fact. However, before leaving the facts it is also necessary to deal with contacts which occurred at two points in time, directly between Marlan or its representatives and DCC. It is contended on behalf of Mr. Walsh and Mr. Wedick that those contacts (or at least one of them) may have contributed to, or indeed caused, the difficulties which were encountered with DCC in obtaining the relevant consent.
5.12 Mr. Walsh and Mr. Wedick in particular object to the dealings between Mr. Sean Quinn and DCC, which they refer to as “inter-meddling”. Mr. Sean Quinn is the father of the directors of Marlan but is not an officer or member of Marlan. Mr Sean Quinn gave evidence that he was contacted by Mr.Wedick in July, 2007 requesting that he, in turn, contact DCC for the purposes of explaining to DCC the reason why work had not commenced. It is clear that, at that time, DCC were becoming concerned about the significant delay in commencing works. At the same time the difficulties in relation to the Fire Safety Certificate required to commence work had not been resolved. It is common case that Mr. Wedick contacted Mr. Sean Quinn. On Mr. Wedick’s case the purpose of his contact was to tell Mr. Quinn about the pressure being exerted by DCC arising out of the delay in commencement of the development works. Mr. Wedick denies that he asked Mr. Sean Quinn to contact DCC directly. That is an issue to which it will be necessary to return in due course. Mr. Sean Quinn further gave evidence that the DCC representative with whom he spoke stated that he would contact his principal to recommend that the December Agreement be rescinded.
5.13 In a letter of 20th July, 2007, DCC’s solicitors advised the solicitors for Mr. Walsh and Mr. Wedick that the December Agreement was not assignable and alleged that Mr. Walsh and Mr. Wedick were in breach of the December Agreement by not having commenced work on the development at that point.
5.14 From a letter of 23rd July, 2007, from DCC’s solicitors to the solicitors for Mr. Walsh and Mr. Wedick, it appears that DCC were under the impression the Marlan was intended to enter the subject lands merely as contractors. In a letter of 25th February, 2008, to the solicitors for Mr. Walsh and Mr. Wedick, Marlan’s solicitors set out that DCC did not recognise Marlan as a party in the transaction. Solicitors for Marlan directly emailed DCC on 5th March, 2008, in an effort, it seems, to ameliorate the impasse the parties had reached over the consent issue.
5.15 During this time, Marlan’s solicitors wrote a number of letters to DCC and DCC’s solicitors in relation to this issue. A letter from DCC’ solicitors to the solicitors for Mr. Walsh and Mr. Wedick of 18th July, 2008, sets out that DCC had knowledge, at that time, that Marlan were not merely contractors engaged by Mr. Walsh and Mr. Wedick to develop the subject lands.
5.16 In a subsequent letter of 6th August, 2008, to the solicitors for Mr. Walsh and Mr. Wedick, DCC’s solicitors set out that DCC was reluctant to permit an entity with which it had no contractual or other connection to enter onto its lands for a purpose over which DCC had no control. Against that factual background it is next appropriate to turn to the position of the parties.
5.17 Finally, it should be noted that, in October, 2007 Marlan had discussions concerning the possibility of granting a right of way over the defendants and the DCC lands to a another property development company, N1 Property Development Limited, to allow access to a building called Woodville House, located behind the DCC Lands. In that context the defendants’ lands and the DCC lands were also referred to in an application for planning permission by N1 Property Development Limited in relation to the renovation of the Northside Shopping Centre, North Dublin. This appears to have been arranged through Marlan’s solicitors at the time, Callan & Company and set out in a letter dated 4th October, 2007. The proposed right of way appears to have been subject to a contribution from N1 Property Development Limited for a roadway on the lands. According to Mr. Walsh and Mr. Wedcik, they were unaware of this agreement with N1 Property Development Limited and claim that it undermines the obligations of Marlan set out in the November Agreement.
6. Marlan’s Submissions
6.1 Marlan’s primary claim lies in what is said to be the failure of Mr. Walsh and Mr. Wedick to obtain the consent of DCC to the creation of a suitable security over their interests in the December Agreement. Marlan claims that, because of this failure, the economic downturn and the timing requirements of the December Agreement, Marlan has been deprived of the substantial benefit of the November Agreement. Marlan further asserts that it has suffered ongoing loss by virtue of failing prices within the Irish property market. Marlan claims that because of the failure to finance the development (which, it says, is due to the failure on the part of Mr. Walsh and Mr. Wedick to procure a proper security over their interest in the December Agreement), Marlan is in possession of a wasting asset and seeks rescission of the November Agreement.
6.2 Marlan submits that it is clear from the first judgment that Mr. Walsh and Mr. Wedick were obliged to obtain the consent of DCC to the creation of a security over the interest of Mr. Walsh and Mr. Wedick in the December Agreement. It is argued that it is clear that that consent was not forthcoming. Therefore, it is argued that Mr. Walsh and Mr. Wedick have failed to comply with their obligations under the November Agreement. In the light of the fact that development in accordance with the terms of either the November or the December Agreement is not longer, it is said, possible it is argued that the substance of the benefit to be obtained by Marlan under the November Agreement is no longer possible. In those circumstances it is said that Marlan is entitled to recission of the November Agreement.
6.3 Marlan rejects the claims of Mr. Walsh and Mr. Wedick that any intermeddling on their part substantially contributed to the defendants’ non performance of their obligations.
7. The Defendants’ Submissions
7.1 Mr. Walsh and Mr. Wedick argue that Marlan interposed itself on the dealings between the defendants and DCC in such a way as to cause prejudice. To that end Mr. Walsh and Mr. Wedick point to clause 10 of the November Agreement which provides that Marlan was not entitled, without the consent of Mr. Walsh and Mr. Wedick, to apply for alternative planning permission. Mr. Walsh and Mr. Wedick assert that Marlan, through Mr. Sean Quinn, unilaterally made contact directly with DCC. On that basis it is said that Marlan should have known that this direct communication could and would have an adverse impact on the dealings between the Mr. Walsh and Mr. Wedick and DCC.
7.2 It is further asserted that there is no evidence that Marlan attempted to see if BOSI or other lenders would be prepared to proceed without the consent of DCC, in light of the fact that Mr. Walsh and Mr. Wedick were at all times ready, willing and able to execute a non recourse mortgage in respect of their interest in their lands.
7.3 It was submitted on behalf of Mr. Walsh and Mr. Wedick that the true reason why Marlan now seeks to rescind the November Agreement is that, because of the recent sharp downward movement of property values, Marlan does not wish to proceed with the development.
7.4 Mr. Walsh and Mr. Wedick assert that they have taken all appropriate steps to procure the completion of the mortgage as contemplated by clause 6(c) of the November Agreement. It is further argued that Marlan’s delay in seeking to proceed with the development disentitles Marlan to rescission of the November Agreement.
7.5 Against the background of that brief outline of the positions of the parties, it is next necessary to turn to the issues which arise in the proceedings. It seems to me that the issue which logically first arises if as to the obligations of Mr. Walsh and Mr. Wedick in respect of procuring that Marlan obtain an appropriate mortgage/charge over the interest of Mr. Walsh and Mr. Wedick in the December Agreement. I, therefore, turn to that issue.
8. The Obligations of Mr. Walsh and Mr. Wedick
8.1 The starting point for a consideration of the obligations of Mr. Walsh and Mr. Wedick must, of course, be the terms of the agreement itself. As pointed out at para. 7.4 of the first judgment (quoted at para. 4.6 above), Mr. Walsh and Mr. Wedick were obliged to enable their interest in the DCC lands to be the subject of security in favour of Marlan’s lenders. The question which arises is as to what actions they were required to carry out to comply with that obligation.
8.2 I should first note that it does not seem to me that Mr. Walsh and Mr. Wedick were under any obligation to provide a guarantee or indemnity (even one which was limited in recourse) over any liabilities that Marlan might have to the lender in question. It is important to remember that the obligations of Mr. Walsh and Mr. Wedick are to be found in the November Agreement. What requirements, in addition to a mortgage/charge over their interest in the subject lands, that a lender to Marlan might require is not, in reality, any concern of Mr. Walsh and Mr. Wedick. It seems to me that the test is as to whether any requirement made of Mr. Walsh and Mr. Wedick was a requirement which was necessary in order that there be an effectual mortgage/charge over the subject lands. Any additional requirement which a lender to Marlan might have, other than one which was reasonably necessary to create such an effectual mortgage/charge, was something which needed to be resolved between Marlan and its lender rather than could give rise to any obligation on the part of Mr. Walsh and Mr. Wedick. I do not view an indemnity of the type that was under discussion, both in respect of AIB and BOSI, during the middle of 2007, as coming within the test of being a requirement reasonably necessary to give effect to a mortgage or charge of the type contemplated.
8.3 However, different considerations seem to me to apply to the request for the consent of DCC. It must be remembered that the reasoning behind the findings contained in the first judgment was that clause 6(c) refers to a mortgage/charge in relation to “the subject lands” which, it will be recalled, refers to all of the lands, and not just the defendant’s lands. It follows that clause 6(c) necessarily refers to some form of charge over or relating to the DCC lands. Until such time as the development had reached wall-plate level, it is clear that DCC were under no obligation to grant a lease to Mr. Walsh and Mr. Wedick or their nominees. It follows that there could not have been a legal mortgage relevant to that portion of the subject lands which was the DCC lands until such time as the development had reached wall-plate level. However, it is equally clear that clause 6(c) is intended to provide finance for the development itself (which would obviously include development up to wall-plate level). It follows that the form of charge contemplated by clause 6(c) was likely to be complied with, not in the form of a legal mortgage, but in the form of a charge over the interest of Mr. Walsh and Mr. Wedick in the December Agreement, for there is no other form of mortgage or charge over the DCC portion of the subject lands, that would have been available at any time while the development was being carried out. The finance for which the charge was to be security was, of course, required to carry out that development as a whole and not just development beyond wall plate level.
8.4 The question which, therefore, arises is as to whether the consent of DCC was reasonably necessary in order that such an effectual charge be put in place.
8.5 In order to approach that question, it is necessary to analyse what the entitlements of Mr. Walsh and Mr. Wedick under the December Agreement were. In substance those entitlements were twofold. Mr. Walsh and Mr. Wedick had an entitlement to go on to the lands in question for the purposes of carrying out the development. Secondly, Mr. Walsh and Mr. Wedick had an entitlement, provided the terms of the agreement were complied with, to procure that the 999 year lease contemplated by the agreement would be executed by DCC. In what way could it be said that a financial institution lending to Marlan would have security over the entitlements arising under that agreement. The only point of security from the perspective of a lender is that, in the event that there be a default on the loan concerned, the lender has a means of enforcing the relevant security. In substance, therefore, the lender would need to be in a position that, in the event that Marlan should default, it would be able to sell Marlan’s interest in the subject lands to a purchaser for the purposes of realising its security. In order that such a lender be in a position to sell Marlan’s interest, no difficulty arose in respect of the lands directly owned by Mr. Walsh and Mr. Wedick for those lands were the subject of a direct legal charge which would allow the lender, as the owner of the charge, to sell the lands concerned to a third party. However, the question needs to be asked as to how a lender could, in practice, sell Marlan’s interest in the remainder of the subject lands to a third party.
8.6 I should, in passing, note that I have used the term “interest” in respect of the DCC lands in a non-technical way. I am mindful of the fact that there are, as a matter of property law, questions which arise as to when a party may be said to have an “interest” properly so called in land. I have used the word “interest” in this judgment in a non-technical sense referring to whatever entitlements Mr. Walsh and Mr. Wedick or, indeed, Marlan might have had in respect of the DCC lands.
8.7 That being said, the question remains as to the position of a lender in the event that Marlan should default. If DCC had consented to any relevant arrangements, then it is clear that the position of any such lender would be secure in that it could enforce the security concerned and DCC, having so consented, would have to go along with the transfer of Marlan’s entitlements in respect of the December Agreement to any third party purchaser. However, in the absence of consent from DCC it seems to me that the position would have been entirely different. As pointed out earlier, the December Agreement gave two separate entitlements to Mr. Walsh and Mr. Wedick in relation to the DCC lands. First, they were entitled to go on to the lands for construction purposes. Second, they were entitled to require that the lease contemplated by the agreement be executed. How would a third party purchaser from a lender to Marlan stand in relation to those elements under the agreement? If such purchaser were to go into possession where would they stand viz-a-viz DCC? Secondly, if such purchaser constructed the development (at least to wall-plate level) where would they stand concerning an entitlement to obtain title to the lands concerned. As pointed out earlier, the December Agreement provided that same was not to be transferable except in the case of a financial institution entering into a mortgage with Mr. Walsh and Mr. Wedick. Two things seem to me to flow from that provision. The first is that Mr. Walsh and Mr. Wedick and DCC contemplated that there could be a transfer of the benefit of the agreement for the purposes of providing security to a lending institution which might lend to Mr. Walsh and Mr. Wedick. If it were considered possible for Mr. Walsh and Mr. Wedick to provide effective security to a lender without transferring, in some way, the benefit of the agreement to that lender, then the clause would have been unnecessary. Put another way, it seems clear from the clause in question that both DCC and Mr. Walsh and Mr. Wedick contemplated that the conferring of an interest by way of security on a lending institution would amount to a transfer of the benefit of the agreement and could, therefore, only be done within the parameters set out in that clause. What is said not to be capable of being transferred is the agreement which is described as an agreement for lease. Therefore, it follows that the creation of any charge over the agreement would have required the consent of DCC.
8.8 I am, therefore, satisfied that, at the level of principle, the consent of DCC was necessary in order that there be an effectual charge over the interests of Mr. Walsh and Mr. Wedick in the December Agreement in favour of any lender to Marlan. It follows that, at the level of principle, Mr. Walsh and Mr. Wedick had, in substance, agreed to procure that the consent of DCC be forthcoming. Without the consent of DCC, Mr. Walsh and Mr. Wedick could not give a limited recourse mortgage/charge over all of the subject lands (as required by the November Agreement) because without the consent of DCC it would not be possible to give an effective charge over their “interest” in that part of the subject lands which was the DCC lands. Finally it should be noted that, as the respective agreements both required construction to take place in accordance with the existing planning permission, it was necessary that any effective security covered all the subject lands. Security over the defendants’ lands only would not permit a lender (or a purchaser from a lender) to construct in accordance with that planning permission as part of the relevant construction was contemplated as being on the DCC lands which were an integral part of the site. It is next necessary to turn to the consequences of the finding that Mr. Walsh and Mr. Wedick were, in principle, required by the November Agreement to procure the consent of DCC to a charge over the interests which they held in the DCC lands by virtue of the December Agreement.
9. The Consequences
9.1 It is clear that Mr. Walsh and Mr. Wedick did not, in fact, manage to procure the consent of DCC. It is, in fairness, clear that both Mr. Walsh and Mr. Wedick were more than happy to execute any document which they could execute themselves. The problem which Mr. Walsh and Mr. Wedick faced was that they had, in the November Agreement, committed themselves to providing an effective charge in favour of a lender to Marlan over all of the subject lands including the DCC lands. For the reasons which I have sought to analyse, Mr. Walsh and Mr. Wedick could only provide such an effective charge with the consent of DCC. It follows that Mr. Walsh and Mr. Wedick had committed themselves to a contractual obligation which they were unable to comply with without the consent of DCC. Mr. Walsh and Mr. Wedick thereby took the risk that they might be in breach of their contractual obligations should they be unable to procure the consent of DCC. The question which next arises is as to whether there are any circumstances which might legitimately absolve Mr. Walsh and Mr. Wedick from the undoubted fact that they failed to procure the consent of DCC. Two questions seem to arise.
9.2 First, it seems clear that the precise focus on the consent of DCC to any necessary charge only arose in November, 2007, some twelve months after the November Agreement. It was, thus, quite late in the day before any request to obtain the consent of DCC was made to Mr. Walsh and Mr. Wedick. It will be recalled that both the November Agreement and the December Agreement contained reasonably tight timelines within which the development was to be carried out. It also seems clear, therefore, that Mr. Walsh and Mr. Wedick could not be said to have been in breach of any of their contractual obligations until such time as they had been requested to procure the consent of DCC and a reasonable time for the obtaining of such consent had elapsed. Up to that point, no request had been made of Mr. Walsh and Mr. Wedick which they were legally required to comply with, but which they were unwilling or unable to execute. The first question is, therefore, as to whether the undoubted fact that any failure to comply with a legal obligation on the part of Mr. Walsh and Mr. Wedick occurred at least a year after the November Agreement was put in place, affects the legal situation as things now stand.
9.3 Second, there is the question of what is said to have been inter-meddling on the part of those on the Marlan side with DCC. It is to that second question that I now turn.
10. Was there Inter-Meddling on the part of Marlon?
10.1 While at one stage in the course of the hearing before me it seemed that some complaint was being made on the part of Mr. Walsh and Mr. Wedick concerning correspondence which passed in the earlier part of 2008 between Marlan’s solicitor and the solicitor to DCC, any such complaint was expressly disavowed so that the only relevant remaining question concerns the contact which undoubtedly took place in the middle of 2007, between Mr. Sean Quinn, acting on behalf of Marlan and, representatives of DCC. That the relevant contact took place is not in question. There is a factual issue as to whether Mr. Quinn was, in fact, asked by Mr. Wedick to contact DCC. On the balance of probabilities, I am not satisfied that Mr. Wedick asked Mr. Quinn to make contact with DCC. It is clear that, at the relevant time, DCC were becoming concerned about the fact that the development had not been commenced. In those circumstances it is entirely understandable that Mr. Wedick would have sought to have raised the question of the delay in commencement with Mr. Quinn. While neither a shareholder nor a director of Marlan, it is clear on all the evidence that Mr. Sean Quinn had played a significant role in the negotiation of the relevant agreement. Contact with Mr. Sean Quinn was not, therefore, surprising. Nor would it have been surprising that Mr. Wedick would have informed Mr. Quinn of the concerns of DCC about the commencement of works which were, after all, by that time considerably overdue. On any view, both the December and November Agreements contemplated that the entire works would be completed in approximately one and a half years. Over half a year had already elapsed and the evidence seems to support the fact that it would have been difficult to complete the works within the remaining time period. That there was a problem is, therefore, clear. I am satisfied that Mr. Sean Quinn took it on himself to take up the matter with DCC, not least because Marlan had experienced problems with getting the relevant Fire Safety Certificate which, of course, would emanate from another section of DCC. Marlan had, therefore, the not entirely unreasonable position to put forward that what was holding up commencement was delay caused by another section of DCC itself.
10.2 However, I am not satisfied that there was anything untoward or improper in Mr. Quinn initiating such contact. In the immediate run up to the closing of the November Agreement, correspondence was sent by solicitors for Mr. Walsh and Mr. Wedick on 22nd November, 2008 to solicitors for Marlan indicating that they had requested confirmation from DCC that DCC were aware of the proposed licence to Marlon under the November Agreement. While a confirmation from DCC of that fact was included as one of the initial closing requirements of Marlan, it would appear on the evidence that that matter was not pursued on closing. However, the fact remains that it was entirely reasonable, in the light of the correspondence which had been received from the solicitors for Mr. Walsh and Mr. Wedick, for Marlan to believe that DCC were fully aware of the interest in the property obtained by Marlan on foot of the November Agreement. In those circumstances, it was entirely reasonable for Mr. Sean Quinn to be believe that Marlan’s involvement would come as no surprise to DCC.
10.3 In addition there is no evidence as to whether the contact which Mr. Sean Quinn made with DCC had any real effect on DCC’s considerations. Mr. Walsh and Mr. Wedick did not call any witness from DCC to establish an actual affect of Mr. Quinn’s contact. However, even if it had been the case that Mr. Quinn’s contact did, in fact, have an affect on DCC, it seems almost certain that any such affect would have stemmed from the fact that Marlan’s involvement would have come as news to DCC in the middle of 2007. However, Mr. Sean Quinn could not reasonably be expected to have believed, in advance of his contact with DCC, that the involvement of Marlan would come as news to them.
10.4 In all the circumstances, I am not satisfied that any contact made by Marlan with DCC can be said to have had any affect on DCC, and even it could be said that any such effect occurred, I am not satisfied that, having regard to the fact it was reasonable for Marlan to believe that DCC already knew of the details of their involvement, any such contact could have been expected, from Marlan’s perspective, to have such an affect. In the circumstances it does not seem to me that any of the contact made by Marlan with DCC can have any affect on the legal rights and entitlements of the parties. In similar vein I am not satisfied that the minor planning variation sought or the discussions entered into about a more significant variation did, in fact, effect DCC’s view.
10.5 I should, before leaving this issue, also comment that it seems (on the correspondence between the parties and DCC taken as whole) to be clearly the case that Mr. Walsh and Mr. Wedick (or their advisers) were highly reluctant to disclose to DCC the fact that Mr. Walsh and Mr. Wedick had, in substance, if not in form, sold the benefit of their interest under the December Agreement to Marlan. That Mr. Walsh and Mr. Wedick had, in fact, sold the substance of the benefit of the agreement is clear. The agreement provided for the right and obligation to go onto the property to construct (which right and obligation was, in effect, to now be passed to Marlan) and the right to receive title to the property in due course (which entitlement again had passed to Marlan). Whatever may be niceties of whether one could say that the legal interest in the December Agreement had been sold to Marlan, there can be little doubt but that the commercial substance in the December Agreement had passed to Marlan on foot of the November Agreement. In seems clear to me that Mr. Walsh and Mr. Wedick and their advisers did not want DCC to know of this fact and it seems further that the relevant correspondence bears no other construction. If, therefore, problems arose in respect of obtaining the consent of DCC, which stemmed from the discovery by DCC of the true extent of Marlan’s interest in the property, then those difficulties can only be placed at the door of Mr. Walsh and Mr. Wedick for being so coy with DCC about the true nature of the agreement entered into between them and Marlan. For those reasons it does not seem to me that the contact between Marlan and DCC can have any affect on the interests of the parties. The only remaining question is as to whether the undoubted delay in first requiring the consent of DCC (to which I have already referred) can affect the rights and entitlements of the parties.
10.6 In that context it must be remembered that DCC had not purported to bring the December Agreement to an end by the time that a demand for DCC’s consent emerged in November, 2007. While it would neither be possible nor appropriate for me, in these proceedings to which DCC are not a party, to make any definitive ruling on the rights and entitlements of DCC, it seems to me to follow that it was most unlikely that DCC could have brought the December Agreement to an end at that time without giving Mr. Walsh and Mr. Wedick a reasonable opportunity to complete. It would, undoubtedly, have been more than open to DCC to require a commencement of the works within a very short period of time, for commencement was already long overdue. However, it seems unlikely that DCC could have relied on the fact that commencement did not take place on time, as a ground for terminating the agreement, for DCC did not terminate the agreement as soon as they became aware that commencement in accordance with the terms of the December Agreement had not, in fact, occurred.
10.7 In the circumstances it seems unlikely that DCC could have done more, as of November, 2007 or thereabouts, than demand an immediate commencement and completion within a reasonable period of time. It seems likely that DCC would have been estopped from demanding any other action by reason of their failure to exercise any entitlement which they might otherwise have had to terminate the December Agreement at an earlier stage. In those circumstances, it does not seem to me that the contractual arrangements between the parties could, in any real sense, be said to have been significantly altered by reason of the delay to November, 2007. The arrangements were still capable of operation provided that the necessary security was put in place to afford Marlan the opportunity to raise finance for construction.
10.8 It follows that I am satisfied that Marlan could and would have commenced construction in the early part of 2008, had it been afforded the consent of DCC so as to enable it to satisfy the reasonable requirements of BOSI and thus obtain finance. It follows that I am satisfied that the only reason why the contract did not go ahead at that time was the failure on the part of Mr. Walsh and Mr. Wedick to procure the consent of DCC. It follows that Mr. Walsh and Mr. Wedick are in breach of contract by reason of failing to procure the consent of DCC, and the only issue which now arises is as to what consequences flow form that finding. It will be recalled that the primary relief sought on behalf of Marlan is rescission. In that context it is, therefore, necessary to turn to the law in relation to rescission.
11. The Law on Rescission
11.1 Marlan submitted that the doctrine of rescission applies where one party has been in breach of a fundamental term of a contact, having thereby failed substantially to perform its obligations. The general exercise of the equitable jurisdiction of rescission was summarised in Northern Bank Finance Corporation Limited v. Charlton [1979] I.R. 149, where at p. 197, Henchy J. states that rescission “will be granted when the court considers that it would be just and equitable to do so in order to restore the parties, at least substantially, to their respective positions” before the breach of contract occurred.
11.2 However, it is also clear from Charlton that rescission will only be granted where a true restoration to the original position can be attained or can be attained to such an extent that no injustice will be suffered. The purpose of this rule is to protect a defendant from being put in an unjustifiably worse position than he occupied before the contract was made. However, deterioration of the subject-matter does not destroy the right to rescind nor prevent true restoration to the original position. Being an equitable remedy, a court has full power to make all just allowances although it may not be able to restore the parties precisely to the state in which they were before they entered into the contract.
11.3 On the subject of whether restitution is possible, counsel for Marlan pointed to the judgment of Griffin J. in Northern Bank Finance Corporation Limited where, at p. 208 he states:-
“Both parties to a transaction can “as nearly as may be” be put back to the position they occupied before the transaction was entered into, even though the property which was the subject matter of the contract may have deteriorated in value in the meantime. For example, in Armstrong v. Jackson 37 [1917] 2 K.B. 822, a contract for the sale of shares by the defendant, a stockbroker, to the plaintiff was induced by the fraudulent misrepresentation of the defendant, who represented that he was purchasing shares for the plaintiff on the market whereas he was selling his own shares. The contract was rescinded although the shares had fallen considerably on the stock exchange in the meantime. The shares were the same shares and the defendant was getting back the shares he would have had if he had not sold them fraudulently to the plaintiff.”
11.4 As such, Marlan argues that whether or not the November Agreement was a wasting asset is immaterial to Marlan’s entitlement to rescission.
11.5 Mr. Walsh and Mr. Wedick argue that delay on the part of Marlan disentitled it to the remedy of rescission. Counsel for the defendants referred to the following passage from O’Sullivan, The Law of Rescission, at p. 422:-
“The organising principle is that the defendant should not as a result of rescission be placed in an unjustifiably worse position than the position he would have occupied had the contract never been made. Where the claimant delays in electing to rescind, it will necessarily be difficult to justify any substantial prejudice the defendants might upon rescission suffer by reason of a change of circumstances occurring during the period of that delay. This is particularly so where the change in circumstance was foreseeable as for example in the case of a perishable asset of an asset liable to fluctuate in value.”
11.6 Speaking of the effect of delay in Erlanger v. The New Sombrero Phosphate Company (1878) 3 App Cas 1218, at p.1279, Lord Blackburn stated that:-
“It must always be a question of more or less, depending on the degree of diligence which might reasonably be required, and the degree of change, which has occurred, whether the balance of justice or injustice is in favour of granting the remedy or withholding it.”
11.7 It should also be noted that, in this jurisdiction, partial rescission is not permissible: see Northern Bank Finance Corporation Limited.
11.8 Against the background of that analysis of the relevant legal principles I now turn to their application to the facts of this case.
12. Application to facts
12.1 Two questions, in reality, arise. The first is as to whether Marlan is, prima facie, entitled to rescission on the facts of this case. The second is as to whether there are any circumstances (such as an absence of an ability to restore the parties more or less to the position in which they were) that would debar rescission as being an appropriate remedy.
12.2 So far as the first question is concerned it seems to me that Marlan has met the required test. It was a fundamental term of the November Agreement that Marlan would be able to obtain effective security over all of the subject lands to enable it to raise finance for the purposes of carrying out the development which was at the heart of the contract between the parties. Any breach of contract on the part of Mr. Walsh and Mr. Wedick which prevented Marlan from being able to give effective security (in accordance with what had been agreed in the November Agreement) to a lender, must, necessarily, amount to a fundamental breach because it goes to the very heart and root of the contractual arrangements between the parties. Without finance Marlan could not comply with the other terms of the contract. To require Marlan to be content with damages for breach of contract in circumstances where it was deprived of the means (i.e. finance) of complying with the principal object of the contract would, in my view, be inequitable. It follows, therefore, that Marlan are prima facie entitled to rescission of the contract.
12.3 The second question which arises is as to whether there are any circumstances that ought to prevent, on the facts of this case, Marlan from being entitled to rescission. Two possible issues arise. The first concerns the question of whether it is now feasible to restore the parties to the position in which they were prior to the contract. The second, and at least to some extent connected, question concerns delay.
12.4 With the exception of the issues which arise under the delay heading it seems to me to be clear that the parties can be restored to the position which they were in prior to the contract being entered into. On that basis Mr. Walsh and Mr. Wedick get their property back and Marlan gets its money back. The fact that the property may be less valuable than it was at the time of the contract is not, as Griffin J. pointed out in Northern Bank Finance Corporation Ltd., a bar to rescission. Neither am I satisfied that any action has been taken in relation to the possible right of way in favour of NI Property Development Ltd which could affect the title of Mr. Walsh and Mr. Wedick. That leads, therefore, to the question of delay.
12.5 Delay arises in two ways. First it is often said that delay defeats equity. A party who delays in exercising a claim to an equitable remedy may, thereby, lose that remedy. In that context it is necessary to analyse when the entitlement to equity first arose so as to determine the extent of any relevant delay and the consequences of it. Clearly Marlan had no entitlement to rescission until such time as there was a breach of contract. As pointed out earlier Mr. Walsh and Mr. Wedick could not be said to have been in breach of contract until a requirement for DCC’s consent became clear. Up to that point Mr. Walsh and Mr. Wedick had not failed to do anything that they were contractually obliged to do and which they had been asked to do. Obviously some reasonable period for obtaining the consent of DCC would also have to have been allowed. In those circumstances it does not seem to me that it could be said that any breach of contract on the part of Mr. Walsh and Mr. Wedick, such as might, prima facie, have entitled Marlan to rescission, could have arisen much before February, 2008. Any delay in maintaining these proceedings needs to be viewed from that time onwards. The proceedings were, in fact, commenced on the 9th October 2008. Regard must also be had to the fact that, during the relevant period (that is the period between a cause of action arising and the commencement of the relevant proceedings) much of the time was spent in ascertaining whether the problem could be solved by obtaining the consent of DCC. In the light of all the circumstances I am not satisfied that Marlan was guilty of any delay from the time when its entitlement to rescission would first have arisen to the commencement of proceedings seeking rescission such as would disqualify it from an order of rescission to which it would otherwise have been entitled. That leads to the final point which concerns the effect of delay on the December Agreement.
12.6 One way, on the particular facts of this case, in which it might not be possible to restore the parties to their original positions would be if the December Agreement were, in effect, no longer in being or had otherwise been significantly affected so that Mr. Walsh and Mr. Wedick could not now get back their previous interest in the DCC lands. At the time when the November agreement was entered into it was, of course, the case that Mr. Walsh and Mr. Wedick owned their own lands and had (or were about to have) the benefit of an “interest” in the DCC lands under the then contemplated December Agreement. The precise status of the December Agreement now is unclear. If rescission is ordered then Mr. Walsh and Mr. Wedick will, of course, retain the benefit of the December Agreement without any of the obligations in respect of the DCC lands that were passed to Marlan under the November Agreement. The question is, however, as to whether any delay which has occurred may now, in practice, prevent the December Agreement from having any legal effect, or give rise to a significantly altered effect, such that Mr. Walsh and Mr. Wedick would now be in a position that they would not get back, in practice, the benefit of that agreement.
12.7 In this regard it seems to me that the delay between November 2006 and November 2007 must, in the main, be placed at Marlan’s door. No valid reason for Marlan not going into occupation and commencing development was, in my view, tendered at the hearing before me. The obtaining of the fire safety certificate was a matter entirely for Marlan. Any failure on the part of Marlan to raise finance prior to the latter part of 2007 could not be blamed on Mr. Walsh and Mr. Wedick for Mr. Walsh and Mr. Wedick had not, during that period, failed to do anything which they were legally obliged to do. In those circumstances it seems clear that any consequences flowing from a delay up to the latter part of 2007 must be visited on Marlan. The difficulty with which I am faced is that DCC are not parties to these proceedings. Nor has any party chosen to put before the Court any evidence of the current position of DCC. I do not know whether DCC regard the December Agreement as still subsisting. I cannot make any determination in these proceedings which has the effect of binding DCC for they are not party to these proceedings. I have already suggested that DCC might have had considerable difficulty in treating the December Agreement as at an end as of the latter part of 2007 or the earlier part of 2008 by virtue of the fact that DCC had not acted to terminate the agreement when construction work did not commence within the timeframe specified in the December Agreement. Against that background and in the absence of any evidence as to DCC’s current view as to the subsistence or otherwise of the December Agreement, it does not seem to me that it would be proper for me to conclude that there would be a problem in putting Mr. Walsh and Mr. Wedick back into the position in which they were vis-à-vis the November agreement by an order of rescission.
12.8 In those circumstances and while in no way exonerating Marlan for any blame attaching to the delay which occurred between the early part of 2007 and the end of that year, it does not seem to me that it has been established that any such delay has, in fact, prevented restitutio ad integrum. The onus, in my view, was on Mr. Walsh and Mr. Wedick to establish that fact if reliance was to be placed on it. It would be pure speculation on my part to predict the attitude which DCC might take still less what view a court might take should DCC suggest that the December Agreement is now at an end.
12.9 In all the circumstances I am not, therefore, satisfied that there is any barrier to rescission.
13. Conclusions
13.1 In summary therefore, I am satisfied that Mr. Walsh and Mr. Wedick became in breach of contract when they failed to procure the consent of DCC to a charge arrangement in favour of BOSI to support lending by BOSI to Marlan. That breach of contract remains. It is, for the reasons which I have sought to analyse, in my view, a fundamental breach entitling Marlan, prima facie, to rescission.
13.2 Again for the reasons which I have sought to analyse I am not persuaded that there is any basis on which Marlan can properly be said to be disentitled to rescission whether on the grounds of delay or the absence of an ability to restore the parties to their pre-contractual position.
13.3 In the circumstances I propose declaring that the November Agreement be rescinded and directing that Mr. Walsh and Mr. Wedick repay the monies paid to them on foot of that agreement. I will hear counsel further on the precise form of the order which should be made.
Finnegan v J & E Davy
[2007] IEHC 18
APPROVED JUDGMENT OF MR. JUSTICE T.C. SMYTH
DELIVERED ON FRIDAY, 26TH JANUARY 2007
JUDGMENT OF MR. JUSTICE T.C. SMYTH DELIVERED THE 26TH
DAY OF JANUARY 2007
The Plaintiff who qualified as an accountant, decided
on the completion of his articles not to remain in
professional practice. He came to be employed with the
Defendants after an interview with a Mr. Robbie
Kelleher. He was employed initially for what was in
effect a probationary period of one year and in this
regard he was given in writing a document dated 13th
September 1990 incorporating the terms of his
engagement.
There is a conflict in the evidence on the recollection
of the parties to the interview. Mr Kelleher candidly
said he did not remember the details of the
conversation and that his remembrance of employing the
Plaintiff was vague. The Plaintiff on the other hand
was firm that he asked about the bonus situation, by
which expression I understood to be, in the nature of a
general enquiry that an intending employee to a
business might make – in short an exploratory enquiry
as to the future financial prospects he might have with
his prospective employer. While I accept that there
are many aspects to the business of stockbroking, it is
a business very largely concerned with the buying and
selling of stocks and shares for customers or clients.
From such trading are profits made and I think it most
probable that a young, qualified accountant would, on
interview, have an eye to future prospects and be
conscious that commission is charged on deals and be
concerned that if he generated some multiples
of his salary his services might be recompensed in some way,
by way of increase in salary, some percentage of the
commissions earned directly or indirectly, or some
perquisite(s) which might flow from his successful
endeavours or that of the firm as a whole. The Plaintiff
said he was informed at the interview that there was a year-
end bonus scheme which would depend on how the business did
and how successful he was if he took up employment. Mr.
Kelleher said he did not believe that he could have given the
Plaintiff any such indication, as his recollection was that
there was no bonus scheme in operation until 1991. I believe
some form of incentive was given to the prospective
employee. Mr. Kelleher opines it might have been a
salary or general performance review, as in the case of
a Mr. Conway who was employed with the Defendants.
While undoubtedly the Plaintiff may have had an
interest in conveying his recollection of the interview
– he was the person immediately concerned about his
future prospects and Mr. Kelleher’s recollection, he
fairly states as “vague”. Even if bonuses only first
became payable by the Defendants in 1991 – this could
have been put beyond yea or nay at the end of the
Plaintiff’s case when both the Plaintiff and Mr. Conway
had given evidence, by the production of documentary
evidence by the Defendants (the subject of some cogent
criticism by Mr. Hugh O’Neill SC for the Plaintiff) – rather
than relying on a recollection, which as to its details
referable to the Plaintiff, was vague. Even if Mr.
Kelleher’s recollection as to the beginning of the
payment of bonuses beginning in 1991 is correct such
would be referable to the previous year’s
performance. While I accept his evidence that a person
merely ‘in the door’ could not expect to participate in the
bonus scheme (however structured), nevertheless a person who
had given satisfactory service during a probationary or
first fixed year contract and thereafter, continuing to
be employed, could reasonably expect some improvements
in his rewards. Furthermore if bonuses were first paid
in 1991 and it was determined in late 1991 or early
1992 its applicability I consider as a probability was
held out to the anticipated beneficiaries in either
January 1990 or January 1991, whichever is the
applicable ‘starting date’ and it is in my opinion
probable that it was discussed with the potential staff
ahead of either date i.e. in or about the time of the
interview and engagement of the Plaintiff in
August/September 1991. While not making adverse
findings on the evidence of the Defendant’s witnesses I
think it more probable than not that the incentive of
the payment of a bonus in the future was discussed at
the interview and that the component basis described by
the Plaintiff is credible. Whether bonuses would be an
important element of the Plaintiff’s remuneration is a
relative expression, however the fact of the
possibility of bonus payments was a relevant matter. I
am satisfied that salary, bonus, holidays and
conditions of employment was the totality of what would
be held out to a person going to work – a view
confirmed by
Mr. McLaughlin in his evidence. (T2 p98 Q348/9)
In the events the Plaintiff was engaged as an equity
research analyst and at the end of the fixed term
contract, and it contains no reference to bonus, he was
kept in the employment by the Defendants. The
Plaintiff began his employment in late October/early
November 1990 and on the expiry of the fixed term
contract he carried on as a research analyst until
1995; and, towards the end of that year he moved to the
equity desk. At the end of the calendar year or
perhaps January 1992 the Plaintiff avers that he had a
meeting with Mr. Kelleher and was told that his bonus
for the year was £3,000 and also he received an
increase in salary. (T1 p17 Q12) Thereafter bonus
payments accrued over the years in the amount set out
in the document referred to as ‘salary and bonus data
for the period 1991 – 2000’, the accuracy of the
information therein was not seriously contested nor was
the fact that the Plaintiff’s claim was to an
entitlement of £65,000 in respect of bonus payments due
from the year ended 31st December 1998 and £140,000 in
respect of the year ended 31st December 1999 measured
in the statement of claim as €260,296.31.
Prior to the transfer to the equity desk of which the
Plaintiff’s immediate superior was one Ronan Godfrey,
the Plaintiff said he spoke with the overall head of
the Equities Division, Mr. Kyran McLaughlin, and that
when he sought an increase in salary he was informed by
Mr. McLaughlin that he would revert to him on the issue
at the bonus time. The Plaintiff said on enquiry, as
to the source of the bonus, that he was told it would
come from the equity desk and not to be concerned about
the bonus issue.
In late 1995, early 1996 the Plaintiff met with
Mr. McLaughlin and was given an increase in salary to
£40,000 and a bonus of £35,000. The following year the
lot of the Plaintiff improved when his salary increased
to £45,000 and his bonus to £40,000.
The calendar year 1997 was the first full year of the
Plaintiff on the equity desk, which he considered had
been quite successful as a result of his efforts and he
had estimated in his own mind that his bonus would be
of the order of £90,000 to £110,000. His basis for the
estimation was on his own performance and the
performance of the company – which he averred was the
basis indicted to him by
Mr. Kelleher.
When the time came to discuss the amount of the bonus
to be paid to the Plaintiff he met with Mr. McLaughlin
who informed him that the bonus for the calendar year
1997 was going to be £50,000. The Plaintiff considered
this unreasonable.
Mr. McLaughlin contacted the Plaintiff the following
morning and told him his bonus for the year would be
double what he had offered the previous day, i.e.
£100,000. The Plaintiff was told that £60,000 of the
figure would be paid as normal in the new year but that
£40,000 of it would be deferred for one year, but if he
left the employment of Davys he (the Plaintiff) would
not receive the £40,000. Queried further by the
Plaintiff on this Mr. McLaughlin informed him that if
he joined a competitor of Davys he definitely would not
receive the money, but if he left to pursue some other
career he probably would receive the money. Therefore,
such funds/moneys were not available for the purposes
of helping to finance the recruitment of new employees
to be replace those that resigned (one of the grounds
of justification for the deferral or retained elements
of the bonuses). I do not, therefore, accept that the
imposed condition was necessary to protect some
proprietary interest of the Defendant.
Mr. McLaughlin said in evidence that there was no need
to discuss the question of retention or deferment of
elements of the bonus with the Plaintiff prior to 1997
because the Plaintiff’s bonus would not have exceeded
100% of his salary, and that the need to inform the
Plaintiff did not arise “until it actually arose for
him”. (T2 p55 Q201).
In the course of his submissions Mr. O’Neill, with some
justification, described this attitude as somewhat
Dickensian for not only had Mr. Finnegan, like Oliver
Twist in effect to say “Please, Sir, may I have some
more?”; he also had to make a case as to why he should
get more, but unlike Bob Cratchit Mr. Finnegan could
not and would not be patronised. The Plaintiff’s case,
though not related in amount to the year 1997, has its
origin in what he says was an attempted retrospective
unilateral amendment of his terms of employment and the
deferral in the bonus scheme of which he was given no
notice was therefore ineffective. The Plaintiff
enquired if the amount of £40,000 could be reduced and
received no for an answer, but that it would earn
interest on his behalf until paid. The Plaintiff
considered that as he had earned the bonus he should be
paid it as it was his money and he said he could not
accept this mode of operation which he considered was
totally wrong. Mr. McLaughlin informed the Plaintiff
that this scheme of things had been introduced and
insisted upon by the Bank of Ireland who had acquired
90% of Davys in 1991. The matter was unresolved at the
time and the Plaintiff was, as is clear from his
evidence, sceptical of this policy being imposed by the
Bank, whom he believed owned 91% of the equity in Davys
but only 49% of the voting rights, so that the bank did
not have operational control of Davys. It is
unnecessary for me in this case to decide the veracity
of either point of view in this particular.
The Plaintiff said he could not “walk away” from
£40,000, he and his wife had a young baby and he had
just moved house. In short while he objected to what
was imposed upon him he could not in economic terms do
anything about it and furthermore having worked for
seven years with Davys was getting close to the senior
bonus pool within the firm. In addition to the
foregoing his appreciation of his position then was
that at the age of 32/33 he had ahead of him a maximum
of 10-15 years as a dealer, and that there were limited
opportunities in Dublin – but there were no
opportunities then available. When he did leave Davys
in 2000 it was because a “gap” in the market arose and
he took his opportunity.
In 1998 the Plaintiff’s bonus was £200,000 but on this
occasion the Plaintiff was informed that he was going
to have imposed upon him a one-third split. The
Plaintiff I am satisfied objected to the split,
protesting that he was being in effect required to work
for an additional two years before he could actually
receive and have possession of money he had already
earned. Equally I am satisfied that he said he was not
accepting the imposition which he considered
unreasonable. It is common case that retained or
deferred monies attracted interest which was paid to
the Plaintiff, but he did not have the use of his own
money which he had earned. Whenever he may have wished
to invest at his own absolute discretion or to make
such purchases as he may have wished or to repay such
debts as he may have had, in short he had no control
over money which he reasonably believed he had earned,
it being retained over a period of time to ensure in
effect that he would not leave the firm and go to work
for a competitor of Davys.
I find as a fact that in 1997, 1998 and 1999 the
Plaintiff felt that he had to tolerate the position,
but he certainly did not accept it. I do not accept
that the Plaintiff did in any meaningful way acquiesce
in the arrangement. In my judgment the cases of
O’Reilly -v- Irish Press [1937] ILTR 194, decided
before the last World War, and Cowey v Liberian
Operations Ltd. [1996] 2 Lloyd’s Rep. 45 are not
applicable in the light of my findings of fact in the
instant case.
Mr. McLaughlin accepted that the deferral was a
material factor in the scheme. While he accepted that
the bonus was in relation to work done; he said that
the purpose of the deferred elements in the bonus “was
to incentivise him [the Plaintiff] going forward as
apart from remuneration for past services. It was also
to incentivise him for “future years”. (T2 p99 Q355)
He explained the manner in which the system worked in
this way; senior management (specifically this included
Mr. McLaughlin) sought the permission from the Bank of
Ireland, the major shareholder at the relevant time in
Davys, to permit some of the profits of Davys to be
applied to and distributed to staff at a certain level
and number in the stockbroking firm. The Bank agreed
to this (and later enlarged the amount) on condition
that no individual employee could get more than 100% of
his salary in the first year and if the bonus in total
was greater than 300% of his salary one third of the
bonus would be paid in each year over a three year
period. (While such a deferred bonus scheme apparently
operated in Bank of Ireland Asset Management and is
common in the stockbroking business in London there was
no such custom in the business or trade or profession
in the Irish context). The purpose, as was deposed by
Mr. McLaughlin, for spreading the payment of the earned
bonus:
“to try and generate loyalty…and in
addition it guaranteed a situation that
whereby if…there was a poor year the
following year, at least the employees
had an incentive to work for the full
amount knowing there was a payment at
the end of that year or the following
year.”
(T2 p55 Q203)
If, as I understand the notion of an incentive, is
something that incites to action, then I have great
difficulty in understanding how following one’s own
1 money in order to recover it and to ensure it is not
forfeit or lost falls within the concept. I can well
understand a bonus earned and paid in full would be an
incentive to future performance.
I found the analogy of Mr. McLaughlin between a share
option scheme – a right conferred dependent on or which
would only vest upon a future event (a known condition
subsequent to the conferring of the option) and a bonus
already earned declared and set aside in a specific
account as a result of past endeavours which had vested
and notwithstanding that vesting became conditional
upon future commitment to other endeavours in the
future, quite unconvincing.
Mr. McLaughlin’s evidence was that –
“It was critical from our point of view
to try and incentivise people going
forward and to generate loyalty to try
and keep key employees.”
(T2 p57 Q204 L1-3)
Further that only three people knew how the bonus
scheme worked (and that did not include the Plaintiff)
and that one of the factors in determining the amount
of the bonus for any particular person (and that did
not include the Plaintiff) was –
“Whether we thought they were likely to
move or not to move, how competitive we
had to be to hold them and so on.”
(T2 p57 Q206 L19-26)
The foregoing bears out the submissions of Mr. O’Neill
for the Plaintiff that the real purpose (which I find
as a fact) of the deferral or retention of the elements
of the bonus was to create a financial and practical
restriction on employees who wished to continue to act
as stockbrokers going to another firm of stockbrokers.
Furthermore the fact that such employees as left the
employment of Davys when outstanding elements of
bonuses had not been paid, but did not go into
competition, were paid such outstanding monies gives
point to the notion and submission that if in effect
the provision was as part of a contract it was a contract in
restraint of trade. The evidence, I am satisfied, bears out
the contention that the Defendant paid all outstanding bonus
entitlements to persons (other than the Plaintiff) who left
the employment of he Defendant between the period 1996 and
2001 who did not go into another stockbroking firm.
The question as to whether a bonus was discretionary or
otherwise was agitated by the parties. I find as a
fact that over a period of years the Plaintiff could
have had a legitimate and reasonable expectation that
if the firm thrived and his efforts were fruitful a
bonus would come to him as it did to a number of other
employees. It was certainly discretionary as to amount
because each year’s trading would differ and there had
to be an assessment of his success or otherwise in each
year, but I am satisfied that the Plaintiff could
reasonably expect as a matter of principle built up
from a number of years of consistent conduct in the
payment of bonuses and the matter of discretion never
having been mentioned to him at any stage that some
bonus would be payable – the amount only dependent on
the trading activities of the firm and his own
performance.
In Clark -v- Nomura [2000] IRLR 766 it was held that in
assessing individual performance the employer was not
entitled to take into account factors such as the need
to retain and motivate the employee and thus to refuse
a bonus on the basis that the employee was leaving.
This approach was approved by the Court of Appeal in
Cantor Fitzgerald v Horkulak [2004] EWCA Civ 1287 and
in Mallone -v- BPB Industries [2002] IRLR 452. In
Mallone share options vested in Mr. Mallone were
cancelled on his dismissal by the directors of the
defendant pursuant to “absolute discretion” in the
scheme rules. Rix LJ said:
“There is no valid reason for treating
the whole scheme as a sort of mirage:
whereby the executive is welcomed as a
participant, encouraged to perform well
in turn for a award, granted options in
recognition of his good performance,
led on to further acts of good
performance and loyalty, only to learn
at the end of his possibly many years
of employment when perhaps the tide has
turned and his powers were waning, that
his options, matured and vested as they
may have become, are removed from him
without explanation.”
Mr. O’Neill submitted that in a context where bonus
payments are calculated by reference to profitability
of the Defendant in a calendar year and the individual
performance of the Plaintiff during that year, it was
arbitrary and irrational for the Defendant to seek to
make the payment of that bonus already quantified
conditional upon the Plaintiff remaining in the
employment of the Defendant for the following two
years.
To impose such a condition changed the criteria from
one of profitability and performance to one of loyalty
in the future. The bonus payment comprised a very
substantial part of the Plaintiff’s remuneration
package which had been earned, evidenced by the fact
that the same when payable carried interest. The
unilateral imposition of the condition recognised by
the Court as a provision in restraint of trade can
hardly constitute the proper exercise of a discretion
as to the level of bonus to which the Plaintiff was
entitled and his entitlement to receive it when
ascertained and declared.
I accept this submission as warranted by the
authorities in the light of the facts as I find them.
Mr. Shipsey submitted for the Defendant, and very ably,
that the case law demonstrates clearly that the margin
of appreciation to be afforded to an employer in
exercising its discretion under a discretionary bonus
scheme is extremely wide. More particularly, it is
open to the employer to decide the criteria to be
employed in assessing whether to award any bonus and if
so in what amount. In this regard he relied on the
authority of Horkulak -V- Cantor Fitzgerald
International [2005] 1CR 402. In Horkulak the
particular bonus scheme had a number of features that
may be common in some respects to the Defendant’s bonus
scheme. In particular, the Cantor Fitzgerald scheme
(as did the Defendant’s) contained a proviso that the
employee continued to be employed at the payment date
of the bonus, which was deferred for a period after its
determination. In my judgment this is clearly
distinguishable from the instant case because Horkulak’s
contract was (a) in writing and (b) the term was known to him
and it was known to him from the outset.
In the events in the instant case the Plaintiff went to
NCB stockbrokers in September 2000 and when he requested the
monies retained from already earned bonuses he was refused
payment by the Defendant. The terms of the Plaintiff’s
engagement with NCB are nihil ad rem to the issues I have to
determine. If he received a form of premium to entice him to
join NCB that in some measure made up for the fact that even
though he had worked some part of the year of 2000 for
the Defendants he could not and did not expect any
bonus until the end of the year and he was not
completing a calendar year and therefore would have to
forego whatever the previous 8/9 months of the year
would otherwise have yielded. Such is not either a
matter of surprise or an issue requiring determination.
Also irrelevant in my judgment is how, having cut the
painter with the Defendant, he may have given a dusty
answer, he had decided that he was not going to stay
with Davys under a deferral system – and quoted figures
so high to Mr. McLaughlin to close the latter’s enquiries.
Even if in negotiation with NCB the Plaintiff negotiated
with them to offer him a premium equivalent to the
total sum of the unpaid deferred elements of bonus for
1998 and 1999 in Davys and
I am satisfied and find as a fact that such were not
involved or calculated (T2 p46 Q164) and that a sum
that he might have anticipated he might on a quantum
merit basis have attracted for the 8/9 months of 2000
that was a price he put on his value to NCB, that he
was entitled to do so in negotiation with NCB. Even If
they paid him a premium to secure his future services
that was a commercial decision on their part; that in
my view has nothing to do with the monies earned by way
of bonus in the past with the Defendants.
I am satisfied that in each of the years 1997, 1998 and
1999 the Plaintiff did not consent to the unilateral
imposition of a term of his employment referable to the
bonus. If he did, or could be said to have acquiesced
at all, it was because he had a Hobson’s choice of
either leaving Davys and discontinuing his career as a
stockbroker and receiving the money or proceeding to
sue Davys which was a completely unrealistic prospect
for him if he wished to continue to have employment
before finding another position, or take up, when the
occasion would present itself, a position in another
stockbroking firm and forfeit such elements of deferral
as were in the bonuses which he had earned in Davys and
which were retained from him. The attempted amendment
of the terms of employment and bonus scheme were in my
judgment as a matter of fact unilateral and while
effective in practice as a matter of fact, in that they
were withheld, were ineffective as a matter of law, not
only because they were not consensual (even if perforce
the Plaintiff had to abide or tolerate them) they were
made without notice much less notice in writing and if
not overtly stated to be a contract in restraint of
trade was in effect such. In my judgment the words of
Jonathan Sumption QC sitting as a High Court Judge in
the Chancery Division in Marshall -v- NM Financial
Management Limited [1995] 4 All ER785 at 791 are
apposite :-
“I do not think there can be any doubt
that proviso 1 is a restraint of trade.
It has been well established since the
decision of the Court of Appeal in
Wyatt -v- Kreglinger & Fernau [1993] 1
KB793, that there is no relevant
difference between a contract that a
person will not carry out a particular
trade and a contract that if he does
not do so he will receive some benefit
to which he would not otherwise be
entitled…it is, therefore, unlawful
unless it is justified as being
reasonable in the interests of the
parties and in that of the public.”
In my judgment on Mr. O’Neill’s analysis of the first
instance and the Court of Appeal decisions in
Marshall’s case is correct. I accept his submission
that the fact that the Plaintiff has left the
employment of the Defendant and now works for a
competitor is immaterial. It does not impact on the
question as to whether or not the clause operates as
restricting trading.
See also to the like effect Sadler -v- Imperial Life
Assurance Co. [1988] IRLR 388 and Bull -v- Pitney-Bowes
[1966] 3 All ER384.
In Sadler’s case the Plaintiff’s contract provided that
his entitlements as an insurance agent to commission
would immediately cease if he entered into a contract
of service or for services directly or indirectly with
any limited company, mutual society, partnership or
brokerage operation involved with the selling of
insurance or would be in breach of any part of clause
9(a) thereof and were the contract still subsisting.
It was held that:
“The proviso in the insurance agent’s
contract of employment which purported
to remove his entitlement to
post-termination commission if he
continued to work in the insurance
industry after he left the Defendant’s
employment constituted an unlawful
restraint of trade. A financial
incentive to limit a former employee’s
activities in accordance with the
decision in Wyatt -v- Kreglinger and
Fernau and Pitney-Bowes amounted to a
restraint of trade.
In my judgment the question in the instant case is as
to whether the deferral or retention provision is so
tainted as to be determined by its substance and effect
not merely by its form.
Mr. Shipsey for the Defendant submitted that the
structuring of the Defendant’s bonus scheme does not
offend against the common law restraint of trade
doctrine for the simple reason that it places no
restraint on the Plaintiff’s trade, and as such is
apparent from the Plaintiff’s subsequent employment
history the Plaintiff was free at all times to leave
the Defendant’s employment and to enter a contractual
relationship with any other employer, that at most the
bonus scheme provided an economic disincentive or
discouragement from leaving, or put positively,
providing an economic incentive to stay with the
Defendant company. It did not, however, restrain the
Plaintiff’s employment or trading options in any way.
I am unable to accept this submission.
In my judgment there was, on the evidence, no genuine
proprietary interest of Davys that required the
imposition of the provision imposed upon the Plaintiff.
Costelloe J. (as he then was) said in John Orr Ltd. -v-
Orr [1987] ILRM702 as follows:-
“All restraints of trade in the absence
of special justifying circumstances are
contrary to public policy and are
therefore void. A restraint may be
justified if it is reasonable in the
interests of the contracting parties
and in the interests of the public.
The onus of showing that a restraint is
reasonable between the parties rests on
the person alleging that it is so.
Greater freedom of contract is
allowable in a covenant entered into
between a seller and a buyer of a
business than in the case of one
entered into between an employer and an
employee. A covenant against
competition entered into by the seller
of a business which is reasonably
necessary to protect the business sold
is valid and enforceable. A covenant
by an employee not to compete may also
be valid and enforceable if it is
reasonably necessary to protect some
proprietary interest of the covenantee
such as may exist in a trade connection
or trade secrets. The Court may in
certain circumstances enforce a
covenant in restraint of trade even
though taken as a whole the covenant
exceeds what was reasonable while the
severance of the void parts from the
valid parts.”
In the instant case it was at most a matter of weeks
or, perhaps even imperceptibly and not pursued in
cross-examination, months that there was any such
reason to protect the information had by the Plaintiff
while in the employment of Davys. It is clear from the
correspondence the restraint to trade sought to be
imposed is an absolute bar to employment of any nature
in any location in the business of stockbroking. It is
difficult to see how such a restraint is in any way
necessary to protect any proprietary interest of the
defendant much less the public and even a fortiori the
Plaintiff. Furthermore there was no term of employment
that a condition would be imposed to effectively secure
future loyalty.
while considerable emphasis was placed by
Mr. McLaughlin, and Mr. Shipsey in his submissions,
that the quantum of bonus payment had a loyalty factor
built into it, this was not borne out by his own
evidence (T2 p79 Q269) when he agrees that the total of
bonus payments to all employees is the maximum the Bank
of Ireland would allow Davys to make. The quantum of
the bonus payments, the global quantum, has nothing to
do with loyalty. The loyalty issue in effect is a
non-compete issue that only came into the reckoning
having decided on the quantum of the bonus payment and
then a comparison is made to or with the salary.
Indeed in 1997 when the bonus offer increased from
£5,000 to £100,000 within 24 hours that was done on the
basis that the Plaintiff had made out a good case for
the £100,000. It was a mathematical sum and had
nothing to do with future loyalty. In my judgment
future loyalty was never mentioned in 1991 or until
very many years later.
To enforce a condition it must be fairly and reasonably
brought to the other party’s attention. This is
especially so when in a contract the condition was
particularly onerous or unusual (as I find as a fact
the deferral and retention of appreciable percentages
of bonuses were) and was not known at all to the
Plaintiff until 1997 and the real and full impact only
known to him or impacting upon him until 1998.
In my judgment the deferral or retention clause
operated as a form of forfeit if the Plaintiff sought
to go to work for a competitor and not having been
timeously, i.e. on first taking up his employment or at
latest at the end of his probationary period or if
either differed from the first year in which the
bonuses were being paid then at such date in my
judgment Interfoto Pictures Library Ltd. -v- Stilleto
Visual Programmes Ltd. [1988] 1 All Eng 348 is applicable.
In this case the Defendant sought to unilaterally
retrospectively alter the Plaintiff’s terms of
employment with (however the Defendants may have
understood as to encourage loyalty, i.e. to hold on to
staff in the future) a provision that was onerous and
even if not expressly designed to be a restraint was so
in effect. The Plaintiff had committed himself to some
six years at least to the Defendants before he was
informed even partially of the onerous condition and in
my judgment this was unreasonable.
Section 3 of the Terms of Employment (Information) Act
1994 has no retrospective effect, since its applicability to
the Plaintiff’s employment was unfulfilled.
Whatever social cachet may have attached to his
avocation, whatever good refute for sophisticated
skills he may have had on the Exchange or in the world
of high finance, the Plaintiff’s terms of engagement
were, in my judgment, on the facts, grievously marked
by a form of engagement redolent of the indentured
employment of another age.
The Plaintiff succeeds.