Contract Issues
Cases
Atari Corp (UK) Ltd v Electronics Boutique Stores (UK)
[1997] EWCA Civ 2099 [1998] 1 All ER 1010,
Waller LJ
Both parties commenced their arguments as to whether the defendants had successfully exercised their right under the term allowing for Sale Or Return by reference to Section 18 Rule 4 of the Sale of Goods Act 1893 which, so far as material, provides as follows:-
“Unless a different intention appears the following are rules for ascertaining the intention of the parties as to the time at which property in the goods is to pass to the buyer …
Rule 4 – When goods are delivered to the buyer on approval or on sale or return or other similar terms the property therein passes to the buyer:-
(a) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction;
(b) If he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, if a time has been fixed for the return of the goods, on the expiration of such time. …”
We were also referred to Benjamin on Sale 5-051 which deals with sale or return, and what Benjamin suggests constitutes a notice of rejection under Section 18 Rule 4. Authorities on the subject are sparse but the key sentence is:-
“It is probable (my emphasis) that any intimation to the seller which clearly demonstrates that the buyer does not wish to exercise his option to purchase will suffice, but it is open to the parties to agree that the buyer shall be entitled to reject only by returning the goods”.
What that sentence demonstrates is that the starting point must be to construe the terms of the particular contract providing for Sale Or Return, and decide what in the particular agreement the parties mean by Sale or Return or, as in this case, “Full Sale Or Return until 31st January 1996”. For example “full Sale Or Return until 31st January 1996” could be construed as requiring the actual physical return of the goods to the seller prior to 31st January 1996; alternatively, it could be construed as requiring the buyers to have the goods which they intended to return available for collection prior to the 31st January 1996, (and thus a requirement for notice to the plaintiffs to enable that to be achieved); alternatively, it could be construed as the buyers having the right until 31st January 1996 to notify the sellers that they were exercising the right to return the goods the obligation thereafter being to have the same available after 31st January 1996; and there may be other possible constructions. If on a proper construction of the terms it is a case where a notice must be given, what the notice must contain and when it must be given will also need resolution. For example, (1) is it permissible to give a notice that goods will be available for collection at some future date, or must the notice allow the plaintiff to take immediate delivery in order to be effective? (2) Can the notice describe the goods generically for them to be specifically ascertained only at the time of collection?
LORD JUSTICE PHILLIPS
I agree that this appeal must be allowed. To explain why, it is first necessary to analyse the nature of the contracts in this case in the light of basic principles of the law of contract. I do not propose to repeat the material facts, which are set out in the judgment of Waller L.J.
Offer
In a simple case a contractual offer will remain open for acceptance until (i) it is withdrawn or (ii) it is rejected or (iii) the time for which the offer was stated to remain open, or, if no time was specified, a reasonable time, has elapsed.
Acceptance
Acceptance may be by word, spoken or written, communicated to the offeror, or, if the terms of the offer so permit, may be by conduct.
Withdrawal
An offeror is usually free to withdraw his offer at any time prior to acceptance, even if he has stated that the offer will remain open for acceptance for a specified period.
Rejection
Rejection takes place when the offeree communicates to the offeror that the offer that has been made is rejected.
A contract of sale of goods
A contract of sale of goods is :
“a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price”
Sale of Goods Act 1979 S.2(1).
A contract on terms of sale or return
Benjamin’s Sale of Goods, 4th Ed., describes the effect of delivery on “sale or return” as follows:
A person to whom goods are delivered on “sale or return” has a true option to buy, in the sense that he is free to buy or not as he chooses. In such a transaction the goods are bailed to a prospective buyer on the understanding that he may buy them at a stated price: he may elect either to buy or to return the goods, and by the terms of the agreement, or in accordance with the presumed intention of the parties set out in section 18, rule 4, of the Sale of Goods Act 1979, will be deemed to have bought them in certain events if he does not give notice of rejection. Since the property remains in the bailor until there is an election to buy, and the bailee is not until such time under any obligation to buy, there is no contract of sale within the meaning of the Act.
Where goods are supplied pursuant to a “sale or return” agreement, a contract is nonetheless concluded. Such a contract was described by Lord Esher M.R. in Kirkham v. Attenborough [1897] 1 QB 201 at p.203 as follows:
This contract is so common in business that it is well known to the Courts, and has been interpreted, and all Courts will now adopted the interpretation which has been put upon it. In the absence of other terms the contract does not pass the property in the goods directly it is made. The person who has received them may return them, but the person who has entrusted them to another cannot demand their return, and his only remedy is to sue for their price or value.
Section 18 of the Sale of Goods Act 1979 makes the following provisions in relation to the passing of property where goods are delivered on sale or return:
“unless a different intention appears… the property in the goods passes to the buyer:
(a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction;
(b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of that time, and, if no time has been fixed, on the expiration of a reasonable time.
An ordinary agreement for the supply of goods on sale or return thus has the following features:
– the seller cannot withdraw his offer to sell the goods;
– the buyer can accept by signifying acceptance to the seller, or by an act adopting the transaction, or by keeping the goods beyond the agreed period or, absent agreement, a reasonable period.
– the buyer can give a notice of rejection.
In my judgment the notice of rejection referred to by the 1979 Act is no more than the notice that an offeree can always give that a contractual offer is rejected.
Until the property passes, the prospective buyer holds the goods as bailee. The Act makes no provision as to what he has to do with the goods if he gives notice of rejection. It seems to me that his duty at this point must depend upon the express or implied terms of the contract. He may simply have to hold the goods at the seller’s disposal or he may have to return them to the seller. To be effective, a notice of rejection must be given before the property in the goods has passed. If a buyer so acts as to render it impossible for him to perform whatever the contract requires after rejection, e.g. if he ships the goods overseas to a potential sub-purchaser, such conduct is likely to constitute an act adopting the transaction, so that he cannot thereafter give a valid notice of rejection.
It is open to the parties to agree that the prospective buyer is not entitled to give a notice of rejection but will be deemed to have accepted the goods unless he returns them physically to the buyer within the “sale or return” period. Such a case was Ornstein v. Alexandra Furnishing Company (1895) 12 TLR 128. The Plaintiffs accept that no such term falls to be implied in the present case.
The present contracts
The contracts which are the subject of this appeal have two unusual features. (1) The contract price is payable before the expiry of the agreed “sale or return” period. (2) The “sale or return” condition does not apply to all the goods the subject of the transaction, but permits the Defendants to purchase some and reject others. The first feature has, in my judgment, no relevance. It is the second that has led to the dispute.
The position at the date of the alleged rejection
By the 19th January 1996, when the Defendants wrote the letter that they contend constituted a notice of rejection, they had distributed the goods to the stores in their chain and, through those stores, had sold approximately 25% of those goods. They had also taken delivery of other goods of the same types as those the subject matter of this dispute, which were not on “sale or return” terms.
The Defendants’ Case
Mr Leggatt, Q.C., helpfully summarised the Plaintiffs’ case as follows:
In the absence of a contrary intention, if goods are supplied on ” sale or return ” it is not necessary for the buyer, in order to exercise his right of “return”, physically to redeliver to the seller those goods which he does not wish to keep. The buyer can “return” goods to the seller within the meaning of such a provision at the place where the goods were delivered to him by making the goods available for collection there and sending a notice to the seller informing him that the goods are rejected. Two requirements, however, must be satisfied:
(1) The notice given to the seller must describe the goods which are being rejected with sufficient specificity, not merely to make those goods capable in principle of being identified by inquiry ex post facto , but to leave the seller in no reasonable doubt about what goods fall within the description at the time when the notice is given (with the effect that the right to immediate possession of those goods is now revested in the seller); and
(2) The buyer, although he does not need to send the goods described in the notice back to the seller, must make the goods available at the time when and place where the goods are being ” returned”.
NOTE
This formulation assumes that the notice is intended to take effect immediately. In principle it would seem possible to exercise a right of return by sending a notice of rejection which is expressed to take effect, not immediately, but at a specified later date (within the time fixed for return). In such a case the relevant time by which the buyer would need to have sufficiently identified to the seller what goods were being rejected and to have made those goods available for collection would be the date when the notice took effect and the goods were thus ” returned” within the meaning of the ” sale or return ” provision. But on any view this is not such a case – the Defendants’ contention is that the letter of 19 January 1996 gave notice of immediate rejection.
Hooper J. accepted that the first requirement had been applicable and that it had not been satisfied. Before us Mr Leggatt further submitted that the second condition was not satisfied either.
In my judgment Mr Leggatt’s second requirement and his Note confuse two different matters – the notice of rejection and the defendants’ obligations after rejection. To be effective the notice of rejection simply had to give notice that the Defendants rejected the Plaintiffs’ standing offer to sell those goods in respect of which the property had not yet passed to the Defendants. Such notice, if valid, was of immediate effect. Thereafter the Defendants were obliged to do whatever the contract required to restore the goods to the plaintiffs. What the contract required and whether there was a failure to comply with that requirement were not in issue before the Judge, nor are they in issue before us. A case might have been made that the Defendants, by intermixing the goods with other similar goods, or by otherwise disposing of the goods, had “adopted the transaction” in relation to them, so that the notice of rejection could not apply to them. Once again, such a case was not before the Judge. He was simply concerned with an application for summary judgment based on the contention that the notice was bad on its face for want of certainty.
Certainty
Where a seller offers goods for sale on terms that the buyer can accept all or part of the goods, a rejection of the offer in relation to part only of the goods cannot have legal effect unless it identifies with certainty the goods to which it relates. So much was accepted by Mr Underhill, Q.C., for the Defendants. He submitted, however, that this identification did not have to be effected by listing the goods in question. It sufficed for the notice to identify them generically, provided that the generic description would enable the goods to be identified with certainty. Mr Underhill submitted that the notice in this case satisfied that requirement. It related expressly to the goods in all the stores and, implicitly, only to those goods which had been supplied on sale or return terms. Alternatively, if the notice related to all goods remaining in stock, whether subject to sale or return term or not, it would still be valid in relation to the goods covered by that term.
Mr Leggatt argued that to be valid the notice had to inform the Plaintiffs precisely what stock was covered by it, so that they would be in a position to take appropriate action, such as selling the goods in question to another purchaser.
In my judgment, Mr Underhill’s argument is to be preferred. The Defendants had been steadily accepting the goods on offer by disposing of them, thereby “adopting the transaction” in relation to them. While they were periodically informing the Plaintiffs of the goods so sold, the Plaintiffs did not have up to date information as to what was sold and what remained. Just as the Plaintiffs had no entitlement to immediate notification of precisely which goods were accepted in this way, I can see no basis for contending that they were entitled to immediate notification of precisely which goods remained in their ownership when the Defendants gave notice of rejection in relation to the goods unsold. The notice was, in my judgment, a valid notice and one that disentitled the Plaintiffs to payment for the goods to which it related. Accordingly, I would allow the appeal, concurring in the result proposed by Waller L.J.
SW Tubes Ltd v Owen Stuart Ltd
[2002] EWCA Civ 854 Aldous LJ
The case before the judge was concerned with the issue of liability alone. Even so, the parties dealt with the question of mitigation. However, after handing down his written judgment, the proceedings were restored to decide what order should be made and who should pay the costs. For Owen it was contended that the judge’s conclusion had effectively disposed of Tubes’ case and that accordingly it should be dismissed. Tubes contended that they had succeeded in establishing a breach of contract and therefore was entitled to judgment and to their costs with damages to be assessed.
The judge concluded that by the time the production line had been installed, Tubes were reluctant to put it into operation and that it had seized on the non-operation of the saw as an excuse for rejecting the goods. Tubes had no substantial claim for damages for breach of contract. Thus, notwithstanding the technical finding of breach of contract, Tubeshad failed in the proceedings and therefore he ordered that there should be judgment for Owen with costs to be assessed if not agreed.
On the appeal, Tubes support the judge’s conclusion that Owen was in breach of contract by supplying the defective drive to the saw, but contend that he had wrongly concluded that it had failed to mitigate its damage. Second, Tubes contend that Owen were in breach of contract by failing to provide appropriate guards for the saw. Third, they submitted the judge was wrong to make the order that he did. The correct order was to award them the costs with damages to be assessed. They contended that they had established a breach of contract and there was no evidence upon which the judge could have concluded that the damages were nominal. They were therefore entitled at least to an order for damages to be assessed. Further, the order for costs should have reflected the matters upon which they had succeeded.
Owen served a respondent’s notice in which they sought to challenge the judge’s conclusion that they were in breach of contract by supplying the particular drive to the saw. Owen asserted in their notice that the flexible drive was “of satisfactory quality and fit for the purpose” and there was insufficient evidence upon which the judge could have concluded that the particular drive was not satisfactory for the particular type of use for which the contract was made. In particular, Owen asserted that the drive was of adequate strength and, in any case, was adequate for the contracted purpose. Owen also contended that there was no deficiency of guards; also that they had not agreed to supply them. They also contend that if the judge should have given judgment for Tubes, the damages were nominal and that in any event he should have ordered Tubes to pay Owen’s costs of the proceedings.
Mr Baker appeared for Owen. He addressed us with courtesy and his explanation of the machinery and what happened has helped me to understand the evidence in this case. However, he accepted that the flexible drive supplied was not adequate to power the saw. He therefore did not pursue any challenge to the judge’s judgment that there had been a breach of contract.
It follows that this appeal, as argued before us, is concerned with the issues of mitigation, the guards, the order and costs. I will deal with them in that order.
Mitigation
Although the machinery was delivered during 1997 it was not installed until 18th May 1998 because of Tubes’ intended move to new premises, which occurred on 1st May 1998. On 18th May 1998 the drive failed. We now know that the drive was not appropriate for the job. Mr Virgo, who appeared for Tubes, suggested that the breach of contract happened on delivery, but accepted that for practical purposes it occurred on 18th May 1998. The saw was tried again on 8th June 1998. It was switched off before it failed; but it certainly, on the evidence, would have failed. It was on this occasion that Mr Baker offered the replacement saw. No doubt it would have taken a few days to find and install. That offer was repeated in the letter of 23rd June 1998 in the passage which I have already read. From that letter it seems that the new saw might not have been available until 25th June or thereabouts.
The judge held that Tubes had failed to mitigate their damage. He said:
“It is a fundamental rule of contract law that a claimant in respect of a breach of contract cannot recover damages for any part of his loss which he could have avoided by taking reasonable steps. In the present case it is contended by the defendants that the claimant should have accepted their offer to supply an alternative saw until the problems with the original one were rectified. Mr Seabourne said that he did not accept the offer because he had lost confidence in the defendants following the remark about Mystic Meg. Whether that is indeed the case, which I doubt, I have come to the conclusion that Mr Seabourne ought reasonably to have taken up the defendants’ offer. The saw was only one of several components making up the production line and the flexible drive was only a small part of the saw. It cost less than £200 and had been obtained from the most reputable of suppliers. The problem was therefore a technical one which the suppliers, together with the defendants, themselves also a leading company in their field, could be relied upon to solve in due course. Had Mr Seabourne taken up the defendants’ offer the production line would have been operational without any significant loss of time. The fact that the claimants waited for so long before attempting to commission the machine themselves shows, at the very least, that getting into production with the line was not an immediate priority. On the contrary, as I find, the claimants’ objective at that time was to get out of the contract if they could and to recover their outlay.”
Mr Virgo criticised that part of the judgment. He accepted that Tubes had to act reasonably to recover damages and in legal terms had to mitigate their loss, but he submitted it was unreasonable to expect Tubes to accept the offer as there had been two failed attempts to make the saw work. Owen did not know how to put it right and did not appear to Tubes to be taking the matter seriously. All that was offered was a loan. It followed, he submitted, that Tubes were within their rights to treat the breach as a repudiation and to reject the machinery.
I cannot accept those submissions. The saw with its drive was a small part of the line. It was a standard piece of equipment and there was no suggestion that the offered saw would not have worked perfectly satisfactorily, with the result that the line could be used pending resolution of the problem with the flexible drive. To accept the offer cost nothing and would have prevented further damage. In the circumstances I believe the judge was right to conclude that Tubes, acting reasonably, should have accepted the offer. Tubes in my view failed to act reasonably when they rejected it, with the result that the claim for damages should be limited to the period ending with the date when the replacement saw would have been installed.
The judge’s order
The conclusion that Tubes failed to mitigate their damage does not mean that they were not entitled to an order for damages to be assessed. The hearing took place to determine liability and evidence had not been directed to whether Tubes suffered more than nominal damages between 18th May and 8th June or some time around 25th June. Certainly no evidence was put before us upon which the judge could have concluded that damages were not substantial. The judge should, in my view, not have given judgment for Owen. Tubes had established a breach of contract and were entitled to judgment with an order that damages, if any, should be assessed.
The guards
It is not disputed that the saw supplied did not have guards, despite the fact that it had a continuously rotating blade, and moved from side to side and back and forth. Mr Virgoconceded before us that as the saw was second-hand it did not come within the 1992 Regulations. He submitted that the saw was not of merchantable quality as required by section 14 of the Sale of Goods Act 1979. The relevant parts of that section are as follows:
“14(1) Except as provided by this section and section 15 below and subject to any other enactment, there is no implied term about the quality or fitness for any particular purpose of goods supplied under a contract of sale.
(2A) Where the seller sells goods in the course of business, there is an implied term that the goods supplied under the contract are of satisfactory quality.
…
(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods-
…
(d) safety, …”
The evidence as to guards was given by Mr Hobson of Strange, Strange and Gardner. He said:
“It is necessary to have some part of a circular saw blade exposed to allow it to function. However, in the situation in question it is practicable to design and construct an enclosure to nullify the dangers of the cutting head. It would also be reasonably practicable to arrange safety switches on the front and rear cabinet panels. The arrangement we saw appears to allow these panels to be easily removed without affecting the saw cycle.”
Mr Hobson believed that operation of the saw without guards would be likely to make Tubes liable under the Health and Safety Regulations and at common law. However, he accepted that that was a decision for legal opinion.
Mr Baker emphasised that the saw was second-hand and that it had been operated in the past without guards. But that does not mean that it was safe. In my view it was not safe to operate the saw without guards. That conclusion is supported by the photograph on page 106 of the bundle which shows guards on an old machine. The sort of guards involved are simple structures. As safety is an aspect of quality under the 1979 Act, I conclude that the saw was not of satisfactory quality and its supply breached the term implied by section 14 of the 1979 Act.
Albright & Wilson UK Ltd v Biachem Ltd & Ors
[2001] EWCA Civ 301 , [2001] 2 All ER (Comm) 537, [2001] CLC 1023
Buxton LJ
The main question in this appeal has been the correct answer to be given to the first question that was before the judge: that is to say, was there performance or purported performance of both of the contracts; or of only one of those contracts and (if so) which one; or, indeed, of neither? The judge held that there had been performance or purported performance – and he did not distinguish, nor was he required to distinguish, between those two concepts – by both Biachem and Berk.
The answers that he should have given, according to the appellants in this case, were as follows. On the part of Berk it was contended that there was indeed performance or purported performance by somebody, but that had been by Biachem and not by Berk. The answer contended for by Biachem was, on its preferred view, that neither Biachem nor Berk had performed the contract, nor purported to perform it; but that, if that was wrong and anyone did perform or purport to perform, that was Berk and not Biachem. Biachem’spreferred position that neither party performed was based in the first instance on the argument that the whole of the case should be analysed in terms of the law of tort and not of the law of contract. For the reasons that I have already indicated, that is not a valid contention.
There was, however, a further aspect of the argument which it will be convenient to take at this stage because it potentially affects other parts of the case. Biachem contended in broad terms that it was a feature of the transaction that Albright & Wilson had been negligent or at fault in the way in which they had dealt with the paperwork and with the deliveries or purported deliveries. That, it seems to me, is a contention that it is difficult to raise – and certainly difficult to resolve – on a preliminary issue. For reasons that I will indicate, it does not, in my judgement, help in deciding the questions that the court has to decide. But I think that it would be right for me to say that in any event – and, should this matter go further, it can be accepted that this passage of my judgment is, for the reasons that I have just indicated, obiter – it is clear to me that that complaint is not made out.
The complaint was based upon a number of contentions: first, that it should have been obvious that the tanker did not have EPI in it, as the delivery note suggested; second, that the inspecting chemist should have checked previous documentations showing the right tanker number; or thirdly, that she or the staff of Albright & Wilson receiving the tanker should have looked at the back of the tanker, where safety warnings appropriate to sodium chlorite, but not appropriate to EPI, were to be found. It seems to me that those criticisms, in the circumstances of this case, are not reasonable ones. It is not only a matter of common sense but also a matter of law that in the ordinary course of business one is entitled to assume that contractual documents that are presented are correct and are relevant to the load that they purport to relate to. There is ample authority to support that approach. If a recent case is needed, it is that which Mr Bartlett QC drew to our attention, Barclays Bank plc v Fairclough Building Ltd [1995] QB 214, in the judgment of Beldam LJ at pp.229-230. However, the point does not matter. It does not matter because it is not relevant to an issue in contract. Contractual liability is strict and contributory negligence on the part of the other party cannot (and certainly cannot on the facts of this case) be deployed in order to avoid a contractual solution.
There was, however, another aspect of Biachem’s arguments to which this point is potentially relevant. This arises in connection with the law of agency. The case, of course, turns on the contention that Huktra and the driver, doing what they did, were acting as agents both for Berk and for Biachem. We were taken to article 75 of the current edition of Bowstead and Reynolds on Agency. The article (which, as far as I know, has stood in that work for many years) says this:
“No act done by an agent in excess of his actual authority is binding on the principal with respect to persons having notice that in doing the act the agent is exceeding his authority.”
It was contended that notice of lack of authority might be, not merely actual notice (such as is not suggested to apply here), but also constructive or implied notice, based upon circumstances of which the party dealing with the agent should have been aware, even if in fact he was not: that is to say, the circumstances relevant to the alleged negligence by Albright & Wilson that I have already set out.
That contention fails on a number of points. First of all, it is by no means clear that it represents the law at all. The commentary to article 75 in Bowstead goes no further than to suggest that presumptions that constructive or presumed notice do not apply in commercial transactions may need to be reviewed. So they may; but this is not the case in which to do it. Secondly, and in any event, the question of whether there is notice of lack of authority is an objective one to be considered in the light of all the circumstances. That is made quite plain in a passage from a judgment of Neill J (as he then was) in Feuer Leather Corp v Frank Johnston & Sons Ltd [1981] Com L Rep 251, which is set out in the commentary to Bowstead and, indeed, which was read to us by Mr Norris QC on behalf of Biachem. I do not set out the extract from Neill J’s judgment that is there deployed, but he ended by saying:
“… the question becomes, looking objectively at the circumstances which are alleged to constitute notice, do those circumstances constitute notice? This must be a matter of fact and degree to be determined in the particular circumstances of the case.”
That statement is, in my judgement, cogent generally as an indication of how the court ought to proceed. The threshold problem in this case is accordingly that this allegation about Albright & Wilson’s knowledge was not pleaded and does not appear to have formed any part of the case before the judge below. Therefore if, as Neill J held, and I hold, this is an issue of fact, this court has no findings on the part of the judge below on which it can proceed. That is fatal to this point in any event. But for fear that that might be thought to be a somewhat pedantic way of approaching the matter, I go further and say two things. First of all, we were helpfully taken by Mr Bartlett QC to paragraph 8-055 of Bowstead, that, where an agent is acting within the usual authority of a person doing the job that he does, those dealing with him are prima facie entitled to think that he has authority. In this case that aptly described the ordinary work of delivery that this ordinary and commonplace transaction involved on the part of the driver. Secondly, on the facts of this case one only has to go back to the account that I ventured to set out earlier of what Huktra actually did and how the accident arose. The objective view of all that is that Huktra were plainly acting for both Berk and Biachem, but getting it wrong. Even if the errors that had occurred had come to the attention of the employees of Albright & Wilson, they would not have drawn the conclusion that the driver or Huktra were exceeding their authority: they would have drawn the conclusion that I have just drawn – that Huktra and the driver were making mistakes. So there is no possibility in this case of saying that the first question posed to the judge does not arise at all because the people actually acting were not acting as agents for either of the appellants; or that it should have been appreciated by the appellants that they did not have that authority.
…..
……
In my judgement, however, those arguments are not in point. The first need for the documents to be present is in order to identify the goods: not, in the usual case, to give warnings as to what they are or, rather, as to what they are not. That point is not affected by the terms of section 14(1) of the Sale of Goods Act: an issue about which Mr Bartlett expressed some nervousness, even though I was not certain that Mr ter Haar had in fact taken the point. However, Mr Bartlett pointed out that section 14(1) says that there should be no implied term about quality or fitness, except as provided by that section and by section 15. The short answer to that difficulty (if it is one) is that the term contended for by Albright & Wilson is not a term about quality and fitness, or at least not exclusively so. In my judgement, it is rarely (if ever) going to be satisfactory or possible to limit a term such as this (that is to say, in respect of documents identifying the goods) to the taking of reasonable steps to satisfy such a requirement. That simply seems to be inappropriate, when one is looking at a contractual term of some importance. The judge was correct in the answer that he gave to question 3(a), both for the reasons that he gave in paragraphs 26 and 27 of his judgment and because of the further reasons that I have endeavoured to set out. That being that term, there is no doubt that it was broken: all this, of course, being on the assumption that we are dealing with performance by Berk.
The rest of the questions, questions 3(b), (c) and (d), deal with breaches or potential breaches by Berk. That was dealt with, if I may respectfully say so, in short but extremely clear terms by the learned judge in paragraphs 29 to 34 of his judgment. I agree with what he says there and I can deal with the questions quite shortly by setting out those paragraphs:
“29.I need next to answer the questions whether Berk was in breach of the (statutory) implied term as to quality and fitness by reason of the fact that the Sodium Chlorite was accompanied by documentation inaccurately describing it as EPI. This depends on whether, especially in the context of this industry, the documentation can be linked to the quality or fitness of the goods. Free of authority, and construing the relevant wording of the statute literally, one might be inclined to give a negative answer. The matter is, however, by no means free of authority.
30.My attention was drawn to a number of cases, of which the most pertinent are perhaps Niblett v Confectioners’ Materials Co Ltd [1921] 3 KB 387, 395 (per Bankes LJ) and Hardwick Game Farm v Suffolk Agricultural Poultry Producers Assn, Kendall & Sons v Lillico & Sons [1969] 2 AC 31, 119 (Lord Pearce). In the former case, a decision of the Court of Appeal, Bankes LJ (with whom Atkin LJ agreed) expressed the view, in the context of condensed milk, that “The labels were as much part of the state or condition of the goods as the tins were. The state of the packing affected the merchantable quality of the goods.” I am persuaded, in the present context, that the delivery note gave in effect a misleading description of the Sodium Chlorite and was such as to constitute a breach of the statutory terms relied upon.
31.I therefore answer Issue (3)(b) also in the affirmative.
32.It being accepted that the Sodium Chlorite was to be delivered to the Fluids Plant, my earlier ruling on Issue (1) really determines the next matter I have to address. I do consider that Berk was in breach in effecting actual delivery of the consignment to the Phosphates Plant. Accordingly, I answer Issue 3(c) in the affirmative too.
33.My approach to the next matter is naturally conditioned by my answer to Issue (3)(a)(ii). I have already decided that it was an implied term that the delivery pursuant to the contract:
(a)would include and/or be accompanied by documents correctly identifying the substance being delivered;
(b)would not include and/or be accompanied by documents representing the Sodium Chlorite to be some other substance.
34.In the light of the content of the Biachem delivery note, and my earlier ruling as to Issue (1), it is clear that I must logically hold that Berk was indeed in breach of each of these two implied terms. I correspondingly answer Issue 3(d) in the affirmative.”
A short point was taken on this issue by Mr ter Haar. He agreed that, given all the assumptions against him (that is to say, assuming that his client had been performing the contract), he would be bound by section 14 of the Sale of Goods Act. He, however, said this. A breach of section 14 was to be determined as to what happened at the place of delivery. That was required to be at the Fluids Plant. No delivery was made there: the goods were sent to the Phosphates Plant. So the time for performance by Berk had not yet arisen, and the only fault on Berk’s part was not to deliver at all. As a result, the damages would be somewhat less than might accrue if, indeed, there had been the breaches found by the judge in answer to questions 3(b), (c) and (d).
If I may respectfully say so, at first sight that was a logical and persuasive argument, but I fear that it is wrong. It assumes, as other arguments in this case have assumed, that breaches of terms can only arise when there is actual and total performance of the contract. That is not so: I revert again to Denning LJ in Wilson v Rickett Cockerell. Here, performance was tendered at the wrong place, but it was purported performance nonetheless. Mr Bartlett also pointed out that there had been delivery and that delivery had been accepted in the way that I have already set out earlier in this judgment; the breach, therefore, was one of mis-delivery, but that did not mean that there was no purported performance of the contract. I agree with that analysis. For those reasons, therefore, I would respectfully agree with the judge in the answers that he gave, both under issue 2 and under issue 3.
Issue 4 is something rather different. It arises only between Biachem and Albright & Wilson. Originally there was a “battle of the forms”, in which Biachem contended for its terms to have been those governing this contract, Albright & Wilson saying that its terms would so govern. The judge found that Biachem’s terms had not governed the contract, but confirmed that Albright & Wilson’s had. The first of those findings is not now complained of by Biachem. But the second is, and I must, therefore, review it.
The order that caused the trouble, if I may put it in those terms, was the fifth in a series of orders. That series was started by a Biachem quotation of 24th May 1996, which said, amongst other things:
“Further to your recent enquiry we have pleasure in confirming our current prices. …
Prices subject to final confirmation at time of order. Quotation subject to our general terms and conditions of sale.”
That was met by a document from Albright & Wilson dated 31st May, which was described on its face as a “blanket order”. It set out an order for EPI and had this inscribed on its face:
“Please supply the undermentioned goods on the terms specified on this document and such supply shall at all times be subject to A & W’s Conditions of Order already notified to you.”
In fact, as the judge found, the terms were never notified to Biachem.
There was then a series of telephone orders – for instance, one load on 16th July 1996 – and they would be followed by a standard form purchase order from Albright & Wilson which would set out the order and say, in the following terms:
“Please supply the undermentioned goods on the terms and conditions set out in Albright & Wilson UK Limited’s conditions of order. Please advise us if you wish to see a copy and one will be supplied.”
That document was described as “Confirmation, as arranged by telephone”.
Such a procedure was followed and such a document was produced in respect of the 3rd October delivery. Biachem, having delivered on these occasions, subsequently furnished an invoice which referred to its own terms. Those terms, as I say, are not now relied on. The judge found that they had been proffered too late to be effective, and I respectfully agree.
The judge concluded, having looked at this history in detail, as follows:
“43.It is accepted that the proper test is to be found in the Hardwick case (at p.113 D-E, per Lord Pearce). That is to say, whether a reasonable person standing in the shoes of Biachem would conclude that A & W had assented to be bound by the Biachem terms and conditions. …
44.My answer to Issue (4) is that a reasonable person in Biachem’s shoes in September 1996 would not have come to the conclusion that A & W had agreed to be bound by the Biachem conditions. In so far as it is necessary to decide the matter, I would myself find that the sequence of events I have described was such as to lead a reasonable onlooker to determine that the contracts were governed in each case by the A & W conditions.”
This was really a question of fact and assessment for the judge, he having directed himself in terms that not only were not contested but, in my respectful judgement, were correct. As Sir Swinton Thomas pointed out in the course of argument, in such circumstances this court would only intervene if the judge had clearly made a mistake or had reached a conclusion that could not be reasonably reached on the facts. As I understood it, Mr Norris felt constrained to agree with Sir Swinton that that was the limit of the court’s jurisdiction.
In my judgement, it is impossible to say here that the judge was plainly wrong. I would go on to say that it is not possible to say that he was even wrong at all in finding, as he did, that the blanket order from Albright & Wilson that dominated the transactions thereafter imposed on the transactions the reliance on Albright & Wilson’s terms that were reiterated in subsequent contract notes, albeit that these were confirmations of particular orders sent by telephone. Albright & Wilson’s terms were not sent to Biachem, but they were available and Biachem could have asked for them.
This was a transaction between competent and well-informed businessmen. It was not an oral consumer contract, as was the case in two cases referred to us, McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 and Hollier v Rambler Motors (AMC Ltd) [1972] 2 QB 71. The principles, contractually, are the same whatever the type of contract; but the judge’s assessment of the facts and of the reasonable beliefs of the parties has to be against the particular commercial background. Against the commercial background of these two parties and the way they dealt with each other, I have no doubt at all that the judge was right in the conclusion he came to that Albright & Wilson’s conditions governed this contract. I would, therefore, also uphold the judge on issue 4.
For those reasons, I would dismiss the appeals of both parties.
Bunge Corporation (New York) v Tradax Export SA (Panama)
[1981] UKHL 11 [1981] 2 All ER 513, [1981] UKHL 11, [1981] WLR 711, [1981] 1 WLR 711
Apart from arguments on construction which have been fully dealt with
by my noble and learned friend, the main contention of Mr. Buckley Q.C.
for the appellant was based on the decision of the Court of Appeal in
Hong Kong Fir Shipping Co., Ltd. v. Kawasaki Kisen Kaisha Ltd. [1962]
2 Q.B. 26, as it might be applied to clause 7. Diplock L.J., as he then was,
in his seminal judgment illuminated the existence in contracts of terms which
were neither, necessarily, conditions nor warranties, but, in terminology
which has since been applied to them, intermediate or innominate terms
capable of operating, according to the gravity of the breach, as either
conditions or warranties. Relying on this, Mr. Buckley’s submission was
that the buyer’s obligation under the clause, to ” give at least [15] consecutive
” days’ notice of probable readiness of vessel(s) and of the approximate
” quantity required to be loaded “, is of this character. A breach of it,
both generally and in relation to this particular case, might be, to use
Mr. Buckley’s expression, ” inconsequential “, i.e. not such as to make
performance of the seller’s obligation impossible. If this were so it would
be wrong to treat it as a breach of condition: Hong Kong Fir would require
it to be treated as a warranty.
This argument, in my opinion, is based upon a dangerous
misunderstanding, or misapplication, of what was decided and said in Hong
Kong Fir. That case was concerned with an obligation of seaworthiness,
breaches of which had occurred during the course of the voyage. The
decision of the Court of Appeal was that this obligation was not a
condition, a breach of which entitled the charterer to repudiate. It was
pointed out that, as could be seen in advance the breaches, which might
occur of it, were various. They might be extremely trivial, the omission
of a nail; they might be extremely grave, a serious defect in the hull or
in the machinery; they might be of serious but not fatal gravity,
incompetence or incapacity of the crew. The decision, and the judgments
of the Court of Appeal, drew from these facts the inescapable conclusion
that it was impossible to ascribe to the obligation, in advance, the character
of a condition.
Diplock L.J. then generalised this particular consequence into the analysis
which has since become classical. The fundamental fallacy of the appellant’s
argument lies in attempting to apply this analysis to a time clause such as
the present in a mercantile contract, which is totally different in character.
As to such a clause there is only one kind of breach possible, namely, to
be late, and the questions which have to be asked are, first, what importance
have the parties expressly ascribed to this consequence, and secondly, in
the absence of expressed agreement, what consequence ought to be
attached to it having regard to the contract as a whole.
2
The test suggested by the appellants was a different one. One must
consider, they said, the breach actually committed and then decide whether
that default would deprive the party not in default of substantially the whole
benefit of the contract. They invoked even certain passages in the judgment
of Diplock L.J. in Hong Kong Fir to support it. One may observe in the
first place that the introduction of a test of this kind would be commercially
most undesirable. It would expose the parties, after a breach of one, two,
three, seven and other numbers of days to an argument whether this delay
would have left time for the seller to provide the goods. It would make it,
at the time, at least difficult, and sometimes impossible, for the supplier
to know whether he could do so. It would fatally remove from a vital
provision in the contract that certainty which is the most indispensable
quality of mercantile contracts, and lead to a large increase in arbitrations.
It would confine the seller—perhaps after arbitration and reference through
the courts—to a remedy in damages which might be extremely difficult to
quantify. These are all serious objections in practice. But I am clear
that the submission is unacceptable in law. The judgment of Diplock L.J.
does not give any support and ought not to give any encouragement to any
such proposition; for beyond doubt it recognises that it is open to the parties
to agree that, as regards a particular obligation, any breach shall entitle the
party not in default to treat the contract as repudiated. Indeed, if he were
not doing so he would, in a passage which does not profess to be more
than clarificatory, be discrediting a long and uniform series of cases—at
least from Bowes v. Shand (1877) 2 App. Cas. 455 onwards which have
been referred to by my noble and learned friend. Lord Roskill. It remains
true, as Lord Roskill has pointed out in Cehave N.V. v. Bremer
Handelsgesellschaft m.b.H. [1976] 1 Q.B. 44, that the courts should not be
too ready to interpret contractual clauses as conditions. And I have myself
commended, and continue to commend, the greater flexibility in the law of
contracts to which Hong Kong Fir points the way (Reardon Smith Line Ltd.
v. Hansen-Tangen [1976] 1 W.L.R. 989, 998). But I do not doubt that, in
suitable cases, the courts should not be reluctant, if the intentions of the
parties as shown by the contract so indicate, to hold that an obligation has
the force of a condition, and that indeed they should usually do so in the
case of time clauses in mercantile contracts. To such cases the ” gravity
” of the breach ” approach of Hong Kong Fir would be unsuitable. I need
only add on this point that the word ” expressly ” used by Diplock L.J.
at p.70 of his judgment in Hong Kong Fir should not be read as requiring
the actual use of the word ” condition “: any term or terms of the contract,
which, fairly read, have the effect indicated, are sufficient. Lord Diplock
himself has given recognition to this in this House (Photo Production Ltd.
v. Securicor Transport Ltd. [I980] A.C. 827, 849). I therefore reject that
part of the appellant’s argument which was based upon it, and I must
disagree with the judgment of the learned trial judge in so far as he
accepted it. I respectfully endorse, on the other hand, the full and learned
treatment of this issue in the judgment of Megaw L.J. in the Court of
Appeal.
I would add that the argument above applies equally to the use which
the appellant endeavoured to make of certain observations in United
Scientific Holdings Ltd. v. Burnley Borough Council [1978] A.C. 904,
a case on which I do not need to comment on this occasion.
In conclusion, the statement of the law in Halsbury’s Laws of England,
4th Ed. Vol. 9 (Contract) paragraphs 481-2, including the footnotes to
paragraph 482 (generally approved in the House in the United Scientific
Holdings case), appears to me to be correct, in particular in asserting (1)
that the court will require precise compliance with stipulations as to time
wherever the circumstances of the case indicate that this would fulfil the
intention of the parties, and (2) that broadly speaking time will be considered
of the essence in ” mercantile” contracts—with footnote reference to
authorities which I have mentioned.
The relevant clause falls squarely within these principles, and such
authority as there is supports its status as a condition—see Bremer
3
Handelsgesellschaft v. J. H. Rayner & Co. Ltd. [1978] 2 Lloyd’s Rep. 73
and cp. Turnbull & Co. (Pty) Ltd. v. Mundas Trading Co. (Pty) Ltd. [1954]
2 Lloyd’s Rep. 198 (H.C. of A.). In this present context it is clearly
essential that both buyer and seller (who may change roles in the next
series of contracts, or even in the same chain of contracts) should know
precisely what their obligations are, most especially because the ability of
the seller to fulfil his obligation may well be totally dependent on punctual
performance by the buyer.
I would dismiss the appeal, and for the reasons given by my noble and
learned friend, Lord Roskill, the cross-appeal.
Lord Fraser of Tullybelton
My Lords,
I have had the advantage of reading in draft the speeches of my noble
and learned friends, Lord Wilberforce and Lord Roskill, and I agree with
them. For the reasons stated by them I would dismiss the appeal and
cross-appeal.
Lord Scarman
My Lords,
I have had the advantage of reading in draft the speeches of my noble
and learned friends, Lord Wilberforce and Lord Roskill. I agree with
both of them, and would, therefore, dismiss the appeal and the cross-appeal.
I wish, however, to make a few observations upon the topic of
” innominate ” terms in our contract law. In Hong Kong Fir Shipping Co.
Ltd. v. Kawasaki K.K. Ltd. [1962] 2 QB 26, the Court of Appeal
rediscovered and reaffirmed that English law recognises contractual terms
which, upon a true construction of the contract of which they are part, are
neither conditions nor warranties but are, to quote my noble and learned
friend Lord Wilberforce’s words in Bremer v. Vanden [1978] 2 Lloyd’s
Rep. 109 at p. 113, ” intermediate “. A condition is a term, the failure to
perform which entitles the other party to treat the contract as at an end.
A warranty is a term, breach of which sounds in damages but does not
terminate, or entitle the other party to terminate, the contract. An innominate
or intermediate term is one, the effect of non-performance of which the
parties expressly or (as is more usual) impliedly agree will depend upon the
nature and the consequences of breach. In the Hong Kong Fir case the
term in question provided for the obligation of seaworthiness, breach of
which it is well known may be trivial (e.g., one defective rivet) or very
serious (e.g., a hole in the bottom of the ship). It is inconceivable that parties
when including such a term in their contract could have contemplated or
intended (unless they expressly say so) that one defective rivet would entitle
the charterer to end the contract or that a hole in the bottom of the ship
would not. I read the Hong Kong Fir case as being concerned as much with
the construction of the contract as with the consequences and effect of breach.
The first question is always, therefore, whether, upon the true construction
of a stipulation and the contract of which it is part, it is a condition, an
innominate term, or only a warranty. If the stipulation is one, which upon
the true construction of the contract the parties have not made a condition,
and breach of which may be attended by trivial, minor, or very grave
consequences, it is innominate, and the court (or an arbitrator) will, in the
event of dispute, have the task of deciding whether the breach that has arisen
is such as the parties would have said, had they been asked at the time they
made their contract:__ ” it goes without saying that, if that happens, the
” contract is at an end.”
Where, therefore, as commonly happens, the parties do not identify a
stipulation as a condition, innominate term, or warranty, the court will
approach the problem of construction in the way outlined by Upjohn L.J.,
at pp.63 and 64 of the report. As the Lord Justice put it,
4
” Where, however, upon the true construction of the contract, the
” parties have not made a particular stipulation a condition, it would in
” my judgment be unsound and misleading to conclude that, being a
” warranty, damages is necessarily a sufficient remedy.”
Unless the contract makes it clear, either by express provision or by necessary
implication arising from its nature, purpose, and circumstances (” the factual
“matrix ” as spelt out, for example, by Lord Wilberforce in his speech in the
Reardon Smith case [1976] 1 W.L.R. 989, at pp.995E-997D), that a
particular stipulation is a condition or only a warranty, it is an innominate
term, the remedy for a breach of which depends upon the nature,
consequences, and effect of the breach.
When the Court of Appeal had taken the logical step of declaring that the
Hong Kong Fir analysis applied to contracts generally (the Hansa Nord case
[1976] 1 Q.B. 44), the law was back where it had been left by Lord Mansfield
in Boone v. Eyre (1777) 1 Hy. Bl. 273 and the judgment of Bramwell B. in
Jackson v. Union Marine Insurance Co. Ltd. L.R. 10 C.P. 125.
Section 11(1) (b) of the Sale of Goods Act 1893 can now be seen to be no
more than a statutory guide to the use of the terms ” condition” and
” warranty ” in that Act. It is not to be treated as an indication that the
law knows no terms other than conditions and warranties. This fallacy was
exposed in the Hong Kong Fir case. To read the subsection as a guide
to a comprehensive classification of contractual terms is to convert it into
a will-o’-the-wisp leading the unwary away from the true path of the law.
The difficulty in the present case is, as Mr. Buckley’s excellent argument
for the appellants revealed, to determine what is the true construction of the
completed clause 7 of GAFTA form 119, which the parties incorporated in
their contract. After some hesitation, I have concluded that the clause was
intended as a term, the buyer’s performance of which was the necessary
condition to performance by the seller of his obligations. The contract, when
made, was, to use the idiom of Diplock L.J. (Hong Kong Fir p.65) and
Demosthenes (Oratt. Attici. Reiske 867.11), ” synallagmatic “, i.e. a contract
of mutual engagements to be performed in the future, or, in the more familiar
English/Latin idiom, an ” executory ” contract. The seller needed sufficient
notice to enable him to choose the loading port: the parties were agreed
that the notice to be given him was 15 days: this was a mercantile contract
in which the parties required to know where they stood not merely later with
hindsight but at once as events occurred. Because it makes commercial sense
to treat the clause in the context and circumstances of this contract as a
condition to be performed before the seller takes his steps to comply with
bargain, I would hold it to be not an innominate term but a condition.
Lord Roskill
My Lords, the central question in this appeal is whether the appellants’
obligation under clause 7 completed as I have completed it, are of such a
character that a breach of them by the appellants such as, in my view,
undoubtedly took place, entitled the respondents forthwith to rescind and
claim damages. Put into lawyers’ language—is the appellants’ obligation to
give the required 15 days’ notice a condition or not? If it is, this appeal
fails. If it is not, this appeal must succeed. As already stated, at all stages of
these proceedings, save one, this obligation has been held to be a condition.
The learned judge not only held that it was not a condition but also held that
there was no breach by the appellants of clause 7. The Court of Appeal
disagreed and this latter submission which found favour with the learned
judge was not—rightly in my view—pursued in argument before your
Lordships’ House.
My Lords, the relevant phrase ” give at least 15 consecutive days’ notice “
consists only of six words and two digits. But the able arguments of which
your Lordships have had the benefit have extended over 3 full days. The
appellants’ arguments may be summarised thus. They submitted that this
term was not a condition but was what has come to be described since the
Hong Kong Fir case [1962] 2 QB 26, as an ” innominate ” obligation—
neither a condition nor a warranty, and that when a term is an innominate
obligation the question whether or not a breach gives the innocent party the
right to rescind depends upon whether the innocent party was thereby deprived
” of substantially the whole benefit which it was intended he should obtain
” from the contract “. This last quotation is from the judgment of
10
Diplock L.J. (as he then was) in the Hong Kong Fir case at page 70 of the
report. It was further argued that since the respondents accepted that they
could not show the now admitted breach by the appellants in giving a late
notice had deprived them of substantially the whole benefit which it was
intended they should obtain from the contract, the respondent had no right to
rescind on account of that late notice. Much reliance was also placed by
Mr. Roger Buckley, Q.C. for the appellants upon the ensuing passage in the
learned Lord Justice’s judgment, also at page 70 of the report: ” and the legal
” consequences of a breach of such an undertaking, unless provided for
” expressly in the contract [my emphasis], depend upon the nature of the event
” to which the breach gives rise “. There was, Mr. Buckley argued, no such
” express ” provision in this contract. Mr. Buckley also placed reliance upon
the application of the principle enunciated in the Hong Kong Fir case, which
was a case of a time charterparty relating to an unseaworthy ship, to contracts
for the sale of goods, such as the present, by the Court of Appeal in the
Hansa Nord case, [1976] Q.B. 44, a decision approved in your Lordships’
House in the Reardon Smith case, [1976] 1 W.L.R. 989. The principles
enunciated in the first two cases mentioned were, he said, of general
application and pointed the way to a new and now correct approach to the
question how a term in a contract alleged on the one hand to be a condition
and on the other hand to be an ” innominate term ” should be approached.
My Lords, it is beyond question that there are many cases in the books
where terms, the breach of which do not deprive the innocent party of
substantially the whole of the benefit which he was intended to receive from
the contract, were nonetheless held to be conditions any breach of which
entitled the innocent party to rescind. Perhaps the most famous is Bowes
v. Shand (1877) 2 App. Cas. 455. Reuter v. Sala (1879) 4 C.P.D. 239, is
another such case. Both these cases were decided before the Sale of Goods
Act 1893 was enacted. But that Act only codified the relevant common law.
I think Mr. Buckley was entitled to say that these two, and other similar
cases, largely turned upon the fact that the breach complained of was part
of the description of the goods in question and that would therefore today
be a statutory condition under section 13 of the Sale of Goods Act. But
there are many other cases, modern and less modern, where terms in
contracts for the sale of goods have been held to be conditions any breach of
which will give rise to a right to rescind. Though section 10 (1) of the
Sale of Goods Act provides that, unless a different intention appears, terms
as to the time of payment are not deemed to be of the essence of a contract
of sale, there are many cases, notably those in connection with the opening
of bankers credits and the payment against documents, where the relevant
obligations have been held to be a condition a breach of which will entitle
the innocent party to rescind. No useful purpose will be served by listing all
those cases cited in argument on either side. Many are usefully collected in
the judgment of Diplock J. (as he then was) in Ian Stach Limited v. Baker
Bosley Ltd. [1958] 2 Q.B. 130 at pages 139-144, and I would emphasize in
this connection the need for certainty in this type of transaction to which
that learned judge referred at pages 143 and 144 of his judgment. Parties
to commercial transactions should be entitled to know their rights at once
and should not, when possible, be required to wait upon events before those
rights can be determined. Of course, in many cases of alleged frustration or
of alleged repudiatory delay it may be necessary to await events upon the
happening or non-happening of which rights may well crystallise. But
your Lordships’ House has recently reiterated in a series of cases arising
from the withdrawal of ships on time charter for non-payment of hire the
need for certainty where punctual payment of hire is required and has held
that the right to rescind automatically follows a breach of any such
condition.
My Lords, I find nothing in the judgment of Diplock L.J. in the Hong
Kong Fir case which suggests any departure from the basic and long
standing rules for determining whether a particular term in a contract is
or is not a condition and there is much in the judgment of Sellers LJ.
with which Upjohn L.J. (as he then was) expressly agreed, to show that
11
those rules are still good law and should be maintained. They are
enshrined in the oft quoted judgment of Bowen L.J. (as he then was) in
Bentsen v. Taylor [1893] 2 Q.B. 274 at 281. ” There is no way of deciding
” that question except by looking at the contract in the light of the
” surrounding circumstances, and then making up one’s mind whether the
” intention of the parties, as gathered from the instrument itself, will best
” be carried out by treating the promise as a warranty sounding only in
” damages, or as a condition precedent by the failure to perform which
” the other party is relieved of his liability.” That well-known passage will
be found quoted by Sellers LJ. at page 60 of the report in the Hong
Kong Fir case. I would add a reference in this connection to the judgment
of Scrutton L.J. in Comptoir Commercial Anversois v. Power [1920] 1 K.B.
868 at 899, where that learned Lord Justice added to the statements of the
same principle in the Exchequer Chamber in Behn v. Burness (1863)
3 B. & S. 751 and in Oppenheim v. Fraser (1876) 34 L.T. 524, his own
great authority.
My Lords, the judgment of Diplock L.J. in the Hong Kong Fir case is,
if I may respectfully say so, a landmark in the development of one part
of our law of contract in the latter part of this century. The learned Lord
Justice showed by reference to detailed historical analysis, contrary to what
had often been thought previously, that there was no complete dichotomy
between conditions and warranties and that there was a third class of
term, the innominate term. But I do not believe the learned Lord Justice
ever intended his judgment to afford an easy escape route from the normal
consequences of rescission to a contract breaker who had broken what
was, upon its true construction, clearly a condition of the contract by
claiming that he had only broken an innominate term. Of course when
considering whether a particular term is or is not a condition it is relevant
to consider to what other class or category that term, if not a condition,
might belong. But to say that is not to accept that the question whether
or not a term is a condition has to be determined solely by reference to
what has to be proved before rescission can be claimed for breach of a
term which has already been shown not to be a condition but an
innominate term. Once it is appreciated that the whole of the passages
on pages 69 and 70 of the learned Lord Justice’s judgment are directed
to the consequences of a term which is not a condition but an innominate
term and not to the question of whether or not a particular term is a
condition, the difficulties mentioned by Megaw L.J. in his judgment if
the passages in question are read too literally, and as the appellants invite
your Lordships to read them, disappear. The only criticism I would
respectfully venture of these passages is the use of the adverb ” expressly “
in the passage I have already quoted from the middle of the full paragraph
on page 70. Surely the same result must follow whether the legal
consequences of the breach are also ” impliedly ” provided for in the
contract upon that contract’s true construction? In venturing this amend-
ment to what the learned Lord Justice said, I derive comfort from the
fact that my noble and learned friend, Lord Diplock himself in Photo
Production Ltd. v. Securicor Transport Ltd. [1980] AC 827 at page 849,
speaks of the case where the contracting parties have agreed ” whether by
” express words or by implication of law” (my emphasis) that ” any “
(Lord Diplock’s emphasis) ” failure by one party to perform a particular
” primary obligation (‘ condition ‘ in the nomenclature of the Sale of Goods
” Act 1893), irrespective of the gravity of the event that has in fact resulted
” from the breach, shall entitle the other party to elect to put an end to
” all primary obligations of both parties remaining unperformed “. Thus
I think it legitimate to suggest an amendment to the passage in [1962]
2 Q.B. at page 70 either by deleting the word ” expressly ” or by adding
the words ” or by necessary implication “.
My Lords, your Lordships’ House had to consider a similar problem in
relation to a different clause (clause 21) in a different GAFTA contract
in Bremer v. Vanden [1978] 2 Lloyd’s Rep. 109. In passing I would
observe the text of that clause is inaccurately quoted in the headnote of
12
the report but will be found correctly quoted in the speech of Viscount
Dilhorne at page 121. My noble and learned friend Lord Wilberforce
said at page 113:
” Automatic and invariable treatment of a clause such as this runs
” counter to the approach, which modern authorities recognise, of
” treating such a provision as having the force of a condition (giving
” rise to rescission or invalidity), or of a contractual term (giving rise
” to damages only) according to the nature and gravity of the breach.
” The clause is then categorised as an innominate term. This doctrine
” emerged very clearly in the Hong Kong Fir case in relation to the
” obligation of seaworthiness, and was as applied to a contract for
” sale of goods made on GAFTA form 100 in the Hansa Nord, a
” decision itself approved by this House in the Reardon Smith case.
” In my opinion, the clause may vary appropriately and should be
” regarded as such an intermediate term: to do so would recognise
” that while in many, possibly most, instances, breach of it can
” adequately be sanctioned by damages, cases may exist in which, in
” fairness to the buyer, it would be proper to treat the cancellation
” as not having effect. On the other hand, always so to treat it may
” be often be unfair to the seller, and unnecessarily rigid.”
The passage I have just quoted was directed to clause 21 of the contract
there in question. All members of your Lordships’ House were of the
opinion that that clause was not a condition because it was insufficiently
definitive or precise—see the speeches of my noble and learned friends,
Lord Salmon at page 128, and Lord Russell of Killowen at page 130.
But it is important to observe that your Lordships’ House had also to
consider clause 22 of that contract. All members of your Lordships’
House held that clause 22 was a condition—see the speeches of my noble
and learned friends, Lord Wilberforce at page 116, and Lord Salmon at
page 128. I venture to emphasise the statement in the former passage
that accurate compliance with the stipulation in question was essential
to avoid commercial confusion in view of the possibility of long string
contracts being involved, a point of especial importance in the present case.
In short, while recognising the modern approach and not being over-
ready to construe terms of conditions unless the contract clearly requires
the court so to do, none the less the basic principles of construction for
determining whether or not a particular term is a condition remain as
as before, always bearing in mind on the one hand the need for certainty
and on the other the desirability of not, when legitimate, allowing rescission
where the breach complained of is highly technical and where damages
would clearly be an adequate remedy. It is therefore in my opinion
wrong to use the language employed by Diplock L.J. in the Hong Kong
Fir case as directed to the determination of the question which terms of
a particular contract are conditions and which are only innominate terms.
I respectfully agree with what Megaw L.J. said in the passage in his
judgment in the instant case at [1980] 1 Lloyd’s Rep. 294 at pages 307,
308. The explanation of the passage which he quotes is that which I
have just given.
My Lords, Mr. Buckley founded much of this part of his argument
upon the decision of your Lordships’ House in United Scientific Holdings
v. Burnley Borough Council [1978] A.C. 904 when your Lordships’ House,
unanimously reversing two separate decisions of the Court of Appeal, held
that the time table specified in rent review clauses for the completion of
the various steps for determining the rent payable in respect of the period
following the review was not of the essence. Naturally, Mr. Buckley
relied upon a passage in the speech of my noble and learned friend. Lord
Diplock, at page 928. I quote the passage in full.
” My Lords, I will not take up time repeating here what I myself
” said in the Hong Kong Fir case, except to point out that by 1873:
” (1) Stipulations as to the time at which a party was to perform
” a promise on his part were among the contractual stipulations which
13
” were not regarded as ‘conditions precedent’ if his failure to perform
” that promise punctually did not deprive the other party of
” substantially the whole benefit which it was intended that he should
” obtain from the contract;
” (2) When the delay by one party in performing a particular
” promise punctually had become so prolonged as to deprive the
” other party of substantially the whole benefit which it was intended
” that he should obtain from the contract it did discharge that other
” party from the obligation to continue to perform any of his own
” promises which as yet were unperformed;
” (3) Similar principles were applicable to determine whether the
” parties’ duties to one another to continue to perform their mutual
” obligations were discharged by frustration of the adventure that was
” the object of the contract. A party’s ability to perform his promise
” might depend upon the prior occurrence of an event which neither
” he nor the other party had promised would occur. The question
” whether a stipulation as to the time at which the event should occur
” was of the essence of the contract depended upon whether even a
” brief postponement of it would deprive one or other of the parties
” of substantially the whole benefit that it was intended that he should
” obtain from the contract.”
Read literally, the passage might be thought to be of universal
application and to suggest that by 1873 terms in contract as to time,
whatever their character, were not to be construed as conditions any
breach of which would give rise to a right to rescind unless the several
prerequisites specified in this passage were fulfilled. My Lords, I do not
think that my noble and learned friend can possibly have intended this
passage to be so read. In the immediately preceding pages he had been
dealing with the manner in which the courts of Chancery had been
developing the equitable principles which he describes and explaining how
contemporaneously the courts of common law were reaching the same
result though by a different route. But to read the passage I have just
quoted as of universal application and in particular as of application to
to stipulations as to time in mercantile contracts would be to misread it,
for it would be quite inconsistent with many earlier authorities such as
Behn v. Burness as well as later authorities such as Bowes v. Shand,
Reuter v. Sala and Bentsen v. Taylor to which I have already referred.
That this is so is strongly reinforced by the fact that Mr. Hugh Francis
Q.C., whose argument for the appellants was unanimously accepted by
your Lordships’ House, expressly conceded that the doctrine that my
noble and learned friend, Lord Diplock, ultimately so clearly expounded
at pages 926 to 928 did not apply in three classes of case of which the
second was ” where the courts may infer from the nature of the contract
” or the surrounding circumstances that the parties regard time stipulations
” as of the essence of their bargains; mercantile contracts . . .”—see page
908 of the report, a concession which I think was clearly rightly made.
In reply to this part of Mr. Buckley’s argument Mr. Staughton drew
your Lordships’ attention to Halsbury’s Laws of England (4th Edition,
1974) Volume 9, paragraphs 481 and 482. He was able to show that the
penultimate full paragraph in paragraph 481 had been expressly approved
by no less than three of your Lordships in the United Scientific Holdings
case, by Viscount Dilhorne at page 937, Lord Simon of Glaisdale at pages
941 and 944, and by Lord Fraser of Tullybelton at page 958, while Lord
Salmon at page 950 stated the law in virtually identical terms though
without an express reference to this particular passage in Halsbury. The
passage in question reads thus:
” The modern law, in the case of contracts of all types, may be
” summarised as follows. Time will not be considered to be of the
” essence unless: (1) the parties expressly stipulate that conditions
” as to time must be strictly complied with; or (2) the nature of the
14
” subject matter of the contract or the surrounding circumstances show
” that time should be considered to be of the essence; or (3) a party
” who has been subjected to unreasonable delay gives notice to the
” party in default making time of the essence.”
The relevant passage in paragraph 482 reads thus:
” Apart from express agreement or notice making time of the
” essence, the court will require precise compliance with stipulations
” as to time wherever the circumstances of the case indicate that this
” would fulfil the intention of the parties. Broadly speaking, time
” will be considered of the essence in ‘ mercantile ‘ contracts and in
” other cases where the nature of the contract or of the subject matter
” or the circumstances of the case require precise compliance.”
A footnote, No. 3, refers among other cases to Reuter v. Sala and to Bowes
v. Shand. My Lords, I agree with Mr. Staughton that the express approval
of the passage in paragraph 481 cannot be taken as involving implied
disapproval of the passage I have just quoted from paragraph 482.
My Lords, I venture to doubt whether much help is necessarily to be
derived in determining whether a particular term is to be construed as a
condition or as an innominate term by attaching a particular label to the
contract. Plainly there are terms in a mercantile contract, as your Lordships’
House pointed out in Bremer v. Vanden, which are not to be considered as
conditions. But the need for certainty in mercantile contracts is often of
great importance and sometimes may well be a determining factor in
deciding the true construction of a particular term in such a contract.
To my mind the most important single factor in favour of Mr. Staughton’s
submission is that until the requirement of the 15 day consecutive notice was
fulfilled, the respondents could not nominate the ” one Gulf port ” as the
loading port, which under the instant contract it was their sole right to do.
I agree with Mr. Staughton that in a mercantile contract when a term has to
be performed by one party as a condition precedent to the ability of the
other party to perform another term, especially an essential term such as
the nomination of a single loading port, the term as to time for the
performance of the former obligation will in general fall to be treated as a
condition. Until the 15 consecutive days’ notice had been given, the
respondents could not know for certain which loading port they should
nominate so as to ensure that the contract goods would be available for
loading on the ship’s arrival at that port before the end of the shipment
period.
It follows that in my opinion the umpire, the Board of Appeal and the
Court of Appeal all reached the correct conclusion and for the reasons I
have given I would dismiss the appellants’ appeal. It will have been
observed that I have reached this conclusion as a matter of the construction
of the relevant clause. I have thus far paid no regard to the finding in
paragraph 5 of the special case that ” This term in an FOB contract is
” regarded in the trade as of such great and fundamental importance that
” any breach thereof goes to the root of the contract.” Naturally, though
the crucial question of construction is a matter of law for the court, the
court will give much weight to the view of the trade tribunal concerned.
Though I question whether on the argument of a special case it is permissible
to look outside the findings of fact in that special case to findings of fact
in other special cases, Mr. Buckley was able to point to a contrary finding
of fact by a different Board of Appeal of the same association in Bremer
v. Rayner [1978] 2 Lloyd’s Rep. 73 at page 81 ” Failure of an fob buyer to
” indicate to his seller the demurrage/despatch rate with the nomination of
” a vessel or at any time is not [my emphasis] customarily treated by the
” trade as being a term of great or fundamental importance to the contract
” such as to give a seller the right to reject the nomination or to refuse to
” ship the goods.”
The relevant clause 7 in that case will be found at page 85 of the report in
the judgment of Mocatta J.
15
” 7. Nomination of Vessel. Buyer to give nomination of vessel to
” seller, in writing, in time for seller to receive with minimum 15 days’
” notice of earliest readiness of tonnage at first or sole port of loading.”
The learned judge held at page 89 of his judgment that the finding which
I have just quoted did not preclude his reaching the conclusion that that
clause was a matter of construction a condition, a breach of which entitled
the innocent party to rescind. The learned judge’s decision was reversed
on appeal on a different point—see [1979] 2 Lloyd’s Rep. 216. But
Bridge L.J. (as he then was) at page 234 was at pains to say that as then
advised he was not persuaded that on this question the learned judge had
reached the wrong conclusion. See also the judgment of Megaw L.J. at
page 229. With respect, I think that Mocatta J. was plainly correct in his
conclusion on this question.
Mr. Staughton also relied upon a number of cases where the argument
presently urged by Mr. Buckley might have been but was not advanced.
They included Turnbull v. Mundas [1954] 2 Lloyd’s Rep. 198, (a decision of
the High Court of Australia which included Sir Owen Dixon C.J.) and
Carapanayoti v. Andre [1972] 1 Lloyd’s Rep. 139—a decision of the Court
of Appeal). With respect I doubt whether past omissions, whether for good
or bad reasons, greatly advance the solution of the present problem.
My Lords, I would only add in conclusion that it seems clear from the
argument and indeed from the judgment of Parker J. in the present case
that certain passages in the judgment of Diplock L.J. in the Hong Kong
Fir case and in the speech of my noble and learned friend Lord Diplock
in United Scientific Holdings v. Burnley Borough Council have been read
out of context and thus misunderstood. An excellent illustration of this
misunderstanding is shown by the argument advanced and unanimously
rejected in Toepfer v. Lenersan [1978] 2 Lloyd’s Rep. 555 (Donaldson J.
as he then was) and [1980] 1 Lloyd’s Rep. 143 (Court of Appeal). There
the sellers attempted on the strength of the decision in the Hong Kong
Fir case to argue that the sellers’ obligations regarding time for presenta-
tion of the documents against which the buyers had to pay not later than
20 days after the bill of lading date was not a condition a breach of
which entitled the buyers to rescind but was only an innominate term.
I find myself in complete agreement with the observations of Donaldson J.
pointing out how the Hong Kong Fir case had been misunderstood. I
would, therefore, dismiss this appeal with costs.
WN Hillas & Co Ltd v Arcos Ltd
[1932] UKHL 2 (1932) 147 LT 503, [1932] UKHL 2 Lord Tomlin
The document in question is expressed to be ” Heads for the
” Purchase of Russian Goods.” Clause 11, the final clause, is–
” This agreement cancels all previous agreements.” It is signed
by R. N. Hillas and J. Axenoff, who are admittedly in fact agents
for the Appellants and Respondents respectively : it does not other-
wise define the parties, but there can be no doubt on a fair construc-
tion who the parties are. The first paragraph runs : ” We (that is,
” the Appellants) agree to buy 22,000 standards of softwood goods
” of fair specification over the season 1930, under the following
” conditions:” the conditions then follow in Clauses 1 to 11. The
first six conditions deal primarily with the purchase of 22,000
standards. Clauses 1, 2 and 3 deal with price, which is to be
according to the new revised schedule for 1930 purchases, subject to
certain, bonuses and discounts: the parties were in fact referring to
the Schedule issued by the Respondents. Clauses 4 and 5 deal with
terms of and other matters relating to payments: Clause 6 deals
with shipping dates in these general terms— ‘ Buyers to arrange
” shipping dates and loading instructions according to the readiness
” of the goods purchased.” The contract is clearly an instalment
contract ” over the season 1930,” since the whole quantity could not
be delivered in one shipment; it is obvious that the parties either
cannot or do not desire to fix precise dates for the plurality of ship-
ments which is contemplated; hence they leave the apportionment
of these shipments over the period to be determined as circumstances
require, first, by the readiness of the goods, including no doubt ports
of shipment, which will depend on the position of the Respondents,
who accordingly will have to declare it from time to time, and
secondly, on the action of the Appellants, who on receiving these
declarations will be entitled to a reasonable time on each occasion
in which to give the necessary shipping instructions in accordance
with which the Respondents will have to provide tonnage, because
it is a c.i.f. contract. Such matters may require, as the
performance of the contract proceeds, some consultation and
even concessions between the sellers and the buyers, but there is
no uncertainty involved because, if there eventually emerge
differences between the parties, the standard of what is reasonable
can, in the last resort, be applied by the law, which thus
by ascertaining exact dates makes precise what the parties
in the contract have deliberately left undefined. Hence in
view of this legal machinery id certum est quod certum reddi potest.
It is easy to find parallels in the authorities where even greater
vagueness or elasticity appears in the contract, thus, in Jackson v.
Rotax Motor & Cycle Co., 1910, 2 K.B. 937, there was a contract
for the sale of a large quantity of motor horns, delivery as required :
the Court of Appeal found no difficulty in ” reading this as a
” contract in which deliveries are to be made as and when required
” by the purchasers.” In the Dominion Coal Co. v. Dominion Iron
& Steel Co., 1909, A.C. 293, the Privy Council found no difficulty in
construing a contract as being for the sale by the coal company of
coal reasonably suitable in quality to the extent that the same could
be obtained by the reasonable and proper working of the designated
mines over a period of many years and directing an assessment
of damages. As to price, that is specifically fixed in this
contract by the clauses which have reference to the Respondents’
new revised schedule supplemented by a further provision in
Clause 8 that the Appellants were to have the advantage
of any beneficial terms granted to any other buyers which directly
or in effect reduced the price paid or consideration given for the
goods in 1930. Clause 7 gave an option to the Appellants of
increasing the contract quantity to 50,000 for shipment during the
(sc. 1930) season under the same terms. That option was, in fact,
exercised up to 40,000 standards. Clause 10 has reference to a
prospective consignment to the Appellants as agents for sale on
commission: but as that scheme did not eventuate, it may be
disregarded.
I have, so far, said nothing about the words ” of fair specifica-
tion ” : the only relevant question is whether these words were
too vague or uncertain to give effect to the contractual intention of
the parties, and I merely observe here that no one has suggested
that any difficulty was experienced in 1930 in applying these words
to the actual delivery from time to time of the different instalments
that made up the 40,000 standards. I shall discuss these words
more fully when I turn, as I now do, to consider Condition 9, which
is the crux of this case.
That condition must not be construed as if it stood by itself : it
is an integral part of the whole agreement: the option under it is
given as one of the conditions under which the Appellants agree to
buy the 22,000 standards, and is part of the consideration for their
agreeing to do so. It is accordingly a binding offer, which the
Appellants are entitled, by accepting before the 1st January, 1931,
to turn into a contract if other objections do not prevail. Some
confusion has been imported, as I think, into the question by dwell-
ing on the exact words—” the option of entering into a contract,”
and it is said that this is merely a contract to enter into a contract,
whereas in law there cannot be a contract to enter into a contract.
The phrase is epigrammatic, but may be either meaningless or mis-
leading. A contract de praesenti to enter into what, in law, is an
enforceable contract, is simply that enforceable contract, and no
more and no less : and if what may not very accurately be called
the second contract is not to take effect till some future date but is
otherwise an enforceable contract, the position is as in the preceding
illustration, save that the operation of the contract is postponed.
But in each case there is eo instanti a complete obligation. If,
however, what is meant is that the parties agree to negotiate in the
hope of effecting a valid contract, the position is different. There
is then no bargain except to negotiate, and negotiations may be
fruitless and end without any contract ensuing : yet even then, in
strict theory, there is a contract (if there is good consideration) to
negotiate, though in the event of repudiation by one party the
damages may be nominal, unless a “jury think that the opportunity
to negotiate was of some appreciable value to the injured party.
However, I think the words of Condition 9 in this case simply mean
that the Appellants had the option of accepting an offer in the terms
of Condition 9, so that when it was exercised a contract at once
came into existence, unless indeed the terms of the option embodied
in the clause were not sufficiently certain and complete : before con-
sidering this matter I ought to deal with a further contention based
on a construction of the second paragraph of Clause 9, which is in
these terms :
” such contract to stipulate that, whatever the conditions
” are, buyers shall obtain the goods on conditions and at prices
” which show to them a reduction of 5 per cent. on the f.o.b.
” value of the official price list at any time ruling during 1931.”
It is argued that these words read with the preceding paragraph
confirm the view that the option was merely for the preparation and
agreeing of a formal contract, because the words ” whatever the
” conditions are ” mean ” whatever the conditions of the contract
” are.” Such an argument involves adding the words “of the
” contract,” which are not expressed, and on other grounds
I do not think that it is correct. I think the word ” conditions “
refers to conditions affecting other people in the trade, primarily
as regards price, and such analogous advantages as are dealt with
in Condition 8 in connection with the 1930 season. What the
Appellants are stipulating is that they are to have, throughout the
year 1931, such conditions of this character and such prices as will
secure to them in any event a clear 5 per cent. advantage over other
buyers who might compete. On a fair reading of the words, I think
the contract is clear and complete in its stipulations as to price.
It was contended that no official price list might be issued in 1931,
so that the contract price was in that way uncertain and contingent.
But in past years in the conduct of this business it had been an
invariable practice of the Respondents to issue such a list: the
evidence and finding in the present case are that an official price list
was issued in 1931; indeed it is difficult to see how the Respondents
could carry on the business unless it was issued. I think that as
regards the definition of the machinery for fixing the price there is
sufficient certainty here for a business transaction: the issue in
1931 of the official price list is not a mere contingency but a practical
certainty: it is unnecessary to consider what would have been- the
legal position if the Respondents had ceased to carry on business or
had been dispossessed by war or revolution. Such considerations are
not relevant to determining whether there is a good contract or not,
but relate to such questions as frustration or breach of the contract.
The descrption of the goods offered to be sold in 1931, in
Clause 9, is also in my judgment sufficient in law. I so hold simply
as a matter of construction, having regard to the context.
” 100,000 standards,” divorced from the rest of the agreement, no
doubt would be too uncertain : abstractly they might be incapable
of any definite meaning. But the definition comes from the context:
the agreement is headed as being for the purchase of Russian goods
which to this extent must define the 100,000 standards; the words
50,000 standards in Clause 7 have clearly to be read as embodying
the same description as in the first paragraph of the agreement,
that is, standards of softwood goods of fair specification and, in my
judgment, the same description must apply to the 100,000 standards
in Clause 9, not as a matter of implication but of construction.
Hence the 100,000 standards are to be of Russian softwood goods
of fair specification. In practice, under such a description, the
parties will work out the necessary adjustments by a process of give
and take in order to arrive at an equitable or reasonable apportion-
ment on the basis of the Respondents’ actual available output,
according to kinds, qualities, sizes and scantlings; but, if they fail
to do so, the law can be invoked to determine what is reasonable in
the way of specification, and thus the machinery is always available
to give the necessary certainty. As a matter of strict procedure, the
sellers would make a tender as being of fair specification, the buyers
would reject it and the Court or an arbitrator decide whether it was
or was not a good tender. It is, however, said that in the present
case the contract quantity is too large, and the range of
variety in descriptions, qualities, and sizes, is too complicated to
admit of this being done. But I see no reason in principle
to think such an operation is beyond the powers of an expert
tribunal, or of a judge of fact assisted by expert witnesses.
I cannot find in the Record any evidence to justify this contention
of the Respondents even if such evidence be at all competent. On
the contrary it seems that a prospective specification for the
500,000 or 600,000 standards which formed the subject of the con-
tract of the 20th November, 1930, between the Respondents and the
Central Softwood Corporation, Limited, was agreed between these
parties at Moscow in a few days, which appears to confirm that the
ascertainment of a fair specification of Russian softwood goods,
even for a very large quantity and over a whole season, is not of
insuperable difficulty to experts. Accordingly I see no reason to
think that, as regards the quality and description of the goods, the
contract is either uncertain or incomplete. Nor can it justly be
objected that, though a fair and reasonable specification
may not be impossible of ascertainment, the reasonable specifi-
cation is impossible. The law, in determining what is reason-
able, is not concerned with ideal truth, but with something much
less ambitious, though more practical.
There still remains the question of shipping dates or times or
ports of delivery. I think here again, as matter of construction,
Clause 9 is to be read as embodying Clause 6, which therefore I
think applies equally to the 100,000 standards as to the 40,000
standards. I have explained my view of the operation and effect
of that clause. If I were wrong in that, I should still regard the
matter as sufficiently dealt with by the term which the law would
imply in such a case, viz., that the deliveries are to be at reason-
able times: Section 29 (2) of the Sale of Goods Act, 1893, applies,
I think, to a contract such as this where delivery is to be by instal-
ments, equally with a contract under which there is only to be a
single delivery, and imports the standard of reasonable time, which
by Section 56 of the same Act is a question of fact, no doubt to be
determined in view of all the relevant circumstances, however
complicated. In my judgment the contract is neither uncertain
nor incomplete as regards times of delivery or shipment.
In the result I arrive at the same conclusion as MacKinnon J.,
viz., that the contract is valid and enforceable and that the
Appellants are entitled to recover damages from the Respondents
for its repudiation. The judgment of the Court of Appeal was
otherwise. Apart from their conclusion that Condition 9 was no
more than an arrangement to negotiate in the future terms of a new
contract for 1931, they held that in any view Condition 9 was un-
certain and incomplete. Scrutton L.J. held that ” Considering the
” number of things left undetermined, kinds, sizes and quantities of
” goods, times and ports and manner of shipment …. which had
” in this case to be determined by agreement after negotiation,”
the option clause was not an enforceable agreement. With respect
to the learned Lord Justice, and for the reasons I have already
explained, I cannot agree with that conclusion. He seems to base
his conclusion in part at least on the evidence of Mr. Hillas as to
how in working out the contract in practice there would be mutual
concessions and arrangements. I do not question that, as I have
already explained, this would be so, but I prefer the statement of the
Learned Lord Justice at another part of his judgment that witnesses
” were not entitled to construe the agreement or give their opinion as
” to how it could or ought to be worked.” The conclusion of
Scrutton L.J. would in very many cases exclude in law the possi-
bility of business men making big forward contracts for future
goods over a period, because in general in such contracts it must be
impossible, as I have already indicated, to specify in advance all
the details of a complicated performance. Indeed, Greer L.J. ex-
pressly states the view that such contracts are impossible in law,
though he regrets the conclusion. He holds ” that if there are any
” essential terms of a contract of sale undetermined, and therefore
” to be determined by a subsequent contract, there is no enforceable
” contract “; he adds that the Courts have not power to make for
parties a contract which in its view it is probable they would have
made if there had been further negotiation to deal with matters not
already decided. This latter proposition stated in general terms
may be correct, but I have already explained why, in my judgment,
this contract was complete and enforceable without further negotia-
tion. It must always be a matter of construction of the particular
contract whether any essential terms are left to be determined by
a subsequent contract.
When the Learned Lord Justice speaks of essential terms not
being precisely determined, i.e., by express terms of the contract, he
is, I venture with respect to think, wrong in deducing as a matter of
law that they must therefore be determined by a subse-
quent contract; he is ignoring, as it seems to me, the
legal implication in contracts of what is reasonable, which
runs throughout the whole of modern English law in relation
to business contracts. To take only one instance, in Hoadly v.
M’Laine, 10 Bing. 482, Tindal C.J. (after quoting older authority)
said : ” What is implied by law is as strong to bind the parties as
” if it were under their hand. This is a contract in which the
” parties are silent as to price and therefore leave it to the law
” to ascertain what the commodity contracted for is reasonably
” worth.” It is unnecessary in my judgment to multiply illus-
trations of this principle, which goes far beyond matters of price.
After all the parties being business men ought to be left to decide
what degree of precision it is essential to express in their contracts
if no legal principle is violated. The learned Lords Justices (for
Romer L.J. took the same view) relied, I think, mainly in
regard to this aspect of the case on an unreported decision of this
House in the appeal of May and Butcher against the King, which
Scrutton L.J. thought compelled him to decide as he did. There
was there a contract for the sale of certain goods, somewhat in-
elegantly called ” tentage, ” with an option to buy further
quantities at prices to be agreed upon between the parties
when the material was ready for sale. Scrutton L.J. had taken
the view in the Court of Appeal that there was an effective
intention to contract to sell and buy, on the terms that if
the parties did not agree the price it was by implication to be a
reasonable price; but he was in a minority in the Court of Appeal
and this House held that there was no binding contract there till
prices had been agreed. A somewhat similar decision on another
contract was given in the Court of Appeal in the case of Loftus v.
Roberts, 18 T.L.R. 532, where the rule was summed up as being
” Promissory expressions reserving an option as to performance do
” not create a contract.” No one would dispute such a rule, and its
application to the instrument then before the House, has been finally
determined in that case, but in my judgment the Court of Appeal
were not justified in thinking that this House intended to lay down
universal principles of construction or to negative the rule that
it must be in each case a question of the true construction
of the particular instrument. In my judgment the parties here
did intend to enter into, and did enter into, a complete and binding
agreement, not dependent on any future agreement for its validity.
But in any event the cases cited by the Court of Appeal do not,
in my judgment, apply here, because this contract contains no such
terms as were considered in those cases; it is not stipulated in the
contract now in question that such matters as prices or times or
quantities were to be agreed. I should certainly share the regret
of the Lords Justices if I were compelled to think such important
forward contracts as the present could have no legal effect and were
mere ” gentlemen’s agreements ” or honourable obligations. But
for the reasons given I feel constrained to dissent from their con-
clusions. I have only with great diffidence arrived at this conclusion,
but I am supported by reflecting that I am in agreement with a
learned Judge very experienced in these questions.
I need only refer shortly to two further matters. It was con-
tended on behalf of the Respondents that in any event MacKinnon J.
has arrived at his award of damage on a wrong principle, and that
there was no evidence on which he could find other than nominal
damages. The Appellants put before the Judge a specification
based on the deliveries of the 40,000 standards in 1930, multiplied
by 2½ times. The Respondents, though they at that time had in
their possession the specification for their programme for 1931, did
not lay that before the Judge, who, doing his best with the material
before him, awarded damages on the Appellants’ figures of specifica-
tion—taking on matters of price the Respondents’ official price list
for 1931, but subject to a considerable abatement for contingencies
of the market. As the Respondents did not give him such help as
was in their power, with the full knowledge they possessed, they
cannot in my judgment complain of his decision.
One other point, viz., that with reference to the pleadings, now
calls for only a passing notice here. The Respondents in their
defence pleaded that the agreement was cancelled; they did not
raise the plea of there being no agreement enforceable in law until
the enquiry as to damages and then did not amend. The Court of
Appeal thought no amendment was necessary. I think that under
the Rules the Respondents were bound, if they desired to deny either
the agreement in fact or its sufficiency in law, to plead so expressly
in the alternative to their plea that it was cancelled. But the issue
has now been discussed without amendment, and I think no further
evidence of fact was involved in the new plea. In any case I think
this House would have had full discretion to amend.
The Appeal should, in my judgment, be allowed with costs in
this House and in the Courts below and the Judgment of
MacKinnon J. restored and the case remitted to the King’s Bench
Division.
Giedo Van Der Garde BV & Anor v Force India Formula One Team Ltd
[2010] EWHC 2373 (QB)
Stadlen J
…..
In considering these competing submissions the starting point is the general principle formulated by the editors of Goff and Jones in these terms: “The case law holds that a restitutionary claim, based on failure of consideration, will, therefore, succeed only if the failure is total.” (ibid 19-009). Although the doctrine is commonly referred to as failure of consideration it is, as appears from the extract from Goff and Jones cited earlier in this judgment, based on a failure not of consideration but of performance: “In English law, an enforceable contract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an act – I am excluding contracts under seal – and thus, in the law relating to the formation of contract, the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is generally speaking, not the promise which is referred to as the consideration, but the performance of the promise. The money was paid to secure performance and, if performance fails the inducement which brought about the payment is not fulfilled.” (Fibrosa Spolka Akeyjna v Fairbairn Lawson Combe Barbour Limted [1943] AC 32 per Viscount Simon LC at page 48).
In Fibrosa the House of Lords held that money paid on a total failure of consideration can be recovered. “What is being now decided is that the application of an old-establised principle of the common law does enable a man who has paid money and received nothing for it to recover the money so expended.” (Per Lord Atkin at page 55). There were also obiter dicta supporting the proposition that money cannot be recovered in the event of mere partial failure of consideration. “Nor could moneys paid before frustration be recovered if the person making the payment has received some part of the consideration moving from the other party for which the payment was made.” (Per Lord Russell of Killowen page 56). (The position in the case of frustration was reversed by the Law Reform (Frustrated Contracts) Act 1943) “…Money had and received to the plaintiff’s use can undoubtedly be recovered in cases where the consideration has wholly failed, but unless the contract is divisible into separate parts it is the whole money not part of it, which can be recovered. If a divisible part of the contract has wholly failed and part of the consideration can be attributed to that part, that portion of the money so paid can be recovered, but unless this be so there is no room for restitution under a claim in indebitatus assumpsit. A partial failure of consideration gives rise to no claim for recovery of part of what has been paid. Indeed, the contrary has not been contended.” (Per Lord Porter at page 77). Thus at the same time as denying the existence of a right to recover in the event of partial failure of consideration Lord Porter recognised the possibility of applying the doctrine of total failure of consideration in a case where even though there has been some performance under a contract there has been total failure to perform a divisible part of it provided that part of the consideration or money paid can be attributed to that part of the contract. There is thus in this dictum support for the concept of apportionment as a means by which the full rigour of the general principle may be mitigated. Lord Porter did not however indicate what he meant by divisible and in particular by what means it is to be decided whether a contract is divisible. Is it dependent on an express or implied term of the contract or is there some additional basis on which the court can decide that a contract is divisible?
Stocznia was a case in which it was assumed by both parties that the asserted right to recover moneys paid depended on whether there had been a total failure of consideration. Lord Goff of Chieveley stated the test as being “not whether the promisee has received a specific benefit, but rather whether the promisor has performed any part of the contractual duties in respect of which the payment is due.” (Page 588 D). On its face this supports the proposition that performance of even a part of the relevant contractual duties will disentitle the claimant from restitution. However that begs the question of what are the contractual duties in respect of which the payment is due. Where it is possible to apportion different parts of a contractual price to the performace of different contractual duties under a contract it is not in my judgment inconsistent with the proposition that there may be a total failure to perform contractual duties in respect of which payment is due that there has been performance of part or all of contractual duties in respect of which the payment is not due.
I note in passing that Mr Tregear relied on this dictum of Lord Goff as holding that the question whether there has been total or partial failure of consideration is to be assessed by reference not to benefits received by the claimant but by reference to contractual performance by the defendant. In my judgment the dictum does not support so wide a proposition. Stocznia was a case in which under the contracts in question the shipyard was bound not merely to deliver and transfer the property in vessels when built to the buyers but in addition to design and build them. They were thus not contracts of sales simpliciter, but “contracts for work and materials”. It was in my view for that reason that Lord Goff held: “I start from the position that failure of consideration does not depend upon the question of whether the promisee has or has not received anything under the contract, like for example the property in the ships being built under contracts one and two in the present case. Indeed if that were so, in cases in which the promisor undertakes to do work or render services which confer no direct benefit on the promisee, for example where he undertakes to paint the promisee’s daughter’s house, no consideration would ever be furnished for the promisee’s payment.” (Page 588 C-D). Having stated the test mentioned above Lord Goff continued: “The present case cannot, therefore, be approached by asking the simple question whether the property in the vessel or any part of it has passed to the buyers. That test would be apposite if the contract in question was a contract for the sale of goods (or indeed a contract for the sale of land) simpliciter under which the consideration for the price would be the passing of the property in the goods (or land). (page 588 D-E).(emphasis added). Lord Goff thus appeared to contemplate that in an appropriate case the test could be stated by reference to the receipt of a benefit by the claimant rather than by reference to contractual performance by the defendant. Put another way the focus of enquiry is the receipt by the promisee of a benefit under the contract which may be established in an appropriate case where the promisee has not directly received anything the benefit in such a case consisting of the performance by the promisor of an obligation whose performance is in some other way of advantage to the promisee. Support for this analysis is in my view to be found in the judgment of Kerr LJ in Rover International to which I refer below.
In Whincup v Hughes Bovill CJ held: “The general rule of law is that where a contract has been in part performed no part of the money paid under such contract can be recovered back.” (page 81). However to this general rule he held that there are exceptions. “There may be some cases of partial performace which form exceptions to this rule, as for instance, if there were a contract to deliver ten sacks of wheat and six only were delivered, the price of the remaining four might be recovered back. But there the consideration is clearly severable…The contract having been in part performed it would seem that the general rule must apply unless the consideration be in its nature apportionable. I am at a loss to see on what principle such apportionment could be made. It could not properly be made with reference to the proportion which the period during which the apprentice was instructed bears to the whole term. In the early part of the term the teaching would be most onerous and the services of the apprentice of little value; as time went on his services would probably be worth more and he would require less teaching. There appears to be no instance of a similar nature to the present in which an action for the return of a part of the premium has been brought.” (Page 81). Montague Smith J referred to a “rule of law that an action for money had and received can only be brought when there is a total failure of consideration with the exception of a few cases which on being analysed hardly proved to be exceptions…Moreover it appears to me clear that the action for money received cannot lie where the contract has been partly performed on both sides. To ascertain the amount which in equity in such a case requires to be returned it would be necessary to go into a great variety of considerations, the relevant weight of which it would be almost impossible correctly to estimate: e.g. the value of the service lost to the master, and the degree to which the apprentice had profited by the instruction. It would be impossible to take merely the proportion of the time which had elapsed to the whole term as the standard of measurement.” (page 85-86). While restating the general rule the court in Whincup v Hughes expressly contemplated the existence of exceptions where the consideration is “in its nature apportionable” or “severable”. On the facts of that case the reason why the consideration was held to be not in its nature apportionable was that the benefits and burdens to the parties varied over time. In principle no such problem would arise in the case of delivery of six out of ten sacks of wheat.
In Minister of Sound (Ireland) Limited v World Online Limited [2003] EWHC 2178, Ch, [2003] 2 All ER (Com) 823 Nicholas Strauss QC sitting as a deputy judge of the High Court stated: “Whilst the traditional view is that a party to a contract (whether the innocent party or the contract-breaker) can only recover payments made under it where there has been a total failure of consideration, the dictum of Lord Goff in Goss v Chilcott referred to at [42], above, suggests that this may no longer be so, and recent authority suggests that there may be circumstances in which recovery for partial failure may be allowed: See DO Ferguson v Sohl [1992] 62 BLR 95 in which as the editorial note indicates, Hirst LJ “robustly” described as a total failure of consideration what might more conventionally have been seen as a partial failure. See also White Arrow Express Limited v Lamey’s Distribution Limited [1995] NLJR 1504 and Baltic Shipping Co. v Dillon the Michael Lermontov [1993] 176 CLR 344.” (845 B-E). Referring to those dicta and in particular their reliance on Lord Goff’s dictum in Goss v Chilcott the editors of Goff and Jones point out that it was made in the hypothetical context of facts where the borrowers had repaid part of the capital sum and expressed the view that “what is more doubtful is whether a restitutionary claim will lie if there has been a partial failure and the counter-performance is not the payment of money but the rendering of services.”
As already mentioned the editors of Goff and Jones regard the general rule as regrettable. They refer to welcome indications that English Courts are more ready to interpret the doctrine of total failure of consideration more sympathetically and to allow recovery in restitution even though the claimant has received a momentary benefit from the defendant and even, exceptionally, if the benefit received is services rendered (See Ferguson v Sohl). For present purposes the question is not whether recovery for partial failure should be permissible but rather whether by reference to authority including that cited by Mr Strauss QC the recognised exceptions and qualifications to the rule are broad enough to be applicable in the present case.
In considering the extent to which the general rule may be departed from or qualified as to its scope and extent, courts have tended to focus on two separate but sometimes related questions: (1) apportionment and (2) whether for the purpose of deciding whether there has been total or partial failure of consideration certain benefits received by the claimant can be disregarded.
On the second question perhaps the leading English authority is the decision of the Court of Appeal in Rover International. In that case the Court of Appeal allowed a restitutionary claim for return of instalments paid under a contract, holding that there had been a total failure of consideration notwithstanding that the plaintiff had received some benefit under the contract and the defendant had performed some part of the contract. Under the contract EMI (who were later taken over by Cannon, the defendant) were to supply master Prints of films to the plaintiff for dubbing and distributing in Italy. The gross receipts were to be split in agreed proportions. Prints were duly delivered by EMI and Rover commenced the work of dubbing and paid five instalments of pre-payments due to EMI as an advance under the contract. Harman J at first instance rejected the claim for repayment of the five instalments on the ground that the consideration had not failed at all. Rover had had several films and distributed them in Italy “for payment no doubt of substantial sums”. To allow it to get back the monies which it paid to Cannon would be grossly unjust. He held that there was no claim in law for monies had and received to the use of Rover.
Allowing Rover’s appeal Kerr LJ held: “The question whether there has been a total failure of consideration is not answered by considering whether there was any consideration sufficient to support a contract or purported contract. The test is whether or not the party claiming total failure of consideration has in fact received any part of the benefit bargained for under the contract or purported contract”. (923 G). Central to Kerr LJ’s decision was his conclusion that in order to defeat a claim of total failure of consideration is it not sufficient to show that the promisee has received any benefit or even any benefit due under the contract. What must be proved is receipt of “any part of the benefit bargained for under the contract or purported contract”. In reaching this conclusion Kerr LJ relied on a passage from Chitty on Contracts, 5th Ed (1983) Vol , pp 1091-1092, para 1964 and the authorities there cited. It is striking that although one of the passages from Chitty cited by Kerr LJ included the quotation from Viscount Simon LC in Fibrosa to which I have referred to the effect that “when one is considering the law of failure of consideration…it is generally speaking…the performance of the promise”, the editors of Chitty emphasised that failure of consideration is judged from the point of view of the payer. “In that context failure of consideration occurs where the payer has not enjoyed the benefit of any part of what he bargained for. Thus, the failure is judged from the payer’s point of view…the failure has to be total…thus any performance of the actual thing promised, as determined by the contract, is fatal to recovery under this heading. The role of the contractual specification means that it is not true to say that there can be a total failure of consideration only where the payer received no benefit at all in return for the payment. The concept of total failure of consideration can ignore real benefits received by the payer if they are not the benefits bargained for…”
This latter point was also emphasised in the majority judgment of Mason CJ, Deane J, Toohey J, Gaudaron J and McHugh J in the decision of the High Court of Australia in David Securities PTY Limited v Commonwealth Bank of Australia 175 CLR 353 at 382: “So, in the context of failure of consideration, the failure is judged from the perspective of the payer.” [Reference was then made to Kerr LJ’s test in Rover International]. In the immediately preceding passage of their judgment the majority arguably went further than the Court of Appeal in Rover in holding that the question of failure is judged not just from the perspective of the payer but by reference to the subjective understanding of the payer as to what it thought it was receiving as consideration.
“The respondent, taking a different view of the contractual arrangements, asserts that all its pre-contractual statements concerning payment of withholding tax simply took the form of a contractual offer, which the appellants were at liberty to accept or to reject. Viewed from the angle of contract formation between equal and experienced parties, this is undoubtedly true. But we are not concerned in this case with what a hypothetical, experienced commercial person believed he/she was contracting for; in order to decide whether the appellants in this case have received consideration for payment of the additional moneys, we must ask what these particular appellants, in all the circumstances, thought they were receiving as consideration. In this context, consideration means the matter considered in forming the decision to do the act, “the state of affairs contemplated as the basis or reason for the payment.” And, as we have stated, the “state of affairs” existing in the appellants’ minds was that the withholding tax was their liability.” (381-382). (emphasis added).
On its face there is a tension, if not an apparent inconsistency, between on the one hand the approach of Kerr LJ (with whose reasoning Nicholls LJ agreed), in Rover International and of the majority of the High Court in David Securities and on the other hand the dictum of Lord Goff in Stocznia to which I have referred that: “In truth the test is not whether the promise has received a specific benefit, but rather whether the promisor has performed any part of the contractual duties in respect of which the payment is due.” Mr Tregear suggested that the two approaches are reconcilable on the basis that if the promisor has provided some performance, prima facie there is no total failure of consideration. If however the performance which has been provided is, judged from the perspective of the promisee, not what he really bargained for so that it is collateral then it is still possible for there to be total failure of consideration. In my view if there is a real inconsistency between the two sets of dicta then there is some force in Mr Tregear’s suggested way of reconciling the two. However I am not convinced that the inconsistency is real rather than apparent. Although on Lord Goff’s test the question is whether the promisor has performed any part of the contractual duties in respect of which the payment is due, that leaves open the question of how the court is to identify the contractual duties in respect of which the payment is due. If, as held by the Court of Appeal in Rover International and the High Court in David Securities, the answer to that question is to be determined by reference to identifying “the benefit bargained for under the contract or purported contract” and ignoring real benefits received by the payer if they are not the benefit bargained for, there is no inconsistency between the dicta of the Court of Appeal and the High Court on the one hand and Lord Goff’s test on the other.
In support of his conclusion that receipt of benefits which are merely incidental to the performance of a contract is not inconsistent with total failure of consideration Kerr LJ in Rover International cited the cases of Rowland v Divall [1923] 2 KB 500 and Warman v Southern Counties Car Finance Corporation Limited.
“In Rowland v Divall [1923] 2K.B 500 the plaintiff bought a car from the defendants. He had the use of it for several months but then discovered that the seller had no title, with the result that he had to surrender the car to the true owner. He sued for the return of the price on the ground that there had been a total failure of consideration. The defendant denied this, pointing out that the plaintiff had had the use of the car for a substantial time. This contention succeeded at first instance, leaving the plaintiff only with a claim for damages, but this court unanimously upheld the plaintiff’s claim. The consideration for which he had bargained was lawful possession of the car and a good title to it, neither of which he got. Although the car had been delivered to him pursuant to the contract and he had had its use and enjoyment for a considerable time, there was a total failure of consideration because he had not got any part of what he had bargained for.
The decision of Finnemore J in Warman v Southern Counties Car Finance Corporation Ltd [1949] 2 KB 576 was to the same effect. The plaintiff was buying a car on hire purchase when he became aware that a third party was claiming to be the true owner of the car. But he nevertheless went on paying the remaining instalments and then the necessary nominal sum to exercise his option to purchase. When the true owner then claimed the car he surrendered it and sued the finance company for the return of everything he had paid. He succeeded on the ground that there had been a total failure of consideration. He had not bargained for having the use of the car without the option to purchase it.
The position of Rover in the present case is a fortiori to these cases. Admittedly, as the judge said, they had several films from Cannon. But the possession of the films was merely incidental to the performance of the contract in the sense that it enabled Rover/Monitor to render services in relation to the films by dubbing them, preparing them for release on the Italian market and releasing them. These were onerous incidents associated with the delivery of the films to them. And delivery and possession were not what Rover had bargained for. The relevant bargain, at any rate for present purposes, was the opportunity to earn a substantial share of the gross receipts pursuant to clause 6 of the schedule, with the certainty of at least breaking even by recouping their advance. Due to the invalidity of the agreement Rover got nothing of what they had bargained for, and there was clearly a total failure of consideration.
….
In the context of the recovery of money paid on the footing that there has been a total failure of consideration, it is the performance of the defendant’s promise, not the promise itself, which is the relevant consideration. In that context, the receipt and retention by the plaintiff of any part of the bargained-for benefit will preclude recovery, unless the contract otherwise provides or the circumstances give rise to a fresh contract. So in Whincup v Hughes, the plaintiff apprenticed his son to a watchmaker for six years for a premium which was paid. The watchmaker died after one year. No part of the premium could be recovered. That was because there was not a total failure of consideration. A qualification to this general rule, more apparent than real, has been introduced in the case of contracts where a seller is bound to vest title to chattels or goods in a buyer and the buyer seeks to recover the price paid when it turns out that the title has not been passed. Even if the buyer has had the use and enjoyment of chattels or goods purportedly supplied under the contract for a limited time, the use and enjoyment of the chattels or goods has been held not to amount to the receipt of part of the contractual consideration. Where the buyer is entitled under the contract to good title and lawful possession but receives only unlawful possession, he or she does not receive any part of what he or she bargained for. And thus, it is held, there is a total failure of consideration. As this Court stated in David Securities Pty v Commonwealth Bank of Australia: “the notion of total failure of consideration now looks to the benefit bargained for by the plaintiff rather than any benefit which might have been received in fact.””
In one of the passages cited Mason CJ referred to any part of the bargained for benefit whereas in another he referred to any substantial part of the benefit expected under the contract. No explanation was given as to why he used these two different formulations, whether he considered them to be the same and if not which of them he considered to be the true test. It is not difficult to imagine circumstances in which the difference could assume significance.
Mr Tregear submitted that the reference to substantial part of the benefit expected was not intended to introduce a quantitave qualification such that receipt of a small proportion of the bargained-for benefit is not a bar to restitution. Rather he submitted it was intended to exclude as a bar to restitution receipt of a benefit which was merely incidental to the benefit bargained for such as the receipt by Rover of the film prints. The reason the Court of Appeal held that receipt of the prints did not disentitle Rover from seeking restitution was not that it formed a small part of the benefit bargained for under the contract but rather because it did not form any part of the bargained for benefit.
This analysis reinforces the central importance in the test of identifying the essential purpose of the contract. Thus a contract may confer the right to receive and impose an obligation to provide a number of benefits. The test as to whether receipt of any one or more of those benefits is inconsistent with total failure of consideration is not whether they are large or small in the context of the entirety of the benefits to be conferred but whether they are the whole or part of the main benefit expected or bargained for or merely incidental or collateral thereto. It is no doubt for that reason that the High Court in David Securities and Baltic Shipping and the Court of Appeal in Rowland v Divall and Rover International held that the answer to that question is to be approached from the perspective of the payer rather than the payee. It is normally the payer who has entered into the contract in order to obtain certain benefits. The payee’s objective is normally just to receive payment. In considering whether a particular benefit to which the payer is entitled under the contract is part of the essential bargain contracted for or merely incidental or collateral thereto there is a logic to addressing that question from the prespective of the payer and identifying what was his purpose in entering the contract. That raises the further issue as to whether the question of what was the essential purpose of the contract or more accurately which of the benefits were the essential bargain contracted for is to be answered by an objective process of the court drawing inferences from the nature of the transaction and the language of the contract or whether evidence as to the payer’s subjective purpose or motive for entering the contract is admissible. In Rowland v Divall, Rover International and Warman the court appeared to have approached the question as a matter of objective analysis without reference to the subjective purpose or motive of the payer. In David Securities on the other hand the High Court, as mentioned above, appears to have approached the question by reference to the state of mind and purpose of the payer.
Under ordinary principles of construing a written agreement the normal rule is that evidence of the subjective intentions of either or both parties is inadmissible. Does it make a difference that the exercise in which the court is engaged is one of considering whether one party to the contract is entitled to restitution rather than any question of the rights of either party to relief by way of enforcing the contract or damages for breach of it? There does not seem to be an obvious answer to this question. On the one hand it could be said that in answering the question of what is the essential bargain contracted for the court is necessarily involved in a process of construing the agreement and the presumed intentions of the parties thereto. On the other hand the reason the court is asking the question is not for the purpose of enforcing the agreement but in order to decide whether the payer is entitled to return of money had and received on principles of unjust enrichment. On balance in my view although the question is to be answered from the perspective of the payer in the sense of identifying the essential bargain for which he contracted or, to use the language of the majority in David Securities, the matter considered in forming the decision to do the act and the state of affairs comtemplated as the basis or reason for the payment it is a question be answered objectively rather than by reference to evidence of his subjective motives. However that is not to say that evidence of the payer’s subjective motive or purpose for entering the agreement is inadmissible if those intentions or motives were communicated to the payee before the contract was entered into. Applying that distinction to the facts of this case I do not think that Mr Van der Garde’s evidence that as far as he was concerned the main or only benefit of the Service Agreement was testing kilometres rather than the possibility of Friday morning testing would be admissible unless that purpose had been communicated to Spyker by him or by Mr Boekhoorn on his behalf prior to the agreement, which it was not.
Against Mr Tregear’s suggested analysis of the significance of Mason CJ’s reference to substantial benefit as distinct from any benefit is the fact that the distinction between the essential bargain contracted for and benefits which are merely incidental thereto was already made by Mason CJ’s reference to “part of the benefit expected under the contract.” While that is undoubtedly a difficulty in Mr Tregear’s suggested analysis, in my view the difficulty disappears when one considers the fact that in a separate passage in the extract of his judgment Mason CJ referred to the receipt and retention of any part of the bargained-for benefit. Moreover and in any event the introduction into the test of a quantitave element would in my view be inconsistent with Lord Goff’s formulation of the test in Stocznia which refers to whether the promisor has performed any part of the contractual duties in respect of which the payment is due. Given that the very nature of the rule is that there must be total and not merely partial failure of consideration it is difficult to see how a de minimis exception could be reconciled with the rule. As Lord Ellenborough CJ said in Hunt v Silk “if the plaintiff might occupy the premise two days beyond the time when the repairs were to have been done and the lease executed, and yet rescind the contract, why might he not rescind it after a 12 month on the same account. This objection cannot be gotten rid of: the parties cannot be put in statu quo.” (Page 1144). Although that was said in the context of rescission rather than total failure of consideration the logic is in my viewequally applicable to the latter.
However given the existence of the collateral or incidental benefit exception to the rule it may be that in an appropriate case the receipt of a small benefit may be held not to be a bar to restitution, not by reference to a de mininis principle but on the basis that properly analysed it is a collateral or incidental benefit.
A good illustration of the collateral benefit exception to the rule appears in the judgment of Deane J and Dawson J in Baltic Shipping:
“There can be circumstances in which there is, for relevant purposes, a complete failure of consideration under a contract of transportation notwithstanding that the carrier has provided sustenance, entertainment and carriage of the passenger during part of the stipulated journey. For example, the consideration for which the fare is paid under a contract for the transportation of a passenger by air from Sydney to London would, at least prima facie, wholly fail if, after dinner and the inflight film, the aircraft were forced to turn back due to negligent maintenance on the part of the carrier and if the passenger were disembarked at the starting-point in Sydney and informed that no alternative transportation would be provided. Thus in Heywood v Wellers [a firm] [1976] QB 446 at pp 458-459, Lord Denning MR regarded it as self evident that, in some circumstances where a part of a journey had been completed, money paid to the carrier or “driver” was recoverable “as of right” for the reason that it was “money paid on a consideration which had wholly failed”.”(page 378).
Although the meal and the in flight film formed part of the benefits to which the passenger was entitled under his contract with the carrier, viewed from the prespective of the passenger it was merely an incidental or collateral benefit and not a part, even a small part, of “the consideration for which the fare is paid”. The essential bargain contracted for was transportation to London. This is to be contrasted with the essential bargain contracted for in Baltic Shipping itself, which was a 14 day cruise. In the context of rejecting an alternative submission that the advance payment of the cruise fare created in the shipping company no more than a right to retain the payment conditional upon its complete performance of its entire obligations under the contract, Mason CJ held:
“As the contract called for performance by the appellant of its contractual obligations from the very commencement of the voyage and continuously thereafter, the advance payment should be regarded as the provision of consideration for each and every substantial benefit expected under the contract. It would not be reasonable to treat the appellant’s right to retain the fare as conditional upon complete performance when the appellant is under a liability to provide substantial benefit to the respondent during the course of the voyage. After all, the return of the respondent to Sydney at the end of the voyage, though an important element in the performance in the appellant’s obligations, was but one of many elements. In order to illustrate the magnitude of the step which the respondent asks the court to take, it is sufficient to pose two questions, putting to one side clause 9 of the printed ticket terms and conditions. Would the respondent be entitled to a return of the fare if, owing to failure of the ship’s engines, the ship was unable to proceed on the last leg of the cruise to Sydney and it became necessary to airlift the respondent to Sydney? Would the fare be recoverable if, owing to a hurricane the ship was compelled to omit a visit to one of the schedules ports of call? The answer in each case must be a resounding negative.” (Page 353).
In short whereas the only essential bargain contracted for by the air passenger in Deane and Dawson JJ’s hypothetical example was transportation to London, and in flight food and entertainment was only incidental thereto, return to Sydney was not the sole or essential bargain contracted for by the purchaser of the cruise and the on-ship services such as food and entertainment and any port stop offs during the voyage were integral parts of the essential bargain contracted for.
Before leaving Baltic Shipping I draw attention to the fact that as recorded in the head note, four and possibly five of the judges held that a claim for restitution can only succeed as an alternative to a claim for damages for breach of contract and that the two claims cannot both succeed. On its face this view is inconsistent with the decision of the Court of Appeal in Ferguson v Sohl in which the court held that the employer who overpaid the builder for works to his house was entitled both to restitution of the amount overpaid on the basis of total failure of consideration and nominal damages in the amount of £1 for breach of the building contract. Had the point been live before me I would have considered myself bound by the decision of the Court of Appeal to hold that it is open to me to award both restitution and at least nominal damages for breach of contract. However the claims for damages for breach of contract are pleaded in this case only as alternatives to the primary claim for restitution and, as I have mentioned, Mr de Garr Robinson expressly confirmed that the Claimants put the claims forward as alternatives and do not seek an award of damages as well as an order for restitution.
In relation to apportionment it was common ground between the parties that the authorities show that there is a principle by reference to which performance of even a non-incidental or non-collateral obligation under a contract by a payee may in certain circumstances not be inconsistent with an entitlement on the part of the payer to restitution on the basis of total failure of consideration. Where they differed was as to the nature and ambit of the circumstances in which the principle is engaged.
…..In the present case however, although no part of the principal sum had been repaid by the defendants, two instalments of interest had been paid; and the question arises whether these two payments of interest precluded recovery on the basis that in such circumstances the failure of consideration for the advanced was not total. Their Lordships do not think so. The function of the interest payments was to pay for the use of the capital sum over the period for which the loan was outstanding, which was separate and distinct from the obligation to repay the capital sum itself. In these circumstances it is, in their Lordships’ opinion, both legitimate and appropriate for present purposes to consider the two separately. In the present case, since it is unknown when the mortgage instrument was altered, it cannot be known whether, in particular, the second interest instalment was due before the defendants were discharged from their obligations under the instrument. Let it be supposed however that both interest payments had fallen due before the event occurred. In such circumstances, there would have been no failure of consideration in respect of the interest payments rendering them recoverable by the defendants; but that would not affect the conclusion that there had been a total failure of consideration in respect of the capital sum, so that the latter would be recoverable by the company in full on that ground. Then let it be supposed instead that the second interest payment did not fall due until after the avoidance of the instrument. In such circumstances the consideration for that interest payment would have failed (at least if it was payable in advance), and it would prima facie be recoverable by the defendants on the ground of failure of consideration; but that would not affect the conclusion that the capital sum would be recoverable by the company also on that ground. In such a case, therefore, the capital sum would be recoverable by the lender, and the interest payment would be recoverable by the borrower; and doubtless judgment would, in the event, be given for the balance with interest at the appropriate rate: see Westdeutsche Landesbank Girozentrale vIslington London Borough Council [1994] 1 W.L.R 938. In either event, therefore, the amount of the loan would be recoverable on the ground of failure of consideration. In the present case, since no part of the capital sum had been repaid, the failure of consideration for the capital sum would plainly have been total. But even if part of the capital sum had been repaid, the law would not hesitate to hold that the balance of the loan outstanding would be recoverable on the ground of failure of consideration; for at least in those cases in which apportionment can be carried out with difficulty, the law will allow partial recovery on this ground: see David Securities Pty. Ltd. v Commonwealth Bank of Australia [1992] 175 C.L.R 353,383.”
Mr Tregear accepted that the ratio in Goss v Chilcott was that there was a total failure of consideration as to the discrete part of the contract being sued upon namely the advance of the capital which had not been repaid in whole or part. On its face there is nothing in Lord Goff’s judgment to suggest that the contract itself severed the defendant’s obligations to repay the advance and to pay interest instalments or that it apportioned the former to the advance of the loan and the latter to the use of the loan. To that extent it does not support Mr Tregear’s submission that apportionment is possible only where the parties have impliedly acknowledged that the consideration may be apportioned by the structure of the transaction.
Moreover Lord Goff’s obiter dictum that even if part of the capital sum had been repaid the law would not hesitate to hold that the balance of the loan outstanding would be recoverable on the ground of failure of consideration was not expressed to be conditional upon the existence in the hypothetical contract in this example of express or implied terms stipulating separate obligations to advance and repay each distinct instalment of the loan advanced. This perhaps suggests that it was not Lord Goff’s view that apportionment is permissible only where it is expressly or impliedly provided for in the contract. Indeed his conclusion that the law will allow partial recovery at least in those cases in which apportionment can be carried out without difficulty suggests, in my view, that the question whether apportionment can be carried out turns not on whether apportionment is provided for either expressly or even by implication by the contract but rather on whether as a matter of practical common sense the court considers that it is able to apportion on objective analysis of the nature of the contract and the consideration.
Mr Tregear submitted that Lord Goff’s conclusion that there would have been a total failure of consideration even if there had been repayments of capital was not only obiter but, as a decision of the Privy Council, does not necessarily represent a binding statement of English law. If it were to be taken to be representative of English law it would mean that the doctrine of total failure of consideration is effectively extinct. That would be inconsistent with the decision of the House of Lords in Stocznia in which the doctrine was affirmed.
It must of course be right that if there is an irreconcilable difference between Lord Goff’s obiter dictum in Goss v Chilcott and the affirmation of the requirement of total failure of consideration as a condition for restitution by the House of Lords in Stocznia the latter would prevail and would certainly be binding on me. It is however striking that the allegedly inconsistent dicta both appeared in respectively a speech and a judgment of Lord Goff, the decision in Goss v Chilcott having been handed down in May 1996 not much more than a year before the hearing in June 1997 in Stocznia. Although Goss v Chilcott was not referred to either in the speeches or in argument in Stocznia, it is hardly to be supposed that Lord Goff had forgotten what he said in Goss v Chilcott and it would be suprising if he had changed his mind on a significant aspect of the doctrine of total failure of consideration between the two cases without saying so and explaining his reasons. Particularly when read against that background in my view there is no inconsistency between the two dicta. As I have already indicated in my view the test formulated by Lord Goff in Stocznia “whether the promisor has performed any part of the contractual duties in respect of which the payment is due” leaves open the question of how the court identifies the contractual duties in respect of which the payment is due. In a case where, to use Lord Goff’s language in Goss v Chilcott, apportionment can be carried out without difficulty there is no reason why the court cannot conclude that, even where contractual duties have been performed by the payee, they are not contractual duties in respect of which the relevant payment is due. That is not to say that it follows that the House of Lords in Stocznia approved the obiter dictum in Goss v Chilcott but merely that the latter is not inconsistent with the decision in the former.
In David Securities, to which Lord Goff in Goss v Chilcott referred as supporting the proposition that at least in those cases in which apportionment can be carried out without difficulty the law will allow partial recovery on the ground of failure of consideration, the majority judgment did not specifically address the question of what is the test as to whether for these purposes consideration can be apportioned. However there is in my view a flavour of the court approaching this as a matter of common sense rather than regarding it as dependent on an express or implied agreement in the contract that different parts of a purchase price are referable to different contractual obligations. Thus the majority held:
“In cases where consideration can be apportioned or where counter-restitution is relatively simple, insistence on total failure of consideration can be misleading or confusing. In the present case for instance it is relatively simple to relate the additional amounts paid by the appellants to the supposed obligation under clause 8(b) of the loan agreements. The appellants were told that they were required to pay withholding tax and the payments that they made were predicated on the fact that, by so doing, they were discharging their obligation…In this case the bank must prove that the appellants are not entitled to restitution because they received consideration for the payments which they seek to recover. It does not avail the bank to argue that the appellants were provided with the loan moneys agreed. Indeed the severability of the loan agreement into its relevant parts seems to be accepted by the bank for it is admitted that the appellants’ consideration for agreeing to pay the additional amounts under clause 8(b) was the bank’s agreement not to charge a higher interest rate. In circumstances where both parties have impliedly acknowledged that the consideration can be “broken up” or apportioned in this way, any rationale for adhering to the traditional rule requiring total failure of consideration disappears.” (Page 383).
In my view the majority in the High Court was not saying that it is only in cases where the parties have impliedly acknowledged that the consideration may be apportioned by the structure of the transaction that apportionment will be possible. It merely noted that in that particular case the parties had so acknowledged, not in the sense that such a term was to be implied into the contract but merely in the very different sense that they so acknowledged in their submissions.
In Baltic Shipping v Dillon a passenger on a cruise vessel suffered injury when the vessel sank 10 days into a 14 day cruise. The High Court of Australia held that the passenger was not entitled to a refund of the fare because there had not been a total failure of consideration. Mason CJ held:
“I have come to the conclusion in the present case that the respondent is not entitled to recover the cruise fare on either of the grounds just discussed. The consequence of the respondent’s enjoyment of the benefits provided under the contract during the first eight full days of the cruise is that the failure of consideration was partial, not total. I do not understand how, viewed from the perspective of failure of consideration, the enjoyment of those benefits was “entirely negated by the catastrophe which occurred upon depature from Pickon” to repeat the words of the primary judge.” (Page 353).
Although Mason CJ in an earlier part of his judgment referred to the case of Whincup v Hughes, he did not elaborate on his reasons for reaching his conclusion. In particular he did not address the question whether it was possible to apportion the cruise fare between the benefits which were conferred during the first 8 or 10 days of cruise and the benefits which were not conferred after the ship sank. Mr Tregear submitted that even if the ship owner had calculated the cost of providing the cruise on a dollar per day basis it would not follow from that that the contract could be severed or that the fare could be apportioned between benefits to be conferred on a daily basis.
In Whincup v Hughes Bovill CJ explicitly held that there may be some cases of partial performance which form exceptions to the general rule that where a contract has been in part performed no part of the money paid under the contract can be recovered back “as for instance if there were a contract to deliver 10 sacks of wheat and 6 only were delivered, the price of the remaining 4 might be recovered back. But there the consideration is clearly severable.” (Page 81) (emphasis added). In my view that conclusion does not support Mr Tregear’s submission that a finding to the effect that there has been a total failure of consideration could only be correct in this case if the contract had provided for payments for kilometres in instalments referable to tranches of distance. Bovill CJ’s formulation left it open whether in the hypothetical example the contract provided an overall price for the delivery of 10 sacks or specified the delivery of 10 sacks at a specific price per sack. It follows in my view that his conclusion that in such a case the consideration is clearly severable was not dependent on there being in the contract a specified price per sack of wheat rather than a global price for all 10 sacks. In this case there is the complication that as well as the minimum of 6,000 kilometres which Spyker were obliged to provide there were other contractual obligations. I consider below whether they can be disregarded by reference to one or more of Mr de Garr Robinson’s other submissions. But in a hypothetical case where the contract had been confined to an obligation on the part of Spyker to provide 6,000 kilometres of which only, for the sake of simplicity, 2,000 had been made available, it does not seem to me that the question whether there had been total failure of consideration would necessarily turn on whether the Service Agreement had specified an overall price of $3 million or a rate of $500 per kilometre.
Later in his judgment Bovill CJ used a different expression. He said: “The contract having been in part performed, it would seem that the general rule must apply unless the consideration be in its nature apportionable.” (Page 81) (emphasis added.) The question whether in any case the consideration is in its nature apportionable is one to which, in my view, the definitive answer is not necessarily supplied by any express stipulation in the contract. In a straightforward contract to deliver 10 sacks of wheat the nature of the obligation, namely to deliver sacks of wheat, would in my view prima facie, be apportionable. Each bag of wheat being the same as the others and the delivery of it involving the seller in no greater or lesser burden than the others, there is no reason why the obligation to deliver one bag of wheat cannot be apportioned to the arithmetically appropriate portion of the purchase price. That remains the case whether the purchase price is expressed as £10 for the delivery of 10 sacks of wheat or 10 sacks at £1 per sack.
In Fibrosa Lord Porter said that “unless the contract is divisible into separate parts it is the whole money, not part of it, which can be recovered. If a divisible part of the contract has wholly failed and part of the consideration can be attributed to that part, that portion of the money so paid can be recovered…” (Page 77). Lord Porter gave no guidance as to how the court is to determine whether a contract is divisible into separate parts or whether part of the consideration can be attributed to the divisible part which has failed. However it seems to me implicit in his posing the question whether part of the consideration can be attributed to a divisible part of the contract that it is open to a court to hold that part of the consideration can be so attributed even if such attribution is not spelled out expressly in the contract itself. That again in my view supports the proposition that in the hypothetical example the mere fact that the contract specified a global fee of $3 million for 6,000 kilometres rather than $500 per kilometre would not mean that where 4,000 kilometres have not been provided part of the $3 million consideration cannot be attributed to the part of the contract under which those 4,000 kilometres were required to be made available. In my view the question whether consideration is in its nature apportionable may turn on an analysis of the nature of the subject matter of the consideration and the circumstances in which it is to be delivered or performed rather than just on whether or not the contract allocates it to a particular part of the purchase price.
….
Nourse LJ’s rhetorical question: “If the basis of his right to retain the £22,065.75 is that he has done work to that value, by what possible right can he claim to retain £4,673 for work which, in breach of contract, he has not done?” is an eloquent statement of the rationale for the doctrine of restitution in the event of failure of consideration. Indeed it no doubt explains why the rule requiring total failure of consideration has been subjected to sustained criticism at the highest judicial and academic levels. As the editors of Goff and Jones third edition put it in a passage quoted in the commentary in Ferguson v Sohl: “To allow the defendant to retain the whole or part of the contract price on the ground that the plaintiff had made a losing contract would be to allow him to retain a benefit which he is in a position to restore and to profit from his breach of contract. Furthermore, for similar reasons, even if the consideration for the innocent party’s payment has only partially failed, he should, in our view, be entitled to restitution, although an allowance should be given for any benefit received from the party in breach. However, at common law the innocent party is, at present, denied recovery in these circumstances…” (Page 99).
Given the accepted constraint of the requirement to show a total rather than partial failure of consideration, apportionment is a necessary tool to enable the court to find that the payee has no right to retain the sum claimed for work which, in breach of contract, he has not done. In my view for work done one could equally substitute goods delivered and/or services provided.
There may of course be cases where it is clear on the evidence that there has been some maybe even very considerable overpayment for which there has been no consideration but it is impossible because of difficulties of apportionment to identify the precise amount of the payment for which there has been no consideration. So for example in this case if the Claimants are right on all their collateral benefit arguments but it were held that part of the $3 million consideration in the Fee Agreement was attributable to Friday testing as a freestanding contingent right to which the parties attributed a modest but unquantified value when striking their bargain, it might in practice be difficult if not impossible to apportion a fixed sum to the 6,000 kilometres of testing or in consequence to the 2,004 kilometres actually provided. It would in those circumstances be plain that if Spyker were to retain the entire $3 million prepaid by the Claimants there would be some unidentifiable part thereof for which Spyker had provided no services. That would be the part of the $3 million referable to the balance of testing kilometres not provided by Spyker. On the current state of the law it would appear that because of the difficulty of apportionment the court would be powerless to order restitution notwithstanding the probability if not certainty that for some and possibly a large proportion of the money retained by Spyker there had been a total failure of consideration. It would be for consideration whether in such circumstances the court should have the power to identify some portion of the sum paid in respect of which even on a view most favourable to the payee it could not seriously be denied that there had been a total failure of consideration because it represented the minimum amount of the overall consideration specified in the contract which is attributable to the services which were not provided.
Clegg v Olle Andersson (t/a Nordic Marine)
[2002] EWHC 943
Seymour QC
At its most straightforward, the case for Mr. and Mrs. Clegg seemed to be that it was a condition of the Contract that the weight of the keel of the Yacht as delivered should be 5.5 tons, that there was a breach of that condition, and as a result of that breach of condition they were entitled to, and did, reject the Yacht. As he elaborated the case of Mr. and Mrs. Clegg in his closing submissions, Mr. Jonathan Rich, who appeared as Counsel on their behalf, explained that they relied upon the ballast weight indicated in the specification of a Malo 42, which he submitted was to be treated as incorporated into the Contract, as the term of which it was contended that Mr. Andersson was in breach. He indicated that Mr. and Mrs. Clegg also contended that the supply of the Yacht with an incorrect keel weight amounted to a breach of the term implied by virtue of Sale of Goods Act 1979 s.13 that in a contract for sale of goods by description the goods delivered should correspond with the contract description, and a breach of the term implied by virtue of Sale of Goods Act 1979 s.14 that the goods supplied under the contract should be of satisfactory quality. Neither of the terms which Mr. Rich contended should be implied under the provisions of Sale of Goods Act 1979 were mentioned in terms in the Particulars of Claim in the main action. Mr. Rich accepted in answer to a question from me that, in order for Mr. and Mrs. Cleggto have a right to reject the Yacht for breach of a term of the Contract it was essential that the term of which there had been a breach should be a condition, and not merely a warranty. He submitted that all of the terms upon which Mr. and Mrs. Clegg sought to rely were conditions.
By Sale of Goods Act 1979 s. 13(1) and (1A), as amended by Sale and Supply of Goods Act 1994, it is provided as follows:-
“(1) Where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description.
(1A) As regards England and Wales and Northern Ireland, the term implied by subsection (1) is a condition.”
The material provisions of Sale of Goods Act 1979 s.14, as amended by Sale and Supply of Goods Act 1994, for present purposes are:-
“(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.
(2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all other relevant circumstances.
(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods –
(a) fitness for all purposes for which goods of the kind in question are commonly supplied,
(b) appearance and finish,
(c) freedom from minor defects,
(d) safety, and
(e) durability…
(6) As regards England and Wales and Northern Ireland, the terms implied by subsections (2) and (3) above are conditions.”
In its essentials, the primary case for Mr. Andersson was that it was not a term of the Contract at all that the weight of the keel of the Yacht should be 5.5 tons. If there were such a term, it was not a condition but only a warranty, so that there was in any event no right to reject the Yacht, but only a right to damages in the event of a breach of the term. Alternatively, if originally the term contended for was a condition, Mr. and Mrs. Clegg had, by their conduct elected to treat the breach complained of as a breach of warranty only. In any event Mr. and Mrs. Clegg had, by their words and conduct intimated that they accepted the Yacht, or had acted in a manner inconsistent with the ownership of the seller. As at 6 March 2001 it was in any event too late to reject the Yacht. An unpleaded argument advanced at trial on behalf of Mr. Andersson was that the offers made to remedy the excess weight in the keel amounted to a fresh tender of a yacht which would have complied with the Contract. Another unpleaded argument advanced at trial was that by writing in the terms which he did in his letters dated, respectively 16 and 25 March 2001, indicating that no decision to reject the Yacht had irrevocably been made, Mr. Clegg had lost the right to reject or had rendered the notice of rejection ineffective. The pleaded argument in relation to estoppel by representation was not pursued at trial.
Mrs. Helene Pines Richman, who appeared as Counsel on behalf of Mr. Andersson, drew to my attention the provisions of Sale of Goods Act 1979 s.35, as amended by Sale and Supply of Goods Act 1994. For present purposes the material sub-sections of that section are these:-
“(1) The buyer is deemed to have accepted the goods subject to subsection (2) below –
(a) when he intimates to the seller that he has accepted them, or
(b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.
(2) Where goods are delivered to the buyer, and he has not previously examined them, he is not deemed to have accepted them under subsection (1) above until he has had a reasonable opportunity of examining them for the purpose –
(a) of ascertaining whether they are in conformity with the contract, …
(4) The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains them without intimating to the seller that he has rejected them.
(5) The questions that are material in determining for the purposes of subsection (4) above whether a reasonable time has elapsed include whether the buyer has had a reasonable opportunity of examining the goods for the purpose mentioned in subsection (2) above.
(6) The buyer is not by virtue of this section deemed to have accepted the goods merely because –
(a) he asks for, or agrees to, their repair by or under an arrangement with the seller,…”
Mrs. Pines Richman also drew to my attention the terms of Sale of Goods Act 1979 s.11, as amended by Sale and Supply of Goods Act 1994. The relevant provisions of that section for present purposes are:-
“(2) Where a contract of sale is subject to a condition to be fulfilled by the seller, the buyer may waive the condition, or may elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated.
(3) Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated, depends in each case on the construction of the contract; and a stipulation may be a condition though called a warranty in the contract.
(4) Subject to s. 35A below [not material], where a contract of sale is not severable and the buyer has accepted the goods or part of them, the breach of condition to be fulfilled on the part of the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is an express or implied term of the contract to that effect.”
I shall come in due course to indicate my conclusions on the facts of this case, but Mrs. Pines Richman submitted that I could derive particular assistance from the approach adopted by Rougier J. in Bernstein v. Pamson Motors (Golders Green) Ltd. [1987] 2 All ER 220 to the issue how to determine what was a reasonable time after the lapse of which a buyer should be taken to have accepted goods for the purposes of Sale of Goods Act 1979 s. 35. In the case to which Mrs. Pines Richman referred Rougier J. was concerned with Sale of Goods Act 1979 s. 35 in its unamended form. At page 230 in the report Rougier J. expressed this view:-
“In my judgment, the nature of the particular defect, discovered ex post facto, and the speed with which it might have been discovered, are irrelevant to the concept of reasonable time in s 35 as drafted. That section seems to me to be directed solely to what is a reasonable practical interval in commercial terms between a buyer receiving the goods and his ability to send them back, taking into consideration from his point of view the nature of the goods and their function, and from the point of view of the seller the commercial desirability of being able to close his ledger reasonably soon after the transaction is complete. The complexity of the intended function of the goods is clearly of prime consideration here. What is a reasonable time in relation to a bicycle would hardly suffice for a nuclear submarine.”
On the facts of the case Rougier J. held that the right to reject a motor car had been lost after the expiry of three weeks from the date of delivery during which the car had been driven 140 miles. Mrs. Pines Richman urged upon me that that analysis of the facts was also of assistance.
Mr. Rich drew to my attention the fact that the decision of Rougier J. in Bernstein v. Pamson Motors (Golders Green) Ltd. has been the subject of adverse comment by Mr. F.M.B. Reynolds in an article in 104 Law Quarterly Review at page 18. There was there reference to an otherwise unreported decision of Russell J., as he then was, in M. & T. Hurst Consultants Ltd. v. Grange Motors (Brentwood) Ltd. in which it was apparently held that a right to reject a defective second-hand Rolls Royce had not been lost some four months after delivery. Mr. Rich also relied on one other English decision, that in Manifatture Tessile Laniera Wooltex v. J. B. Ashley Ltd. [1979] 2 Lloyd’s Rep 28, and three Canadian cases, respectively, Cork v. Greavette Boats Ltd. [1940] 4 DLR 202, Rafuse Motors Ltd. v. Mardo Construction Ltd. 41 DLR (2d) 340 and Burroughs Business Machines Ltd. v. Feed-Rite Mills (1962) Ltd. 41 DLR (3d) 303. The decision in Manifatture Tessile Laniera Wooltex v. J.B. Ashley Ltd. Mr. Rich relied on as illustrative of what was found to be a reasonable time within which the reject defective goods on the facts of that case. I think that ultimately Mr. Rich relied on the Canadian cases for the same purpose.
Mrs. Pines Richman relied on the New Zealand case of Canterbury Seed Co. Ltd. v. J.G. Ward Farmers Association Ltd. (1895) 13 NZLR 96 as authority for the proposition that by seeking in his letter dated 25 March 2001 a reduction in the price of the Yacht Mr. Clegg intimated that he had accepted it. She also relied on an observation of Devlin J. in Kwei Tek Chao v. British Traders and Shippers Ltd. [1954] 2 QB 459 at pages 487-488 in support of her submission that Mr. and Mrs. Clegg had accepted the Yacht by raising finance to purchase it on the security of the Yacht itself.
In support of her submission that Mr. Andersson’s offers to modify the keel of the Yacht amounted to a retender of the Yacht conforming with the requirements of the Contract as to ballast weight Mrs. Pines Richman relied on the decision of the Court of Appeal in Borrowman, Phillips & Co. v. Free & Hollis (1878) 4 QBD 500 and the decision of the House of Lords in Motor Oil Hellas (Corinth) Refineries SA v. Shipping Corporation of India [1990] 1 Lloyd’s Rep 391. However, she accepted that neither case supported the proposition that an offer to transform goods which did not conform with the requirements of the relevant contract of sale into goods which did conform amounted to a retender. She indicated that she was in fact inviting me to develop the common law in this respect.
The remaining authorities to which Mrs. Pines Richman referred me were Tradax Export SA v. European Grain & Shipping Ltd. [1983] 2 Lloyd’s Rep 100 and Vargas Pena Afezteguia y Cia v. Peter Cremer GmbH [1987] 1 Lloyd’s Rep 394, each in support of her submission that as a result of the terms of Mr. Clegg’s letters respectively dated 16 and 25 March 2001 “not only was the right to reject lost as a result of inconsistent conduct, the notice of rejection itself was ineffective because it was inconsistent with the Claimants’ contemporaneous conduct”. The passages upon which Mrs. Pines Richman particularly relied are to be found in the judgment of Bingham J., as he then was, in the report of the former case at page 107. In the later case, a decision of Saville J., as he then was, reference was made with approval to one aspect of the comments of Bingham J. in the former case, namely the effect of a clear and unequivocal rejection. What Bingham J. said in the passages upon which Mrs. Pines Richman relied was:-
“A finding that the buyers clearly rejected the goods and claimed arbitration does not in my judgment conclude this question in their favour. It might emerge, as it did in Chapman v. Morton (1843) 11 M & W 534, that the buyers were saying one thing and doing another, so as to invalidate their written statements or throw doubt on the bona fides or the unequivocal nature of their rejection. Or they might act in such a way as to create an estoppel against themselves. Or they might enter into a new agreement with the sellers involving an express or implied withdrawal of their rejection or a retransfer of title to them. It does, however, seem to me quite plain that once the buyers have proved what, on its face, amounted to a clear and unequivocal rejection of the goods and claim for arbitration, it is for the sellers to prove, if they can, that the apparent effect of the buyers’ conduct was destroyed by other conduct having a different and inconsistent effect and not for the buyers to establish the negative case that they did nothing subsequently to disentitle themselves from asserting their rejection…
It follows from what I have said …that events after Aug. 12 were not irrelevant if they threw doubt on the bona fides of the rejection or showed a later agreement…”
Discussion and conclusions – liability
Logically the first issues to be addressed are whether it was in fact a term of the Contract that the weight of the keel of the Yacht should be 5.5 tons, and, if so, whether that term was a condition or a warranty. It seems to me that by referring in the Contract to“ one new MALO YACHTS 42, in accordance with the general conditions listed overleaf and in accordance with the manufacturers standard specifications” the parties incorporated into the Contract the terms of the standard specification of Malo for a Malo 42. That standard specification, in my judgment, indicates that that which is set out in the specification which is affected by whether the option of a shallow draught version is taken up or not is simply the draught of the yacht, with the other qualities set out remaining the same whichever version one chooses. Thus it seems to me that, properly construed, it was a term of the Contract that the Yacht should have a ballast weight of 5.5 tons. That term, it seems to me, was not a condition, such that any infringement of it, no matter how minor, entitled a purchaser to reject a yacht sold as complying with the standard specification. Rather it was a warranty breach of which entitled a purchaser buying a yacht which was sold as complying with the standard specification which did not do so to damages. Whether such damages were nominal or substantial would depend, applying normal principles of the assessment of damages for breach of contract, upon whether the purchaser could demonstrate that he had suffered more than nominal damages by reason of the breach.
Although not pleaded in terms, it seems to me that the term set out in Sale of Goods Act 1979 s. 13(1) was to be implied into the Contract. The Contract was a contract for the sale of goods by description. I was not addressed by either Counsel on the question what was the relevant description, or how the matter of deciding what was the relevant description should be approached. It was implicit in the submissions of Mr. Rich that the relevant description included at least a statement of the ballast weight. In the Defence and Counterclaim it was pleaded, at paragraph 4, that “The weight of the keel formed no part of the description of the vessel for the purposes of section 13 of the Act”. I have reminded myself of the observations of Lord Diplock in relation to a contract for the sale of unascertained goods in Ashington Piggeries Ltd. v. Christopher Hill Ltd. [1972] AC 441 at pages 503-504:-
“The “description” by which unascertained goods are sold is, in my view, confined to those words in the contract which were intended by the parties to identify the kind of goods which were to be supplied…Ultimately the test is whether the buyer could fairly and reasonably refuse to accept the physical goods proffered to him on the ground that their failure to correspond with that part of what was said about them in the contract makes them goods of a different kind from those which he agreed to buy. The key to section 13 is identification.”
I have also reminded myself of what Lord Wilberforce said in Reardon Smith Line Ltd. v. Hansen-Tangen [1976] 1 WLR 989 at page 998:-
“Even if a strict and technical view must be taken as regards the description of unascertained future goods (eg commodities) as to which each detail of the description must be assumed to be vital, it may be, and in my opinion is, right to treat other contracts of sale of goods in a similar manner to other contracts generally, so as to ask whether a particular item in a description constitutes a substantial ingredient of the “identity” of the thing sold, and only if it does to treat it as a condition (see Couchman v. Hill, per Scott LJ).”
In the light of the observations of Lord Diplock and Lord Wilberforce to which I have referred in the preceding paragraph it seems to me that a distinction is to be drawn in construing the Contract between those elements which identify the subject-matter of the Contract, namely the goods described as “one new MALO YACHTS 42…including extras as listed overleaf”, which extras included a “shoal draught keel”, and those provisions which prescribe the detailed attributes which the goods so described are to have. It would be ridiculous to suppose, for example, that each and every item of the Malo standard specification for a Malo 42 was a part of the contract description of the goods to be sold, such that the Yacht could be rejected if it were 10 centimetres too long or too short. Obviously there could be a sufficient number of departures from the Malo standard specification, or departures of such significance, that the resulting yacht could not properly be called a Malo 42. However, subject to that point, the description in the Contract of the goods to be sold did not, in my judgment, include the reference to the yacht to be supplied being “in accordance with the manufacturers standard specifications”. It is plain, in the light of the terms of Sale of Goods Act 1979 s. 13(1A), that the description of the goods the subject of the Contract, properly construed, was a condition and not a warranty.
It seems to me that the term set out in Sale of Goods Act 1979 s. 14(2) was also a term of the Contract and was also a condition.
It has always been accepted that the delivery of the Yacht with a keel which was overweight as compared with that for which the Malo specification provided was inappropriate and that the keel required remedy. While it is not admitted in terms in the Defence and Counterclaim that the supply of the Yacht with a keel which was overweight was a breach of the Contract, the attention given in the Defence and Counterclaim to the issues whether the provision of the Yacht to Mr. and Mrs. Clegg with an overweight keel amounted to a breach of condition and, if so, whether the right to reject the Yacht had been lost, indicate that it has always been recognised that there was at least a breach of warranty. That is a realistic assessment and it is what I find. In the light of my findings as to what amounted to the description of the subject-matter of the Contract it is necessary to consider whether the provision of the Yacht with a keel weighing some 607 kilogrammes more than the ballast weight set out in the standard specification of Malo for a Malo 42 meant that the Yacht could not properly be considered as meeting the description “one new MALO YACHTS 42….[with] Shoal draught keel”. It is also necessary to consider whether that circumstance meant that the Yacht was not of satisfactory quality for the purposes of Sale of Goods Act 1979 s. 14(2).
It seems to me to be plain beyond argument that the Yacht as delivered met the description in the Contract of the goods to be sold as I have found that description to be. Mr. Rich submitted that the Yacht was not of satisfactory quality with an overweight keel because the fact that the manufacturers of the rig considered that the rig loads imposed by the Yacht with an overweight keel were unacceptable meant that the Yacht was unsafe to sail. Although Mr. Rich made that suggestion repeatedly, both in cross-examining Mr. Anderssonand Mr. Leander, and in his submissions, there was no evidence to support it. Neither Mr. Deakin, called as an expert witness on behalf of Mr. and Mrs. Clegg, nor Mr. Katenkamp, who was called on their behalf as a witness of fact, but who is in fact a marine surveyor, expressed the view that the Yacht with an overweight keel was unsafe to sail. What Mr. Deakin said was that the overweight keel would have an effect on the performance of the Yacht in terms of speed and fuel efficiency, but this would be small and difficult to measure. That was also the evidence of Mr. Saunders. While it was common ground between Mr. Deakin and Mr. Saunders that the extra weight of the keel would reduce the factor of safety of the rigging, no one, other than Mr. Rich, suggested that the reduction would be so great as to cause the use of the Yacht to be unsafe. Both Mr. Andersson, who told me that he has been involved in sailing for over 40 years, and Mr. Leander, who is Malo’s designer, told me that the effect of the overweight keel on the rigging in practical terms would be to reduce the service life of the mast and the rigging. However, so Mr. Andersson told me, it would last ten or twenty years anyway. I accept the evidence of Mr. Andersson and Mr. Leander on the issue of the implications for the rigging of the keel of the Yacht being overweight by 607 kilogrammes. I also accept their evidence, and that of Mr. Deakin and Mr. Saunders, as to the implications on the performance of the Yacht of having an overweight keel. In the light of that evidence I find that the Yacht did on delivery on 12 August 2000 meet the description in the Contract of the subject-matter of the sale. I also find that the Yacht was of satisfactory quality in the condition in which it was delivered because the implications of the keel being overweight were so small as to be incapable of measurement in relation to matters such as speed and fuel efficiency, and so long term and so dependent on how often the Yacht was sailed and in what conditions of wind and sea in relation to the possibility of a reduction in the service life of the rigging. So far as those qualities which Mr. Deakin and Mr. Saunders agreed would be affected by an overweight keel, but not necessarily adversely, the evidence of each was that whether one liked those effects or not was a matter of individual taste. Having sailed the Yacht for some nine days in August 2000 Mr. Clegg decided that he did like the feel of the Yacht as it was.
Even if I were wrong in finding that there had been no breach of any condition of the Contract by the delivery by Mr. Andersson on 12 August 2000 of the Yacht with a keel weighing some 607 kilogrammes more than the ballast weight specified in the Malo standard specification for a Malo 42, it seems to me clear that Mr. Clegg, by what he said and did, intimated that he accepted the Yacht, and did acts inconsistent with the ownership of Mr. Andersson. There was in fact little difference between the evidence of Mr. Cleggand that of Mr. Andersson as to what was said and done, but insofar as there was any difference I prefer the evidence of Mr. Andersson. He gave his evidence with calmness and dignity. He was careful in his evidence and frank. Although there was in fact little difference between the evidence of Mr. Andersson and Mr. Clegg in relation to the dealings between them, Mr. Rich saw fit both to accuse Mr. Andersson of dishonesty in his evidence and to suggest to him that he had been coached in his evidence by his legal advisers. These were disgraceful allegations for which in my judgment there was not a shred of justification. The allegation of coaching is one of serious professional misconduct on the part of Mr. Andersson’s legal advisers. It appears to have been prompted by nothing more than the fact that Mrs. Pines Richman seems to have spent some time in North America and her style of advocacy betrays some North American influence. Mr. Andersson’s measured reaction to the allegations to which I have referred did him great credit. I felt that Mr. Clegg’s evidence was less reliable than that of Mr. Andersson in relation to those matters where they differed because Mr. Clegg was obviously labouring under a considerable sense of grievance as to how he considered he had been treated by Mr. Andersson and Malo, and with hindsight had a recollection of some matters which was more disadvantageous to Mr. Andersson and Malo than was accurate. That was manifested, in particular, in the difference between Mr. Clegg’s pleaded case as to what had been said by Mr. Andersson on the occasion of the delivery of the Yacht about it being overweight and the evidence in his witness statement and what he said orally in court. However, I emphasise, generally the differences between the evidence of Mr. Andersson and Mr. Clegg on relevant matters were small, and ultimately probably not crucial.
I find that Mr. Clegg was told on 12 August 2000 that the Yacht was overweight, that there seemed to be some 607 kilogrammes excess weight in the keel, and that Mr. Andersson and Malo would put that right. Even on Mr. Clegg’s evidence he knew on 16 August 2000 that the keel was overweight. With that knowledge he took his family on a cruise to Falmouth and Alderney over eight days or so. In the light of that experience he decided that he liked the Yacht as it was and told Mr.Andersson so. That, in my judgment, was an intimation that he accepted the Yacht, knowing of the condition of the keel and that Mr. Andersson considered that it should be corrected and was prepared to have the necessary work done. Mr. Clegg’s concern in his letter dated 28 August 2000 in relation to the keel was not whether its condition was such that he might want to reject the Yacht, but simply whether the remedial work proposed by Mr. Andersson was absolutely necessary. In my judgment by 28 August 2000, in the light of his experience of sailing the Yacht, it had not occurred to Mr. Clegg not to keep the Yacht. He was simply interested in whether he should have the remedial work done or not. The fact that he indicated to Mr. Andersson that he considered that it was his, Mr. Clegg’s, decision whether the remedial work should be done or not was a further intimation that he had accepted the Yacht. The giving by Mr. Clegg of an instruction in his letter dated 5 September 2000 to Mr. Andersson that remedial work should not be undertaken on the keel was, in my judgment, an act inconsistent with the continuing ownership of the Yacht by Mr. Andersson. In informing Mr. Andersson in his letter dated 13 January 2001 that he intended to move the Yacht to Portugal or Gibraltar in early May 2001 it seems to me Mr. Clegg was intimating that he had accepted the Yacht. I also consider that by leaving his personal possessions on the Yacht between August 2000 and the end of March 2001 Mr. Clegg was intimating that he had accepted the Yacht. His action in insuring the Yacht was inconsistent with ownership of the Yacht remaining with Mr. Andersson and amounted to the assertion by Mr. Clegg that he had an insurable interest in the Yacht. Contrary to his evidence to me, he would not have had such an interest unless he had accepted the Yacht. Mr. Clegg’s attempt to register the Yacht in his and his wife’s names was also inconsistent with ownership of the Yacht remaining with Mr. Andersson. For all these reasons in my judgment Mr. and Mrs. Clegg had lost the right to reject the Yacht, if, contrary to my findings, they would otherwise have had such right, well before the letter dated 6 March 2001 was written by Messrs. Blake-Turner & Co. Indeed, the tenor of the correspondence between Mr. Clegg and Mr. Andersson up to the letter dated 6 March 2001 does not in any way foreshadow the terms of that letter, which came rather out of the blue. I reject Mr. Clegg’sevidence that he was moved to give instructions for the letter to be written by a realisation from the terms of Mr. Andersson’s letter dated 14 February 2001 that significant work would be necessary to remedy the Yacht. I find it difficult to avoid the conclusion that the writing of the letter dated 6 March 2001 was in fact prompted by a desire to seek to manoeuvre Mr. and Mrs. Clegg into a better position to extract substantial compensation from Mr. Andersson. Certainly something about which I can only speculate appears to have happened at the beginning of March 2001 to cause Mr. Clegg to wish to adopt a much more confrontational stance as against Mr. Andersson than that which had been adopted up to that point.
In the circumstances I do not really need to consider the submissions of Mrs. Pines Richman that the right to reject was lost, if in no other way, by the seeking of a price reduction in Mr. Clegg’s letter dated 25 March 2001, or that there was conduct in writing that letter and the letter dated 16 March 2001 which was inconsistent with, and therefore vitiated,the giving of a notice of rejection. However, if it had been necessary to consider those submissions in detail I should have rejected them. It does not seem to me that the circumstances revealed in the present case lead to the conclusion that the letter dated 6 March 2001, if otherwise good as a notice of rejection, should be deprived of the effect which it would have had.
Subject to the need to have regard to the provision made by Sale of Goods Act 1979 s. 35(4), which was introduced after his decision in Bernstein v. Pamson Motors (Golders Green) Ltd., I respectfully agree with the conclusion of Rougier J. that, on proper construction, Sale of Goods Act 1979 s.35(4) is not concerned with what defects existed in goods in any particular case and how easy they in fact were to discover. What it is concerned with is how long would objectively be a reasonable time on the facts of the particular case to retain goods without intimating a rejection. In applying that objective test what is important, it seems to me, is what opportunities there in fact were to examine the goods to see whether they conformed with the contract requirements, not with whether those opportunities were actually taken. On the facts of the present case Mr. and Mrs. Clegg had ample opportunity, had they chosen to take it, to evaluate whether the Yacht was in conformity with the Contract. Had it been necessary, therefore, I should have held that they had lost any right to reject the Yacht by lapse of time.
It seems to me that Mrs. Pines Richman’s argument that the offers made by Mr. Andersson to remedy the keel of the Yacht amounted to a retender of goods complying with the Contract is unsound. She accepted that it was not supported by the authorities to which she drew my attention in respect of this part of her argument. I consider it to be bad in principle. While it may well be that, in some circumstances at least, a seller should be treated as having an opportunity to perform his contract properly notwithstanding an initial tender of goods which did not conform with the requirements of the relevant contract, what Mrs. Pines Richman was really contending for was a principle of law that a seller who, in breach of contract, tendered defective goods, should have a right to repair or replace those goods enforceable against the buyer before the buyer could reject the goods. Any such right would, in my judgment, be contrary to the well-established right of a buyer of goods to reject for breach of condition.
Damages
In the light of my conclusions expressed above it is appropriate to turn to a consideration of questions of damages. There are, in theory at least, two issues. The first is what damages Mr. and Mrs. Clegg are entitled to in respect of the breach of the Contract which I have found proved, namely delivering the Yacht with a keel which was some 607 kilogrammes overweight. The second is whether Mr. and Mrs. Clegg should be deprived of the damages to which they would otherwise be entitled for failing to mitigate their loss.
As I have already indicated, there is no claim for damages pleaded in the Particulars of Claim which represents the alleged loss suffered by Mr. and Mrs. Clegg if, as I have found, they have no right to reject the Yacht. No evidence was led on their behalf of any loss on this basis. During the course of the trial Mr. Saunders was cross-examined about the difference in value between the Yacht as delivered and the Yacht with a keel of the weight of the the ballast indicated in the Malo standard specification for a Malo 42. He said that he considered that the difference would simply be the cost of modifying the keel of the Yacht to make it the weight of the standard ballast. He was not able to say what that cost would be. I accept the evidence of Mr. Saunders on the point of principle as to the measure of damages. Mr. Deakin accepted in his evidence that the lead part of the keel of the Yacht was not a piece of precision engineering. He and Mr. Saunders agreed that from a technical point of view shaving the keel was a satisfactory solution if competently carried out. I have already referred to the evidence of Mr. Saunders that the market for shoal draught yachts is smaller than that for deep draught yachts. The market for shoal draught Malo 42s seems to be extremely limited as only two, one of them the Yacht, have ever been built. The keel of the Yacht is not intended to be aesthetically pleasing, or indeed, visible in ordinary circumstances. It thus seems inherently likely that the only difference between the value of the Yacht as delivered and the Yacht with a keel of a weight of 5.5 tons would be the cost of reducing the weight of the keel to 5.5 tons. Mr. Andersson was asked in cross-examination what the work involved with that operation, if carried out by shaving, would be. He said that he thought that it would take two men three eight hour days to do at a charge of £35 per hour. That would make a total of £1680.
As I have indicated, right at the outset on delivery of the Yacht Mr. Andersson offered to correct the keel of the Yacht at no cost to Mr. and Mrs. Clegg. Evidence that that was not simply an idle promise is the fact that two technicians were sent by Malo from Sweden to do the work thought to be necessary. There is an issue in this action as to whether the works proposed by Mr. Andersson and Malo in September 2000 would, if carried out, have rendered the Yacht into the condition in which it should have been delivered. Mr. Rich persisted in asserting that in September 2000 Mr. Andersson and Malo believed that the keel was 1000 kilogrammes overweight, and that, had Mr. Clegg permitted the Malo technicians to work on the keel on about 5 September 2000, they would simply have hacked 1000 kilogrammes off it. I accept the evidence of Mr. Andersson that his belief was that the Yacht as a whole weighed 1000 kilogrammes more than the standard Malo 42. The weight of the Yacht as a whole was all that could be determined by the calculations undertaken in the light of the inclining tests which he carried out at the beginning of September 2000. I also accept the evidence of Mr. Andersson that he was told by Malo that the invoice rendered by the foundry which had cast the lead bulb for the Yacht revealed an excess casting weight of 607 kilogrammes, and that he was told that on or before 12 August 2000. Mr. Leander had some doubt as to whether Malo would have found out about the casting weight as early as that, as opposed to later in August, but it seemed to me that Mr. Leander was generally a little hazy on precise dates. Both Mr. Andersson and Mr. Leander told me that before any work had been done on the keel of the Yacht further stability tests would have been undertaken to ascertain what precisely was the quantity of lead which needed to be taken off. Mr. Leander told me that the technicians sent had patterns for the keel with them to use to ensure that the correct shape of the keel was maintained. He also told me that the object of the exercise, had it been undertaken in September 2000, would have been to reduce the weight of the keel to the ballast weight of the standard Malo 42, namely 5.5 tons. Some confusion has been introduced, it seems, from the point of view of Mr. and Mrs. Clegg, by the fact that in February 2001 Mr. Andersson was suggesting the removal of some 800 kilogrammes of lead. They do not seem to have understood, and perhaps do not even yet understand, that as a result of various items of equipment, such as a washing machine and a generator, which they had requested be fitted as extras on the Yacht, it weighed some 400 kilogrammes more than a standard Malo 42 for that reason alone. The proposal to remove 800 kilogrammes of lead from the keel was intended both to remedy the effect of having an overweight keel and to compensate for the additional weight which was an inevitable consequence of the extra equipment which they had ordered and would have been a feature of the Yacht even if delivered with a keel of a weight of 5.5 tons. What was being suggested in February 2001 was thus an enhancement of the stability of the Yacht to take account of its actual weight in correct condition. If the only work done had been to reduce the weight of the keel to 5.5 tons, the Yacht would still have had the stability characteristics of a yacht weighing some 400 kilogrammes more than a standard Malo 42. In my judgment in order to mitigate the loss which they would otherwise have suffered as a result of the delivery of the Yacht with an overweight keel, it was the duty of Mr. and Mrs. Clegg to permit the manufacturers of the Yacht, Malo, a very reputable company, to carry out remedial work to the keel in September 2000 as was proposed. Had they done so they would have avoided the cost of shaving the keel which is the only loss of which there is any evidence, even though that loss is not pleaded.
The overpayment
As I have already indicated, the fact and amount of the overpayment of the purchase price of the Yacht are not in dispute. Subject to setting off against the admitted sum the amounts which he has had to pay as berthing charges for the Yacht Mr. Andersson accepts that the overpayment must be refunded. Although not clearly pleaded as such, the set-off contended for seems to me to be in the nature of damages for breach of the Contract in failing to remove the Yacht after the expiry of an agreed period of free berthing which expired on 31 March 2001. Mr. and Mrs. Clegg were, on my findings, clearly in breach of an implied obligation to remove the Yacht from Mr. Andersson’s berth after the expiry of the agreed period of free berthing, so in principle it seems to me that he is entitled to compensation in respect of the cost to him of that breach. The only evidence coming from Mr. Andersson as to the amount of the berthing charges before me is in the Defence and Counterclaim, which bears a statement of truth signed by him, in which, at paragraph 14 the cost of two month’s berthing is put at £1351.25, or £675.63 per month. It is common ground that the Yacht was in fact taken out of the water for inspection by Mr. Deakin on about 18 December 2001. Mr. Andersson has not paid any berthing fees since then. Eight months and two and a half weeks berthing at £675.63 per month amounts to £5827.31. As the sum admitted otherwise to be due to Mr. and Mrs. Clegg is £5769.87 the set-off is sufficient to extinguish the liability to make repayment.
Overall conclusions
Although Mr. and Mrs. Clegg succeed in the allegation that the delivery of the Yacht with an overweight keel was a breach of the Contract, I am not satisfied that they suffered any damage thereby. No claim for damages in respect of the breach which I have found proved was made in the Particulars of Claim, but any loss which would otherwise have been suffered would have been avoided in total had Mr. and Mrs. Clegg, as they ought reasonably to have done, accepted the offer of Mr. Andersson to remedy the keel without charge by reducing the weight to that of the ballast of a standard Malo 42. For these reasons the claim in the main action fails and is dismissed.
So far as the claim for repayment of the admitted overpayment of the purchase price of the Yacht is concerned, that fails because Mr. Andersson is entitled to set-off against his liability to make repayment berthing fees which exceed the admitted overpayment in amount by £57.44.
In the circumstances the Counterclaim in the main action would succeed in the sum of £57.44 had there been any indication that the matters raised in it were relied on as something more than just a set-off. The Counterclaim contained no prayer for relief. In the circumstances the Counterclaim as a counterclaim fails and is dismissed.
Technically there remain the claims in the surviving Bow County Court action for final accounts, export and Value Added Tax documentation. Mr. Andersson told me, and I accept, that he has in fact already provided a final account to those funding the purchase by Mr. and Mrs. Clegg of the Yacht. He seemed willing to provide a further copy to Mr. and Mrs. Clegg, and also to address the need, if Mr. and Mrs. Clegg were found not to be entitled to reject the Yacht, to deal with export and Value Added Tax formalities. What these actions have really been about is whether Mr. and Mrs. Clegg were entitled to reject the Yacht. Now that that matter has been resolved I am confident that the provision of any requisite paperwork will not create any difficulty. Without a comprehensive and detailed listing of the documentation I am not in any event in a position to make any order for the delivery of any documents. What I propose is simply to give permission to apply in relation to the provision of a final account, export and Value Added Tax documentation in case my expectation that the question will not present any difficulty is disappointed.
Finally, I should record my understanding that Mr. Andersson and Malo remain willing to undertake work to reduce the weight of the keel of the Yacht, if that is what Mr. and Mrs. Clegg desire. That is no more than one would expect of a man of Mr. Andersson’s obvious integrity and a company of the standing which Malo apparently enjoys in the yachting world. Whether Mr. and Mrs. Clegg wish to take up the offer is a matter for them, but it seems to me that they can reasonably be expected to make their wishes known swiftly.
[2003] EWCA Civ 320
Vice Chancellor
Did the Cleggs lose their right to reject the Yacht before 6th March 2001?
It is not disputed that the result of my conclusion in respect of s.14(2) is that the Cleggs were, initially, entitled to reject the Yacht. The question is whether by their subsequent conduct they lost that right on or before 6th March 2001. This issue depends on the proper application to the facts of this case of s.35 Sale of Goods Act 1979 as amended by the Sale and Supply of Goods Act 1994. The material provisions are:
(1) The buyer is deemed to have accepted the goods subject to subsection (2) below –
(a) when he intimates to the seller that he has accepted them, or
(b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.
(2) Where goods are delivered to the buyer, and he has not previously examined them, he is not deemed to have accepted them under subsection (1) above until he has had a reasonable opportunity of examining them for the purpose –
(a) of ascertaining whether they are in conformity with the contract, …
(3) Where the buyer deals as consumer…., the buyer cannot lose his right to rely on subsection (2) above by agreement, waiver or otherwise.
(4) The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains them without intimating to the seller that he has rejected them.
(5) The questions that are material in determining for the purposes of subsection (4) above whether a reasonable time has elapsed include whether the buyer has had a reasonable opportunity of examining the goods for the purpose mentioned in subsection (2) above.
(6) The buyer is not by virtue of this section deemed to have accepted the goods merely because –
(a) he asks for, or agrees to, their repair by or under an arrangement with the seller,…”
The terms of s.35 pose three questions, namely (1) did the Cleggs intimate to Mr Andersson that they accepted the Yacht? (2) did the Cleggs do any act in relation to the Yacht which was inconsistent with the ownership of Mr Andersson ? and (3) had a reasonable time elapsed by 5th March 2001 in which the Cleggs retained the Yacht without intimating to Mr Andersson that they had rejected it? The judge answered each of the first two questions in the affirmative. He indicated that had it arisen he would have answered the third question in the affirmative too.
In paragraphs 43 to 47 the judge dealt with a number of authorities on which Counsel for Mr Andersson had relied before him relating to the application of s.35(4). In paragraph 54 the judge explained why he preferred the evidence of Mr Andersson to that of Mr Clegg but pointed out that the differences between them on relevant matters were small and ultimately probably not crucial.
The judge’s conclusion on the first two questions to which I have referred in paragraph 51 above is set out in paragraph 55 of his judgment. He said:
“I find that Mr. Clegg was told on 12 August 2000 that the Yacht was overweight, that there seemed to be some 607 kilogrammes excess weight in the keel, and that Mr. Andersson and Malo would put that right. Even on Mr. Clegg’s evidence he knew on 16 August 2000 that the keel was overweight. With that knowledge he took his family on a cruise to Falmouth and Alderney over eight days or so. In the light of that experience he decided that he liked the Yacht as it was and told Mr.Andersson so. That, in my judgment, was an intimation that he accepted the Yacht, knowing of the condition of the keel and that Mr. Andersson considered that it should be corrected and was prepared to have the necessary work done. Mr. Clegg’s concern in his letter dated 28 August 2000 in relation to the keel was not whether its condition was such that he might want to reject the Yacht, but simply whether the remedial work proposed by Mr. Andersson was absolutely necessary. In my judgment by 28 August 2000, in the light of his experience of sailing the Yacht, it had not occurred to Mr. Clegg not to keep the Yacht. He was simply interested in whether he should have the remedial work done or not. The fact that he indicated to Mr. Andersson that he considered that it was his, Mr. Clegg’s, decision whether the remedial work should be done or not was a further intimation that he had accepted the Yacht. The giving by Mr. Clegg of an instruction in his letter dated 5 September 2000 to Mr. Andersson that remedial work should not be undertaken on the keel was, in my judgment, an act inconsistent with the continuing ownership of the Yacht by Mr. Andersson. In informing Mr. Andersson in his letter dated 13 January 2001 that he intended to move the Yacht to Portugal or Gibraltar in early May 2001 it seems to me Mr. Clegg was intimating that he had accepted the Yacht. I also consider that by leaving his personal possessions on the Yacht between August 2000 and the end of March 2001 Mr. Clegg was intimating that he had accepted the Yacht. His action in insuring the Yacht was inconsistent with ownership of the Yacht remaining with Mr. Andersson and amounted to the assertion by Mr. Clegg that he had an insurable interest in the Yacht. Contrary to his evidence to me, he would not have had such an interest unless he had accepted the Yacht. Mr. Clegg’s attempt to register the Yacht in his and his wife’s names was also inconsistent with ownership of the Yacht remaining with Mr. Andersson. For all these reasons in my judgment Mr. and Mrs. Clegg had lost the right to reject the Yacht, if, contrary to my findings, they would otherwise have had such right, well before the letter dated 6 March 2001 was written by Messrs. Blake-Turner & Co. Indeed, the tenor of the correspondence between Mr. Clegg and Mr. Andersson up to the letter dated 6 March 2001 does not in any way foreshadow the terms of that letter, which came rather out of the blue. I reject Mr. Clegg’s evidence that he was moved to give instructions for the letter to be written by a realisation from the terms of Mr. Andersson’s letter dated 14 February 2001 that significant work would be necessary to remedy the Yacht. I find it difficult to avoid the conclusion that the writing of the letter dated 6 March 2001 was in fact prompted by a desire to seek to manoeuvre Mr. and Mrs. Clegg into a better position to extract substantial compensation from Mr. Andersson. Certainly something about which I can only speculate appears to have happened at the beginning of March 2001 to cause Mr. Clegg to wish to adopt a much more confrontational stance as against Mr. Andersson than that which had been adopted up to that point.”
The intimations on which the judge relied in relation to the first question were (a) Mr Clegg, with knowledge and experience of the overweight keel, telling Mr Andersson in late August 2000 that he liked the Yacht, (b) Mr Clegg’s letter of 28th August 2000 indicating that the decision whether any and, if so, what remedial work should be done was for Mr Clegg, (c) Mr Clegg’s letter of 13th January 2001 informing Mr Andersson that the Cleggs intended to move the Yacht to Portugal or Gibraltar in early May 2001 and (d) the action of the Cleggs in leaving personal possessions on the Yacht from August 2000 until March 2001.
In my view intimations (a) and (b) should be considered together, not least because the terms of the letter of 28th August 2000 (paragraph 11 above) show the sense in which Mr Clegg’s statement should be regarded. He refers to the overweight keel as a fundamental point. He asks for a revised specification and measurements. He questions the effect on EU weight requirements and on a resale and asks for the appointment of an independent surveyor because he does not have the relevant expertise. I do not read this as an intimation of acceptance; rather Mr Clegg was asking for information so that he might then determine whether or not he should accept the Yacht. That this was his position is, in my view, made plain by the correspondence passing between him and Mr Andersson between 28th August and 8th September 2000 (paragraphs 12 to 16 above). The information he sought was not in fact supplied until 15th February 2001.
Mr Clegg’s letter of 13th January 2001 (paragraph 17 above) cannot be read as an intimation that Mr Clegg had, or then, accepted the Yacht. He was concerned to get the information for which he had previously asked. Had it proved to be satisfactory then, no doubt, he would wish to move the Yacht to Portugal or Gibraltar in early May. That would depend on the sailing/testing he wished to carry out in March/April. I do not read that letter as intimating an intention to move the Yacht to Portugal if the information or the result of the testing was not satisfactory. Until at least the information was received Mr Clegg was not in a position to decide whether to accept the Yacht or not. No doubt the Cleggs had left personal effects in the Yacht but, given the outstanding request for further information, that action cannot be regarded as an intimation of acceptance either. For these reasons I am unable to agree with the judge’s conclusion on the basis of any or all the intimations he referred to in paragraph 55 of his judgment.
The inconsistent acts on which the judge relied in relation to the second question were (a) the letter dated 5th September 2000 from Mr Clegg to Mr Andersson directing him that remedial work should not be done, (b) insuring the Yacht and (c) attempting to register the Yacht. I am unable to agree with the judge in respect of any or all of these acts either.
By s.35(6)(a) a buyer is not deemed to have accepted goods if he asks for or agrees to their repair by the seller. The circumstances existing on 5th September 2000 were that Mr Clegg had sought but had not yet been provided with the information required by him to decide whether or not to accept remedial works to the Yacht. If he had agreed to their repair that would not have amounted to acceptance. In my view Mr Clegg’s indication that he did not agree to any remedial works unless and until he had been provided with the information he sought is also incapable of amounting to acceptance of the Yacht.
In Kwei Tek Chao v British Traders and Shippers [1954] 2 QB 459, 487 Devlin J explained that in cases where, as in this case, property in the goods has passed to the buyer the ownership of the seller with which the buyer must not act inconsistently is the reversionary interest of the seller which remains in him arising from the contingency that the buyer may reject the goods. As property in the Yacht had passed to the Cleggs they had an insurable interest in it whether or not they subsequently rejected it. The act of Mr Clegg in insuring the Yacht in August 2000 was not in any way inconsistent with the reversionary interest of Mr Andersson. Moreover, as the judge recorded in paragraph 28 of his judgment, one reason why Mr Clegg insured the Yacht was because the loan agreement under which he borrowed the money to buy the Yacht required him to do so. In my view the judge was wrong to regard the act of insuring the Yacht as in any way inconsistent with the ownership of Mr Andersson.
The third act on which the judge relied was Mr Clegg’s attempt to register the Yacht in the name of his wife and himself. In cross-examination Mr Clegg said that he had applied through an agent to register the Yacht in Guernsey. From the context I infer that this was done before or at the time of delivery in August 2000. In paragraph 7 of his supplemental witness statement he indicated that he was required to do so by the terms of the loan agreement. I am unable to see how this act can amount to an act inconsistent with the reversionary interest of Mr Andersson to which I have referred.
Accordingly I am unable to accept that the three acts relied on by the judge, either alone or together, are capable of amounting to acts inconsistent with the ownership of Mr Andersson. With regard to the third question in paragraph 57 of his judgment the judge said
“Subject to the need to have regard to the provision made by Sale of Goods Act 1979 s. 35(4), which was introduced after his decision in Bernstein v. Pamson Motors (Golders Green) Ltd., I respectfully agree with the conclusion of Rougier J. that, on proper construction, Sale of Goods Act 1979 s.35(4) is not concerned with what defects existed in goods in any particular case and how easy they in fact were to discover. What it is concerned with is how long would objectively be a reasonable time on the facts of the particular case to retain goods without intimating a rejection. In applying that objective test what is important, it seems to me, is what opportunities there in fact were to examine the goods to see whether they conformed with the contract requirements, not with whether those opportunities were actually taken. On the facts of the present case Mr. and Mrs. Clegg had ample opportunity, had they chosen to take it, to evaluate whether the Yacht was in conformity with the Contract. Had it been necessary, therefore, I should have held that they had lost any right to reject the Yacht by lapse of time.”
In Bernstein v. Pamson Motors (Golders Green) Ltd [1987] 2 AER 220 Rougier J was concerned with a case in which the car had been delivered to the buyer three weeks before the purported rejection. In the interval the purchaser had driven it 140 miles. At p.230 Rougier J said
“In my judgment, the nature of the particular defect, discovered ex post facto, and the speed with which it might have been discovered, are irrelevant to the concept of reasonable time in s 35 as drafted. That section seems to me to be directed solely to what is a reasonable practical interval in commercial terms between a buyer receiving the goods and his ability to send them back, taking into consideration from his point of view the nature of the goods and their function, and from the point of view of the seller the commercial desirability of being able to close his ledger reasonably soon after the transaction is complete. The complexity of the intended function of the goods is clearly of prime consideration here. What is a reasonable time in relation to a bicycle would hardly suffice for a nuclear submarine.”
As the judge acknowledged that decision has been criticised (104 LQR 18). Further it was based on the terms of s.35 before amendment by the Sale and Supply of Goods Act 1994. It is unnecessary to express a view as to whether the decision of Rougier J was correct before the amendment to s.35 effected by Sale and Supply of Goods Act 1994. In my view it does not represent the law now. As originally enacted s.35(1) provided that a buyer was deemed to have accepted goods, inter alia, “when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them”. S.59 provided then, as it does now, that what is a reasonable time is a question of fact. The material difference arises from the removal of that part of subsection (1) to subsection (4) and the addition of subsections (5) and (6). Thus subsection (5) provides that whether or not the buyer has had a reasonable time to inspect the goods is only one of the questions to be answered in ascertaining whether there has been acceptance in accordance with subsection (4). Subsection (6)(a) shows that time taken merely in requesting or agreeing to repairs, and, I would hold, for carrying them out, is not to be counted.
In these circumstances I consider that time taken to ascertain what would be required to effect modification or repair is to be taken into account in resolving the question of fact which arises under subsection (4). In the light of the undisputed fact that Mr Clegg did not receive the information he had sought in August and September 2000 until 15th February 2001 I consider that the three weeks which elapsed thereafter until the letter of rejection dated 6th March 2001 did not exceed a reasonable time for the purposes of s.35(4) Sale of Goods Act 1979.
In the concluding sentences of paragraph 55 the judge speculated on why Mr Clegg determined to reject the Yacht when he did. He rejected the evidence of Mr Clegg and considered that he sought to manoeuvre his wife and himself into a better bargaining position with regard to Mr Andersson. In my view the reason why the Cleggs rejected the Yacht when they did is irrelevant if, as I consider, they had the right to do so.
Although Mr Andersson had not served a respondent’s notice we gave him permission to rely on the letters dated 16th and 25th March 2001 (paragraph 21 above). Counsel for Mr Andersson submitted to us, as she had done to the judge, that these letters vitiated the rejection effected by the letter of 6th March. The judge rejected that submission and so do I. If the letter of 6th March 2001 was effective to reject the Yacht there is nothing in the subsequent letters to rob it of that effect. In particular they do not constitute a withdrawal of the rejection or a contract or estoppel not to enforce it.
Damages
Having concluded that the overweight keel constituted the breach of a condition under s.14(2) and that the Cleggs had validly rejected the Yacht by their solicitor’s letter dated 6th March 2001 this issue is to be approached on a different basis from that adopted by the judge. It is not disputed that the Cleggs are entitled to the return of the price and other acquisition costs they incurred. This is quantified at £251,718.49. In addition they are entitled to compensation for consequential losses. These have been formally verified and quantified in the sum of £37,750 under a number of heads. I understood both parties to agree that we should refer the matter to a Master for the assessment of those damages. So that there shall be no doubt what the Master is expected to do I should briefly mention certain issues relating to damages to which the judge referred.
In paragraph 60 of his judgment the judge indicated that there was no claim for damages pleaded in the particulars of claim if the Cleggs had no right to reject the Yacht. Given that the Cleggs did have the right to reject the Yacht and had properly exercised it the pleading point goes. In paragraph 61 the judge concluded that the refusal of the Cleggs to permit Malo to carry out remedial work to the keel in September 2000 constituted a failure by them to mitigate their loss so as to deprive them of damages to reflect that cost. That issue also does not arise in the circumstances that the Cleggs were entitled to and did reject the Yacht in March 2001. The overpayment, but not the berthing charge, referred to by the judge in paragraph 62 of his judgment does still arise and is a factor to be taken into account by the Master in assessing the damages to be paid to the Cleggs.
Conclusion
For all these reasons I would allow the appeal, discharge the order of the judge and refer the assessment of the damages to be paid by Mr Andersson to the Cleggs to the Master. It follows that the order for costs made by the judge is discharged also with the consequence that the issue of whether the costs he ordered the Cleggs to pay to Mr Andersson should be assessed on the indemnity basis does not arise and the matters referred to in paragraph 22 above cease to have any relevance.
Lady Justice Hale:
I agree and would only add that at times the argument before us seemed to lose sight of the real issues in the English law of sale of goods. These are not whether either party has behaved reasonably. The defendant may well feel that he and the manufacturers Malo did their best to put right what had gone wrong and that the claimant purchaser should have taken up one of the options which they advised. If it is established that the seller is in breach of a condition of the contract, however, the choice does not lie with him.
There is an implied term, in English Law a condition, that goods sold in the course of a business must be of satisfactory quality: s 14(2) and (6). There are no implied terms as to quality in a sale of goods contract other than those implied by sections 14(2) and (3) and 15 of the Sale of Goods Act 1979 (and any other enactment): see s 14(1). This means that in the great majority of consumer sales the buyer has to rely upon section 14. If he does not have a remedy under section 14 he has no remedy at all. It so happens that the goods in this case did not comply with the express term of the contract that they be in accordance with the manufacturer’s specification. But if there had been no such term, it would have been a surprising result indeed if the buyer had no legal remedy for a state of affairs which the seller himself considered unacceptable. Mr Andersson only thought the boat acceptable because they could put it right. That is not the point. Seller and buyer often agree to try and put defects right but neither is obliged to do so. The fact that the remedy supplied by English law may be thought disproportionate by some is irrelevant to a consideration of whether the implied term has been broken.
The test is whether a reasonable person would think the goods satisfactory, taking into account their description, the price (if relevant) and all other relevant circumstances: see s 14(2A). The question, as the joint Report of the Law Commission and the Scottish Law Commission explained, is “not whether the reasonable person would find the goods acceptable; it is an objective comparison of the state of the goods with the standard which a reasonable person would find acceptable” (1987, Law Com No 160, Sale and Supply of Goods, para 3.25) The amendments made to section 14 by the Sale and Supply of Goods Act 1994 also make it clear that fitness for purpose and satisfactory quality are two quite different concepts. In some cases, such as a high priced quality product, the customer may be entitled to expect that it is free from even minor defects, in other words perfect or nearly so.
A reasonable person is not an expert. If a reasonable person had been told in September 2000 that the seller himself had realised that a very large quantity of lead would have to be removed in some as yet unspecified way from the keel of a brand new boat costing nearly a quarter of a million pounds with as yet unspecified consequences for its safety and performance he or she would have had little difficulty in concluding that the boat could not be of satisfactory quality. Had he been told that the seller would later recommend the removal of different quantities of lead, he would have had no difficulty. The seller knew that it was unsatisfactory, hence his commendable attempts to get it put right as quickly as possible.
In English law, however, the customer has a right to reject goods which are not of satisfactory quality. He does not have to act reasonably in choosing rejection rather than damages or cure. He can reject for whatever reason he chooses. The only question is whether he has lost that right by accepting the goods: s 11(4). Once again, amendments made in the 1994 Act were designed to strengthen the buyer’s right to reject by restricting the circumstances in which he might be held to have lost it. In particular, the Commissions thought that informal attempts at cure should be encouraged: para 5.28.
The buyer loses the right to reject if he informs the seller that he has accepted the goods, or if he acts inconsistently with the seller’s reversionary interest in the goods, or if he leaves it too long before telling the seller that he rejects them: s 35(1), (4). The first two of these are subject to his having a reasonable opportunity of examining the goods to ascertain whether they conform to the contract, including the implied terms in section 14; whether he has had such an opportunity is also relevant to the third: s 35(2), (5). And a buyer does not accept the goods simply because he asks for or agrees to their repair: s 35(6). It follows that if a buyer is seeking information which the seller has agreed to supply which will enable the buyer to make a properly informed choice between acceptance, rejection or cure, and if cure in what way, he cannot have lost his right to reject.
This was a buyer who was told very early on that something was not right with his brand new boat and given one suggestion for curing it. When he sought time and information to reflect upon the best way forward the sellers agreed to supply the information required. When they eventually produced this, they not only made it clear that there was no ‘do nothing’ option, but presented two very different options for putting it right, each different from the one they had originally proposed. In my view, time only began to run then and the three weeks it took the buyer to inform the seller that he was rejecting the boat were not more than a reasonable time.
Lord Justice Dyson
I agree with both judgments.
British Fermentation Products Ltd v. Compair Reavell Ltd
[1999] EWHC Technology 227 (8th June, 1999)
Construction of the contract
11. The burden of proof is on the defendants to show that the claims sought to be excluded come within the exclusion of liability condition on its true construction: The Glendarroch [1894] P 226 at 231 per Lord Esher M.R.
12. Condition 11 of the General Conditions has to be construed in the context of the contract and of the conditions as a whole. Particularly important parts of the context are to be found in conditions 4 and 5.
13. Condition 4 provides for testing on delivery:
“4(i) Before delivering any goods the Vendor shall inspect and test the same for compliance with the Contract and, if so requested, shall supply to the Purchaser a certificate of the results of the test.
(ii) Where the Contract provides that the goods shall pass any prescribed tests or shall give a specified performance they shall be tested by the Vendor before delivery for compliance with the prescribed tests or for performance or for both as the case may be …
(iii) If on a test made pursuant to Sub-Condition (ii) of this condition the goods or any part thereof fail to pass the prescribed tests or to give the specified performance such goods or part thereof shall, if the Vendor so desires, be tested again or the Vendor may submit for test other goods in their place. If the goods or the said other goods shall fail to pass the test or to give the specified performance, the Purchaser shall be entitled by notice in writing to reject the goods or such part thereof as shall have failed as aforesaid.
That condition gave the claimants an important right. The compressor was tested in accordance with the condition and failed to give the specified performance. The claimants did not exercise their right under this condition to reject the compressor, although they did consider doing so, and they did consider buying a substitute compressor from another supplier.
14. Condition 5 gave to the claimants another right:
“5. (i) The Purchaser shall be entitled, by notice in writing given within a reasonable time after delivery, to reject goods delivered which are not in accordance with the contract.
(ii) When goods have been rejected, either under Condition 4 (Tests) or Sub-Condition (i) of this condition, the Purchaser shall be entitled, provided he does so without undue delay, to replace the goods so rejected. There shall be deducted from the Contract Price that part thereof which is properly apportionable to the goods rejected. The Vendor shall pay to the Purchaser any sum by which the expenditure reasonably incurred by the Purchaser in replacing the rejected goods exceeds the sum deducted. All goods obtained by the Purchaser to replace rejected goods shall comply with the contract and shall be obtained at reasonable prices and, when reasonably practicable, under competitive conditions. Where goods have been rejected as aforesaid the vendor shall not be under any liability to the purchaser except as provided in this condition and as may arise under condition 7 (Time for Delivery).”
1. Efforts were made after delivery to make the compressor meet its specification but those efforts failed and the claimants did not exercise their right to reject under this condition.
15. It is in the context of having taken the decisions not to exercise those rights that the claimants claim damages for breaches of express conditions and warranties as to the specification of the compressor. I have given permission for amendments of the Statement of Claim in that regard including an amendment to plead condition 11(i).
16. In response, the defendants rely on the whole of condition 11.
17. As amended, condition 11 of the General Conditions is in the following terms:
“(11) (i) If within 12 months after delivery there shall appear in the goods any defect which shall arise under proper use from faulty materials, workmanship, or design (other than a design made, furnished, or specified by the Purchaser for which the Vendor had disclaimed responsibility), and the Purchaser shall give notice thereof in writing to the Vendor, the Vendor shall, provided that the defective goods or defective parts thereof have been returned to the Vendor if he shall have so required, make good the defects either by repair or, at the option of the Vendor, by the supply of a replacement. The Vendor shall refund the cost of carriage on the return of the defective goods or parts and shall deliver any repaired or replacement goods or parts as if Condition 6 (Place of delivery) applied.
(ii) The Vendor’s liability under this condition or under Condition 5 (Rejection and Replacement) shall be accepted by the Purchaser in lieu of any warranty or condition implied by law as to the quality or fitness for any particular purpose of the goods and save as provided in this condition the Vendor shall not be under any liability to the Purchaser (whether in contract, tort or otherwise) for any defects in the goods or for any damage, loss, death or injury (other than death or personal injury caused by the negligence of the Vendor as defined in Section 1 of the Unfair Contract Terms Act 1977) resulting from such defects or from any work done in connection therewith.”
18. No doubt considerable care and attention has been given to the drafting of this Model Form of contract. An historical note printed in the Form states that a Form was first published by the Institution of Electrical Engineers in 1924 and revised in 1940. Then after consultation between the Institutions of Mechanical Engineers and Electrical Engineers, “the scope of the Model Form was enlarged to make it suitable for both the electrical and mechanical engineering industries” and the Model Form was published jointly by the two Institutions as Model Form 1956 Edition, later replaced by the 1975 edition. Following the enactment of the Unfair Contract Terms Act, 1977 some amendments were made. Those amendments were incorporated in the Form used by the parties.
19. In construing the words of the Model Form, I bear in mind the words of Lord Hoffman in Investor’s Compensation Scheme Limited v. West Bromwich Building Society [1998] 1 WLR 898 at 913:
“I should preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed. I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 3 All ER 237 at 240–242, [1971] 1 WLR 1381 at 1384–1386 and Reardon Smith Line Ltd v Hansen-Tangen, Hansen-Tangen v Sanko Steamship Co [1976] 3 All ER 570, [1976] 1 WLR 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded. The principles may be summarised as follows.
(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] 2 WLR 945.
(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios [1984] 3 All ER 229 at 233, [1985] AC 191 at 201:
‘… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.’
20. The claimants also rely on certain statements of general principle in Chitty on Contracts 27th edition paragraphs 14-005 to 14-018. In particular, the claimants rely on the well known general principle that the court will be reluctant to ascribe to an exemption condition a meaning which effectively absolves one party from all duties and liabilities: Suisse Atlantique v. N.V. Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 482.
…..
Finding on Issue 1
28. Because of the amendment which I allowed to the Statement of Claim immediately before embarking on the trial of these preliminary issues, the argument before me and my decision go beyond the issues as originally envisaged.
29. I hold that condition 11 of the General Conditions is apt to exclude liability where the claimant claims for breach of an express term of the agreement as to the compressor’s guaranteed performance level in circumstances where the defendant has been unable to remedy the defect and that exclusion of liability also excludes any similar liability alleged to arise from any duty imposed by condition 11(i).
Photo Production Ltd v Securicor Transport Ltd
[1980] UKHL 2 [1980] 1 All ER 556, [1980] AC 827, [1980] UKHL 2 Lord Wilberforce
The Master of the Rolls in this was following the earlier decision of the
Court of Appeal, and in particular his own judgment in Harbutt’s “Plasticine”
Ltd. v. Wayne Tank & Pump Co. Ltd. [1970] 1 Q.B. 447. In that case Lord
Denning distinguished two cases (a) the case where as the result of a breach of
contract the innocent party has, and exercises, the right to bring the contract
to an end, (b) the case where the breach automatically brings the contract to
an end, without the innocent party having to make an election whether to
terminate the contract or to continue it. In the first case the Master of the Rolls,
purportedly applying this House’s decision in the Suisse Atlantique case [1967]
1 A.C. 361, but in effect two citations from two of their Lordships’ speeches,
extracted a rule of law that the “termination” of the contract brings it, and with
it the exclusion clause, to an end. The Suisse Atlantique case in his view
“affirms the long line of cases in this court that when one party has been guilty
“of a fundamental breach of the contract . . . and the other side accepts it, so
“that the contract comes to an end . . . then the guilty party cannot rely on an
“exception or limitation clause to escape from his liability for the breach”
(Harbutt’s case p.467). He then applied the same principle to the second case.
My Lords, whatever the intrinsic merit of this doctrine, as to which I shall
have something to say later, it is clear to me that so far from following this
House’s decision in the Suisse Atlantique it is directly opposed to it and that
the whole purpose and tenor of the Suisse Atlantique was to repudiate it.
The lengthy, and perhaps I may say sometimes indigestible speeches of their
Lordships, are correctly summarised in the headnote—holding No. 3—”That
“the question whether an exceptions clause was applicable where there was a
“fundamental breach of contract was one of the true construction of the
“contract”. That there was any rule of law by which exceptions clauses are
eliminated, or deprived of effect, regardless of their terms, was clearly not the
view of Viscount Dilhorne, Lord Hodson, or of myself. The passages invoked
for the contrary view of a rule of law consist only of short extracts from two
of the speeches—on any view a minority. But the case for the doctrine does
not even go so far as that. Lord Reid, in my respectful opinion, and I recognise
that I may not be the best judge of this matter, in his speech read as a whole,
cannot be claimed as a supporter of a rule of law. Indeed he expressly disagreed
with the Master of the Rolls’ observations in two previous cases (Karsales
(Harrow) Ltd. v. Wallis [1956] 1 WLR 936 and U.G.S. Finance Ltd. v. National
Mortgage Bank of Greece [1964] 1 Lloyd’s Rep. 446 in which he had put forward
the “rule of law” doctrine. In order to show how close the disapproved doctrine
is to that sought to be revived in Harbutt’s case I shall quote one passage from
Karsales:
“Notwithstanding earlier cases which might suggest the contrary, it is
“now settled that exempting clauses of this kind, no matter how widely
“they are expressed, only avail the party when he is carrying out his
“contract in its essential respects. He is not allowed to use them as a cover
“for misconduct or indifference or to enable him to turn a blind eye to his
“obligations. They do not avail him when he is guilty of a breach which
“goes to the root of the contract”. (I.c. p.940).
Lord Reid comments as to this that he could not deduce from the authorities
cited in Karsales that the proposition stated in the judgments could be regarded
as in any way “settled law” (p.401).
His conclusion is stated on p.405: “In my view no such rule of law ought to
“be adopted”—adding that there is room for legislative reform.
3
My Lords, in the light of this, the passage cited by the Master of the Rolls
has to be considered. For convenience I restate it:
“If fundamental breach is established the next question is what effect,
“if any, that has on the applicability of other terms of the contract. This
“question has often arisen with regard to clauses excluding liability, in
“whole or in part, of the party in breach. I do not think that there is
“generally much difficulty where the innocent party has elected to treat
“the breach as a repudiation, bring the contract to an end and sue for
“damages. Then the whole contract has ceased to exist including the
“exclusion clause, and I do not see how that clause can then be used to
“exclude an action for loss which will be suffered by the innocent party
“after it has ceased to exist, such as loss of the profit which would have
“accrued if the contract had run its full term.” (Suisse At/antique [1967]
1 A.C. at p.398.)
It is with the utmost reluctance that, not forgetting the “beams” that may
exist elsewhere, I have to detect here a note of ambiguity or perhaps even of
inconsistency. What is referred to is “loss which will be suffered by the innocent
“party after (the contract) has ceased to exist” and I venture to think that all
that is being said, rather elliptically, relates only to what is to happen in the
future, and is not a proposition as to the immediate consequences caused by
the breach: if it were that would be inconsistent with the full and reasoned
discussion which follows.
It is only because of Lord Reid’s great authority in the law that I have found
it necessary to embark on what in the end may be superfluous analysis. For I
am convinced that, with the possible exception of Lord Upjohn whose critical
passage, when read in full, is somewhat ambiguous, their Lordships, fairly
read, can only be taken to have rejected those suggestions for a rule of law
which had appeared in the Court of Appeal and to have firmly stated that
the question is one of construction, not merely of course of the exclusion clause
alone, but of the whole contract.
Much has been written about the Suisse Atlantique. Each speech has been
subjected to various degrees of analysis and criticism, much of it constructive.
Speaking for myself I am conscious of imperfections of terminology, though
sometimes in good company. But I do not think that I should be conducing
to the clarity of the law by adding to what was already too ample a discussion
a further analysis which in turn would have to be interpreted. I have no second
thoughts as to the main proposition that the question whether, and to what
extent, an exclusion clause is to be applied to a fundamental breach, or a breach
of a fundamental term, or indeed to any breach of contract, is a matter of
construction of the contract. Many difficult questions arise and will continue
to arise in the infinitely varied situations in which contracts come to be breached
—by repudiatory breaches, accepted or not, anticipatory breaches, by breaches
of conditions or of various terms and whether by negligent, or deliberate action
or otherwise. But there are ample resources in the normal rules of contract Law
for dealing with these without the superimposition of a judicially invented rule
of law. I am content to leave the matter there with some supplementary observa-
tions.
1. The doctrine of “fundamental breach” in spite of its imperfections and
doubtful parentage has served a useful purpose. There was a large number of
problems, productive of injustice, in which it was worse than unsatisfactory
to leave exception clauses to operate. Lord Reid referred to these in the Suisse
Atlantique (p.406), pointing out at the same time that the doctrine of fundamental
breach was a dubious specific. But since then Parliament has taken a hand: it
has passed the Unfair Contract Terms Act 1977. This Act applies to consumer
contracts and those based on standard terms and enables exception clauses
to be applied with regard to what is just and reasonable. It is significant that
Parliament refrained from legislating over the whole field of contract. After
this Act, in commercial matters generally, when the parties are not of unequal
4
bargaining power, and when risks are normally borne by insurance, not only
is the case for judicial intervention undemonstrated, but there is everything to
be said, and this seems to have been Parliament’s intention, for leaving the
parties free to apportion the risks as they think fit and for respecting their
decisions.
At the stage of negotiation as to the consequences of a breach, there is every-
thing to be said for allowing the parties to estimate their respective claims
according to the contractual provisions they have themselves made, rather than
for facing them with a legal complex so uncertain as the doctrine of fundamental
breach must be. What, for example, would have been the position of the respon-
dents’ factory if instead of being destroyed it had been damaged, slightly or
moderately or severely? At what point does the doctrine (with what logical
justification I have not understood) decide, ex post facto, that the breach was
(factually) fundamental before going on to ask whether legally it is to be re-
garded as fundamental? How is the date of “termination” to be fixed? Is it the
date of the incident causing the damage, or the date of the innocent party’s
election, or some other date? All these difficulties arise from the doctrine and
are left unsolved by it.
At the judicial stage there is still more to be said for leaving cases to be
decided straightforwardly on what the parties have bargained for rather than
upon analysis, which becomes progressively more refined, of decisions in other
cases leading to inevitable appeals. The learned judge was able to decide this
case on normal principles of contractual law with minimal citation of authority.
I am sure that most commercial judges have wished to be able to do the same
(cf. Trade & Transport Inc. v. lino Kaiun Kaisha Ltd. [1973] 1 W.L.R. 210,
232 per Kerr J.). In my opinion they can and should.
2. The case of Harbutt must clearly be overruled. It would be enough to
put that upon its radical inconsistency with the Suisse Atlantique. But even if
the matter were res Integra I would find the decision to be based upon un-
satisfactory reasoning as to the “termination” of the contract and the effect of
“termination” on the plaintiffs’ claim for damage. I have, indeed, been unable
to understand how the doctrine can be reconciled with the well accepted prin-
ciple of law, stated by the highest modern authority, that when in the context of
a breach of contract one speaks of “termination”, what is meant is no more than
that the innocent party or, in some cases, both parties, are excused from
further performance. Damages, in such cases, are then claimed under the con-
tract, so what reason in principle can there be for disregarding what the con-
tract itself says about damages—whether it “liquidates” them, or limits them,
or excludes them? These difficulties arise in part from uncertain or inconsistent
terminology. A vast number of expressions are used to describe situations
where a breach has been committed by one party of such a character as to
entitle the other party to refuse further performance: discharge, rescission,
termination, the contract is at an end, or dead, or displaced; clauses cannot
survive, or simply go. I have come to think that some of these difficulties can
be avoided; in particular the use of “rescission”, even if distinguished from
rescission ab initio, as an equivalent for discharge, though justifiable in some
contexts (see Johnson v. Agnew [1979] 1 All E.P. 883) may lead to confusion in
others. To plead for complete uniformity may be to cry for the moon. But what
can and ought to be avoided is to make use of these confusions in order to
produce a concealed and unreasoned legal innovation: to pass, for example,
from saying that a party, victim of a breach of contract, is entitled to refuse
further performance, to saying that he may treat the contract as at an end, or
as rescinded, and to draw from this the proposition, which is not analytical
but one of policy, that all or (arbitrarily) some of the clauses of the contract
lose, automatically, their force, regardless of intention.
If this process is discontinued the way is free to use such words as “discharge”
or “termination” consistently with principles as stated by modern authority
which Harbutt’s case disregards. I venture with apology to relate the classic
passages: In Heyman v. Darwins Ltd. Lord Porter said:
“To say that the contract is rescinded or has come to an endas
“ceased to exist may in individual cases convey the truth with
5
“accuracy, but the fuller expression that the injured party is thereby
“absolved from future performance of his obligations under the contract
“is a more exact description of the position. Strictly speaking, to say that,
“on acceptance of the renunciation of a contract, the contract is rescinded is
“incorrect. In such a case the injured party may accept the renunciation as
“a breach going to the root of the whole of the consideration. By that
“acceptance he is discharged from further performance and may bring an
“action for damages, but the contract itself is not rescinded.” ([1942]
A.C.356, 399)
and similarly Lord Macmillan at p.373: see also Boston Deep Sea Fishing &
Ice Co. Ltd. v. Ansell 39 Ch.D. 339, 361 per Bowen L.J. In Moschi v. Lep Air
Services Ltd. [1973] A.C. 331, 350, my noble and learned friend Lord Diplock
drew a distinction (relevant for that case) between primary obligations under a
contract, which on “rescission” generally come to an end, and secondary
obligations which may then arise. Among the latter he includes an obligation
to pay compensation, i.e., damages. And he states in terms that this latter
obligation “is just as much an obligation arising from the contract as are the
“primary obligations that it replaces”. My noble and learned friend has
developed this line of thought in an enlightening manner in his opinion which
I have now had the benefit of reading.
These passages I believe to state correctly the modern law of contract in the
relevant respects: they demonstrate that the whole foundation of Harbutt’s
case is unsound. A fortiori, in addition to Harbutt’s case there must be over-
ruled the case of Wathes (Western) Ltd. v. Austins (Menswear) Ltd. [1976]
1 Lloyd’s Rep. 14 which sought to apply the doctrine of fundamental breach
to a case where, by election of the innocent party, the contract had not been
terminated, an impossible acrobatic, yet necessarily engendered by the doctrine.
Similarly, Charterhouse v. Tolly [1963] 2 Q.B. 683 must be over-ruled, though
the result might have been reached on construction of the contract.
I must add to this, by way of exception to the decision not to “gloss” the
Suisse Atlantique a brief observation on the deviation cases, since some reliance
has been placed upon them, particularly upon the decision of this House in
Hain Steamship Co. Ltd. v. Tate & Lyle Ltd. [1936] 2 All E.R. 597 (so earlier
than the Suisse Atlantique) in the support of the “Harbutt” doctrine. I suggested
in the Suisse Atlantique that these cases can be regarded as proceeding upon
normal principles applicable to the law of contract generally viz., that it is a
matter of the parties’ intentions whether and to what extent clauses in shipping
contracts can be applied after a deviation, i.e., a departure from the con-
tractually agreed voyage or adventure. It may be preferable that they should
be considered as a body of authority sui generis with special rules derived from
historical and commercial reasons. What on either view they cannot do is to lay
down different rules as to contracts generally from those later stated by this
House in Heyman v. Darwins (I.c.). The ingenious use by Donaldson J. in
Kenyon Son & Craven Ltd. v. Baxter Hoare & Co. Ltd. [1971] 1 W.L.R. 519
of the doctrine of deviation in order to reconcile the Suisse Atlantique with
Harbutt’s case, itself based in part on the use of the doctrine of deviation, illu-
strates the contortions which that case has made necessary and would be
unnecessary if it vanished as an authority.
It is not necessary to review fully the numerous cases in which the doctrine
of fundamental breech has been applied or discussed. Many of these have now
been superseded by the Unfair Contract Terms Act 1977. Others, as decisions,
may be justified as depending upon the construction of the contract (cf.
Levison v. Patent Steam Carpet Cleaning Co. Ltd. [1978] Q.B. 69) in the light of
well known principles such as that stated in Alderslade v. Hendon Laundry
Ltd. [1945] K.B. 189.
In this situation the present case has to be decided. As a preliminary, the nature
of the contract has to be understood. Securicor undertook to provide a service
of periodical visits for a very modest charge which works out at 26p per visit. It
did not agree to provide equipment. It would have no knowledge of the value of
6
the plaintiffs’ factory: that, and the efficacy of their fire precautions, would be
known to the plaintiffs. In these circumstances nobody could consider it
unreasonable, that as between these two equal parties the risk assumed by
Securicor should be a modest one, and that the respondents should carry the
substantial risk of damage or destruction.
The duty of Securicor was, as stated, to provide a service. There must be
implied an obligation to use due care in selecting their patrolmen, to take care
of the keys and, I would think, to operate the service with due and proper
regard to the safety and security of the premises. The breach of duty com-
mitted by Securicor lay in a failure to discharge this latter obligation. Alterna-
tively it could be put upon a vicarious responsibility for the wrongful act of
Musgrove—viz., starting a fire on the premises: Securicor would be responsible
for this upon the principle stated in Morris v. Martin [1966] 1 Q.B. 716, 739.
This being the breach, does condition 1 apply? It is drafted in strong terms,
“In no circumstances”. . . “any injurious act or default by any employee”.
These words have to be approached with the aid of the cardinal rules of con-
struction that they must be read contra proferentem and that in order to escape
from the consequences of one’s own wrongdoing, or that of one’s servant, clear
words are necessary. I think that these words are clear. The respondents in fact
relied upon them for an argument that since they exempted from negligence
they must be taken as not exempting from the consequence of deliberate acts.
But this is a perversion of the rule that if a clause can cover something other
than negligence, it will not be applied to negligence. Whether, in addition to
negligence, it covers other, e.g., deliberate, acts, remains a matter of construction
requiring, of course, clear words. I am of opinion that it does, and being free to
construe and apply the clause, I must hold that liability is excluded. On this
part of the case I agree with the judge and adopt his reasons for judgment. I
would allow the appeal.
Esso Petroleum Limited v Commisioners of Customs and Excise
[1975] UKHL 4 [1976] WLR 1, [1976] 1 WLR 1
Lord Simon
Believing as I do that Esso envisaged a bargain of some sort between
the garage proporietor and the motorist, I must try to analyse the transaction.
The analysis that most appeals to me is one of the ways in which Lord
Denning M.R. considered the case ([1975] 1 W.L.R. 406 at p. 409 B-D).
namely a collateral contract of the sort described by Lord Moulton in
Heilbut, Symons & Co. v. Bucckleton [1913] AC 30. 47:
“… there may be a contract the consideration for which is the making
” of some other contract. ‘ If you will make such and such a contract
” ‘ I will give you one hundred pounds ‘, is in every sense of the word
” a complete legal contract. It is collateral to the main contract. . . .”
So here. The law happily matches the reality. The garage proprietor is
saying, ” If you will buy four gallons of my petrol, I will give you one of
” these coins “. None of the reasons which have caused the law to consider
advertising or display material as an invitation to treat rather than an
offer applies here. What the garage proprietor says by his placards is in
fact and in law an offer of consideration to the motorist to enter into a
contract of sale of petrol. Of course, not every motorist will notice the
placard, but nor will every potential offeree of many offers be necessarily
conscious that they have been made. However, the motorist who does notice
the placard, and in reliance thereon drives in and orders the petrol, is in
law doing two things at the same time. First, he is accepting the offer of
a coin if he buys four gallons of petrol. Secondly, he is himself offering
to buy four gallons of petrol: this offer is accepted by the rilling of his tank.
Has there then been a sale of the coins, so that they can be said to have
been ” produced in quantity for general sale ” within Group 25 of Schedule 1
of the Purchase Tax Act 1963? I think that the main emphasis here is
on ” quantity ” and ” general “. But it would be contrary to all principles
of sound statutory construction not to give each word its full significance.
I agree with my noble and learned friend, Lord Russell of Killowen, for
the reasons which he gives, that the definition of ” purchase ” in section 40(1)
throws no light on the meaning of ” sale ” in the Schedule. ” Sale ” must
therefore be interpreted in the primary sense demanded by the context of a
taxing statute (unless some secondary meaning must be preferred in order
to avoid injustice, absurdity, anomaly or stultification of the statutory objec-
tive). The primary sense of ” sale ” in this context is its primary meaning in
ordinary legal usage. This is expressed in section 1 of the Sale of Goods
Act 1893 (which codified the common law), namely ” a contract whereby
” the seller transfers or agrees to transfer the property in goods to the buyer
” for a money consideration, called the price “. Here the coins were not
transferred for a money consideration. They were transferred in considera-
tion of the motorist entering into a contract for the sale of petrol. The
coins were therefore not produced for sale, and do not fall within the Schedule.
They are exempt from purchase tax.
I would therefore dismiss the appeal.