Implied Terms
Cases
Attorney General of Belize v Belize Telecom Ltd
2009] UKPC 10
Lord Hoffmann’s
“ 16. Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.
19. The proposition that the implication of a term is an exercise in the construction of the instrument as a whole is not only a matter of logic (since a court has no power to alter what the instrument means) but also well supported by authority. In Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, 609 Lord Pearson, with whom Lord Guest and Lord Diplock agreed, said:
“[T]he court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court’s function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves.”
20. More recently, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn said:
“If a term is to be implied, it could only be a term implied from the language of [the instrument] read in its commercial setting.”
21. It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson’s speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must “go without saying”, it must be “necessary to give business efficacy to the contract” and so on – but these are not in the Board’s opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?
22. There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is “necessary to give business efficacy” to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word “business”, is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman [2002] 1 AC 408 was decided. The second, conveyed by the use of the word “necessary”, is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.
23. The danger lies, however, in detaching the phrase “necessary to give business efficacy” from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case (at p 459) when he said that in that case an implication was necessary “to give effect to the reasonable expectations of the parties.”
24. The same point had been made many years earlier by Bowen LJ in his well known formulation in The Moorcock (1889) 14 PD 64, 68:
“In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men”
25. Likewise, the requirement that the implied term must “go without saying” is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean. Any attempt to make more of this requirement runs the risk of diverting attention from the objectivity which informs the whole process of construction into speculation about what the actual parties to the contract or authors (or supposed authors) of the instrument would have thought about the proposed implication. The imaginary conversation with an officious bystander in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227 is celebrated throughout the common law world. Like the phrase “necessary to give business efficacy”, it vividly emphasises the need for the court to be satisfied that the proposed implication spells out what the contact would reasonably be understood to mean. But it carries the danger of barren argument over how the actual parties would have reacted to the proposed amendment. That, in the Board’s opinion, is irrelevant. Likewise, it is not necessary that the need for the implied term should be obvious in the sense of being immediately apparent, even upon a superficial consideration of the terms of the contract and the relevant background. The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument. In such circumstances, the fact that the actual parties might have said to the officious bystander “Could you please explain that again?” does not matter.
26. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was “not… necessary to review exhaustively the authorities on the implication of a term in a contract” but that the following conditions (“which may overlap”) must be satisfied:
“(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’ (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract”.
27. The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of “necessary to give business efficacy” and “goes without saying”. As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant.
28. The Board therefore turns to consider the question raised by the articles of association. Two things are immediately apparent. The first is that the board has been constructed so that its membership will reflect the interests of the various participants in the company: the political interest of the Government, represented through its special share; the economic interest (if any) of the Government, represented by its holding of C shares; the economic interests of the ordinary B and C shareholders. The second is that the powers which the articles confer upon the Government (or its successor as special shareholder acting upon its written instructions: see article 11(A)) are carefully graduated according to its economic interest in the company at the relevant time. Thus, the power to block certain board resolutions in article 113 is exercisable “at any time at which the holder of the special share is the holder of C Ordinary shares amounting to 25% or more of the issued ordinary share capital”. The power to block certain shareholder resolutions in article 8 is likewise exercisable “at any time” when the special shareholder has a 25% or more holding. And the power to appoint and remove special C directors is exercisable “at any time” when the special shareholder has a 37.5% or more holding.
29. In the case of board and shareholder resolutions, the relevant time for determining whether a blocking power exists is of course the time at which the resolution is proposed. In the case of appointments to the board, the draftsman appears to have assumed that it would be the time at which the appointment was made or the director was to be removed. In some cases, that would be sufficient to ensure that the board at any given time reflected the appropriate shareholder interests. For example, articles 90(B) and (C) give a majority of B shareholders the right to appoint and remove two directors. This is enough to ensure that the B directors will at any given time represent the interests of a majority of the B shareholders. If the majority lose confidence in their directors, or if there is a transfer of B shares which results in a different majority, it will always be open to the majority to remove the directors in office and appoint others. The same is true of the ordinary C directors appointed and removable by a majority of C shareholders under articles 90(D)(i) and 90(E).
30. The situation with which the articles do not expressly deal is where a change in shareholding results in the board no longer reflecting the appropriate shareholder interests, but without enabling this to be corrected by exercise of the power to remove directors. Assume, for example, that the special shareholder exercises its power under article 11(E) to require redemption of the special share. What then happens to the Government Appointed Directors appointed under article 88(A)? They cannot be removed from office because there is no longer a special shareholder who has power to do so. Does that mean that they remain in office indefinitely? The Board considers that, if one considers the role of the Government Appointed Directors and the policy of giving the Government the power to require redemption of the special share, namely, to enable it to relinquish its influence over the conduct of the company’s business, the articles cannot reasonably mean that the Government Appointed Directors should remain in office after the special share has ceased to exist. They must be read as providing by implication that when the special share goes, the Government Appointed Directors go with it. In the opinion of the Board it is no answer to say that the special shareholder could have thought of the problem in advance and removed the Government Appointed Directors before redemption. No doubt he could, but the question is what the articles mean in the situation in which he has not done so. Nor is it relevant that the articles could be amended. They must be construed as they stand.
31. If, as the Board thinks, it would plainly be necessary to imply such a term in relation to the Government Appointed Directors, it must follow that upon the redemption of the special share, the special C directors will also cease to hold office. They are also there by virtue of the special share and when there is no longer a special share, there will again be no one who has power under the articles to remove them. That means that the whole basis upon which they are distinguished from ordinary C directors appointed by the majority of the C shareholders under article 90(D)(i) has ceased to exist. It is true that article 90(E) says that C directors shall hold office “subject only to article 112”, but that cannot in the Board’s opinion be construed as contradicting the proposed implied term, to which the draftsman plainly did not address his mind. In any case, the words “subject only” cannot be read literally because, for example, the provisions for retirement by rotation in article 94 are expressly applied to C directors (other than special C directors.)
32. If implication is necessary to prevent what would otherwise be absurd consequences following from redemption of the special share, the Board considers that there is no difficulty about applying the same principle to the case in which the special shareholder continues to exist but no longer has the 37.5% holding which would entitle him to appoint and remove special C directors. In such a case too, the implication is required to avoid defeating what appears to have been the overriding purpose of the machinery of appointment and removal of directors, namely to ensure that the board reflects the appropriate shareholder interests in accordance with the scheme laid out in the articles.
33. The Court of Appeal felt unable on the authorities to read the articles as having such a meaning. Morrison JA referred to Holmes v Keys [1959] Ch 199, 215, where Jenkins LJ said:
“I think that the articles of association of the company should be regarded as a business document and should be construed so as to give them reasonable business efficacy, where a construction tending to that result is admissible on the language of the articles, in preference to a result which would or might prove unworkable.”
34. Both Carey JA and Morrison JA thought that the meaning which the Chief Justice had adopted was not “admissible on the language of the articles” (“requires remarkable mental gymnastics”, said Carey JA). It should be noted, however, that Holmes v Keys was not a case about an implied term. It was a dispute over the meaning of a particular phrase in the articles, namely, whether, in an article which required a director to acquire qualifying shares “within two months after election”, the date of “election” meant the date of the general meeting or the date on which the result of the election was declared. In a case such as that, in which it is argued that language should be given a certain meaning, it is usually essential (unless there has been an obvious mistake) that the language should, according to ordinary conventional usage, be capable of bearing that meaning. In the case of an implied term, however, the question is not what any particular language in the instrument means but whether, without it having been expressly stated, that is the meaning of the instrument.
35. The other case to which Morrison JA referred was Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693. This was a case about the extent of the background which is admissible in construing articles of association. The company was set up to acquire and manage a property divided into flats which also included “amenity areas” (tennis courts, swimming pool, gardens). It was argued that there should be implied into the articles of association an obligation on the part of each flat owner/member to contribute to the expenses of maintaining the amenity areas. The implication was said to be derived from the circumstances in which the property was acquired and the terms of the conveyance to the company.
36. The decision of the Court of Appeal was that these background facts were not admissible to construe the meaning of the articles. Without them, there was not the slightest basis for implying such an obligation. Because the articles are required to be registered, addressed to anyone who wishes to inspect them, the admissible background for the purposes of construction must be limited to what any reader would reasonably be supposed to know. It cannot include extrinsic facts which were known only to some of the people involved in the formation of the company.
37. The Board does not consider that this principle has any application in the present case. The implication as to the composition of the board is not based upon extrinsic evidence of which only a limited number of people would have known but upon the scheme of the articles themselves and, to a very limited extent, such background as was apparent from the memorandum of association and everyone in Belize would have known, namely that telecommunications had been a state monopoly and that the company was part of a scheme of privatisation.
38. For these reasons the Board will humbly advise Her Majesty that the appeal should be allowed with costs before the Board and in the Court of Appeal and the declarations made by the Chief Justice restored.”
B.P. Refinery (Westernport) Proprietary Limited v Shire of Hastings (Victoria)
[1977] UKPC 13
LORD SIMON OF GLAISDALE delivered the majority judgment of their Lordships
This is an appeal from a judgment of the Full Court of the Supreme Court of Victoria upon a case stated by the County Court at Melbourne under s. 304 of the Local Government Act 1958 (Vict.), as amended. It involves the interpretation of an agreement (the rating agreement) made between the appellant company and the respondents on 7 May 1964, pursuant to the provisions of s. 390A of the Local Government Act. It will be necessary to set out later more fully the relevant provisions of that agreement and of s. 390A. At this stage it is sufficient to say that the agreement was concerned with the preferential rating of an oil refinery of which the appellant company was in occupation at the time both of the rating agreement and also of the application to the Court but of which it had been intermediately out of occupation. On any showing the agreement presents difficulties of construction. The Full Court construed it by holding that there was an implied term in the agreement that it should come to an end on the appellant company ceasing to be in occupation, notwithstanding subsequent reoccupation.
2. As Lord Wilberforce said in Prenn v. Simmonds (11): “In order for the agreement … to be understood, it must be placed in its context. The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations.”
(9) The Moorcock (1889), 14 PD, at p 68; Shirlaw v. Southern Foundries (1926) Ltd., (1939) 2 KB 206, at p 227.
(10 ) Heyman v. Darwins Ltd., (1942) AC 356, at p 361; Berger v. Boyles, (1971) VR 321, at p 324.
(11) (1971) 1 WLR 1381, at p. 1383; (1971) 3 All ER 237, at p. 239.
3. Such a consideration of the matrix of an agreement is particularly called for when it is sought to imply in it a crucial term which the parties have not expressed. In the instant case consideration of the context of the agreement is, in their Lordships’ opinion, essential.
…..
38. Their Lordships turn to the first issue – namely whether there was an implied term in the rating agreement that it should come to an end on the appellant company ceasing to be in occupation of the refinery site. The Full Court adopted the view expressed in B.P. Australia Ltd. v. Shire of Hastings (14): “.. . the agreement itself from its terms did not contemplate any assignment by the company of any rights and obligations thereunder, or indeed, any change in the company’s ownership or occupancy of the rated land . ..”
39. The Full Court carefully reviewed some of the authorities on the implication of terms in a contract – namely Taylor v. Caldwell (15), Turner v. Goldsmith (16), Measures Bros. Ltd. v. Measures (17), and Reigate v. Union Manufacturing Co. (18). These authorities led the Full Court to hold, in view of B.P. Australia Ltd. v. Shire of Hastings, that it was an implied condition in the rating agreement that it should subsist only so long as the appellant company remained in occupation.
40. Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the
(14) (1973) VR 194, at p. 196.
(15) (1863) 3 B and S 826, at p. 833 [1863] EngR 526; (122 ER 309, at pp. 312-313).
(16) (1891) 1 QB 544, at p. 550.
(17) (1910) 2 Ch 248, at pp. 258, 259.
(18) (1918) 1 KB 592, at p. 605.
parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
41. Their Lordships venture to cite only three passages – albeit they are familiar to every student of this branch of the law. In The Moorcock (19) Bowen LJ said:
“I believe if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found bat in El of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men.
. . .”
It is because the implication of a term rests on the presumed intention of the parties that the primary condition must be satisfied that the term sought to be implied must be reasonable and equitable. It is not to be imputed to a party that he is assenting to an unexpressed term which will operate unreasonably and inequitably against himself.
In Reigate v. Union Manufacturing Co. (20), Scrutton LJ said:
“A term can only be implied if it is necessary in the business sense to give efficacy to the contract i.e., if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, ‘What will happen in such a case?’, they would both have replied: ‘Of course, so and so will happen; we did not trouble to say that; it is too clear.”‘
42. In Shirlaw v. Southern Foundries (1926) Ltd. (21), MacKinnon LJ said:
“Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common, ‘Oh, of course.'”
(19) (1889) 14 PD 64, at p. 68.
(20) (1918) 1 KB 592, at p. 605.
(21) (1939) 2 KB 206, at p. 227.
43. The main thrust of the argument for the appellant company was that it was not necessary to give business efficacy to the rating agreement to imply a term in it that it should come to an end on the appellant company going out of occupation of the refinery site, notwithstanding reoccupation after however short an interval. Their Lordships feel the force of this contention. But the alleged implied term is, in their Lordships’ view, to be rejected on a simpler and clearer ground.
44. In their Lordships’ view the term which the Full Court held should be implied in We rating agreement must be rejected on the ground that, taking into account the matrix of facts in which that agreement was set, to imply such a term would be wholly unreasonable and inequitable. A group of companies such as the B.P. group may from time to time for good reasons wish to make changes in its corporate structure – particularly when a period of as long as forty years is envisaged. This possibility was, as has been said, recognized in the refinery agreement, and the identity of the member of the B.P. group occupying the refinery site cannot have been of the least importance to the respondents. If it was the case, as it must have been, that tripartite negotiations took place between the State, the Shire and representatives of the B.P. group before the refinery agreement was made and that the offer of substantial rating concessions for a period of more than forty years was an inducement to the B.P. group to enter into the refinery agreement and to incur the massive capital expenditure necessary to establish a refinery at Crib Point – and it may be that in the absence of that inducement the B.P. representatives would not have wanted and would not have agreed to establish one there – then it was, to say the least, inequitable to imply a term the application of which in the circumstances of this case means that the rating benefits conferred by the rating agreement were only enjoyed for five and a half years from 7 May 1964, to 31 December 1969, instead of for more than forty years. When the rating agreement itself contained no provision for its termination before the expiry of forty years from the commissioning date, to imply a term which operated to deprive those who had been induced to establish the refinery of the advantages of those rating concessions on the ground that those advantages were only to enure so long as the appellant company remained in occupation of the premises, cannot, in their Lordships’ opinion, be regarded otherwise than as unreasonable and inequitable.
45. In the light of the provisions of the refinery agreement to which attention has been drawn, it cannot have been the presumed intention of the parties that such a term should be included in the agreement. If an officious bystander had asked the appellant company at the time the rating agreement was negotiated whether andat was ,tat was intended, he would have been suppressed – well, “testily” will do – with “Of course not]”. Indeed, their Lordships doubt whether the reaction of the respondents at the time the agreement was being negotiated would have been any different, even though years later they sought to take advantage of the change of occupation of the site.
46. Whatever else be the outcome of the appeal, their Lordships are satisfied that it would not be legitimate to imply a term in the rating agreement involving that it should come to an end on assignment in accordance with the refinery agreement.
47. The Full Court, like the Court in B.P. Australia Ltd. v. Shire of Hastings, was naturally impressed by the difficulty of operating cl. 5 of the rating agreement on assignment: it was primarily this that caused the Full Court to imply the term they did. But a far more fundamental difficulty about the rating agreement emerged during the course of argument before their Lordships. It affects its very heart and substance – namely, the quantification of rates in cl. 2. Capital expenditure by some other company in B.P.’s Australia group would not enure to the respondents’ advantage by way of increase of rates over pounds 25,000 (representing, so their Lordships were told, relevant capital investment of pounds 15m., as against the pivotal figure in the formula of pounds 30m.). The appellant company might have transferred all its assets to B.P. Australia Ltd. and taken simultaneously an immediate lease back without ever going out of occupation. The implied term contended for by the respondents and upheld by the Full Court would not in such circumstances avail the respondents. The appellant company would continue to enjoy preferential rating, but without the capital expenditure by B.P. Australia being taken into account in the quantification of rates. In other words, the term implied by the Full Court not only operates inequitably; it fails to give business efficacy to a defective contract and vindicate the obvious intention of the parties.
48. Recognizing that a term has to be implied into the rating agreement to give it business efficacy and having reached the conclusion that the term the Full Court held should be implied must for the reasons stated be rejected, what term should be implied which satisfies the five conditions stated?
49. In their Lordships’ view in the light of the matrix of facts in which the rating agreement is set, the answer to that question is clear. It is to imply a term which would make the rating agreement accord with and not differ from the refinery agreement – to imply a provision that if the rights of the “company” (the appellant company under the agreement) were assigned or otherwise disposed of to a company in which the British Petroleum Co. of Australia Ltd. held thirty per cent or more of the issued share capital, “company” should mean that assignee company.
50. Such a term would be both reasonable and equitable. It is capable of clear expression. It does not contradict any express term of a contract, but adds to it; and it gives business efficacy to the contract. In the light of the provisions in the refinery agreement it was something so obvious that it went without saying, and if an officious bystander had asked whether that was the common intention of the parties the answer would have been “Of course”.
51. If such a term is implied, the difficulties about the operation of cl. 5 as well as of cl. 2 of the rating agreement, in the event of such an assignment by the appellant company and the occupation of the refinery by the assignee company, disappear.
52. Their Lordships now turn to the alternative ground on which the Full Court decided in favour of the respondents, namely, that the exchange of correspondence at the end of 1969 and the beginning of 1970 – specifically the appellant company’s letter of 15 December 1969, and the respondents’ letter of 9 February 1970 – constituted an agreement to terminate an ex hypothesi subsisting contract. Their Lordships venture to put it in this way, because a contract can only be terminated by agreement if there is manifested a bargain between the parties so to terminate it. The appellant company’s letter of 15 December 1969, cannot be read as a contractual offer to rescind; and the respondents’ letter of 9 February 1970, cannot be read as an acceptance of an offer – or even as a counter-offer. It is merely notice of a resolution which the council has passed. Their Lordships are therefore in no doubt that, unless the rating agreement came to an end by virtue of some such implied term as that proposed by the respondents, it did not terminate by agreement.
53. With regard to the respondents’ third contention on which the Full Court did not find it necessary to pronounce – namely, that the rating agreement was terminated by the repudiation or fundamental breach by the appellant company in going out of occupation – their Lordships are of opinion that the argument is untenable unless a term such as the Full Court held was to be implied is implied. In their view for the reasons stated no such term is to be implied.
54. The crux of their Lordships’ decision only emerged in the course of argument before the Board. While their Lordships naturally regret that the grounds on which they have reached their conclusion were not considered in the County Court or by the Full Court and that they accordingly have not had the advantage of the views of the learned Judges in those Courts thereon, the point having been taken before the Board, they must decide it. As it was not raised in the appellant company’s case their Lordships as at present advised feel that the fair order as to costs would be that the costs orders below should be undisturbed and that before their Lordships each side should bear its own costs. If either party wishes to make any further submissions about costs their Lordships will entertain them. These should be made in writing in the first ]stance addressed to the Registrar. If they considered it necessary to do so, their Lordships would reconvene to hear oral submissions from counsel about costs. Parties are requested to notify the Registrar within fourteen days if they will be making any further submissions.
55. Subject thereto their Lordships would allow the appeal and remit the case to the Melbourne County Court to make the appropriate order. They will humbly advise Her Majesty accordingly.
LORD WILBERFORCE AND LORD MORRIS OF BORTHY-y-GEST, dissenting:-
27. Another version of this argument appears in the majority judgment and consists in saying that a term ought to be implied that if the rights of the appellant company were assigned or otherwise disposed of to a company in which the British Petroleum Co. of Australia held thirty per cent or more of the issued share capital,”Company” should mean that assignee company.
28. Of this argument we would say:
1. It was not put forward in either court below, nor taken or hinted at in the appellant’s printed case.
2. It is inconsistent with the decision of the Full Court in the earlier case concerned with B.P. Australia Ltd., and involves contending that that unappealed decision was wrong. In our respectful opinion it was right.
3. It is inconsistent with the appellant’s own action in December
(23) See Turner v. Goldsmith, (1891) 1 QB 544, at p 550; Measures Bros. Ltd. v. Measures, (1910) 2 Ch 248, at p 258.
1969, when it requested that their rights and privileges vested in the appellants might be transferred to B.P. Australia Ltd.
4. It introduces a method of interpretation which is novel and unsound. We have referred above to the agreement of 7 May 1964, which contains its own definition of “the Company” – that is, the appellant. Every reference in that agreement to the Company – we have mentioned the main references above – is beyond doubt a reference to the appellant company and to no other entity. To vary an expressed definition agreed between the parties by reference to a recital of another agreement of a different character between different parties involves a process alien to normal methods of construction.
5. The introduction of the new “implied term” cannot be justified under the normal principles. It is not necessary in order to produce business efficacy, is inconsistent with the expressed terms of the rating agreement, and, in our opinion, is not authorized by s. 390A. In effect it would impose upon the Shire a contractual party to which the Shire has not assented.
6. The extended definition does not produce the result aimed at. For one of two things: either the extended definition means “any company in the B.P. Group” – but in that case it departs from the “incorporated” definition; or, if the “incorporated definition” is taken, it produces the wrong result, for the assignee company is B.P. Australia Ltd. to which alone the benefit of the State agreement has been transferred and which has not re-transferred it to the appellant. It cannot produce the appellant company which has parted with the State agreement and now has merely a three year lease of the site.
Creen v Wright
(1875-76) LR 1 CPD 591
Lord Coleridge CJ
This was an action tried before my Brother Lush at Liverpool in December, 1875, in which he directed a verdict to be entered for the defendant; and we have to determine whether that direction was correct.
The plaintiff had been the master of the ship City Camp , under a written contract dated the 28th of March, 1875, from that day until the 10th of August, 1875, when he was dismissed, not for misconduct, but without notice, the defendant contending that, by the terms of the contract between the plaintiff and himself, the plaintiff was not entitled to any notice before dismissal. Other points arose in the case, but were not discussed before us.
The action was brought for a dismissal wrongful in being without notice; and the sole question argued was, whether, under the contract, the plaintiff was entitled to notice before dismissal, and on this single point my Brother Lush directed the verdict for the defendant.
The contract, so far as it is material to set it out, was as follows:—“I hereby accept the command of the ship City Camp on the following terms: Salary to be at and after the rate of 180l. sterling per annum.” Then followed certain other terms not material, and then,—
“Should owners require captain to leave the ship abroad, his wages to cease on the day he is required to give up the command, and the owners have the option of paying or not paying his expenses travelling home. … Wages to begin when captain joins the ship.”
“Francis Creen, Master, City Camp .”
It was contended for the plaintiff that, under this contract, he was entitled to a reasonable notice before dismissal, at any rate if dismissed in this country; and my Brother Lush held that he was not: but, upon consideration, we are of opinion that he was.
The relation of the master of a ship to his employer, the shipowner, is not one in which, in the case of an indefinite hiring, the law has made, and there was no evidence of any custom making, the hiring a hiring for a year or for any other definite time, nor the notice by which the service is to be determined certain. As to the hiring, we adopt the language of Pollock CB, in delivering the judgment of the Court in Fairman v Oakford:,
“There is no inflexible rule that an indefinite hiring is a hiring for a year. Each particular case must depend upon its own circumstances.”
As to the notice, we think the sound construction of the contract before us is, that, except in the single case provided for by its terms, there must be a reasonable notice before it can be put an end to by either party. The rule of construction must be the same for both parties to the contract. If the ship-owner may dismiss the master without notice on the very eve of a voyage, the master may leave the ship without notice at the same point of time. But the great inconvenience and heavy loss which might be, and indeed in most cases would be, inflicted on the ship-owner, without any remedy, by such a construction of the contract if acted on by the master, lead us to believe that such is not and could not be the meaning of the contract nor the intention of the parties to it. The loss and inconvenience to the master following upon the construction contended for, though not positively so great, may be relatively very great indeed: and this consideration points to the same conclusion. The provision that the master’s wages shall cease instantly upon dismissal abroad, may well have been intended to prevent any question as to the ship-owner being liable to the whole expense of bringing the master back to the United Kingdom; and does not appear to us to permit an argument for construing the contract so as to enable either party to put an end to it at any time without notice of any kind. Indeed, upon the construction of the contract contended for by the plaintiff, and if no notice before putting an end to it was required at any time on the part of either master or ship-owner, it is not easy to assign a reason for the insertion of this particular provision into the contract. Nor was any satisfactory reason offered to us why the rule Expressio unius est exclusio alterius should not apply to it.
We think, therefore, that, under his contract, as the master could not, except under very unusual circumstances, be dismissed during the continuance of a voyage and while the vessel was at sea, so he was entitled to some notice, and that is to reasonable notice, before dismissal in this country.
There is some authority for saying that, as a proposition of general law, reasonable notice is to be implied as a term of such a contract of hiring as this. Sir John Byles so laid down the law at nisi prius in the case of Hiscox v Batchelor;[7] and the case of Fairman v Oakford,[8] already referred to, seems, if the facts of it be carefully considered, to be an authority to the same effect. For, in the absence of stipulation for any notice, a month’s notice was held reasonable to determine an indefinite hiring of a clerk, on the ground that the same clerk had accepted such a notice as sufficient to determine a former indefinite hiring also without stipulation for notice of any kind. It is nowhere suggested that the absence of stipulation made no notice necessary in either of the hirings, which would have been a short and simple ground, if a sound one, for upholding the verdict in that case.
But, without intending to throw any doubt whatever upon these cases, we decide the one before us upon its own circumstances, and upon considerations especially applicable to the contract on which the dispute arose. And we think that the order must be absolute for a new trial.
Liverpool City Council v Irwin
[1976] UKHL 1, [1977] AC 239
Lord Denning MR dissenting Court of Appeal
Was there an implied term?
It is often said that the courts only imply a term in a contract when it is reasonable and necessary to do so in order to give business efficacy to the transaction: see The Moorcock (1889) 14 PD 64, 68. (Emphasis is put on the word “necessary”: Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592, 605.) Or when it is obvious that both parties must have intended it: so obvious indeed that if an officious bystander had asked them whether there was to be such a term, both would have suppressed it testily: “Yes, of course”: see Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227.
Those expressions have been repeated so often that it is with some trepidation that I venture to question them. I do so because they do not truly represent the way in which the courts act. Let me take some instances. There are stacks of them. Such as the terms implied by the courts into a contract for the sale of goods – Jones v Just (1868) LR 3 QB 197: or the hire of goods – Asley Industrial Trust Ltd v Grimley [1963] 1 WLR 584: into a contract for work and materials – Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454: or into a contract for letting an unfurnished house – Hart v Windsor (1843) 12 M & W 68: or a furnished house – Collins v Hopkins [1923] 2 KB 617: or into the carriage of a passenger by railway: see Readhead v Midland Railway Co (1869) LR 4 QB 379 : or to enter on premises: see Francis v Cockrell (1870) LR 5 QB 501 : or to buy a house in course of erection: see Hancock v BW Brazier (Anerley) Ltd [1966] 1 WLR 1317.
If you read the discussion in those cases, you will see that in none of them did the court ask: what did both parties intend? If asked, each party would have said he never gave it a thought: or the one would have intended something different from the other. Nor did the court ask: Is it necessary to give business efficacy to the transaction? If asked, the answer would have been: “It is reasonable, but it is not necessary.” The judgments in all those cases show that the courts implied a term according to whether or not it was reasonable in all the circumstances to do so. Very often it was conceded that there was some implied term. The only question was: “What was the extent of it?” Such as, was it an absolute warranty of fitness, or only a promise to use reasonable care? That cannot be solved by inquiring what they both intended, or into what was necessary. But only into what was reasonable. This is to be decided as matter of law, not as matter of fact. Lord Wright pulled the blinkers off our eyes when he said in 1935 to the Holdsworth Club:
“The truth is that the court …. decides this question in accordance with what seems to be just or reasonable in its eyes. The judge finds in himself the criterion of what is reasonable. The court is in this sense making a contract for the parties – though it is almost blasphemy to say so.” (Lord Wright of Durley, Legal Essays and Addresses (1939), p259.)
In 1956, Lord Radcliffe put it elegantly when he said of the parties to an implied term:
“their actual persons should be allowed to rest in peace. In their place there rises the figure of the fair and reasonable man. and the spokesman of the fair and reasonable man, who represents after all no more than the anthropomorphic conception of justice, is and must be the court itself”: see Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, 728.
In 1969, Lord Reid put it simply when he said: “… no warranty ought to be implied in a contract unless it is in all the circumstances reasonable,” see Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454, 465: and Lord Upjohn echoed it when he said, at p471, that the implied warranty was “imposed by law.”
Is there a term to be implied in this tenancy about the lifts and staircases and other common parts? Mr. Francis said there was no contractual obligation on the landlord at all. He repeated the old clichés about “necessary to give business efficacy” and the “officious bystander,” and said there was no term to be implied at all.
He likened this to a lease of premises in which there is no implied covenant by the landlord to keep the demised premises in repair: or to the lease of a party wall in which there is no implied covenant to keep the party wall in repair: see Colebeck v Girdlers Co (1876) 1 QBD 234 . But in those cases the landlord did not retain occupation or control. Such cases have no application to blocks of flats when the landlord himself retains occupation and control of the roof, lifts, staircase, and so forth. No one has ever doubted that the landlord is under an implied contractual obligation to the tenant in respect of those common parts. The only question has been as to the extent of the obligation. In Miller v Hancock [1893] 2 QB 177 the court were referred to Colebeck v Girdlers Co, but quite rightly treated is as of no relevance. Both Lord Esher MR and Bowen LJ said that the landlord was under an absolute obligation to maintain the staircase. Bowen LJ said, at p181:
“It seems to me that it would render the whole transaction inefficacious and absurd if an implied undertaking were not assumed on the part of the landlord to maintain the staircase so far as might be necessary for the reasonable enjoyment of the demised premises.”
Later cases have shown, however, that it is not an absolute obligation: see Cockburn v Smith [1924] 2 KB 119, 133, by Scrutton LJ But it is certainly an implied obligation to use reasonable care. It was distinctly so held by Lush J. in Dunster v Hollis [1918] 2 KB 795 , and his ruling has never been doubted since. It has been accepted by all the textwriters and by the Law Commission [Report on Obligations of Landlords and Tenants (Law Com. No. 67)], paragraph 114 (c). In the latest edition of Woodfall, Landlord and Tenant, 27th ed. (1968), p. 657, it is stated thus:
…..
I would allow the appeal and give judgment for the city council.”
House of Lords Lord Cross
“ My Lords, I have had the advantage of reading the speeches of my noble and learned friends Lord Wilberforce, Lord Salmon and Lord Edmund-Davies. I agree with them that on the main point – the liability of the respondent council to pay damages to the appellants for failure to keep the staircases and chutes in repair and the lifts in working order – this appeal should be dismissed, but that it should be allowed so far as concerns the claim under section 32 of the Housing Act 1961 relating to the lavatory cistern inside the maisonette. I do not wish to add anything with regard to the latter claim, but in view of its general importance and because I am – with respect to him – unable to agree with a passage in the judgment of Lord Denning MR I will add a few words of my own on the main point.
When it implies a term in a contract the court is sometimes laying down a general rule that in all contracts of a certain type – sale of goods, master and servant, landlord and tenant and so on – some provision is to be implied unless the parties have expressly excluded it. In deciding whether or not to lay down such a prima facie rule the court will naturally ask itself whether in the general run of such cases the term in question would be one which it would be reasonable to insert. Sometimes, however, there is no question of laying down any prima facie rule applicable to all cases of a defined type but what the court is being in effect asked to do is to rectify a particular – often a very detailed – contract by inserting in it a term which the parties have not expressed. Here it is not enough for the court to say that the suggested term is a reasonable one the presence of which would make the contract a better or fairer one; it must be able to say that the insertion of the term is necessary to give – as it is put -‘business efficacy’ to the contract and that if its absence had been pointed out at the time both parties – assuming them to have been reasonable men – would have agreed without hesitation to its insertion. The distinction between the two types of case was pointed out by Viscount Simonds and Lord Tucker in their speeches in Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, 579, 594, but I think that Lord Denning MR in proceeding – albeit with some trepidation – to ‘kill off’ MacKinnon LJ’s ‘officious bystander’ (Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227) must have overlooked it. Counsel for the appellant did not in fact rely on this passage in the speech of Lord Denning. His main argument was that when a landlord lets a number of flats or offices to a number of different tenants giving all of them rights to use the staircases, corridors and lifts there is to be implied, in the absence of any provision to the contrary, an obligation on the landlord to keep the ‘common parts’ in repair and the lifts in working order. But, for good measure, he also submitted that he could succeed on the ‘officious bystander’ test.
I have no hesitation in rejecting this alternative submission. We are not here dealing with an ordinary commercial contract by which a property company is letting one of its flats for profit. The respondent council is a public body charged by law with the duty of providing housing for members of the public selected because of their need for it at rents which are subsidised by the general body of ratepayers. Moreover the officials in the council’s housing department would know very well that some of the tenants in any given block might subject the chutes and lifts to rough treatment and that there was an ever present danger of deliberate damage by young ‘vandals’ – some of whom might in fact be children of the tenants in that or neighbouring blocks. In these circumstances, if at the time when the respondents were granted their tenancy one of them had said to the council’s representative: ‘I suppose that the council will be under a legal liability to us to keep the chutes and the lifts in working order and the staircases properly lighted,’ the answer might well have been – indeed I think, as Roskill LJ thought [1976] QB 319, 338, in all probability would have been – ‘Certainly not.’ The official might have added in explanation- ‘Of course we do not expect our tenants to keep them in repair themselves – though we do expect them to use them with care and to co-operate in combating vandalism. The council is a responsible body conscious of its duty both to its tenants and to the general body of ratepayers and we will always do our best in what may be difficult circumstances to keep the staircases lighted and the lifts and chutes working, but we cannot be expected to subject ourselves to a liability to be sued by any tenant for defects which may be directly or indirectly due to the negligence of some of the other tenants in the very block in question.’ Some people might think that it would have been, on balance, wrong for the council to adopt such an attitude, but no one could possibly describe such an attitude as irrational or perverse.”
The Moorcock
(1889) 14 PD 64
Bowen LJ
“In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; not to impose on one side all perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events as it must have been in the contemplation of both parties that he should be responsible for in respect to those perils or chances. ”
Hutton v Warren
(1836) 1 M&W 460
Parke B
“ We are of opinion that this custom was, by implication, imported into the lease.
It has long been settled, that, in commercial transactions, extrinsic evidence of custom and usage is admissible to annex incidents to written contracts, in matters with respect to which they are silent. The same rule has also been applied to contracts in other transactions of life, in which known usages have been established and prevailed; and this has been done upon the principle of presumption that, in such transactions, the parties did not mean to express in writing the whole of the contract by which they intended to be bound, but a contract with reference to those known usages. Whether such a relaxation of the strictness of the common law was wisely applied, where formal instruments have been entered into, and particularly leases under seal, may well be doubted; but the contrary has been established by such authority, and the relations between landlord and tenant have been so long regulated upon the supposition that all customary obligations, not altered by the contract, are to remain in force, that it is too late to pursue a contrary course; and it would be productive of much inconvenience if this practice were now to be disturbed.
The common law, indeed, does so little to prescribe the relative duties of landlord and tenant, since it leaves the latter at liberty to pursue any course of management he pleases, provided he is not guilty of waste, that it is by no means surprising that the Courts should have been favourably inclined to the introduction of those regulations in the mode of cultivation which custom and usage have established in each district to be the most beneficial to all parties.
Accordingly, in Wigglesworth v Dallison,[1] afterwards affirmed in a writ of error, the tenant was allowed an away-going crop, though there was a formal lease under seal. There the lease was entirely silent on the subject of such a right, and Lord Mansfield said that the custom did not alter or contradict the lease, but only superadded something to it.
Southern Foundries (1926) Ltd v Shirlaw
[1940] AC 701
MacKinnon LJ Court of Appeal
“I recognize that the right or duty of a Court to find the existence of an implied term or implied terms in a written contract is a matter to be exercised with care; and a Court is too often invited to do so upon vague and uncertain grounds. Too often also such an invitation is backed by the citation of a sentence or two from the judgment of Bowen LJ in The Moorcock.[2] They are sentences from an extempore judgment as sound and sensible as all the utterances of that great judge; but I fancy that he would have been rather surprised if he could have foreseen that these general remarks of his would come to be a favourite citation of a supposed principle of law, and I even think that he might sympathize with the occasional impatience of his successors when The Moorcock is so often flushed for them in that guise.
For my part, I think that there is a test that may be at least as useful as such generalities. If I may quote from an essay which I wrote some years ago, I then said: “Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!'”
At least it is true, I think, that, if a term were never implied by a judge unless it could pass that test, he could not be held to be wrong.
Applying that in this case, I ask myself what would have happened if, when this contract had been drafted and was awaiting signature, a third party reading the draft had said:
“Would it not be well to put in a provision that the company shall not exercise or create any right to remove Mr Shirlaw from his directorship, and he have no right to resign his directorship?”
I am satisfied that they would both have assented to this as implied already, and agreed to its expression for greater certainty. Mr. Shirlaw would certainly have said:
“Of course that is implied. If I am to be bound by this agreement, including the barring of my activities under clauses 11 and 12 when I cease to be managing director, obviously the company must not have, or create, the power to remove me at any moment from the Board and so disqualify me from that post”
… and the company, which must be presumed to have been then desirous of binding him to serve them as managing director for ten years, would, I think, with equal alacrity have said:
“Of course that is implied. If you were tempted by some offer elsewhere, it would be monstrous for you to be able to resign your directorship and, by so disqualifying yourself from being managing director, put an end to this agreement.”
In the result, I think that the learned judge came to a right decision and this appeal fails.”
Goddard LJ concurred with MacKinnon LJ
House of Lords
Lord Atkin
“My Lords, the question in this case is whether the appellant company have broken their contract with the respondent made in December, 1933, that he should hold the office of managing director for ten years. The breach alleged is that under the articles adopted by the company, after the agreement, the respondent was removed from the position of director of the company by the Federated Foundries, Ld. There can be no doubt that the office of managing director could only be held by a director, and that upon the holder of the office of managing director ceasing for any cause to be a director the office would be ipso facto vacated. Under the articles in existence at the date of the agreement, by art. 89 the office of a director could be vacated on the happening of six various events, bankruptcy, lunacy, etc., including the giving by the director of one month’s notice to resign; while by art. 105 the company by extraordinary resolution could remove him from his office. I feel no doubt that the true construction of the agreement is that the company agreed to employ the respondent and the respondent agreed to serve the company as managing director for the period of ten years. It was by the constitution of the company a condition of holding such office that the holder should continue to be a director: and such continuance depended upon the terms of the articles regulating the office of director. It was not disputed, and I take it to be clear law, that the company’s articles so regulating the office of director could be altered from time to time: and therefore the continuance in office of the managing director under the agreement depended upon the provisions of the articles from time to time. Thus the contract of employment for the term of ten years was dependent upon the managing director continuing to be a director. This continuance of the directorship was a concurrent condition. The arrangement between the parties appears to me to be exactly described by the words of Cockburn C.J. in Stirling v Maitland:[4] “If a party enters into an arrangement which can only take effect by the continuance of an existing state of circumstances”; and in such a state of things the Lord Chief Justice said: “I look on the law to be that …. there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative.” That proposition in my opinion is well established law. Personally I should not so much base the law on an implied term, as on a positive rule of the law of contract that conduct of either promiser or promisee which can be said to amount to himself “of his own motion” bringing about the impossibility of performance is in itself a breach. If A promises to marry B and before performance of that contract marries C, A is not sued for breach of an implied contract not to marry anyone else, but for breach of his contract to marry B. I think it follows that if either the company of its own motion removed the respondent from the office of director under art. 105, or if the respondent caused his office of director to be vacated by giving one month’s notice of resignation under art. 89, either of them would have committed a breach of the agreement in question. As Kennedy L.J. said in Measures Bros Ltd v Measures[5] in discussing this very question of the effect upon a contract of employment as managing director of the managing director resigning his office of director: “It is elementary justice that one of the parties to a contract shall not get rid of his responsibilities thereunder by disabling the other contractor from fulfilling his part of the bargain.” I cannot agree with the view of the contract taken by the Master of the Rolls that the parties must be taken to have agreed that the term, though expressed to be for ten years, was subject to be determined by any cause, including the will of either party expressed in accordance with the articles; and that such determination therefore could not constitute a breach. I should have construed the agreement as I do on the first two clauses alone, but the remaining clauses and particularly those dealing with the mutual obligations between the respondent and Sir Berkeley Sheffield in this tripartite agreement in my view strongly reinforce that construction. I agree, therefore, with the trial judge, with the majority of the Court of Appeal, and with I believe all your Lordships in thinking that if during the term the respondent had given a notice of resignation, or if the company had exercised its power of removal under art. 105, either would have committed a breach of the contract.
The question that remains is whether if the removal by the company would have been a breach by the company, the removal under the altered articles by the Federated Foundries, Ld., was a breach by the company. In this matter the Master of the Rolls agreed with the other members of the Court of Appeal; but all the members of this House are not agreed. My Lords, it is obvious that the question is not as simple as in the case just considered of the removal being by the Southern Foundries, Ld.; but I venture respectfully to think that the result must be the same. The office of director involves contractual arrangements between the director and the company. If the company removes the director it puts an end to the contract: and indeed the contract relations cannot be determined unless by events stipulated for in the contract, by operation of law, or by the will of the two parties. The altered art. 8 which gives power to the Federated Foundries, Ld., to remove from office any director of the company is, when analysed, a power to the Federated to terminate a contract between the Southern and its director. It is an act which binds the Southern as against its promisee; and if a wrong to the respondent if done by the Southern it surely must be a wrong to the respondent if done by the Federated who derive their power to do the act from the Southern only. If a landlord gives power to a tenant to discharge the landlord’s servants, gardener or gamekeeper; it is the master, the landlord, who is bound by the consequences of that discharge whether rightful, or whether wrongful, and so involving the payment of damages. If a man buys goods and contracts with a sub-purchaser to take delivery direct from his vendor, and contracts with his vendor to give delivery to the sub-purchasers, the latter’s recourse for breach of contract to deliver is against his own intermediate seller and not against the head vendor. If then the Federated of their own motion determine the concurrent condition it appears to me that necessarily they cause the Southern to break the contract. I can quite see that the position may be altered where the Federated remove a director from office for such reasons as those contained in the old art. 89 or in art. 72 of Table A, which was not incorporated in the new articles. In such a case it may well be said that the company is not acting of its own motion, but is reasonably moved to act by the acts or omissions of the director. But in the present case no such question arises. The action of the Federated was, I think I may say avowedly, taken for the sole purpose of bringing the managing director’s agreement to an end. I do not think that it could be said that the Southern committed any breach by adopting the new articles. But when the Federated acted upon the power conferred upon them in the new articles they bound the Southern if they acted in such a way that action by the Southern on the same articles would be a breach. It is not a question of agency but of acting under powers conferred by contract to interfere with a contract between the party granting the power and a third person. For these reasons I am of opinion that this appeal should be dismissed with costs.
”
Lord Wright
“ In my opinion the appellant company would beyond question have been guilty of a breach of contract sounding in damages if without just cause they had removed him from his directorship and thus terminated his tenure of office, as was done in March, 1937, in the circumstances which will appear later. The case would have been simply a case of wrongful dismissal of a servant or employee. The servant or employee is in such a case effectively dismissed. His employment is terminated but the termination is wrongful, and the employer has to answer in damages. The employers here are the appellant company, but for this purpose they are like any other employers. The articles may give them the power to dismiss, but the power to dismiss is to be distinguished from the right to dismiss. I do not think that in this particular case the fact that the office includes that of a director, affects this conclusion. It is said that it is impossible to accept that a company would guarantee to a director a ten years’ tenure of his office. But the answer is that they have actually done so, according to the terms of the contract, though subject to the express exceptions of the contract and to the general exceptions which the law reads into the contract. The word guarantee is inappropriate. No one, individual or company, can be compelled against his or their will, to employ a man, though, if the contract is broken, damages will have to be paid. When the respondent was appointed managing director for ten years, the contract necessarily meant that the appellant company would not without good cause remove him from his directorship during that period, because if they did so they would ipso facto terminate his employment. There is no question of implying a term that the appellant company would not remove the respondent from his directorship. He could not serve for the agreed term of ten years unless the appellant company continued him in his office. As Lord Blackburn said in Mackay v Dick:[7] “where in a written contract it appears that both parties have agreed that something shall be done” [as here that the respondent shall hold office for ten years] “which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing.” The agreement involved for its fulfilment the concurrence of the appellants and the respondent and imported that each should do its part in carrying it out. ”
Johnstone v Bloomsbury Health Authority
[1992] QB 333
Browne-Wilkinson VC
“ In my judgment there must be some restriction on the defendants’ rights. In any sphere of employment other than that of junior hospital doctors, an obligation to work up to 88 hours in any one week would be rightly regarded as oppressive and intolerable. But even that is not the limit of what the defendants claim. Since the plaintiff’s obligation is to be available “on average” for 48 hours per week, the defendants claim to be entitled to require him to work more than 88 hours in some weeks regardless of possible injury to his health. Thus the plaintiff alleges that he was required to work for 100 hours during one week in February 1989 and 105 hours during another week in March 1989. How far can this go? Could the defendants demand of the plaintiff that he worked 130 hours (out of the total of 168 hours available) in any one week even if this would manifestly involve injury to his health? In my judgment the defendants’ right to call for overtime under clause 4(b) is not an absolute right but must be limited in some way. There is no technical legal reason why the defendants’ discretion to call for overtime should not be exercised in conformity with the normal implied duty to take reasonable care not to injure their employee’s health. ”
Scally v Southern Health and Social Services Board
[1992] 1 AC 294
Lord Bridge
“ A clear distinction is drawn in the speeches of Viscount Simonds in Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 and Lord Wilberforce in Liverpool City Council v Irwin [1977] AC 239 between the search for an implied term necessary to give business efficacy to a particular contract and the search, based on wider considerations, for a term which the law will imply as a necessary incident of a definable category of contractual relationship. If any implication is appropriate here, it is, I think, of this latter type. Carswell J. accepted the submission that any formulation of an implied term of this kind which would be effective to sustain the plaintiffs’ claims in this case must necessarily be too wide in its ambit to be acceptable as of general application. I believe however that this difficulty is surmounted if the category of contractual relationship in which the implication will arise is defined with sufficient precision. I would define it as the relationship of employer and employee where the following circumstances obtain: (1) the terms of the contract of employment have not been negotiated with the individual employee but result from negotiation with a representative body or are otherwise incorporated by reference; (2) a particular term of the contract makes available to the employee a valuable right contingent upon action being taken by him to avail himself of its benefit; (3) the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention. I fully appreciate that the criterion to justify an implication of this kind is necessity, not reasonableness. But I take the view that it is not merely reasonable, but necessary, in the circumstances postulated, to imply an obligation on the employer to take reasonable steps to bring the term of the contract in question to the employee’s attention, so that he may be in a position to enjoy its benefit. Accordingly I would hold that there was an implied term in each of the plaintiffs’ contracts of employment of which the boards were in each case in breach. ”
Lord Roskill, Lord Goff, Lord Jauncey and Lord Lowry concurred.
Malik and Mahmud v Bank of Credit and Commerce International SA
[1997] UKHL 23
Lord Nicholls
“ The contrary argument of principle is that since the purpose of the trust and confidence term is to preserve the employment relationship and to enable that relationship to prosper and continue, the losses recoverable for breach should be confined to those flowing from the premature termination of the relationship. Thus, a breach of the term should not be regarded as giving rise to recoverable losses beyond those I have described as premature termination losses. In this way, the measure of damages would be commensurate with, and not go beyond, the scope of the protection the trust and confidence term is intended to provide for the employee.
This is an unacceptably narrow evaluation of the trust and confidence term. Employers may be under no common law obligation, through the medium of an implied contractual term of general application, to take steps to improve their employees’ future job prospects. But failure to improve is one thing, positively to damage is another. Employment, and job prospects, are matters of vital concern to most people. Jobs of all descriptions are less secure than formerly, people change jobs more frequently, and the job market is not always buoyant. Everyone knows this. An employment contract creates a close personal relationship, where there is often a disparity of power between the parties. Frequently the employee is vulnerable. Although the underlying purpose of the trust and confidence term is to protect the employment relationship, there can be nothing unfairly onerous or unreasonable in requiring an employer who breaches the trust and confidence term to be liable if he thereby causes continuing financial loss of a nature that was reasonably foreseeable. Employers must take care not to damage their employees’ future employment prospects, by harsh and oppressive behaviour or by any other form of conduct which is unacceptable today as falling below the standards set by the implied trust and confidence term.”
Lord Steyn
“ Such implied terms operate as default rules. The parties are free to exclude or modify them. But is common ground that in the present case the particular terms of the contracts of employment of the two applicants could not affect an implied obligation of mutual trust and confidence… It was a change in legal culture which made possible the evolution of the implied term of trust and confidence…
The motives of the employer cannot be determinative, or even relevant, in judging the employees’ claims for damages for breach of the implied obligation. If conduct objectively considered is likely to cause serious damage to the relationship between employer and employee a breach of the implied obligation may arise.
Equitable Life Assurance Society v Hyman
[2000] UKHL 39
Lord Steyn
“ It is necessary to distinguish between the processes of interpretation and implication. The purpose of interpretation is to assign to the language of the text the most appropriate meaning which the words can legitimately bear. The language of article 65(1) contains no relevant express restriction on the powers of the directors. It is impossible to assign to the language of article 65(1) by construction a restriction precluding the directors from overriding GARs. To this extent I would uphold the submissions made on behalf of the Society. The critical question is whether a relevant restriction may be implied into article 65(1). It is certainly not a case in which a term can be implied by law in the sense of incidents impliedly annexed to particular forms of contracts. Such standardised implied terms operate as general default rules: see Scally v Southern Health and Social Services Board [1992] 1 AC 294. If a term is to be implied, it could only be a term implied from the language of article 65 read in its particular commercial setting. Such implied terms operate as ad hoc gap fillers. In Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, 137 Lord Wright explained this distinction as follows:
“The expression ‘implied term’ is used in different senses. Sometimes it denotes some term which does not depend on the actual intention of the parties but on a rule of law, such as the terms, warranties or conditions which, if not expressly excluded, the law imports, as for instance under the Sale of Goods Act and the Marine Insurance Act. . . . But a case like the present is different because what it is sought to imply is based on an intention imputed to the parties from their actual circumstances.”
It is only an individualised term of the second kind which can arguably arise in the present case. Such a term may be imputed to parties: it is not critically dependent on proof of an actual intention of the parties. The process “is one of construction of the agreement as a whole in its commercial setting”: Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191, 212E, per Lord Hoffmann. This principle is sparingly and cautiously used and may never be employed to imply a term in conflict with the express terms of the text. The legal test for the implication of such a term is a standard of strict necessity. This is how I must approach the question whether a term is to be implied into article 65(1) which precludes the directors from adopting a principle which has the effect of overriding or undermining the GARs.
The enquiry is entirely constructional in nature: proceeding from the express terms of article 65, viewed against its objective setting, the question is whether the implication is strictly necessary. My Lords, as counsel for the GAR policyholders observed, final bonuses are not bounty. They are a significant part of the consideration for the premiums paid. And the directors’ discretions as to the amount and distribution of bonuses are conferred for the benefit of policyholders. In this context the self-evident commercial object of the inclusion of guaranteed rates in the policy is to protect the policyholder against a fall in market annuity rates by ensuring that if the fall occurs he will be better off than he would have been with market rates. The choice is given to the GAR policyholder and not to the Society. It cannot be seriously doubted that the provision for guaranteed annuity rates was a good selling point in the marketing by the Society of the GAR policies. It is also obvious that it would have been a significant attraction for purchasers of GAR policies. The Society points out that no special charge was made for the inclusion in the policy of GAR provisions. So be it. This factor does not alter the reasonable expectations of the parties. The supposition of the parties must be presumed to have been that the directors would not exercise their discretion in conflict with contractual rights. These are the circumstances in which the directors of the Society resolved upon a differential policy which was designed to deprive the relevant guarantees of any substantial value. In my judgment an implication precluding the use of the directors’ discretion in this way is strictly necessary. The implication is essential to give effect to the reasonable expectations of the parties. The stringent test applicable to the implication of terms is satisfied.
In substantial agreement with Lord Woolf MR I would hold that the directors were not entitled to adopt a principle of making the final bonuses of GAR policyholders dependent on how they exercised their rights under the policy. In adopting the principle of a differential policy in respect of GAR policyholders the directors acted in breach of article 65(1).”
Baird Textile Holdings Ltd v Marks & Spencer Plc
[2001] EWCA Civ 274
Vice Chancelloer
In his application of those principles to this case the judge said:
“13. On this head of the claim I am satisfied that Baird’s case in favour of an implied contract cannot succeed. In the first place, it would be unlikely that one could properly imply a contract when it is the pleaded case of Baird that M & S deliberately refrained from concluding any express contract because it could achieve greater flexibility without one. To imply a contract against such a party would seem to me to offend against the principle that the parties’ conduct must show an implied common intention to create legal relations by contract.
In any event, the alleged terms are far too imprecise to be capable of being enforced. [After referring by way of analogy to Blue Metal Ltd v Robert Frank Hughes & Others (1963) AC 74. Morison J continued] Mr. Field [counsel for Baird] could not say that so long as the implied contract continued with Baird, M & S were prevented from appointing principal suppliers. And I cannot understand how the various factors listed by him would work in practice. If M & S’s future requirements were for fewer and more expensive garments of a type which Baird was unable or unwilling to produce at an acceptable cost, what then? There is, in my judgment, no firm base upon which one could ascertain either a particular quantity or a particular share which should be attributed to Baird in the future. Were the alleged contract to have legal effect then the court would, to all intents and purposes, be making a bargain for the parties rather than seeking to enforce a bargain which they themselves had made.”
For Baird counsel submits that where, as alleged in paragraph 9, one party intentionally induces a particular belief in another, on which the other relies, such conduct attracts legal responsibility. The responsibility relied on is (1) to give reasonable notice to terminate the relationship and (2) during the subsistence of the relationship, to acquire garments from Baird in such quantities and at such prices as were in all the circumstances reasonable. More specifically he contends that the judge was wrong in three respects, namely (a) necessity is not the test for the implication of a contract from conduct, (b) there is a sufficient prospect of success in establishing an intention to create the legal relations relied on, and (c) the obligations are sufficiently certain to be enforceable as part of the alleged contract.
In connection with the wide proposition counsel referred to academic discussion with regard to “relational contracts” and the legal implications to which they may give rise. But the articles which he produced did not suggest that the normal rules as to the implication and formation of contracts or the usual requirements of certainty did not apply to “relational contracts”. Accordingly it is to those rules that I turn.
Counsel suggested that the requirement of necessity to which the judge referred was derived from the judgment of Bingham LJ in The Aramis [1989] 1 Ll.L.R 213. He submitted that it was either confined to the cases exemplified in that case or, at least, inapplicable to cases in which there had been a long continuing relationship or an intentional inducement such as Baird relies on in this case.
The Aramis [1989] 1 Ll.L.R 213 concerned the question whether a contract could be implied between the transferee of a bill of lading to whom the goods had been delivered and the carrier. Prior to the Carriage of Goods By Sea Act 1992 the implication of such a contract was necessary if the transferee and the carrier were to have rights enforceable between themselves in respect of, for example, damage to the goods or the payment of freight. Bingham LJ considered the authorities at some length to see how the implication of contracts in this field had grown and developed. He cited with approval from the judgment of May LJ in The Elli [1985] 1 Ll.R. 107, 115 that
“…no such contract should be implied on the facts of any given case unless it is necessary to do so: necessary, that is to say, to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist.”
Bingham LJ accepted that the authorities showed that “a contract will only be implied if it is necessary to do so”. In expressing his own view Bingham LJ said (page 224):
“…it would, in my view, be contrary to principle to countenance the implication of a contract from conduct if the conduct relied upon is no more consistent with an intention to contract than with an intention not to contract. It must, surely, be necessary to identify conduct referable to the contract contended for or, at the very least, conduct inconsistent with there being no contract made between the parties. Put another way, I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract.”
Counsel for Baird relied on the fact that in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195, a case concerning the implication of a contract from a request for tenders and a submission in response, Bingham LJ put the matter somewhat differently. In that case he referred (pp. 1201 and 1202) to the “confident assumptions of commercial men” and the need to “be able to conclude with confidence both that the parties intended to create contractual relations and that the agreement was to the effect contended for”.
For M&S it was submitted that it would be odd if the principle for the implication of a contract at all should be different or less onerous than the principle for the implication of a term in a contract. Reliance was placed on Wilson v Partenreederei Hannah Blumenthal [1983] AC 854 and The Gudermes [1993] 1 Ll.R.311. The former concerned the question whether a contract to abandon an arbitration might be implied from conduct, or more precisely lack of conduct. Lord Brandon of Oakbrook considered (p.914) that an actual abandonment, as opposed to an estoppel precluding an assertion of continuance, required proof of conduct of each party, as evinced to the other party and acted on by him, as “leads necessarily to the inference of an implied agreement” between them to abandon the contract. Lord Roskill referred (p.923) to “the only possible inference [being] that the agreement to arbitrate has been rescinded by mutual consent”. Though Lord Diplock made no similar observation both Lords Keith of Kinkel and Brightman agreed with Lords Brandon and Roskill. In The Gudermes the cargo owner sought to establish a further contract with the ship-owners arising out of arrangements made to cope with the situation arising from an unauthorised diversion to Malta rather than Ravenna. The judge, Hirst J, held that the appropriate test was that described by May LJ in The Elli [1985] 1 Ll.R. 107, 115. The Court of Appeal upheld that direction. Staughton LJ giving the judgment of the court considered (p.320) that
“..it is not enough to show that the parties have done something more than, or something different from, what they were already bound to do under obligations owed to others. What they do must be consistent only with there being a new contract implied, and inconsistent with there being no such contract.”
In my view the judge did not adopt the wrong test for the implication of a contract from conduct. It is apparent that the statements in The Aramis are not confined to the limited circumstances with which that case was concerned and are reflected in one form or another in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council, Wilson v Partenreederei Hannah Blumenthal and The Gudermes.
The second issue arises not only from the terms of paragraph 12(1) of the judgment of Morison J but also from the terms of paragraph 9.28 of the particulars of claim. Baird contends that the judge placed undue weight on that allegation and overlooked the references to “detailed contract or contracts”. It submitted that the wish to maintain flexibility and so to abstain from detailed contracts was not inconsistent with an intention to have a contractual umbrella to regulate the commercial relationship, more particularly given the belief M&S had intentionally induced in Baird as alleged in paragraph 9 of the Particulars of Claim. In this connection counsel relied on the speech of Lord Hoffmann in Carmichael v National Power plc [1999] 1 WLR 2042, 2050/1 to the effect that the subjective views of one party is some evidence as to what, objectively, the court should conclude to have been agreed.
Counsel for M&S pointed out that the allegation is that M&S “abstained from concluding any express contract…to regulate the parties on-going relationship..”. Nevertheless Counsel for M&S did not suggest that the allegation in paragraph 9.28 was conclusive, merely a serious impediment to the implication for which Baird contends. In my view it would be inappropriate at this stage to take too literal a view of the pleading. I am prepared to assume that in the passage I have quoted some reference to “detail” should be implied so as to reflect the later reference to the need to maintain flexibility by abstaining from detailed contracts. On that reading there is some force in this point. But it cannot be conclusive either way.
The crucial point, in my view, arises from the third issue, namely whether the obligations arising from the alleged implied contract would be sufficiently certain to be contractually enforceable. Counsel for Baird submitted that on questions of certainty the court takes a benevolent view and seeks to uphold the contract by so construing its terms as to produce certainty rather than the converse. He relied on the dictum of Steyn LJ in First Energy (UK) Ltd v Hungarian International Bank [1993] 2 Ll.R. 194, 196 on the need for the law to protect the reasonable expectations of honest men. He cited as examples Abrahams v Reiach Ltd [1922] 1 KB 477 and Paula Lee v Robert Zehil & Co Ltd [1983] 2 AER 390 in which problems of certainty were overcome by the implication of a requirement of reasonableness.
In relation to the facts Counsel for Baird suggested that there were a number of links in the relevant chain. He relied on a representation to Baird of a long term relationship to induce it to participate in the M&S supply base. He asserted that given that intentional representation M&S must have intended that Baird would get a reasonable level of M&S business year on year. He contended that not only did Baird so understand the representation but that was the way the relationship was in fact operated. Although, as I have already pointed out in paragraph 5, the proportion of business given by M&S to Baird remained relatively constant in percentage terms Counsel did not contend that M&S allocated its business amongst the four principal suppliers in accordance with any predetermined formula. He contended that the past could, with the assistance of experts, indicate what would be a reasonable allocation for the future.
Any debate about certainty of contractual terms and implications of reasonableness to avoid uncertainty must start with the decision of the House of Lords in Hillas v Arcos (1932) 147 LT 503. In that case the question was whether an option to buy “100,000 Standards for delivery in 1931” was sufficiently certain against the background of a contract concluded and performed the previous year for the purchase of “22,000 standards softwood goods of fair specification over the season 1930”. The House of Lords concluded that the contract was sufficiently certain. Lord Tomlin interpolated into the option the requirement of “fair specification” expressly required by the previous year’s contract. He considered that (p.512) in that context the words
“mean that the 22,000 standards are to be satisfied in goods distributed over kinds, qualities and sizes in the fair proportions having regard to the output of the season 1930, and the classifications of that output in respect of kinds, qualities and sizes. That is something which if the parties fail to agree can be ascertained just as much as the fair value of a property.”
Lord Wright (p.517) referred to the legal implication of reasonableness running through modern English commercial law and supplying the requisite degree of certainty in appropriate cases. The distinction between those cases in which the implication of reasonableness provides for certainty and those in which it does not appears most clearly from the speech of Lord Thankerton. He distinguished (p.513) between cases where the contract provides for an objective standard which the court applies by ascertaining what is reasonable and those where, there being no such standard, the test of reasonableness is being used to make an agreement for the parties which they have not made for themselves. He was impressed by the consideration that a commercial matter was involved and the parties themselves thought that they had made a contract.
The same principle is apparent from Australian Blue Metal Ltd v Hughes [1963] AC 74. That case concerned a mining lease containing a grant of the right to mine for magnesite in a specific area for an agreed royalty. The lease was silent as to the period for which it was to run, the means of its termination, the quantity of magnesite which might be mined and whether or not the right was exclusive. The issue was whether it was terminable at will or only on notice. The Privy Council considered that it was terminable at will. Lord Devlin giving the advice of the Board said (p.94/5)
“The second feature is that no express obligation was imposed on the appellants to do any mining at all, and in their Lordships’ opinion none can be implied. The only practical way of framing such an obligation with sufficient precision to make it enforceable is to do what was done in the 1942 agreement and specify a minimum quantity of material that has to be won in a given period. Their Lordships were referred to Hillas & Co Ltd v Arcos Ltd a case in which the House of Lords was able to use the implication of reasonableness to fill the gaps left by the parties. But in the present case there are no criteria which would enable a court of law to determine what would be a reasonable quantity. There would be too many uncertain factors to be taken into account, such as the profitability of mining in the future and the possibility of mining being done by other licensees…”
In both the cases relied on by Baird, namely Abrahams v Reiach Ltd [1922] 1 KB 477 and Paula Lee v Robert Zehil & Co Ltd [1983] 2 AER 390, the existence of a contract was not in doubt. The court was concerned with the assessment of damages for the breach of an undoubted obligation. The issue was how it was to be performed. I do not consider that either of them is of relevance to this case.
The issue of certainty arises, not with regard to the alleged obligation to give reasonable notice of termination, but with the allegation that
“..during the subsistence of the relationship Marks & Spencer would acquire garments from BHT in quantities and at prices which in all the circumstances were reasonable..”
Counsel for Baird accepted that this involved an obligation on Baird to supply such garments irrespective of whether it had accepted the order. It is not alleged that there was some objective criteria by which to assess what was a reasonable quantity or price. Counsel disclaimed any contention that M&S in fact allocated business from year to year in accordance with some formula of its own. The annual allocation was separately determined in each year in the light of the circumstances then prevailing.
I agree with the conclusion of the judge. The alleged obligation on M&S to acquire garments from Baird is insufficiently certain to found any contractual obligation because there are no objective criteria by which the court could assess what would be reasonable either as to quantity or price. This is not a case in which, the parties having evidently sought to make a contract, the court seeks to uphold its validity by construing the terms to produce certainty. Rather it is a case in which the lack of certainty confirms the absence of any clear evidence of an intention to create legal relations. The allegation in paragraph 9.28 also confirms the lack of intention to create legal relations for if there had been the requisite certainty because of the objective criteria then to that extent there would have been a detailed contract and a loss of flexibility. It cannot be said, let alone with confidence, that the conduct of the parties is more consistent with the existence of the contract sought to be implied than with its absence. The implication of the alleged contract is not necessary to give business reality to the commercial relationship between M&S and Baird. In agreement with the judge, I do not think that Baird has a real prospect of success on its claim in contract.
Whether there is some other compelling reason for requiring the contractual claim to be disposed of at a trial depends on the view one takes of the estoppel claim. If, as the judge thought, the estoppel claim has a real prospect of success then it may be inconvenient to preclude any consideration of a contractual claim. I turn, then, to consider the estoppel claim.
Daniel Sweeney v. Dennis Duggan;
Supreme Court
(Hamilton CJ , Barrington and Murphy JJ )
It was asserted on behalf of the plaintiff that the obligations aforesaid in so far as they fell upon the company derived primarily (and perhaps exclusively) from the contractual relationship between the employer and the employee. It was contended that the particular obligation to insure the company against liability (or in default to warn the plaintiff) was an implied term of the employment contract.
In the amended written submissions to this Court the plaintiff contended that such a term should be implied having regard to a variety of matters which included the following:
(I) The company’s business, quarrying, was said to be exceptionally dangerous.
(II) At the time of the accident, the company’s finances were precarious.
(III) The plaintiff had insured himself to a ‘small extent’ against loss covered by injuries sustained in the course of his employment.
Whilst there may be room for argument as to the degree of danger involved in the business carried on by the company or the extent of its financial difficulties in or around the time of the accident there is no doubt that evidence was adduced before the learned trial judge to the effect that the accident rate in quarries is approximately eight times the rate on building sites generally and furthermore there was evidence of substantial losses incurred by the company in the years immediately prior to the accident albeit due to no fault of the company or its management. Moreover it was asserted that the plaintiff was a man of modest means and education who was not represented by a trade union in any negotiations he had with the company or Mr Duggan. The question is whether in these circumstances, and accepting that each of the factors aforesaid existed and assuming that they existed to the highest degree for which the plaintiff might contend, a term such as that for which the plaintiff argues would be implied in the contract of employment.
There are at least two situations where the courts will, independently of statutory requirement, imply a term which has not been expressly agreed by the parties to a contract. The first of these situations was identified in the well-known Moorcock case (1889) 14 PD 64 where a term not expressly agreed upon by the parties was inferred on the basis of the presumed intention of the parties. The basis for such a presumption was explained by MacKinnon LJ in Shirlaw v. Southern Foundries (1926) Ltd [1939] 2 KB 206 at p. 227 in an expression, equally memorable, in the following terms:
Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common, ‘Oh, of course’ .
In addition there are a variety of cases in which a contractual term has been implied on the basis, not of the intention of the parties to the contract but deriving from the nature of the contract itself. Indeed in analysing the different types of case in which a term will be implied Lord Wilberforce in Liverpool City Council v. Irwin [1977] AC 239 preferred to describe the different categories which he identified as no more than shades on a continuous spectrum.
The relevance of the presumed intention of the parties differs in different cases. This is dramatically illustrated in the Irwin case. In that case the court was asked to infer a term in a contract between the Liverpool City Council and its tenants to the effect that the council would maintain and repair the lifts and chutes in an apartment block. Roskill LJ speculated as to what the reaction of the Liverpool City Council would have been if one of the tenants had said: ‘I suppose that the council will be under a legal liability to us to keep the chutes and lifts in working order and the staircases properly lighted’ and he concluded that the answer in all probability would have been — ‘Certainly not’ . Whilst Lord Roskill’s assumption aforesaid was accepted in the House of Lords, they concluded that irrespective of the presumed intention of the parties a term must be implied from the very nature of the fact that the tenants had to gain access to their apartments by and through the common areas of a fifteen storey tower block that some party would have to keep them in repair. The question then was whether this obligation would fall on the tenants collectively or individually or else on the council. As Lord Salmon said at p. 262:
Unless the law, in circumstances such as these, imposes an obligation upon the council at least to use reasonable care to keep the lifts working properly and the staircase lit, the whole transaction becomes inefficacious, futile and absurd. I cannot go so far as Lord Denning MR and hold that the courts have any power to imply a term into a contract merely because it seems reasonable to do so. Indeed, I think that such a proposition is contrary to all authority. To say, as Lord Reid said in Young & Marten Ltd v. McManus Childs Ltd [1969] 1 AC 454 at p. 465 that ‘… no warranty ought to be implied in a contract unless it is in all of the circumstances reasonable’ is, in my view, quite different from saying that any warranty or term which is, in all of the circumstances, reasonable ought to be implied in a contract. I am confident that Lord Reid meant no more than that unless a warranty or term is in all the circumstances reasonable there is no question of implying it into a contract, but before it is implied much else besides is necessary, for example that without it the contract would be inefficacious, futile and absurd.
Whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable category of contract it must be not merely reasonable but also necessary. Clearly it cannot be implied if it is inconsistent with the express wording of the contract and furthermore it may be difficult to infer a term where it cannot be formulated with reasonable precision.
It seems to me clear that the contention that a term as to insurance by the company of its risk for liability to the plaintiff as its employee or an obligation to warn him of the absence of such insurance could not be implied in pursuance of the Moorcock doctrine. The contract of employment would and did operate effectively without any such term and if one postulated an inquiry by the ubiquitous and officious bystander as to whether such a term should be included I anticipate that it might have well been rejected and certainly would not have been accepted without considerable negotiation and discussion a result which would negative the existence of an implied term. In Spring v. National Amalgamated Stevedores & Dockers Society [1956] 1 WLR 585 the defendant trade union sought to expel the plaintiff from its membership and in doing so relied upon what they alleged was implied in the contract between the plaintiff and them. The term which it was said should be implied arose from an agreement which had been reached at Bridlington in 1939 and regulated the transfer of members from one union to another. That agreement was, in trade union circles, referred to as ‘the Bridlington Agreement ’ . What, therefore, the defendants sought to incorporate by implication in their agreement with the plaintiff was a provision that the plaintiff should comply with the ‘the Bridlington Agreement ’ . In his judgment the Vice Chancellor Sir Leonard Stone postulated the Moorcock test in the following terms (at p. 599):
If that test were to be applied to the facts of the present case and the bystander had asked the plaintiff at the time he paid his five shillings and signed the acceptance form, ‘Won’t you put into it some reference to the Bridlington Agreement ?’ I think (indeed, I have no doubt) the plaintiff would have answered ‘What’s that?’ In my judgment, that is sufficient to dispose of this case, …
Clearly the plaintiff in the present case would have little difficulty in appreciating the general concept of employer’s liability insurance but so far from an immediate acquiescence to any proposals in relation to such insurance I think it is reasonable to anticipate that a debate would have arisen as to the value of such insurance to the employee seeing that such insurance is primarily for the benefit of the employer and, if it were explained how it might also benefit the employee, further and useful discussion might well follow as to whether the interests of the plaintiff would not be better secured by some other arrangement which would be of immediate and direct benefit to the plaintiff. The parties to the negotiations might recognise, (as did their counsel) that a contractual obligation by the company to insure would add little protection to the plaintiff as default by the company would merely duplicate the plaintiff’s right to recover a judgment against the company with no greater prospect of recovering thereon. I would reject the contention that the term for which the plaintiff contends could be implied on the basis of the Moorcock doctrine.
Both parties referred to the decision of the Court of Appeal in England in two cases, namely, Reid v. Rush & Tompkins Group plc [1990] 1 WLR 212 and Van Oppen & Clarke v. Bedford Charity Trustees [1990] 1 WLR 235 on the issue as to whether the disputed provision with regard to insurance should be implied as a legal incident to the plaintiff’s contract of employment. Each of these cases has a similarity to the other and a relevance to the existing matter in as much as it was alleged (unsuccessfully) that the defendants in each case were under an obligation or duty to take out and maintain some form of insurance for the benefit of the plaintiff or at any rate to advise him in relation to such insurance.
In the Reid case the plaintiff was employed by the defendant to travel to Ethiopia as a quarry foreman. While in that country the plaintiff was injured in a motor car accident caused by the negligence of a third party whose identity was never discovered. In Ethiopia there was not, at the time, any compulsory third party motor insurance nor any scheme for compensating persons injured in accidents caused by the negligence of uninsured or untraced drivers. In those circumstances the plaintiff brought an action against his employer — the defendant — for damages in respect of the economic loss which he had suffered in being unable to recover such compensation. He alleged that the defendant was in breach of an implied term of his contract of employment to the effect that it would take out appropriate indemnity insurance cover for the plaintiff or, alternatively, that it would, prior to his departure for Ethiopia, advise him of any special risks so that he could obtain such insurance cover for himself. Alterna tively, the plaintiff argued, that the defendant was negligent in failing to discharge its duty of care as an employer to protect the plaintiff’s economic welfare by providing the appropriate insurance cover. Ralph Gibson LJ delivering the main judgment of the Court of Appeal declined to imply the term for which the plaintiff contended. He analysed the facts of the case and went on (at pp. 227–8) to state as follows:
It is, however, impossible, in my judgment, to imply in this case a term as a matter of law in the form contended for, namely, a specific duty to advise the plaintiff to obtain specific insurance cover. Such a duty seems to me inappropriate for incorporation by law into all contracts of employment in the circumstances alleged. The length of time during which the servant will work abroad and the nature of his work may vary greatly between one job and another and hence the extent to which the servant would be exposed to the special risk. Further, having regard to the many different ways in which a servant working abroad may run the risk of uncompensated injury caused by the wrong doing of a third party, apart from a traffic accident, it seems to me impossible to formulate the detailed terms in which the law could incorporate into the general relationship of master and servant a contractual obligation to the effect necessary to cover the plaintiff’s claim.
…..
Will the law then imply a term in the contract of employment imposing such an obligation on the employer? The implication cannot, of course, be justified as necessary to give business efficacy to the contract of employment as a whole. I think there is force in the submission, that since the employee’s entitlement to enhance his pension rights by the purchase of added years is of no effect unless he is aware of it and since he cannot be expected to become aware of it unless it is drawn to his attention, it is necessary to imply an obligation on the employer to bring it to his attention to render efficacious the very benefit which the contractual right to purchase added years was intended to confer.
I agree that a term may be implied independently of the intention of the parties where it is necessary as a matter of law and logic to enable the provisions of the agreement to have operative effect. No such necessity exists in the present case. The decision is also relevant in setting out the principles, with which I fully agree, which establish that the obligation as between the employer and employee in a case such as the present are to be found in contract and not in tort.
Accordingly, as to the first and crucial argument submitted on behalf of the plaintiff, I am satisfied that there is no basis for the implication in the contract of employment between the company and the plaintiff of a term that the employer should in any circumstances extract risk insurance cover or otherwise make special provision to ensure the payment of compensation to the plaintiff in the event of injury or to warn the plaintiff of the absence of such policy or such arrangement. Likewise I am satisfied that no such obligation or duty can be identified by reference to the law of tort. If the company has no liability in contract to the plaintiff then neither has Mr Duggan. The piercing of the corporate veil bestowed upon the company by law, or even its complete removal, cannot impose on Mr Duggan or the other shareholder in the company an obligation in contract to which the company itself was not subject.
Ward v. Spivack Ltd
[1957] IR 29
Davitt P. Supreme Court.
The President of the High Court has held that the relationship between the plaintiffs and the defendant Company was not that of master and servant. He found that when the contracts were being made “what was to happen if the agency was terminated was not discussed. It was a contingency which they did not deal with.” The plaintiff, Daniel Ward, accepts this finding. The plaintiff, James Fagan, contended that the words used should be construed as an agreement that commission was to continue to be paid notwithstanding the determination of his agency. I am unable to accept this contention. The question accordingly in both cases arises whether a term should be implied to this effect in the contract. Each plaintiff’s claim, as pleaded and put forward in the High Court, was that a term should be implied which would give him the right to continue to receive commission on all orders from customers in his area who did business with the defendant Company during the period of his agency. The President, while not accepting this contention that a term so wide should be read into the contracts, has held that a term should be implied that commission was to continue to be paid, limited, however, to orders from customers introduced by the plaintiffs. He stated the test, which he considered should be applied, in the following terms:”Let us envisage the parties at the moment they have agreed on the expressed terms of their contract. Then imagine one of them saying, with regard to the term sought to be implied:’Of course such and such is understood?’ If the probability is that the other would say:’Of course,’ then the term may be implied. If the probability is that he would say:’Certainly not, I will agree to nothing of the kind,’ then clearly the term cannot be implied no matter how desirable or reasonable it may seem, as the Court cannot make a contract for the parties; it can only determine what they agreed on, either expressly or impliedly.”
……
I turn to the question which would appear to be the only one argued in the High Court, whether a term should be implied in these contracts that on being determined a commission was to continue to be paid either on the basis originally claimed by both plaintiffs and still contended for by Mr. Fagan or on the narrower basis decided by the President.
It is settled law that a term may be implied in a contract to repair what Cheshire and Fifoot, (3rd ed., 1952, at p. 127) calls “an intrinsic failure of expression.” Where there has been such a failure the judge may supply the further terms which will implement their (the parties) presumed intention and in a hallowed phrase give “business efficacy”to the contract. “In doing this he purports at least to do merely what the parties would have done themselves had they thought of the matter. The existence of this judicial power was asserted and justified in The Moorcock(1).”In that case Bowen L.J. explained the nature of the implication in all the cases; he says where they were implied “the law is raising an implication from the presumed intention of the parties, with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have.” The test to be applied by the Court has been stated by several judges in much the same language: see Scrutton L.J., in Reigate v. Union Manufacturing Co. (Ramsbottom) (1); and MacKinnon L.J. in Shirlaw v.Southern Foundries (1926), Ltd. (2).
It will be seen from the language used in so stating the tests that something more is required than the probabilityof which the President speaks that the parties must have agreed to the term to be implied had the matter been mentioned. There must be something approaching certainty or as put by Jenkins L.J. in Sethia (1944) Ltd. v.Partabmull Rameshwar (3) it must be “clear beyond a peradventure that both parties intended a given term to operate, although they did not include it in so many words.”
Can it be said with the degree of confidence required that the parties must, had the matter been raised, have agreed to the continuance of commission on the basis contended for by Mr. Fagan? The President came unhesitatingly to the conclusion that it cannot be so said. With this I am in complete agreement. Whatever view one might take had the agency only related to orders obtained from customers introduced by the plaintiffs the fact that the contract was to pay commission on all orders with the exceptions mentioned suggests that Mr. Spivack was quite unlikely on behalf of his Company to agree to the continuance of commission beyond the period of the agency. What had happened with regard to Mr. Hardy supports this view strongly. Furthermore although it might have been a reasonable thing for Mr. Spivack to have agreed to continue to pay commission on orders from customers introduced by the plaintiffs at least for some time after the termination of the agency I am quite unable to hold as the President does that had the matter been raised Mr. Spivack must have agreed. To read such a term into the contract would in my view not be to make clear the intention of the parties unexpressed at the time but would be to make a new contract.
The plaintiffs’ case for commission, therefore, stands or falls on the submission that once they had been appointed sole selling agents commission at the agreed rate became payable when the defendants themselves sold during the currency of the sole agency. In answer to this submission, the defendants relied primarily on the decision of McCardie J. in Bentall, Horsley and Baldry v.Vicary .5 The head-note of that case reads as follows:”The defendant, the owner of property, appointed the plaintiffs, who were estate agents, his sole agents for the sale of the property for a stipulated period, it being agreed that, if the plaintiffs introduced a purchaser, they should receive a commission of 5 per cent. on the purchase price. During the period of the agency the defendant negotiated personally and quite apart from the plaintiffs with a purchaser who had never had any communication with the plaintiffs and whom the plaintiffs did not know. The result of the negotiations was that the property was sold to this purchaser. The plaintiffs thereupon claimed from the defendant damages for breach of contract on the ground that, in selling the property direct to the purchaser, he had acted in breach of his contract with them and had thereby deprived them of their commission:Held, that the plaintiffs were not entitled to damages, as the contract contained no express prohibition against a sale by the defendant himself, and the implication of such a prohibition was not necessary to give business efficacy to the transaction. Held further, on the terms of the contract, that the plaintiffs could not recover commission at the agreed rate on the purchase price received by the defendant, as they had failed to introduce the purchaser, nor could they recover on a quantum meruit.”
Murphy, Buckley & Keogh Ltd. v. Pye (Ir.) Ltd.
[1971] IR 57
It is also to be noted that the defendant does not say by the contract: ‘I give you the sole right to sell.’ He says only: ‘I appoint you sole agents for the sale’, which is, in my opinion, quite a different thing.”
It seems to me that these observations are fully applicable to the present case. In so far as I have been able to ascertain the terms of the contract from the conversations that led up to it, and from the correspondence and the conduct of the parties, there was nothing in the contract which gave the plaintiffs the sole right to sell; they were merely appointed sole agents to find a purchaser who would be ready to complete at a price acceptable to the defendants, and the defendants were to have the right to revoke the agency. It is clear that the contract precluded the defendants from selling through another agent during the currency of the plaintiffs’ agency; it is equally clear that the contract contained no express term which precluded the defendants themselves from selling. If I am correct in thinking that, in this respect, the contract in the present case is indistinguishable from that in the Bentall Case 6, then under authority of the latter case it is not possible to read into the contract in the present case an implied term precluding the defendants from selling.
Carna Foods Ltd and Edmund Mallon v. Eagle Star Insurance Co. (Ireland) Ltd;
[1997] 2 IR 193 Supreme Court
(Hamilton CJ , Keane and Lynch JJ )
Date: 28 May 1997
Conclusions
The plaintiffs say that one must imply a term into the policies of insurance issued by the defendant to the plaintiffs in this case to the effect that if a policy is cancelled or its renewal is declined the defendant must give its reasons for so doing. Apart from cases where the law implies some terms into certain kinds of contract, whether by statute or by common law (for example sale of goods, hire purchase, landlord and tenant, sale of lands etc. ) one can imply a term into a contract only when the implied term gives effect to the true intentions of all the parties to the contract who might be affected by such implied term. The learned trial judge in his judgment in this case which is now reported in [1995] 1 IR 526 ; [1995] 2 ILRM 474 quoted from the well known dictum of MacKinnon LJ in Shirlaw v. Southern Foundries (1926) Ltd [1939] 2 KB 206 at p. 227 and I also quote that dictum here:
Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying: so that if while the parties were making their bargain an officious bystander were to suggest some express provisions for it in their agreement, they would testily suppress him with a common ‘oh of course’ .
Here the evidence before the learned trial judge is quite clearly to the effect that if such a term were sought to be included in the insurance policies at the time when the plaintiffs were seeking insurance the defendant would not have contracted with the plaintiffs at all. If the officious bystander had interrupted in relation to condition 13 of the policies and had asked the defendant ‘If you do cancel, will you give your reasons for cancelling?’ The defendant’s answer would have been an emphatic ‘No’ whereas to imply such a term into the policies the answer would have to be by both parties ‘Yes, of course’ expressed rather testily to discourage the officious bystander from further interrupting.
It is also helpful to quote what Lord Pearson said in 1973 in the case of Trollope and Colls Ltd v. North West Metropolitan Regional Hospital Board [1973] 2 All ER 260 at p. 268:
An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which although tacit, formed part of the contract which the parties made for themselves.
These basic principles of law preclude the implication of a term into the policies to the effect that in the event of a declinature or cancellation the defendant must state its reasons therefor.
Specifically in relation to insurance law this question of an obligation to give reasons has long since been decided in the case of Sun Fire Office v. Hart referred to above. The relevant clause in that case read:
If by reason of such change, or from any other cause whatever, the society or its agents should desire to terminate the insurance effected by the said policy, it shall be lawful for the society or its agents so to do, by notice to the insured or to the authorised representatives of the insured and to require the policy to be given up for the purpose of being cancelled: provided that in any such case the society shall refund to the insured a rateable proportion for the unexpired term thereof of the premium received for the insurance.
A question arose as to whether the words ‘or from any other cause whatever’ were governed and restricted by the reference to ‘such change’ which had been described earlier in the clause. It was decided that they were not so governed or restricted and stood on their own. At p. 103 of the report of the judgment of Lord Watson he states as follows:
The condition does not involve the avoidance of the policy ab initio , or forfeiture of the premium paid to the insured. There may be many circumstances calculated to beget, in the mind of a fair and reasonable insurer, a strong desire to terminate the policy, which it would be inconvenient to state and difficult to prove: and it must not be forgotten that the whole business of fire insurance offices consists in the issue of policies, and they have no inducement, and are not likely to curtail their business, without sufficient cause. On the other hand the insured gets all the protection which he pays for, and when the policy is determined, can protect his own interests by effecting another insurance.
Of course the plaintiffs in this case say that having been refused renewal of three policies and had another two policies cancelled and not being aware of what the reasons are for such an attitude by the defendant it is not possible for them to effect alternative insurance. A curious feature of the case of course is that no effort was made either by the plaintiffs themselves or by their insurance brokers to negotiate with an alternative insurer with a view to getting insurance cover again. Undoubtedly it makes it more difficult to get alternative cover when policies have not been renewed or have been cancelled but that would have been so to some extent at any rate at the time of the Sun Fire Office case just as it is today.
If the court were to imply such a term into the contracts of insurance the consequences would be very far reaching. Supposing for example that in the present case the defendant although not having evidence to support its suspicions in fact genuinely believe that the fire in the abattoir and the meat factory at Castleblayney was a case of arson committed by or at the behest of the plaintiffs and that that is the real reason for its rejecting the plaintiffs as insured parties. This appears to be what the plaintiffs themselves are suggesting at question 187 of the transcript of 31 May and question 29 of the transcript of 1 June 1995. If the defendant is bound to give reasons it must do so truthfully. One can scarcely imagine the litigation that such a situation would spawn especially when one recalls the plaintiffs’ solicitors suggestion in their letter of 19 April 1994 that the defendant’s mere silence was defamatory of the plaintiffs.
For all the foregoing reasons I would reject the claim by the plaintiffs that a term that the defendant should give its reasons for a declinature and/or cancellation should be implied in the policies of insurance.
It is also claimed that the defendant in addition to stating reasons should have an implied obligation to put the plaintiffs back into the same position that the plaintiffs enjoyed regarding obtaining insurance cover before they entered into the contracts of insurance with the defendant. This is an impossibility. The fact is that the plaintiffs did contract with the defendant as its insurers and that the defendant cancelled two of the policies and declined to renew the other three policies and that will always be the position. One recalls the often quoted lines of the poet Edward Fitzgerald:
The moving finger writes: and having writ,
moves on: nor all thy piety nor wit
shall lure it back to cancel half a line,
nor all thy tears wash out a word of it.
I reject therefore the submission that such a term should be implied into the contracts between the parties.
Siney v. Corporation of Dublin
[1980] IR 400
O’Higgins C.J. 408
Breach of contract
The first question involves a consideration as to whether, in the particular letting of this flat to the plaintiff, a warranty can be implied as to its fitness or suitability for habitation by the plaintiff and his family. This is so because the document which was signed on the 23rd August, 1973, contains 32 conditions which either define the rights of the defendants or specify the obligations of the plaintiff tenant. There is no express warranty on the part of the defendants as to the suitability of the flat for any particular purpose, nor is such a warranty expressly excluded. Therefore, it becomes a question as to whether such a warranty can be implied in this particular letting in the circumstances. The law as to the circumstances under which a warranty may be implied in a contract was stated many years ago by Bowen L.J. in this wellknown passage from p. 68 of his judgment in The Moorcock 20 ;
“Now, an implied warranty, or, as it is called, a covenant in law, as distinguished from an express contract or express warranty, really is in all cases founded on the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side; and I believe if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have.”
At once the question arises as to whether this principle of law has any application or relevance in a case such as the present. Counsel for the defendants submit very strongly that it has not. As this was a letting of an unfurnished flat or dwelling, they assert that no such warranty can be implied. In this respect they rely on a long line of authorities as illustrated by Sutton v.Temple 21 ; Hart v. Windsor 9 ; Brown v. Norton 7 and Chambers v. Cork Corporation. 14 Those authorities established the proposition that the mere letting of land, with or without an unfurnished dwellinghouse upon it, carried no such implication of a warranty with regard to fitness for any particular purpose. Those cases applied the rule of caveat emptor to all lettings of land, with or without a house thereon, in the same way as it was applied to contracts for the sale of land.
An exception, which is not relevant to this case, was recognised where a furnished house was let for occupation; in such a case a covenant on the part of the landlord that the premises would be fit for such occupation at the commencement of the tenancy is implied: Smith v. Marrable 8 ; Wilson v. Finch Hatton 10 ; Collins v. Hopkins 22 and Brown v. Norton. 7 A further exception was recognised where a lessor sold by way of lease a house under construction; in such circumstances terms could be implied with regard to the completion of the house, the suitability of the materials used, the quality of the workmanship and its fitness for habitation: Norris v. Staps 23 ; Pearce v.Tucker 24 ; G. H. Myers & Co. v. Brent Cross Service Co. 25 ; Hall v. Burke 26 and Brown v. Norton. 7
There can be no doubt that the authorities mentioned (and others which are too numerous to cite) do establish the proposition that a mere letting of land, with or without an unfurnished house thereon, carried with it no implication that either the land or the house would be fit for any particular purpose. This rule probably developed when the main subject of conveyances and leases was land, and when buildings and houses were often of secondary importance in a society that was thinly urbanised. To-day the application of such a rule in a society which is becoming more and more urbanised, and in which the building and sale of houses has become a major industry, may appear somewhat harsh and inappropriate. However, whether the rule has or has not survived changes in society is not in issue in this case. The issue is whether it can be applied, or ought to be applied, in the particular circumstances of this letting by the defendants to the plaintiff.
…..Accordingly, I have come to the conclusion that the letting made to the plaintiff by the defendants did include an implied warranty that the premises let would be reasonably fit for human habitation and, therefore, I would answer affirmatively the first question in the Case
Sean Tierney v. An Post;
Supreme Court [200] 1 IR 536
(Nem. Diss.) (Hamilton CJ , Keane and Lynch JJ )
….
Leave was given to the applicant to apply for an order of certiorari in respect of the decisions to terminate the contract and to reject the applicant’s appeal. He was also given leave to apply for an order of prohibition or an injunction prohibiting or restraining the respondent from terminating the contract. The applicant submitted that his contract was a contract of service containing an implied term that the disciplinary procedures provided for should be conducted in accordance with fair procedures. He alleged that fair procedures had not been complied with. The respondent replied that it was a contract for services and not a contract of service and that termination at any time was permissible provided that reasonable notice had been given. In the alternative, the respondent argued that fair procedures had been observed. In a judgment delivered on
There remains the question as to whether the contract, although a contract for services, should be construed as containing an implied term that the respondent was obliged to conduct the disciplinary machinery provided for in the contract in accordance with fair procedures.
Giving the judgment of the majority of this Court in Glover v. BLN Ltd [1973] IR 388 , Walsh J said at p. 425:
This Court in In re Haughey [1971] IR 217 held that [Article 40.3 ] of the Constitution was a guarantee of fair procedures. It is not, in my opinion, necessary to discuss the full effect of this article in the realm of private law or indeed of public law. It is sufficient to say that public policy and the dictates of constitutional justice require that statutes, regulations or agreements setting up machinery for taking decisions which may affect rights or impose liabilities should be construed as providing for fair procedures. It is unnecessary to decide to w2hat extent the contrary can be provided for by agreement between the parties.
That statement of the law is not confined to contracts of service. It is in accordance with the general principle laid down by the same learned judge in Meskell v. CIE [1973] IR 121 , that constitutional rights may be protected or enforced in proceedings between private citizens and not merely in proceedings against the State.
In the present case, the contract, although not a contract of service, provided a machinery for taking a decision which could result, and did in this case result, in the determination of the applicant’s tenure of the office of sub-postmaster. It is not in dispute that it had financial consequences for the applicant which could fairly be equated to those resulting from a dismissal from a particular employment.
As was pointed out by Barrington J giving the judgment of this Court in Mooney v. An Post [1998] 4 IR 288 , the two central maxims traditionally associated with the concept of natural justice — nemo iudex in causa sua and audi alteram partem — are not necessarily capable of application where an employer dismisses an employee. Similar considerations would apply to a contract for services of the nature now under consideration. But where, as here, the contract provides a disciplinary machinery which is invoked to determine whether the person should retain the office of sub-postmaster or be visited with a lesser sanction, the reasoning in the passage I have cited from Glover v. BLN is, in my view, fully applicable.
It is true that the disciplinary machinery provided under the Postmaster’s Manual does not expressly provide for an oral hearing. Where, however, the respondent by implication accepts, as it did here, that the matter was sufficiently serious to warrant an oral hearing, it follows inevitably that the applicant was entitled to fair procedures in the conduct of that oral hearing and the determination arrived at by the respondent following the hearing.
Unfortunately, as found by the learned High Court judge, such fair procedures were not observed in the present case. It follows that the applicant is entitled to the orders of certiorari and prohibition granted in the High Court.
I would dismiss the appeal and affirm the order of the High Court.
James Elliot Construction Ltd -v- Irish Asphalt Ltd
[2011] IEHC 269
Finlay Geoghegan J
Contractual Analysis
19. The resolution of the primary dispute between the plaintiff and the defendant as to whether the plaintiff’s Purchase Order conditions or the defendant’s terms and conditions as incorporated in the contract or contracts pursuant to which the defendant supplied aggregate to the plaintiff between March 2003 and May 2005, is dependent upon a conclusion as to when and how the contract or contracts between the parties came into existence. It is not in dispute that a contract came into being in March 2003, but the parties contend for differing dates and also differ in their submissions as to the relationship between that contract and the contract or contracts applicable to the subsequent deliveries.
…..
24. In my judgment, an oral agreement was reached between Mr. Regan and Mr. Tuite on the morning of 26th March, 2003, as to the terms upon which the defendant would supply aggregate to the plaintiff for the construction contract at Finglas. There is no requirement that such a contract be in writing. The express terms agreed are recorded on the Purchase Order then sent by fax on the same day at 13.09 hours, stated to be for the attention of “Terry”, who, it was stated, was Mr. Terry Lagan, a director of the defendant. The fax number given by Mr. Tuite, and to which the fax was sent, was that of the head office of the defendant at Rosemount, where Mr. Lagan worked. The express terms include the name of the purchaser, the plaintiff; the name of the vendor, the defendant; the place of delivery, Griffith Avenue, Finglas; the four types of aggregate or stone, the unit price of each type per tonne for collection and the delivery charge per tonne and the specification that the credit terms were 60 days and that it was “fixed price for duration of contract”.
25. On the evidence, I have concluded, as a matter of probability, that there were certain other implied terms. First, on the defendant’s evidence, it appears probable that a written Purchase Order signed by the plaintiff had to be communicated at least by fax to them. This was done on 26th March, 2003. Also, that a credit application had to be completed by the plaintiff and returned to the defendant. Such a form appears to have been faxed by the defendant and returned shortly thereafter by the plaintiff on the afternoon of 27th March, 2003. There were also implied terms as to the manner in which the contract would be performed, including the ordering system by oral “call offs” placed in a telephone call by the site manager or other operative from the plaintiff’s construction site at Finglas to the defendant’s operative on the weighbridge at Baylane, and the recording of the aggregate supplied by the use of delivery dockets in accordance with a well established practice between the quarry and construction industries.
26. In my judgment, accordingly, there was a concluded agreement between the plaintiff and defendant on 27th March, 2003, as to the terms on which the defendant would supply aggregate to the plaintiff for the duration of its construction contract at the site at Griffith Avenue, Finglas.
27. The plaintiff did not, on or before 26th March, 2003, bring to the attention of the defendant its Purchase Order conditions according to which it now submits that it agreed to purchase the aggregate from the defendant. Whilst they are printed on the reverse of the Purchase Order form, there is no reference on the front side to the Purchase Order conditions. Communication of that Purchase Order to the defendant by fax is, in my judgment, the latest point in time at which the concluded agreement came into being. It may have come into being when the oral communication was made by Mr. Regan to Mr. Tuite that he was placing the order with the defendant.
28. Similarly, it is an undisputed fact that the defendant had not drawn to the attention of the plaintiff its terms and conditions on or before 26th March, 2003.
29. It follows from the foregoing conclusions that insofar as the plaintiff relies upon a communication of its Purchase Order conditions on either 27th or 28th March, 2003, that it would have to establish a variation in the already agreed terms for the purchase and supply of aggregate for its construction contract at Finglas. Sensibly, no such submission was made by counsel on its behalf as there are not facts to support any agreed variation. Rather, the plaintiff’s only submission on the incorporation of its Purchase Order were upon a submission that the concluded contract did not come into existence until the first delivery was effected. This does not appear correct for the reasons already set out.
30. The defendant, in its wide-ranging submissions, places great emphasis on the incorporation of its terms and conditions by the signature by or on behalf of the plaintiff on each delivery docket. The defendant’s submission is that each individual delivery formed a distinct and unique contract between the plaintiff and the defendant, albeit part of the over-arching or master contract between them, and that its terms and conditions were incorporated into each such contract, either by the signature given on behalf of the plaintiff, by reasonable notice of the prior delivery documents or by a course of dealing.
31. It is well established that terms and conditions may be incorporated into a contract by signature, reasonable notice or by a course of dealing. (See, inter alia, McMeel, ‘Construction of Contracts’ (2nd Ed.) Oxford University Press 2011, at paragraph 15.53). On the question of signature, Denning L.J., in Curtis v. Chemical Cleaning and Dyeing Company [1951] 1 K.B. 805, at p. 808, as ever, put it pithily:
“If the party affected signs a written document, knowing it to be a contract which governs the relations between them, his signature is irrefragable evidence of his assent to the whole contract, including the exempting clauses, unless the signature is shown to be obtained by fraud or misrepresentation: L’Estrange v. Graucob [1934] 2 K.B. 394.”
It is important to note the condition of “knowing it to be a contract which governs the relations between them”.
32. Whether the incorporation is to be by signature, reasonable notice or course of dealing, the first question is whether the document which makes reference to the terms and conditions is a contractual document. McMeel, at paragraph 15.56, states:
“A first hurdle to overcome is whether the document is of a character that it could be reasonably expected would contain terms and conditions. Is it a contractual document? This can either be satisfied by actual knowledge of the receiving party that it contains terms or by an objective test: would the reasonable recipient expect it to contain conditions? This is relevant to all modes of incorporation. A distinction has to be drawn between documents which effect or form part of the background to the formation of the contract, and post-contractual documents. The former are an obvious source of terms, whereas a court may conclude that the latter came too late to prove an argument of incorporation. Auld L.J. has drawn this distinction:
‘A document may have a contractual purpose as a contract making document or in the execution of an existing contract. Documents such as a time sheet, an invoice or a statement of account are within the latter category. They do not normally have a contractual effect in the sense of the making or the varying of a contract’. (Grogan v. Robin Meredith Plant Hire [1996] C.L.C 1127, at 1130 CA).
That may be an appropriate distinction to draw so far as ‘one-off’ arguments about incorporation by signature or notice are concerned. It may go too far if the argument is that incorporation has arisen by a course of dealing or of industry-standard terms. In that context both invoices and other administrative documents are often the basis of an argument of incorporation based on the parties’ practice.”
33. It follows from my earlier conclusion that the terms agreed on 26th March, 2003, between the plaintiff and the defendant were the terms in accordance with which the defendant agreed to supply aggregate to the plaintiff. The delivery documents commencing on 27th March, 2003, are all post-contractual unless they had the effect either of making a new and distinct contract, or of varying the existing contract. Any analysis must be based upon the facts of this case. Counsel for both parties opened many authorities to me which, whilst helpful insofar as they state the principles, must be very carefully considered and applied, as each tend to turn on their own particular facts. Nevertheless, it does appear that the facts in Grogan, to which reference is made above, are sufficiently similar and that, in particular, the analysis of Auld L.J. in his judgment is of assistance to me on the facts before me. It also appears that quite similar arguments were advanced before the Court of Appeal to those advanced on behalf of the defendant to me in favour of incorporation by signature on the delivery dockets.
34. The facts in Grogan were that the first named defendant, a plant hire company, approached Triact, a civil engineering contractor, seeking work. It was orally agreed that Triact would hire from the defendant a driver and a machine for an all-in rate of £14.50 an hour from 27th January, 1992. Neither party mentioned any other terms. At the end of the first and second weeks, Triact’s site manager signed a timesheet recording the hours that had been worked by the first named defendant’s driver. Toward the bottom of the timesheet was printed, ‘All hire undertaken under CPA conditions. Copies available on request’. Under the CPA conditions, Triact was bound to indemnify the first named defendant against any liability incurred to third parties in the course of the hire. An accident occurred during the third week in which the plaintiff, Grogan, was injured, and ultimately, obtained judgment for damages against the first named defendant and Triact. The first named defendant claimed that the CPA conditions were incorporated into the contract by the signing of the driver’s timesheet and Triact was therefore liable to indemnify it against its liability to the plaintiff. The High Court held that the contract had been varied so as to incorporate the CPA conditions and the first named defendant entitled to succeed against Triact. Triact appealed. Auld L.J., delivering the leading judgment, rejected the submission that the court should only look at the words of a signed document and disregard its nature or function stating:
“I reject MT Turner’s proposition that the court should look only at the words of a signed document and disregard its nature or function. The central question, adopting and adapting the useful statement of principle in Chitty on Contracts (27th edn), vol. 1, para. 12/008, is whether the time sheet in this case comes within the class of a document which the party receiving it knew contained, or which a reasonable man would expect to contain, relevant contractual conditions. Another way of putting it, as Kerr J did in Bahamas Oil Refining Co v Kristiansands Tankrederie A/S (‘The Polyduke’) [1978] 1 LI Rep 211 at pp. 215-216, is whether ‘the document purport[ed] to have contractual effect’. It has to be borne in mind too that the circumstance to which the question relates, the presentation and signing of a time sheet for work done under an existing contract, is one of alleged variation, not the initial making of a contract.”
35. He later considered the different ways in which a document may have contractual purpose in stating:
“A document may have a contractual purpose as a contract making document or in the execution of an existing contract. Documents such as a time sheet, an invoice or a statement of account are within the latter category. They do not normally have a contractual effect in the sense of making or varying a contract. The purpose of time sheets is not normally to contain or evidence the terms of a contract, but to record a party’s performance of an existing obligation under a contract.”
36. He finally dealt with one further submission also made in these proceedings:
“I should not leave the matter without returning to the argument of Mr. Turner that the mere signature on a document which contains or incorporates by reference contractual terms has the effect of incorporating these terms into a contract. In my view, such a proposition is too mechanistic. The fact that a time sheet is signed by a person authorised to effect or vary a contract on behalf of his employer does not affect the basic question whether that person, or a reasonable man, would have understood that his signing of the document varied the contract already struck between the parties. The question in Chitty, to which I have already referred and have adopted, is whether the document purports to be a contract or to have contractual effect. The answer in each case requires consideration, not only of the nature and purpose of the document, but also the circumstances of its use as between the parties and their understanding of its purpose at the time.”
37. On the evidence given at the trial of this issue, I have concluded that there was already a concluded contract in being as to the terms upon which the aggregate would be supplied by the defendant to the plaintiff when the delivery dockets came into existence. The evidence given on behalf of both the plaintiff and the defendant was to the effect that delivery dockets are crucial dockets for both the construction and quarrying industry. However, in my judgment they are crucial as the written record of the amount and type of aggregate delivered and the time, date and place of delivery. They make no reference to price. The evidence given on behalf of the defendant was that a signed delivery docket was essential to enable the defendant obtain and enforce payment for the loads supplied or delivered. Similarly, the evidence given on behalf of the plaintiff was that they were crucial for the purpose of checking the plaintiff’s potential liability for payments to the defendant. Accounts and invoices supplied by the defendant were checked against the plaintiff’s copies of the delivery dockets.
38. The evidence was that delivery dockets were signed on behalf of the defendant by the weighbridge operator. The delivery dockets were signed on behalf of the plaintiff, either by a haulier sent to collect the aggregate and authorised to sign the delivery document on the plaintiff’s behalf or the site foreman or other site operative if delivered to the site. Further evidence on behalf of the plaintiff was that no such person had any authority to negotiate or agree to any contractual terms relating to the purchase of the aggregate. Whilst express evidence was not given of the absence of any such authority by the weighbridge operator, I have concluded from the evidence of Mr. Tuite, as to the operating systems, that a weighbridge operator of the defendant did not have any such authority. In my judgment on the facts herein, the delivery dockets had a contractual purpose in the sense of being a document used in the execution of the contract which came into existence on 26th March, 2003. They did not have contractual effect in the sense of making or varying a contract. Having regard to the system operated by both parties for the performance ofr the supply contract agreed on 26th March, 2003, neither a reasonable man nor any haulier or site operative signing a delivery docket on behalf of the plaintiff would have understood that his signing of the delivery docket potentially varied the terms of the contract already agreed according to which the aggregate was being supplied by the defendant to the plaintiff.
39. In Continental Tyre and Rubber Company Ltd. v. Trunk Taylor Company Ltd. [1985] S.C. 163, on quite different facts, a somewhat similar analysis was made by the Lord President in which he concluded on the facts of that case that the delivery note which expressly stated that “all offers and sales are subject to company’s current terms and conditions of sale . .” was a non-contractual document, in the sense that it was “a document the only purpose of which was to record performance of a particular transaction with a view to payment”. It appears to me on the facts of this case that the purpose of the delivery dockets was to record the particular supply with a view to payment. They were undoubtedly crucial documents, but in the administration or execution of the contract already agreed.
40. The defendant’s alternative submissions that its terms and conditions were incorporated by notice or a course of dealing by reason of the reference to them on prior delivery dockets is dependent upon a finding that each delivery potentially constituted a new and distinct contract between the plaintiff and the defendant. Unless each new call-off or order potentially gave rise to a new contract, in the sense of a contract with new terms of supply, the defendant’s terms and conditions, to which reference had been made in prior delivery dockets, could not be incorporated, either by notice or by a course of dealing. Such appears to have been the factual position in Circle Freight v. Medeast [1988] 2 Lloyd’s 427, upon which reliance was placed by the defendant.
41. The facts herein do not support the coming into existence of new and distinct contracts of supply to which potentially new terms applied upon the plaintiff’s site foreman or other operative making what was termed “a call-off” or placing an order for a specified quantity of aggregate of a type referred to in the Purchase Order, which was accepted by the defendant’s weighbridge operator, by either making the product available for collection or arranging the delivery of same to the plaintiff’s site. The evidence was that the terms of supply were negotiated between senior management, Mr. Regan and Mr. Tuite on behalf of the plaintiff and defendant, respectively. Each of those gentlemen gave evidence of the need to consult in each case with a superior, Mr. Murphy, and Mr. Lagan prior to reaching agreement between them. Further, the evidence was that the important price terms were not disclosed in the copy of the Purchase Order sent to the site foreman or it would appear to the weighbridge operator. The weighbridge operator was informed when an account was opened by Mr. Lagan and when he might commence delivery. Whilst counsel for the defendant placed much emphasis on the fact that only a limited number of the delivery dockets referred expressly to the number of the plaintiff’s Purchase Order, the evidence of Mr. Tuite was that all the deliveries were referable to the one Purchase Order.
42. I have concluded that on the facts herein, the system which operated between the plaintiff and the defendant was that the contractual terms applicable to supply were agreed at senior management level. Once agreed, they were to last for the duration of the plaintiff’s construction contract at the Finglas site. The single Purchase Order to which all deliveries related confirms this. The single supply contract was to be performed or executed by operatives who had no authority to negotiate any variation in the terms agreed. Insofar as individual contracts for sale may be considered to have come into existence they were all for sales on the terms of the single supply contract as I have termed it. The supply contract was executed or performed in accordance with a well-established practice that the site foreman or other operative would make “a call-off” or, in other words, place an order for a specified amount of a specified type of aggregate to be delivered. Such communication was conveyed orally to the weighbridge operator and would be acted upon by him by preparing the product for delivery and, when placed on either the defendant’s truck or the truck of a haulier sent by the plaintiff, a delivery docket would be generated recording the amount and type of aggregate supplied on that day. On supply, either at the quarry or delivery at the plaintiff’s site, a copy of the delivery docket was required to be signed on behalf of the plaintiff. The purpose of the delivery docket was to record the amount of type of aggregate delivered. The agreed supply terms, including price and credit upon which it was being sold, was not recorded in the delivery docket. Those terms were the terms which had been agreed on 26th March, 2003. The operatives placing the order and supplying the product had no authority to agree any new or different terms of supply.
Other Issues
43. Having regard to my conclusion that neither the plaintiff’s Purchase Order conditions nor the defendant’s terms and conditions were incorporated into the contract of supply according to which all sales were made, it is unnecessary for me to consider the submissions made by the parties in relation to the nature of the limitation of liability in clause 8 of the defendant’s terms and conditions and whether it was so onerous as to require special notice.
44. Each party, however, made an alternative submission as to relevant implied terms in the event that the Court determined, as I have now done, that neither the plaintiff nor the defendant’s terms and conditions were incorporated into the contract or contracts between the parties. The defendant, at para. 13 of the amended Defence, pleads that in the absence of incorporation of either party’s terms that certain terms were implied into the contract by virtue of the custom and practice within the industry. The alleged terms were stated to include “a term that in the event of goods being delivered which were defective, a vendor’s liability is limited to the cost of their replacement only, and a term that vendors are not liable for any other loss arising directly or indirectly from the supply of defective materials”.
45. The plaintiff, at para. 8 of the amended Statement of Claim, contends for implied terms and/or warranties in the agreement, including that the defendant would sell, supply and deliver aggregate of merchantable quality. At the hearing, the plaintiff only pursued the implied condition as to merchantable quality pursuant to s. 14(2) of the Sale of Goods Act 1892, as amended by s. 10 of the Sale of Goods and Supply of Services Act 1980.
46. The principles according to which terms will be implied in a contract by custom are not in dispute. McDermott on ‘Contract Law’ (Butterworth’s 2001) at para. 7.06, identifies the basic question in reliance upon Evans J. in Vitol S.A. v. Phibro Energy AG, the Maturaki [1990] 2 Lloyd’s Report 84, at 88, as being whether, “there was in the trade, a uniform . . . practice, so well defined and recognised that the contracting parties must be assumed to have had it in their minds when they contracted”. McDermott further identifies, at para. 7.07, the following as an non-exhaustive list of the requirements which must be fulfilled before a custom may be implied:
“(i) The custom must have acquired such notoriety that the parties must be taken to have known of it and intended it should form part of the contract.
(ii) The custom must be certain.
(iii) The custom must be reasonable, and the more unreasonable it is the harder it will be to prove that it exists.
(iv) Until the courts take judicial notice of a custom it must be proved by clear and convincing evidence.
(v) The custom must not be inconsistent with the express contract.”
47. The plaintiff relies on the statement of Maguire P. in O’Reilly v. Irish Press [1937] 71 ILTR 194, which has recently been confirmed by Hedigan J. in McCarthy v. Health Service Executive [2010] IEHC 75:
“[A] custom or usage of any kind is a difficult thing to establish. Before a usage such as is contended for here can be held to be established it must be proved by persons whose position in the world [being considered by the Court] entitles them to speak of with certainty and knowledge of its existence. I have to be satisfied that it is so notorious, well known and acquiesced in that in the absence of agreement in writing it is to be taken as one of the terms of the contract between the parties.”
48. The defendant adduced evidence from Mr. Kennedy, a person with significant experience in the quarry industry, including approximately five years as the Pits and Quarries Director for Roadstone Dublin Limited. He gave evidence of the custom and practice amongst the international and large family owned quarries of limiting liability for defective product in supply agreements to the replacement of defective product, or excluding consequential loss. He acknowledged, in the course of his evidence, that he had experience in negotiation with the construction industry of being asked for an indemnity, but expressed the view that he would never have agreed to such an indemnity. Mr. Tuite on behalf of the defendant also gave evidence of the custom or practice within the industry or a standard practice of including limitation of liability in terms and conditions by quarry owners.
49. Mr. Regan on behalf of the plaintiff, from his 25 years experience in the construction industry, disputed this evidence insofar as it related to supply by quarries to the construction industry. He also gave evidence of an example of purchases made by the plaintiff from another quarry owner of aggregate for the Finglas development on the plaintiff’s Purchase Order conditions, including the clause 17 indemnity. Mr. Murphy’s evidence also disputed the alleged custom.
50. In my judgment the evidence adduced by the defendant falls short of establishing a custom of a type which would permit the Court to find that where a contractor operating in the construction industry, such as the plaintiff, enters into a contract with a quarry operator for the supply of aggregate for a construction contract, it could be objectively determined that both parties must be taken to have known of it and intended that it should form part of the contract. On the evidence, I find that there may well have been a standard practice amongst the larger quarry owners of inserting, in their standard conditions of sale, a clause limiting liability to replacement of defective product, or excluding consequential loss and being unwilling to deviate therefrom. Nevertheless, in particular in the evidence of Mr. Kennedy, it appears to be acknowledged that a purchaser from the construction industry might well seek, albeit, perhaps, unsuccessfully, to obtain an indemnity against loss arising from defective product. I am not satisfied that there is evidence of a custom well known and according to which quarry operators were entitled to limit their liability for defective product to replacement product in the absence of the inclusion of an express contractual term to that effect. The practice, insofar as it existed, appears to have been of the inclusion of such an express contractual term.
51. Accordingly, in my judgment, there is no limitation of the liability of the defendant for defective product implied by custom into the contract of supply between the plaintiff and the defendant.
52. The plaintiff contends for an implied condition pursuant to s. 14(20 of the 1893 Act, as inserted by s. 10 of the Act of the Sale of Goods and Supply of Services Act 1980. Section 14 provides:
“14.—(1) Subject to the provisions of this Act and of any statute in that behalf, there is no implied condition or warranty as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.
(2) Where the seller sells goods in the course of a business there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition—
(a) as regards defects specifically drawn to the buyer’s attention before the contract is made, or
(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to have revealed.
(3) Goods are of merchantable quality if they are as fit for the purpose or purposes for which goods of that kind are commonly bought and as durable as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances, and any reference in this Act to unmerchantable goods shall be construed accordingly.
(4) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgement.
(5) An implied condition or warranty as to quality or fitness for a particular purpose may be annexed to a contract of sale by usage.
(6) The foregoing provisions of this section apply to a sale by a person who in the course of a business is acting as agent for another as they apply to a sale by a principal in the course of a business, except where that other is not selling in the course of a business and either the buyer knows that fact or reasonable steps are taken to bring it to the notice of the buyer before the contract is made.”
53. The plaintiff only contends that there is an implied condition that the aggregate and stone supplied under the contract by the defendant was of merchantable quality pursuant to section 14(2). There was some lack of clarity in the closing submissions as to whether counsel for the defendant continued to dispute the existence of such an implied condition in the event that neither party’s terms and conditions were incorporated into the contract. For the avoidance of any doubt at the full hearing of the action, and as this Court on the trial of this issue has to determine what were the relevant terms of the contract between the plaintiff and the defendant (express or implied), I propose holding that those terms include pursuant to s. 14(2) of the Act of 1893 as amended an implied condition that the goods supplied under the contract are of merchantable quality. There is no evidence to support any exclusion of such a condition pursuant to s. 14(2)(a) or (b) of the Act of 1893 as amended.
54. I wish to make clear that all issues relating to questions as to whether or not the aggregate and stone supplied by the defendant to the plaintiff pursuant to the contract of supply between March 2003 and May 2005 for the development at the Finglas site was or was not of merchantable quality are matters for the full hearing of the plaintiff’s claim herein.
Decision in Elliott Construction
55. Subsequent to the end of the hearing of the issue before me Charleton J gave judgment on 25 May 2011 in James Elliott Construction Limited v. Irish Asphalt Limited [2011] IEHC 269. The claim therein is for damages for breach of contract in relation to the supply by the defendant for aggregate alleged to contain pyrite for use in construction. The defendant had used similar delivery dockets to those used in the contract herein which contain a reference to its terms and conditions and sought inter alia to limit its liability in reliance on clause 8 thereof. The parties herein sought and were granted liberty to make further oral and written submissions in relation to the judgment of Charleton J. insofar as it relates to the incorporation of clause 8 of the defendant’s terms and conditions in the contracts at issue in the Elliott Construction case. I have also been informed that the judgment is under appeal.
56. I have reached my decision for the reasons set out above upon a full reconsideration of all the evidence, submissions and authorities (including those relating to the judgment in Elliott Construction) to which I was referred. The contractual analysis made is this judgment is primarily dependent on the evidence before me and hence it does not appear necessary to refer to the judgment of Charleton J. I have noted that we appear to have reached similar conclusions on the non-incorporation of clause 8 of the defendant’s terms and conditions albeit on different facts and contractual analysis.
Relief
57. Whilst the issue set down as the first issue is in terms “what were the terms of the contract between the plaintiff and defendant (express or implied) for the purchase and sale of the aggregate, the subject matter of these proceedings”, it does not appear to me necessary to set out exhaustively, in the form of a declaration, all the relevant terms and conditions. The terms and conditions relevant to the plaintiff’s claim in the proceedings and the defence thereof are those which relate to the plaintiff’s claim for declarations as to the incorporation of its Purchase Order conditions, the declaration of entitlement to an indemnity and the claim for damages for breach of contract. In accordance with this judgment, it appears sufficient that I would make declarations to the following effect. However, I will hear counsel as to the final form of the Order, having regard to the terms of this judgment. The proposed declarations are:
(i) A declaration that the contract of supply between the plaintiff and the defendant according to which the defendant supplied aggregate and stone from March, 2003 to May, 2005, for the plaintiff’s construction contract at Griffith avenue, Finglas did not include either the plaintiff’s Purchase Order conditions or the defendant’s terms and conditions.
(ii) A declaration that there is no limitation on the defendant’s liability for defective product (if any) supplied implied by custom into the said contract of supply between the plaintiff and the defendant.
(iii) There is an implied condition of merchantable quality pursuant to s. 14(2) of the Sale of Goods Act 1893, as inserted by s. 10 of the Sale of Goods and Supply of Service Act 1980, in the said contract of supply between the plaintiff and the defendant.