Incorporation
Cases
Chapelton v Barry Urban District Council
[1940] 1 KB 532
Slesser LJ
“ As I read the learned county court judge’s judgment (and we have had the advantage of a note taken by Mr. Carey Evans in addition to the summary reasons which the learned county court judge gives for his decision), he said that the plaintiff had sufficient notice of the special contract printed on the ticket and was, accordingly, bound thereby – that is to say, as I understand it, that the learned county court judge has treated this case as a case similar to the many cases which have been tried in reference to conditions printed on tickets, and more particularly, on railway tickets – and he came to the conclusion that the local authority made an offer to hire out this chair to Mr. Chapelton only on certain conditions, which appear on the ticket, namely, that they, the council, would not be responsible for any accident which arose from the use of the chair, and they say that Mr. Chapelton hired the chair on the basis that that was one of the terms of the contract between him and themselves, the local authority.
Questions of this sort are always questions of difficulty and are very often largely questions of fact. In the class of case where it is said that there is a term in the contract freeing railway companies, or other providers of facilities, from liabilities which they would otherwise incur at common law, it is a question as to how far that condition has been made a term of the contract and whether it has been sufficiently brought to the notice of the person entering into the contract with the railway company, or other body, and there is a large number of authorities on that point. In my view, however, the present case does not come within that category at all. I think that the contract here, as appears from a consideration of all the circumstances, was this: The local authority offered to hire chairs to persons to sit upon on the beach, and there was a pile of chairs there standing ready for use by any one who wished to use them, and the conditions on which they offered persons the use of those chairs were stated in the notice which was put up by the pile of chairs, namely, that the sum charged for the hire of a chair was 2d. per session of three hours. I think that was the whole of the offer which the local authority made in this case. They said, in effect: “We offer to provide you with a chair, and if you accept that offer and sit in the chair, you will have to pay for that privilege 2d. per session of three hours.”
I think that Mr. Chapelton, in common with other persons who used these chairs, when he took the chair from the pile (which happened to be handed to him by an attendant, but which, I suppose, he might have taken from the pile of chairs himself if the attendant had been going on his rounds collecting money, or was otherwise away) simply thought that he was liable to pay 2d. for the use of the chair. No suggestion of any restriction of the council’s liability appeared in the notice which was near the pile of chairs. That, I think, is the proper view to take of the nature of the contract in this case. Then the notice contained these further words: “The public are respectfully requested to obtain tickets properly issued from the automatic punch in their presence from the Chair Attendants.” The very language of that “respectful request” shows clearly, to my mind, that for the convenience of the local authority the public were asked to obtain from the chair attendants tickets, which were mere vouchers or receipts showing how long a person hiring a chair is entitled to use that chair. It is wrong, I think, to look at the circumstance that the plaintiff obtained his receipt at the same time as he took his chair as being in any way a modification of the contract which I have indicated. This was a general offer to the general public, and I think it is right to say that one must take into account here that there was no reason why anybody taking one of these chairs should necessarily obtain a receipt at the moment he took his chair – and, indeed, the notice is inconsistent with that, because it “respectfully requests” the public to obtain receipts for their money. It may be that somebody might sit in one of these chairs for one hour, or two hours, or, if the holiday resort was a very popular one, for a longer time, before the attendant came round for his money, or it may be that the attendant would not come to him at all for payment for the chair, in which case I take it there would be an obligation upon the person who used the chair to search out the attendant, like a debtor searching for his creditor, in order to pay him the sum of 2d. for the use of the chair and to obtain a receipt for the 2d. paid.
I think the learned county court judge has misunderstood the nature of this agreement. I do not think that the notice excluding liability was a term of the contract at all, and I find it unnecessary to refer to the different authorities which were cited to us, save that I would mention a passage in the judgment of Mellish L.J. in Parker v. South Eastern Ry. Co.,[1] where he points out that it may be that a receipt or ticket may not contain terms of the contract at all, but may be a mere voucher, where he says: “For instance, if a person driving through a turnpike-gate received a ticket upon paying the toll, he might reasonably assume that the object of the ticket was that by producing it he might be free from paying toll at some other turnpike-gate, and might put it in his pocket unread.” I think the object of the giving and the taking of this ticket was that the person taking it might have evidence at hand by which he could show that the obligation he was under to pay 2d. for the use of the chair for three hours had been duly discharged, and I think it is altogether inconsistent, in the absence of any qualification of liability in the notice put up near the pile of chairs, to attempt to read into it the qualification contended for. In my opinion, this ticket is no more than a receipt, and is quite different from a railway ticket which contains upon it the terms upon which a railway company agrees to carry the passenger. This, therefore, is not, I think, as Mr. Ryder Richardson has argued, a question of fact for the learned county court judge. I think the learned county court judge as a matter of law has misconstrued this contract, and looking at all the circumstances of the case, has assumed that this condition on the ticket, or the terms upon which the ticket was issued, has disentitled the plaintiff to recover. The class of case which Sankey L.J. dealt with in Thompson v. London, Midland and Scottish Ry. Co.,[2] which seems to have influenced the learned county court judge in his decision, is entirely different from that which we have to consider in the present appeal.
This appeal should be allowed.
MacKinnon LJ
I agree that this appeal should be allowed. The learned county court judge decided this case relying upon a dictum of Sankey L.J. when he was speaking of a transaction which was totally different to this one. If a man does an act which constitutes the making of a contract, such as taking a railway ticket, or depositing his bag in a cloak-room, he will be bound by the terms of the document handed to him by the servant of the carriers or bailees; but if he merely pays money for something and receives a receipt for it, or does something which clearly only amounts to that, he cannot be deemed to have entered into a contract in the terms of the words that his creditor has chosen to print on the back of the receipt, unless, of course, the creditor has taken reasonable steps to bring the terms of the proposed contract to the mind of the man. In this case there was no evidence upon which the learned county court judge could find that the defendants had taken any steps to bring the terms of their proposed contract to the mind of the plaintiff. In those circumstances, I am satisfied that the defendants could not rely upon the words on the back of the ticket issued to the plaintiff, and, having admittedly been negligent in regard to the condition of the chair, they had no defence to the plaintiff’s cause of action.
Goddard LJ
I agree. In my view the cases which deal with railway tickets, cloak-room tickets, or documents issued by bailees when they take charge of goods, have no analogy to this case. In this case the appellant paid 2d. in order to have the right to sit on a chair on the beach, and he was asked to take a ticket in the form of a receipt for that purpose, and was given a document which shows nothing on the face of it, except that the man had the right to sit in the chair until 7.30 P.M. on the day when the accident occurred and the fact that the ticket was not transferable. I cannot imagine that anybody paying 2d. under those circumstances for the privilege of sitting in a chair on the beach would think for one moment that some conditions were being imposed upon him which would limit his ordinary rights, or that the document he received when paying his 2d. was a contractual document in any shape or form. I think the ticket he received was nothing but a receipt for his 2d. – a receipt which showed him how long he might use the chair. I think the learned judge below was wrong in thinking that the case of Thompson v. London, Midland and Scottish Ry. Co.,[3] upon which he seems to have relied, had any bearing on the present case. One must have regard to the facts of the case and the general circumstances of the case. In my opinion, Thompson v. London, Midland and Scottish Ry. Co.[3] has no bearing at all on this case.”
Hardwick Game Farm v Suffolk Agricultural and Poultry Producers Association Ltd
[1968] UKHL 3 [1969] 2 AC 31
Lord Reid
MY LORDS,
In the case of S.A.P.P.A. and Grimsdale there was a verbal contract
followed on the next day by a Sold Note which contained a condition in the
following terms:
” Sellers not accountable for weight, measure or quality after delivery
” from ship, mill or granary. The buyer under this contract takes the
” responsibility of any latent defects.”
In the course of dealing between the parties the practice was that on each
occasion when a deal was effected between Mr. Golden on behalf of
S.A.P.P.A. and Mr. Thearle on behalf of Grimsdale the Sold Note invariably
followed the verbal contract. All the judges in the Court of Appeal expressed
the view that the conditions in the Sold Note were incorporated in the
contract between the parties. I agree with this conclusion. Havers J. held
that the Sold Note was not incorporated in the contract by reason of some
observations by Lord Devlin in McCutcheon v. David Macbrayne [1964]
1 W.L.R. 125 at page 134 when he said:
” Previous dealings are relevant only if they prove knowledge of the
” terms, actual and not constructive, and assent to them. If a term
” is not expressed in a contract, there is only one other way in which it
” can come into it and that is by implication. No implication can be
” made against a party of a term which was unknown to him. If previ-
” ous dealings show that a man knew of and agreed to a term on 99
occasions there is a basis for saying that it can be imported into
” the hundredth contract without an express statement. It may or may
” not be sufficient to justify the importation—that depends on the
” circumstances; but at least by proving knowledge the essential begin-
” ning is made. Without knowledge there is nothing.”
The rest of the members of the House did not concur in this obiter dictum
of Lord Devlin and there is nothing, in my view, in McCutcheon to conflict
with the decision of the Court of Appeal. In McCutcheon there was a verbal
contract for the carriage of a motor car by sea, but the course of dealing
between the parties differed from previous occasions in that on the relevant
occasion a Risk Note was not, as before, signed by the consignor of the motor
car. In the present case S.A.P.P.A. by continuing to conduct their business
with Grimsdale on the basis of the Sold Notes which contained the relevant
condition and by not objecting to the condition must be taken to have assented
to the incorporation of these terms in the contract. The remaining question
is whether the clause applies so as to exempt Grimsdale from liability. Exemp-
tion clauses must be construed strictly (Adamastos Shipping Co. v. Anglo
Saxon Petroleum Co. Ltd. [1959] A.C. 133) and the exception must be ex-
pressed in sufficiently clear words. I cannot find that condition 17 is in
sufficiently clear terms to exempt Grimsdale of responsibility.
Grimsdale and Kendall and Holland Colombo
In this situation I am content to follow the Court of Appeal to this extent,
that the purpose for which Grimsdale required the meal was made known to
Kendall and Holland Colombo, namely for re-sale in smaller quantities for
compounding as a food for cattle and poultry and that this purpose was
sufficiently specific to come within the meaning of ” particular purpose “,
under section 14 (1). In the Irish case of Wallis v. Russell [1902] 2 I.R. 585
it was held that on a sale of fresh crabs to a customer the purpose indicated
for which the goods were required was for human consumption and that this
was a particular purpose within section 14 (1). Palles C.B. at page 598 said:
” So much for the first ground of limitation relied upon. I come now
” to the second—on the meaning of ‘ particular purpose’. As to that
” I have but little to say. The well-known judgment of Best, C.J. in
” Jones v. Bright 5 Bing. 853 points out the distinction between two
” classes of warranty, or, strictly speaking, of warranty and condition,
” that are dealt with in the two sub-sections under consideration: 1, fit-
” ness for a particular purpose ; 2, that the goods shall be of a merchant-
” able quality. Where no purpose is mentioned, there is a warranty, or
” condition, as the case may be, that the goods are, in the words of Best
” C.J. ‘ fit for some purpose’ or, in other words, merchantable as such;
” where a particular purpose is mentioned, the warranty or condition is
” that they shall be reasonably fit for that purpose. I think that that
” distinction, which has been established by the course of legal decision
” for a century, shows that the words ‘ particular purpose’ in a case of
” this description have a technical meaning; that it is not so much par-
” ticular purpose as distinct from general purpose; but it is purpose
” stated to the seller, as distinct from absence of purpose stated to the
” seller. In the absence of purpose stated, the warranty is that the article
” shall be fit for some purpose—in other words, merchantable ; where
” the purpose is stated, the warranty is that it shall be fit for that purpose.
” I cannot doubt that the purpose of using for human food is a ‘ par-
” ‘ ticular purpose’ within the meaning of the sub-section.”
The Court of Appeal affirmed the decision of the Chief Baron.
While it may be clear that the particular purpose for which the goods were
required was made known to the supplier, the difficult question arises in
connection with the subsequent part of section 14 (1). The particular pur-
pose must be made known ” so as to show that the buyer relies on the
” seller’s skill and judgment”. I have difficulty in acceding to what I
understand to be the views of the rest of your Lordships on this point. In
Manchester Liners v. Rea Ltd. [1922] 2 A.C. 74 the fact that the particular
purpose was made known to the seller was sufficient to raise the inference
that the buyer relied on the seller’s judgment and skill. In Grant v. Australian
Knitting Mills [1936] AC 85 Lord Wright at page 99 said:
” The first exception, if its terms are satisfied, entitles the buyer to
” the benefit of an implied condition that the goods are reasonably fit
” for the purpose for which the goods are supplied, but only if that
” purpose is made known to the seller ‘ so as to show that the buyer
” ‘ relies on the seller’s skill or judgment’. It is clear that the reliance
” must be brought home to the mind of the seller, expressly or by
” implication. The reliance will seldom be express: it will usually arise
” by implication from the circumstances: thus to take a case like that
” in question, of a purchase from a retailer, the reliance will be in
” general inferred from the fact that a buyer goes to the shop in the
” confidence that the tradesman has selected his stock with skill and
” judgment: the retailer need know nothing about the process of manu-
” facture: it is immaterial whether he be manufacturer or not: the main
” inducement to deal with a good retail shop is the expectation that the
” tradesman will have bought the right goods of a good make: the
” goods sold must be, as they were in the present case, goods of a
” description which it is in the course of the seller’s business to supply:
” there is no need to specify in terms the particular purpose for which
” the buyer requires the goods, which is none the less the particular
” purpose within the meaning of the section, because it is the only
” purpose for which any one would ordinarily want the goods.”
It must depend on the circumstances of each case whether that inference
can fairly be drawn. In Cammell Laird v. Manganese Bronze and Brass Co.
[1934] A.C. 402 at page 423 Lord Wright said:
” But the more difficult question remains whether the particular pur-
” pose for which the goods were required was not merely made known,
” as I think it was, by the appellants to the respondents, but was made
” known so as to show that the appellants as buyers relied on the sellers’
” skill and judgment. Such a reliance must be affirmatively shown ; the
” buyer must bring home to the mind of the seller that he is relying
” on him in such a way that the seller can be taken to have contracted
” on that footing. The reliance is to be the basis of a contractual
” obligation.”
I can well understand where the sale is by a manufacturer or a retailer to a
customer that the inference can easily be drawn. But Grimsdale and Kendall
and Holland Colombo were all dealers on the London Cattle Food Market
buying and selling goods of the same description possibly on the same day,
certainly from day to day. The section may apply to dealers inter se as
Shields v. Honeywell & Stein [1953] 1 Lloyd’s Rep. 359 shows. But there
is an air of unreality, in my view, in the idea that either of these dealers relied
on the other’s skill and judgment. It may well be that they trusted each
other’s honesty, as one of them said, but that is not the same thing as relying
on each other’s skill and judgment to select goods suitable for the particular
purpose for which they were required. There is, in my view, great force
in the judgment of Diplock L.J. in the Court of Appeal when he analyses
his reasons for saying that the implied warranty in section 14 (1) did not
apply to ordinary sales between dealers on the London Cattle Food Trade
Market, and I respectfully agree with his conclusion.
In the case of Grimsdale and Kendall and Holland Colombo the latent
defect clause is in the following terms:
” LATENT DEFECT—The Goods are not warranted free from de-
” fect, rendering same unmerchantable, which would not be apparent
” on reasonable examination, any statute or rule of law to the contrary
” notwithstanding.”
A long line of authority has decided that an exemption from breach of
warranty will not exempt for breach of condition (see Wallis v. Pratt &
Haynes [1910] 2 K.B. 1003; [1911] A.C. 394: Baldry v. Marshall [1925]
1 K.B. 260). I agree with the Court of Appeal that the latent defects clause
does not exempt Kendall and Holland Colombo.
As an addendum to these remarks I wish to mention a Scottish case
which was referred to in argument (Flynn v. Scott [1949] SC 442). This
decision appears to run counter to the principle in Wallis v. Russell (supra)
upon the construction of section 14 (1) which case has been followed in
many subsequent English cases. Flynn v. Scott which was decided by Lord
Mackintosh in the Outer House would appear to conflict with the decision in
the English case of Bartlett v. Sidney Marcus Ltd. [1965] W.L.R. 1013.
Both were cases of the sale of secondhand motor cars.
L’Estrange v F Graucob Ltd
[1934] 2 KB 394
Scrutton LJ
“ The present case is not a ticket case, and it is distinguishable from the ticket cases. In Parker v. South Eastern Ry. Co. Mellish L.J. laid down in a few sentences the law which is applicable to this case. He there said:
“In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents.”
Having said that, he goes on to deal with the ticket cases, where there is no signature to the contractual document, the document being simply handed by the one party to the other:
“The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case there must be evidence independently of the agreement itself to prove that the defendant has assented to it. In that case, also, if it is proved that the defendant has assented to the writing constituting the agreement between the parties, it is, in the absence of fraud, immaterial that the defendant had not read the agreement and did not know its contents.”
In cases in which the contract is contained in a railway ticket or other unsigned document, it is necessary to prove that an alleged party was aware, or ought to have been aware, of its terms and conditions. These cases have no application when the document has been signed. When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”
Maugham LJ
“ There can be no dispute as to the soundness in law of the statement of Mellish LJ in Parker v South Eastern Ry Co,[6] which has been read by my learned brother, to the effect that where a party has signed a written agreement it is immaterial to the question of his liability under it that he has not read it and does not know its contents. That is true in any case in which the agreement is held to be an agreement in writing.
…..
In this case it is, in my view, an irrelevant circumstance that the plaintiff did not read, or hear of, the parts of the sales document which are in small print, and that document should have effect according to its terms. I may add, however, that I could wish that the contract had been in a simpler and more usual form. It is unfortunate that the important clause excluding conditions and warranties is in such small print.”
Parker v South Eastern Railway
[1877] 2 CPD 416
Lindley J
“On the finding of the jury, I think we cannot say that the defendants did not accept the article, to be taken care of by them, without any special terms. Henderson v Stevenson, therefore, is undistinguishable from this case, except for the words “see back,” which did not appear on the face of the ticket in that case. But the findings here make that distinction immaterial. After the conclusions of fact which the jury have drawn, it is, upon the authority of that case, quite immaterial whether the special terms relied on were on the front or on the back of the ticket.”
Court of Appeal
Mellish LJ
“I am of opinion, therefore, that the proper direction to leave to the jury in these cases is, that if the person receiving the ticket did not see or know that there was any writing on the ticket, he is not bound by the conditions; that if he knew there was writing, and knew or believed that the writing contained conditions, then he is bound by the conditions; that if he knew there was writing on the ticket, but did not know or believe that the writing contained conditions, nevertheless he would be bound, if the delivering of the ticket to him in such a manner that he could see there was writing upon it, was, in the opinion of the jury, reasonable notice that the writing contained conditions. ”
Baggallay LJ concurred, and predicted that the same result would be reached by the jury (in Mr Parker’s favour). Bramwell LJ dissented, holding that reasonable notice should be a question of law, and that he would have decided in favour of the railway company.
J Spurling Ltd v Bradshaw
[1956] EWCA Civ 3, [1956] 1 WLR 461; [1956] 2 All ER 121; [1956] 1 Lloyd’s Rep 392
Denning LJ
If the clause is taken literally, it is wide enough to exempt the company from any obligation to redeliver the goods. It would mean that if the managing director sold the orange juice to somebody else, or used it up for the company’s purposes, maybe by mistake or even dishonestly, the company would not be liable; or if some discontented storeman took the bung out of a barrel and let the orange juice escape, the company still would not be liable. If the clause went to those lengths, it would be very unreasonable and might for that reason be invalid on the lines which Baron Bramwell indicated in Parker v. South Eastern Railway Company (1877) 2 C.P.D. 416, at p. 428; but I do not think this clause is to be construed as widely as that. These exempting clauses are nowadays all held to be subject to the overriding proviso that they only avail to exempt a party when he is carrying out his contract, not when he is deviating from it or is guilty of a breach which goes to the root of it. Just as a party who is guilty of a radical breach is disentitled from insisting on the further performance by the other, so also he is disentitled from relying on an exempting clause. For instance, if a carrier by land agrees to collect goods and deliver them forthwith, and in breach of that contract he leaves them unattended for an hour instead of carrying them to their destination, with the result that they are stolen, he is disentitled from relying on the exempting clause. That was decided in 1944 by this Court in the case of Bontex Knitting Works, Ltd. v. St. John’s Garage (1944) 60 T.L.R. 253, expressly approving the judgment of Mr. Justice Lewis in the same volume at p. 44; or if a bailee by mistake sells the goods or stores them in the wrong place, he is not covered by the exempting clause: see the decision of Mr. Justice McNair in Woolmer v. Delmer Price, Ltd. [1955] 1 Q.B. 291.
The essence of the contract by a warehouseman is that he will store the goods in the contractual place and deliver them on demand to the bailor or his order. If he stores them in a different place, or if he consumes or destroys them instead of storing them, or if he sells them, or delivers them without excuse to somebody else, he is guilty of a breach which goes to the root of the contract and he cannot rely on the exempting clause. But if he should happen to damage them by some momentary piece of inadvertence, then he is able to rely on the exempting clause: because negligence by itself, without more, is not a breach which goes to the root of the contract (see Swan, Hunter, and Wigham Richardson, Ltd. v. France Fenwick Tyne and Wear Company, Ltd. [1953] 2 Lloyd’s Rep. 82, at p. 88), any more than non-payment by itself is such a breach: see Mersey Steel and Iron Company, Ltd. v. Naylor, Benzon & Co. (1884) 9 App. Cas. 434, at p. 443. I would not like to say, however, that negligence can never go to the root of the contract. If a warehouseman were to handle the goods so roughly as to warrant the inference that he was reckless and indifferent to their safety, he would, I think, be guilty of a breach going to the root of the contract and could not rely on the exempting clause. He cannot be allowed to escape from his obligation by saying to himself: “I am not going to trouble about these goods because I am covered by an exempting clause.”
Another thing to remember about these exempting clauses is that in the ordinary way the burden is on the bailee to bring himself within the exception. A bailor, by pleading and presenting his case properly, can always put on the bailee the burden of proof.
In the case of non-delivery, for instance, all he need plead is the contract and a failure to deliver on demand. That puts on the bailee the burden of proving either loss without his fault—which, of course, would be a complete answer at common law—or, if it was due to his fault, it was a fault from which he is excused by the exempting clause: see Cunard Steamship Company, Ltd. v Buerger [1927] A.C. 1; (1926) 25 Ll.L.Rep. 215, and Woolmer v. Delmer Price, Ltd. [1955] 1 Q.B. 291. I do not think that the Court of Appeal in Alderslade v. Hendon Laundry, Ltd. [1945] K.B. 189, had the burden of proof in mind at all.
Likewise with goods that are returned by the bailee in a damaged condition, the burden is on him to show that the damage was done without his fault: or that, if fault there was, it was excused by the exempting clause. Nothing else will suffice.
But, where the only charge made in the pleadings—or the only reasonable inference on the facts—is that the damage was due to negligence and nothing more, then the bailee can rely on the exempting clause without more ado. That was, I think, the case here. As I read the pleadings, and the way the case was put to the Judge, Mr. Bradshaw was complaining of negligence and nothing more. The clause therefore avails to exempt the warehousemen, provided always that it was part of the contract.
This brings me to the question whether this clause was part of the contract. Mr. Sofer urged us to hold that the warehousemen did not do what was reasonably sufficient to give notice of the conditions within Parker v South Eastern Railway Company. I quite agree that the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient. The clause in this case, however, in my judgment, does not call for such exceptional treatment, especially when it is construed, as it should be, subject to the proviso that it only applies when the warehouseman is carrying out his contract and not when he is deviating from it or breaking it in a radical respect. So construed, the Judge was, I think, entitled to find that sufficient notice was given. It is to be noticed that the landing account on its face bold Mr. Bradshaw that the goods would be insured if he gave instructions; otherwise they were not insured. The invoice, on its face, told him they were warehoused “at owner’s risk.” The printed conditions, when read subject to the proviso which I have mentioned, added little or nothing to those explicit statements taken together.
Next it was said that the landing account and invoice were issued after the goods had been received and could not therefore be part of the contract of bailment: but Mr. Bradshaw admitted that he had received many landing accounts before. True he had not troubled to read them. On receiving this account, he took no objection to it, left the goods there, and went on paying the warehouse rent for months afterwards. It seems to me that by the course of business and conduct of the parties, these conditions were part of the contract.
In these circumstances, the warehousemen were entitled to rely on this exempting condition. I think, therefore, that the counterclaim was properly dismissed, and this appeal also should be dismissed.”
Olley v Marlborough Court Hotel
[1949] 1 KB 532
Denning LJ, Singleton LJ and Bucknill LJ
“The only other point in the case is whether the hotel company are protected by the notice which they put in the bedrooms, “The proprietors will not hold themselves responsible for articles lost or stolen, unless handed to the manageress for safe custody.” The first question is whether that notice formed part of the contract. Now people who rely on a contract to exempt themselves from their common law liability must prove that contract strictly. Not only must the terms of the contract be clearly proved, but also the intention to create legal relations – the intention to be legally bound – must also be clearly proved. The best way of proving it is by a written document signed by the party to be bound. Another way is by handing him before or at the time of the contract a written notice specifying its terms and making it clear to him that the contract is on those terms. A prominent public notice which is plain for him to see when he makes the contract or an express oral stipulation would, no doubt, have the same effect. But nothing short of one of these three ways will suffice. It has been held that mere notices put on receipts for money do not make a contract. (See Chapelton v. Barry Urban District Council) So, also, in my opinion, notices put up in bedrooms do not of themselves make a contract. As a rule, the guest does not see them until after he has been accepted as a guest. The hotel company no doubt hope that the guest will be held bound by them, but the hope is vain unless they clearly show that he agreed to be bound by them, which is rarely the case.
Assuming, however, that Mrs. Olley did agree to be bound by the terms of this notice, there remains the question whether on its true interpretation it exempted the hotel company from liability for their own negligence. It is said, and, indeed, with some support from the authorities, that this depends on whether the hotel was a common inn with the liability at common law of an insurer, or a private hotel with liability only for negligence. I confess that I do not think it should depend on that question. It should depend on the words of the contract. In order to exempt a person from liability for negligence, the exemption should be clear on the face of the contract. It should not depend on what view the courts may ultimately take on the question of whether the house is a common inn or a private hotel. In cases where it is clearly a common inn or, indeed, where it is uncertain whether it is a common inn or a private hotel, I am of opinion that a notice in these terms would not exempt the hotel company from liability for negligence but only from any liability as insurers. Indeed, even if it were clearly not a common inn but only a private hotel, I should be of the same opinion. Ample content can be given to the notice by construing it as a warning that the hotel company is not liable, in the absence of negligence. As such it serves a useful purpose. It is a warning to the guest that he must do his part to take care of his things himself, and, if need be, insure them. It is unnecessary to go further and to construe the notice as a contractual exemption of the hotel company from their common law liability for negligence. I agree that the appeal should be dismissed.”
McCutcheon v David MacBrayne Ltd
[1964] UKHL 4
Lord Reid
“The only other ground on which it would seem possible to import these conditions is that based on a course of dealing. If two parties have made a series of similar contracts each containing certain conditions, and then they make another without expressly referring to those conditions it may be that those conditions ought to be implied. If the officious bystander had asked them whether they had intended to leave out the conditions this time, both must, as honest men, have said “of course not”. But again the facts here will not support that ground. According to Mr. McSporran, there had been no consistent course of dealing ; sometimes he was asked to sign and sometimes not. And, moreover, he did not know what the conditions were. This time he was offered an oral contract without any reference to conditions, and he accepted the offer in good faith.
The Respondents also rely on the Appellant’s previous knowledge. I doubt whether it is possible to spell out a course of dealing in his case. In all but one of the previous cases he had been acting on behalf of his employer in sending a different kind of goods and he did not know that the Respondents always sought to insist on excluding liability for their own negligence. So it cannot be said that when he asked his agent to make a contract for him he knew that this or, indeed, any other special term would be included in it. He left his agent a free hand to contract, and I see nothing to prevent him from taking advantage of the contract which his agent in fact made. “The judicial task is not to discover the actual intentions of each party: it is to decide what each was reasonably entitled to conclude from the attitude of the other” (Gloag, Contract p. 7). In this case I do not think that either party was reasonably bound or entitled to conclude from the attitude of the other as known to him that these conditions were intended by the other party to be part of this contract. I would therefore allow the appeal and restore the interlocutor of the Lord Ordinary.”
Lord Devlin
“Your Lordships were referred to the dictum of Blackburn, J. in Harris v Great Western Railway Company (1876) 1 QBD 515, at 530. The passage is as follows:-
“And it is clear law that where there is a writing, into which the terms of any agreement are reduced, the terms are to be regulated by that writing. And though one of the parties may not have read the writing, yet, in general, he is bound to the other by those terms; and that, I apprehend, is on the ground that, by assenting to the contract thus reduced to writing, he represents to the other side that he has made himself acquainted with the contents of that writing and assents to them, and so induces the other side to act upon that representation by entering into the contract with him, and is consequently precluded from denying that he did make himself acquainted with those terms. But then the preclusion only exists when the case is brought within the rule so carefully and accurately laid down by Parke, B., in delivering the judgment of the Exchequer in Freeman v Cooke, that is, if he ‘ means his representation to be acted upon, and it is acted upon accordingly: or if, whatever a man’s real intentions may be, he so conduct himself that a reasonable man would take the representation to be true, and believe that it was meant that he should act upon it, and did act upon it as true.”
If the ordinary law of estoppel was applicable to this case, it might well be argued that the circumstances leave no room for any representation by the sender on which the carrier acted. I believe that any other member of the public in Mr. McCutcheon’s place,—and this goes for lawyers as well as for laymen,—would have found himself compelled to give the same sort of answers as Mr. McCutcheon gave ; and I doubt if any carrier who serves out documents of this type could honestly say that he acted in the belief that the recipient had ” made himself acquainted with the contents “. But Blackburn, J. was dealing with an unsigned document, a cloakroom ticket. Unless your Lordships are to disapprove the decision of the Court of Appeal in L’Estrange v Graucob [1934] 2 KB 394,—and there has been no suggestion in this case that you should,—the law is clear, without any recourse to the doctrine of estoppel, that a signature to a contract is conclusive.
This is a matter that is relevant to the way in which the Respondents put their case. They say that the previous dealings between themselves and the Appellant, being always on the terms of their ” risk note “, as they call their written conditions, the contract between themselves and the Appellant must be deemed to import the same conditions. In my opinion, the bare fact that there have been previous dealings between the parties does not assist the Respondents at all. The fact that a man has made a contract in the same form ninety-nine times (let alone three or four times which are here alleged) will not of itself affect the hundredth contract in which the form is not used. Previous dealings are relevant only if they prove knowledge of the terms, actual and not constructive, and assent to them. If a term is not expressed in a contract, there is only one other way in which it can come into it and that is by implication. No implication can be made against a party of a term which was unknown to him. If previous dealings show that a man knew of and agreed to a term on ninety-nine occasions, there is a basis for saying that it can be imported into the hundredth contract without an express statement. It may or may not be sufficient to justify the importation,—that depends on the circumstances; but at least by proving knowledge the essential beginning is made. Without knowledge there is nothing…
If the Respondents had remembered to issue a risk note in this case, they would have invited your Lordships to give a curt answer to any complaint by the Appellant. He might say that the terms were unfair and unreasonable, that he had never voluntarily agreed to them, that it was impossible to read or understand them and that anyway if he had tried to negotiate any change the Respondents would not have listened to him. The Respondents would expect him to be told that he had made his contract and must abide by it. Now the boot is on the other foot. It is just as legitimate, but also just as vain, for the Respondents to say that it was only a slip on their part, that it is unfair and unreasonable of the Appellant to take advantage of it and that he knew perfectly well that they never carried goods except on conditions. The law must give the same answer: they must abide by the contract they made. What is sauce for the goose is sauce for the gander. It will remain unpalatable sauce for both animals until the legislature, if the courts cannot do it, intervenes to secure that when contracts are made in circumstances in which there is no scope for free negotiation of the terms, they are made upon terms that are clear, fair and reasonable and settled independently as such. That is what Parliament has done in the case of carriage of goods by rail and on the high seas.”
Thornton v Shoe Lane Parking Ltd
[1971] 2 QB 163; [1971] 1 All ER 686; [1970] EWCA Civ 2
Lord Denning MR
“The important thing to notice is that the company seek by this condition to exempt themselves from liability, not only for damage to the car, but also for injury to the customer howsoever caused. The condition talks about insurance. It is well known that the customer is usually insured against damage to the car. But he is not insured against damage to himself. If the condition is incorporated into the contract of parking, it means that Mr. Thornton will be unable to recover any damages for his personal injuries which were caused by the negligence of the company.
We have been referred to the ticket cases of former times from Parker v South Eastern Railway Co (1877) 2 CPD 416 to McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125. They were concerned with railways, steamships and cloakrooms where booking clerks issued tickets to customers who took them away without reading them. In those cases the issue of the ticket was regarded as an offer by the company. If the customer took it and retained it without objection, his act was regarded as an acceptance of the offer: see Watkins v Rymill (1833) 10 QBD 178, 188 and Thompson v London, Midland and Scottish Railway Co [1930] 1 KB 41, 47. These cases were based on the theory that the customer, on being handed the ticket, could refuse it and decline to enter into a contract on those terms. He could ask for his money back. That theory was, of course, a fiction. No customer in a thousand ever read the conditions. If he had stopped to do so, he would have missed the train or the boat.
None of those cases has any application to a ticket which is issued by an automatic machine. The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved. He is committed beyond recall. He was committed at the very moment when he put his money into the machine. The contract was concluded at that time. It can be translated into offer and acceptance in this way: the offer is made when the proprietor of the machine holds it out as being ready to receive the money. The acceptance takes place when the customer puts his money into the slot. The terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice before-hand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late. The contract has already been made: see Olley v Marlborough Court Ltd [1949] 1 KB 532. The ticket is no more than a voucher or receipt for the money that has been paid (as in the deckchair case, Chapelton v Barry Urban District Council [1940] 1 KB 532) on terms which have been offered and accepted before the ticket is issued.
In the present case the offer was contained in the notice at the entrance giving the charges for garaging and saying “at owner’s risk,” i.e., at the risk of the owner so far as damage to the car was concerned. The offer was accepted when Mr Thornton drove up to the entrance and, by the movement of his car, turned the light from red to green, and the ticket was thrust at him. The contract was then concluded, and it could not be altered by any words printed on the ticket itself. In particular, it could not be altered so as to exempt the company from liability for personal injury due to their negligence.
Assuming, however, that an automatic machine is a booking clerk in disguise – so that the old fashioned ticket cases still apply to it. We then have to go back to the three questions put by Mellish LJ in Parker v South Eastern Railway Co, 2 CPD 416, 423, subject to this qualification: Mellish LJ used the word “conditions” in the plural, whereas it would be more apt to use the word “condition” in the singular, as indeed the lord justice himself did on the next page. After all, the only condition that matters for this purpose is the exempting condition. It is no use telling the customer that the ticket is issued subject to some “conditions” or other, without more: for he may reasonably regard “conditions” in general as merely regulatory, and not as taking away his rights, unless the exempting condition is drawn specifically to his attention. (Alternatively, if the plural “conditions” is used, it would be better prefaced with the word “exempting,” because the exempting conditions are the only conditions that matter for this purpose.) Telescoping the three questions, they come to this: the customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it.
Mr. Machin admitted here that the company did not do what was reasonably sufficient to give Mr. Thornton notice of the exempting condition. That admission was properly made. I do not pause to inquire whether the exempting condition is void for unreasonableness. All I say is that it is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way. It is an instance of what I had in mind in J Spurling Ltd v Bradshaw [1956] 1 WLR 461, 466. In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.
But, although reasonable notice of it was not given, Mr. Machin said that this case came within the second question propounded by Mellish L.J., namely that Mr. Thornton “knew or believed that the writing contained conditions.” There was no finding to that effect. The burden was on the company to prove it, and they did not do so. Certainly there was no evidence that Mr. Thornton knew of this exempting condition. He is not, therefore, bound by it.
Mr. Machin relied on a case in this court last year – Mendelssohn v Normand Ltd. [1970] 1 QB 177. Mr. Mendelssohn parked his car in the Cumberland Garage at Marble Arch, and was given a ticket which contained an exempting condition. There was no discussion as to whether the condition formed part of the contract. It was conceded that it did. That is shown by the report in the Law Reports at p. 180. Yet the garage company were not entitled to rely on the exempting condition for the reasons there given.
That case does not touch the present, where the whole question is whether the exempting condition formed part of the contract. I do not think it did. Mr. Thornton did not know of the condition, and the company did not do what was reasonably sufficient to give him notice of it.
I do not think the garage company can escape liability by reason of the exemption condition. I would, therefore, dismiss the appeal.”
Hollier v Rambler Motors (A.M.C.) Ltd.
[1971] EWCA Civ 12 [1972] 2 WLR 401, [1972] 2 QB 71, [1972] 1 All ER 399, [1971] EWCA Civ 12, [1972] RTR 190
Salmon LJ
The primary point taken in the court below was that condition 2 was not part of the contract between the parties because the delivery note was never supplied to the defendants at all. That the judge rejected on the facts; he found that the delivery note was supplied in the same jiffy bag with the transparencies, and that finding is not challenged in this court. He made no finding however that Mr. Beeching or any other representative of the defendants read condition 2 or any of the other printed conditions, and it is overwhelmingly probable that they did not.
An alternative argument for the defendants, in this court as below, was to the effect that any contract between the parties was made before the defendants knew of the existence of the delivery note viz. either in the course of the preliminary telephone conversation between Mr. Beeching and Miss Fraser, or when the jiffy bag containing the transparencies was received in the defendants’ premises but before the bag was opened. I regard these submissions as unrealistic and unarguable. The original telephone call was merely a preliminary enquiry and did not give rise to any contract. But the contract came into existence when the plaintiffs sent the transparencies to the defendants and the defendants, after opening the bag, accepted them by Mr. Beeching’s phone call to the plaintiffs at 3.10 on the 5th March. The question is whether condition 2 was a term of that contract.
There was never any oral discussion of terms between the parties before the contract was made. In particular there was no discussion whatever of terms in the original telephone conversation when Mr. Beeching made his preliminary enquiry. The question is therefore whether condition 2 was sufficiently brought to the defendants’ attention to make it a term of the contract which was only concluded after the defendants had received, and must have known that they had received the transparencies and the delivery note.
This sort of question was posed, in relation to printed conditions, in the ticket cases, such Parker v. South Eastern Railway L.R.2 C.P.D. 416, in the last century. At that stage the printed conditions were looked at as a whole and the question considered by the courts was whether the printed conditions as a whole had been sufficiently drawn to a customer’s attention to make the whole set of conditions part of the contract; if so the customer was bound by the printed conditions even though he never read them.
More recently the question has been discussed whether it is enough to look at a set of printed conditions as a whole. When for instance one condition in a set is particularly onerous does something special need to be done to draw customers’ attention to that particular condition? In an obiter dictum in J. Spurling Ltd. v. Bradshaw [1956] 1 W.L.R.461 at page 466 (cited in Chitty on Contracts 25th Ed. Vol. 1 at page 408) Lord Justice Denning stated that “Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient”.
Then in Thornton v. Shoe Lane Parking Ltd. (1971) 2.Q.B. 163 both Lord Denning M.R. and Lord Justice Megaw held as one of their grounds of decision, as I read their judgments, that where a condition is particularly onerous or unusual the party seeking to enforce it must show that that condition, or an unusual condition of that particular nature, was fairly brought to the notice of the other party. Lord Denning at pages 169H-170D re-stated and applied what he had said in the Spurling case, and held that the court should not hold any man bound by such a condition unless it was drawn to his attention in the most explicit way. Lord Justice Megaw deals with the point at pages 172F-173E where he says:
“I agree with Lord Denning M.R. that the question here is of the particular condition on which the defendants seek to rely, and not of the conditions in general. when the conditions sought to be attached all constitute, in Lord Dunedin’s words [1918] A.C. 846, 847, ‘the sort of restriction … that is usual’, it may not be necessary for a defendant to prove more than that the intention to attach some conditions has been fairly brought to the notice of the other party. But at least where the particular condition relied on involves a sort of restriction that is not shown to be usual in that class of contract, a defendant must show that his intention to attach an unusual condition of that particular nature was fairly brought to the notice of the other party. How much is required as being, in the words of Lord Justice Mellish L.J., 2 C.P.D. 416, 424, ‘reasonably sufficient to give the plaintiff notice of the condition’, depends upon the nature of the restrictive condition.
In the present case what has to be sought in answer to the third question is whether the defendant company did what was reasonable fairly to bring to the notice of the plaintiff, at or before the time when the contract was made, the existence of this particular condition. This condition is that part of the clause – a few words embedded in a lengthy clause – which Lord Denning M.R. has read, by which, in the midst of provisions as to damage to property, the defendants sought to exempt themselves from liability for any personal injury suffered by the customer while he was on their premises. Be it noted that such a condition is one which involves the abrogation of the right given to a person such as the plaintiff by statute, The Occupiers Liability Act 1957. True, it is open under that statute for the occupier of property by a contractual term to exclude that liability. In my view, however, before it can be said that a condition of that sort, restrictive of statutory rights, has been fairly brought to the notice of a party to a contract there must be some clear indication which would lead an ordinary sensible person to realise, at or before the time of making the contract, that a term of that sort, relating to personal injury, was sought to be included. I certainly would not accept that the position has been reached today in which it is to be assumed as a matter of general knowledge, custom,practice, or whatever is the phrase that is chosen to describe it, that when one is invited to go upon the property of another for such purposes as garaging a car, a contractual term is normally included that if one suffers any injury on those premises as a result of negligence on the part of the occupiers of the premises they shall not be liable.”
Counsel for the plaintiffs submits that Thornton v. Shoe Lane Parking was a case of an exemption clause and that what their Lordships said must be read as limited to exemption clauses and in particular exemption clauses which would deprive the party on whom they are imposed of statutory rights. But what their Lordships said was said by way of interpretation and application of the general statement of the law by Lord Justice Hellish in Parker v. South Eastern Railway and the logic of it is applicable to any particularly onerous clause in a printed set of conditions of the one contracting party which would not be generally known to the other party.
Condition 2 of these plaintiffs’ conditions is in my judgment a very onerous clause. The defendants could not conceivably have known, if their attention was not drawn to the caluse, that the plaintiffs were proposing to charge a “holding fee” for the retention of the transparencies at such a very high and exorbitant rate.
At the time of the ticket cases in the last century it was notorious that people hardly ever troubled to read printed conditions on a ticket or delivery note or similar document. That remains the case now. In the intervening years the printed conditions have tended to become more and more complicated and more and more one-sided in favour of the party who is imposing them, but the other parties, if they notice that there are printed conditions at all, generally still tend to assume that such conditions are only concerned with ancillary matters of form and are not of importance. In the ticket cases the courts held that the common law required that reasonable steps be taken to draw the other parties’ attention to the printed conditions or they would not be part of the contract. It is in my judgment a logical development of the common law into modern conditions that it should be held, as it was in Thornton v. Shoe Lane Parking, that, if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party.
In the present case, nothing whatever was done by the plaintiffs to draw the defendants’ attention particularly to condition 2; it was merely one of four columns’ width of conditions printed across the foot of the delivery note. Consequently condition 2 never, in my judgment, became part of the contract between the parties.
I would therefore allow this appeal and reduce the amount of the judgment which the judge awarded against the defendants to the amount which he would have awarded on a quantum meruit on his alternative findings, i.e. the reasonable charge of £3.50 per transparency per week for the retention of the transparencies beyond a reasonable period, which he fixed at 14 days from the date of their receipt by the defendants.
Bingham LJ
In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith. This does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as “playing fair”, “coming clean” or “putting one’s cards face upwards on the table”. It is in essence a principle of fair and open dealing. In such a forum it might, I think, be held on the facts of this case that the plaintiffs were under a duty in all fairness to draw the defendants’ attention specifically to the high price payable if the transparencies were not returned in time and, when the 14 days had expired, to point out to the defendants the high cost of continued failure to return them.
English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness. Many examples could be given. Thus equity has intervened to strike down unconscionable bargains. Parliament has stepped in to regulate the imposition of exemption clauses and the form of certain hire purchase agreements. The common law also has made its contribution, by holding that certain classes of contract require the utmost good faith, by treating as irrecoverable what purport to be agreed estimates of damage but are in truth a disguised penalty for breach, and in many other ways.
The well known cases on sufficiency of notice are in my view properly to be read in this context. At one level they are concerned with a question of pure contractual analysis, whether one party has done enough to give the other notice of the incorporation of a term in the contract. At another level they are concerned with a somewhat different question, whether it would in all the circumstances be fair (or reasonable) to hold a party bound by any conditions or by a particular condition of an unusual and stringent nature.
In the leading case of Parker v. The South Eastern Railway Company [1877] 2 C.P.D. 416 Lord Justice Baggallay plainly thought on the facts that the plaintiffs were right, Lord Justice Bramwell that they were wrong; Lord Justice Mellish thought that there had been a misdirection and there should be a re-trial, a view in which the other members of the court concurred. The judgments deserve to be re-read. Lord Justice Mellish said (at page 422):
“Now, I am of opinion that we cannot lay down, as a matter of law, either that the plaintiff was bound or that he was not bound by the conditions printed on the ticket, from the mere fact that he knew there was writing on the ticket, but did not know that the writing contained conditions. I think there may be cases in which a paper containing writing is delivered by one party to another in the course of a business transaction, where it would be quite reasonable that the party receiving it should assume that the writing contained in it no condition, and should put it in his pocket unread.”
At page 423 he added:
“The railway company, as it seems to me, must be entitled to make some assumptions respecting the person who deposits luggage with them; I think they are entitled to assume that he can read, and that he understands the English language, and that he pays such attention to what he is about as may be reasonably expected from a person in such a transaction as that of depositing luggage in a cloak-room. The railway company must, however, take mankind as they find them, and if what they do is sufficient to inform people in general that the ticket contains conditions, I think that a particular plaintiff ought not to be in a better position than other persons on account of his exceptional ignorance or stupidity or carelessness. But if what the railway company do is not sufficient to convey to the minds of people in general that the ticket contains conditions, then they have received goods on deposit without obtaining the consent of the persons depositing them to the conditions limiting their liability.”
Lord Justice Baggallay’s analytical approach was somewhat similar (at page 425-6):
“Now as regards each of the plaintiffs, if at the time when he accepted the ticket, he, either by actual examination of it, or by reason of previous experience, or from any other cause, was aware of the terms or purport or effect of the endorsed conditions, it can hardly be doubted that he became bound by them. I think also that he would be equally bound if he was aware or had good reason to believe that there were upon the ticket statements intended to affect the relative rights of himself and the company, but intentionally or negligently abstained from ascertaining whether there were any such, or from making himself acquainted with their purport. But I do not think that in the absence of any such knowledge or information, or good reason for belief, he was under any obligation to examine the ticket with the view of ascertaining whether there were any such statements or conditions upon it.”
Both these Lords Justices were, as it seems to me, distinguishing the case in which it would be fair to hold a party bound from the case in which it would not. But this approach is made more explicit in the strongly-worded judgment of Lord Justice Bramwell (at page 427):
“The plaintiffs have sworn that they did not know that the printing was the contract, and we must act as though that was true and we believed it, at least as far as entering the verdict for the defendants is concerned. Does this make any difference? The plaintiffs knew of the printed matter. Both admit they knew it concerned them in some way, though they said they did not know what it was; yet neither pretends that he knew or believed it was not the contract. Neither pretends he thought it had nothing to do with the business in hand; that he thought it was an advertisement or other matter unconnected with his deposit of a parcel at the defendants’ cloak-room. They admit that, for anything they knew or believed, it might be, only they did not know or believe it was, the contract. Their evidence is very much that they did not think, or, thinking, did not care about it. Now they claim to charge the company, and to have the benefit of their own indifference. Is this just? Is it reasonable? Is it the way in which any other business is allowed to be conducted? Is it even allowed to a man to ‘think’, ‘judge’, ‘guess’, ‘chance’ a matter, without informing himself when he can, and then when his ‘thought’, ‘judgment’, ‘guess’ or ‘chance’ turns out wrong or unsuccessful, claim to impose a burthen or duty on another which he could not have done had he informed himself as he might?”
He continued in the same vein at page 428:
“Has not the giver of the paper a right to suppose that the receiver is content to deal on the terms in the paper? What more can be done? Must he say, ‘Read that’? As I have said, he does so in effect when he puts it into the other’s hands. The truth is, people are content to take these things on trust. They know that there is a form which is always used – they are satisfied it is not unreasonable, because people do not usually put unreasonable terms into their contracts. If they did, then dealing would soon be stopped. Besides, unreasonable practices would be known. The very fact of not looking at the paper shews that this confidence exists. It is asked: What if there was some unreasonable condition, as for instance to forfeit £1000 if the goods were not removed in forty-eight hours? Would the depositor be bound? I might content myself by asking: Would he be, if he were told ‘our conditions are on this ticket’, and he did not read them. In my judgment, he would not be bound in either case. I think there is an implied understanding that there is no condition unreasonable to the knowledge of the party tendering the document and not insisting on its being read – no condition not relevant to the matter in hand. I am on opinion, therefore, that the plaintiffs, having notice of the printing, were in the same situation as though the porter had said, ‘Read that, it concerns the matter in hand’; that if the plaintiffs did not read it, they were as much bound as if they had read it and had not objected.”
This is not a simple contractual analysis whether an offer has been made and accepted.
In Hood v. Anchor Line (Henderson Brothers) Ltd. [1918] AC 837, an appeal from the Court of Session, the question was whether a steamship company had effectively protected itself against liability for injury to a passenger. Lord Finlay L.C. at 842 posed the simple question: “What more could have been done to bring the conditions to the notice of the passenger?” Viscount Haldane approached the matter in a more general way (at page 843):
“There is a large and varied class of cases where the legal duty of a member of society to his neighbour cannot be laid down a priori or without examining the special circumstances of the situation. The duty in these instances is ascertained by a standard which depends, not on mere general principles fashioned by the jurist, for no such general principles can provide for all the concrete details of which account must be taken, but on the opinion of reasonable men who have considered the whole of the circumstances in the particular instance and can be relied on to say how, according to accepted standards of conduct, a reasonable man ought to behave in these circumstances towards the neighbour towards whom he is bound by the necessities of the community to act with forbearance and consideration.”
And (at page 845) he added:
“It is true that Mr. May did not look at the envelope closely or refer to the condition. He took the contract away and put it in a safe, and ultimately gave it to the appellant, who did not read it either. But I am of opinion that the real question was not whether they did read it, but whether they can be heard to say that they did not read it. If it had been merely a case of inviting people to put a penny into an automatic machine and get a ticket for a brief journey, I might think differently. In such a transaction men cannot naturally be expected to pause to look whether they are obtaining all the rights which the law gives them in the absence of a special stipulation. But when it is a case of taking a ticket for a voyage of some days, with arrangements to be made, among other things, as to cabins and luggage, I think ordinary people do look to see what bargain they are getting, and should be taken as bound to have done so and as precluded from saying that they did not know.”
Lord Dunedin (at page 846-7) said:
“Accordingly it is in each case a question of circumstance whether the sort of restriction that is expressed in any writing (which, of course, includes printed matter) is a thing that is usual, and whether, being usual, it has been fairly brought before the notice of the accepting party.”
These authoritative passages appear to base the law very firmly on consideration of what is fair in all the circumstances.
J. Spurling v. Bradshaw [1956] 1 WLR 461 concerned an exemption clause in a warehousing contract. The case is now remembered for the observations of Lord Justice Denning at page 466:
“This brings me to the question whether this clause was part of the contract. Mr. Sofer urged us to hold that the warehousemen did not do what was reasonably sufficient to give notice of the conditions within Parker v. South Eastern Railway Co. I quite agree that the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.”
Here, therefore, is made explicit what Lord Justice Bramwell had perhaps foreshadowed, that what would be good notice of one condition would not be notice of another. The reason is that the more outlandish the clause the greater the notice which the other party, if he is to be bound, must in all fairness be given.
McCutcheon v. David Macbrayne Ltd. [1964] 1 WLR 125 is a case out of the common run because the document containing the contractual exemption was neither issued nor signed. The interest of the case for present purposes lies in two passages in the speeches of Lord Reid and Lord Pearce. Lord Reid (at page 128) said:
“If it could be said that when making the contract Mr. McSporran knew that the respondents always required a risk note to be signed and knew that the purser was simply forgetting to put it before him for signature, then it might be said that neither he nor his principal could take advantage of the error of the other party of which he was aware. But counsel frankly admitted that he could not put his case as high as that.”
Lord Pearce (at page 138) expressed a similar opinion:
“This is not a case where there was any bad faith on the part of the pursuer or his agent. Had the pursuer’s agent snatched at an offer that he knew was not intended, or deliberately taken advantage of the defenders’ omission to proffer their usual printed form for his signature, the situation would be different and other considerations would apply.”
Here again, as it seems to me, one finds reference to a concept of fair dealing that has very little to do with a conventional analysis of offer and acceptance.
Lastly I would mention Thornton v. Shoe Lane Parking Ltd. [1971] 2 QB 163. Lord Denning M.R. (at page 169-170) said:
“Assuming, however, that an automatic machine is a booking clerk in disguise – so that the old fashioned ticket cases still apply to it. We then have to go back to the three questions put by Mellish L.J. in Parker v. South Eastern Railway Co., 2 C.P.D. 416, 423, subject to this qualification: Mellish L.J. used the word ‘conditions’ in the plural, whereas it would be more apt to use the word ‘condition’ in the singular, as indeed the lord justice himself did on the next page. After all, the only condition that matters for this purpose is the exempting condition. It is no use telling the customer that the ticket is issued subject to some ‘conditions’ or other, without more: for he may reasonably regard ‘conditions’ in general as merely regulatory, and not as taking away his rights, unless the exempting condition is drawn specifically to his attention. (Alternatively, if the plural ‘conditions’ is used, it would be better prefaced with the word ‘exempting’, because the exempting conditions are the only conditions that matter for this purpose.)
Telescoping the three questions, they come to this: the customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it. Mr. Machin admitted here that the company did not do what was reasonably sufficient to give Mr. Thornton notice of the exempting condition. That admission was properly made. I do not pause to inquire whether the exempting condition is void for unreasonableness. All I say is that it is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way. It is an instance of what I had in mind in J. Spurling Ltd. v. Bradshaw [1956] 1 WLR 461, 466. In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.”
The judgment of Lord Justice Megaw (at pages 172-173) was to similar effect:
“So I come to the third of the three questions. That question, if I may return to the speech of Lord Dunedin in Hood v.Anchor Line (Henderson Brothers) Ltd. [1918] AC 837, 846, 847 was posed by him in this way:
‘Accordingly it is in each case a question of circumstance whether the sort of restriction that is expressed in any writing (which, of course, includes printed matter) is a thing that is usual, and whether, being usual, it has been fairly brought before the notice of the accepting party.’.
That, though it is more fully stated by Lord Dunedin, is essentially the same question, I think, as was formulated by Mellish L.J. in Parker’s case, 2 C.P.D. 416, 424 at the very end of his judgment, where he said that the question which ought to have been left to the jury was: whether the railway company did what was reasonably sufficient to give the plaintiff notice of the condition. (I emphasise the use by Mellish L.J. of the definite article and of the word ‘condition’ in the singular.) I agree with Lord Denning M.R. that the question here is of the particular condition on which the defendants seek to rely, and not of the conditions in general.
When the conditions sought to be attached all constitute, in Lord Dunedin’s words [1918] A.C. 846, 847, ‘the sort of restriction … that is usual’, it may not be necessary for a defendant to prove more than that the intention to attach some conditions has been fairly brought to the notice of the other party. But at least where the particular condition relied on involves a sort of restriction that is not shown to be usual in that class of contract, a defendant must show that his intention to attach an unusual condition of that particular nature was fairly brought to the notice of the other party. How much is required as being, in the words of Mellish L.J. 2 C.P.D. 416, 424, ‘reasonably sufficient to give the plaintiff notice of the condition’, depends upon the nature of the restrictive condition.” The tendency of the English authorities has, I think, been to look at the nature of the transaction in question and the character of the parties to it; to consider what notice the party alleged to be bound was given of the particular condition said to bind him; and to resolve whether in all the circumstances it is fair to hold him bound by the condition in question. This may yield a result not very different from the civil law principle of good faith, at any rate so far as the formation of the contract is concerned.
Turning to the present case, I am satisfied for reasons which Lord Justice Dillon has given that no contract was made on the telephone when the defendants made their initial request. I am equally satisfied that no contract was made on delivery of the transparencies to the defendants before the opening of the jiffy bag in which they were contained. Once the jiffy bag was opened and the transparencies taken out with the delivery note, it is in my judgment an inescapable inference that the defendants would have recognised the delivery note as a document of a kind likely to contain contractual terms and would have seen that there were conditions printed in small but visible lettering on the face of the document. To the extent that the conditions so displayed were common form or usual terms regularly encountered in this business, I do not think the defendants could successfully contend that they were not incorporated into the contract.
The crucial question in the case is whether the plaintiffs can be said fairly and reasonably to have brought condition 2 to the notice of the defendants^ The judge made no finding on the point, but I think that it is open to this court to draw an inference from the primary findings which he did make. In my opinion the plaintiffs did not do so. They delivered 47 transparencies, which was a number the defendants had not specifically asked for. Condition 2 contained a daily rate per transparency after the initial period of 14 days many times greater than was usual or (so far as the evidence shows) heard of. For these 47 transparencies there was to be a charge for each day of delay of £235 plus VAT. The result would be that a venial period of delay, as here, would lead to an inordinate liability. The defendants are not to be relieved of that liability because they did not read the condition, although doubtless they did not; but in my judgment they are to be relieved because the plaintiffs did not do what was necessary to draw this unreasonable and extortionate clause fairly to their attention. I would accordingly allow the defendants’ appeal and substitute for the judge’s award the sum which he assessed upon the alternative basis of quantum meruit.
In reaching the conclusion I have expressed I would not wish to be taken as deciding that condition 2 was not challengeable as a disguised penalty clause. This point was not argued before the judge nor raised in the notice of appeal. It was accordingly not argued before us. I have accordingly felt bound to assume, somewhat reluctantly, that condition 2 would be enforceable if fully and fairly brought to the defendants’ attention.
O’Brien v MGN Ltd
[2001] EWCA Civ 1279 [2002] CLC 33LADY JUSTICE HALE:
The claimant suffered a cruel disappointment on Monday 3 July 1995. He thought that he had won £50,000 in the scratchcard game played in the Daily Mirror that day. Mirror Group Newspapers thought otherwise. The issue is whether the contract between them incorporated the Mirror Group’s rules. It would make an excellent question in an undergraduate contract law seminar or examination. Like all good questions, it is easy to ask and difficult to answer. On 29 June 2000, in the Queen’s Bench Division of the High Court sitting in Liverpool, HHJ Hegarty QC answered it in the affirmative and dismissed the claimant’s claim. He gave permission to appeal to this court.
……
On Sunday 9 July 1995 the Editor of the People wrote an article apologising for the ‘mix-up’. She said that the only cards eligible for the telephone prize on 3 July were those from the Daily Mirror of Saturday 1 July and the Sunday Mirror of Sunday 2 July. This was because the ‘Ring and Win Today’ section in the Daily Mirror giving details of the Mystery Bonus Hotline had referred to ‘three chances to win’:
‘This is because you have THREE cards to play. One was in The People yesterday and another in the Sunday Mirror – and you already had a card in Saturday’s Daily Mirror.’
The Editor explained that in fact there were only two eligible cards, because there had been no ‘card in The People yesterday’. Hence, she said, anyone with a card issued in The People on 25 June 1995 was not eligible for a prize. She apologised and announced a special draw for one prize of £50,000, for which all those with cards from The People of 25 June showing two sums of £50,000 would be eligible. In addition, a further £50,000 would be shared equally among all those with such cards. The claimant’s card was entered in the draw. It was unsuccessful, but he did receive £33.97 as his share of the extra £50,000.
Eventually the claimant began these proceedings. MGN Ltd raised a number of defences. One was the argument put forward in the article of 9 July: that only holders of cards issued with the Daily Mirror for Saturday 1 July, the Sunday Mirror for Sunday 2 July, and The People for Sunday 2 July could be eligible. However that defence was abandoned shortly before the trial so the judge did not consider it. Another was that any contract between the parties was a gaming or wagering contract covered by s 18 of the Gaming Act 1845. This too was abandoned shortly before the trial. The judge did not think it necessary to invite submissions on whether this might be an illegal contract, but emphasised that he expressed no view on the lawfulness the game whether at common law or under the 1845 Act or under any other relevant legislation.
That left only the point upon which the case was decided: whether or not the contract between claimant and defendant incorporated the “Rules”. The first announcement of the game, in the Daily Mirror on 29 April 1995, had a heading in capital letters with white text in a black box INSTANT SCRATCH RULES. Under this were printed eight numbered paragraphs (“the Rules”). Rules 2 and 5 read as follows:
‘2. The prizes for each game will be awarded to the player or players who make a successful claim.
‘5. Should more prizes be claimed than are available in any prize category for any reason, a simple draw will take place for the prize.’
……
Conclusion
In my view the judge was right to hold that the contract was made on 3 July. The offer was contained in the paper that day. In my view it was accepted when the claimant telephoned to claim his prize. The offer and therefore the contract clearly incorporated the term ‘Normal Mirror Group rules apply’. The words were there to be read and it makes no difference whether or not the claimant actually read or paid attention to them.
The question, therefore, is whether those words, in the circumstances, were enough to incorporate the Rules, including Rule 5, into the contract. In the words of Bingham LJ in Interfoto Library Ltd v Stiletto Ltd [1989] 1 QB 433, at p 445E, can the defendant ‘be said fairly and reasonably to have brought [those rules] to the notice of’ the claimant? This is a question of fact. It is clear from the passage in the same judgment quoted earlier (at para 13) that one has to look at the particular contract made on the particular day between the particular parties. But what is fair and reasonable notice will depend upon the nature of the transaction and upon the nature of the term. As Dillon LJ summed it up in Interfoto, at pp 438H to 439A:
‘In the ticket cases the courts held that the common law required that reasonable steps be taken to draw the other parties’ attention to the printed conditions or they would not be part of the contract. It is, in my judgment, a logical development of the common law into modern conditions that it should be held, as it was in Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, that if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party.’
Bingham LJ put the same point in this way at p 443C:
‘ . . . what would be good notice of one condition would not be good notice of another. The reason is that the more outlandish the clause the greater the notice which the other party, if he is to be bound, must in all fairness be given.’
In my view, although Rule 5 does turn an apparent winner into a loser, it cannot by any normal use of language be called ‘onerous’ or ‘outlandish’. It does not impose any extra burden upon the claimant, unlike the clause in Interfoto. It does not seek to absolve the defendant from liability for personal injuries negligently caused, unlike the clause in Thornton v Shoe Lane Parking. It merely deprives the claimant of a windfall for which he has done very little in return. He bought two newspapers, although in fact he could have acquired a card and discovered the hotline number without doing either. He made a call to a premium rate number, which will have cost him some money and gained the newspaper some, but only a matter of pennies, not pounds.
The more difficult question is whether the rule is ‘unusual’ in this context. The judge found that the claimant knew that there was a limit on the number of prizes and that there were relevant rules. Miss Platell’s evidence was that these games and competitions always have rules. Indeed I would accept that this is common knowledge. This is not a situation in which players of the game would assume that the newspaper bore the risk of any mistake of any kind which might lead to more people making a claim than had been intended. Some people might assume that the ‘get out’ rule would provide for the prize to be shared amongst the claimants. Some might assume that it would provide for the drawing of lots. In the case of a single prize some might think drawing lots more appropriate; but it seems to me impossible to say that either solution would be ‘unusual’. There is simply no evidence to that effect. Such evidence as there is was to the effect that such rules are not unusual.
In any event, the words ‘onerous or unusual’ are not terms of art. They are simply one way of putting the general proposition that reasonable steps must be taken to draw the particular term in question to the notice of those who are to be bound by it and that more is required in relation to certain terms than to others depending on their effect. In the particular context of this particular game, I consider that the defendants did just enough to bring the Rules to the claimant’s attention. There was a clear reference to rules on the face of the card he used. There was a clear reference to rules in the paper containing the offer of a telephone prize. There was evidence that those rules could be discovered either from the newspaper offices or from back issues of the paper. The claimant had been able to discover them when the problem arose.
The judge had ‘great sympathy for Mr O’Brien who struck me as a thoroughly decent young man who must have suffered a cruel disappointment when his hopes were raised only to be dashed.’ There can be little sympathy for a newspaper which introduces such a game to attract publicity and readers, and then devotes space which could have been devoted to printing the Rules to hyperbole about the prizes to be won and the people who have won them. But the fact of the matter is that there was nothing at all outlandish about the rules of this game and indeed it would have been surprising if there had been no protection on the lines of Rule 5. I would dismiss this appeal.
SIR ANTHONY EVANS:
I agree that the appeal should be dismissed, but I do so for one reason only. I feel constrained to accept Mr Carr QC’s final submission, that this Court should not interfere with the Judge’s finding on an issue of fact, unless the finding is clearly wrong. The issue is whether the respondents took reasonable steps to draw the particular term to the notice of those who are to be bound by it (quoting from the judgment of Lady Justice Hale, para.23).
The words “Normal Mirror Group rules apply” clearly formed part of the contract. Unless it was established that the claimant had actual knowledge of Rule 5, which it was not, it is immaterial in my judgment that he had had the opportunity to read it on previous occasions, or was aware from the earlier editions of the newspapers that some Rules did exist. If those matters were relevant, it would mean that whether he was bound by it would itself be a matter of chance in the individual case.
There was no obvious reason why the Rules could not appear in every edition which offered tickets for the game, except as my Lady has said the editor’s wish to use the space for publishing hyperbole about the prizes to be won and the people who had won them. The reference to the Rules could have been accompanied by some indication of where they had been printed or could be found, for example ‘last Friday’s copy’ or ‘published on’ a particular weekday. Instead, on Monday 3 July the only publication in the Daily Mirror during the previous month had been on 10 June and 30 June. A person reading the offer on 3 July could not be expected to have ready access to back issues, even if he or she knew what date to look for. Whether the reader could discover what the Rules were was left essentially as a matter of chance. The promise of significant riches, in my judgment, deserve more.
I would also have considered that a Rule which gave the ‘winner’ no more than a further chance to obtain the prize was sufficiently onerous, if not unusual, to require greater prominence than was given to this one. This, in my judgment, was the strength of Mr Crystal’s main submission.
However, the judge concluded differently, and my colleagues agree with him. I cannot say that he was clearly wrong, and so reluctantly, I must agree that the appeal should be dismissed.
LORD JUSTICE POTTER:
For the reasons given by Hale LJ I agree that this appeal should be dismissed.
ORDER: Appeal dismissed with costs; appellant’s costs to be assessed if not agreed in accordance with Community Legal Service (costs) Regulations or their predecessors as appropriate application for permission to appeal to the House of Lords refused.
Noreside Construction Ltd v Irish Asphalt Ltd [2014] IESC 68 (02 December 2014)
[2014] IESC 68
Dunne J
The status of the delivery dockets and the signing of same
I am satisfied that the parties herein reached a concluded agreement following their negotiations on the 26th March, 2003. This could be described as the “master” contract. I am also of the view that on every subsequent occasion when an order was placed and a delivery of aggregate was made, a separate and distinct contract was made in respect of each such delivery which incorporated the terms and conditions of the “master” agreement negotiated between the parties as to the price for the goods to be supplied, depending on whether the goods were to be collected or delivered, credit terms and so on. It was always open to the parties to vary the terms and conditions of the “master” contract between them. The question at issue between the parties is whether the use of delivery dockets on numerous occasions had the effect of varying the terms of the contracts by the incorporation of Irish Asphalt’s terms and conditions into the series of contracts made over the course of Noreside’s project at Griffith Avenue as contended by Irish Asphalt. The answer to this question gives rise to an analysis as to whether or not the delivery dockets relied on by Irish Asphalt are contractual documents. I now propose to consider this question.
McMeel in the Construction of Contracts (11th Ed. at para. 15.56) commented on the question of whether or not a particular document is a contractual document as follows:
“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 Mededith Plant Hire [1996] CLC 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.”
Mr. Darling Q.C., on behalf of Irish Asphalt placed particular emphasis on the last paragraph of the passage quoted above from McMeel.
Treitel, The Law of Contract (12th Ed.) contains the following explanation of the nature of a document at paragraph 7 – 006:
“Nature of the Document. An exemption clause is not incorporated in the contract if the document in which it is set out (or referred to) is not intended to have contractual force: e.g. if the document is a mere receipt for payment. On the other hand, the mere fact that a document is called a ‘receipt’ will not prevent it from having contractual effect. A document will have such effect if the party to whom it was handed knew it was intended to be a contractual document or if it was handed to him in such circumstances as to give him reasonable notice of the fact that it contained conditions. It will also be contractual if it is obvious to a reasonable person that it must have been intended to have this effect. This will be the case if the document is of a kind that generally contains contractual terms. Whether a document falls into this class depends on current commercial practice, which may vary from time to time.”
As I have said, it is my view that each delivery of aggregate was a separate and distinct contract which incorporated the terms of the “master” contract concluded by the parties. The evidence as to the creation of these contracts was that a delivery of aggregate was ordered by oral “call off” in a telephone call by an operative or site foreman of Noreside, received by an operative of Irish Asphalt and then delivered to Noreside’s construction site, which arrangement was then recorded by the delivery docket which noted the amount of aggregate provided, the particular type of aggregate and whether the aggregate was either collected or delivered to the site. They were simply for the purpose of recording what occurred. As is clear from the passage referred to above from McMeel, such documents may come too late to prove an argument of incorporation. The status of a delivery note in any given situation will depend very much on the facts and circumstances of the particular case.
The fundamental question in this case is whether the delivery dockets have contractual effect. These delivery dockets contain a reference to terms and conditions but none are expressly set out or identified. Are these delivery dockets intended to have contractual effect? There is no doubt that the delivery dockets herein were important documents in the execution of the contracts given that they were relied on for the purpose of checking that the amounts set out on invoices that had to be paid by Noreside to Irish Asphalt was correct. To that extent, there is no dispute between the parties that the delivery dockets had an important role to play in the overall contractual relationship between the parties.
This Court was referred to an extensive range of case law and academic commentary in the written and oral submissions of Irish Asphalt herein and in the case of James Elliot Construction Limited v. Irish Asphalt Limited which was heard immediately before this case. The case law and academic commentary was considered at length in the judgment of the Court in that case. That case also concerned the role of delivery dockets of the same defendant/appellant which contained the same phrase on the delivery dockets. It is not necessary to set out in detail all of the authorities referred to in the judgment of the Court in James Elliot Construction Limited v. Irish Asphalt Limited delivered immediately before this judgment but it would be useful to refer to a number of the relevant authorities. Thus, in the case of Spurling Limited v. Bradshaw [1956] 1 WLR 461, reliance was placed on a document described as a “landing account”. That case concerned a defendant who had had dealings with the plaintiff warehousemen. A number of barrels of orange juice were delivered for storage and thereafter the defendant received a landing account which referred on its face to conditions printed in small type on the back including an exemption clause. The barrels of orange juice were subsequently found to be empty or so damaged as to be useless. The warehousemen sued for their charges for storage and the defendant counterclaimed for damages. Denning L.J. (at p. 467) stated:
“It is to be noticed that the landing account on its face told Mr. Bradshaw that the goods would be insured if he gave instructions; otherwise they were not insured. The invoice, on its face, told him they were warehoused ‘at owner’s risk’. The printed conditions, when read subject to the proviso which I have mentioned, added little or nothing to those explicit statements taken together.
Next it was said that the landing account and invoice were issued after the goods had been received and could not, therefore, be part of the contract of bailment: but Mr. Bradshaw admitted that he had received many landing accounts before. True he had not troubled to read them. On receiving this landing account, he took no objection to it, left the goods there, and went on paying the warehouse rent for months afterwards. It seems to me that by the course of business and conduct of the parties, these conditions were part of the contract.”
Similarly, in the case of British Road Services Ltd. v. Arthur V. Crutchley & Co. Ltd. [1968] 1 All ER 811, there was a reference to a delivery note. Following a long established course of business between the plaintiff carriers and the defendants, delivery notes for goods transported by the plaintiffs and delivered at the defendants’ warehouse would be handed back to the plaintiffs’ lorry drivers, on the defendants receiving the goods stamped “Received on AVC [that is the defendants’] Conditions”. Lord Pearson at p. 816 of the judgment in that case commented as follows:
“Now I come to the terms of the contract between the plaintiffs and the defendants. It was not proved that the plaintiffs’ conditions of subcontracting were ever sent to the defendants, and the defendants in evidence denied that they were subcontractors to the plaintiffs. The plaintiffs’ form of delivery note contained the words:
‘All goods are carried on the [plaintiffs’] conditions of carriage, copies of which can be obtained upon application to any office of the [plaintiffs].’
Under the long established course of business between the parties, however, the plaintiffs’ driver brought his delivery note into the defendants’ office at the Cotton Street warehouse and asked in effect if he could bring his load into the warehouse. If there was room in the warehouse, the permission would be given, and the delivery note would be rubberstamped by the defendants with the words ‘Received under AVC Conditions’, followed by the date and the address of the warehouse. The delivery note, thus converted into a receipt note, would be handed back to the plaintiffs’ driver and he would bring his load into the warehouse as instructed by the warehouse foreman. If this had only happened once, there would have been a doubt whether the plaintiffs’ driver was their agent to accept the defendants’ special contractual terms. This, however, happened frequently and regularly over many years at this and other warehouses of the defendants. Also the defendants’ invoices contained the words: ‘All goods are handled subject to conditions of carriage copies of which can be obtained on application’. It may perhaps be material to add that the defendants’ conditions of carriage were not peculiar to them, but were the conditions of carriage of Road Haulage Association Limited. At any rate, I agree with the decision of the Judge that the plaintiffs’ conditions were not, and the defendants’ conditions were, incorporated into the contract between these parties. The effect was that, while the nature of the defendants’ liability as bailees to the plaintiffs was unaffected, the liability was limited in amount to £800 per ton, which, when credit is given for sixty bottles of whisky recovered after the theft, produces a total in this case of £6,135.”
At first glance it may be difficult to see why there was a different approach taken to the plaintiffs’ terms and conditions in that case and those of the defendants. However, the reason is clear from the judgment of Lord Pearson – it was not proved that the plaintiffs’ conditions of sub-contracting were ever sent to the defendants; by contrast the defendants’ terms and conditions, although not peculiar to them, were the conditions of carriage of the Road Hauliers Association Limited and were incorporated into the contract by reference to the rubberstamping of the words “Received under AVC Conditions” on the delivery note. In other words, there could have been no doubt as to what the terms and conditions were.
Another case of interest and one which was relied on by the learned trial Judge herein is the decision in the case of Continental Tyre and Rubber Company Ltd. v. Trunk Taylor Company Ltd. [1985] S.C. 163. In that case, the delivery note which contained the phrase “All offers and sales are subject to company’s current terms and conditions of sale . . .” was a non-contractual document as it was “a document the only purpose of which was to record performance of a particular transaction with a view to payment”. Finlay Geoghegan J. placed particular reliance on the judgment in that case and accepted that the purpose of the delivery dockets herein was to record the supply of aggregate with a view to payment whilst acknowledging that the documents were crucial documents but in the execution of the contract already agreed. That case concerned the sale and delivery of tyres and a claim in respect of sums due in respect of those tyres. The tyres were alleged to have been rejected by customers of the defendants as not being of merchantable quality. The pursuers in the case, on the assumption that the warranty as to merchantable quality had been breached, pleaded that their liability was excluded by reference to their standard conditions of sale on a delivery note. They also relied on an argument that a recent and consistent course of dealing meant that the terms of the delivery note had been incorporated into the contract. Lord Brand, the Lord President at page 168 of his judgment stated:
“What has been called the ‘delivery note’ does not so describe itself. It is not and does not bear to be a contract note or ‘sold’ note of the kind considered in Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association [1966] 1 W.L.R. 287 . . . which purported to record the terms of the parties’ agreement, and which was tendered before performance. It is not and does not bear to be, either, an acknowledgement of order form, of the kind considered in Grayston Plant Ltd. v. Plean Precast Ltd. 1976 SC 206, purporting to record the terms on which the supply is made or to be made. The signature of the defenders’ employee is, as the form shows, required for one purpose and one purpose only. Opposite the box containing the signature are the following words: ‘Please note that your signature is proof that the quantity and description of the goods shown on this docket were received correctly’. There are not averments that the legend near the top left hand corner of the docket, referring to the pursuers’ ‘conditions of sale’, which is in small print and not in bold type, was ever drawn to the attention of the person who signed it, and it is not averred that signature of the docket was required before the delivery was made (cf. the very different circumstances in British Road Services Ltd. v. Arthur v. Crutchley & Co. Ltd. where the delivery note was overstamped, referring to the conditions upon which the warehouse keeper would receive the load, and handed to the plaintiffs’ driver before he brought his lorry into the premises; see the opinion of Lord Pearson at pp. 816 and 817).”
Reliance on a reference to terms and conditions said to be available on request was not sufficient to result in the incorporation of those terms and conditions into the contract between the parties in that case.
For completeness I should also refer to the decision in the case of Grogan v. Robin Meredith Plant Hire [1996] C.L.C. 1127, which was referred to in McMeel in the passage set out above and relied on by Finlay Geoghegan J. in the course of her judgment. That was a case in which 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. 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 defendant’s driver. Toward the bottom of the timesheet was printed, “All hire undertaken under CPA conditions. Copies available on request”. Under the standard conditions of the Contractor’s Plant Association, if incorporated into the contract, Triact was bound to indemnify the first defendant against any liability incurred to third parties in the course of the hire. In the third week of hire the machine was involved in an accident in which the plaintiff was injured. The plaintiff issued proceedings against the first defendant and Triact seeking damages for personal injuries. There was consent to judgment by the defendants. The first defendant claimed that the CPA conditions were incorporated into the contract by the signing of the driver’s timesheet on Triact’s behalf. Triact was therefore liable to indemnify the first defendant in respect of its liability to the plaintiff. In the High Court it was held that the contract had been varied so as to incorporate the CPA conditions. The appeal was allowed. In the course of his judgment Auld L.J. said:
“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 ed.), 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.”
Auld L.J. continued:
“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.”
Auld L.J. went on to say:
“If, as appears, that was the common understanding of the purpose of the time sheets, the fact that they made reference to the CPA conditions, not previously part of the contract, cannot, in my view, be of any contractual significance. Certainly such a reference on an essentially administrative and accounting document raised in the execution of an existing contract, did not have the clarity of meaning and purpose required to effect a variation incorporating them into the contract. . . . 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.”
As I said previously, the learned trial Judge placed considerable reliance on the judgment in that case leading to the conclusion by the trial Judge that the delivery dockets in this case were crucial documents in the context of both the construction and quarrying industry. Their purpose was to record the amount and type of aggregate supplied, together with the date and place of delivery, with a view to payment. However, whilst accepting that they had a contractual purpose in the execution of the contract, they did not have contractual effect in the sense of making or varying a contract.
A number of points emerge from the authorities referred to above. First of all, a delivery docket can be a contractual document – whether it is or not depends on the facts and circumstances in a particular case. The purpose for which the delivery docket was created may be of relevance. The next point to note, and one which seems to me to be of critical importance, is that the delivery docket or other document at issue must contain the relevant terms and conditions relied on or at the very least contain a reference to specific terms and conditions such as the AVC conditions relied on in the case of British Road Services Ltd. v. Arthur V Crutchley & Co. Ltd. referred to above. In that case, the plaintiff did not succeed in having its conditions of subcontracting incorporated into the contract even though those terms and conditions were stated to be available “upon application” while the defendant’s terms and conditions were incorporated by means of a stamp placed on the delivery note stating “Received under AVC conditions”.
In other words, a party contending that the terms of a previously negotiated contract have been varied by a document such as a delivery docket, must be able to show that the document concerned “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”. This may be by reference to specific terms and conditions either set out on the document itself or reference on the document to terms and conditions well known in a particular industry, such as the AVC conditions referred to above. It is difficult to see how a bland reference to terms and conditions being available on request, without more, will suffice for the purpose of making a contract or varying a contract. Thus, in my view, the learned trial judge was correct in concluding that the delivery dockets were not contractual documents and did not have contractual effect. They did not contain terms and conditions of the contract. They made no reference to price. They were created for the purpose of recording the type and amount of aggregate delivered and whether that aggregate was collected or delivered on site. This view is given further support by the fact that the signature on the delivery dockets was placed in a box headed “Materials received on behalf of Customer”. In the circumstances, the fact that the delivery dockets were signed on behalf of Noreside by its site foreman, operative or haulier does not have the effect of incorporating Irish Asphalt’s terms and conditions into the contracts between the parties by way of signature.
Reasonable notice and course of dealing
Lewison in The Interpretation of Contracts at p. 127 commented:
“It is not necessary to the incorporation of trading terms into a contract that they should be specifically set out provided that they are conditions in common form or usual terms in the relevant business. It is sufficient if adequate notice is given identifying and relying upon the conditions and they are available on request. Clear words of reference suffice to incorporate the terms referred to. Other conditions apply if the conditions or any of them are particularly onerous or unusual. . . .”
In the event that the delivery dockets were found not to be contractual documents and thus incorporated by signature into the contracts between the parties, Irish Asphalt contends that the delivery dockets provided on some 1,190 occasions to Noreside constituted reasonable notice of their terms and conditions and thus were incorporated into the contract between the parties. Generally, terms and conditions contained in an unsigned written document will not be incorporated into a contract unless the party to be bound had reasonable notice of those terms and conditions. The reason for this is straightforward. Terms and conditions relied on by a party in the context of an alleged breach of contract will often limit or exclude liability. They may provide for any contractual dispute to go to arbitration. There may be other important terms, for example, in relation to retention of title. It has been said that the more onerous an exemption clause contained in terms and conditions is, the greater the requirement for notice. This was graphically explained by Lord Denning M.R. in the case of Thornton v. Shoe Lane Parking [1971] 2 QB 163, at 170, where he stated of an exemption clause:
“. . . it is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way. . . . In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.”
Thus in a case such as this where the terms of Clause 8 of Irish Asphalt’s terms and conditions could only be described as onerous, it follows that in order to rely on the provisions of Clause 8 it is necessary for Irish Asphalt to demonstrate that it had given reasonable notice of those terms and conditions to Noreside.
It is not disputed that Mr. Regan of Noreside checked the delivery notes carefully for the purpose of ensuring that the amounts due by Noreside to Irish Asphalt on foot of invoices received by Noreside accurately reflected the goods supplied. Mr. Regan, in his evidence, confirmed that he checked the quantity, date and delivery docket number against invoices. Insofar as the phrase “The material is sold subject to our terms and conditions available on request” is concerned he said that he could not say with force that he had seen that phrase but when asked if he was aware that it was on the delivery dockets, he said “Possibly, yes”. It was never alleged before the High Court that the actual terms and conditions relied on by Irish Asphalt had been provided in any way to Noreside. The critical point emphasised by Irish Asphalt was that each delivery docket contained the proviso referred to above as to the terms and conditions being available on request. The essence of the case made by Irish Asphalt is that Mr. Regan, a person of authority within Noreside, saw the delivery dockets; therefore, he knew of the existence of terms and conditions relied on by Irish Asphalt and was willing to contract on that basis. He chose to turn a blind eye to Irish Asphalt’s terms and conditions and thus he took the risk of not actually ascertaining the specific terms and conditions. Put simply, he knew there were terms and conditions but chose not to find out what they were.
In the course of the written submissions reference was made to McMeel op. cit. at page 287, where the author explained the concept of incorporation by reasonable notice in the following terms:
“The second alternative route of incorporation is by reasonable notice. This is the principal mode of incorporation for unsigned printed documents. It first came to prominence in the nineteenth century ‘ticket cases’ as the industrial revolution and the railway age made standard terms a feature of everyday life. In the leading case of Parker v. South Eastern Railway Company, Mellish L.J. distinguished the case of incorporation by signature and continued:
‘The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case there must be evidence independently of the agreement itself to prove that the defendant has assented to it. In that case, also, if it is proved that the defendant has assented to the writing constituting the agreement between the parties, it is, in the absence of fraud, immaterial that the defendant had not read the agreement and did not know its contents. Now if in the course of making a contract one party delivers to another a paper containing writing, and the party receiving the paper knows that the paper contains conditions which the party delivering it intends to constitute the contract, I have no doubt that the party receiving the paper does, by receiving and keeping it, assent to the conditions contained in it, although he does not read them, and does not know what they are’.” – See 1877 2 CPD 416, 420.
This passage suggests that in the ordinary case it is sufficient to prove that a document containing terms was provided by one party to or sent to the other and was retained without demur. As with incorporation by signature, Mellish L.J. was emphatic that reading or familiarity with the terms was irrelevant.
In Circle Freight International Limited v. Medeast Gulf Exports [1988] 2 Lloyd’s Rep. 427, CA, the invoices each stated in small print at the bottom:
“All business is transacted by the company under the current trading conditions of the [IFF] a copy of which is available on request.”
This was in the words of Bingham L.J. both “clear and legible” and “placed immediately below the price where the eye would naturally alight on it”. The exporters never requested a copy and none was sent. Having reviewed the authorities, Taylor L.J. concluded:
“. . . it is not necessary to the incorporation of trading terms into a contract that they should be specifically set out provided that they are conditions in common form or usual terms in the relevant business. It is sufficient if adequate notice is given identifying and relying upon the conditions and they are available on request.” [1988] 2 Lloyd’s Rep. 427, 433.”
A number of points emerge from the passages referred to above. First of all, although one can be bound by terms and conditions that one has not read, the document relied on by the party asserting the terms and conditions should actually contain either the conditions themselves or in some other way identify the terms and conditions relied on. As Taylor L.J. concluded in Circle Freight, it is not even necessary for the conditions to be set out specifically. He pointed out that it would be sufficient if adequate notice was given identifying and relying upon the conditions. In that case, there was a clear reference to the IFF terms on invoices created for the purpose of the contracts between the parties. Taylor L. J. added in the course of his judgment (at p. 433) the following observation:
“Here, the parties were commercial companies. There had been a course of dealing in which at least eleven invoices had been sent giving notice that business was conducted on the IFF terms at a place on the document where it was plain to be seen. Mr. Zacaria knew that some terms applied. He knew that forwarding agents might impose terms which would frequently be standard terms and would sometimes or frequently deal with risk. He never sought to ask for or about the terms of business. The IFF conditions are not particularly onerous or unusual and, indeed, are in common use. In these circumstances, despite Mr. Gompertz’s clear and succinct argument to the contrary, I consider that reasonable notice of the terms was given by the plaintiffs. Putting it another way, I consider that the defendants’ conduct in continuing the course of business after at least eleven notices of the terms and omitting to request a sight of them would have led and did lead the plaintiffs reasonably to believe the defendants accepted their terms. In those circumstances it is irrelevant that in fact Mr. Zacaria did not read the notices.”
Thus, it was held that the IFF conditions were incorporated in the contract. It is noteworthy that the invoices relied on made specific reference to IFF conditions. Therefore, the plaintiffs had, in the view of the Court, given adequate notice identifying the conditions they relied on.
A further authority referred to in the submissions on behalf of Irish Asphalt was the case of Baden v. Societe Generale S.A. [1993] 1 WLR 509 which was relied on in relation to the concept of knowledge. Peter Gibson J. in the course of his judgment described knowledge as follows:
“(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.”
That case concerned the question of knowledge in the context of constructive trusteeship. It seems to me that there is a significant distinction between the type of knowledge a person can be said to have in the context of a constructive trust and the requirement to give reasonable notice of a particular state of affairs to another person. Knowledge in the manner explained by Gibson J. cannot be a substitute for the requirement of a party to give reasonable notice. It is for the party relying on an exemption clause to give reasonable notice of its terms and conditions and not for the party to be bound to be put on enquiry as to whether or not there may be terms and conditions containing an onerous exemption clause. I am not of the view that the case relied on assists the argument of Irish Asphalt on the question of reasonable notice.
The essence of the argument of Irish Asphalt is that the proviso on the delivery dockets, “This material is sold subject to the terms and conditions available on request”, was reasonable notice of the terms and conditions applicable. I cannot agree. At no stage was Noreside ever provided with a copy of Irish Asphalt’s terms and conditions. The terms and conditions were not identified in any shape or form or specified by reference to any known industry-wide terms and conditions. The position could have been otherwise if the proviso had identified some specific terms and conditions such as the IFF conditions referred to in the Circle Freight case. However that did not happen in this case and, accordingly, in my view, Irish Asphalt failed to give reasonable notice of its terms and conditions to Noreside.
Further, this is not a case in which the course of dealing between the parties could be relied on by Irish Asphalt to incorporate its terms and conditions into the contracts between the parties. The fact that the proviso is contained in a large number of delivery dockets does not assist Irish Asphalt in circumstances where Irish Asphalt has never given any reasonable notice of its terms and conditions to Noreside. Obviously, if Irish Asphalt had on numerous occasions supplied copies of its terms and conditions to Noreside but on a particular occasion had failed to do so, then in the context of a breach of contract on that occasion, it would be very difficult for Noreside to argue that it was not aware of the terms and conditions. The fundamental problem in this case for Irish Asphalt is that over the entire period of dealing between the parties, Irish Asphalt never supplied its terms and conditions to Noreside and in those circumstances I fail to see how it could be said that Irish Asphalt’s terms and conditions could have been incorporated into the series of contracts between the parties by a course of dealing.
Incorporation of terms by reference or by custom and practice
Very little needs to be said in relation to the argument that Irish Asphalt’s terms and conditions were incorporated into the contract between the parties by reference to the proviso contained on the delivery dockets. If it was the case that reference had been made to terms and conditions well known within the industry and identifiable as such, for example, as in the Circle Freight case by reference to the IIF conditions, I would be of the view that such terms and conditions could be incorporated into the contracts between the parties. If the reference was to some other document – for example – if the proviso made reference to “our terms and conditions as set out on our invoices”, the terms and conditions could be incorporated by such reference if the terms and conditions were, in fact, set out on the invoices. However, nothing of that kind happened here and the mere reference to terms and conditions without either specifying them in any way or otherwise identifying them is not, in my view, sufficient to incorporate the terms and conditions into a contract or series of contracts by reference. The basis on which terms and conditions could be incorporated by reference into a contract in any given case would clearly turn on its own facts and circumstances.
Finally, it was submitted on behalf of Irish Asphalt that the terms and conditions relied on by them were incorporated into the contracts by custom and practice. Lewison in Interpretation of Contracts 2007 referred to the principles governing incorporation by way of custom and practice in the following terms at page 221:
“A trade usage producing a customary meaning is a trade custom which must be proved as clearly and definitely as any other trade custom. In a market where buyers and sellers meet together habitually, they get into the habit of assuming that certain conditions or usages apply to all contracts they make. A usage grows up because everybody in the market, knowing the usages, tacitly assumes the contract he is making, whether as buyer or seller, is subject to the usage. The binding character of that usage is born of innumerable individual transactions entered into by the parties to them in the knowledge that certain usages are in practice habitually followed in that market. For a practice to amount to a recognised usage, it must be certain, in the sense that it is so well known in the market in which it is alleged to exist, that those who conduct business in the market contract with the usage as an implied term; and it must be reasonable.”
In making the argument that the terms and conditions were implied into the contract between Irish Asphalt and Noreside, Irish Asphalt relied on the evidence of Mr. Kennedy, a witness called by Irish Asphalt. Mr. Kennedy was a director of Roadstone and was responsible for a number of quarries and gravel operations. In the course of his evidence, he was asked if it was custom and practice within the industry to limit liability and he responded:
“Yeah, there are a number of reasons for that. At a macro level, obviously, there is the management of the risk in the business. In terms of proportionality, this business is a commoditised business. A commodity business, low value, high volume transactions, low value. So, for instance, in terms of a load of Clause 804, your typical cost delivered to site is, maybe €200. A profit margin for a business in the aggregates game, well run, is about €60. So where you are delivering material like that to a multimillion pound project you have to limit your risk. The second thing I would suggest is that, in relation to the industry, quarry companies or supply companies, they are not construction companies. And, again, if you look at it, they are at 21% VAT, the higher rate of VAT, which proves that they are a deliverer of materials, not a supplier of services, not a supplier of labour. So that’s a very distinguishing factor and that’s very important for people in the quarry industry. Because their customer base, typically, is in the construction industry and that customer base tends to be contractual. So the industry has to protect itself. . . .
Well, as said in my witness statement, I believe it to be custom and practice. My own experience is that all the major international players would have, either, a limited liability or a rejection of consequential loss. And I think a number of the larger family owned businesses in Ireland would have similar type statements.”
He went on to discuss Noreside’s terms and conditions and stated that he would never have accepted them:
“Question: “Why is that?
Answer: Because risk reward. It is a fundamental of our business that you can’t accept risk in the context of the type of reward you are getting in your business. Because it is a supply business. There are a number of reasons. One, just being practical about it, I may, you have no control over your product. You have certainly no control over your product if it is collected by the customer. You’d have no control when it gets to site. You have no control in terms of how it is used. So the industry, in general, in my experience, in my view, has always sought to protect itself as a result, we are not contractors, we are suppliers.”
In considering this issue, it is helpful to look at McDermott on Contract Law at para. 7.07 in which the author set out a number of requirements that must be fulfilled before a custom would be implied into a contract, namely:
(1) 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.
(2) The custom must be certain.
(3) The custom must be reasonable, and the more unreasonable it is the harder it will be to prove that it exists.
(4) Until the Court takes judicial notice of a custom it must be proved by clear and convincing evidence.
(5) The custom must not be inconsistent with the express contract.
The case of O’Reilly v. Irish Press [1937] ILTR 194, considered this issue. Maguire P. commented:
“. . . a custom or usage of any kind is a difficult thing to establish . . . it must be proved by persons whose position in the world of journalism entitles them to speak 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.”
The learned trial judge reviewed the evidence of Mr. Kennedy, that of Mr. Tuite on behalf of the defendant and the evidence of Mr. Regan. Mr. Regan, on behalf of Noreside, disputed the evidence of Mr. Kennedy and Mr. Tuite as to the existence of a custom or practice within the industry of a standard practice of including a limitation of liability clause in terms and conditions provided by quarry owners. Finlay Geoghegan J. concluded as follows at para. 50 of the judgment:
“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.”
The learned trial Judge was not satisfied on the evidence that there was sufficient evidence of a custom well known within the quarry industry such that quarry owners or operators were entitled to limit their liability in the absence of the inclusion of an express contractual term. Indeed, as she noted, the practice, on the contrary, appears to have been to include such an express contractual term. Looking at the evidence of Mr. Kennedy overall, it seems that the height of his evidence was that he believed it to be custom and practice. He referred to his experience that all the major international players would have either a limited liability or a rejection of consequential loss clause. He added that a number of the larger family owned businesses would have similar type statements. This suggests to me that the practice varies between quarry operators who have a clause that relates to limited liability and those who have a clause rejecting liability for consequential loss. Thus even within the evidence of Mr. Kennedy himself there is a degree of inconsistency as to the approach taken. Further, it seems that not all those involved in the business operate on the basis of seeking to limit their liability in that way. Thus, having considered the evidence and the finding of the learned trial Judge on this issue, I cannot see any basis for arguing that there was any error in her conclusion on this topic. Accordingly, I am satisfied that the terms and conditions relied on have not been incorporated by reference or by custom and practice.
Conclusions:
(1) There was a master contract between the parties concluded on the 26th March, 2003 which fixed the terms and conditions on which the parties would trade for the duration of Noreside’s Griffith Avenue project.
(2) Thereafter, there were separate and distinct contracts in respect of each supply of aggregate.
(3) The delivery dockets, whilst important documents in the execution of the contracts, were not contractual documents.
(4) Irish Asphalt’s terms and conditions were not incorporated into the contracts by the signature of Noreside’s site foreman or other operatives on the delivery dockets.
(5) Irish Asphalt’s terms and conditions were never provided or made known to Noreside.
(6) Irish Asphalt did not provide reasonable or adequate notice of the terms and conditions to Noreside by means of the proviso on the delivery docket or otherwise.
(7) Irish Asphalt’s terms and conditions were not incorporated into the contract by reference.
(8) Irish Asphalt did not establish in evidence that there was a custom and practice in the industry such that its terms and conditions could be implied or incorporated into the contract between the parties.
This is a case in which Irish Asphalt have sought to rely on terms and conditions which would limit their liability to Noreside for the defective aggregate supplied to Noreside. Irish Asphalt could have incorporated their terms and conditions into the contracts by any number of simple steps. For example, their terms and conditions could have been printed on their delivery dockets or on their invoices. All that occurred in this case was the inclusion of a reference in the delivery dockets to terms and conditions. This did not indicate in any way what those terms and conditions were. It is difficult to see how one could be bound by terms and conditions which are not contained in a signed contractual document or by terms and conditions which are never provided, identified or disclosed or by terms and conditions said to be incorporated by custom or usage unless they are “so notorious, well known and acquiesced in” as to be taken to be incorporated into the terms in the contract, as Maguire P. explained in O’Reilly v. Irish Press. In my view, Irish Asphalt has failed to establish that its terms and conditions were incorporated into the contracts with Noreside on any basis.
In the circumstances, I would dismiss the appeal.
Unitherm Heating Systems Ltd -v- Wallace as official liquidator of BHT Group Ltd (In Liquidation)
[2015] IECA 191 (29 July 2015)
Cite as: [2015] IECA 191 Irvine J
Discussion
37. It is beyond doubt that the leading authority on proceeds of sale clauses at the time of the High Court judgment was that of Murphy J. in Carroll, a case in which the Court concluded that the relevant proceeds of sale clause did not create a fiduciary relationship between the buyer and seller but rather confined the seller to a charge over the funds received in respect of the resale of its goods, which required registration.
38. In reaching a contrary conclusion in the present case, the High Court judge distinguished not only the contractual provisions in both cases but also the manner in which the respective parties had conducted their business and, on that basis, found that the relationship of principal and agent existed.
39. For the purposes of considering the distinction drawn by the High Court judge between the two cases, I will briefly summarise the facts in Carroll.
40. In Carroll, the plaintiff, a well-known tobacco company, had supplied goods to the defendants (“Bourkes”) as retailers. Those companies had gone into liquidation. The contract between the parties contained a reservation of title clause which provided that no property in the goods would pass until all sums due to the plaintiff had been discharged. It also gave the defendants the right to resell the goods to a third party on their own account, but not as agents for the plaintiff. Further, the contract included a proceeds of sale clause which required the defendants to “hold all monies received from such sale or other disposition in trust for the company (“Carrolls”) and undertake to maintain an independent account of all sums so received and on request [to] provide all details of such sums and accounts”. No such account was ever established, a fact that the High Court judge concluded was probably known to Carrolls.
41. In the course of the liquidation an issue arose as to the plaintiff’s rights in respect of the proceeds of sale of the goods sold on by the defendants to third parties. The plaintiff argued that these were impressed with a trust in its favour, thus entitling it as a beneficiary standing in a fiduciary relationship with the defendants to trace such proceeds into any other property acquired therewith by the trustees.
42. Murphy J. set out the basic legal principles as follow ([1990] 1 IR 481, 483):-
“The issue in the present case relates to the right of Carrolls in respect of the proceeds of sale of the goods supplied by it. In this context too the basic legal principles are well established. Where a trustee or other person in a fiduciary position disposes of property the proceeds of sale are impressed with a trust which entitles the beneficiary or other person standing in the fiduciary relationship to trace such proceeds into any other property acquired therewith by the trustee … Whether fiduciary obligations are imposed on one party or another depends in part upon the character in which they contract and partly on the nature of the dealings in which they engage. Obviously one would be slow to infer that a vendor and purchaser engaged in an arms length commercial transaction undertook obligations of a fiduciary nature one to the other. On the other hand if one postulates that in any context one person is selling the goods of another the assumption of fiduciary obligations in relation to the sale and in particular the proceeds thereof might well be appropriate. It seems to me that the question must be asked: how does a party come to sell property of which he is not the owner? Is he selling as a trustee in pursuance of a power of sale? Is he selling as the agent of the true owner? Does the sale constitute a wrongful conversion? If any of those questions were answered in the affirmative it seems to me that the law would impose a trust on the proceeds of sale which would confer on the true owner the right to recover those proceeds from the actual seller or, if the proceeds were no longer in the seller’s hands, to trace them into any other property acquired with them.”
43. Murphy J. concluded that it was clear from the terms of the contract that it was envisaged that the defendants would sell on the goods on their own account and not as an agent for Carrolls. Accordingly, he could see no basis upon which to find a fiduciary duty. If such an obligation was to be found, it had to be established by reference to the actual bargain or in the conditions of sale. He was satisfied that the parties intended that the property would pass to the sub-purchaser who would become the full owner.
44. In coming to that conclusion, Murphy J. considered the following facts to be material. Firstly, the contract anticipated that, on the onward sale, the sub-purchaser would become full owner. Secondly, the clause specifically provided that Bourkes were not selling on as an agent of Carrolls, and this being so, they could not be considered a fiduciary. Thirdly, Bourkes could set their own price for the onward sale of the goods. This meant that, following their sub-sale, they were not necessarily going to be replaced by assets of equal value. Fourthly, while Bourkes were contractually obliged to place the monies received in respect of the onward sale of the goods into a separate account, no such account had been established, a fact which Murphy J. inferred was known to Carrolls. Fifthly, the contract provided for a four week credit period, a facility the purpose of which Murphy J. stated was uncertain if Bourkes were not free to use the proceeds during that period. Murphy J. analysed how that arrangement “properly implemented” would work given that the sums of money credited thereto, assuming that the goods were resold at a marked-up price, would be in excess of the amounts due by Bourkes to Carrolls. That being so, Carrolls, if entitled to have recourse to that account for the purposes of discharging monies due to them, would not be entitled to the entire fund which suggested to Murphy J. that the rights of the seller bore all of the characteristics of a mortgage or charge. The charge so created required registration under s. 99 of the Companies Act 1963 and in the absence of such registration was invalid.
45. In the course of his judgment, Murphy J. stressed the importance of looking beyond the contractual terms themselves and warned that the attachment of labels to the dealings of the parties was not determinative of their legal status. The rights of the parties and the nature of the transaction which they were engaged in had to be determined by reference to a consideration of the document as a whole as well as the obligations and rights which it imposed on the parties. Murphy J. expressed himself satisfied that the true nature of the relationship between the Carrolls and Bourkes was one of debtor/creditor and the fact that the proceeds of sale were dealt with by Bourkes in the ordinary course of their business supported that conclusion.
Judgment of the High Court
46. In the High Court, Peart J. found that the relationship between Unitherm and BHT was that of principal and agent rather than that of creditor and debtor. He did so by distinguishing the facts of the present case from those in Carroll. The factors he relied upon may be summarised as follows: –
(i) The contractual terms were different. In Carroll, the contract expressly provided that in the event of the sale of goods by Bourkes that they should “act on their own account and not as agent for Carrolls”. The clause in Unitherm’s standard conditions of sale, whilst providing that BHT was entitled to sell the goods to third parties “in the normal course of the buyer’s business”, also provided in an earlier clause that, pending the payment of all sums and the passing of property in the said goods, “a fiduciary relationship shall exist between the buyer and the company and the buyer shall hold the said goods as trustee for and on behalf of the company and shall return the same to the company on demand”. The monies so received were also to be placed in a separate account.
(ii) The manner in which Unitherm and BHT traded was very different to the manner in which Carrolls traded with Bourkes. The High Court judge placed emphasis on the following aspects of the dealings between Unitherm and BHT which he felt were indicative of the existence of a principal/agent relationship: –
(a) That the customer’s plans were sent by BHT to Unitherm so that it might provide a quotation.
(b) That Unitherm prepared a quotation for the customer/third party on BHT headed notepaper or alternatively on jointly headed notepaper.
(c) That the price of the goods when sold to the customer was fixed by Unitherm rather than BHT. In Carroll, Bourkes were free to sell on to the customer at whatever price they wished.
(d) That Unitherm’s profit on the onward sale to the customer was fixed by Unitherm at a percentage of the price which it had quoted for the goods.
(e) That in respect of certain categories of goods, Unitherm provided a commissioning service to the customer.
47. Two matters caused the High Court judge some difficulty when considering whether or not the relationship of principal and agent existed. Firstly, BHT had been granted a credit facility of 60 days, a term considered to be a strong indicator against the existence of a trust over the monies received from the onward sale of the goods given that it implies that the buyer is free to use those monies during the currency of that period. However, the High Court judge concluded that such a clause could be equally consistent with an opportunity being afforded to the buyer to obtain a purchaser for the goods before having to pay the seller, and thus the existence of such a term did not necessarily exclude the possibility of a principal and agent relationship. Secondly, there was the fact that the monies that were to be placed in a separate bank account would be in excess of what was due to the seller because of the mark-up on the onward sale. Such circumstances were normally indicative of the seller having a charge over the monies in that account to the extent only of its outstanding liabilities. To overcome such an inference, the High Court judge concluded that it was open to him to imply into the contract a term that the trust would only apply to that portion of the monies received which were due to the seller.
Decision
48. As was stated by Mummery J. in Compaq Computer Ltd v. Abercorn Group Ltd. [1993] B.C.L.C. 602, the seller’s aim in insisting on a retention of title clause or a proceeds of sale clause is to prevent the goods and the proceeds of sale of its goods from becoming part of the assets of an insolvent buyer, available to satisfy the claims of the general body of creditors.
49. However, as was made clear by Murphy J. in Carroll, it does not follow that, just because the seller has such an objective in mind, the protection which it seeks will be achieved. The court must consider the character in which the parties contracted and the nature of the dealings in which they engaged, apart from the contractual provisions themselves, in order to ascertain how the position of the seller was secured. It must also ensure that the substance of the scheme of registration prescribed by s. 99 of the 1963 Act is preserved and that this scheme is not circumvented or manipulated by artificial characterisations of the buyer/seller relationship.
50. What is not in dispute is that Unitherm, as the unpaid seller, must establish a fiduciary relationship between itself and BHT affecting the proceeds of sale by BHT of the goods in question in order to enjoy an equitable right to trace the monies received in respect of the onward sale into a mixed fund.
51. That being so, it is necessary to consider, firstly, whether the High Court judge was correct in finding that Unitherm and BHT traded as principal and agent such as to create such a fiduciary obligation on the part of BHT in respect of the monies received for the said goods from its customers. If not, it is necessary then to consider the alternative submission made in the course of this appeal which is that BHT sold Unitherm’s goods as trustee in possession, thus impressing the monies received in respect of their onward sale with a trust in favour of Unitherm. These questions must be answered in response to the liquidator’s submissions that the extent of Unitherm’s security is a charge on the book debts of BHT which is void for want of registration.
52. Given that the proceedings in the High Court were decided upon the basis of agency, I will firstly consider whether the High Court judge was correct in reaching that conclusion which he did as to the existence of a fiduciary duty arising from a relationship of principal and agent.
Principal and agent
53. Having considered carefully the evidence available on affidavit as to nature of the relationship between Unitherm and BHT, including the contractual obligations deriving from Unitherm’s standard conditions of sale and the 60 day credit agreement with BHT, I regret to say that I am not satisfied that the relationship between Unitherm and BHT was that of principal and agent.
54. Looking firstly to Unitherm’s standard conditions of sale in support of the existence of such a relationship, the language and wording of those conditions, presumably prepared by Unitherm’s legal advisors, is not demonstrative of an intention on the part of Unitherm to trade with BHT as its agent. The words “principal” and “agent” are not to be found anywhere in the document. Unitherm is described as the “seller” and BHT the “buyer”. An agent does not buy goods from its principal but makes a contract for sale which contractually binds its principal and the customer. Further, clause 11(b)(v) of these Standard Conditions permits BHT to sell the goods to third parties “in the normal course of the buyer’s business”. That clause is not consistent with the conclusion that BHT was selling as agent on Unitherm’s behalf and is, in my view, consistent only with BHT selling on its own account.
55. The same clause also provides that BHT, on the sale of Unitherm’s goods to its own customers, is deemed to have assigned to Unitherm the benefit of any claim which it had against a customer. In my view, such a provision is incompatible with BHT selling as an agent on Unitherm’s behalf. If BHT was selling as an agent, it could have no contractual rights against the customer which it might assign to Unitherm. Further, if BHT had sold as agent for Unitherm, Unitherm would be the contracting party and could sue the customer on its own behalf without the need for any such assignment.
56. Not only are the standard conditions of sale inconsistent with the existence of a fiduciary duty based upon a relationship of principal and agent but the conditions are devoid of the type of obligations that a court might expect to see if an agency relationship had existed between the parties. For example, there is no term which prohibits BHT competing with its principal, Unitherm, or one requiring BHT to comply fully with its directions.
57. Given that an agent acts as an intermediary to conclude a contract between the principal and the customer, if such an agency relationship existed, that should have been apparent from the documentation referable to the trading arrangement between Unitherm, BHT and the customer. Samples of the relevant documentation were exhibited in these proceedings. These demonstrate that BHT raised purchase orders from Unitherm and, consistent with that, Unitherm invoiced BHT/Heat Merchants as its customer. While quotations in respect of the price of goods required by customers were sent to the customer in the name of BHT, and sometimes on notepaper bearing the joint names of Unitherm and BHT, the fact of the matter is that it was BHT, solely, that invoiced the customer in respect of the supply of those goods, and it did so on its own behalf. None of the documentation exhibited is consistent with BHT and Unitherm being in anything other than an arms length vendor and purchaser or creditor and debtor relationship insofar as the onward sale of the goods by BHT was concerned.
58. Neither am I satisfied that the features identified by Peart J. concerning the manner in which Unitherm and BHT conducted their business were necessarily indicative of an agency relationship. For my part, all of those features which he identified in the course of his judgment are equally characteristic of ordinary commercial practice in the industry in question. For example, it does not necessarily follow that just because the supplier insists on fixing the retail price for the onward sale of its goods, and thereby fixes the retailer’s profit margin, the relationship between the parties should be considered to be one of principal and agent. That type of condition, I suspect, is likely based on market considerations such as the price at which the seller believes it will sell the maximum amount of product. If the mark-up is left to the discretion of the retailer, then that could adversely affect the supplier’s sales opportunities and is, in reality, simply a form of resale price maintenance. While clauses of this kind can sometimes give rise to legitimate competition law concerns, it has nonetheless been recognised that a seller has a legitimate interest in prescribing or controlling the price at which the product will ultimately be sold on to the consumer. It does not on that account make the buyer an agent of the seller.
59. Further, supplier warranties and/or commissioning or ongoing service agreements exist without the supplier necessarily becoming the contracting party with the customer.
60. BHT’s entitlement to a fixed credit period is also inconsistent with an agency relationship. In circumstances where the contract would be between Unitherm and the customer, there would be no reason why the monies received by the agent would not be passed on immediately to the principal. Any agreement whereby the buyer is expressly or impliedly empowered to use the proceeds of sale for its own use would be inconsistent with such a relationship. Why should BHT be entitled to use Unitherm’s monies for its own benefits within a specific period?
61. While the High Court judge concluded that credit facilities of this nature also serve the purpose of allowing the purchaser to find a buyer before they need to pay the seller, in this instance, according to the evidence, it was the existence of a customer that led BHT to order the goods from Unitherm in the first place. Further, it would have been open to Unitherm to agree that payment by its agent would be deferred until such time as BHT had received the price of the goods from the customer, but that was not the nature of the clause provided. Accordingly, to my mind, the existence of the fixed credit period in the present case is inconsistent with the existence of a fiduciary relationship based upon agency.
62. While there was an obligation on BHT to keep the monies received in respect of the onward sale of Unitherm’s goods in a separate bank account, it never did so and the monies concerned were lodged to its trading account and used in the normal course of its business. Had the standard conditions of sale included a clause that the net proceeds of sale received by BHT had to be placed in a separate bank account and no credit facilities afforded to BHT, then, in the absence of all of the other evidence which points in favour of a normal debtor/creditor relationship, one might perhaps consider the possibility that BHT was acting as agent on behalf of Unitherm. However, the fact of the matter is that Unitherm queried the existence of this account for the first time on 7th March, 2012, in the course of the receivership and over six years after the parties had commenced their trading relationship. Further, over all of that period Unitherm had afforded BHT a sixty day credit period. Taken together, when added to all of the other indicators in favour of a normal debtor/creditor relationship, these facts are, in my view, inconsistent with the existence of an agency agreement.
63. However, even if the bank account had been set up in accordance with the standard conditions of sale, the clause required BHT to put all of the monies received, including its own, – call it commission or profit – into that account. On the face of it, the clause gives Unitherm a right to funds which belong to BHT, and this is inconsistent with the clause being in furtherance of an agency agreement. In Carroll, Murphy J. considered that such an arrangement had the characteristics of a charge made in favour of the seller given that it would be a fund to which it might have recourse for the discharge of the monies outstanding to it, even though it would not be entitled to the entirety of the monies in that fund.
64. Faced with the difficulty, Peart J. stated that he could imply a term into the clause which would confine BHT to the obligation to lodge into a separate account only that portion of the resale proceeds due to Unitherm. Such a term could, however, only be implied into the contract where it was necessary to give effect to the presumed intention of the parties.
65. Clause 11(b)(v) provides that “the proceeds of any such sale shall be held by the buyer on trust for the company”. Would an officious bystander, with knowledge of the business dealings between the parties and sight of the aforementioned clause, if asked about the agreement between the parties, have stated “Oh, of course” it was clear that the parties intended that only that portion of the proceeds of sale as reflected BHT’s liability to Unitherm should be placed in that account. The answer, I believe, is a resounding no. Neither is the imposition of an implied term necessary to give business efficacy to a relationship which, on the standard conditions of sale and the documentation as a whole as well as the manner in which the parties did business, is fully consistent with one of debtor and creditor.
66. The clause which he sought to imply into the standard terms and conditions was one that was in direct conflict with the words of the clause, which specifically provides that all proceeds of sale be lodged into the account. Further, there was no evidence that such a term reflected the true intention the parties, and it was in conflict with Unitherm’s own letter of 7th March, 2012, requiring that any monies collected for goods sold to third parties ought to be set aside for its benefit.
Trustee in possession
67. Rather belatedly in the course of the appeal hearing, having argued in favour of an agency relationship, counsel for the respondent sought to disengage somewhat with that argument in favour of a fiduciary relationship based on an assertion that BHT had sold Unitherm’s goods as trustee in possession, thus allowing Unitherm to claim that the proceeds of sale were held by BHT in trust on its behalf.
68. Critical to an analysis as to whether BHT might be considered to have sold to customers as trustee in possession is the answer to the question as to when and in what manner the title to Unitherm’s goods passed to the ultimate customer.
69. Of course, a seller such as Unitherm may agree with a buyer that it will reserve title or suspend the passing of title until such time as it receives payment for its goods. Title will pass in such circumstances when the parties intended to pass, as is provided for in s.17 of the Sale of Goods Act 1893 which provides as follows:-
“(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case.”
70. In this case, it is clear from clause 11 of the standard conditions of sale that it was agreed that, while Unitherm’s goods remained in BHT’s possession and at a time when they had not been paid for, the title to those goods remained with Unitherm. It was in these circumstances that Unitherm was paid €13,853.49 in the course of the liquidation as the goods concerned remained in BHT’s possession and for title to pass the purchase price had to be paid.
71. As to when and if title passes to the buyer, it becomes a more complicated question where the buyer is permitted to effect a sub-sale of the goods but the contractual terms maintain that title is nonetheless to remain with the seller. In this case, Unitherm permitted BHT to sell the goods. However, it sought to overcome the risk of non-payment by BHT by the inclusion of clause 11; whereby, it sought to retain title in respect of all goods supplied to BHT while any invoice remained un-discharged as well as a right to ownership of the proceeds of sale received by BHT in respect of the onward sale of the goods. In support of this provision, it also provided that the “proceeds of any such sale” would be held on trust for it by BHT. That it is possible to legally so provide is not in dispute. As Mc William J. stated in Frigoscandia (Contracting) Ltd. v. Continental Irish Meat Ltd. [1982] ILRM 396 at p.398:-
“The parties to a contract can agree to any terms they wish and, amongst others, they can agree that the property in the goods shall not pass to the purchaser until all the instalments of the purchase price have been paid. See McEntire v. Crossely Brothers, [1895)]AC 457 at 463; and s.17 of the Sale of Goods Act, 1893. The court has to decide what was the intention of the parties as shown by the provisions of the whole agreement.”
72. It has to be said that the intention of the parties is more easily determined in cases where, like in Frigoscandia, the Court was only concerned with ascertaining the true relationship between the seller and the buyer and where there has been no onward sale to a third party. However, there is now a significant body of case law in support of the proposition that, if the buyer, as was the position of BHT in the present case, is permitted to resell the goods, it is usual for it to do so on its own account unless there is very clear evidence to the contrary. If the buyer is truly selling on its own account, it has taken the legal and beneficial title in the goods from the seller by agreement. Accordingly, regardless of the use of words such as “trustee” or “fiduciary” in the conditions of sale, no fiduciary duty will be deemed to exist with the parties being considered to be in a relationship of debtor and creditor.
73. In general, most recent authorities have tended to treat “proceeds of sale” clauses as giving rise to charges which require registration and the courts have been reluctant to infer the existence of a fiduciary relationship between parties who, as Murphy J. described in Carroll, appear to be engaged in arms length commercial transactions as vendors and purchasers.
74. Counsel for Unitherm challenged the liquidator’s arguments that BHT had granted Unitherm a charge over the money it received from the sub-sale by reference to the decisions in Hickey, Romalpa and Armour and another v. Thyssen Edelstahlwerke A.G. [1991] B.C.L.C. 28 (“Armour”). I will deal with each of these in turn as I do not believe they provide adequate support sufficient to defeat the liquidator’s submissions.
75. In Hickey, the receiver of the company (the buyer) applied to the High Court for directions concerning the ownership of goods sold and delivered by the respondent to the company but for which it had not been paid. The contract contained a reservation of title clause stating that no property in the goods would pass until full payment had been received. Until then, the buyer was obliged to hold the goods on trust for the respondent in a manner which enabled them to be identified. The buyer was, as was the case with BHT, permitted in the normal course of business to sell the goods to a third party, in which case the proceeds of such sale were to be held by the buyer in trust for the respondent in a manner which enabled them to be identified as such. However, it is of vital significance to note that, at the time of the court application, the goods remained in the buyer’s possession and had not been the subject matter of resale to a third party.
76. The applicant maintained that the words “in trust” in the latter provision indicated that the legal estate in the goods had in fact passed to the buyer and that the only interest retained by the respondent was one by way of charge only.
77. Barron J. rejected that submission stating that he saw no reason why the seller could not impose a contractual term whereby the property in the goods sold would not pass until they had been paid for. In so doing, he referred to the judgment of McWilliam J. in Frigoscandia noted earlier in this judgment
78. He emphasised s.17 of the Sale of Goods Act 1893 and the right of the unpaid seller to protect himself, noting that there was nothing foreign to the law of the sale of goods in the seller seeking to postpone the date of the passing of the property in the goods agreed to be sold. He went on to conclude that there was nothing in the clause under consideration from which it could be inferred that the property had passed to the company and that it had assigned back an equitable interest in the goods by way of charge. The words “no property in any goods shall pass” had to be given their literal meaning.
79. In order for him to conclude that a charge had been created, the applicant would have to have been in a position to prove that all of the property had passed to the company and that it had assigned back to the respondent an equitable interest in the goods by way of charge so that, consequently, the respondent had no more than a charge in respect of the value of the goods supplied. However, this could not be established because the entirety of the property never passed by virtue of the retention of title clause. By way of contrast, in the present case this is what the liquidator alleges occurred, not in the course of the supply contract but at the time of the onward sale of Unitherms’s goods in the normal course of its business.
80. I view the decision in Hickey as of little value because, at the time of the application, the buyer still had the goods and had not sold them on to a third party, unlike in the present case were BHT has sold on the goods in the course of its own business. The Court did not have to concern itself with the nature of the relationship between the buyer and the seller in the context of the onward sale of the goods and the “proceeds of sale” clause. When Barron J. referred to the fact that no charge could be created where legal ownership never passed, he was doing so in the context of the retention of title clause and not the proceeds of sale clause. Accordingly, this judgment is entirely consistent with the position adopted by the liquidator in the present case. In respect of the retention of title clause, it has been accepted that Unitherm retained title over all goods for which it had not been paid whilst they remained in BHT’s possession. The liquidator never sought to make the case made by the receiver in Hickey, hence the payment to Unitherm of the sum of €13,853.49 in respect of such goods which remained in the possession of BHT, which had not been paid for as of the date of the liquidation.
81. As for Unitherm’s reliance upon the decision of the House of Lords in Armour, the same is misplaced as the decision is on all fours as that in Hickey. In that case, a German steel manufacturing company, the appellant, sold steel strips to a Scottish engineering company. The contract contained a standard reservation of title clause to the effect that title would not pass to the buyer until all debts had been paid. The Scottish company went into receivership while in possession of the appellant’s goods and for which goods payment had not been made. The receiver maintained that the company was the owner of the goods as it was entitled to take possession of them and sell them on. The receiver argued that the relevant clause had created a charge in favour of the seller but the property in the goods had passed to the Scottish company. The Court (Lord Keith disagreed on the basis that in order for the Scottish company to have created a security over the goods in favour of the appellant, it would have to have ownership and possession of the goods. However, the contract of sale said that property in goods was not to pass until all debts due had been paid. It was agreed that the company would receive possession but would not acquire the property until those debts were discharged. As the company had not paid for the goods and they were still in its possession, it had no interest of any kind to create a subordinate right in favour of the appellant.
82. This decision is of little import to the present case as at all times the liquidator has accepted that BHT had not acquired title to any of the goods which remained in its possession and which had not been paid for as of the date of liquidation, hence the payment of €13,853.49 discharged in respect of those goods. The decision does not in any way consider the consequences for the relationship between buyer and seller where the contract permits the buyer the right to sell on the goods to its own customers in the normal course of its business whilst providing that the proceeds of any such sale shall be held in trust by the buyer for the seller.
83. In Romalpa, a Dutch company sold aluminium foil to the defendant, an English company. Some of these goods were sold on to third parties. However, the terms and conditions of sale were different to those in the present case. There were two parts to the relevant clause in that case. The first was a straightforward retention of title clause which stated that title in the goods would only pass to the purchaser when it had met all of its outstanding liabilities to the plaintiff and that, until the date of payment, the purchaser would store its goods in such a way that they could be identified as being the property of the plaintiff. The second part of the clause was a complicated one which dealt only with the legal consequences for the parties in the event that the plaintiff’s goods became mixed with other goods and either remained upon the purchaser’s premises or were sold on to third parties. That clause specifically provided that, until the moment of full payment, the purchaser would remain the fiduciary owner of those goods notwithstanding its right to sell them on to third parties. The clause is indeed not unlike that contained at 11(b)(vi) of the standard conditions of sale in this case. Further, that second clause stated that until full payment was received the purchaser would keep the mixed goods in its capacity as fiduciary owner.
84. At the date of liquidation €35,000 was in the receiver’s possession referable to aluminium which had been sold on by the defendant to third parties. These were monies recovered by the receiver which he placed in a separate account. The defendant accepted that the effect of clause 13 was to make it bailee of the material supplied by the plaintiff until all debts were paid; but, once the goods had been resold, the receivers maintained that the relationship between the plaintiff and defendant was purely that of debtor and creditor and that, in the absence of an express constructive trust, the plaintiff was not entitled to avail of the equitable remedy of tracing.
85. Mocatta J., at first instance, held that the relevant clause showed an intention to create a fiduciary relationship between the parties and that the plaintiff was entitled to follow the proceeds of the sub-sale.
86. In dismissing the defendant’s appeal, the English Court of Appeal concluded that the purpose of the clause was to secure the plaintiff, in the event of insolvency, against the risk of non-payment after it had parted with the possession of, but not the legal title to, the material delivered. In order to give effect to that purpose, there had to be implied into the first part of the clause, in addition to the undoubted power to sell to a sub-purchaser, an obligation on the defendant to account in accordance with the normal fiduciary relationship of principal and agent, bailor and bailee, as expressly contemplated in the second part of the clause. Accordingly, the plaintiff was entitled to trace the proceeds of the sub-sales. The reason why such an implied term was introduced was that the clause in question made no mention of the rights of the parties in the event of the purchaser proceeding to resell the plaintiff’s goods in circumstances where they had not become mixed with other goods. Thus, it was decided to imply into the first part of the clause, which was no more than the standard retention of title clause which normally exists between seller and buyer, contractual obligations based upon the stated intention of the parties in the second half of the clause relating to the onward sale and/or control over mixed goods.
87. The decision in Romalpa clearly provides some support for Unitherm’s contention that clauses such as clause 11 of it’s standard conditions of sale can, depending upon the nature of the relationship between the buyer and the seller, contractually achieve a scenario whereby the equitable title to the goods at all times remains with the unpaid seller while the legal title passes to the buyer, who eventually holds the proceeds of onward sale in trust for the seller.
88. It is undoubtedly the case that the decision in Romalpa has not been favoured in recent times, and, certainly in this jurisdiction, it would appear to have been replaced by the remarkably clear and purposeful guidance giving by Murphy J. in Carroll as to how the nature of contractual relations should be determined. However, leaving that decision to one side for the moment, I am in any event convinced that Romalpa can be distinguished on its facts from the present case such that it should not be viewed as a relevant authority to guide the Court in this case.
89. The contractual arrangements between the parties in the two cases are significantly different. In Romalpa, the conditions of sale were entirely silent as to the purchaser’s right to resell goods which had not been mixed with other goods or otherwise engaged in a manufacturing process. There was no equivalent provision to that which is contained a clause 11(b)(v) of the present contract. The Court had to imply a term into the first part of the clause permitting the purchaser to sell the goods to third parties. The Court then had to decide upon the nature of the relationship between the parties at the time of the onward sale of the goods and the rights which flowed as a result of that conclusion. The Court determined the nature of the relationship between the seller and the purchaser at the time of the onward sale by reference to the expressed intention of the parties in relation to the onward sale of mixed goods. Given the ongoing fiduciary duty expressed to exist in respect of those goods in the second part of the clause, this duty was imported into the first part of the clause and as a result the Court concluded that the buyer and seller were in a fiduciary relationship for the purposes of the onward sale of the defendant’s goods. Roskill L.J. concluded that the buyer, when it sold on the plaintiff’s tinfoil, did so with its implied authority, as its agent, and remained fully accountable to it.
90. In stark contrast to those facts, clause 11(b)(v) of Unitherm’s standard conditions of sale specifically provide for the onward sale of non-mixed goods. There is nothing in that clause stating that ownership of the goods remains with the seller notwithstanding the right of BHT to sell them on to its own customers. Further, the clause states that BHT will sell the goods on in the normal course of its own business. Unlike in Romalpa, it does not state that BHT at that point holds the goods or sells them in its capacity as a fiduciary and, in my view, BHT cannot, on the facts of this case, be considered to have been acting as agent for Unitherm for the reasons already referred to earlier in this judgment. I am quite satisfied that this clause was never intended to provide a basis upon which Unitherm might maintain that BHT was selling in a fiduciary capacity either as trustee in possession or as agent on Unitherm’s behalf.
91. The cases are also different insofar as the receiver, in Romalpa, unlike the liquidator in the present case, did not argue in favour of the creation of a charge which was void for want of registration. In my view, it is likely that this argument was not advanced because there was no “proceeds of sale clause” covering the onward sale of non-mixed goods to the defendant’s customers. That being so, there was no clause to construe as one which might potentially be viewed as creating a charge requiring registration.
92. A third point of difference between the two cases is the fact that, in Romalpa, the receiver had placed the proceeds of sale in a separate account such that they had never been mixed with any other monies; whereas, in the present case, the monies received from the sub-sales had been mixed and used by BHT in the normal course of its business, a factor which the liquidator maintains is material to establishing the true nature of the relationship between the parties.
93. As was pointed out by counsel on behalf of the appellant, there have been a great number of decisions since Romalpa which have cast doubt upon the approach taken by the Court in that case, which paid little attention to the manner in which the parties actually conducted their business. The court must look carefully, as was advised by Murphy J. in Carroll, at the particular circumstances of the case to identify the rights intended to be given to the seller, and, when those are examined thoroughly, it is usually clear that the Buyer, in return for the right to sell the goods on to its own customers, has granted to the seller a charge over the monies received in respect of their onward sale.
94. McCann and Courtney, Companies Acts 1963-2009, (Dublin, 2010) in dealing with proceeds of sale clauses in the context of s.99 of the Companies Act 1963 provide the following helpful commentary:
“Proceeds of sale clause: In some cases it has been held that a clause which purports to retain the proceeds of a sub-sale of goods until the purchase price has been paid, will not be regarded as a registerable charge provided that it satisfies all or some of the following criteria:
(a) it expressly creates a fiduciary relationship between the seller and the buyer;
(b) it stipulates that in any sub-sale the buyer is to be regarded as acting for and on behalf of the seller;
(c) it imposes a duty on the buyer to keep the proceeds of any sub-sale separate from the buyer’s other moneys; and
(d) it requires the buyer to account for such proceeds to the seller.”
95. Most recent decisions, as is stated by the aforementioned authors, have leaned against the view that a clause in the above terms is successful in retaining title such as to entitle the seller to trace monies received by the purchaser following the resale of the goods. The greatest indicator in favour of title passing to the purchaser, regardless of the existence of a retention of title clause, is an agreement between the parties that the purchaser may sell on the goods in the course of its own business, an undisputed right of BHT in the present proceedings. If, on the one hand, Unitherm had retained full legal and beneficial title to the goods, the Court could not find that BHT had created a charge on the goods in favour of Unitherm as it is not legally possible for the buyer to charge in favour of the seller a title or interest which the buyer has not got. On the other hand, if on the true construction of the agreement the legal title to the goods has passed from the seller to the buyer, the Court may conclude that the legal consequences of the agreement is that the position of the seller is in fact secured by a charge created in his favour over the goods by the buyer.
96. Accordingly, the fact that BHT was specifically permitted to sell on the goods in the course of its own business is a strong indication that it was not acting as a fiduciary on Unitherm’s behalf.
97. Looking at clause 11(b)(v), can it realistically be argued that BHT sold Unitherm’s goods as trustee in possession? This is not what the clause states. To the contrary, clause 11(b)(v) specifically provides that the buyer is entitled to sell the goods to third parties in the normal course of the “buyer’s business”. These are standard terms and conditions imposed by Unitherm on all of its customers. The condition permits each such “buyer” to sell to its customers in the manner which is normal for it when dealing with its customers. Indeed, the use of the words “buyer” and the “sale of goods to third parties” would tend to support the liquidator’s submission that title to the goods passed to BHT with the seller’s agreement when it effected the sub-sale of those goods to its customers. That this is correct seems to be borne out by the final element of clause 11(b)(v); whereby, BHT, following the sale to the customer, was deemed to have assigned to Unitherm the benefit of any claim which it might have against the customer arising from such sale.
98. Another factor which tends to favour a conclusion that the buyer is providing security to the seller in respect of its unpaid account by way of a charge is a clause which provides that the totality of the monies received from the sub-sale of the goods should be kept in a separate account on an alleged “trust”. This is so because the purchaser is only obliged to account to the seller for the monies in that account to the extent of the sum remaining due to the seller. The only monies that could be held on trust are those that represent the seller’s interest in those goods. It is for this reason that clauses of this type and nature have been deemed to have the characteristics of a charge over the monies placed in such an account; the same having been granted by the buyer in return for the proprietary interest in the goods which, up to the point of re-sale, had remained with the seller. This is precisely the nature of the security which was afforded to Unitherm by BHT under clause 11(b)(v). In my view, the fact that Unitherm required BHT to hold the entirety of the sum received following the resale of the goods is consistent with the liquidator’s submission that the clause created a charge in favour of Unitherm over those monies in respect of the sums then outstanding.
99. A clause similar to that in the present case was considered by Mummery J. in Compaq Computer Ltd v. Abercorn Group Ltd [1993] B.C.L.C. 602. There, the seller required the buyer to account for the full proceeds of the resale of its goods. The Court took the view that the seller was not entitled to retain out of the proceeds more than what was sufficient to discharge the unpaid price of the goods. The seller’s right accordingly amounted to a limited interest in the proceeds by way of security.
100. While it is true to say that in the present case clause 11 requires that the monies received by BHT be placed in a separate account, a feature often considered to support the existence of a fiduciary duty, such an account was never opened. Further, at no stage prior to the receivership had Unitherm sought to establish that any such account existed or that the proceeds received in respect of the resale of its goods were directed to that account. However, even if this account had been established, insofar as it was intended to ring fence 100% of the proceeds recovered on the resale of the goods, the clause would not have been consistent with BHT holding the monies as a fiduciary on Unitherm’s behalf for the reasons just stated. The existence of the clause is not inconsistent with an agreement that Unitherm should have a charge over the monies received to secure repayment of any monies that remain outstanding.
101. Some assistance in this regard is to be found in the decision of Phillips J. in E. Pfeiffer Weinkellerei-Weineinkauf G.m.b.H. & Co. v. Arbuthnot Factors Ltd [1988] 1 W.L.R. 150. There the plaintiff, a German wine exporter, sold wine to an English importer on terms that included a property reservation clause which provided that the goods remained the plaintiff’s property until they had been paid for, but which permitted the importer to sell the goods in the meantime. The conditions of sale were not materially dissimilar to those in the present case in that the rights of the importer arising from the onward sale were to vest in the plaintiff and the monies received from the onward cash sale of the wine, which was stated to become the plaintiff’s money once received, was to be separated from other monies held by the importer. The importer failed to pay the plaintiff for all sums due, and the plaintiff brought an action claiming beneficial ownership of the funds referable to each sub-sale. The importer had entered into a factoring agreement pursuant to which it had assigned to the defendant, absolutely, the debts which it was owed from sub-purchasers and had warranted that “no reservation of title by any third party would apply to all or any part of the goods sold.” The plaintiff, in its action, claimed to be the beneficial owner of the proceeds of each sub-sale that had been entered into by the importer and that the defendant’s title to the debts assigned under the factoring agreement was subordinate to its prior equitable title. It accordingly sought an order that the defendant account to it for the monies received under the assignments made pursuant to the factoring agreement. In its defence, the defendant claimed that any interest which the plaintiff had over the proceeds of the sub-sales was in the nature of a charge on the importer’s property which was void for want of registration against the defendant under the provisions of the Companies Act 1948.
102. In his judgment, Phillips J. stated that, where a buyer was permitted to sell on a suppliers goods in the normal course of his business before paying the seller for them, the normal implication was that he was doing so for his own account and not as a fiduciary who was obliged to account to the seller for all the proceeds of sale; that the “property reservation clause” set out comprehensively the nature of the interest which the plaintiff was to have by way of security in respect of debts created by sub-sales; and that its terms were inconsistent with the existence of such a fiduciary relationship. Further, he held that the clause in question had created an equitable assignment in favour of the plaintiff over the monies owed by the sub-purchaser to the importer up to the amount of any outstanding indebtedness of the importer to the plaintiff and that this constituted a charge requiring registration under s.95 of the Companies Act 1948 (i.e., the equivalent of our s. 99 of the 1963 Act).
103. Another factor which has been deemed to be a strong indicator against the existence of a fiduciary relationship is an agreement whereby the purchaser is provided with a period of credit. Re Andrabell Ltd. [1984] 3 All E.R. 407 is a decision on point. There, the plaintiff supplied travel bags to a company on terms which provided that ownership of the goods would not pass until such time as the total purchase price had been paid to the plaintiff. The buyer was afforded 45 days credit. The bags were sold by the buyer in the normal course of its business, and the proceeds of sale were paid into its general bank account where they became mixed with monies belonging to the company. The buyer went into liquidation, and the plaintiff contended that, since the bags had not been paid for, the Court should conclude that the bags had been delivered to the buyer under a contract of bailment which had an implied term that the buyer was to account to the plaintiff in respect of the proceeds of sale of the bags in accordance with the normal fiduciary relationship of bailor and bailee.
104. While the facts in Andrabell were somewhat different from those in this case, insofar as Unitherm’s standard conditions of sale did specify that the monies received in respect of the onward sale of the goods would be placed in a separate account and that a fiduciary relationship was deemed to exist between the parties, the decision is nonetheless of assistance. In concluding that the parties were not in a fiduciary relationship, the Court emphasised that the company was not selling as agent for the plaintiff or on the plaintiff’s account and it was to be inferred from the fixed 45 day period of credit that the company was free during that period to use the proceeds received from the sale of the bags as it liked and that was not compatible with the plaintiff having an interest in the proceeds of sale.
105. The question I have to ask myself is whether the parties agreed that BHT would be trustee of the proceeds of sale. In that regard, in order for the seller to be entitled to the type of proprietary interest in the proceeds of sale as is contended for by Unitherm, the legal title to the proceeds of sale must vest in the buyer while their beneficial ownership vests in the seller. However, if the buyer is expressly or impliedly empowered to use the proceeds of sale as its own money, then it will not be considered to be a trustee of the proceeds but will be deemed to be in a normal creditor-debtor relationship with the seller.
106. In the present case, a 60 day period of credit was afforded to BHT to discharge its liabilities to Unitherm. That facility was agreed further to a letter of Mr. Declan Kissane dated 9th March, 2007, written on Unitherm’s behalf. It must be inferred from such a facility that Unitherm was content that BHT could use monies received by it in respect of the resale of Unitherm’s goods as it wished during the credit period to support its day-to-day commercial operations. If it were otherwise, how would BHT manage its day-to-day finance? Would it not face an acute cash flow problem?
107. I do, of course, recognise that, in terms of deciding upon the nature of the relationship between BHT and Unitherm, regard can only be had to business efficacy against the backdrop of the contractual provisions agreed to and, where there are obvious competing considerations, the question must be answered in light of what both parties agreed to rather than on a unilateral view taken from the point of view of the buyer. That said, however, for reasons earlier stated in this judgment, I do not believe it can realistically be inferred that the credit period in this case may have been agreed so that BHT could source a customer and conclude a sale after which it would hold the monies received exclusively in trust for Unitherm until the end of the sixty day period. Such an agreement would make no commercial sense. If the monies received from the sub-sale were intended to replace Unitherm’s prior interest in the goods, why did the clause not provide for immediate payment of monies received by BHT in respect of the onward sale of those goods, given that BHT as trustee thereof would not have been entitled to use the money for its own purposes during the remaining period of credit?
108. Accordingly, I am of the view that the terms of credit are completely at odds with Unitherm’s contention that BHT sold its goods as trustee in possession such that it was intended that it would hold the proceeds of sale on trust on its behalf.
Conclusions
109. In conclusion, clause 11 of Unitherm’s standard conditions of sale, that being the foundation stone upon which its claim is based, was clearly designed with the objective of securing its interests, so far as was possible, against the risk of non-payment after it had parted possession with its goods to any of its customers such as BHT.
110. It is accepted that the retention of title clause in the conditions of sale operated between Unitherm and BHT as intended in relation to the supply contract. It is clear from those conditions and from the manner in which the parties traded that while Unitherm’s goods remained in BHT’s possession and payment therefore remained outstanding, title did not pass and was not intended to pass, hence the payment of €13,853.49 to Unitherm in respect of goods which fell into that category in the course of the liquidation.
111. As to the proceeds of sale clause and the relationship between the parties when BHT sold Unitherm’s goods to its customers, I am satisfied that the relationship at that stage was always intended to be one of creditor and debtor. The parties did not intend that BHT would act as fiduciary on behalf of Unitherm either as its agent or as bailee in possession of its goods with a power of sale.
112. As to agency, in my view, the High Court judge was wrong in concluding that the evidence supported a finding that the parties had entered into such a relationship. Such a relationship is not evidenced in the standard conditions of sale, the documentation concerning the supply contract, or the contracts for the resale of the goods, or by the conduct of the parties themselves.
113. As to a fiduciary relationship built upon a relationship of bailment, a relationship not considered by the High Court judge, I can find no evidence to support a conclusion that the parties intended that BHT would sell Unitherm’s goods as bailee in possession. Again, this relationship is not to be found in the terms and conditions of sale, the contractual provisions, the trading documentation, or the manner in which the parties conducted their business.
114. Against such a finding are:-
(i) BHT’s right to sell to it’s customers in the course of its own business;
(ii) credit terms of 60 days;
(iii) the standard conditions of sale which sought to impress the entirety of the purchase monies received, including BHT’s profit margin, with a trust, the latter being monies to which it had no legal or beneficial entitlement;
(iv) the fact that no separate account was ever created for the purchase monies; and
(v) the “all sums due” nature of the retention of title clause.
All of these are characteristics of a charge made in favour of the seller over a fund to which it might have recourse for the discharge of any monies outstanding.
115. Regardless of some differences in the underlying facts between the two cases, I am satisfied that the transaction whereby BHT sold Unitherm’s products to its customers was in substance the same as that with which the Court was concerned in Carroll. In this regard, I differ with respect from the conclusion reached by Peart J. in the High Court. That being so, I am satisfied that in substitution for the right of property which Unitherm had enjoyed in its goods until the point in time when BHT proceeded to resell them, BHT granted to Unitherm a charge in its favour over the proceeds of sale of those goods. That charge was one which required registration under s. 99 of the Companies Act 1963, and in the absence of such registration is invalid and void as against the liquidator.
116. Accordingly, for my part, I would allow the appeal.